Social Enterprises and Family Firms
Introduction
The use of business plans has become widespread over the years, with sources citing bankers and accountants as the reason behind their popularity. Nowadays, business plans are advocated by academics, agencies, enterprise advisors, and many other professionals. Also, even when startup guidance bodies and entities do not implicitly recommend the use of a business plan, more of the advice and recommendations they offer are based on business plan thinking. For example, business training manuals and guides tend to emphasise market analysis and production needs(Bridge & Hegarty, 2012). This contributed to the development of the notion that a business plan is essential to setting up a business. However, despite universally acceptance and promotion by several entities, there are questions and criticisms on the use of business plans. There is a growing view that entrepreneurship cannot be forecast, and planning goes against core entrepreneurial values.
Alternatives to a Business Plan
Alternative approaches for entrepreneurs include an exploration approach that likens early-stage entrepreneurship to exploration and research. The approach accepts that the future is full of uncertainties; thus, entrepreneurs should be open to exploring trends and whatever comes their way. Some of the principles based on the exploration approach include; considering downside risks and not committing to any stage until one is confident that they can afford the risks. Accepting uncertainty and risks and designing a flexible approach that can react to shocks and difficulties—acquiring relevant skills that are needed in the business, such as bookkeeping and money management. The exploration approach is similar to the one employed by explorers when moving through an uncharted region (Bridge and Hegarty, 2012). An explorer cannot plan his routes as he is unaware of what to expect ahead, and is open to change as new and promising paths emerge along the way. Moreover, because of the uncertainty, an explorer knows that they should not commit to losing a route or path that has not yet been deemed suitable or correct (Bridge and Hegarty, 2012). Therefore, in the exploration approach, the idea is to find the most attractive path from the beginning but also remaining open to alternatives and having a degree of flexibility to enable the business to adapt to changes and obstacles encountered.
Social Enterprises and Issues Faced
A social enterprise refers to a business that is set up to correct imbalances in the social, structural, and political system. In a social enterprise, service delivery is not exclusive but rather a collaborative effort to challenge society to respond to existing problems and change public policies (Huybrechts and Nicholls, 2012). Social enterprises and moments contribute immensely to initiatives to promote clean energy, gender equality, and other social causes aimed at changing the world. The unique combination of both public purpose and private ownership means that social enterprises are generally small-scale, flexible, and connected to citizens (Trivedi and Stokols, 2011). Social entrepreneurship is an essential contributor to the development of change in the social sphere by promoting the adoption of missions aimed at creating and sustaining social values, supporting continuous innovation, adaptation, and agitating for a heightened sense of accountability. Social entrepreneurship can, therefore, be defined as a creative, social value generation activity that can be conducted by non-profit businesses or government sectors.
The primary elements that define social enterprises are sociality, innovation, and market orientation. Sociality refers to the socially impactful activities that make up social entrepreneurship. Some of the major domains of social entrepreneurship initiatives include health services, education and training, social justice, and environmental planning and management. Social non-profit enterprises are severely restricted when it comes to raising capital. Existing laws prohibit charitable non-profits from distributing profits, denying them access to a large pool of investors and equity capital, which are reliable sources of support for organisations. Non-profits are also restricted when it comes to revenue generation as any income earned unrelated to the non-profit’s mission is taxable. Non-profits also face many problems when it comes to sourcing funding that aligns with their organisation, as some of the donations might conflict with their self-sufficiency goals.
Crowd-funding and impact investing are all better aligned with the policies and goals of social enterprises; however, they are both underdeveloped sources of funding. As a result of challenges in funding, non-profit social enterprises are less likely to achieve growth exhibited by for-profit organisations. Non-profit social organisations are also defined by high levels of the inefficiency of their operations (Abramson and Billings, 2019). That is, most of these organisations rarely employ cost-effective practices in administering programs, and distributing assets, in addition to other operations. For profit-social organisations also face a considerable number of challenges, including the fact that the directors of these organisations often prioritise profit-seeking to the benefit of shareholders, as they can sue and remove directors who fail to meet their demands. Shareholders can, at times, agree to prioritise social missions. However, this is rarely the case in most instances. For-profit social enterprises have a more substantial tax burden compared to non-profit ones. That is, they generally suffer from double taxation in the form of taxes on both company and individual earnings.
