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Social Enterprises & Earned Income Strategies for Nonprofits

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  • social enterprise - An organization or venture that advances its social mission through entrepreneurial, earned income strategies.
    • spans all corporate forms
    • organization or venture
    • sometime nonprofit has social enterprise component, or entire model
    • social enterprise is changing the world
  • biggest challenges for social enterprise
    • same as what face enterprise
    • capital market issues
    • effective technical assistance
    • sba, score don’t quite meet needs
    • nonprofit orgs also don’t quite needs
    • cultural issues – when starting within existing org
    • board issues – wearing nonprofit hat, different when managing social enterprise; needs board education
    • when starting something new, you may do due diligence but things you didn’t expect pop up
  • be crystal clear on what you want to do
    • if objective is to train single mothers, needs flex hours, proper day care
    • cant be bakery, cant expect them to be there at 5am
    • most small business have only small chance to succeed in first five years
    • when do plan, expect 5 years before you break even
    • be really thoughtful about objectives and outcomes
    • when's the right time to invest? to close?
    • finding the right manager – businessperson? nonprofit background? two people?
    • having the right manager is key
  • boards
    • mix of nonprofit & for profit members
    • have committees – enterprise, evaluation, youth development
    • look at the enterprise and find what the skills sets are that you need
    • find people who have been entrepreneurs themselves
    • social mission understanding
    • different people to round out your board
    • find people who understand to blend profit & nonprofit
    • some board members of nonprofit adamantly opposed to social enterprise
  • how do you ensure everything in the enterprise leads to the mission
    • now part of culture and dna – 6 months of planning with several board approvals along the way
    • many checks that mission of business maps to mission of organization
  • structures that work
    • what are your goals
    • why are you engaging in social enterprise
    • develop skills assets, get unrestricted income for organization, branding opportunity,
    • be incredibly clear on goals and reasons
    • keep it simple
    • different ways: for profit llc wholly owned by nonprofit; division of nonprofit;
    • blanket advice: as you're planning you social enterprise, don't get caught up on the structure. goals, business model, then talk to attorney and accountant re corporate form that best fits that
    • mission, goal, orientation, purposes
    • seek local counsel
    • a lot of these are investigated and audited on a regular basis
    • what's more important is the mission, e.g. if job training, makes sense to have all under one org
    • demand same level of accountability
    • financial bottomline, social mission, go before board every month
    • a lot of transparency
    • run it like a business even though its part of a nonprofit
  • viability
    • look at just the business part and see if just the business is at least a break even business, then figure out how much extra does it cost to do the mission (e.g. job training)
    • factor that cost of goods sold will be higher since it's on the job training
    • women will need case management support
    • are we really subsidizing a for profit business?
    • is it sustainable, not just profitable
  • two major sources of funding: foundations and individual donors
    • know the funder you're pitching to, know what they're angle is
    • skoll foundation – funding scale
    • some others want smaller
    • find the right funders, eg early stage; fewer that do due diligence; if they want scale, that's what you have to pitch them – the resources, intellectual capital
    • Draper Richards Foundation
    • look for entrepreneurs for funding, much better likelihood of getting support; it's an entrepreneurial model
    • foundations not interested in long term funding, they do three years
    • have overview of business model that' realistic, with a reasonable degree of reality
    • seattle – paul allen foundation
    • medina foundation
    • write down everything you care about that’s important, and what's important for them
    • you need an advocate inside
    • day one mission alignment
    • then bring in legal help
  • models
    • hybrid corporate form – not there yet
    • try to make the structures we have work
    • "getting to scale" by jill bamburg - analyzes businesses with explicitly social missions, case studies on how they got to scale; the only real text and resource – easy read, fascinating
  • branding vs cause related marketing
    • you cannot rent a c3 – so many problems giving your name – illegal – you can't give away your name
    • laundering money through the c3
    • when it goes sour, big problem, not thought through properly
  • Resources
  • audits
    • started as compensation audits, then general audits
    • people don’t think about it, don’t think it's ubi, their income spikes, they get audited
    • how much ubit can you generate – no too much – call your accountant
    • that's why charities spin off their income making – to get ubit out
    • what's ubit? (unrelated business income tax) limits charitable organizations
  • how find lawyer? social
    • look for one with specific social enterprise knowledge – what clients have you had, what kinds of issues, what common issues you see in your practice
    • foundations will also refer you
    • there aren’t that many – centered ion seattle and sf bay, one in ny
    • needs experience with charities; many business lawyers don’t get charity – most law firms don’t have charity dept – find one with a charitable law department
  • outlook for growth in social enterprise vs c3
    • huge – exploding here, lagging behind rest of the world
    • not a fad, here to stay, hugely growing sector in the world
    • looking at the way we do business and meet social issues

Notes by: Vanae Tran, Rock Your Awareness; Leo Romero

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