The Emergence of Social Entrepreneurship in the
Non-Profit Sector
October 2002
Co-authors:
Pam Cavender Curry, Executive Director
Marilyn Wrenn Harrell, Director of Planning and Development
Center for Economic Options (CEO)
(304) 345-1298 (phone)
(304) 342-0641 (fax)
www.centerforeconomicoptions.org
info@economicoptions.org
Introduction
Social
entrepreneurship is gaining attention throughout the nonprofit sector. A
growing number of progressive nonprofits are taking responsibility for their
own survival by increasing financial self-sufficiency while lessening, or even
ceasing, their dependence on philanthropic giving and government subsidy. Why? Through social entrepreneurism, an
organization can experience a self-determination that breaks the bonds that
often tie activities to sources of funding. There is freedom in becoming a social
entrepreneur - freedom to operate with agility and creativity so often missed
due to funding restrictions. Social entrepreneurs also face the same risks that
challenge for-profit businesses. However, by combining the best of the
not-for-profit, philanthropic world with the best of the for-profit, enterprising
world, social entrepreneurs can increase their potential to reach more, serve
more, change more and see their vision become reality.
Key Ideas
·
Social
entrepreneur:
A social entrepreneur is a mission-focused non
profit organization that operates as a business and creates revenues by
responding to market forces. This type of organization serves its social
mission and also reinforces it by using private-sector tools and strategies.
The social entrepreneur generates a stable and sustainable source of revenue by
paying attention to, and benefiting from, the marketplace. Strategies can
include the creation of social purpose enterprises, as well as income earned
through fees for services, sale of program-related materials, consultation
fees, etc. Social entrepreneurs must
manage a dual bottom line -- mission-related results and financial results.
· Social purpose enterprise:
Social purpose enterprises are designed to achieve a
social, as well as a financial mission. Successful commercial ventures of social
entrepreneurs are most often related to their mission.
·
Considerations for organizations that are
exploring social entrepreneurship:
This strategy for sustainability usually requires a
significant shift in the organization’s culture – the way it operates, thinks
about itself and the way it acquires funding and investments. Not unlike the
private sector, this shift also includes an aggressive focus on its business
practices including customer satisfaction and high quality service. The non-profit
must also build an entrepreneurial orientation that recognizes opportunity, responds
to market-forces and uses resources efficiency. The organizational culture must
support a high tolerance for ambiguity, a willingness to take risks, integrity,
trust, and enthusiasm. A results-focus on the dual (social and financial)
bottom line will require strong integrated systems, advanced problem solving
ability, and acute observation and listening skills. Social entrepreneurship requires looking long
and hard at program needs, opportunities, and financial support. Sometimes, painful
steps are necessary in order to concentrate on the most effective program
elements. It is likely that the board and staff will experience needed changes
in personnel to accommodate this entrepreneurial shift. The organization’s
funding sources may also need to be realigned in order to support the
entrepreneurial strategy. A social entrepreneur does not necessarily look and
operate like a traditional nonprofit organization, and funders
will need to understand how best to invest in these hybrid business structures.
It is important to stress that the transition to social entrepreneurship is not
easy and may not be an appropriate strategy for every nonprofit organization.
·
Relevance to the microenterprise field:
Microentrepreneurs understand
the importance of maintaining competitive advantage through exploring niche
markets, high customer satisfaction and diversification. Social entrepreneurs
must mirror these business realities. Social entrepreneurs working in the
microenterprise field are often pulled into the marketplace along with their
clients as business partners and fellow entrepreneurs. The social entrepreneur
is seeking similar financial rewards and assuming similar business risks as
those they serve.
For the microenterprise field, social entrepreneurship,
with its emphasis on both financial sustainability and greater program impact,
can help overcome the risks of over-reliance on, and the lack of flexibility and sheer scarcity of traditional
funding. When successful, the social
entrepreneur has the opportunity to “go to scale” with the capacity to capitalize
and develop new and better mission-related services that directly benefit the targeted
population.
Center for Economic Options - West
Center
for Economic Options (CEO) has emerged as a social entrepreneur – targeting its
core mission while recognizing and profiting from market forces. CEO’s strategy is to develop a “program” of enterprises
as economic engines in
CEO
is designing a portfolio of market-focused social purpose enterprises to
generate economic and social returns on investments. It is anticipated that
these enterprises will generate sustainable program-related revenue to CEO.
