NESs T Introduction to Social enterprise Loic Comolli

NESs. T Introduction to Social enterprise Loic Comolli NESs. T Nairobi, Kenya February 9, 2007 www. nesst. org © NESs. T - Not for circulation, duplication or use without permission from authors.

NESs. T Mission NESs. T 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. www. nesst. org © NESs. T - Not for circulation, duplication or use without permission from authors. 2

About NESs. T: Four Initiatives NESs. T 1 3 NESs. T Venture Fund Philanthropic investment funds supporting social enterprise portfolios in emerging markets. NESs. T Consulting Providing professional services in social enterprise development www. nesst. org 2 4 NESs. T “University” Promoting accountability, innovation, leadership and professionalism in the field NESs. T Marketplace A global on-line shopping directory of social enterprise products & services © NESs. T - Not for circulation, duplication or use without permission from authors.

NESs. T Venture Philanthropy www. nesst. org © NESs. T - Not for circulation, duplication or use without permission from authors. 4

Engaged Philanthropists NESs. T • 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) www. nesst. org © NESs. T - Not for circulation, duplication or use without permission from authors. 5

Engaged Philanthropists NESs. T • Engaged in organization as volunteer (Board, expert advice, etc. ) • Multi-year support • Build organizational capacity (systems, admin staff, policies) www. nesst. org © NESs. T - Not for circulation, duplication or use without permission from authors. 6

Definition of “venture philanthropy” NESs. T www. nesst. org © NESs. T - Not for circulation, duplication or use without permission from authors. 7

Business Advisory Network NESs. T Expertise NESs. T • Strategy • Marketing • Fundraising • Finance • Accounting • Feasibility studies Social • Business plans enterprises • Trainings and advice www. nesst. org Networks Funding • New programs • New countries • Specialized expertise • Multi-year • Co-financing • Specialized expertise • Training and advice • Business plan funding © NESs. T - Not for circulation, duplication or use without permission from authors. 8

NESs. T Social Enterprise www. nesst. org © NESs. T - Not for circulation, duplication or use without permission from authors. 9

What is Organizational Sustainability? NESs. T 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. www. nesst. org © NESs. T - Not for circulation, duplication or use without permission from authors. 10

Organizational Sustainability NESs. T Organizational Sustainability Financial Sustainability Organizational sustainability Financial sustainability Self- financing www. nesst. org Self-Financing Self- financing © NESs. T - Not for circulation, duplication or use without permission from authors. Self- financing 11

Organizational Sustainability NESs. T Strategy/Strategic Plan Social enterprise Fundraising www. nesst. org Social enterprise © NESs. T - Not for circulation, duplication or use without permission from authors.

NESs. T • • Typical NGO Financing The Short-Run Approach short-term project cycles limited, competitive pool of donor resources difficulty securing core operating resources shifting donor priorities www. nesst. org © NESs. T - Not for circulation, duplication or use without permission from authors.

More Sustainable NGO Financing The Long-Run Approach NESs. T • more steady flow of secured income • diverse funding sources, decreased dependence • more unrestricted income • ability to think and plan more long-term www. nesst. org © NESs. T - Not for circulation, duplication or use without permission from authors.

Social Enterprise: Definitions NESs. T www. nesst. org © NESs. T - Not for circulation, duplication or use without permission from authors. 15

Social Enterprise: Definitions NESs. T Traditional NGO Hybrid Spectrum NGO with Income Generating Activities NGO Enterprise Mission Motive Stakeholder Accountability Income reinvested in social programs Socially Corporate Responsible Social Business Responsibility Profit-making Motive Shareholder Accountability Profit redistributed to shareholders Source: Alter, Kim, Social Enterprise Typography. The Inter-American Development Bank, Washington, DC, 2003. www. nesst. org © NESs. T - Not for circulation, duplication or use without permission from authors. 16

What is Social Enterprise? NESs. T - an activity providing products or services through an ongoing, 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. www. nesst. org © NESs. T - Not for circulation, duplication or use without permission from authors.

Social Enterprise Methods NESs. T METHOD EXAMPLE PROFITABILITY/RISK Membership Dues A fee collected from nonprofit members or constituents in exchange for some kind of product or service or other benefit. Your nonprofit provides a magazine to members and/or offers other membership services or products. 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. Fees for Services Fees charged by the nonprofit in exchange for a provided service, oftentimes a service capitalizing on some existing skill or expertise of the staff. Your nonprofit provides consultation services to individuals, businesses or government agencies. 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. , crosssubsidy). Services are often the most time consuming strategy but potentially lucrative. Your nonprofit sells its publications or products produced by your constituents as part of an employment generation program. 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. Product Sales Selling products produced by or for the nonprofit’s constituents; reselling donated products; or producing and selling new Products. www. nesst. org © NESs. T - Not for circulation, duplication or use without permission from authors.

