Does Success Require Profitability?

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    Many people will argue that social enterprises should be profitable or at least on a direct path to it. That they must eventually reach a point where all of their expenses are paid from revenues; otherwise they are judged “unsustainable.”

    But is profitability a reasonable goal for every social enterprise?

    REDF logo

    We don’t think so. While profitability is a worthy goal, there are many cases where that is not practical. Let’s take social enterprises that provide training and employment to people facing significant barriers to entering the workplace. In almost every case, these ventures incur higher operating costs than a comparable business that does not provide employment to that population.

    A recent article by REDF’s Nicole Simoneaux outlines some of the major reasons for this:

    1. Social enterprises hire less skilled workers
    2. Skill building is expensive
    3. Supervisor ratios are higher
    4. Turnover rates are higher (and that’s the point)
    5. It’s expensive to remove roadblocks to employment
    6. These workers need support to manage mental health and addiction issues.

    None of these points should deter managers from seeking to cover as much of their operating cost as possible from revenues, thereby reducing need for fundraising and other support. That said, we need to be realistic and let go of the impractical expectation that social enterprises are not successful unless they are profitable. Success comes from social impact, from lives changed; financial performance measures the ability to achieve the greatest possible impact with the scarce resources that are available. To quote Ms Simoneaux:

    “Those of us working in the field shouldn’t perpetuate the belief that social enterprises need to be profitable from earned revenue alone in order to be considered sustainable.”

    We agree.

    Thoughts?

    Good luck!

    l;l;l