social delta

Consulting and support for social enterprise in Canada

Tag: non profit

Key Ingredients of Flourishing Social Enterprises

Poverty & Purpose

It is no accident that some of the hotbeds of new and successful Canadian social enterprises are in specific, economically depressed regions: North end Winnipeg, Downtown Eastside Vancouver, Regent Park in Toronto,  and rural Nova Scotia and Newfoundland. It is said that necessity is the mother of invention, and indeed, the needs of the population in these regions are acute and entrenched: discrimination, drug use, alcoholism, obesity, crime, unemployment, marginalization… Where there is poverty, inequality, and significant loss of livelihood there is a need to try anything; poverty creates an irrefutable purpose to develop a mechanism to arrest human suffering. Social enterprise is one such mechanism, where a business model is employed specifically to address community and human needs.

Innovation & Investment

Desperation may be a driver for change, but someone has to create an idea for the business. In my experience, social enterprise business ideas are rarely conceived by committee.  More commonly, a single person is responsible for a creative social enterprise idea, and they need to then invest their time, energy and often finances to bring that idea to the market. That individual can work independently as a solo-preneur, or as an intrepreneur within government, the private sector, co-operatives or non profits. Growth and development of the idea will of course require support from many actors within these organizational structures, and even from a broader community, but innovation and investment typically starts with one person who has a dream to make life better for others.

Risk & Reslience

However, business is not easy; ask any entrepreneur. Social entrepreneurs face an increased challenge because they live in a world where success is measured in social wealth, not in financial returns. Creating a business where maximizing social benefit drives all business decisions can—and in most cases does—suppress financial returns. Risk is therefore large and the expectation of future financial wealth is optimistic at best, and frequently a myth.  In the private sector, individuals and organizations assume risk on the presumption that future financial rewards will compensate them for risking their time, energy, money and social capital. Social enterprise flourishes when the innovators have a resilient constitution, and a way to accept, manage and even embrace personal losses for the sake of a common good.

Patience & Prudence

The worst part is that starting a business creates risks that last for a long time. For many individuals and organizations launching a social enterprise, the initial energy can be whittled down by a thousand tiny cuts, often over years. In my experience, social enterprises that are spearheaded by an innovator in the non-profit sector may take up to three years to launch, and perhaps five  years to break even (if ever). Accepting, managing and embracing losses and risk over that length of time—all motivated by a sense of optimism and altruism—requires exemplary patience and a strong, informed, and flexible plan to succeed. A full-fledged business plan may seem excessive, but there has to be at least an understanding of the market, the risks, the operational requirements, proposed budget including both projected income and expenditures.

Social Entrepreneurship: Are you the One?

It is the New Year, and you are resolved to feel better about working.

You have worked for others, and maybe you feel frustrated by their vision not matching your own. You maybe even have felt that your work was not being recognized? Perhaps you feel that you are doing work that is “beneath you?” Maybe you go to the stores and you are annoyed, perhaps even distraught, by the many frivolous products and services that one can buy? Do you follow the news, and are you struck by how greed and fear is seemingly driving the world to ruin…community by community?

You want to work for something to make the world a better place, and where your vision guides your daily grind. Where you can make a living by helping others live better.

Social entrepreneurship might be the answer.

But is it right for you? Here are seven initial questions to ask yourself.

  1. Can you afford to be a social entrepreneur? Starting a business is hard work, and frequently doesn’t generate a lot of revenue (ie salary) quickly. Moreover, most entrepreneurs don’t work 9-5. They live their business during start-up and beyond. Starting a social enterprise is even harder, and will likely not generate a lot of revenue in the medium term, as the social mission may require lower prices, workplace supports, or even higher input costs.
  2. Do you have an idea for a product or a service? Social enterprise relies on one fundamental concept; you must sell something in the market to generate revenue. Sounds obvious, but selling a product or service means that you need to have demand for that product or service. Creating demand is hard work, and advertising is an inexact and costly endeavor. Your product or service needs to have potential customers and you need to know more about them before you commit to your business.
  3. Can you find a sponsor, a partner, or a host? One way to mitigate the high cost and low salary prospects is to consider taking your idea to a charity or non-profit that shares your values. Rather than entrepreneurship, perhaps intrapreneurship might suit you better. You manage the revenue generating activity, but the non profit organization owns the business and helps share some of the risk. They may even pay you a salary if you can help them find money from grants, reserve funds, or philanthropic supporters to underwrite the new initiative. (to be clear…if you start the business on your own, you’ll still need to find start-up money)
  4. How strong is your constitution? You need to have more than just a “second gear” to weather the rough times. You have to believe that this idea will be what makes you whole. Your must have a passion to make your business work in the face of adversity, illness, competition, naysayers, and budget crunches.
  5. Do you have community support? Social enterprises are different from other businesses, in that the social impact is the main motivator. You can use that social mission to engage talent as advisors, sponsors, mentors, and sometimes even customers. Because of the communal wealth you seek to increase, you have an opportunity to engage the community in your business idea, and your business success. Always look to develop the community around your business; find those who support you, and cultivate that support to help with marketing, design, governance, product development, funding and other key elements to your social enterprise.
  6. Are you humble enough? This sounds paradoxical, as most think entrepreneurs need ego or supreme self-confidence to overcome challenges (and even failures). However, humility is important in social enterprise, as the business should not be about you. It should be about improving the lives of others. You may be recognized (and you may even crave recognition) for the idea and the launch of the business, but fundamentally, the business has to be bigger than you. In fact, if you review your answer to the first set of questions in this post, you’ll realize (I hope) that in order to find meaning in your daily work, you need to be working towards something bigger than you, you need to have a higher purpose for work.
  7. Can you roll up your sleeves and get dirty? Related to this humility is the fact that running a business on your own or within an organization might also require you to be figurehead, shipper, manager, and janitor all at the same time. The grim reality is that most businesses need more manual labour than celebrity spokespeople. If you feel that you’ve been working below your station when working for someone else, be prepared for a dose of humility as you lick your own stamps, prepare your own invoices, manage inventory levels, and take out the trash after you’ve given your great media interview.

So… Are you the One? Is 2016 your year to make work truly meaningful to you?

If the above list of questions leaves you feeling energized and excited then maybe you are destined for a career as a social entrepreneur. If so…identify the skills you may lack, and look for folks who have those skills to support you as you start your business planning and launch. If you need some market research, some advice, or just want to chat confidentially, of course you can contact me here at Social Delta for a free first time consultation.

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.

© 2017 social delta

Theme by Anders NorenUp ↑