The Most Common Reasons Why Social Enterprises Fail

A recent study reveals the top 3 reasons a social enterprise experiences failure.

von Lydia Massey, January 25, 2018
why social enterprises fail

Social enterprises differ from traditional business ventures. They strive to make the world a better place through their business— whether that is by working to save the environment, or protect a vulnerable population. Regardless of its particular cause, when a social enterprise fails it can be especially disheartening because it was unable to achieve its intended positive change. 

A new observational study conducted by the Failure Institute on 115 social entrepreneurs that experienced a failed venture provides the top three reasons a social enterprise meets its demise:

  1. Lack of infrastructure & resources: Every new business venture requires support funding to succeed. The study revealed that many social entrepreneurs lack necessary skills required to generate funding, such as utilizing projects to gain resources. Additionally, there is generally less support funding available for a social enterprise as opposed to a traditional business venture. 
  2. Context: Social enterprises are often built on unconventional ideas related to solving a specific societal problem. Due to the avant-garde nature of social enterprises, entrepreneurs face the challenge of cultural lag, or an imbalance between new innovations designed to fix societal problems and current public policies that lack sufficient support for said ventures. The unorthodox methodology of social enterprises is often met with reluctance in both the public and private sector, which creates a lack of support funding. 
  3. Board of Directors: The board of directors or founding members of a social enterprise can directly impact its success— or lack thereof. The study cites an uncertainty of specific duties required of individuals within the board of directors as detrimental to the enterprise’s success. Varying levels of enthusiasm and feelings of responsibility to the enterprise among the board is another cause of conflict. Finally, personal tension in relationships between members is mentioned as destructive to the enterprise’s success.

Understanding what didn’t work in a social enterprise allows social entrepreneurs to learn from these failures, and build an even stronger, more resilient enterprise. 

We understand that the three points made by the study are rather superficial, and there are many additional reasons that may contribute to a social enterprises’s failure.