creating revenue through social enterprise: a workshop for the center for nonprofit resources
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1
Creating Revenue
Through Social
Enterprise
A Workshop for The Center
for Nonprofit Resources
Presented by Geri Stengel
2
Meeting Rules
• No risk environment
• Confidential
• One person speaks at a time
• Raise your hand if you‟re
concerned that you won‟t get
to make your comment
• Participation
Sharing insights, full input from
everyone
Constructive feedback from
everyone
Critique the idea, not the person
Be open to feedback
• Be creative and have fun
3
Introductions
• What is your name?
• What is the name of your
organization?
• What does the organization
do?
• What do you do within the
organization?
• Does your organization
have a social enterprise?
• Why are you taking the
workshop?
4
Agenda
• Help you determine if social
enterprise is right for your
organization
• Provide a few case histories
• Share lessons learned
• Provide techniques used for
developing and screening
entrepreneurial ideas
• Measuring social impact
• Discuss risks and how to
mitigate them
5
Purpose of the Workshop
• Provide participants with a detailed overview of entrepreneurial techniques for diversifying revenue
• Understand strategic issues, assess your organizational readiness and suitability, and prepare you to move forward
• Focus on generating financial and human resources in support of your nonprofit organization over the long term
• Utilize organizational intellectual capital and experience, leveraging it to create a long-term source of financial sustainability for the organization
6
Social Enterprise: What, Who, Why, How
7
Why Social Enterprise?
• Diversifies funding sources
• Funding of overhead / administration
• Can fund innovation
• Can fund unpopular causes
• Creates an entrepreneurial spirit
• Enhances understanding of clients
• A test of social value
• Adds skills and competencies to the organization
• Enhances the profile of the organization
8
Social Enterprise
• Which organizations come
to mind?
• Who comes to mind?
9
Definition of Social Enterprise
• A social entrepreneur is one driven by a social mission, a desire
to find innovative ways to solve social problems that are not
being or cannot be addressed by either the market or the public
sector.
Laura D’ Andrea Tyson, Haas School of Business
• “Social entrepreneurship” rather broadly as innovative and
resourceful approaches to addressing social problems.
Center for the Advancement of Social Entrepreneurship
• Social enterprise describes any nonprofit, for-profit or hybrid
corporate form that utilizes market-based strategies to advance a
social mission.
Social Enterprise Alliance
10
Trends in Social Enterprise
• Innovative approaches
• Private ingenuity
• Use of business methods
• Craft sustainable solutions to
social problems
• Share knowledge
11
Teach a Man to Fish, and You Feed Him for Life
• “Give a man a fish, and you feed him for a day. Teach a man to fish, and you feed him for life.”
• Experimentation with for-profit and hybrid forms of organization to serve social missions or deliver socially important goods and services
• More “strategic,” “engaged,” and “outcomes-based” approaches to social sector funding
• More attention paid to issues of impact, scale, and sustainability with the hopes of increasing SROI
• Growing experimentation with market-based approaches and business-inspired methods
12
Business Models
• Cause marketing
• Licensing
• Government purchasing
• Retail or Thrift Store
• Temp Agency
• Property Management
• Clerical Services
• Consulting Services
• Restaurant or Café
• Packaging and Assembly
• Employee Assistance Program
• Maintenance
• Technology Related
13
Specific Examples
• Ben & Jerry‟s PartnerShop Program
The franchise fee is waived.
– Goodwill Industries of Greater Detroit
– Life‟sWork of Western Pennsylvania
– New Avenues for Youth, Portland, OR
• An education foundation sold the
rights to a textbook it developed -- -
commercialize intellectual property
• a US based non-profit sells licenses to
use its programs in other countries -- -
expand mission
• Girl Scout cookies – although there
are programmatic benefits, there is no
doubt that the cash from the sale of
cookies is critical to the funding
stream - generate funds
14
What Earned Income Ventures Do Have?
15
Questions
16
Is Social Enterprise
for You?
17
Is Social Enterprise Right for Your Organization?
• What‟s the size of your budget?
• How many people work for the organization?
– Which managers and staffers will be dedicated to this initiative?
– Do you have a „business approach‟ to problem solving
• How long have you been in existence?
• Do you have existing policies and procedures?
