The best way for a social enterprise to get into an accelerator? Make some money.
Accelerators provide a new form of funding social entrepreneurs that rewards profits motives, and the use of capital on organization growth as opposed to previous attitudes that punished overhead spending.
Managers of impact organizations often focus on utilizing excess capital exclusively on the social mission of the organization. This inclination is the result of the natural pull of the organizational mission — If the purpose is to create change, then spend money on change, right? — as well as an external punishment by traditional charity funders that saw overhead as wasteful (Pollotta, 2013). Social enterprise is supposed to promise a new model for creating positive change in the world, divergent from old charity models. Nonetheless, many social entrepreneurs still hold onto a mindset that limits their ability to grow because of their desire to use all excess capital towards the social mission (Komatsu, Deserti, Rizzo, Cel, & Alijani, 2017). However, accelerators looking to support social entrepreneurs with either capital or mentorship are not clinging to that same outlook. Whereas, accelerators reward social entrepreneurs who see profit as a positive tool and goal of the organization.
As part of my MBA I studied over 11,000 socially motivated startups to determine what would increase the likelihood a startup would be accepted into an accelerator. (Accelerator acceptance being a proxy for early startup success.) I wanted to know which components of an organization are key to attracting the early support necessary to grow an organization.
The Entrepreneur Database Program out of the Goizueta Business School at Emory University supplied the raw data for analysis. The database has a wide variety of startups, including social enterprises, traditional for-profits, and non-profits. It tracks over 60 different fields including geography, equity investment, industry, social impact area, and others. EDP is a tremendous resource and ambitious program. If you’d like to learn more about this program visit their website here: https://www.entrepreneurdata.com
For this study, I included non-profits and for-profits, but only those self-identified as being Socially-Motivated. I looked at forty of different attributes that described the organization, its impact model, and its business model. The only factor that correlated whether or not a startup would be accepted was the Social enterprise’s relationship to finances.
Organizations were asked to describe their “Financial Goals.” Organizations could respond that they had financial goals of “Covering costs” or “Making some profit.” Interestingly, I found that this attribute didn’t necessarily align with legal status. Some non-profits had goals of “Making some profit,” and some for-profits just wanted to “Cover costs.” However, this measure of “Financial Goals” ended up being the only attribute that meaningfully improved a startup’s acceptance to an accelerator. And it helped a lot. Accelerators weren’t punishing social entrepreneurs for wanting to use capital beyond impact, but instead rewarded those organizations that wanted to use profit as part of their success.
I interviewed several directors of accelerators and asked them what they looked for in a startup, specifically socially motivated organizations. Each accelerator spoke of the need for financial sustainability and the importance of building a strong organization that can best execute on the mission. One director of a participating accelerator said, “We look for social entrepreneurs that are passionate for what they do. And we look for organizations that are on the path to financial sustainability.”
So what can social entrepreneurs take from this? First, there are many ways to build a social enterprise. We are in the early days of the sector, and new ways of developing organizations are still emerging. There is not a particular business model or issue area that provided much of an advantage for accelerator acceptance. Second, don’t be afraid to use capital to best advance the organization. I think that when a social entrepreneur finds themselves with an extra dollar at the end of the day, they feel obligated to utilize that dollar to do more good. To hire another person who is in desperate need of income to lift themselves out of poverty. To divert more waste. To make another donation. That instinct to serve is what makes social entrepreneurs innovative and inherent leaders, and should be preserved. However, Social Entrepreneurs need to liberate themselves from old mindsets. Excess capital needn’t be exclusively spent on social impact directly. Capital and profit are tremendous tools that can be utilized to advance the mission both directly and indirectly. By investing in marketing to generate more revenue, or operations to create better efficiency, a social startup is still pushing the mission, generating even more value for both customers and beneficiaries. There are no hard and fast rules. Maybe the right decision is to put that dollar directly to impact; maybe it’s not. It’s the entrepreneur’s job to make balanced decisions. The good news is that certain types of funders are no longer punishing those types of decisions. Accelerators allow for and embrace investment in scale, operations, marketing, and the organization as much as impact.
References
Goizueta School of Business. (n.d.). Entrepreneur Database Project. Retrieved from https://www.entrepreneurdata.com/
Komatsu, T., Deserti, A., Rizzo, F., Cel, M., & Alijani, S. (2017). SOCIAL INNOVATION BUSINESS MODELS: COPING WITHANTAGONISTIC OBJECTIVES AND ASSETS. In C. K. Sharam Alijani, Finance and Economy for Society: Integrating Sustainability (pp. 324–328). United Kingdom: Emerald Group Publishing Limited.
Pollotta, D. (2013). “The Way We Think about Charity is Dead Wrong.” Retrieved from TED.com: https://www.ted.com/talks/dan_pallotta_the_way_we_think_about_charity_is_dead_wrong?language=en
