social delta

Consulting and support for social enterprise in Canada

Category: Commentary (Page 4 of 5)

Key Ingredients of Flourishing Social Enterprises

April 1, 2016 /

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?

January 4, 2016 /

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.

Selling workshops as a business

October 22, 2015 /

Experts like to share what they know.

Social service providers–from farmers to crisis centre staff–undoubtedly have skills we all could/should know, but setting up a training business is high risk.

When delivering workshops, it is very rare that one can charge attendees enough to actually cover the costs of  running the workshop. There are some exceptions, particularly if there is an inherent self interest for the participant (think “how to win in real estate” type of workshops), or if there is some future product (book, consulting, food goods, recipe list, etc) that will sell as a result of the workshop. In this latter case, the workshop can be run at a loss–a loss leader of sorts–on the premise that a future profit can be realized.

There are certainly a lot of non profits who provide workshops for a fee, and some even use a social enterprise model (ongoing, strategic activity with a primary social mission, involving a market orientated transaction). The challenge is that these workshops are almost always backstopped by funding, which makes them precarious businesses when or if the funding disappears. This risk can be mitigated by having multiple funders, but it remains challenging to actually design a self-sufficient workshop business without alternate lines of revenue.

The target audiences for many well-intentioned social service providers are often unable to pay market fees for workshops; elementary to high school youth, marginalized communities, low income, or other audiences either won’t pay or can’t afford it.

For those wishing to sell workshops or training as a business,  you are almost certainly looking at a business established on one of the following models:

  1. Where there is funding to offset losses. (the Charity Model)
  2. Where there is revenue from another line of business designed for a paying audience to offset losses. (the Robin Hood Model)
  3. Where the training leads to the sale of other products or services to that same target audience. (the “Loss Leader” Model)

The reasonable example of a social enterprise which  provides training in a financially sustainable way is a sport club.  These are (typically) non profit organizations with a mission to promote sport (soccer, hockey, jai alai, etc). Team fees cover hard costs (field/ice/court rentals, tournament fees, training, referees, team balls, nets, etc). These social enterprises, however, rely heavily on volunteer labour (coaches, parents, treasurers, etc) to actually function, and there is a natural demand for sports clubs. The learning from the sport example is that the “product” being sold is not only about fitness (’cause all of us could get that by simply running/wheeling around the block). Sports offer other tangible and intangible benefits that parents (and participants) want: comradery , sense of achievement, days off school (!), time with friends, learning new skills, childcare (that is a parent need), being part of a community, etc.

One example of a training social enterprise is The Philippe Kirsch Institute, run by a charity called Canadian Centre for International Justice. The Institute provides legal training to lawyers as part of their mandatory requirement (set by Provincial Bar Associations) for member to take hours  of annual legal training (Continuing Legal Education). This business is functioning, but is not yet profitable, although the feasibility study done indicates that profitability is very possible, given the mandated requirement for legal education in every province.  Again, like the sports example, the demand is already there from a target audience with sufficient money to buy training.

Community centres  or community groups often provide courses on preserving or cooking, and there may be a fee for these. However, the presenter rarely gets compensated with anything more than an honorarium, and the true costs of the business are absorbed by the non profit (the fixed costs like the room, the staff or the marketing or the variable costs like the electricity or food input costs. Good examples of this are the Brainery (in New York, with a branch now in Ottawa). From the private sector, you might find examples like Ottawa Centertown Canning Company, which operates with a strong social mission, and probably a lot of “volunteer” labour from its owner.  You’ll note that their training workshops are “complimented” by products sold at various outlets around the city.  (ie model #2 above)

The bottom line: Consider providing workshops as a result of your business, rather than your ACTUAL business. If you choose the latter, then make sure you are selling to people/organizations that can afford to pay most if not all of the hard costs of the activity and where there is an intrinsic demand in the marketplace.

Help to support fair wages for global garbage pickers

August 26, 2015 /

One of Social Delta’s friends, Plastics For Change, has launched an Indiegogo campaign to raise money to launch their global platform to support a fair market economy for those on the globe who make a living collecting plastic from the world’s oceans and beaches.

