Paula,

Consider the wealthy commercial entrepreneur. Often he takes risks because he's protected his core interests first. This was the essence of delivering the limited liability company, before which a debtors jail was the most likely outcome.

A social entrepreneur, being driven perhaps afflicted to achieving a cause can be pretty reckless. I offer the example of a friend who delivered an academic paper about social business, just before becoming homeless through divorce.

When impact of his work kicked in he took $4k, all he had in the world and invested it in a development strategy paper and managed to leverage $10 million of USAID investment in microfinance, then returned to homelessness. If he'd have failed there and then, that would have been the end of the story.

The story goes on and it hasn't ended, but I know he's always aware of his mortality. There is no margin for failure, in such a scenario.

I agree with you Jeff that along with the financial risk associated with social enterprise, the personal risks are high too. When we are drawn to social enterprise, others in our lives might not be so understanding of the risks. I suspect that divorce rates are high for mid-career changers, reckless or not.

I worked some years ago for a national shared housing organization. My main function was to manage a group of shared homes that had been converted from unused rectories. Using our experience, I then served as a "expert" in advising other organizations to develop similar houses.

While the concept was lovely, the reality was not. The houses usually cost far more to develop than was economically prudent, the level of subsidy for ongoing support was huge, and the "community" we talked about building in these houses just didn't exist. Most people liked having a cheap place to live in a newly renovated structure. They weren't interested in house dinners or meetings, and they really didn't get along.

We had to make it seem that it was working, though, both for future projects and because we were seen as the place that started these shared houses. When I appeared, under oath, as an expert witness at a zoning hearing, I had to be careful about what I said!

I live in New Jersey, USA, and have spent years developing nonprofit organizations to assist families & children in-need and at-risk. An agency I had the opportunity to found did an outstanding job for 4 years, collaborating w/ nonprofits, faith organizations & citizens alike to work towards meeting needs. Two days after our first major fundraiser, the Board fired me as director...right after we'd received $125,000 from the state of NJ. (our 3rd state grant).Our good-willed collaborators and families were furious.At any rate, seems that the organization had become prime agency "real estate" in terms of its programming and the respect it garnered...was considered the best example of working thoughtfully w/ families in the state. It has basically nose-dived, and is essentially "owned" by a university w/ folks on the Board,and is also completely under the influence of the city. Heartbreaking! The influence of politics is exhausting, and very sad.

Paula is raising a very interesting topic. While failure is probably the greatest tutor for success, there must first be a culture in place that accepts failure as a stepping stone to future reward. With traditional venture capital, investors are looking for a multiple on ROI (3x, 5x, 10x return), so they know going in to it that for every company that succeeds there will be 5-10 that fail. There is lots of capital chasing around new ventures, so if you fail as an entrepreneur on your first go around you will still garner attention the next time you go looking for capital.

I personally don't feel that donors are currently capable of adapting this mindset that accept failure. It is not possible to generate the same type of financial returns so as to cover up for the failures of other ventures. Failure has a higher cost to the Social Entrepreneur. Capital is more scarce and Investors are more risk averse. The non-profit world is built around finding "sure things" so that the organization can show off a success and justify their request for additional funds. Until forward thinking, socially minded investors are willing to invest funds in Social Entrepreneurs and encourage them to push the envelope we will probably not begin to see the benefits of failure.

I think you've hit the nail on the head, Mike.

But there is something perplexing to me about your explanation- which makes complete sense if we were talking about a charity based model for giving, where people traditionally want a literal accounting of their money in terms of results. But for investing in social ventures, traditionally investors purport to have a bottom line in which impact is measured socially. And if investors are truly serious about maximizing impact, then surely risk would be a part of that equation?

Is it just that we don't have sophisticated enough understanding of how to measure and demonstrate impact, so rely instead on shorter-term, easier to understand indicators?

Or perhaps it easy for me to say such things given that I'm not the one investing millions of my own dollars?

Great comments, all.

Jeff, I take your point that there is also the converse risk- giving everything. Both problems stem from the same issue- lack of capital for this sector.

Milton, fascinated by your story- and can definitely relate. There is always the pressure to make things look better than they seem. Sometimes when you, as part of a social venture, think about how to express your results, you also look around at similar organizations. You intuitively know they're usually not telling the whole truth, they're glossing over the holes in their story. And then you have to ask yourself... do you do the same? If you do, you force everyone else to do so as well. And you perpetuate a myth about how quickly or easily you can fix social problems, and what benchmarks should be set for doing so. But if you don't, you look bad by comparison.

