Conversations with clients, and people I meet while I’m out, inspire most of my posts. The topic of “social enterprises” comes up more as of late. Really, more so questions on how to start a social enterprise; which makes my heart cabbage patch and drop into a split.
The increase indicates a subtle shift. With a large part of this happening in the charity and philanthropic space. Founders and their boards are starting to understand “grants & donations” is not a business model to depend on. Moreover, the space is incredibly competitive, and all the time spent courting, looking, applying and administering takes them away from the very things they're trying to fund.
A stream of income (not tied to the goodwill of others) to sustain an organization isn’t a nice to have, it’s life or death for most. There’s got to be products and/or services bringing in passive and more consistent income.
Social enterprises create this stream of income. What one is, and how it works, varies significantly. But I’ll touch briefly on what it is for me and things to think about when setting one up.
What is a Social Enterprise?
What someone means by “social enterprise” changes depending on the country, who you’re talking to and the context its used in. When I say “social enterprise” what I mean is a business creating some social improvement or stopping some social harm. Arguably, any nonprofit or business should be operating this way, but that conversation is for another day over another cup of coffee.
For now, this type of business is distinct. In that its focus is a social improvement or the negation of social harm. With how it makes money centered around either.
So the business that manufactures shoes in a way that’s harmful to the environment but runs a coat drive twice a year; not a social enterprise. Moreover, the business that hires individuals from economically depressed areas to make shoes in a sustainable way. Then selling shoes a little above cost to subsidize giving shoes to populations without; that is a social enterprise. See the difference? So, the social good isn’t something thrown on like a cheap pair of lashes. It’s baked to the fabric of how the business runs.
Structuring a Social Enterprise
Social enterprises can be independent, without attaching to anything else. A great example of this might edPack. But what we’re starting to see are nonprofits previously operating under the grants and donations model building “social enterprises” into their organizations. Moreover, creating programs that further the mission, but also generate revenue through the sale of something. People often look at organizations like Homeboy Industries for this model, but there are plenty of local examples. Like a group I worked with called Tribe+Glory.
Getting Your Social Enterprise Started
The trickiest thing for nonprofits going down this route is dispensing bad habits they’ve picked up in the philanthropic world. Take the “build it and they will come because I'm doing something good” approach and you will wind up broke. Creating a social enterprise takes planning. It takes:
Taking the time to really understand the problem. Please, please—for the love of everything don’t just create something you think clients will want. For example, if you’re working with homeless populations and want to create referral technology that you can package and sell to other nonprofits and agencies have you thought through the mobility problem? The fact that so many are dealing with mental health concerns, and may not be able to be identified? There may be a problem, but your way of solving may not be the best. It has to be tested. Make sure you understand the ecosystem. Then create prototype solutions that you then test.
Deciding on your target market. Developing a profile to figure out who your target client is, so you have a better understanding of how to build out the solution you’re building out. What are their problems? Where can they be found? How do you market to them?
Really understanding your solution. Sounds simple enough, but most organizations don’t go into specifics around what the target solution is. Instead, brainstorming a bunch of different things to sell and throwing them out like they’re Pez. Instead, once you’ve gotten a handle on the problem take the same time to investigate your solution. What should it look like? How should it work? How does it get into the hands of the end-user? Is it easy for them to use? Most importantly, does it solve the problem the way they (your target market and/or beneficiaries) want it solved? If you want a case-study around how badly things can go skipping this step, Google “Playpumps” and see what happened to them.
Developing the business model. I’m going to make X and sell it isn’t a business model. Who are you going to sell to? How will you deliver it to them? How will you price? Who will you work with to sell? There are business model canvases out there to help with this, but I find clients find it more helpful to talk through too.
Brainstorms on funding. How will you fund the social enterprise until it’s revenue generating? Have you run the numbers to ensure the business model allows the social enterprise to sustain? Dare I say, grow?
Once you’ve got a pretty clear handle on the problem and vision, THEN starting thinking about the legal. I know this sounds backward. But impact hinges on creativity. Any creative will tell you, the key to a creative brainstorm is for it to be uninhibited; where you’re not thinking about the could’s and should’s. So do that. If something proves a concern from a legal perspective, you have a few choices. You can pivot, you can research exemptions or even challenge the law itself (ever heard of Uber?)
How you structure can dictate the taxes you pay, what your exposure to risk will be and how quickly it will be to grow. So "the legal" is something you’ll want to pay attention to. You’ll just want a really clear handle on the “why” before you get to the “how” and “what."
Next Steps On the Social Enterprise Journey
Of course, there’s a little more to starting a Social Enterprise then what I list. Still, it’s enough to get your juice flowing. Get you thinking about how you can bring in extra money for your nonprofit. What you’ll find in planning is another tricky part to social enterprises; they’re multi-layer. An ink company will sell ink to other companies; possibly to consumers too. A social enterprise will often have customer, beneficiaries, and stakeholders that all have to be managed.
For this reason, I can’t stress how important it is to plan.
I already have a few resources to help with this. I’m FINALLY releasing a guide to walk you through creating a business model that you can pre-order here. If you don’t have an organization yet and aren’t sure whether to go the non-profit or for-profit route there’s a guide for that too here. And of course, we work with visionaries every day. So if you want to sit down and talk through an idea you have for a social enterprise, don’t hesitate to reach out and schedule a time to talk here.
