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Consulting and support for social enterprise in Canada

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Social Enterprise 101: Launchpad or Prophylactic?

There are many courses, webinars and presentations that are available offering an “Introduction to Social Enterprise” for non profit, co-operative, or even entrepreneurs in the private sector. What is the value of these introductory courses? Should you register?

These educational offerings are typically geared for those who are considering starting a social enterprise. They are often marketed as the first step on the path of social entrepreneurship. You may have seen promotions from progressive foundations, business schools, social incubators, shared spaces, or non profit intermediaries. Many of these courses are inexpensive or even free—especially webinars, where the overhead costs are low.

In fact, I offer presentations and workshops ranging from 1 hour to 7 hours providing an introduction to social enterprise definitions, trends, opportunities, challenges and business development processes. I have organized and conducted these trainings with the hope that the many attendees of my sessions would walk away as foot soldiers in an informed army of social entrepreneurs and by sheer mission-driven will would start a tidal wave of social enterprises.

The reality is that I think I have scared many of them away.

The more I offer this sort of course, the more I end up focusing on many of the risks and challenges associated with conceiving, designing, launching and running a social enterprise. I believe strongly that every business should operate with a mandate to provide social wealth in the process of conducting business, yet I still find myself highlighting seemingly dark realities, such as:

  • It is hard to operate a business in a competitive marketplace.
  • The organization needs to be ready BEFORE strategic business design.
  • The business operation must align with—and not compete with—the social mission.
  • Customers are a new stakeholder group and must be considered alongside volunteers, operational partners, staff, beneficiary populations, donors, investors, and board members.
  • Financial (seed) capital to start a social enterprise is hard to find.
  • The reality is that an organization may invest 3-5 years before they see earned revenue.
  • How do you protect intellectual property when you want to share it to maximize social impact?
  • Non profit or collectively run organizations are frequently safe, risk averse places and this can be debilitating.
  • There are legal restrictions placed on charities operating businesses.
  • It is a myth that the businesses social value proposition will immediately guarantee sales.
  • Social impact measurement can be complex, yet is vital to design a social enterprise.

Yikes!

Rather than creating a comfortable nurturing space for organizations seeking to design or build a social enterprise, I paint a picture of the brutal reality: social enterprise is harder than it sounds when initially proposed as a strategic planning retreat, a board table, a coffee shop or at a kitchen table of idealistic changemakers.

I’ve now come to terms with the realization that if I share the honest and accurate details of the stumbling blocks faced by most social enterprises, then the very few that will emerge from these introductory presentations to elaborate on their business idea will truly have what it takes to run a business. They must be unflappable, resourceful, risk tolerant, collaborative, resilient, and passionate.

In fact, I suspect many “Social Enterprise 101” attendees will forget the detailed course content, and will end up learning it all again through their own experience.  Arguably, the value of the introduction course is not, therefore, to prepare a veritable “army” of social entrepreneurs; the value of the course is to stop the individuals and organizations who don’t have what is needed from spending time, resources and social capital on starting a social enterprise.

Perhaps one can say that a good introduction to social enterprise workshop is not a launchpad; it is more of a prophylactic that prevents the birth of enterprises that may not possess the necessary conditions for life.

Earned revenue for charities is more than private donations

In 2012, Charities earned more revenue than they were given by individual donors.

According to the recently released Blumberg’s 2012 Summary of the Canadian Charity Sector, earned revenue by charities was $17.7 billion, (up 3.8% from 2011) while receipted donations summed to only $14.3 billion.

Fundraising is also a costly business (and this I know, as I was a fundraiser for more than 17 years). Of the only 975 charities who reported to have paid fundraisers, those fundraisers generated $471 million, while getting total compensation (primarily set salaries) of $110 million. In other words, the equivalent of 23% of donated funds was used to manage the donor programs.

This impressive data collection project underlines the fact that charities are generating more revenue than they are gifts, and this is a sign of how they are investing their time, resources and efforts to sell products and services in support of their mission.

2012:

  • 75,232 active charities
  • $17,562,376,314 in non-government earned revenue
  • $182,195,300 in government revenues (up 36.5% from 2011)
  • $14,283,486,806 in donations

2011:

  • 73, 793 active charities in 2011
  • $16,953,792,416 in earned revenue in 2011
  • $133,474,682 government revenues in 2011.
  • $13,867,060,684 in donations

NOTE: To create the summary, Blumberg’s Law compiled the data from all the T3010’s submitted to the government by charities for the 2012 year end.  The T3010 does not offer sufficient detail to describe the types of business activities in which charities are involved, and there is also the possibility that each of the T3010’s is not perfectly accurate as they are prepared without audit.