• Other resources that are critical to success
– Business minded staff and board
– Accounting systems
– Facilities
– Start up capital
18
What Traits Do Entrepreneurs and
Social Entrepreneurs Have In Common?
• Persistence
• Desire for immediate feedback
• Inquisitiveness
• Strong drive to achieve
• High energy level
• Goal oriented behavior
• Independent
• Demanding
• Self-confident
• Calculated risk taker
• Creative
• Innovative
• Vision
• Commitment
• Problem solving skills
• Tolerance for ambiguity
• Strong integrity
• Highly reliable
• Personal initiative
• Ability to consolidate resources
• Strong management and organizational skills
• Competitive
• Change agent
• Tolerance for failure
• Desire to work hard
• Luck
19
How Do Entrepreneurs and
Social Entrepreneurs Differ?
Are there differences between people who solve technical problems and those who solve people problems?
• Idealistic
• Strong ethical fiber
• Altruistic
• Commitment to creating some sort of positive social or environmental change
• Interested in social/environmental outcomes
20
Small Business Failure Rate
• Number of failures after
the 5 year
50%
21
Why Small Businesses Fail
1. Lack of experience
2. Insufficient capital (money)
3. Poor location
4. Poor inventory management
5. Over-investment in fixed assets
6. Poor credit arrangements
7. Personal use of business funds
8. Unexpected growth Gustav Berle adds two more reasons in The Do It Yourself Business Book
9. Competition
10.Low sales Source: Small Business Management, Michael Ames
22
Are Board and Management Ready
• CANDOR: Be honest about your strengths and weaknesses.
• PASSION: Evaluate whether you really want to become more entrepreneurial.
• CLARITY OF PURPOSE: Know your mission, core values and how the social enterprises complements them.
• COURAGE: Are you willing to make tough decisions.
• DECISION MAKING: Can you be decisive, and empower employees to make their decisions?
• MAKING MONEY: Are you comfortable with the idea of making a profit?
• PUTTING THE RIGHT PERSON IN CHARGE: Even if it means going outside.
• PAYING FOR-PROFIT SALARIES: Even if you‟re paying more than what you‟re paying a comparably skilled person on the nonprofit side.
• PLANNING: Be disciplined about your planning not skipping steps.
• PERFORMANCE MEASUREMENT ORIENTATION: Measure, analyze and adjust.
• FLEXIBILITY: Are you agile enough to make course corrections quickly.
23
What Fears Do You Have About Social Enterprise
24
Determine the Type of Additional Support You’ll Need
• Take classes
• Join industry groups
• Join networking groups
• Network
• Join peer-to-peer mastermind or CEO Roundtables
• Read books and magazines on entrepreneurs and entrepreneurial techniques
• Find a mentor or advisor
• Use a coach
25
Questions
26
Case Studies
27
$1 Shopper: About the Parent Nonprofit
Rescue Mission of
Syracuse provides a place
to sleep, clothes, guidance
and support to those with
alcohol or drug addictions
or mental disease,
education and job training
to the homeless and poor.
Generates $11 million
annually
28
$1 Shopper: Inspiration for Venture
• Social enterprise director
conceived and did initial
research into the viability
and best approach for
launching a dollar store
29
$1 Shopper: The Venture
Sell household necessities
for $1
Kitchen items
Cleaning supplies
Disposable products
Socks
Seasonal items
30
Environmental Organization
Advocates and educates
$100+ million nonprofit
Publication division
3 scientific journals and
book publishing
2005
Revenue: $500,000+
Loss $200,000
31
Environmental Organization
Staff turnover – inconsistent
direction
Decision making not bottom
line driven
Disappointing
business results
Concern about
ongoing losses
Diminished staffing
and budgets
Lack of marketing
32
Environmental Organization
Improved bottom line
Market, market, market, especially on the
website
Move ahead with co-publishing relationships
Keep an eye on the bottom line
33
Minnesota Public Radio
America‟s largest station-
based producer of national
public radio programs
A Prairie Home Companion
Created a catalog business
Developed an excellent
direct marketing system
Evolution from coffee mugs
to customer driven
Sold business to a
department store for large
profit
34
Minnesota Public Radio
• 1981 created a catalog business:
Rivertown Trading Company
• 1986 spins off Rivertown
• 1987 reorganizes: Greenspring
Separate board with stock options
• 1998 generating $200 million
$4 million in annual profit for MPR
17% of operating budget
• Internet changing the catalog
business
• Greenspring evaluates options to
expand by raising capital
• MPR does want Greenspring to
grow, but doesn‟t want to fund
expansion
35
Minnesota Public Radio
• Greenspring sells Rivertown to
Dayton Hudson
$120 million
$110 million to MPR
$20 million to Greenspring
• Several Greenspring employees
earn windfalls from option
President of MPR makes $2.6
million
• Bad publicity over windfall revenues
• Rivertown bused by Dayton Hudson
as infrastructure to launch e-
commerce for Target.