The increase indicates a subtle shift. With a large part of this happening in the charity and philanthropic space. Founders and their boards are starting to understand “grants & donations” is not a business model to depend on. Moreover, the space is incredibly competitive, and all the time spent courting, looking, applying and administering takes them away from the very things they're trying to fund.
A stream of income (not tied to the goodwill of others) to sustain an organization isn’t a nice to have, it’s life or death for most. There’s got to be products and/or services bringing in passive and more consistent income.
Social enterprises create this stream of income. What one is, and how it works, varies significantly. But I’ll touch briefly on what it is for me and things to think about when setting one up.
What is a Social Enterprise?
What someone means by “social enterprise” changes depending on the country, who you’re talking to and the context its used in. When I say “social enterprise” what I mean is a business creating some social improvement or stopping some social harm. Arguably, any nonprofit or business should be operating this way, but that conversation is for another day over another cup of coffee.
For now, this type of business is distinct. In that its focus is a social improvement or the negation of social harm. With how it makes money centered around either.
So the business that manufactures shoes in a way that’s harmful to the environment but runs a coat drive twice a year; not a social enterprise. Moreover, the business that hires individuals from economically depressed areas to make shoes in a sustainable way. Then selling shoes a little above cost to subsidize giving shoes to populations without; that is a social enterprise. See the difference? So, the social good isn’t something thrown on like a cheap pair of lashes. It’s baked to the fabric of how the business runs.
Structuring a Social Enterprise
Social enterprises can be independent, without attaching to anything else. A great example of this might edPack. But what we’re starting to see are nonprofits previously operating under the grants and donations model building “social enterprises” into their organizations. Moreover, creating programs that further the mission, but also generate revenue through the sale of something. People often look at organizations like Homeboy Industries for this model, but there are plenty of local examples. Like a group I worked with called Tribe+Glory.
Getting Your Social Enterprise Started
The trickiest thing for nonprofits going down this route is dispensing bad habits they’ve picked up in the philanthropic world. Take the “build it and they will come because I'm doing something good” approach and you will wind up broke. Creating a social enterprise takes planning. It takes:
Taking the time to really understand the problem. Please, please—for the love of everything don’t just create something you think clients will want. For example, if you’re working with homeless populations and want to create referral technology that you can package and sell to other nonprofits and agencies have you thought through the mobility problem? The fact that so many are dealing with mental health concerns, and may not be able to be identified? There may be a problem, but your way of solving may not be the best. It has to be tested. Make sure you understand the ecosystem. Then create prototype solutions that you then test.
Deciding on your target market. Developing a profile to figure out who your target client is, so you have a better understanding of how to build out the solution you’re building out. What are their problems? Where can they be found? How do you market to them?
Really understanding your solution. Sounds simple enough, but most organizations don’t go into specifics around what the target solution is. Instead, brainstorming a bunch of different things to sell and throwing them out like they’re Pez. Instead, once you’ve gotten a handle on the problem take the same time to investigate your solution. What should it look like? How should it work? How does it get into the hands of the end-user? Is it easy for them to use? Most importantly, does it solve the problem the way they (your target market and/or beneficiaries) want it solved? If you want a case-study around how badly things can go skipping this step, Google “Playpumps” and see what happened to them.
Developing the business model. I’m going to make X and sell it isn’t a business model. Who are you going to sell to? How will you deliver it to them? How will you price? Who will you work with to sell? There are business model canvases out there to help with this, but I find clients find it more helpful to talk through too.
Brainstorms on funding. How will you fund the social enterprise until it’s revenue generating? Have you run the numbers to ensure the business model allows the social enterprise to sustain? Dare I say, grow?
Once you’ve got a pretty clear handle on the problem and vision, THEN starting thinking about the legal. I know this sounds backward. But impact hinges on creativity. Any creative will tell you, the key to a creative brainstorm is for it to be uninhibited; where you’re not thinking about the could’s and should’s. So do that. If something proves a concern from a legal perspective, you have a few choices. You can pivot, you can research exemptions or even challenge the law itself (ever heard of Uber?)
How you structure can dictate the taxes you pay, what your exposure to risk will be and how quickly it will be to grow. So "the legal" is something you’ll want to pay attention to. You’ll just want a really clear handle on the “why” before you get to the “how” and “what."
Next Steps On the Social Enterprise Journey
Of course, there’s a little more to starting a Social Enterprise then what I list. Still, it’s enough to get your juice flowing. Get you thinking about how you can bring in extra money for your nonprofit. What you’ll find in planning is another tricky part to social enterprises; they’re multi-layer. An ink company will sell ink to other companies; possibly to consumers too. A social enterprise will often have customer, beneficiaries, and stakeholders that all have to be managed.
For this reason, I can’t stress how important it is to plan.
I already have a few resources to help with this. I’m FINALLY releasing a guide to walk you through creating a business model that you can pre-order here. If you don’t have an organization yet and aren’t sure whether to go the non-profit or for-profit route there’s a guide for that too here. And of course, we work with visionaries every day. So if you want to sit down and talk through an idea you have for a social enterprise, don’t hesitate to reach out and schedule a time to talk here.