Introduction to Social enterprise Loic Comolli NESsT Nairobi, Kenya February 9, 2007

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Introduction to Social enterprise

Loic ComolliNESsT

Nairobi, KenyaFebruary 9, 2007

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NESsT Mission

NESsT is dedicated to finding lasting solutions to systemic poverty and social injustice through the development of social enterprises -- mission-driven businesses that increase the financial sustainability and social change impact of civil society organizations.

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About NESsT: Four Initiatives

NESsT “University”

NESsT Consulting NESsT Marketplace

1 2

3 4

NESsT Venture Fund Philanthropic

investment funds supporting social enterprise portfolios in emerging markets.

Promoting accountability, innovation, leadership and professionalism in the field

Providing professional services in social enterprise development

A global on-line shopping directory of social enterprise products & services

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Venture Philanthropy

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Engaged Philanthropists

•Limited portfolio of organizations•Focus on one or two issues•Want lasting relationships with NGOs and to make a significant impact on organizations (at all levels)

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Engaged Philanthropists

•Engaged in organization as volunteer (Board, expert advice, etc.)

•Multi-year support•Build organizational capacity (systems, admin staff, policies)

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Definition of “venture philanthropy”

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Business Advisory Network

Expertise Networks Funding

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Social enterprises

• Strategy• Marketing• Fundraising• Finance• Accounting

• New programs• New countries• Specialized expertise

• Multi-year• Co-financing

• Feasibility studies• Business plans• Trainings and advice

• Specialized expertise• Training and advice

• Business plan funding

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Social Enterprise

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What is Organizational Sustainability?

Organizational sustainability is not strictly a financial consideration;

Financial sustainability is only one of several factors contributing to a CSO’s overall sustainability; and

Self-financing is only one factor contributing to overall financial sustainability and diversification.

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Organizational Sustainability

FinancialSustainability Self-Financing


Organizational sustainability

Financial sustainability

Self- financing



Self- financing



Self- financing

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Strategy/Strategic Plan

Fundraising

Social enterprise

Social enterprise

Fundraising

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Typical NGO FinancingThe Short-Run Approach

• short-term project cycles • limited, competitive pool of donor resources• difficulty securing core operating resources• shifting donor priorities

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More Sustainable NGO FinancingThe Long-Run Approach

• more steady flow of secured income

• diverse funding sources, decreased dependence

• more unrestricted income

• ability to think and plan more long-term

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Social Enterprise: Definitions

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Source:Alter, Kim, Social Enterprise Typography. The Inter-American Development Bank, Washington, DC, 2003.

Hybrid Spectrum

TraditionalNGO

NGO withIncome Generating Activities

NGOEnterprise

Socially Responsible Business

Corporate Social Responsibility

Mission MotiveStakeholder AccountabilityIncome reinvested in social programs

Profit-making MotiveShareholder Accountability

Profit redistributed to shareholders

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What is Social Enterprise?

- an activity providing products or services through an on-going, professional business strategy;

- a deliberate business activity launched following rigorous feasibility evaluation and planning;

- an entrepreneurial income-generating activity designed to strengthen -- in a significant manner -- the mission of the organization.

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Social Enterprise Methods

Like sale of services, the costs of making the product are difficult to recover (if one includes labor) and they are often subsidized by grants.

Your nonprofit sells its publications or products produced by your constituents as part of an employment generation program.

Product SalesSelling products produced by or for the nonprofit’s constituents; reselling donated products; or producing and selling new Products.

The true profitability of services is often difficult to calculate as many are subsidized by donations/grants. Pricing structures may be such that paying clients “subsidize”nonpaying or lower-paying clients (i.e., cross-subsidy). Services are often the most time consuming strategy but potentially lucrative.

Your nonprofit provides consultation services to individuals, businesses or government agencies.

Fees for ServicesFees charged by the nonprofit in exchange for a provided service, oftentimes a service capitalizing on some existing skill or expertise of the staff.

Membership dues can resemble an individual donation. The difference between a donation and membership fee is that the nonprofit provides something (product/service) in return. Often the least time consuming, lucrative and risky methods.

Your nonprofit provides a magazine to members and/or offers other membership services or products.

Membership DuesA fee collected from nonprofit members or constituents in exchange for some kind of product or service orother benefit.

PROFITABILITY/RISKEXAMPLEMETHOD

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Few nonprofits have reserves or excess income, but some invest program funds not currently in use on a short-term basis. Stock-market investment can be highly risky, but maximizing income from interest-bearing accounts can be low risk.

Your nonprofit invests its savings in high-yield interest bearing accounts or mutual funds.

Investment Dividends Dividends from active or passive investments of financial resources (e.g., savings, endowments, reserve funds, etc.).

Use of soft assets can be lucrative but can be highly risky, particularly for the nonprofits organization’s reputation and public image.

Your nonprofit endorses a product of a corporation, lending your name in exchange for a royalty fee.

Use of Soft AssetsGenerating income from nonprofit-held patents, licensing agreements, royalties for intellectual property, or endorsements.

Hard assets can provide a stream of revenues while also appreciating in value (although they can also depreciate). Hard assets can also pose some risk as they must be maintained from wear and misuse.

Your nonprofit rents out its conferenceroom space for trainings, workshops or meetings.

Use of Hard AssetsRenting out real estate, space/facilities, equipment, etc. when not in use for mission-related activities.