Terri, thanks for sharing your story. Alas, politics are everywhere, and I'm afraid the non-profit world is no exception.

A great problem from the beginning. We've managed to adapt to our own profit for social purpose business model in the UK, delivering commercial software and maintenance as our revenue source. That's not the end of the problem however.

I tuned in to Jim's story linked below to the reference to GE, one of our customer from whom getting paid for services is a blood from stone exercise. In the end I just had to put it to them straight, that we took risks in a dangerous environment to help the most vulnerable of all children and that their reluctance, not only harms small business but dilutes a social mission and negates corporate social responsibility.

What we have here right now is our Prime Minister calling on business for action and asking corporates to invest in projects to help meet the MDGs, yet business already active in this regard finds only obstacles, from government and other business.

Dear Paula

Failure at one time in my life seemed to be my middle name. About 15 years ago I was President of large multi-national company making a large multi-national salary and bonus. I also had all the perks and life toys, country house , 3 week foreign vacations etc. One night , my only child suddenly dies in her sleep. When I go back to work a week later the owner of this company fired me. He told me I was not in shape to make a profit for them. He were right. To make a long story short, I landed up going personally bankrupt and eventually as a way to give meaning to my child’s death started working as a volunteer social entrepreneur in rural Africa. Fast forward 7 years, to today and have been fortunate to have succeeded as an entrepreneur having been honored as an Ashoka Fellow, Lemelson Fellow, have lead a blog on this web site, spoke at many international conferences, received a few other awards and one of my projects was recently written up in Newsweek magazine. There are a few things I have learnt about failure which I would like to share; A) To use a Buddhist phrase, “life is suffering, pain is optional” B) It is OK to fail, forgiving yourself is the tough part..... but do it and get on with your life. C) Being rich as a CEO was fun, being wealthy as a social entrepreneur is more satisfying D) When you make a mistake as a social entrepreneur tell the grant organization immediately, Tell them your ideas to fix the error. I am sure they have seen them many times before and can help you. They also know that any start up project is difficult. It is certainly more difficult than running an international for-profit company where you have a trained educated workforce, money and a stable infrastructure. E) As the sprinter Ben Johnson once said, one can go from hero to zero in 9.62 seconds. Be cognizant of this fact, work hard, do your best, make mistakes, fix them and have fun. I will fail again in parts of the projects I am working on but will get over it and continue working with a smile.

Finally if you forget any of the above, just make sure you remember this next point. Make sure your children see that you love your spouse. The rest is just not that important.

Incredibly moving story, Howard, thanks very much for sharing it. And the pointers are especially resonant.

I'd take your pointer about it being "okay" to fail one step further-- and say (in my opinion) if you're not failing at least some of the time, you're probably not challenging yourself enough.

Like most social entrepreneurs, I notice that that people react to incentives. So, behavior (like risk aversion) stems from experience. And, social sector leaders have learned that for the most part, telling a relentlessly positive story about every project pays off. And, talking about failure leads to raising less money.

Venture capitalists have their mindset because of the structure of investor feedback. You deliver 30% average rate of return reliably, and lots of investors will flock to invest. Deliver -5% reliably, and you won't raise the next fund.

Donors are generally giving for reasons of the heart. In many cases, it's about the donor, and not about the social outcome. I give, I feel good. Don't tell me that it didn't work: I'll lose the good feeling and I surely won't give you more money. And, we all know of organizations that cater so much to donor preferences that they cross the line and become part of the problem rather than the solution. Many African social entrepreneurs have indicated that what they want the most from major organizations in the global North is to stop portraying Africa as a helpless basket case. As a longtime worker in the disability field, I know of the tension between portraying people with disabilities as needy to raise money versus the disability rights movement, which wants education and jobs on an equal footing. Equality, investment and jobs don't go to those portrayed as unable to help themselves.

One of the first publications I read when I learned about social entrepreneurship was by Jed Emerson of REDF. What delighted me was that he talked about both success and failures. It took a while to realize how rare this was.

In the spirit of Jed Emerson, we decided to share a lessons learned essay on one of Benetech's failures. We had strong support from the Lemelson Foundation to document our experiences. I think that discussion of failure is tolerated by donors who are head as well as heart investors: they care enough about the social outcomes that they want to understand what works and doesn't work. http://benetech.blogspot.com/2007/12/landmine-detector-project-lessons.html

I think that this is the exception that proves the rule, though. We are almost twenty years old, and have several successful projects. We have forward-looking donors and funders who will not abandon us for admitting to trying something that didn't work. We can take the risk at this point.