The planned social
purpose enterprise portfolio includes:
·
Showcase
Now in the midst of its second year of
development, CEO is operating the Showcase West Virginia store in a 3000 sq.
ft. retail sales space. It currently features the products of 200 small-scale
manufacturers (who are CEO clients), and has five full-time, and numerous
part-time staff. These rural business owners from around the state reach a high
commerce urban market and receive custom market-related information and
technical assistance. Within the first year of operation (2001-2002), in a
smaller space, the store generated [2]$306,000
in gross revenue which, less sales taxes, was divided on a consignment basis
between the participating businesses and CEO. As a result of operating as a
business partner within the market economy, CEO has determined that client
satisfaction with services has increased significantly. CEO will explore both
print and Internet based catalogues for increased sales and marketing
opportunities. CEO will consider opening Showcase West Virginia stores at additional
locations if/when feasible and merited.
·
Showcase
·
Premium/Commemorative Gifts – CEO is designing this
enterprise to create markets within the broader business community. Corporations,
organizations, and political entities want their message to stand out in this highly
competitive information age. Many are turning to locally produced handcrafted,
individualized items to present as corporate gifts, incentives and awards,
advertising specialties, and thank you premiums. CEO will broker orders between
the business markets and a selected set of Showcase West
·
The Mountain Marketplace distributorship - CEO
is designing a distributorship that will enable the sale of selected West
Virginia-made products to a wider range of retail outlets. By identifying and packaging
the top-selling products of the Showcase West Virginia store, CEO will be able
to “sell” a diverse, interesting and customer-proven collection of lines while
giving buyers a single point of contact for reorders, shipping, billing, etc.
CEO
is dedicated to pursuing innovative strategies to ensure the financial
stability, sustainability, and continuation of these social-purpose
enterprises. The enterprises are designed to generate streams of unrestricted,
program-related income to CEO. The Showcase West Virginia retail store, for
example, is consignment-based, with CEO earning a percentage of all sales.
Sales over the past year suggest that if this enterprise meets projections,
revenue generated will support a significant portion of CEO’s budget. However,
enterprise development is a long-term strategy and in the interim, CEO is
continuing to seek investment from foundations, governmental agencies,
corporate donors, and private philanthropists.
Challenges
·
Social entrepreneurs walk a fine line between the
non-profit and for-profit worlds. Social entrepreneurism brings opportunities
for significant programmatic and financial rewards, but the challenges and
risks are those faced by any business in a competitive marketplace. CEO’s staff
constantly balances the profitability of its social ventures with the level of
service being provided to its clients. As the Showcase West Virginia retail
store prospers, CEO is generating revenue to underwrite continued program work.
At the same time CEO’s clients prosper due to direct sales, additional
marketing opportunities, and marketing training and technical assistance. CEO’s
impetus for success is great. The pressure therefore is to run a successful
business while finding strategies to provide technical assistance (which is not
mandated by the program) to a population of entrepreneurs in a format that is
both amenable and meaningful to them.
·
When opportunity knocks, it is the entrepreneur
that runs to open the door. The process of submitting a detailed proposal and multi-year
workplan is not well-suited to CEO’s new direction,
yet is consistently requested by traditional philanthropic and governmental
funding sources. The challenge lies in being able to articulate the need for
underwriting, and providing enough details to generate support without losing
the flexibility to shift resources as needed to capitalize on opportunities.
CEO continues to struggle with this paradox that will exist until the
organization achieves financial self-sufficiency.
·
CEO transitioned to an enterprise focus in a
short period of time based on the opportunity to open the Showcase West
Virginia retail store. Establishing systems and incorporating technology while
concurrently developing and operating the social-purpose enterprise was an
extreme challenge for the staff. While inherently entrepreneurial, the staff
experienced a steep learning curve when it came to the nuts and bolts of
enterprise management.
·
CEO is challenged by cash flow issues that
result from both market fluctuations and gaps between financial support from
philanthropic and governmental sources. To take advantage of market
opportunities, CEO has started social-purpose enterprises without full
capitalization (e.g. Appalachian By Design and the
Showcase West Virginia store). A traditional for-profit business may be more
hesitant to do this. CEO took the risk that it could raise funds from
traditional sources to cover program costs (i.e. training, pilot projects,
community outreach, etc.) during enterprise start-up phase. To date, CEO has
been successful in obtaining a portion of needed funding for this purpose. An
initial risk/benefit analysis is underway to determine if this strategy has
merit.
·
The difference between the Showcase West
Virginia retail store and other specialty gift stores may not be noticeable to
the average customer. However, CEO staff is challenged by being constantly mindful
that they are working with clients – not with
vendors. . Since the store operates as a marketing incubator, participating
business owners/clients run the gamut in terms of experience, professionalism,
and responsiveness. This makes all activities, from re-ordering products, to
individual technical assistance, extremely time and resource consuming. Balancing CEO’s income generation potential
with its social mission of providing access-to-markets for small-scale rural
manufacturers is a constant challenge.
