social enterprise business conference (1)

SOCIAL ENTERPRISE SOLUTIONS & CONSULTING, LLC

Social Enterprise Conference: Addressing the Needs of Grassroots Community Initiatives

Conceptual FrameworkBy Melody R. Jones

Purpose: This brief expository will articulate and support the need for a social enterprise conference in

Texas, and provide a framework to support such an event. Its sole purpose is to offer insight into the

growing financial needs affecting community-based entities (for-profits and nonprofits) serving in the

trenches and on the front lines in low-income communities and neighborhoods threatening their very

existence. Moreover, these dedicated individuals and groups’ existences are not the focal point of

elected officials, possibly because nonprofits don’t have representation in Washington, and this holds

true especially for small and start-up entities.

The following questions will serve as guideposts during the conference as we probe into the

rationale behind the phenomena of Social Enterprise, Social Impact Bonds, and other forms of public

and private investments as avenues to accessing and securing stable and predictable revenue streams

without labor-intensive fundraising, all while continue contributing to addressing social issues leading

to a first-class Texas beyond the nonprofit sector to becoming more self-sustaining in service social

causes. (1) What does the future hold for nonprofits, especially those working in the trenches? (2) What

is a Social Enterprise? (3) How can learning about Social Impact Bonds, DreamFutures, and other

forms of public and private investments to continue advancing social good within our communities? (4)

How can poorly performing entities become more effective in the light of Social Impact Bonds? (5)

Sustainability and Social Enterprise: How real it is?, and (6) Practical Solutions & Barriers to Social

Enterprise & Social Impact Bonds.

With the economic downturn in federal grants, and philanthropists commitments to status quo

support, to an decrease in donations, the need to scale exceptional programs and services to desperate

social ills facing our impoverished communities is more serious than ever making the need for a forum

to introduce and educate those attending a conference (who may not be aware), and to provide updates

to those that are aware, to the latest innovations in generating wealth, and access to resources to support

social issues during a two-day conference. Presented in this paper is an expressed opinion for the

purpose of hosting such a conference at this time, more specifically, the 2014 Social Enterprise

Conference.


Background: What does the future hold for nonprofits, especially those working in the trenches?

Nonprofits are the backbone in any community. It is the services they provide to poor communities and

neighborhoods around the country and abroad, meeting basic survival needs such as feeding the

hungry, providing temporary housing to the homeless, and preparing preschoolers through head start

programs, that must be encouraged and supported. And despite this fact, many nonprofits are finding it

more difficult, yet impossible, to continue offering vital services and programs to those they serve.

Therefore, many venerable and fledging organizations on the front line serving in the trenches are

pushed beyond their means, leaving many to closing their doors. While others, yes even household

name organizations, are finding it a challenge to continue serving their clients due to serious economic

downturns.

There are a number of reasons contributing to this dilemma. 1) As mentioned earlier, due to the

economic downturn, approximately 100,000 nonprofits nationwide will close their doors in the next

two years as a result, according to Paul Light, professor of public service at New York University. [1]

Moreover, this economic downturn has produced severe strain on many nonprofits with as many as 30-

40% reporting a decreased in giving especially with so many nonprofits competing for the same

“dollar.” [2] The reason for the concern about closings is that when people mourn the potential loss of

nonprofits what they are really concerned about is the programs and services those organizations offer,

which can be vital to any poor and impoverished communities.

With the doom lurking in the shadows for yet many more nonprofits, social entrepreneurs has

entered on the scene addressing social issues left by these nonprofits as rising fees and government

payments make these forays more lucrative. This holds true for some nonprofits. Even if charitable

contributions continue to stay fairly constant as a percentage of national income, charities will attract

private and government fees in diverse arenas. As businesses and charities increasingly cooperate and

compete to meet both public and private demand, we will spend more of our time providing and

receiving services once defined as primarily charitable.

Framework Discussion-At-a-Glance

What is Social Enterprise? Social enterprises are transforming lives and delivering positive change

around the world and their scalable, replicable solutions to social and environmental problems support a

more open, sustainable and prosperous future for all. le, replicable solutions to social and

environmental problems support a more open, sustainable and prosperous future for all. [3]


This business model fits well with the overall mission of SESC, which is to develop

relationships with independent non-profit and for-profit business owners and individuals to aid them in

becoming investment ready to becoming self-sustaining in serving their communities and

neighborhoods.