Social Enterprise Advertising

I welcome any attempt by a social enterprise to advertise their products or services. When I was reading a recent copy of my community newspaper, I was delighted to see an article on Cigbins, a social enterprise started by three creative University of Ottawa students with whom I’ve worked. Their company collects used cigarette butts and recycles them into one of a number of useful products, such as insulation, thereby helping to clean up the scourge of litter while making something of value in the marketplace. The sale of the final product pays for the initial service. Moreover, the company has partnered with a local charity, Causeway Work Centre, to provide employment and training opportunities for individuals with mental health concerns.  This article, written by Michelle Nash at Metroland media, is a wonderful form of free advertising, although of course, getting articles written about your business is not always easy, or replicable.

Meanwhile, the Ottawa Carleton Association for People With Developmental Disabilities (OCAPDD) took a more direct approach. In the very same newspaper edition, they placed a 6.5″ X 5″ advertisement to sell the garlic that they grow on their farm near Bells Corners. I’ve attached a scan of their advertisement to endorse not only what they are doing, but how they are doing it.

silversprings0001

Grant or Government Service Contract: What’s the difference?

Social enterprises, by definition, generate revenue and social value through the sale of a product or service.  At the same time, charitable programs providing social value are often funded by government grants.

But what happens when a government agency elects to HIRE the charity to fulfill a service contract? In fact, it may not be easy to see the difference between a government contract and a grant.

What are the benefits of one over another?

The Grant

In the grant model, a government provides cash to a non-profit or charity and with that money the charity then delivers the necessary service to fill a social need in our society. The charity then has to account for the expenditure of the funds and report to the funder on activities undertaken and the net effect (impact) of those activities.

Funding relationships give all the power to the granting body, which sets the terms and format of the application and budget and sets the parameters about how, what and when deliverables are to be met. Creating a funding application is also time consuming for the hopeful grantee, often requiring letters of community support, sharing of financial statements, providing names of board members, and painstaking hours of wordsmithing to fit all the good, innovative ideas into a predetermined (often online) format.

Once the grant is awarded (often after months of patient waiting) you get the money, up-front. This is good for cash flow. However, then there are typically arduous reporting requirements to document activities, expenditures, variations in budget and requests (read: apologies) for material changes in scope (often learned only once a social service project starts). Fulfilling the reporting requirements cost your business money (in staff time and resources); these costs are rarely covered by the grant. And, if there is an allowance for reporting or administration, the amount is insufficient to pay market costs or wages.

When you apply for funding, you don’t sell your services, you adjust your business idea to meet the needs of the funder. You don’t create demand; you simply meet an existing demand.

The Service Contract

Social enterprises, however, want to generate income from business activities, not grant revenue.  By seeking governments as “clients,” they can access different pots of money in the public sector.  This is strategically prudent, as governments are reducing available grant programs in so many social service areas, yet they continue procurement activities through competitive bidding in order to provide public services.

When you respond to a request for proposals in a competitive bidding process, such as the federal procurement process at www.buyandsell.gc.ca, you sell your business, and the government buyer determines if you are the right supplier. You sign a contract which states that “if you provide X, you’ll be paid Y.” Admittedly, you don’t necessarily get the payment up front. However, you can negotiate terms that allow for a first payment to be made early, and with a signed government contract in hand, you can access bridge financing at reasonable rates.

As with writing funding proposals, you don’t get paid for your time for this business development, but your government proposal can be branded to your business, and it can frequently take a format that is convenient (even a template) for other sales proposals. Your wordsmithing angst can now be allocated to clarity, accuracy, quality, passion, and not about fitting a response into 750 characters.

If there are problems in the contracting scenario with government, there are arbitration procedures, access to information requests, and public documents that you are eligible to engage at little or no cost. Rather than asking for changes on bended knee (as a grant recipient), contractors frequently negotiate change requests; such requests are almost an expected part of a service agreement.

Best of all, results speak for themselves. Very rarely will a government contract require a “final report” unless the report is an agreed upon deliverable in the contract.  If it is in the contract, then the preparation, copying, editing, distribution, of the report are all paid for at market rates.

