Building Social Enterprises

If you were following Strong Roots’s Twitter feed yesterday, you probably noticed that I was at a workshop on Building Social Enterprises for non-profits. Hosted by the United Way of Saskatoon and Area and Affinity Credit Union and featuring David LePage of Enterprising Non-Profits (enp), the day provided some great food for thought for non-profits interested in starting a social enterprise as well as outlining the steps to move from an idea to reality.

The idea of social enterprises run by non-profits is not new or unusual. Examples run the full gamut of business ventures including museum and hospital gift shops, theatres, credit unions, recycling depots, thrift shops, cleaning agencies, dental clinics – name any sector and you can probably find an example of a social enterprise. What differentiates these businesses from the traditional model, besides the fact that they’re run by non-profits, is the focus on creating a broader impact in the community beyond narrow economic measures. Whether it’s expanding job opportunities for individuals traditionally un- or under-employed, decreasing social isolation, building cultural capital, or encouraging environmental sustainability, social enterprises aim to make a difference.

A quick note about definitions, since the concept of “social enterprise” is growing in popularity. LePage defined the term as only those businesses run by a non-profit, whereas others would expand social enterprise to include for-profit ventures with an explicit social mission (what LePage called “socially responsible businesses”). Personally I’m in the latter camp and consider Strong Roots Consulting as a social enterprise, despite its structure as a for-profit company (look for a post on this topic in the future!), but I can understand where the presenter was coming from.

I won’t go into too many of the details from the presentation here as enp provides a great resource, the Canadian Social Enterprise Guide, as a free PDF through their website: instead, I’ll highlight some key ideas and insights that I took away from the presentation.

Oreo vs. Pesto

At the heart of social enterprise is the focus on both financial and social returns on investment, or making a difference and a profit. There are two approaches to take towards meeting those goals, the “oreo” model and the “pesto” model. Some ventures will clearly separate out the financial and the social impact: for example, a company may donate a portion of its profits to charity, or a non-profit may run a business for the primary purpose of providing resources for its programs and services. In this model you can look at the the profit and the social purpose separately, just like the cookie and the filling are different parts of the oreo.

The other approach is to blend or integrate the pieces so that they’re inseparably. A social enterprise that hires former gang members to provide them with employable skills or sells fair-trade goods exclusively as part of an international development mission marries the financial and social: you can’t separate out the components any more than you can remove the basil or pine nuts or garlic from a pesto. Neither approach is automatically better than the other: it all depends on your purpose in starting the business.

Know Your Motivation

The reason for starting a social enterprise will generally fall in one of three categories: filling a community need in the market, advancing the mission of the parent non-profit, or contributing to the parent’s financial sustainability, or in simpler terms, market, mission, or money. Great social enterprises may end up contributing to all three outcomes, but it’s more likely that one of them will be the primary motivational driver, particularly in the start-up phase.

An exercise from the workshop clearly demonstrated the importance of being clear on purpose. Event participants were divided into four groups and tasked with developing a business plan for a thrift store (or at least starting a plan, since we only had 15 minutes!). The catch was that each group had a different motivation for launching the store: employing people with disabilities, earning profit for the parent organization, selling affordable clothing and household items in a low-income neighbourhood, or providing employment training for newcomers to Canada. My group was assigned the last one in the list, and while we included considerations around language support and teaching workplace cultural norms, we soon drifted to thinking about other goals. Should our store sell business attire at low cost for immigrants seeking work? Should we partner with international development agencies to share resources and build mainstream community interest? Could this business contribute back to our agency’s bottom line?

At some point, our group realized that it would be very difficult to incorporate all of those ideas and still have a business that was even remotely financially viable. Listening to the other teams present, it became apparent that purpose drove all sorts of “on the ground” decisions from business structure to location to human resource practices: for example, a venture to generate profit may attempt to limit staff turnover, while our concept would include exit or graduation policies so that new participants could continually enter the program. The store selling items to low-income families would try to keep prices as low as possible, in contrast to the enterprise employing people with disabilities that wanted to provide a living wage. As the business became established, the other goals could potentially be added but the primary motivation would continue to guide operational considerations and planning, particularly in the face of challenges and dilemmas.

Planning for The Long Haul

As LePage pointed out, a social enterprise is not a silver bullet or a quick and easy source of cash. Just like a for-profit business, there’s a start-up phase that can last up to five years before the model stabilizes sufficiently to generate regular returns (financial or social). A non-profit interesting in taking this route needs to do a lot of planning and preparation work, starting with developing internal buy-in and capacity, brainstorming business ideas, and ensuring that these opportunities are aligned with their strategy and mission.

A particularly important task is conducting a feasibility study: can your idea become a viable business while meeting the desired social outcomes? LePage shared an example where he was part of a small group planning a garden centre in an inner city neighbourhood. At this stage of determining feasibility, it soon became apparent that, outside of those leading the project, very few people in the community were interested in gardening. Morale of the story? It’s important to know and engage with your community!

Once feasibility is established, drawing up a business plan can help bring the details into place and serve as a tool for management, communications, marketing, and raising capital. One notable divergence from the traditional business plan is the inclusion of cost calculations associated with the social mission, such as providing supports to employees or accepting lower profit margins on the products and services sold. Since social enterprises led by non-profits can rely on support from their parent organization, these resources can also be included in the plan: on the flip side, the plan also has to consider what risks it poses to the parent, such as affecting its reputation or financial picture.

The Road Ahead

I greatly enjoyed attending the event, and not just for the extensive knowledge and personal experiences shared by the presenter (though that was definitely appreciated!). It was encouraging to see representatives for a wide range of non-profits at the presentation and to hear stories about social enterprises in the works, as well as the support and interest of the host organizations. Today I chatted with some colleagues who are interested in moving forward with supporting social entrepreneurship in Saskatoon: stay tuned!

Quick plug – Strong Roots Consulting works with non-profits and social entrepreneurs alike to support project creation and development, from planning and building the case to evaluating your efforts and helping you adapt in response. If you’re interested in starting a social enterprise and need a hand, let’s talk!