When it comes to starting and funding a social enterprise, crowdfunding has become a game changer. It has propelled the innovative business model to new heights, and in turn allowed for thousands of ideas that wouldn’t have otherwise had the opportunity, to become reality.
Crowdfunding began as a way for people to finance businesses and projects they believed in. This naturally took the form of social businesses, all united by the prospect of using business to create social change. Crowdfunding has proven to be immensely beneficial for startups for a number of reasons:
Market validation
Getting feedback from customers is a key component to building a successful product and company. Crowdfunding is an inexpensive way of reaching thousands of potential customers and finding out what they think. Instead of putting an order through for manufacturing your product, hiring staff, building a website or investing in other expenses, you can create a campaign page and test how many people are interested in buying your product. You’re able to go directly to your customers and sell your idea.
Pre-orders
The success of a startup is measured by its traction. Without sales or month-on-month growth, it’s hard to sustain a company. Through crowdfunding, you have direct access to a market and are able to sell to your potential customers to secure pre-orders for your product. If you meet your goal, you have demonstrated market traction which forms the basis of any successful company. You can then use this traction to scale the business, either through further investment or sales. Crowdfunding enables you to attract buyers who are willing to pay you cash today for the promise of you and your team fulfilling it at some point in the future.
Brand Awareness
If you launch a campaign right, you build an awesome tribe that follows your journey from here onwards. These are the people that are taking the plunge despite no guarantee of you fulfilling their order, all because they believe in you. They’re giving you their money on a promise and trusting you even though the product does not exist yet. You can’t build this type of bond between a buyer and seller anywhere else. Not only that, you get to create awareness amongst customers, industry leaders, journalists, possible hires and even investors. You’re also able to create brand ambassadors as people wanting your product understand that without a successful campaign, the product will not get shipped. This results in organic growth and engagement which fosters deeper and more meaningful relationships between you and your community.
Access to Low-risk Capital
The reason why alternative finance has grown so rapidly is because entrepreneurs are reluctant to give up equity or pay high interest on loans when first starting out. When you’re still deciding on the vision and direction of your company, it’s imperative that you do this on your own terms – this can only be achieved if the control stays with the founding team that conceptualised the original idea. Without investors or banks hijacking your vision, you can test the market and validate the need for your product by launching a crowdfunding campaign to collect orders. As there are no upfront costs and you only have to pay the platform if you succeed, you’re playing in low-risk territory.
Intros to Potential Investors
Speaking to people or organisations who could put sizable sums of money towards your business is crucial for a crowdfunding campaign. This could make or break your campaign, and/or scale your business through investment. It also helps to completely hone your pitch before you start investment fundraising. If the power of crowdfunding is harnessed correctly, it can give products access to additional capital, major press or an opportunity to go ‘viral’. You’re able to be innovative and creative with your story and reach those customers big brands are unable to reach due to lack of storytelling.
This last point will be the focus of our discussion in this post. Investments in social enterprises can simultaneously engage people in two ways – as a heart decision that comes with the sense of making a contribution to society, and as a mind decision that sometimes is triggered by the expectation of a personal return or reward.
Over the years, businesses for good have proven their financial worth time and time again – you need only look at companies such as Toms, Warby Parker and Ashoka. Traditional investors have become less wary of investing in social enterprises, whereas before they would be concerned with potentially smaller profit margins, risk of failure, or simply because they did not connect with the founder’s cause – and if the business does have a strong social cause, to which they are deeply connected to, they may not want investors influencing their business decisions anyway. This being said, many investors are still hesitant to admit that for good can be for profit, and are more likely to invest when you have proven your concept – which crowdfunding will allow you to do.
One fact is unequivocally true: revenue for social enterprises is on the rise. Therefore, it will come as no surprise that these companies make for solid investments. Founders of social enterprises set out to create companies with a mission that is also profitably viable. Their passion for their cause can sometimes cloud the fact that the financial sustainability of the company has also been fully assessed, causing investors to miss on great opportunities.
In recent studies, Social Enterprise UK has looked at almost 1,200 social enterprises’ trading activities and discovered that 52% of these companies saw their revenues increase last year, while 28% were able to maintain sales and only 19% saw a decrease.
This is no small feat. Companies which this sort of track record are worth investing in. Social enterprises are also extremely successful in attracting new and loyal customers – 83% of social enterprises in the UK were able to acquire new clientele last year. Those customers come from a variety of marketplaces – 59% of revenue from social enterprises came from the public sector, 53% from the private sector, while 58% came from the general public.
Social enterprises are also far more likely to be led by women, which, as discussed in a previous post, companies with more women on their boards tend to outperform their rivals. Moreover, while just 7% of small and medium-sized enterprises are run by a leader with a minority ethnic background, the figure for social enterprises is 11%. This diversity is important not just for its own sake but also because research repeatedly shows that businesses with more diverse managements have a propensity to perform more strongly.
To recap, social enterprises are financially stable, establishing themselves as solid revenue and job creators. They are breaking barriers in gender and diversity representation in leadership and are able to attract a true following, as a result of the mission behind the company.
To any investor, above is a recipe for success for any company of the future – any company worth investing in. With the looming threat of climate change, the blatant misuse of natural resources, ever present poverty and hunger, the need to care for our world and each other is now a challenge most consumers take to heart. Today’s bottom line is largely more focused on not only profits, but people and planet are coming more and more to the forefront of business.
Simply put, the future of business belongs to social enterprises. And at the risk of sounding cliche, the future is now.