Is Social Impact Bonds, DreamFutures, and other forms of public and private investments to

continue advancing social good within our communities a viable vehicle for social entities? In

today’s economic climate, nonprofit organizations are seeking means to generate additional income to

supplant a declining economic stream of traditional revenue. Social Enterprise activities offer nonprofit

organizations the opportunity to generate earned income, which in turn will provide consistent cash

flow to further the mission of the organization, while at the same time, enhancing their brand/reputation

of the organization. A direct benefit of social enterprise activities for nonprofit organizations can be the

enhancement of management and overall business capacity, which should be incorporated from the

onset of any such venture. As funding sources decrease, social enterprise activities are becoming a

viable opportunity for an increasing number of nonprofits working on becoming self-sustaining. Thus,

the purpose for a social enterprise conference is to generate awareness, educate and offer practical

solutions to “Doing charity while doing trade.”

The nonprofit sector has traditionally relied on philanthropic and government grants for

financial support. This holds true for smaller community-based organizations, although it is more

challenging for these agencies because they lack organizational milestones, However, the current

economic downturn has significantly decreased the amount of this traditional funding and is

challenging the way in which nonprofits fund themselves. Social Enterprise is needed to support a

rapidly growing nonprofit sector while the traditional sources of funds, philanthropy, is showing a

decline after minimally keeping pace with economic growth. While charitable contributions by

individuals, foundations and corporations in the U.S. reached $284.99 billion in 2008—the inflation-

adjusted amount fell an estimated 5.6 percent in real dollars. During the current economic downturn,

foundation assets have dropped an estimated 21.9 percent in 2008. [4]

As assets decrease, the amount of available funding also decreases—2009 foundation giving

decreased by an estimated 8 to 13 percent and the outlook in 2010 remains unclear but it is likely that

foundation giving will decline further. [5] The decrease in assets of individual donors, together with the


proposed regulations to impose new limits on charitable tax deductions, could have a negative impact

on future charitable contributions. Given the scarcity of philanthropic and government dollars, more

organizations are now searching for earned income generating activities to augment their budgets and

achieve financial sustainability. [6]

How can poorly performing entities become more effective in the light of Social Impact Bonds?

Operating in a constant state of financial emergency is harmful to organizations, and ultimately, risky

for the people these nonprofits serve. Expecting donors to pay for the rising costs of service delivery

and to make up for cuts is not going to work and surely, not all nonprofits will survive their current

sustainability challenges. While many of our private foundation partners are thinking about how to

maximize the impact of their support through the increasing use of PRIs and MRIs, in the current

environment of scarcity and adaptation, social impact financings potentially enable the entry of

additional, new private capital to transactions where the social outcomes achieved can be monetized to

create an investment return. [6] They offer a mechanism to direct scarce government resources to

improving, scaling and replicating programs with the most impact in addressing some of our country’s

most intractable problems. This private capital can finance the provision of preventative and early

interventions services that can ultimately reduce the high-cost utilization of remediation services that

the government must fund, but which often limit the amount of discretionary funding that is available to

simultaneously demonstrate the efficacy of preventative or early intervention social programs.

This is the mission of SESC, has established an initiative by which we partnership and or

collaborates with government agencies, investors at the local, state and national level, social

entrepreneurs, social ventures, for-profits, and nonprofits in providing interactive platform for

education, best practice sharing and information exchange on the potential and evolving benefits and

challenges of effective and measurable performances in programs and services in nearly 50 locations

across the country. It is important to remember that it is not enough to identify preventive or

intervention programs that have the potential to save money, we must invest in the capacity of service

providers to deliver these programs well and to track their ability to do so. This requires intellectual,

human, social and financial capital.

Sustainability and Social Enterprise: How real it is? Many nonprofits are considering social

enterprise (a.k.a. social entrepreneurship or social ventures) as a way to expand their reach. With social


enterprise, nonprofits use business models and entrepreneurial approaches to improve the common

good and solve social problems in new and effective ways. For example, the Georgia Justice Project

started a landscaping program in order to provide employment to its clients.