Family Entrepreneurship
A family-owned business is an enterprise where a family is responsible for the strategic direction of the firm and is involved in the management of the organisation. It can be described as a privately-owned company that will likely be passed on to descendants upon the retirement of the owner. Family provides a reliable source of entrepreneurial links and networks, that are established from social and professional ties (Anderson, Jack, and Dodd, 2016). Such networks and contacts provided in a family firm setup are likely to promote and enhance family commitment and continuous understanding. The informal relationships provided by secure family networks and contacts can be a source of diversity and flexibility. Moreover, families are a valuable source of labour for small firms that are trying to break even. It is not uncommon for initial starting capital to come from existing family resources. In some cases, extended families provide not only the needed capital investment but are also provide other relevant resources, such as suitable suppliers, technology, and access to markets.
Family firms
Family-run enterprises are an integral part of the U.K. socioeconomic environment despite their massive presence in the British economy; they are faced with several problems, including succession. In the family business context, succession refers to the transference of leadership and management to continue family ownership (Cisneros et al., 2018). Succession constitutes one of the central issues that must be taken care of to promote the success and longevity of the business. Family succession planning can be highly contentious and emotive, creating significant rifts within the family, and subsequently, the business as individuals may have differing opinions on who should take over the business (Wee and Ibrahim, 2012.). To maintain family and business cohesiveness, management should develop planning processes and mechanisms that provide a logical structure for the transference of leadership (Cisneros et al., 2018). By definition, family succession usually involves a set of identifiable elements, which need to be marked down before the actual ascension. Some of the succession planning elements include; identifying the pool of potential individuals, designing the successor, and notifying management leaders and the designated successor. Considering a vast pool of possible successors might indicate that a comprehensive process was undertaken (Haag, Helin, and Melin, 2006). Communication is integral in legitimising the agreed-upon successor as announcing a successor shows a commitment by the organisation’s leadership to conduct changes. This may help prevent power struggles within the organisation, as few individuals will likely dispute the case.
Communicating the chosen successor may prove as an important acknowledgement by the predecessor of the passing of leadership and responsibility for the family business. According to the resource-based view (RBV), a firm can only achieve sustained competitive advantage (SCA) if it can control its rare and non-substitutable resources. A resource-based view on the market’s complexity and the relationship to each organisation’s competency over competitors. A firm’s resources include its assets, capabilities, information, and professional and family norms beneficial in promoting family norms (Fang et al., 2012). Such resources can only be assessed in comparison to those of competitors. Thus, firms with rare and more valuable resources than competitors and those that cannot be easily imitated have more considerable competitive advantages and chances of strategic success (Kraaijenbrink, Spender, and Groen, 2010). Even though tangible assets can be a source of enormous profits, it is the intangible resources, such as social networks and relationships, that are a source of sustainable competitive advantage. Unlike tangible assets, intangible ones are less likely to be reproduced and substituted as unevenly distributed across industries.
Social capital (S.C.) refers to the bundle of resources provided by trusting and harmonious relationships within a group. According to Sanchez-Famoso et al. (2019), S.C. is a vital source of creativity and innovation as it promotes the free flow of ideas, knowledge and information. A family is the primary social group in family-owned enterprises, and the existing internal relationships play a huge role in determining the decision-making processes and managerial practices (Gudmunson and Danes, 2013). Family SC can be promoted by strong ties among relatives that provide a system for connections and smooth flow of communication, elements that are essential to promoting innovation (Sanchez-Famoso, 2015). A climate of friendship, trust, and respect cultivated through a shared history of interactions and friendship create a hospitable working environment that supports collaboration and decreases unethical behaviours (Sanchez-Famoso et al., 2019). Family social capital can contribute to the well-being of the enterprise by promoting harmonious and cooperative workspace and the free exchange of ideas within a cohesive network. For non-family S.C., a cohesive group of employees are a source of professional skills that do not exist within the family and provide a more complex set of resources (Sanchez-Famoso et al., 2019).