It's too bad, because the world is facing big problems that need dramatically new solutions. We won't begin to tackle them without taking a lot of risks, and we need to move the system to being more encouraging of risk-taking.

Jim, thanks for this eloquent post, and for sharing your thoughts. I know they mean a lot to readers, especially coming from an organization as well respected as yours. You are right about donors giving from the heart- and about the problems caused by this approach. It makes me wonder if there is anything that can be done about it in the long term or if these are just the immutable conditions we operate in. But I'd say that even just the level of honesty in your and Howard's posts (and all the others) opens up a different kind of conversation, especially to aspiring social entrepreneurs who may feel they are doing something wrong if they aren't a shining success at every step along the road. I wish we could somehow open up that conversation at wider level to the average public donor or supporter of social causes...

Another question to pose to everyone: It's one thing to talk about organizational failure with the outside world. Another question is how to deal with failure internally, within your social venture. How do you encourage your employees to take risks and experiment-- while still holding them accountable for results? How do you deal with failure internally in terms of management practice (that is failures of action and risk, not of inaction)?

I've enjoyed this discussion and hope that the previous thread on the risk of failure among social entrepreneurs continues. I think there is alot of ground to explore there.

Failure of management, however, is another interesting discussion and an entirely different angle that needs a good airing out.

As full disclosure, I recently founded and currently chair a fund for social entrepreneurs in NYC called the NYC Venture Philanthropy Fund. So as an organization, we are constantly butting up against both of these issues: how to manage the risk of failure when we take on emerging social entrepreneurs AND how to manage our own internal failures as we stretch and grow.

It's not an easy balance nor am I entirely convinced that we have figured out what the balance is. What I do know is that the only way we have managed to move forward while bringing in new members and maintaining a culture of innovation and forward-thinking is communication, pure and simple. More specifically, constant communication. Clarifications, explanations, and discussions with every single person as often as needed. And when there is disagreement or there is a relative failure to excel, we pause, reassess, and discuss.

Is this easy? No. Especially when deadlines are approaching or already behind us or when people's time is limited and what your asking requires more than they can provide. And yes, it does make people uncomfortable and sometimes visibly upset. And sometimes we do fail. But in the end the act of encouraging people to move beyond their patterns of thought and action produces a culture of innovation and forward-thinking.

Thanks Heather. Very helpful response. I suppose what I was trying to get at with that question is whether we as managers of social ventures make space for our own employees to be entrepeneurial-- and therefore also take risks and fail. It seems like you must do some kind of calculation on that front when you take on social ventures to support-- a risk threshold that your organization is comfortable with? Is there also a risk threshold in terms of internal management risk that your organization works from?

Hi to you all!

Failure? ... what is failure if not a process of growth through experiential learning? I don't look at failures as a negative action, but rather as a positive outcome ... (always at the wrong time, often painfull .. but never a real train smash)

Here's a though!

"Why is R&D (Research and Development) within a technological framework a process of success and failure ... and organisations spend millions of dollars in it? Often without a ROI for years!? ... and it is OK to do so! R&D in some companies equals some countries GDP1 But why is it not OK within a SE environment and those same organisations cringe when it comes to spending 1% in social activities that will have a positive impact for future generations?

Maybe what we need to do, to get our message across to investors and to large partner organisations is that the world of SE is itself in an R&D phase, full of innovation and creativity, and not unlike their large R&D departments. With tremendous long-term potential for not only high ROI but most importantly a high SROI potential.

Maybe we need to change the way that we "market" to them.

It has taken me many years to recognise that unless I can "talk" to them in their own business language ... we are in fact talking on different planes. What is interesting, is that once I changed our methodoloy of communication with them, I started to gain their attention ... and only then did I start to make inroads into their enviroments and though processes, got them to stop and start listening to our "real" message.

As I have often stated, I do not make a good "beggar"! ...

On the other hand I am also fairly sceptical about their motives for wanting to "give us money", especially when we have not asked for it!

So we changed our strategy ... we ask them WHY should we talk to them ... what are they bringing to the table that will have an impact into our social objectives? In other words, we invite them to submit expressions of interest to us rather than we submitting proposals or applications to them.

If there is no consonance with our vision and objectives ... we walk away!

Have I failed before?

I have lost count of all the failures in the past 25 years of trying to make a difference, but I remember every single success that has brought me to where I am today. It has been like walking two steps back for every three that I have taken. In the process, I had to course correct, analyse and move forward until the next road block.