While some nonprofits see social enterprise as a way to reduce their dependence on charitable

donations and grants, others view the business itself as the vehicle for social change. Either way, there

are many complex legal and tax issues associated with such ventures.

*What are some practical solutions and barriers to Social Enterprise & Social Impact Bonds

developments? Barrier: Government funding is insufficiently focused on results and performance.

Solution: The social impact bond approach focuses government agencies and social service providers

on achieving program objectives and improving performance in a way that is transparent to taxpayers.

The bond-issuing organization and its service providers have a strong incentive to be innovative in

pursuit of performance and cost reductions because their compensation is based on reaching outcome

targets.

Barrier: Insufficient performance evaluation allows ineffective programs to persist.

Solution: Measurement of a program’s impact is a fundamental component of the social impact bond

payment mechanism, eliminating the risk that unsuccessful programs will continue to be funded for

decades.

Barrier: The proof-of-concept process for social innovations is slow.

Solution: With social impact bonds, scaling up of a program model occurs simutaneously with rigorous

evaluation of its impacts, greatly speeding up expansion of successful programs. Programs that might

not otherwise be able to afford to design and pay for a rigorous evaluation are able to demonstrate their

program impacts as they scale to size, and the government can observe real-time measures of program

performance design and pay for a rigorous of successful programs.

Barrier: Innovation is risky and public officials are wary of failure.

Solution: Under social impact bond funding, the government pays only if the service providers

demonstrate that a program has delivered on its promised impact. Because the risk of wasting taxpayer

dollars is transferred to the private sector, government funders will be more willing to commit

resources to approaches that are promising but not yet fully proven. [7]


Barrier: Performance-based funding requires upfront investments and the ability to absorb risk.

Solution: The social impact bond creates a market-based mechanism for raising the upfront capital

needed to finance operating costs and for spreading the failure risks that are inherent in any innovative

activity.

Social impact bond-issuing organizations

The most important new entity that must emerge is the social impact bond- issuing organization that

will have to raise capital from private investors, negotiate performance-based contracts with the

government, and hi re and manage the service providers. A private entity—nonprofit or for-profit—

with an arms-length relationship to the government would have the strongest performance incentives.

But there are viable models in which the bond-issuing organization is a quasi- governmental

organization. [8]


Endnotes

1. Souccar , Miriam Kreinin. “Financial crisis will kill nonprofits: Cuts in government spending and dwindling donations provide a double whammy for many agencies, Crain's New York Business, 19 November 2008. Washington, DC. Web 5 March 2014 Accessed

2. Internal Revenue Service (IRS) Data Book for 2011.

3. Wasley, Paula. “Nonprofit Groups Could Collapse in Next Two Years, Expert Predicts.” The Chronicle of Philanthropy, http://www.philanthropy.com.

4. Steuerle, C. Eugene. “Blurring the Line Between Charities and Businesses.” The Washington Post, http://www.washingtonpost.com. OCTOBER 8, 2007 [posted 3/3/2008].

5. Wasley, Paula. “Nonprofit Groups Could Collapse in Next Two Years, Expert Predicts.” The Chronicle of Philanthropy, http://www.philanthropy.com.

6. Johnston, David. “As Foundations Close, Anxiety for Charities.” New York Times 11/11/2009.

7. Liebman, B. Jeffrey. “Social Impact Bonds: A promising new financing model to accelerate social innovation and improve government performance”. (Center for American Progress, February 2011) available at http://www.americanprogress.org/issues/2011/02/pdf/social_impact_bonds.pdf. Special note: This information was deducted from research conducted by the Center for American Progress, and not by SESC. We will be conducting our own research for further clarity.

8. For an insightful presentation of the options, see Geoff Mulgan and others, “social impact investment: the opportunity and challenge of Social impact bonds”. (London: Young Foundation, November 2010), available at http://www.youngfoundation.org/social-impact investment-november-2010.

http://www.youngfoundation.org/social-impact

http://www.americanprogress.org/issues/2011/02/pdf/social_impact_bonds.pdf

http://www.philanthropy.com/

http://www.washingtonpost.com/

http://www.philanthropy.com/

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