The brain behind this concept is Andrew Almack,  and we’ve been working with Andrew for several months and have been amazed by his knowledge, drive, and commitment to this issue.  Social Delta has no doubt that this business will significantly improve the lives of thousands of individuals living in poverty, while simultaneously help to clean the world’s water of a  growing plastic menace.

Join Social Delta as a contributor to the Indiegogo campaign today, and learn more about how Plastics For Change is a force for good on our planet.

 

When is a medical innovation a social enterprise?

August 12, 2015 /
  • An effective device to decrease hearing loss in musicians or audiences.
  • A low-cost prosthetic limb to make mobility possible for millions unable to afford traditional technology.
  • A medical equipment business that makes it affordable to get a used wheelchair, bathroom lift or other medical aid.

These are all innovations that have led to improved health, especially for individuals in our community or around the world with a low income. But which among them is a social enterprise?

  • They all generate revenue through the sale of a product or service. As such, they are enterprises.
  • They all seek to improve health of individuals in our community. As such, they have a social mission.
  • They all require investment of time, resources and assets in order to bring their social benefit to market. As such, they have had to get grants, donations, loans or other forms of start-up capital.

If they walk like a duck, and sound like a duck, then surely they are a duck?

The first case is that of Ear Peace, a company that produces various simple earplugs that reduce decibel levels. It is a product that looks like a thousand others in the marketplace, but its salesman tells me that this private company exists to ensure that people’s hearing is protected. Their slogan sounds altruistic: “Hear Today. Hear Tomorrow.” They are available for about $12-20 a set online. Their website features logos of a variety of non-profit hearing loss agencies and associations. (inferring-but not expressly stating-some form of endorsement)

The second case is Legworks, a Toronto based company that calls itself a for-profit social enterprise. They have developed a low cost prosthetic limb to “help people walk again.” Mobility, they highlight, empowers amputees to more fully participate in society, work, and family life. They offer this technology to those in need “regardless of where they live or their ability to pay.” This social mission is to be achieved by creating a margin on sales in more wealthy markets in order to cover losses in other markets. They note that some 85-95% of the 10 million amputees worldwide do not have access to an affordable prosthetic device, and they recently won the Para PanAm accessibility tech pitch award.

The last case is now a historical case.  STRIDE was a medical aid facility operating in Ottawa, but it closed down because the free rent they enjoyed was lost, and in spite of the value they brought to their customers who paid on a “pay what you can” model, they were not able to generate sufficient revenue to pay for the rent increase. The inventory of medical aids were distributed to agencies across the city upon their closure. The business ran on largely volunteer labour, and dozens of agencies would refer clients to STRIDE to access medical aids needed after suffering an injury or contracting an illness.

All of these businesses could be considered a social enterprise based upon their stated mission. But are they social enterprises? One way to determine whether these are businesses with “a primary goal of achieving a social mission”  is to question where the money goes. Ear Peace appears to create profits for its owners.  Legworks might be profitable, it might not—only time will tell—but it has received financial support from publicly funded bodies and it is unclear where any future profits might go. STRIDE was certainly in the business of social benefit, but it was unable to remain in business without jeopardizing its social mission; this tragedy was precipitated because of a lack of a profit motive.

These businesses are but a few in a large array of those marketing medical improvements, breakthroughs and innovations.  As consumers and social enterprise supporters, we are challenged to determine which of those businesses are motivated by social mission and which simply create better health outcomes for a profit. This is the challenge of trying to define social enterprise. 

What we do know is that if each of these companies were to flourish and grow, then we would have a healthier society, and that is a good outcome regardless of the labels we might apply.

Summary: Canadian Conference on Social Enterprise

May 19, 2015 /

Did you miss attending the Canadian Conference on Social Enterprise in London Ontario in April?

Jonathan Wade of Social Delta offered a short presentation to members of the Ottawa Social Enterprise Meetup Group and has made this short presentation available as a free download.