Social Enterprise Methods NESs. T METHOD EXAMPLE Use of Hard Assets Renting out real estate, space/facilities, equipment, etc. when not in use for mission -related activities. Your nonprofit rents out its conference room space for trainings, workshops or meetings. Use of Soft Assets Generating income from nonprofit-held patents, licensing agreements, royalties for intellectual property, or endorsements. Your nonprofit endorses a product of a corporation, lending your name in exchange for a royalty fee. Investment Dividends from active or passive investments of financial resources (e. g. , savings, endowments, reserve funds, etc. ). Your nonprofit invests its savings in highyield interest bearing accounts or mutual funds. www. nesst. org PROFITABILITY/RISK 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. Use of soft assets can be lucrative but can be highly risky, particularly for the nonprofits organization’s reputation and public image. 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 interestbearing accounts can be low risk. © NESs. T - Not for circulation, duplication or use without permission from authors. 19

NESs. T NVF Later Stage Portfolio: La Morada Santiago, Chile 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). www. nesst. org © NESs. T - Not for circulation, duplication or use without permission from authors. 20

NESs. T Spectrum of NGO Social Enterprise Activities Related to CSO Mission Unrelated to CSO Mission Program Activities Existing Product/Service Existing Customers Services specified Earned income in the NGO charter, directly from the bylaws, mission NGO’s program activities New Product/Service Existing Customers Existing Product/Service New Customers New products/services offered to the existing NGO constituents Extension of the mission-related activities of the NGO to new paying clients New product/service to new paying customers (unrelated/ ancillary business activities) Example: Example: Sports NGO organizes youth football leagues Sports NGO charges fees to participate in its youth football leagues Sports NGO sells donated sports equipment to the youth participating in its leagues Sports NGO organizes sports events for businesses Sports NGO an ecotourism travel agency www. nesst. org © NESs. T - Not for circulation, duplication or use without permission from authors. 21

Social Enterprise: Definitions NESs. T Social Enterprise Archetypes Embedded Integrated Complimentary Source: Alter, Kim, Social Enterprise Typography. The Inter-American Development Bank, Washington, DC, 2003. www. nesst. org © NESs. T - Not for circulation, duplication or use without permission from authors. 22

Social enterprises can help NESs. T organizations increase social impact Social Impact NGO Social Impact Enterprise • 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 www. nesst. org © NESs. T - Not for circulation, duplication or use without permission from authors.

Benefits of Social Enterprise NESs. T • Increased income • Diversified revenues • Greater flexibility • Improved overall organizational performance • Positive impression on donors • Strengthened board • Increased visibility • Increased self-confidence www. nesst. org © NESs. T - Not for circulation, duplication or use without permission from authors. 24

NESs. T Later Stage Portfolio Central Europe : Vydra (Slovakia) www. vydra. sk Mission: Preservation of local traditions, culture & environment in rural Microregion, Cierny Hron. Social Enterprise: With support from NESs. T, 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. www. nesst. org © NESs. T - Not for circulation, duplication or use without permission from authors.

Goals will not be met if the enterprise is not well planned! NESs. T NGO Enterprise Social Impact NGO Social Impact Enterprise • 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 www. nesst. org © NESs. T - Not for circulation, duplication or use without permission from authors.

Benefits of Social Enterprise NESs. T • 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 www. nesst. org © NESs. T - Not for circulation, duplication or use without permission from authors. 27

NESs. T Comunidad Terapeutica Peñalolen Santiago, 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 www. nesst. org © NESs. T - Not for circulation, duplication or use without permission from authors.

NESs. T Examples from Sports Organizations www. nesst. org © NESs. T - Not for circulation, duplication or use without permission from authors. 29

NESs. T National Council of Sports Uganda 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 www. nesst. org © NESs. T - Not for circulation, duplication or use without permission from authors.

NESs. T National Council of Sports Uganda 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 www. nesst. org © NESs. T - Not for circulation, duplication or use without permission from authors.

NESs. T Sports in Action Zambia 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. Self-financing: • 2006: 45% of budget • Plan to scale up activities to pay salaries and administrative expenses www. nesst. org © NESs. T - Not for circulation, duplication or use without permission from authors.

Other Examples NESs. T • sports events • T-shirts • township tours • manufacture and sale of sports equipment • sports tourism • workplace trainings on HIV/AIDS • job placement agency www. nesst. org © NESs. T - Not for circulation, duplication or use without permission from authors.

Enterprise Development Process NESs. T Organizational Readiness: Are we ready? Is this the best moment? Are we committed? Pre-feasibility: Is the idea worth investigating indepth? Feasibility: Business Plan: Is the business worth How can I implement pursuing? this business? Timing: 2/ 4 weeks OVERVIEW Timing: 2/ 3 months IN DEPTH Timing: 2 months • 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 www. nesst. org © NESs. T - Not for circulation, duplication or use without permission from authors. 34