Family firms represent a relatively stable system that can be highly successful as long as the original owners are in place. Succession or the decision to promote a family member into the senior role can trigger events that may destabilise the family enterprise. The result can lead to conflict and confusion within the company. Some of the factors that can contribute to successful transitions include preparation levels of successors, high levels of education, training, and skills that will more likely produce the desired results and face lesser opposition (Wee and Ibrahim, 2012). Relationships between family and business members also play an integral role in trust, communication, and commitment, as positive relationships will likely foster an environment of understanding (Dakoumi Hamrouni and Mnasser, 2013). Planning and control activities, such as succession and tax planning, also influence the degree of succession success. Patient capital refers to block-holding and ownership patterns that protect firms from short-term performance pressures. There are several definitions of patient capital; however, scholars agree that it shields non-financial corporations from short-term shocks in the financial and product markets. Therefore, patient capital can be described as equity or debts whose suppliers aim to gain long-term benefits from their investment. Investors of such equities rarely withdraw their investment even if short-term market pressures take place (Deeg and Hardie, 2016).
Philanthropy describes transforming generosity into an impact venture and fostering commitment and collaboration in a manner that can lead to social change. Firm philanthropy comprises activities aimed at serving or helping others, including donating goods, money, and services to support humanitarian and social causes. It can also be described as the discretionary transfer of wealth and income of stakeholders. This often involves donations and monetary contributions to social and charitable events, including healthcare, education, and justice. Organisations can take part in philanthropy through irregular and occasional donations, or by planned, sustainable philanthropic initiatives. Research studies indicate that ownership and governance play a crucial role as potential predictors of charitable behaviour (Campopiano, De Massis, and Chirico, 2014). For instance, there is a negative correlation between philanthropic engagements and a large number of block holders. Also, a higher ratio of the insider to outsider directors has been positively linked to charitable behaviour. Moreover, family involvement in the ownership of an enterprise can positively influence firm philanthropy. However, the degree of family involvement in the direction and management of the business may have adverse effects on philanthropy.
Reflection of Learning
Some of the concepts I learned from the unit is that there is a widespread notion that having a business plan is the only way to start an enterprise as several academics, agencies, and professionals advocated for it. However, it is increasingly becoming clear that entrepreneurship cannot be forecast, particularly against any significant event, as planning goes against an entrepreneurial idea’s core values. One of the alternative approaches to a business plan is having an exploration approach in place, which recognises the need to discover oneself. The approach accepts that the future is full of uncertainties and that entrepreneurs should be willing to explore trends and work with whatever comes their way. I also learned that social enterprises could be used to realise causes that promote clean energy, gender equality, and other causes aimed at correcting imbalances.
Moreover, social enterprise ventures are defined by their innovative social value generation activities. Some of the significant building blocks to social entrepreneurship initiatives include sociality, innovation, and market orientation. By pursuing social causes, such enterprises aim to promote health services, education, social justice, and political change. Some of the challenges faced by social enterprises include a lack of commitment by shareholders, especially in for-profit enterprises. Non-profit enterprise also faces many challenges when it comes to sourcing for funds from people or bodies that align with their interests. Also, a lot of non-profits enterprises are characterised by low levels of efficiency in their operations, which dramatically impacts their sustainability. One of the major topics covered in this unit is family-owned enterprises, which refers to a privately-owned company that will likely be owned or managed by one or more of the owner’s children. Family firms play an integral part in any significant economy as they make up the largest private companies. The success of family firms stems from the fact that they provide a steady source of entrepreneurial links and networks that are if great value when it comes to sourcing resources.
Professional networks and contacts provided by such setups also promote and enhance the firm’s commitment and long-term understanding. Moreover, the informal relationships provided by string family ties can provide flexibility and a diversity of resources. An element that is mostly ignored but highly critical to the existence of family businesses is succession. Family succession planning is a critical process that involves noting down a set of identifiable elements that need to use when selecting a successor. Some of the process’s critical elements include coming up with a pool of suitable candidates, conducting a vetting process, and notifying management of the suitable fit. Having an open and transparent succession process may likely prevent power struggles within an organisation as few individuals might dispute the process. A resource-based view of running an enterprise affirms that a company can only attain sustained competitive advantage by controlling rare and non-substitutable resources. Having intangible assets that are rare and non-substitutable gives firms plenty of advantages as they can less likely be imitated or reproduced. Social capital refers to resources provided by trusting relationships; in this case, the family is an essential source of S.C. in a family-owned business.
Bibliography
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