Understanding Enterprise

Entrepreneurship and Small Business, fourth edition

by Simon Bridge and Ken O'Neill

Case study: chapter 7

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A local residents group in rural Wales have been awarded a grant in order to establish an enterprise that will provide housing and care to the growing number of elderly members in the community that do not have family living locally to look after them. Identify the key characteristics of the social enterprise that is established and contrast how this organisation may have looked and behaved had it been a private profit making enterprise.

The population structure in the area had been an ageing one for some time. Local football clubs that in the past had been able to field four or five sides were struggling to put together a first team and schools that had been filled to capacity in years before, found themselves on the brink of closure. This migration of young families was being mirrored across the country with more and more moving to urban areas in search of work. A major consequence of this was while previously the older generation were taken care of by family as they aged, that support network was gradually disappearing putting more pressure on an already underfunded health system. The governments answer was to encourage more involvement on a wider community level in order to meet the needs of the population and as a result offered grants and assistance to any local groups who wished to establish a care network for the elderly in their community.

One group which took up the government's offer held their first meeting in the town hall and promptly agreed upon the name Acorn for their budding social enterprise. The first point of order was to establish exactly how many individuals in the community were in need of assistance and what type of help they required. The point was raised that while some individuals may require round the clock care in the relatively near future, there were others who could cope perfectly well by themselves although could do with a hand on trips to the shops or cooking during the week. With this in mind it was decided that a minibus, premises and at least three full time employees would be needed if they were to be able to begin to meet the needs of their elderly citizens. This however immediately brought about a problem. While the available grant would help with some of the start-up costs, it was clear that it would not be enough to fund such an ambitious project and as a result it would be necessary to ask for contributions from the families of clients where possible. Representatives from many of the families in question were present and agreed that perhaps a non-compulsory contribution would be the appropriate.

With the basic principles of the enterprise established it was now a matter of agreeing upon and formalising the objectives of the organisation and electing a committee. After a brainstorming session involving all the major stakeholders the following objectives were agreed:
  • To meet the needs of all elderly members of the community regardless of their financial circumstances
  • To provide long-term employment for at least four members of the local community
  • To inject all future profits back into the enterprise in order to expand the services offered by Acorn
One newly elected committee members was eager to look in more detail at exactly how the enterprise would become self funding. He suggested that while it was unrealistic to expect casual donations from clients and their families, it would perhaps make more sense to operate some sort of barter systems were individual members of the community could contribute their time, skills and expertise to the enterprise in exchange for both themselves and family members having access to the service in the future when needed. This running in parallel with taking donations would assist Acorn in being able to respond to any unforeseen expenses such as the minibus breaking down as well as accessing expertise and skills, such as book-keeping, for free or at least at a reduced cost. In order for this to work however there would have to be commitment from as many members of the community as possible in addition to carrying out a skills audit of exactly what is at the enterprise's disposal.

This proposal proved popular with the rest of the committee and after a vote it was agreed that as a building was going to be the first major investment by Acorn, that anyone with experience in plumbing, electrics or decorating would be welcome to contribute to that scheme at this point. This would allow them to purchase a less than perfect building at a lower cost and build it up to the required standards at a minimum cost. Having made good progress in the first meeting it was agreed to adjourn for two weeks and before leaving each member was assigned a task related to conducting a skills audit of community members interested in supporting the scheme, identifying a suitable premises and sourcing a minibus.

Midway through the first week of the recess the committee member charged with procuring a van had managed to negotiate an exceptional deal with a contact that he had in the automobile industry. Unfortunately it was an offer that had severe time constraints attached to it as there was another interested party in the wings waiting to make an offer. After frantically ringing around, he had only managed to get in touch with three of the twelve committee members which was not the majority of approvals that he required in order to proceed with the purchase. Frustrated and disheartened he had to pass up the deal and instead take back more expensive quotes for a number of vehicles to his fellow members. Despite this disappointment there had been a number of other success stories when the committee met for the second time. The local estate agent had helped identify premises that would be ideal for the enterprise's needs and was also willing to waive his fee should they go through with the purchase. Mr Tucker who owned the local construction firm had pledged two of his men to assist with the work to be done on the property and Mrs Abbot was willing to help set up a bookkeeping system for the enterprise to help keep track of all payables and receivables.

Suggested solution

Respond to

  • Genuine need in the community that will present a challenge to the enterprise as contributions from families will not allow them to break even.
  • A private firm would have to assess the market and faced with the market size, the initial outlay of capital required and the low level of income estimated it would be unlikely to respond to the need. The project would have to be heavily subsidised by the government in order to prompt any sort of interest from the private sector.

Objectives

  • Acorn are obviously interested in the social impact of the project - however there is a genuine interest in ensuring that the enterprises is sustainable so that future generations can benefit rather than just a short-term impact
  • Had the enterprise been for profit only, sustainability becomes a slightly less clear objective. If the project was heavily supplemented by the government for the first few years after which the onus was on the business to become self-sustaining then a private company may choose to reap the benefits in the first few years and cease thereafter of they did not believe that they could continue to make a profit.

Organisation structure

  • The enterprise was committee based with departments being formed on the skill base of the members with collaboration being achieved through the desire to meet common goals rather than being coordinated by professional managers.
  • The private enterprise may be departmentalised with department heads reporting to a general manager responsible for the strategic management of the organisation.

Pricing

  • During their consultation period, the group became aware of the disposable income of its prospective clients and their families. In order to try and not exclude those with the greatest need, it has asked for a means-based contribution where possible in order to generate revenues without burdening clients with more than they can afford.
  • 'How much can we get' may be the private sector philosophy?

Decision-making

  • All decisions are made on a 'one person, one vote' basis which means a general consensus must be reached before any action can be taken. This can lead to slow decision-making which in turn can result in missing opportunities in the market (e.g. the minibus). There are also a number of stakeholders in the enterprise aside from the clients (e.g. families, local government and the employees) all of whom have their own interests despite having an agreed overall purpose. This can lead to a number of trade-offs needing to take place to satisfy each group as best as possible.
  • In a private enterprise one main decision-maker may take counsel from those around him/her, but can ultimately take a course of action that doesn't please everyone if he/she so chooses...

Culture

  • While there are great efforts to make the enterprise as self-sustaining as possible, it is clear that it may always be dependent on the efforts of members of the local community (e.g. advertising space in the paper) and on grants from the government to some degree.
  • A private firm is subject to market forces and must strive to be competitive and rely purely on its own ability to operate in the marketplace in order to survive.