Charities must be more entrepreneurial to survive pandemic crisis, says report by Esade and PwC

Charities cannot afford not to become entrepreneurial. The economic crisis caused by the pandemic poses challenges for a highly fragmented sector that is still recovering from the 2008 financial crisis. This new crisis, with the emergence of new needs, may threaten the solvency and capacity of charities to adequately meet increased social demands. Therefore, more than ever, charities need an entrepreneurial and innovation-oriented attitude. This is one of the main conclusions of a report on entrepreneurial charities entitled ‘ONG Emprendedoras’ published by the Esade Institute for Social Innovation and the PwC Foundation.  

A survey of more than 400 managers of Spanish charities shows that only 14% of these managers consider charities to be entrepreneurial. For Ignasi Carreras, director of the Esade-PwC Social Leadership Programme: "many charities have shown great capacity for innovation and creativity when facing the challenges of the last decade. A critical factor for survival is the ability to identify economic opportunities, rethink traditional financing models, and find new ways of generating income to fulfil their mission”.

Santiago Barrenechea, President of the PwC Foundation, said: "We believe that charities will continue acting in a decisive and committed manner to achieve the greatest impact. But they need a more entrepreneurial and collaborative approach to succeed. We hope that this study will be useful for facing the many challenges of the present and future”.

Barriers to entrepreneurship

The study describes the main barriers charities face to entrepreneurship. Firstly, 69% of charity managers admit to an excessive focus on day-to-day work. Secondly, 63% claim not to have sufficiently large budgets or resources for experimentation. The third barrier, found by 30%, is overly conservative governing bodies. Another barrier is the lack of immediate external pressure to be more entrepreneurial. Only 30% of Spanish charity managers consider that becoming more entrepreneurial is one of the most important challenges they face.

Among the factors that make it easier for a charity to be entrepreneurial, 57% believe that the ability to adapt to change is fundamental. Some 47% also highlight the importance of detecting new opportunities and being at the forefront of resolving social needs. However, an organisational commitment to innovation (27%), or initiatives based on business models, are not factors that managers consider decisive.

New funding sources

"What worked ten years ago hardly works anymore," says Ignasi Carreras, who adds that "traditional sources of income (donations and grants) have been gradually restricted, and long-term funding commitments are difficult to obtain. Long-established fundraising techniques no longer provide the expected results, and new funding avenues and greater pressure for accountability have emerged”.

Traditional fund-raising, both public and private, is the funding channel used by most charities: 77% in the case of public funding, and 63% for private funding. This is followed by private fund-raising through the sale of merchandise or other products not related to the charity’s mission.

The report says that new financing models linked to impact investment are the approaches least used by Spanish charities. There is even a ‘relative lack of interest’ in these approaches, especially when it comes to obtaining credit from investors. Social impact bonds, although used by only 2% of respondents, generate more interest, with 45% valuing their use.

Another option that attracts interest is offering consultancy or advisory services in the charity’s own area of work. Some 21% of charities use this type of initiative, another 21% sell products and/or services related to their mission, while 17% have monetised mission services offered to users.

Hybridisation

The report points to the hybridisation of the sector as a growing trend. Hybrid charities and other non-profit organisations in the social field act as social enterprises. To develop their social mission, they use strategies from both sectors, and combine traditional charity funding mechanisms (such as memberships, donors, subsidies, and income from assets) with systems for generating income from impact investment and the sale of services or products. This type of hybrid charity already has a long history in sectors such as labour insertion, fair trade, micro-finance, and health services, and has more recently appeared in many other sectors. This is a growing segment whose market value has tripled in the last 15 years in most Western countries.

The charity sector itself is considered to be a hybrid that combines both aspects, with an average score of 44 on a scale from 0 (donation model) to 100 (entirely market or social enterprise model). In fact, 43% of charities are in the central position on the scale, while nearly a fifth score below 20.