Social Enterprise: What is it and how can my organization consider it?

Break for Lunch, December 3, 2009

Debbie McKeon, Executive Director NorthSky Nonprofit Network© Copyright 2009, NorthSky Nonprofit Network. All rights reserved.

Acknowledgements

Social Enterprise AllianceFieldstone AllianceLaPiana & AssociatesCenter for Nonprofit ExcellenceNational Center for Nonprofit Enterprise

Workshop Objectives• Define social enterprise and how nonprofits can use it• Identify organizational capacities that enhance success• Review tools to develop social enterprise options

– Revenue diversification matrix– Business plan– Expert advice – Strategic structuring or restructuring

• Describe how to launch a social enterprise • Define potential risks to your nonprofit

What is social enterprise?An organization or venture within an organization

that advances a social mission through entrepreneurial, earned income strategies (Social

Enterprise Alliance)• For purposes of today’s discussion, we will focus

on a nonprofit organization considering social enterprise

• It begins as a way of thinking. . . . .

Examples of Social Enterprises

Chicago Children’s Choir Ben & Jerry’s Franchise

Good Grief Center: Good Grief Care Package

Central Dallas Ministries-Dallas Housing AuthorityCurriculum Sales, Education & Training, Publishing

Org. Capacities that enhance successLeadership: focused, positive, strong, excellent communicator, ability to evaluate objectively

Adaptive Ability: innovative, inspire creative thinking, measured risk-taking

Management: good systems, processes, lines of communication- organization is functioning well

Technical: Program/service expertise, execute well

Tools to Develop Social EnterpriseProcess ToolsBrainstorm possibilities, evaluate org. assets, develop criteria for successful social enterprise, rate options

Revenue Diversification Process developed by Fieldstone Alliance, NorthSky approved administrator

Develop business model for each social enterprise option

CFNE/NECE Business Planning Tools-in NS Resource Center

Determine legal and tax implications-strategic structuring or restructuring

Lawyer, CPA-bring outline of business plan

Better the information-more tailored the advice

Launch social enterprise: anticipate start up characteristics

Utilize internal systems and tools and templates in NS Resource Center to minimize start up needs

Operate-evaluate-modify Evaluation tools, strategic initiatives process

Brainstorm optionsConsider organization’s assets

• Intellectual property-license curriculums• Systems expertise-TREAT• Management expertise-manage another entity• Facilitates & equipment-wind generator/cell tower• Brand/ reputation-social marketing• Human assets: staff, board, volunteers, supporters,

clients-market access• Mission assets-healthy snack kiosk in patient waiting

area

Evaluate SE options

Determine criteria to compare options

• Mission alignment• Reliability of revenue stream• Existing talent and availability• Cost to launch• Risk assessment• Impact on existing organization• Control• Real Demand• A Market

Revenue Diversification MatrixRevenue Source 1 2 3 4 5 6 7 Avg Rank

Earned Income                  

Michigan XXX sales 2 0 -1 2 2 1 -1 1.1  

National XXX sales 2 2 -2 1 2 2 2 1.7  

Sales of other curricula to schools2               0.0  

Online educational programs3 2 1 0 2 2 2 0 2.0  

Pre-school program               0.0  

Evaluation & Assessment (includes scantron)4               0.0  

Membership Revenues                  

Core member dues (incl. PE teachers) 2 1 0 -1 1 1 0 0.9  

Affiliate member dues               0.0  

Contributed Income                  

Corporate/Commodity contributions & sponsorships 1 2 0 0 2 1 1 1.4  

Foundation grants for specific programs               0.0  

Public Sources                  

Federal or state earmarks               0.0  

Dedicated tax source revenues               0.0  

Misc Revenues                  

Debt (incl. PRIs)               0.0  

Leases/subleases               0.0  

Quasi-equity (tax credits, EQ2s, etc)               0.0  

Develop the business modelBusiness planning tools: Business Plan

• is a comprehensive financial document that justifies the proposed venture by introducing its economic impact on the organization

• Has a narrower, more specific, focus than strategic plan-analyzes financial viability

Why do Business Planning?Creating a business plan• helps to clarify whether the proposed

venture makes sense before risking financial and/or people resources

• can serve many functions, from providing a comprehensive outline on implementing a new service to utilizing the plan to obtain funding for a social enterprise

Business Planning Tools

• www.northskynonprofitnetwork

Resource Center

Sustainability and Planning

Business Planning Tools

Venture Plan Template

Seek Legal & Tax Advice• Explain intended business model-share your preliminary venture

business plan• Discuss

– Mission compatibility– Start up capital and anticipated revenue model– Likelihood of net revenues– Risk management needs– The motive/s for initiating the venture-diversify existing

charitable organization’s revenues, fulfill community need, leverage expertise of existing organization

Strategic Structuring/RestructuringTypes of Structures• Contractual Relationship

LeaseManagement AgreementCorporate SponsorshipCommercial Co-Venture

• Active Partnership or Co-Venture, L3C• Passive Investment in LLC, L3C or

Partnership• Nonprofit forms a subsidiaryNote: NorthSky does not provide legal advice. Seek legal and tax counsel to determine the appropriate structure.

Launching a Social Enterprise •Recognize and accommodate characteristics of start up in life cycle stage•Leverage existing resources to bridge work during start up: systems, processes, human capital•Recognize the amount of work it will take to launch a new initiative•Work the business plan—critical to have well defined plan•Prior to the launch, commit to periodic evaluation and process for appropriate modification

Launching a Social Enterprise •Utilize tools and templates that represent best practices and successful strategies•Visit the NorthSky Resource Center to find them

www.northskynonprofitnetwork.org•Meet with NorthSky counselors to get connected to resources specific to your needs•Engage in strategic planning to achieve the business plan goals

Operate, Evaluate, Modify •Start up is challenging for all businesses•Increase potential for success by properly capitalizing the venture•Very unlikely all aspects of business plan will perform as intended-key is to recognize when change is needed and to act strategically•The pace you can adapt influences success: recover from failure=adapt to succeed•Business planning is continuous process

Some lessons learned•Just because it is a good business opportunity doesn’t mean your organization should be doing it•Plan for impact the new venture will have on the existing organization•Assure the appropriate expertise exists within the team launching the SE•Be prepared to work very hard

What are some of the risks?• Unrelated Business Income Tax

• Risk management exposure• Partnership Taxation/controlled corporation

• Negative affiliation- - - brand/reputation

• Risk to charitable status

• Actually drains capacity of existing org. instead of enhancing

• Mission drift

Shared experiences, Questions

•Your experiences

•Questions

Thank You

Contact NorthSky at:www.northskynonprofitnetwork.org231.929.3934

Debbie McKeon Extension: 207dmckeon@northskynonprofitnetwork.org

NorthSky Nonprofit Network,

a program of:

Special Thank you to: