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Social Entrepreneurship
  research:Social Entrepreneurship

 
Q: What is social entrepreneurship?
A: There is no general agreement on what defines a social enterprise. On one end of the spectrum, it is a venture that generates earned income or revenue for a nonprofit. On the other, implementing the organization's mission and/or serving its clients are the primary objectives of the enterprise--profit is secondary.

Typically, organizations launch enterprises to accomplish one or more of the following objectives:

  • generating unrestricted or earned income to support all aspects of the organization's operations and programs

  • creating community wealth, by launching businesses in neighborhoods plagued by low levels of business activity

  • meeting organizational missions, by creating employment and job training opportunities for clients and hard-to-employ community residents.

The objectives listed above are often not mutually exclusive when launching a business venture. Social enterprises are typically driven by a desire to achieve both a financial and social return on investment. This "double bottom line" reflects an organization's need to have a financially viable enterprise that also furthers its social mission. [ back ]
 
Q: Why should I know about social enterprise? Isn't this just the latest trend?
A: It is generally good to be skeptical of any "trend" or approach that promises to deliver revenue or results without careful consideration and assessment of the risks and opportunity costs.

Given the ever-changing funding environment and increasing competition for scarce financial resources, finding new ways to generate future funding streams is a top priority for many nonprofit organization. Social entrepreneurship provides one more approach to sustaining your organization during turbulent financial times.

A recent article in the Chronicle of Philanthropy reports that "fees that charities charge for their services accounted for 47 percent of the growth in nonprofit revenue from 1977 to 1997, according to Lester M. Salamon, a Johns Hopkins University scholar. And while no definitive statistics show how many nonprofit groups operate business ventures, an online survey commissioned by the Pew Charitable Trusts in 2000 suggests that the number could be significant. Of the 519 charities that participated in the survey, 217 said that they run an earned-income venture, and another 28 reported having run ventures in the past."

("Charities Venture Into Business" by Nicole Wallace, "The Chronicle of Philanthropy, May 15, 2003, pp. 28-33.) [ back ]
 
Q: How do I access practical information about social entrepreneurship?
A: A basic primer on the topic is the New Social Entrepreneurs: The Success, the Challenge, and Lessons of Non-Profit Enterprise Creation (Roberts Enterprise Development Fund, 1996). This on-line publication is easily navigable and provides a practical and balanced perspective on nonprofit business ventures. The book's "report from the trenches" perspective provides interested organizations with an assessment of the real world challenges and opportunities.

You may wish to consult other resources on this site, including:

  • Bibliography
    Academic and practitioner research, best practices, and case studies on social entrepreneurship

  • Websites
    Links to organizations devoted to social entrepreneurship and nonprofit management issues

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Q: What are some examples of social enterprise projects nationwide and in my own community?

Nationwide

  • The REDF's New Social Entrepreneurs includes a number of detailed case studies and summaries. These profiles include detailed discussion of the enterprise, organizational and financial issues, and "lessons learned."

  • The Social Enterprise Directory assembled by the Social Enterprise Alliance and Community Wealth Ventures is an on-line database containing information about nonprofit organizations with business ventures and strategic alliances. Search the database or add a profile of your own nonprofit enterprise.

Local

  • In addition to the well-known retail resale centers, the local Goodwill Services of Southeastern Wisconsin and Chicago, Inc. is a national leader in developing job training programs in the commercial services industry which generate revenue for the organization itself.

  • La Causa, Inc., located on Milwaukee's south side, imports Mexican art, furniture and gifts for wholesale and retail distribution. The gallery and warehouse have also become an integral component of La Causa's school, using the operations and products for lessons in math, history, culture and business theory.

  • Strive Media Institute sells the services of its students in graphic and media design and production to corporations, governmental agencies and nonprofit agencies. Students learn the industry and the business operations.

  • America's Second Harvest of Wisconsin is the primary member of Evoco, a Limited Liability Company, which packages and sells nutritious food boxes at low cost to other service providers.

  • La Casa de Esperanza in Waukesha generates income through its weatherization services to low-income families and individuals, paid through government contracts. It also sells these services directly to homeowners at cost plus a reasonable profit, which creates a second source of customers for a similar service.

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Q: What type of support is available for emerging social entrepreneurs?
A: If winnowing through vast amounts of research and case studies is overwhelming, your organization may want to consider the many local or national training and information sessions offered. The following sections on this site provide links to opportunities and training resources:

Local Courses and Workshops

Local Service Providers

National Technical Assistance and Funding
A number of prestigious foundations are contributing to the national dialogue on non-profit business development. Foundations offer opportunities to explore new research in the field and possibly serve as a source for business development funding. Below is a partial list of organization and foundation websites:

Other foundations that may provide funding for enterprise development relevant to specific program areas include:

  • The Pew Charitable Trusts
    The Trusts support nonprofit activities in the areas of culture, education, the environment, health and human services, public policy and religion.

  • The William and Flora Hewlett Foundation
    The Foundation concentrates its resources on activities in conflict resolution, education, environment, performing arts, population, and U.S.-Latin American relations.

  • David and Lucile Packard Foundation
    The Foundation provides grants to nonprofit organizations in the following program areas: conservation and science; population; and children, families and communities.

  • Annie E. Casey Foundation
    Grants to foster public policies, human service reforms, and community supports that more effectively meet the needs of today's vulnerable children and families.

  • Robert Wood Johnson Foundation
    Grants to support health care and health related services.

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Q: How do I know if social enterprise is right for my organization?
A: This question is perhaps the most important one to consider. A nonprofit business venture may or may not be the right path for a variety of reasons (timing, financial resources, staffing levels, internal expertise, etc). Your organization may not be in the right position to assume the risk associated with entering into the marketplace. Accordingly, there are a number of important factors to consider.

The National Center for Social Entrepreneurs provides a basic assessment tool for organizations contemplating a business venture. The Nonprofit Entrepreneurial Quotient (NEQ) provides a straightforward assessment tool for organizations and boards to use in evaluating their "readiness" to a launch an enterprise. The assessment can be found under the "resources" link on the organization's website (above).

In addition to the questions included in the NEQ, an organization must also consider if it possesses the business acumen and financial resources needed to undertake the planning and development of a new enterprise. A for-profit business enterprise will require more than an idea, product, or inspiration. It will require fundamental business planning and execution.

Idea/Mission

Does your organization have a business opportunity identified?
It may seem obvious, but many organizations embark on planning "a venture," but really have no clear sense what specific business opportunity (product, service, etc) they intend to pursue. Your organization will need to identify the specific business opportunity before expending resources on planning. And,

Does the business idea meet your organizational mission/goals?
Remember your organization's core values throughout the development and planning process.

Planning

Make certain that you have a comprehensive planning process in place.
An organization will need the resources and technical expertise to complete marketing and business plans. These documents are absolutely essential in planning and launching a successful enterprise and securing business capital. Many organizations overlook these crucial steps. Remember, your organization is launching a new business venture not a new program.

Expertise

Do you have the staff and internal expertise (capacity) to development and execute a business enterprise?
Keep in mind that your organization may be highly successful possessing an outstanding reputation for program innovation and service delivery. These strengths, however, do not guarantee automatic success in the market place. Accordingly, if you do not have the business expertise or staff capacity in-house, targeted technical expertise will be essential.

Accountability/Entrepreneurial Team

Does your organization have a point person or entrepreneurial team to direct the process?
In general, most nonprofit business ventures start with an idea from a "vision person." This person(s) is the one who generates the enthusiasm and desire needed to move the organization and/or its board to consider a for-profit venture. Although this person is key to launching the idea, there is also a need to ensure that the organization has identified the individual or team who will play a critical role in planning, executing, and launching the enterprise.

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Q: Help! I'm ready to engage in social entrepreneurship, but my board isn't.
A: Launching a for-profit business is a risky proposition. As a consequence, "doubters" help facilitate a frank and needed discussion about the pros and cons of moving ahead.

Planning and executing a for-profit venture will require general agreement among the organization's key decision makers, especially the Board of Directors. Organizational governance issues aside, members of the Board bring of wealth of business, financial, legal, and entrepreneurial expertise to the organization. Their expertise can both enhance and facilitate the planning and development process.

For more additional information, go to the Corporate/Board Resources link on this site. [ back ]
 
Q: Is our organization ready to embark on a nonprofit business venture?
A: The Roberts Enterprise Development Fund provides an excellent set of questions to help organizations gauge their readiness for nonprofit venturing.

  • What is our core mission and reason for existence? What do our articles of incorporation say? What do our employees say? What do our clients or communities of interest say?

  • How do we currently deploy our resources in support of that mission?

  • Do we use our resources as effectively as we could to pursue our mission?

  • Are there activities that really don't relate to our mission and that we could transfer to another nonprofit with greater capacity to deliver that service or program?

  • Are there other organizations in our area that could provide these services more effectively than our organization?

  • What are our total assets (financial, real estate, volunteer, professional, etc.)?

  • What are our significant liabilities and challenges? (carrying debt, no financial stability, etc.)?

  • Is it possible for us to develop earned income based on any of our current activities?

  • Can we modify something we currently provide for free into a product or service for which we could charge fees?

This information as well as other resources is available at the Roberts Enterprise Development Fund. [ back ]
 
Q: How are social enterprises financed?
A: Because social enterprises are not just "another program" of the agency, most social enterprises are funded internally by the organization as well as with loans or investments from traditional and nontraditional financing sources. Some foundations, including those mentioned above, may provide seed capital in the form of grants.

A few foundations are offering Program Related Investments (PRIs), a mission-driven loan from a foundation. The Helen Bader Foundation is the primary foundation in Wisconsin offering PRIs to projects that fall within the Foundation's funding and interest priorities.

Some banks and other financial institutions offer Equity Equivalent Investments (EQ2s). These are low rate, higher risk funds in a partnership-type arrangement. [ back ]
 
Q: How is the success of a social enterprise measured?
A: It is critical to determine what anticipated outcomes of the social venture are realistic. Most social enterprises are not significant profit-making operations for the sponsoring organization. They are a method for generating income to cover program expenses and to develop another strategy for meeting the organization's mission.

The obvious evaluation for social entrepreneurship is the amount of "profit" generated for the agency, or, in most cases, the percent of program costs paid by the newly earned revenue. In addition, Roberts Enterprise Development Fund has created a method to measure the Social Return on Investment (SROI), parallel to Return on Investment (ROI) in for-profit business investments.

Social Return on Investment calculates the actual investment, income and expenses as well as the "savings" to the community in costs for alternative services. For example, the SROI for a job training program in a Ben & Jerry's shop would include the savings of the costs of program activities or institutionalization for the clients who are now workers.

For more information on Social Return on Investment, read "A Report from the Good Ship SROI" by Cynthia Gair, published on the Roberts Enterprise Development Fund website. [ back ]

This portal chapter has been underwritten in part by the United Way of Greater Milwaukee, the Helen Bader Foundation, and the Nonprofit Management Fund. It is part of an initiative to promote awareness of social entrepreneurship in Milwaukee's nonprofit sector. Collaborative partners include:


The Nonprofit Portal of Greater Milwaukee is a project of the Helen Bader Institute for Nonprofit Management (HBI) at the University of Wisconsin-Milwaukee with content provided by a coalition of Milwaukee nonprofit provider organizations. For more information, contact us. Nov-20-08