Ah, and competitive bidding for contracts has the possibility of the dream of all contracts: the standing offer, or the retainer agreement. It is very difficult to get multi-year funding for social enterprises. However, through competitive bidding processes (which actually cost the government a lot of money to administer) multi-year agreements are more common, and standing offers or preferred supplier agreements are possible.

So what is the downside of getting the government as a client? First, if you don’t perform, they may find another supplier.  Funding agreements are typically set for a year, but contracts can be broken based upon poor performance. There may also be extra requirements for government service contracts, including proof of liability insurance, documented prior experience including client references, and possible security clearances for staff, to name a few.

Also, if the value of the contract is greater than 50% of your total annual operating budget or if the contract dictates the strategic planning of the charity, the contract may cause concern with your charitable registration, as stipulated in the “related business” clause.

Another possible downside is that if you are competing for a government contract, you’re competing against the marketplace, including for profit companies who may be well capitalized, well connected, and well diversified.  And finally, government contracts are typically larger in total value and expected deliverables. Some social enterprises may not have the capacity to scale up to meet the demands of the public sector client, or they may have to form a consortium with another company or another social enterprise to fulfill the contractual terms.

Many charity-based social enterprises may not distinguish between a grant and a contract. After all, both scenarios provide money from the public purse to the charity to deliver social value.  An easy way to tell the difference: if you have to invoice for services rendered, it’s a contract; if you have to report on how the money is spent, it’s a grant.

For a social enterprise, it is arguably better to engage government as a client, rather than as a funder, for the following reasons: You will be forced to perform against market standards; you’ll be tapping into dedicated government expenditure budgets; you have access to transparent processes for recourse to address changes in contract terms; your administrative burden will decrease;  you can pay your staff market wages; and there is a significant possibility of longer term contracts if you meet your client’s expectations.

Oh…and invoicing is far easier (and more rewarding) than reporting!

 

NOTE: this article originally appeared at: http://www.seechangemagazine.com/articles/how-to/743-grant-or-government-service-contract-what-is-the-difference

Who are the social entrepreneurs?

I was asked today to outline the personality types of the typical social entrepreneur. Of course, anyone can be a social entrepreneur, and any entrepreneur (whether social or not) has to have vision, passion, risk tolerance, and an idea for a product or service for which there is—or can be—a market demand.

However, based upon my experience working with social entrepreneurs from the co-op sector, non-profit sector and from the private sector (primarily solo-preneurs), I can reflect on some categories of social entrepreneurs. Do any of these sound like you?

The social worker. Not necessarily a social worker by training, but more broadly a person working for a social cause. This person is characterized by a social mission that is paramount in their life and/or career. They typically work in the public or non-profit sector (and very possibly within a charity) and common passions include one of the following: environment/sustainability, recreation/health, victims of abuse or violence, youth development, homelessness/poverty, or individuals facing social stigma or barriers to employment (mental health, developmental delays, criminal records, etc). They may have years of experience and knowledge about the depth of the social problem that they’ve been tackling. They may not have business experience, but their knowledge of what needs to change, and how it needs to be changed, is significant; they typically are motivated to learn as much about business as they can to address the cause they believe in.

The Epiphanist.  This is not a real word, of course, but this describes the person who, for whatever reason, has a moment in their life when they realize that they need to help others. (ie an epiphany) Perhaps they’ve been diagnosed or survived a disease or accident, maybe they met someone whose story or experience touched them, maybe they read a news article or a non-fiction book, or perhaps they heard a TED Talk or social media plea, or maybe they saw something unjust that struck them into action. The Epiphanist can be any age, and is strongly motivated to use whatever they know or have to make a difference. They have a professional network, but their peers and contacts may not always be sympathetic to their “new” cause. They may also have to initially learn about organizations and networks that are already active in this new field of endeavor, but they are typically willing to partner and learn from those with the experience of the Social Worker (above).

The Seeker is the one who wants to change the world, but initially didn’t know where to start. They might have read about social enterprise or seen a social enterprise in action and immediately felt that this is the career for them. They then set about methodically to learn more about business operations, and to confirm the cause for which they plan to work and make connections. They typically are young and may have come to social enterprise from their disillusionment with community, the economy, or their own career or educational path so far.  Initially, The Seeker may lack business experience (and occasionally distrusts business generally), be impatient, and have a limited professional network. However, The Seeker feels they must do something important, tangible, and purposeful and is commonly quite driven to learn more, or even will take risks to test their business idea as soon as possible.  They grow into the role of social entrepreneur out of that need for purpose.

