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!

Evaluation Planning and Grant Applications

There are tons of great podcasts out there focusing on the non-profit world and evaluations, enough that I can do a full post on that topic sometime. Perusing the back episodes of the Chronicle of Philanthropy’s “Making Change” podcast, I came across a great interview with evaluation mastermind Michael Quinn Patton. He spoke at length about developmental evaluation and the growing movement for accountability, but one story he shared near the beginning (around the 6:30 mark) caught my attention. Patton related a common experience where a non-profit calls him up to say that they need an evaluation and were recommended to him. He asked what kind of evaluation they need, and after a confused silence they replied “A kind?”. He went on to tell the befuddled caller that just like there are different kinds of restaurants and computers and cars, there are different kinds of evaluation. In response the non-profit representative explained that their three-year foundation grant is coming to an end and they just noticed that they are supposed to do an evaluation as part of their agreement with the funder, at which point Patton responded, “I don’t do that kind of evaluation”.

Funders are increasingly asking applying organizations to evaluate their programs and projects: for example, the Ontario Trillium Foundation, a major funder in that province, has a dedicated page on creating an evaluation plan. Thankfully, OTF points out that evaluation planning should be incorporated in the program design process and take place before the project starts: as Patton’s story implies, leaving the evaluation to the last minute is not an ideal situation for either the evaluator or the organization.

With the approach of fall signalling the beginning of a new grant application season, now’s a great time to think about how evaluation fits in to the process. Every funding body and applying organization brings unique considerations, but there are three general principles to consider when you reach the “Evaluation” component of a grant.

1. Be clear as to what funder is looking for

This point is crucial, not just for the evaluation piece but the grant as a whole. If you don’t meet the requirements or understand what they’re asking for, all that time planning and writing will go for naught. Fortunately, almost all funding calls will list a contact person who can answer your questions and oftentimes provide some informal feedback on your application (or at the very least let you know if your idea is completely out in left field). Seek clarification on any points of uncertainty – ignorance is not bliss!

2. Know what you’re getting into

From the safety of the planning process, it can be easy to create an elaborate plan – sure, we can survey all of our participants four times during the program and run six focus groups! Although you should ensure that you are meeting the minimum requirements of the grant (following point 1 and clarifying with the funder directly if necessary), it’s better to underpromise and overdeliver instead of vice versa. Make sure you have the capacity to follow through on what you’re promising in terms of staff time and skills to plan the evaluation and collect and analyze data, as well as having access to the necessary tools such as online survey platforms or statistical software. Check whether you can use a portion of the grant funding to pay for tools and additional staff time or to hire an external consultant to conduct the evaluation.

3. Make sure the evaluation meets your needs too!

It’s all too easy to see the evaluation component as yet another hoop to jump through to get access to a pool of funds, but there are many benefits to your organization. What do you want to learn about your program, your participants, and your community? If the funder simply checks that you completed the evaluation and dumps it in a file-drawer with no impact on future funding, was the process still useful for you? An evaluation can contribute to the ongoing planning and development of your program, as well as demonstrate effectiveness and impact to your staff, participants, community partners, and future potential funders. In fact, ideally the evaluation planning should happen independently of any grant: when you get to that part of the application, it should just be the case of tweaking the pre-existing plan to meet any requirements of the specific grant.

Any other advice that I’m missing here? Share in the comments below or on Twitter!

If you represent a non-profit organization in the Saskatoon area that’s looking for help with evaluation planning, drop me a line – the initial conversation is (and will always be) free of charge!

Seeds for Thought: Five and Change

This week’s seed features Chi Yan Lam, a friend and colleague who is completing his PhD in Education at Queen’s University. We share an interest in developmental and collaborative approaches to evaluation, though as you can see from his about page, he comes at it more from the academic and theoretical side.

In support of writing his dissertation, Chi recently relaunched his personal site as a process journal to “chronicle and archive [his] emerging thinking and serendipitous discoveries around evaluation and design”. A recent post brings up the idea of the Stanford $5 challenge, where students in the Technology Ventures program are asked to use $5 and two hours of time to make a profit. Those most successful didn’t end up using the money: that resource all too often turned out to be a trap, too little to turn into anything with taking a huge risk like buying a lottery ticket or hitting the slot machines.

This example really resonates with my experiences in the nonprofit field. The first question that’s usually raised after generating a new idea for a program or service is where will the money and resources come from: in response, many organizations will “gamble” staff time and resources on preparing a grant application. If the gamble doesn’t pay off, the idea is dead in the water, morale drops, and staff are discouraged from coming up with innovative solutions in the future.

Instead of focusing immediately on what we need for success, oftentimes we need to take a step back as Chi suggests and first determine the need for a program (or to borrow from the business world, whether the “market” is there), and then whether our theory of change (the steps from here to there) matches our plan of action. These two steps can help identify faulty assumptions or leaps of logic in your plan, but more importantly, they force you to question if there is a better path to success. For example, is it possible for the program to take advantage of existing in-house resources such as a spare room and some dedicated volunteers, or draw on connections with community partners such as a university community service-learning project? A successful program will at some point need dedicated resources, just as a successful business venture will need capital to go to scale: however, if an idea can show some initial successes on $5 and two hours of time, it’s an easier argument to make that investing more time and money will be worthwhile.

(A quick shameless self-promotion here – my approach to supporting project development takes a similar approach, working with organizations to better understand the need and context, clarify how the program will work, and identify potential resources. If you’re at this stage of a program design and not sure how to proceed, drop me a line!)

Question: Think about a cause or issue you’re passionate about – what would you do to start creating change with $5 and two hours?