Be sure to keep an eye on www.secouncil.ca for announcements about the next Canadian Conference,  scheduled for the Spring of 2017 in Winnipeg.

In the meantime, if you are a social enterprise, or a supporter of social enterprise, consider becoming a member of the Social Enterprise Council of Canada, so that you can add your voice to the movement to create a positive legal, social, and financial environment for social enterprises in Canada.

If you are a social enterprise or if you purchase products or services from social enterprises, consider becoming BUY SOCIAL certified. Visit www.buysocialcanada.ca or contact Social Delta for more information.

Social Enterprise: How to make your organization stronger

October 29, 2014 / / 0 Comments

There are many obvious benefits for a non-profit organization seeking to launch a social enterprise: Unrestricted revenue. Sustainable mission-based programming. Less reliance on grant cycles, reporting and application processes. Building new partners or constituencies.

However, often unseen and frequently unsung, there is also a truly transformative benefit that is realized by organizations considering social enterprise: Social enterprise planning and operations allows an organization to “operate more like a business.” Indeed, the very discipline of considering a social enterprise helps an organization focus its efforts on maximizing social value creation.

But what does it mean to “operate more like a business?”

First, it is important to note that conceiving, designing, launching or running a social enterprise does not subsume the organization’s social purpose, nor does it convert all decision making to be predicated on money or financial profitability. By definition, social enterprises exist with the primary purpose of improving the social fabric of our community; therefore a non-profit organization starting a (properly conceived) social enterprise should not jeopardize—but will actually strengthen—the organization’s social mission and create a culture of seeking to maximize social value creation.

I acknowledge that operating more “like a business” might sound wonderful to some, yet heretical to others. To address the perceived heresy, I offer the following list of the beneficial changes that might be expected within an organization considering social enterprise:

  1. Place a value on time. Business thinking quantifies return on investment, and time is an investment. The discipline of business planning helps to quantify and value the time of staff, board and volunteers.
  2. View organizational assets as capital. In a non-profit, the organization’s assets—social networks, human resources, intellectual property, cash reserves, experience, networks—are frequently undervalued and it is worthwhile to consider how these various forms of capital can generate revenue and social impact.
  3. Ensure peak performance. If social impact is seen as “profit” from various forms of capital, then the goal of maximizing social impact creates a rationale to reallocate various forms of capital from one initiative to another.
  4. Create and assess new ideas efficiently. Using a business planning process in the non-business activities of an organization creates a sound framework to filter brainstorming results through research, internal capacity, financial feasibility, strategic planning, funding vs. financing, and measurement lenses.
  5. Understand the cost structure. By allocating costs (and revenue sources) to the “business and non-business” operations requires a solid review of the budget, often illuminating activities that may need review or which are unsustainable.
  6. Make solid investment decisions. Strategic planning can follow a more business-like approach, from an analysis of internal and external strengths and weaknesses to how best to maximize the social return on investments of money, time and resources.
  7. Build dignity into the social mission. A business perspective challenges organizations to price products and services based upon cost, and market ability to pay, not based upon a presupposition that everything ought to be free.
  8. Stop the bleeding. When measurements are in place to document social effectiveness, it is far easier to know when to cancel programs, projects, or products if they are not maximizing capital to create social impact.
  9. Release unwanted inventory. If there are assets that are not being used efficiently to support the social mission, then a business discipline offers a clear rationale to reduce staff, sell a building, cancel a contract, sell an “in-kind” donation, etc.

Through these examples and others, I hope it is clear that “operating like a business” is not a dirty phrase, and does not turn a non-profit or a charity into an unfeeling, profit-driven organization. Social enterprise is a discipline, and that discipline includes tools and concepts that can (and in my experience will) directly benefit the operational and strategic choices made by the whole organization.

Social Enterprise 101: Launchpad or Prophylactic?

October 7, 2014 / / 0 Comments

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

August 7, 2014 / / 0 Comments

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.

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

July 14, 2014 / / 0 Comments

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

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