The 4 biggest challenges faced by Chinese social entrepreneurs in their journey to scale up and how to address them effectively

Author

Hong Lin Hong Lin

Date

April 24, 2019

4 min read

We have witnessed the development of over 200 social entrepreneurs in the past decade, most of whom were born after 1985 and grew up literally “on the Internet”. They seem to have an instinct capability to integrate various resources and respond to social challenges more directly. However, due to limited life experience in a rather fixed social structure, they also face a number of challenges in identifying the needs of different social groups.

These are the 4 biggest difficulties social enterprises in China need help overcome:

Lack of sustained funding after the start-up stage leads to missing the optimal timing of growing

Funds targeted at early stage social enterprises are not lacking in China nowadays, be it from government, foundations, universities, or corporations. However, most of the funds are valid only for one year, which means that after the one year, the recipient social enterprieses will have to search for new funding. In addition, funds are always in search for new projects, new faces, and new models, making it challenging for receiptents from previous fundings to retain its attractiveness for new funders.

Faced with a gap in funding after the initial starting up stage, social entrepreneurs must endure this difficult period or may even have to work on irrelevant projects just for the income, thus the likelihood of missing the best timing to grow.

Extremely fragile supply chain of funds can result in business disruptions

A Social Purpose Organization (SPO) faces disruptions to its supply of funding for various reasons: change of personnel or business situation on the donor’s side; delay in payment from a government purchased service; change of rules of a large fundraising platform; and government restrictions of incoming fund from overseas. In fact, the larger the fundraising amount is, the bigger risks are. A RMB 10-million fundraising plan can face a shortage of up to 20%. When such a situation occurs, the immediate action the SPO can take is to discontinue its payroll and scale down as quickly as possible.

A governance loophole can be devastating in public’s eyes

Aiming to break even financially as quickly as possible with an ambitious mind, lots of hard work, and adoption of new technologies, social entrepreneurs sometimes underestimate the impact of losing public trust which can sometimes be caused by a loophole in the organization’s governance structure. In which case, not only the organization will suffer from severe reputation damage, but the public confidence in social goodness will be impaired.

Lack of human resources impedes further development

Aspiring to address a social issue that government or business alone cannot solve, a successful social entrepreneur needs to be visionary, versatile, capable of integrating various resources, and placing social impact ahead of financial returns. Many times a viable business model is difficult to execute because of a lack of the right human talent, and personnel turnover may often lead to the discontinuation of a part of the business.

To help funders and resource providers understand how to better support the growing generation of Chinese social entrepreneurs, we believe these are some steps that will need to be taken:

  • Provision of more flexible and more sustained starting-up funds to allow “trial and error”. For instance, fundings provided to a social enterprise shall not set too strict limitations, but instead shall allow the enterprise to apply the funding to the areas where they believe is in most need. Trial and error gives a social enterprise the flexibility to test its business model, strategy or resource allocation so that the path for future growth is well paved.
  • Setting stage-compatible targets. For instance, there should be no target of expansion or fundraising during the test-and-trial stage, and no target of diversification of fundraising channels during the growth stage. Other targets that shall be set include, for instance, clearly defined governance structures before scale-up stage.
  • Training program of entry-level talents working in the non-profit sector. Many social enterprises start from one person or a small core team. When this core team grows into an organization, it needs resources of service delivery, especially entry level staff. Current capacity building programs are mostly targeted at executives or college students, thus leaving a shortage on capacity building for entry level staff.
  • Fostering a learning community where experience sharing among peers can be highly effective to break through the stereotypical mindset and develop a sense of belonging. Through community building, young entrepreneurs also have the opportunity to better understand how the social system works.

What’s next?

At the heart of social investing is an engaged approach with the funded organisation. Capacity building of SPOs is one of the main activities social investors engage in. Ideally what is provided by the social investor or resource provider matches what is needed on the side of the SPO. AVPN published the Guide to Effective Capacity Building and Effective Social Incubation. The report contains a summary of the best practices in understanding needs, structuring delivery of capacity building and finally assessing the impact of it, the AVPN Capacity Building Canvas and abbreviated versions of the 10 case studies.

The Ginkgo Fellow Program, operated by Ginkgo Foundation, offers its fellows an annual grant of RMB 100,000 (approximately USD 14,700) for 3 consecutive years to help social enterpreneurs address their funding gaps, and also supports their professional development through networking and experiential learning sharings. For more information, please refer to this page.


About Author
Hong Lin
Hong Lin Secretary General Ginkgo Foundation

Ms. Hong Lin devoted herself to the philanthropic sector eight years ago, making a change from a more than ten year’s career as a software engineer and program manager. Her former employers include Sun Microsystems, Microsoft and a Silicon Valley startup. She holds Master’s and Bachelor’s Degrees in Computer Science from the University of Wisconsin, Madison and the University of Geneva, Switzerland. She is currently the Secretary of General at the Ginkgo Foundation.

Ginkgo Foundation is an offshoot from the Narada Foundation and is based on its leading program the "Ginkgo Fellow Program," whose vision is to nurture a strong, diverse and vibrant core community of young Social Entrepreneurs who will catalyze positive and sustainable social changes within their communities. Along with this vision, Ginkgo Foundation also have lauched "ProAct Project" and "Grit Project" to support young talents.