The Serial Social Entrepreneur has started and run a social business and now wants to apply their experience to a new cause. These folks are rare in Canada as the number of successful social enterprises is limited.  The Serial Social Entrepreneur is an expert in the process of building a social enterprise. They understand—through experience—the technical aspects of social business development such as market research, branding, pricing, retail operations, social metrics, partnership, and/or social finance options. They are able to transfer their business skills from one cause to another cause. They are passionate about social change, and they are aware that social change is complex and interrelated and they often have large and active professional networks.

The Maverick is the guy in high school who never spoke, but then created a mobility aid that made it possible to move a wheelchair up the front stairs. These are the inventors, the outliers, possibly the unsung geniuses of our time. They are sometimes reclusive, sometimes wildly gregarious, but often unpredictable and commonly irreverent. Mavericks make great (social) entrepreneurs, because they are “just crazy enough to try something new” without worrying about how it will affect their social status.  Some even cultivate a sort of unique personality (Richard Branson?) which becomes an element of their “brand.” Mavericks can be any age, and are typically able to think of new ways of solving old problems. They occasionally struggle with collaboration and partnership, but they are the idea generators who then work diligently to bring their social innovation to life.

There are, of course, no rules about who can be a successful social entrepreneur, but in my experience social entrepreneurs are people who care about building a better society, and who see the selling of goods and/or services as a tool to support that goal. Social entrepreneurs can come from any sector, any socio-economic background, any cultural heritage, aged teen to elder. They possess an unscripted mix of idealism, pragmatism, flexibility and diligence. However, they are each very unique, and they are not as easily categorized as I have suggested in this post.

Free downloadable resources now available

Social Delta has just made several resources available to be downloaded for free.

Do you know your entrepreneurial strengths and weaknesses? What sort of incorporation is right for your social business? What information might be included in a social enterprise business plan?

Visit our Downloadable Resources page to answer these questions and more.

BUY SOCIAL Summit Canada

  • Are you a social enterprise looking to increase sales?
  • Are you a commercial procurement officer wanting to buy from suppliers who support social value creation?
  • Are you a shopper looking for great products that help build a stronger social fabric in Canada?

Please download and share this PDF announcement.

BUY SOCIAL is a UK-founded program to promote purchasing from social enterprises, and now it is coming to Canada. The program will be launched in Vancouver June 16/17, 2014. Visit the  BUY SOCIAL CANADA Website for more information, or to learn about this national effort to connect purchasers with vendors in the social economy.

Better yet, join Social Delta  and other social economy support organizations in Vancouver in June for the inaugural Canadian Buy Social Summit. Peter Holbrook, of Social Enterprise UK will be the keynote speaker, and if you are a social enterprise with products or services to sell you may also want to book an exhibitor table.

Can Non Profits intentionally make profits?

Non profit organizations do not have the benefit of issuing tax receipts for donations, unless they are registered charities. This means that non profits running a social enterprise are at a significant disadvantage if they are trying to access funding from donors, philanthropists, foundations and many government programs. For many (non-charity) NPO’s, earned revenue is almost a necessity in order to fund their social, cultural, environmental or recreational programs.

The question is  whether a non profit organization can run their business so as to intentionally make a profit?

The answer up until now has been a resounding no. Many non profits believe that so long as they re-invest any profits (that is to say the excess of revenue over expenses) in the social mission, then they are OK. However, the CRA does not believe that this so-called “destination of profits test” is a sufficient argument. Indeed, the Canada Revenue Agency in their February 2014 Non-Profit Organization Risk Identification Project Report states: “It is the CRA’s position that a NPO can earn profits, but the profits should be incidental and arise from activities that are undertaken to meet the organization’s non-profit objectives. The earning of profit cannot be or become a purpose of the organization, even if the profit is earned to fund non-profit objectives.”

To paraphrase: if a non profit organization intentionally makes a profit year over year, even if that profit is reinvested in the organization’s mission,  they run the risk of losing their tax exemption.

Social Delta recommends the research work of the BC Centre for Social Enterprise, as they’ve written several position papers on this policy issue and others relevant to social enterprise operations run by non profits.

 

The Value of Ideation

“What business should we operate?”

