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Social Enterprise Summit
April 18, 2009
Social Enterprise Summit
The Recession Brings Tough Challenges and Opportunities, Say Experts on Socially Run Businesses
The tumultuous economy will test the leaders of charity-run businesses in a way they have never been tested before, Kevin Lynch and Julius Walls, Jr., authors of Mission, Inc., told participants at the Social Enterprise Summit. But at the same time, they said, the downturn offers exciting opportunities.
Staying on top of the business’s cash flow is critical.
“If you run out of cash, you’re done,” said Mr. Walls, who is chief executive of Greyston Bakery, a charity-run business in Yonkers, N.Y., that provides employment to people who are recovering from addiction, returning from prison, or have other problems that make it difficult to get a job.
Six weeks ago, Rebuild Resources, a screen-printing business in St. Paul that employs people who are recovering from substance abuse, instituted pay cuts to cut expenses during a tight period.
But the pay cuts were driven by the organization’s values, said Mr. Lynch, the charity’s president.
The cuts started with Mr. Lynch, who took a voluntary pay cut of more than 30 percent.
“That’s where the money is, in the higher salaries,” said Mr. Lynch. “So if you want to actually affect something, you have to go to the people who are paid the most.”
Other charity staff members took pay cuts that were tied to their salaries, with employees who made the least money taking a 5-percent decrease. But the hourly workers in the charity’s business were not asked to take a cut.
“Economically, they simply couldn’t sustain it,” said Mr. Lynch. “But more importantly, that is where the rubber hit the road for us on mission, and what we wouldn’t compromise on.”
At Greyston Bakery, cash flow is tightest during the first three months of the year. So, before the quarter started, Mr. Walls brought the business’s major vendors together, and explained that during that period, the business would pays its bills within 45 days, rather than its regular 30-day term.
“Not one of them said, No,” Mr. Walls told the audience. “Not one of them even gave me a hard time, but that’s because we talked to them about what we were doing.”
Balancing a charity-run business’s financial goals and its social mission becomes even more difficult in tough times, said Mr. Lynch.
“We’re learning to live with the fact that, for a period of time, we’re making more decisions that are 70/30 on financial survival, because we know we have to be there for the long run,” he said.
The danger, he said, is that over time that ratio will move further and further away from mission.
“So the way to avoid that happening is to get clear right now on what you will compromise and what you will not compromise on, and to know what that is before the decision that puts you into that zero-sum realm arises,” he said.
As difficult as the challenges facing nonprofit business ventures are, there are also new opportunities, Mr. Lynch and Mr. Walls told the audience.
“Now this sounds really cold-hearted and cold-blooded, but during tough times, there is a culling of the herd,” said Mr. Lynch. “It happens in nature, and it happens in business.”
When weak businesses go under, stronger ones need to go after the customers and market share that are up for grabs, he said.
The recession, he joked, is a good time for social enterprises to go shopping.
“Be on the lookout for deals for equipment, for raw materials, for inventory, for people, even entire businesses,” said Mr. Lynch. “There’s going to be fire sales.”
To be successful, charity-run businesses have to provide a high-quality product or service, he told conference participants. It’s not enough just to have a worthy social goal.
But with the current “backlash against traditional business,” the value of a nonprofit venture’s mission and story in attracting customers has increased, said Mr. Lynch.
“And that is something that should be milked for all it is worth in your marketing efforts,” he said.
The extraordinary challenges of the recession will stretch the leaders of charity-run businesses in unprecedented ways, said Mr. Walls.
To best help their ventures weather the storm, he said, leaders need to make sure that they take care of themselves and their personal relationships and not let the business become all-consuming.
“Give sweat and tears,” Mr. Walls told the audience, “not blood.”
April 17, 2009
Social Enterprise Summit
Considering a Charity-Run Business? A Consultant Offers Tips to Get Started
Charities that are thinking about starting a new business venture should assemble a planning team that encompasses a wide variety of perspectives within their organization, Sean McGee, a partner at Cause Impact, in Columbus, Ohio, told participants at the Social Enterprise Summit.
He recommended that the team includes organization leaders, employees who would be involved in the business, several board members, and perhaps donors who are deeply involved in the group’s work.
“You create a tremendous amount of buy-in before you even launch the project if you assemble a team across those different constituencies so that everybody has the opportunity to help craft the final product,” said Mr. McGee.
He said it’s particularly important to include staff members.
“You don’t want to hand down the plan from Mount Olympus to the people who are going to be executing it, because it dramatically increases the chances of organ rejection,” said Mr. McGee.
