10 Social Enterprise Pitfalls Non-profits Must Avoid for Success

Starting a social enterprise is a powerful way for non-profits to diversify revenue, strengthen impact, and reduce reliance on grants. But let’s be honest — launching one isn’t as simple as flipping a switch. Many organizations underestimate the complexity, and that can lead to costly mistakes.

As a non-profit strategist for over 20 years, I’ve seen it. I’ve seen non-profits dive in before they’ve done their homework, only to find themselves failing, with no concrete plan to lean into for ideas.  I’ve seen non-profits do just enough homework to gain a basic understanding of the marketplace but miss the little details that make the difference between profitability and loss.  I’ve also seen boards explore social enterprise ideas and be so focused on the “risk” that they fail to take advantages of opportunities for financial sustainability that simply make sense – and align with their mission. 

Here are 10 common pitfalls I’ve seen non-profits fall into and my recommendations to avoid them set yourself up for success.

1. Misaligned mission

The Risk: Overtime, you may find your social enterprise pulls you away from your mission. I call this “mission drift.”

What Helps: Screen every idea against your mission before moving forward. Schedule quarterly check-ins to ensure your enterprise is still serving your purpose.

2. Not doing detailed market research

The Risk: Jumping into your social enterprise without understanding demand or competition.

What Helps: Do your homework. Use feasibility studies, test your top three ideas, and build a business plan. Ask local entrepreneurs and financial professionals to poke holes in it (better now than later).

3. Business Skills Gap

The Risk: Your non-profit team knows programs, but not always business.

What Helps: Invest in training, mentorship, and new hires with business experience. Balance non-profit passion with business acumen.

4. Lack of (enough) startup capital

The Risk: Underestimating how much time and money it takes to launch and break even.

What Helps: Build realistic cash flow projections with professional input. Explore financing options and create a risk plan for bumps along the way.

5. Confusion over legal & tax rules

The Risk: Confusion about CRA rules, governance structures, and liability.

What Helps: Seek legal advice early in your planning and use plain-language resources to understand the various social enterprise models.

Here are a few resources:

• Creating and maintaining a social enterprise, Government of Canada

• The Canadian Social Enterprise Guide (2^nd Edition), Enterprising Non-Profits

6. Hesitant or uncertain board buy-in

The Risk: A hesitant board unsure of their role, whether the risk is worth it, and unwilling to take a calculated risk.

What Helps: Educate your board. Share case studies from peers.  Visit other social enterprises and talk to their Management Team. Review risks openly. Use an evidence-based process to make decisions.

7. Lacking Staff Capacity

The Risk: Already-stretched staff can’t take on enterprise work without burnout or role confusion. Staff may not have the entrepreneurial or business skills required to research, launch, and operate a social enterprise.

What Helps: Assess internal staff capacity honestly. Assign social enterprise work to staff with time, interest, and skills. Don’t be afraid to start small and scale over time.

8. Overwhelm measuring two bottom lines

The Risk: Tracking financial and social impact success can feel overwhelming.

What Helps: Set up simple systems that measure both money and mission. Report consistently to leadership, board, and stakeholders.

9. Misunderstood Donor and Funder Perceptions

The Risk: Donors and funders think you no longer need their support.

What Helps: Communicate clearly. Share stories of how social enterprise income strengthens your mission; it doesn’t replace donations or grants.

10. Exit Strategy

The Risk: Fear of failure stalls progress. Some companies feel they must invest in the project no matter what, even if it becomes a money or resource pit.

What Helps: Conduct “what if” analysis to look at various scenarios. Pre-determine exit criteria (i.e. if sales drop below X, or costs rise above Y, then we exit the social enterprise). Communicate how risks will be managed with stakeholders for accountability.

How to successfully launch a social enterprise, the right way

Creating a social enterprise can help non-profits strengthen financial sustainability and amplify community impact — but only if it’s approached with intention, buy-in, and on-going support. Invest in market research, business planning, and clear governance structures to move forward with confidence.

✨ Curious about whether a social enterprise could be right for your non-profit? Book a Get Curious! Discovery Session for a no-obligation chat to explore your ideas with a non-profit strategic consultant to see what’s possible for your organization.