PROFITABILITY/RISKEXAMPLEMETHOD

Social Enterprise Methods

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Mission: Committed to confronting patriarchal power relations and public policies in Chile in order to overcome gender discrimination, change sexist practices, and improve the quality of life for women.Social Enterprise: Psychological Attention Center: through differential rates, provide psychological attention services mainly to women from mid to low income levels, with the objective of reaching and consolidating their operations by breaking even, retaining a strong and experimented team (shifting from a fee to a salary structure).

NVF Later Stage Portfolio: La Morada

Santiago, Chile

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Sports NGO an eco-tourism travel agency

Sports NGO organizes sports events for businesses

Sports NGO sells donated sports equipment to the youth participating in its leagues

Sports NGO charges fees to participate in its youth football leagues

Sports NGO organizes youth football leagues

Example: Example: Example: Example: Example:

New product/service to new paying customers (unrelated/ ancillary business activities)

Extension of the mission-related activities of the NGO to new paying clients

New products/services offered to the existing NGO constituents

Earned income directly from the NGO’s program activities

Services specified in the NGO charter, bylaws, mission

New Product/Service New Customers

Existing Product/Service

New Customers

New Product/Service

Existing Customers

Existing Product/Service

Existing Customers

Program Activities

Spectrum of NGO Social Enterprise Activities

Related to CSO Mission

Unrelated to CSO Mission

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SocialPrograms

+EnterpriseActivities

EnterpriseActivities

SocialPrograms $

EnterpriseActivities

SocialPrograms

$

Embedded

Integrated Complimentary

Social Enterprise Archetypes

Source:Alter, Kim, Social Enterprise Typography. The Inter-American Development Bank, Washington, DC, 2003.

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Social enterprises can help organizations increase social impact

• Enterprises provide funding to the nonprofit organization• They also create opportunities to support the mission

through a business– Jobs for disadvantaged populations– Improvements in the environment

NGO SocialImpact

SocialImpact

Enterprise

NGO SocialImpact

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Benefits of Social Enterprise

•Increased income•Diversified revenues•Greater flexibility•Improved overall organizational

performance•Positive impression on donors•Strengthened board•Increased visibility•Increased self-confidence

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Later Stage Portfolio Central Europe : Vydra

Vydra(Slovakia)www.vydra.sk

Mission: Preservation of local traditions, culture & environment in rural Microregion, Cierny Hron.

Social Enterprise: With support from NESsT, Vydra has launched a "Tourist Camp” (café, cultural, environmental & recreational events) in the Vydrovská Valley to encourage tourism, create local employment opportunities, and sustain itself.

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Goals will not be met if the enterprise is not well planned!

• However, social impact will decrease if the nonprofit is not healthy and/or the enterprise does not match the needs of the organization.– If the organization is not currently sustainable, the focus on the enterprise will

further dilute it’s impact– If the enterprise does not fit with the current mission and culture of the

organization, it will also limit the overall impact of the organization

Enterprise

NGO

Enterprise

NGOSocialImpact

SocialImpact

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Benefits of Social Enterprise

•Not appropriate for all nonprofits •It’s not easy •Not for nonprofits that are in a financial

crisis•Not a way to get “quick money”•Not risk free•There is no recipe•Can cause internal conflicts

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Comunidad Terapeutica PeñalolenSantiago, Chile

Social Enterprise: Gardening services. Creation, maintenance and cleaning services for public and private gardens and parks, employing beneficiaries.What went well: Gain a contract quickly and gave stability and income to a group of beneficiaries.What went wrong: - Underestimated operational issues and costs related to transport.- Didn’t consider importance of productivity level vs. capacity of beneficiaries- Didn’t plan on permanent supervision and associated costs- Legal and administrative problems due to lack of planning

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Examples from Sports Organizations

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National Council of SportsUganda

Focus: Organizes national schools and institutional championships. A total of 26 national events are held each year.

Income generation: Council has a sports complex composed of a club house, indoor courts, guesthouse, and hostel. • Club house• Indoor courts• Guesthouse/hostel

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National Council of SportsUganda

Financial history:• 5 years ago: 100% government-funded• 2006: 35% self-financed

Cost recovery programs:• Souvenirs sold at national championship events (t-shirts, caps, etc.)• Schools/districts/clubs pay participation fees for the national events• Once they have reached certain target usage, national associations pay small fees to use the facilities

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Focus: Empowerment of youth, children, women, and the disabled through sports.Income generation: • Consulting: sports trainings on sports for social change programs. Also consult on how to organize sports events. • Transport: rents out truck and bus.• Young Farmers Club through Sports: capacity building in farming and linkages with supermarkets to sell produce; sustainable program.

Sports in ActionZambia

Self-financing:• 2006: 45% of budget• Plan to scale up activities to pay salaries and administrative expenses

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Other Examples

• sports events • T-shirts• township tours• manufacture and sale of sports equipment• sports tourism• workplace trainings on HIV/AIDS• job placement agency

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Organizational Readiness: Are we ready? Is this the best moment? Are we committed? Timing: 2/ 4 weeks

Enterprise Development Process

• It is risky to skip steps in this process: – putting significant effort/resources into a business not appropriate for you– starting a risky business that does not meet your financial/mission goals

Objectives: minimize risk; build on previous stage; acquire a methodology and build capacity within your organization

Feasibility: Is the business worth pursuing?

Business Plan: How can I implement this business?

Pre-feasibility: Is the idea worth investigating in-depth?

Timing: 2/ 4 weeksOVERVIEW

Timing: 2/ 3 monthsIN DEPTH

Timing: 2 months

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Introduction to Social enterprise Loic Comolli NESsT Nairobi, Kenya February 9, 2007