Lessons Learned:
· Just as starting a business is not for everyone, becoming a social entrepreneur is not right for every nonprofit. Most organizations can increase their efficiencies and/or recover a portion of program costs through fees and sale of products. However, entering the marketplace through the development of social-purpose enterprises often places the organization in unexplored and potentially risky territory.
·
The nonprofit must have a competitive advantage
to be able to offer the market something not being provided by the current
competition. Finding a way to connect the social purpose enterprise with the organization’s
core mission is one way to do this.
· Social enterprise development relies on Social Return on Investment (SROI) analysis to help track and evaluate the impact and value of the enterprise(s) on both economic and socio-economic levels (the dual bottom line). Emphasis on the dual bottom line results in increased attention to impact and accountability. This emphasis also allows subjective interpretations to be quantified. Such quantification is crucial for justifying continued development.
·
CEO’s
experience is that rural entrepreneurs are most likely to become engaged in its
“program” activities and trainings when directly connected to specific
marketing opportunities.
·
Reflective of the Appalachian culture which
tends to avoid debt – CEO eschews indebtedness. CEO finds that many small-scale
entrepreneurs build their businesses incrementally, debt-free, through sweat
equity and investing revenue back into their endeavors.
Current issues and observations:
·
Financial stability – the social entrepreneur
needs the latitude to dedicate most of its energies toward developing
successful enterprises for its clients instead of continually focusing on fundraising
efforts and cash flow issues.
· If not carefully managed, commercial ventures can divert attention from the mission of the nonprofit while adding little to the bottom line.
·
Traditional philanthropic and governmental
funding sources, by consistently asking the question, “How will this project or
program be sustained after the grant period?” may be the impetus, to some
degree, for the emergence of social entrepreneurism. Social entrepreneurs see
opportunities in this question and are responding creatively.
Trends in this
emerging field:
·
National Gathering of Social Entrepreneurs
In 1998, six nationally known
advocates of social entrepreneurship convened a “gathering” of people
interested in the field. At this gathering, non-profit entrepreneurs, who
previously had operated in isolation, came together for the first time to
discuss best practices, share knowledge and advocate for a national non-profit
social venture agenda NGSE is exclusively devoted to providing support for
nonprofit social entrepreneurs. More than half of the members are
practitioners, the rest are funders, academics,
and for-profit businesses. The nonprofit members include both early stage
entrepreneurs seeking the nuts and bolts knowledge to start and run a social
purpose venture and established social entrepreneurs seeking an opportunity to
exchange ideas with other pioneers of the field. NGSE’s
4th National Gathering for Social Entrepreneurs will be held
·
Association
for
AEO is a national association of organizations
committed to microenterprise development. AEO provides its members with a
forum, information, and a voice to promote enterprise opportunity for people
and communities with limited access to economic resources. With the growing
awareness of social entrepreneurship, AEO plans to offer a Social Entrepreneur
track at the 2003 AEO Annual Conference May 16-19 in
·
WSEP
Ventures, Inc.,
WSEP Ventures is a nonprofit venture built on a dynamic business model that creates social impact while contributing to organizational financial sustainability. WSEP Ventures is a subsidiary of WSEP Futures, which acts as a holding company of both WSEP Ventures and the Women’s Self-Employment Project (WSEP). WSEP Ventures was started in 2000 as a new social enterprise organization for the purpose of launching and managing a portfolio of businesses that overtime support the unrestricted revenue of the original Women’s Self-Employment Project. The portfolio currently has two businesses, the WSEP Consulting Group, a strategy and management-consulting firm, and CLW Foods, which manufactures and distributes unique food items created by disadvantaged entrepreneurs. WSEP Ventures will continue to seek opportunities to create new businesses that strengthen benefits to low-income communities, leverage WSEP Ventures’ core competencies, and emphasizes a strong financial and social rate of return on investment.
Reasons why WSEP Ventures’ social enterprise model is an attractive business opportunity for the WSEP Family of Companies:
As the WSEP Family of Companies moves into its third year,
all indications are that the model works. WSEP is as strong as ever and WSEP
Ventures is demonstrating its ability to generate profits.
[2] CEO uses
a 55/45 consignment arrangement, with 45% of retail sales retained by CEO as
unrestricted income. Analysis is ongoing to determine break-even points and
Showcase West