Experts explain the basics of social enterprise

By Abny Santicola

Wondering what this "social enterprise" thing you keep hearing about here (literally, it was FS' June cover story) and there is all about?

In the webinar "Charity? Or Mission-Driven Business?" in May, Jean Block and Randy Gleason, principals of Social Enterprise Ventures, explained the basics of social enterprise and shared tips regarding the necessary steps involved in getting started.

Definition
With traditional funding — grants, special events, donations, sponsorships, underwriting, etc. — fundraisers get funds, use them and then have to go out and get more, and they're often restricted in some way.

Social enterprise, however, offers nonprofits sustainable sources of unrestricted renewable income while enhancing their missions. Income can be generated through sales, payment for services or other business opportunities, and can be used as an organization sees fit. Social enterprise doesn't replace traditional fundraising, but rather it is a new tool in an organization's toolkit that provides more money to better further the mission.

Block and Gleason noted that some common myths about social enterprise are that nonprofits can't make a profit; it's just a quick fix; if they earn money, they'll lose their nonprofit status; and they'll have to pay tax on the income.

They suggested organizations consider social enterprise ventures because the funding marketplace is changing — corporate giving is now directed toward investing for the long term rather than buying tables for a one-off event; government funding is diminishing and being redirected; and donors are tired of giving to organizations that operate with a poverty mentality. To capitalize on this, the presenters said, nonprofits should shift to earned income, noting that "nonprofit is a tax designation, not a business plan."

Key steps
Before starting a social enterprise, assess your organization's readiness to take on such a venture. This involves:

determining if your board and staff are willing to invest in changing from charity-think to sustainability;
determining if the board and staff are open-minded;
having board and staff create a dedicated team to learn social enterprise;
ensuring that every member of the team is committed to the journey; and
determining if board and staff are willing to invest the time and dollar resources into learning social enterprise.

What typically results from this assessment is:

fundamental and systemic changes in the way an organization manages itself;
a business plan for an earned-income social-enterprise venture;
enhancement of current programs and services by providing added benefits that create new income sources from new payer markets and customers; and
a new, objective method by which to evaluate current and future programs, services, and income opportunities.

Block and Gleason laid out the following key steps in the journey to become a successful social entrepreneur:

1. Start with a common understanding of the basics.

Mission, vision and core values — The groundwork for social enterprise.
Internal and external forces — What is motivating your organization to develop earned income?
Mission and dollar goals — How will you measure success?
Stakeholder communication — Who are they? What are their concerns? How will you communicate with them?

2. Build an inventory of assets.

Core competencies — What you do extremely well (e.g., your products and services).
Physical assets — What you have that is underutilized.
Technical and knowledge assets — What you know (e.g., training).
Relationship assets — Who you know that can help with social enterprise (e.g., people with influence and a business background).

3. Set objective evaluation criteria.

Set parameters to evaluate potential earned income opportunities.
Narrow the field to serious potential opportunities.

4. Brainstorm opportunities, and leverage your assets into earned income. Some options are:

Service opportunities — Deliver a service to a market that you currently serve or a new market. An example they shared was a human-services agency that bundles current and new programs for seniors, marketing to their adult children and caregivers.
Knowledge opportunities — Deliver knowledge to a current or new population. For example, a nonprofit training agency develops training programs for small businesses.
Product opportunities — Produce or deliver a tangible product. For example, a food bank expands its product line to include non-food items.
Employment opportunities — Provide direct employment to current or future customers or clients. For example, an agency serving people with disabilities expands its greenhouse program into the organic market, employing the disabled.
Unrelated venture opportunities — Take advantage of underutilized assets or develop an opportunity unrelated to your asset inventory. An example is an agency that holds an online auction in partnership with a for-profit business.

5. Evaluate opportunities.

Rank and score the opportunities.
Use objective criteria.
Select those with highest initial potential to reach mission and dollar goals.

6. Market research and feasibility.

First research the customer(s). Is it a case of market push or market pull? What are the trends in the market? Who is your target market? What is its size? Are you targeting buyers or users? What's the buyer motivation? What are the buyer profiles? What features and benefits will you offer them?
Then research the competition. Is it direct or indirect competition? What are the strengths and weaknesses of your competition? How will you compete and differentiate yourself within the market?

7. Costing analysis — costing, financing and unrelated business income tax (UBIT)

Define costs — direct, indirect, variable, fixed, start up and recurring.
What is the break even point — profit margin?
Explore financing options from banks, nonprofit lenders and foundations.
Look into UBIT (see IRS Publication 598) — It must be paid if your social enterprise is a trade or business, is regularly carried on, and is not substantially related to furthering the exempt purpose of your organization. Block and Gleason recommended getting professional advice at this stage in the planning process.

8. Sales planning
Elements in a sales plan include:

Customer profiles — buyer and end users.
Market positioning
Distribution methods — How will you reach customers and end users?
Pricing — High price vs. budget price, and sales volume issues.
Promotion — How will you tell potential customers and end users about your social enterprise?

9. Write a business plan, pulling everything you've learned into one document.