The nature of development is not a straight line progression to a solution, but rather, it is more, like a "drunken" crab trying to cross a beach!

The path is a series of zigzags generaly ending up in some sort of a direction which you hope is the right one! And that is what Social Entrepreneurship is all about. (Without the red wine for company -:)

Regards from South Africa

Laurinda Seabra

Laurinda, thanks for your very interesting comments. Conceptualizing this issue as the need for more R&D in the social sector is a really fascinating way to look at it. How many of you out there build in R&D into your operating budgets each year for social ventures? Do you think this could fly?

Having founded two social enterprises (one of which failed last year) I have to say I learned far more from the failure than the successes. Even though I ended up with substantial personal debt from the enterprise's collapse, it has helped me steer many other social entrepreneurs away from mistakes that we had made. Even though we had been running for four years, had been profitable for three of those four years and attracted venture capital funding, it was the old killer of "cashflow" that finally sunk us.

One of the interesting aspects is that I am happy to speak openly of our failures at national conferences and subsequently many people come up to me afterwards saying that similar events had happened to them but they are generally quite secretive about it. Statistically in the UK, 50% of social enterprises fail in the first 4 years and if we do not talk openly and honestly about failure then there is a danger that people are lured into setting up social enterprises without understanding the risks. There are less than a dozen business books on failure and thousands celebrating success and I think this distorts the reality of the risks of setting up new ventures.

Great post, Dave, and worth underlining: 50% of social ventures in the UK fail within the first four years. 50%. It's really important we all go in with our eyes open-- and again, not take failure as a huge surprise. It's simply part of the game.

The definition and value of "failure" depends on the standards for success, and those standards depend on the context. In the money economy, for example, profit or surplus often suffice, whether the primary goal is monetary or not. To me, that's part of the problem with mainstream definitions of social marketing and social entrepreneurship, where the expected answer to the question "how are you doing?" is a financial report. The numbers alone don't tell the whole story.

Yes, to stay in business we need to pay the bills. But all too often we think of social entrepreneurship as a way to make money by doing good. And, to me, that's not the only or even the best way of defining our purpose. We ignore fiscal realities at our peril, but we can also put a value on other things.

Gandhi once said something like "Most people would be amazed at how much money it takes to keep me looking this poor!" Martin Luther King was not known for his adminstrative prowess, nor are most inspirational leaders.

1. T. Ariyaratne of the Sarvodaya Movement of Sri Lanka (and winner of the Gandhi Peace Prize) is a good example of a leader who deals with the dissonance between "success" and "failure." Sarvodaya celebrates its 50th birthday this year with equanimity. It has facilitated the founding of thousands of village banks and pre-schools, helped empower millions of people, built thousands of homes and wells...and had a tremendous impact on the qualitative aspects of village life. Has it brought peace? Not yet, in terms of the entire country, but it has definitely saved lives and reduced suffering (success!) Has it delivered Sri Lanka into a competitive position in the world economy? No. But that was not its purpose. Has it operationalized practical steps to convert hope to a better life? Yes...thanks to many, many lessons, small failures and successes.

Organizations, governments and businesses that work from the top-down can afford to make mistakes, dip into their reserves of economic and social capital, and move on. Risk can be quantified very specifically. At the grassroots level, from the bottom up, the consequences of even small failures can be catastrophic. That's why things like faith, hope, compassion, empathy, generosity, kindness, goodwill and forgiveness need to enter into the equation along with the hard numbers. Many "successful" spiritual, artistic or social entrepreneurs cannot explain in rational terms just what makes it possible to survive and thrive amidst adversity. But they keep on, and the small successes seem to accumulate enough merit to help build the perception that failures were just temporary setbacks.

Really interesting, particularly the bit about how many social entrepreneurs cannot explain in rational terms why they survive amidst adversity. It gets again to some of the discussion below about that really hard-to-define line about what level of adversity (particularly financial adversity) social entrepreneurs can and should persist through before walking away. Social entrepreneurs as a breed are often described as fundamentally 'unreasonable' people-- taking risks that many would find unpalatable. Perhaps we all define for ourselves, though, how much adversity is too much-- and the literal bottom line is a huge part of that equation.

Paula, thanks for hosting this discussion. It really hit home today.

I am a co-founder of an Internet start-up trying to help people all over the world have free and clear access to the world economy using an online social network, marketplace and global payment processing. We are going through our first big round of financing and feeling the pressure with money running out and market interest mounting.