Early on, he recommends that an outside facilitator help the group brainstorm possible business ideas.
Says Mr. McGee: “If the executive director runs the brainstorming session, they sometimes have difficulty restraining themselves from shooting down ideas as they’re brought up.”
Social Enterprise Summit
Financial Crisis Offers New Oppportunities for Socially Oriented Investments
The fallout from the financial crisis represents an extraordinary opportunity for businesses and investments that seek to combine financial returns with benefits for society, Jed Emerson, a long-time proponent of such ventures told participants at the Social Enterprise Summit.
In many ways, he said, the crash is a repudiation of the world view that divides for-profit activity strictly from social and environmental considerations.
The experience of low-cost housing groups and community development financial institutions, for example, show that it wasn’t subprime mortgages themselves that triggered the financial crisis, said Mr. Emerson, who is a managing director at Uhuru Capital Management, in New York.
“These people are doing fine,” he said. “They know how to underwrite. They know their communities. They know these people.’
Instead, the problem was a result of the approaches that purely profit-driven companies took to lending in poor neighborhoods, said Mr. Emerson.
“When you have these folks who came in on the straight commercial side, without any consideration of social value or broader impact, that’s when it got out of control,” he said. “They built this whole subprime thing around a fundamental misread of their markets, because they didn’t care about their markets. They cared about the fees and selling.”
As a result of the crash, a growing number of investors are starting to look at social investments, said Mr. Emerson.
“Finally, after 20 years, we have a whole set of deals and investment opportunities that we can actually move forward, whether its microfinance bond offerings or regional lending pools or loan guarantee funds, things that we’ve been piloting for the last decade,” he said. “It’s like, Let’s go play.”
Social Enterprise Summit
A Nonprofit Business Seeks to Spread Nationally
Rubicon Programs is often held up as a model of what successful nonprofit-run business looks like.
The San Francisco Bay Area charity operates two businesses –- a landscaping and grounds-maintenance service and a bakery –- that generate about $18-million annually and provide training and employment for roughly 250 people who are poor or have disabilities.
But for the last several years, Rick Aubry, Rubicon’s long-time president, began to question just how successful the organization’s effort were, he told participants at the Social Enterprise Summit.
“I’ve really personally questioned, Given all the time and energy and sweat and worry that we’ve had, has all of that been equal to the impact that we’ve had?” he said. “And I came to the conclusion: maybe not.”
With foundation grants, Mr. Aubry and several other Rubicon employees have been able to step away from the day-to-day operation of the organization to think about how to create a business that could operate nationally and to investigate business opportunities.
The group, said Mr. Aubry, tried to answer several different questions, “Are there business opportunities that exist that a nonprofit or a hybrid actually has a competitive advantage in achieving, that scales, and that we could get the capital we need to go to scale?”
After interviewing scores of nonprofit leaders who run businesses, researching a wide range of possible businesses, and doing in-depth feasibility studies on several ideas, Rubicon National Social Innovations, as the effort is known, has identified two businesses that it is now developing: mattress recycling and an employer-based payroll advance service that would be an alternative to exploitative payday lenders.
Rubicon is already working with nonprofit organizations in San Jose, Calif., to test the mattress-recycling business, and plans to start another test in Philadelphia later this year.
In the past, Rubicon Programs, along with many other nonprofit groups, was guilty of following “the Andy Hardy school of social enterprise,” Mr. Aubry told conference participants.
“Hey guys, Let’s start a business for those men and women sitting outside our door,” he said. “Let’s go to it, kids!”
While that approach often draws on a lot of enthusiasm and energy, Mr. Aubry said, it often overlooks the basics of what makes a good business.
“Is there really a market problem that we’re solving?” he said. “Or are we setting up businesses that the bigger we get, the more difficult they are, that we have to keep subsidizing them more and more?”
April 16, 2009
Social Enterprise Summit
Social-Enterprise Advocates Urged to Educate Policy Makers
As proponents of applying business models to achieving social change talk with policy makers –- and even others in the nonprofit world –- they can’t assume that people understand the term, “social entrepreneurship,” Mitch Landrieu, Louisiana’s lieutenant governor, told participants at the Social Enterprise Summit, here in New Orleans.
“People who are not MBA’s, that didn’t hang out in Ivy League schools, they don’t know what the hell social entrepreneurship is, and they’ll look at you with a blank stare,” he said. “And if you go out on the ground and talk to people who are social entrepreneurs and you tell them that they’re one, they might slap you.”
In 2007, Mr. Landrieu created the first state Office of Social Entrepreneurship.