Is your organization thinking about launching an enterprise?  Jonathan Wade explains the importance of ideation in pursuing that goal – and shares some of the challenges and benefits every enterprising non-profit can expect.

For non-profit organizations, there is a growing sense of urgency in seeking necessary resources to deliver on their social mission. Funding is diminishing, or is becoming increasingly focused on specific areas of funder interest. Donors seek lean organizations and relatively rapid results, yet social service provision is labour intensive, and change takes time.

It is not surprising that Ottawa’s Centre for Innovative Social Enterprise Development (www.cised.ca) receives regular calls from non-profit professionals asking for help starting a business to offset lost funding. The problem is that successful businesses rarely succeed because the entrepreneur needs money. In fact, as anyone who had started a business can tell you, launching a business typically requires more money (investment) than it initially makes…often generating one to three years of operational losses.

This reality is understandably disappointing for cash-strapped organizations.

Let the ideation begin

However, starting a social enterprise from within a non-profit is an excellent way to diversify revenue, provided that expectations are managed. In fact, the process of conceiving of a business idea—referred to asideation—is itself a very beneficial endeavor for most non-profits (and charities) as it allows them to look critically at what they do and how they do it while considering market demand for products and services they might create.

There are several ways to determine what sort of social enterprise your non-profit might consider:

1. What are you good at, and can it be commercialized?
2. What does the market need, and do you have (or can you assemble) the knowledge, skills, and inputs required to meet that demand?
3. Can you take over an existing business that is in keeping with your mission?
The second approach to ideation is pure entrepreneurship. If you understand the market, and you can fill a consumer need, that becomes your business. However, non-profits typically need to commission suitable market research and then divert limited resources to create the required product or service. This has a high opportunity cost, and many say that you can’t “learn” entrepreneurship.

Similarly, taking over an existing business requires a strong knowledge of business operations and business valuation, as well as access to financing to acquire an existing business.

Building a social enterprise on existing strengths within a non-profit corporation, in my experience, is the most effective ideation approach; it guarantees an alignment between the organization’s social mission and its business activities and it doesn’t require learning a whole new skill-set or investing in new resources.
For example, if your organization offers computer training to women in crisis, then you can offer fee-for-service computer training to a broader audience to generate revenues to underwrite your social mission. Similarly, if your social service programming generates artworks, then selling those artworks—indeed a by-product of the programming—is relatively easy and does not immediately raise concerns about mission drift.

The challenges of commercializing

Commercializing existing assets—intellectual, social, financial, or human capital—can be a challenge for non-profits. For one, the organization may lack the skill and resources to bring these assets to market. Second, there may be no buyer for the skill, product or services in which your non-profit excels. Third, an organization must ensure that selling of skills, networks, intellectual property, or programs doesn’t adversely affect the current programming goals. Fourth, the very concept that people, networks, programs and buildings are “assets” that can be “used” to generate revenue can rub non-profit professionals the wrong way.

Each of these challenges can be addressed, of course, and the process of addressing them is what brings new value to a non-profit board, staff, volunteer and beneficiary community. Acquiring new skill-sets is possible but one needs to be carefully budgeted and planned. A well-done feasibility study will identify not only if there is a buyer for your product/service, but also whether that business idea will enhance social outcomes.

A good business plan ensures that the launch of any revenue generating activity will support, not compete with, social value creation. Similarly, if the “assets” of the organization are understood as being investments in a better social outcome, then the language becomes less inflammatory.

Many believe that what makes an entrepreneur is the ability to see challenges as opportunities. Perhaps loss of funding offers the opportunity to rethink how best to maximize a social mission. The ideation process for non-profit staff and governors is a concrete way of categorizing challenges in the market and in the organization and building a sustainable, revenue generating, social value-creating solution to those challenges. Indeed, the process of ideation actually strengthens the capacity and resolve of an organization with a social mission.


This article originally appeared February 24, 2014 in See Change Magazine online.

Bring your social enterprise to life

ImageAfter 2 1/2  years at the Center for Innovative Social Enterprise Development, Jonathan Wade is now the Principal at Social Delta, offering consulting support to social entrepreneurs. He will help you build your social enterprise; from ideation to organizational readiness and from market research to business strategy, Jonathan brings decades of experience in the non profit sector, and many years as a consultant, job coach and trainer in the fields of social enterprise development and social finance.

Take a look at the services he provides to help your social enterprise create value in our community.

Send him an email for more information.

 

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