My business partner made what I felt was the most insightful observation about failure I have ever heard just this afternoon. He said that failure comes when we let "the practical" infect "the vision". It is only when we let all the things that have to get done, all the problems that we have to fix, and all the day-to-day non-business pressures we all deal with overwhelm our passion and belief in our dreams of social-economic change. In his experience, after starting six different companies, the ventures that succeed are those that are able to separate and protect the day-to-day practicalities from the end-game of succeeding in delivering the vision. Those that fail suffer from loss of control of the many things that at the end of the mission are considered noise on the journey.

He continued, saying that the risks of abandonment are the same or greater than those of staying and fighting. You can quit and have your venture go under, and end-up in a worse situation. At least you knew what the risks were on your venture and you probably knew how to solve all of them.

With this, we became energized and began to talk about our dream, our vision, as a baby that has to be protected. It is in its infancy. A parent wouldn't walk away from a child in its hour of greatest need. We will never walk away from our vision at the most challenging time in its existence.

I think we are blessed as social entrepreneurs because we have found a way to connect with a business at a much more spiritual level. Entrepreneurs who are just in it for the profit and return may not have the social edge we are so fortunate to have. Many just abandon ship and move on to the next big thing.

I would love to hear stories from other social entrepreneurs who have made it through tough times. I am always inspired by the wisdom and strength of others. Thanks.

Michael

Michael

Loved your message and your partner is a wise person! But at times in spite of you wanting to protrect "the baby" at any cost ... you still fail!

We are operating in a very unfriendly environment, we are challenging society norms and standards while we are constrained by the ruling economic and financial realiaties of world economy. In a perfect world we would be able to live and deliver on our dreams ... the challenge is how can you optimise your system within current constraints and succeed against all odds.

Good luck with your venture ... maybe tell us a bit more about it.

Take care
Laurinda Seabra

I really liked your post Michael but I think a lot of business failure is more to do with not managing the money rather than lack of vision. We survived a few close calls over the years but what eventually sunk us was that creditors wanted money we did not have and the bank and creditors wouldn't agree to a deal, so the social enterprise was liquidated. It hasn't meant I have failed as a social entrepreneur (as I agree with the saying "you only fail when you stop trying") but it did mean that particular social enterprise failed.

From the research I have read on social enterprise failure, the main causes are financial, whether it is cashflow, too low profit margins or poor cost control. Although these seem ridiculously mundane issues and not what any of us became social entrepreneurs to deal with, they are the Achilles heels of many social enterprises.

Interesting take, Dave-- I tend to agree with you. And yet all the same, I think social projects often have a different bottom line (and a different calculus for knowing when to shut the doors) than do purely for-profit ventures. I was actually going to ask everyone for thoughts on that. When do you, as a social entrepreneur, know when to walk away? Is it merely when the balance book has been in red too long? Have many of you kept persisting in the face of that? And if so, what calculation of risk/return made you do so?

Paula,

You just asked the big, big question for social entrepreneurs- when you do you walk away. As David and Laurinda point out, at some point it can end up out of your control. WIth that comes the question - where do the noble efforts and commitment begin to have deep, lasting negative repercussions for the social entrepreneur when failure becomes a reality?

Here's a good case - There is a great show on entrepreneurs here in Canada. It may be in other countries as well. It's called Dragons Den. There was one entrepreneur who on the show who was very passionate about his vision and product. When asked by the angel investors on the show how far he was prepared to carry his commitment, he explained that he was fully committed. He openly admitted that he had so far lost everything including his marriage, friends and accumulated wealth. The angel's response was blunty that he was a stupid man! Ouch!

While our socially driven commitment runs very deep, we accept greater personal risk as well I guess. I think the answer to your question depends on the entrepreneur, their finances, how their life context shapes their views of what constitutes failure...and as David said - how the creditors feel.

Thanks everyone for the alternative views around my comment. Paula - I think your question is going to hang there for some time with everyone trying to answer it just for themselves. Good one!

Michael

We do indeed have Dragon's Den here in the UK-- and in fact, was chatting with a friend the other day about how interesting it would be to have a do-gooders version of the program-- about investments in social enterprises. (Though it would have to be livened up and dramatized to make it commercially viable as a program.)

And yes, I agree with you- we each draw our own lines about how much personal risk we are willing to deal with to get things done. But I personally think that even if the angel's tone was blunt, the sentiment is correct: losing everything- spouse, savings, and friends-- is ta