Community-Based Business and Social Enterprise Success Factors

Introduction to Community-Based and Sustainable Business

A sustainable business can be defined as one that operates within an environmentally responsible framework, or that participates in green activities, ensuring that every product, process, and manufacturing activity adequately addresses current environmental concerns while maintaining an acceptable profit margin. More narrowly, it can be described as a business that meets the needs of the current world without compromising the ability of future generations to meet their own needs, or as a process of designing products that take advantage of current environmental conditions while relying on renewable resources to the greatest extent possible.

Some reports characterize sustainability as a three-legged stool of people, planet, and profit. A sustainable business with an integrated supply chain attempts to balance these three dimensions through the application of the triple-bottom-line concept, and uses sustainable distribution and sustainable development to create impact for the environment, for business growth, and for society. When sustainable development is achieved within a business, value is created for investors, the environment, and customers alike.

Within a community, challenges related to business ventures, job creation, and financial obstacles do exist. These challenges apply to traditional ventures as well; however, the particular features of community-based business make such challenges especially prominent. For example, making a profit is not always the primary goal of community-based business, and this makes operating in the market more difficult. Moreover, the sector of activity in which community-based businesses operate, as well as their size, are among the major factors that cause financial problems (Organization for Economic Co-operation and Development, 1984).

The strategy of community-based businesses tends to involve creating a space where customers can express themselves. Community-based business facilitates tremendous brand value through word of mouth. Business prospects are more likely to spread at a faster rate when the community is actively engaged. Ideas generated by the community can help revolutionize a business's services and products (David Kam, 2008).

For a community-based business to be described as sustainable or green, it should not have a negative effect on the local or global community, environment, economy, or society, and it should strive to meet the triple bottom line. Such businesses tend to have progressive environmental and human rights policies. Accordingly, a sustainable community-based business should demonstrate an enduring commitment to environmental principles in its operations; be greener than traditional competitors; supply products or services that are environmentally friendly and can replace demand for non-green alternatives; and incorporate principles of sustainability into every business decision it makes (Seth Henry, 2012).

Within the broader sector of social enterprise, there are factors that are critical to the success or failure of community-based businesses. Through examining these, we can identify what drives a business toward success or failure. Although there is evidence explaining why a social enterprise or community-based business succeeds, it is not always derived from strong empirical research. Nevertheless, every organization tends to change, adapt, and evolve over time, and this applies equally to the factors that underpin success.

Weaknesses and Challenges of Community-Based Business

The failure of a social enterprise or community business can be recognized when the activities of a business cease in an unplanned or involuntary way. Some analysts describe a business exit as occurring when it stops trading, whether on a voluntary basis — through merger, planned closure, or sale — or otherwise through involuntary cessation such as bankruptcy. Failures within social enterprises have been facilitated by a number of difficulties related to finance and funding issues, lack of resources, or insufficient organizational size. Contributing factors can include inadequate premises, lack of qualified staff, and cash-flow difficulties.

Where socio-cultural resistance exists from within — for example, employees resisting changes from management, or managers undermining strategy — the activities of a community-based business may be hindered. Resistance can also come from outside, such as from the public or other stakeholders who oppose new changes or ideas. To prevent this, leaders of social enterprises and community-based businesses should adopt diverse and appropriate strategies. This can be achieved through involvement and consultation with the majority of stakeholders at most stages of decision-making. This will be more feasible when leaders possess a diversity of knowledge and skills sufficient to handle complex management decisions. Such knowledge can be acquired through training that equips leaders to introduce new ideas without disrupting the culture of stakeholders and the wider community.

Communities in which community-based businesses are established often have limited natural resources available for use. This constrains profit potential and limits services, as capital depends on resource availability. Furthermore, since community-based businesses are intended to serve the community, skills and professional knowledge are ideally provided from within it — but in many cases the community may not be able to supply such personnel and expertise due to limited education and capacity. This can hinder the maximum performance of the community-based business, as noted by Lionais (2002).

Governance can be a significant challenge for emerging social enterprises and community-based businesses. This can arise from conflicts of interest between community members and the objectives of the entity. When effective governance is absent, business performance may suffer. When those who have governed a community-based business leave office and incoming managers arrive, previously established objectives and strategies may not be well maintained, as new leadership may bring in different priorities that conflict with ongoing goals and projects.

Lack of strategy, or strategic failure, is a persistent major challenge. It ranges from a failure to identify significant changes in the operational and financial environment to a failure to develop strategies for securing adequate funding. Poor strategy can undermine fundraising efforts. Some social enterprises collapse entirely because of weak strategy. Failure to identify threats and changes to the operational environment can itself be a major cause of failure for social enterprises and community-based businesses.

Finance can be a significant challenge for community-based businesses and social enterprises, since their capital often depends on unspecified stakeholders and government support. Shortages of finance can limit the ability to hire adequate personnel. These difficulties can potentially be addressed once the community-based business or social enterprise has stabilized.

Another weakness is the mistrust of social entrepreneurship by many grant-givers in the social sector. Traditional grant-givers may shift their interest toward how the social enterprise will fund its own future programs, withdrawing commitment to the enterprise itself (Berkes and Davidson-Hunt, 2007).

Community-based business depends on government policy in its operations. Government determines the policies that community-based businesses must comply with. When there is a change in the political arena, new policies are introduced that the community-based business must adopt, and this can interfere with business operations and may even lead to closure.

Conclusion

In order for a community-based business or social enterprise to identify where to concentrate its sustainability initiatives, it must remain significant to its stakeholders. Technical information — such as social impact reports and environmental reviews — should be made available. There should be a review of current and potential sustainable development issues that are important or potentially important to civil society, from both a risk and benefit perspective. In considering risk, both current and changing factors must be accounted for, and the best practices and correct strategies for operating the community-based business or social enterprise must be identified and applied.