• Rivertown catalogs shut down
• 30 employees laid off
• Rivertown president resigns
36
Questions
37
Lessons Learned
38
Lessons Learned: Starting Up
• Begin with your assets
• Start with quick wins
• Remain consistent with your
values
• Address organizational
barriers to get everyone‟s buy-
in
• Different mission – separate
team
• Understand the marketplace
including the competition
39
Lessons Learned: Addressing Risks
• Avoid airlines – don‟t start
companies that are expensive
to build and make a profit
• Share risk with
distributors/partners
• Measure performance
(financial, social and
operational) and put in place
systems for continually
improvement
• Identify and address risks as
they arise
• Be prepared for it to take
longer than you plan for and
need more money
40
Lessons Learned: Final Lessons
• Network
• Get expert industry advice
• Hire/develop entrepreneurs
• Don‟t rely on your mission to
sell
• Don‟t be afraid to fail
41
Questions
42
Developing and
Screening Ideas
43
Steps in Product Development
1. Fuel for ideas
2. Generating ideas
3. Quick filtering idea stages
4. Evaluating ideas
44
Fuel for Ideas
• Internal capacities*
• Community trends and needs
• Potential market opportunities
• Other related organizations
(Community Wealth Ventures
–
http://208.82.213.185/resource
s_search.asp)
• Unrelated organizations
(Community Wealth Ventures
–
http://208.82.213.185/resource
s_search.asp)
45
Internal Capacities
• Competency-based - What
do we do well that might be
valuable to others?
• Relationship Asset-based -
What relationships do we
have that have business
value?
• Property Asset-based –
what do we own (assets
that are under-utilized or
previously unrecognized)
that have market value to
others
46
Internal Capacities – Maximizing Intellectual Property
• Program related
• Same product – new market
Geographic
Other customer segment
• Staff resources
• Client resources
• Hard and soft property
• Unrelated business
47
Spectrum of Activity
Traditional Affirmative Full-scale
Fee-for-service Business Commercial Activity
Earned income is a
typical component
of nonprofit‟s system
and structure
Earned income is
designed to provide
some revenue and
other benefits such
as job training and
employment
Earned income
is designed to
generate excess
revenue to support
nonprofit‟s mission
48
Venture Idea Ladder
• Find new customers for new
products
• New customers for existing
products
• Develop new products for
existing customers
• Expand sales/improve
profits from existing
customers
Hardest
Easiest
49
Idea Screening
Brainstorming
Screen 1
Screen 2
Feasibility
B-Plan
5 seconds
100 ideas
2 minutes
10 ideas
2-3 hours
2 ideas
2 days
0-3 ideas
6 weeks
0-2 ideas
50
Screen I: Fast Screening
• Criteria
Is it consistent with the
mission?
Does it meet a significant
customer need?
Does it leverage the
strengths and assets of
the organization?
• Guidelines
Go for clear winners
Accept that some good
ideas will not be selected
No more than 2 minutes
per idea
51
What Is a Good Idea?
• Meets a significant customer need – a market
• Fits with mission
• Leverages a strength / asset
• Competitive advantage
– Cost
– Performance
• Return on investment
• Risk managed
• Create your own criteria
52
Screen I: Sample Decision Matrix
Leverage in house
expertise POSSIBLE QUICK WIN HIGH PRIORITY
No in house
expertiseDON’T PURSUE LONG TERM, IF AT ALL
Low Revenue High Revenue
• Use any two criteria that work for you or your organization
• Expertise and revenue potential used here
53
Screen II: Set Up
• 2-3 hours discussion / best
guesses
• Create a concept statement
Describe product
Who will buy?