The problems that the United States face are tremendous, he said, and neither government, business, nor philanthropy can solve them alone.
“Sometimes government helps; sometimes government gets in the way,” said Mr. Landrieu. “Sometimes business can help. Sometimes business really gets in the way.”
Charity, he said, has its place, but alone it’s not enough.
“The folks like Sr. Anthony over at Associated Catholic Charities have been doing great charitable work over time,” he said. “But that model is basically, I need money, and then I can get that money to people who need it, and I’m not going to ask them to give anything back. That model works in certain circumstances, but it doesn’t work all the time.”
Mr. Landrieu said he started the Office of Social Entrepreneurship, in large part, because of the creative, “born of necessity” solutions he saw in response to the devastation caused by Hurricane Katrina.
To create similar offices in other cities and states, nonprofit leaders and other advocates need to provide clear, tangible examples to their elected officials to help them understand what social entrepreneurship is, he said.
“Your voice can be heard if you speak to them,” he told the audience. “But if you don’t go to them, they won’t come find you.”
April 15, 2009
Social Enterprise Summit
New Legal Status for Socially Oriented Business Gains Ground
Five states and one Indian nation have passed legislation recognizing a new type of business that puts its social goals ahead of making money.
In the year since Vermont became the first state to recognize the low-profit limited-liability company, or L3C, Michigan, North Dakota, Wyoming, and Utah have all followed suit, as has the Indian Crow nation.
The new for-profit designation is designed to make it easier for socially oriented businesses to attract program-related investments from foundations and additional money from private investors.
Too often, foundations feel like they have to go through the lengthy and expensive process of getting a private-letter ruling from the Internal Revenue Service each time they want to make a program-related investment in a for-profit business that has a social mission, says Robert M. Lang, Jr., who developed the new designation and is leading the effort to promote it. He is also chief executive of the Mary Elizabeth & Gordon B. Mannweiler Foundation, in Cross River, N.Y.
In time, he hopes that the L3C designation will become a recognized “brand” that allows foundations to feel comfortable making a program-related investment without a private-letter ruling.
Mr. Lang and other proponents say that businesses that operate in a state that has not passed L3C legislation can seek the designation in one of the states that has.
Because the L3C designation is a new type of limited-liability company, businesses that operate as an L3C will have to follow all of the regulations that apply to an LLC.
Regulations for limited-liability companies vary from state to state, and Mr. Lang advises businesses that are seeking the L3C designation in another state to select the state with an L3C designation whose LLC law is most compatible with their home state’s LLC law.
Says Mr. Lang: “That’s how you decide between Utah and Vermont and Michigan.”
Social Enterprise Summit
Charity and Business: a Social-Enterprise Gathering in New Orleans
Scores of nonprofit leaders are gathering in New Orleans this week to discuss how nonprofit-run business ventures are faring — and what is next for them
The meeting is the 10th annual conference sponsored by the Social Enterprise Alliance. Speakers scheduled to present keynote speeches include Louisiana’s lieutenant governor, Mitch Landrieu, and Jed Emerson, a veteran promoter of nonprofit-run businesses.
We will provide updates of sessions in this conference notebook.
Social Enterprise Summit
Nearly Half of Charities Operate Businesses
The turbulent economy doesn’t appear to be dampening interest in charity-run businesses, according to a new study released today at the Social Enterprise Summit in New Orleans.
A survey of 843 nonprofit organizations found that a little more than half run business ventures, and of the charities that do not run businesses, 57 percent said they were thinking about starting a social enterprise.
The survey was conducted in the middle of September by the Social Enterprise Alliance, Community Wealth Ventures, and Duke University’s Center for the Advancement of Social Entrepreneurship.
The organizations that conducted the survey were surprised by the large percentage of groups that said they were thinking about starting their first business ventures, says Heather Peeler, managing director of Community Wealth Ventures, a consulting company in Washington that focuses on social enterprise.
“It was this past fall, right when we got confirmation that we were in recession,” she says. “We thought that given the economic conditions that many nonprofit leaders might be thinking of taking more of a hunker-down approach.”
The most prevalent type of ventures run by charities in the survey were businesses that provide training opportunities, followed by retail and thrift shops, consulting businesses, and food-service ventures.
The survey also found that of the charities that run businesses, nearly half run more than one venture.
“What often happens is that those who launch social enterprises and are successful with it tend to launch more,” says Ms. Peeler. “There’s this whole concept of the serial entrepreneur. When organizations are able to capture the potential, in terms of the financial benefit as well as the mission benefits, they get the bug.”
Copyright © 2009 The Chronicle of Philanthropy