How frequently will they buy?
Where will they buy?
How will they buy?
• Product attractiveness
Financial results
Marketing issues and competitors
Risk factors
• Does it fit with the Organization?
54
Screen II: Evaluation
• What is the potential for
generating “big” bucks?
• Will we need a “big” investment
to launch? (ie hire new staff
before $ in; $50K technology
investment)
• Is anyone enthusiastic? Who will
champion the idea?
• Do revenue and expense
assumptions make sense and are
they realistic?
• Can risk be managed?
• Can we pilot on a small scale?
55
Sample Decision Matrix
Site Criteria Table
Factors Grade 1-4 Weight 1-4 Points
Mission fit
Significant customer problem
Appropriate solution
Revenue potential
Leverages strengths/assets
of organization
Ease of implementation
Capital investment
Human resources needed
Ability to manage risk
Profit potential.
Total Points
56
Let’s Experiment: Test Subject Please
57
Questions
58
Social Impact
59
Metrics: Understandable, Inexpensive and Useful – Acumen
• What social impacts is your
venture aiming to achieve?
• What is the relationship
between these impacts and
the activities of your venture?
• How well is venture achieving
them? What are you learning
about how to improve this?
• Can you afford to regularly
produce these impacts?
• How much value is being
created for society as a result?
Source: Social Impact Assessment and Building Your
SROI, Cathy Clark Faculty Advisor, GSVC Director,
Research Initiative on Social Entrepreneurship Columbia
Business School
60
GSVC Defines 3 Steps
1. DEFINE social value
proposition:
Theory of Change
2. QUANTIFY how you’ll track
social value:
Impact Value Chain: top three
social output indicators
3. MONETIZE intended social
value:
Social Return on Investment
(SROI)
Source: Social Impact Assessment and Building Your SROI,
Cathy Clark Faculty Advisor, GSVC Director, Research Initiative
on Social Entrepreneurship Columbia Business School
61
Step 1. Define Your Social Value Proposition: Tool 1. Theory of Change
• Focused: concise IF-THEN
statement or statements that define
the intended social impact and how
the operation intends to cause it to
happen
– “If poor women in East Africa have
access to a microbicidal contraceptive,
then AIDS will spread less rapidly in
those countries.”
• Detailed: fine-grained set of cause
and effect assumptions at the core of
a strategy to create social change or
achieve social impact.
Source: Social Impact Assessment and Building Your SROI, Cathy Clark Faculty Advisor, GSVC Director, Research
Initiative on Social Entrepreneurship Columbia Business School
62
Step 2. Quantify Top 3 Social Indicators
Identify your top indicators of
social value
• These are outputs you can
measure directly as part of your
business operations
• They should relate in a compelling
way to the ultimate desired social
outcomes of the venture
• We call them “indicators” or “social
outputs.”
• Competition requires that you
specify the 3 most important.
Source: Social Impact Assessment and Building Your SROI, Cathy
Clark Faculty Advisor, GSVC Director, Research Initiative on Social
Entrepreneurship Columbia Business School
63
Tool: Value Impact Chain
Inputs Activities Outputs Outcomes Goal
Alignment
What is put
into the
venture
Venture‟s
primary
activities to
produce
financial and
social value
Results that
can be
measured by
the venture –
Social
Indicators
Changes
(increases or
decreases) to
the social
system
How well
outcomes
align with
intended
goals; activity
and goal
adjustment
Source: Social Impact Assessment and Building Your SROI, Cathy Clark Faculty Advisor, GSVC Director, Research
Initiative on Social Entrepreneurship Columbia Business School
64
Tool: Value Impact Chain
Inputs Activities Outputs Outcomes Goal
Alignment
What is put
into the
venture
Venture‟s
primary
activities
Results that
can be
measured
Changes to
the social
system
Activity and
goal
adjustment
What would
have
happened
anyway
= Impact
Source: Social Impact Assessment and Building Your SROI, Cathy Clark Faculty Advisor, GSVC Director, Research
Initiative on Social Entrepreneurship Columbia Business School
65
Step 3: Monetize Impact
Identify the dollar value equivalent
of your projected social impact to
create a social return on
investment.
• There is no standard methodology
in current use to monetize social
return and teams are strongly
encouraged to build on existing
work, innovate, and rigorously
defend your decisions.
• That said, we will walk through the
social return on investment (SROI)
model used to date in the GSVC
and by REDF. (www.redf.org)
Source: Social Impact Assessment and Building Your SROI,
Cathy Clark Faculty Advisor, GSVC Director, Research Initiative
on Social Entrepreneurship Columbia Business School
66
Tool 3: SROI Steps in Calculation of SROI
1. Quantify outputs/outcomes where
possible
2. Translate into economic equivalent
where possible using proxies
3. Develop social cash flow projection
4. Subtract outputs/outcomes that
would have happened anyway (refer
to proxy data)
5. Where outcome is qualitative,
discuss what it is and how you will
know it‟s happening
6. Cite your sources and assumptions
clearly
Source: Social Impact Assessment and Building Your SROI,
Cathy Clark Faculty Advisor, GSVC Director, Research Initiative
on Social Entrepreneurship Columbia Business School
67
Risk & Contingency
• Uncontrolled cash flow
• A drop in sales or
insufficient sales
• Higher costs
• New competition
• Business recessions
• Incompetent managers or
employees
• Dishonesty and theft
68
What’s Your Next Move?
69
Questions
70
Resources
• Toward a Better Understanding of Social Entrepreneurship: Some Important
Distinctions. Jerr Boschee and Jim McClurg
https://wiki.brown.edu/confluence/download/attachments/33494/better_understanding.
pdf?version=1&modificationDate=1188407297000
• A Double „Bottom Line‟: Lessons on social-purpose enterprise from the Venture Fund
Initiative http://www.redf.org/download/other/dbl.pdf
• Venture Forth! The Essential Guide to Starting a Moneymaking Business in Your
Nonprofit Organization
http://www.redf.org/download/other/VentureForth-samplechapter.pdf
• The Limits of Social Enterprise: A Field Study & Case Analysis
www.seedco.org/download/?id=10
• Community Wealth Ventures
http://www.communitywealth.com/resources.html#SOCIAL_ENTERPRISE_RESOUR
CES
• Profiting from Purpose: Profiles of Success and Challenge in Eight Social Purpose
Business http://www.seedco.org/press-releases/?id=258
• Social Enterprise Alliance https://se-alliance.org/
71
Resources
• Business Planning for Nonprofits: What It Is and Why It Matters
http://www.bridgespan.org/LearningCenter/ResourceDetail.aspx?id=2382
• Getting Ready to Grow: The Tools You’ll
Need http://ventureneer.com/sites/default/files/ebooks/ventureneer-ebook-getting-
ready-to-grow.pdf
• Get Ready to Grow Your Business webinar http://ventureneer.com/webclass/get-
ready-grow-your-business
• Developing a Growth Business Plan: A series based on the Social Impact Exchange,
which has a business plan competition http://ventureneer.com/special-friday-series-
developing-growth-business-plan-0
• Business Planning (For nonprofits, for-profits and hybrid organizations)
http://managementhelp.org/businessplanning/index.htm
• Nonprofit Sample Business Plans
http://www.bplans.com/nonprofit_business_plan_templates.cfm
• Sample Nonprofit Business Plans http://www.bridgespan.org/sample-nonprofit-
business-plans.aspx?parentid=106&taxid=130
• One Page Solutions for Non-Profits http://www.onepagebusinessplan.com/non-
profits.htm
•
72
Resources
• L3C or a B corporation
– http://nclawlife.com/2011/03/04/l3c-and-b-corps/
– http://www.americansforcommunitydevelopment.org/concept.php
– http://www.nonprofitlawblog.com/home/2011/08/the-l3c-3-years-later.html
– http://www.bcorporation.net/why
– http://www.inc.com/guides/201106/how-to-become-a-benefit-corporation.html
• The Global Social Venture Competition is the largest and oldest student-led business
plan competition providing mentoring, exposure, and prizes for social ventures from
around the world http://www.gsvc.org/about_gsvc/
• Stanford Social Innovation Review http://www.ssireview.org/
• Social Enterprise Alliance, www.se-allliance.org
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