Introduction to Social enterprise Loic Comolli NESsT Nairobi, Kenya February 9, 2007

1. Introduction to Social enterprise Loic Comolli NESsT Nairobi, Kenya February 9, 2007

2. NESsT Mission NESsT 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.

3. About NESsT: Four Initiatives 2 1 NESsT Venture Fund NESsT “University” Promoting accountability, innovation, leadership and professionalism in the field Philanthropic investment funds supporting social enterprise portfolios in emerging markets. 3 4 NESsT Marketplace NESsT Consulting Providing professional services in social enterprise development A global on-line shopping directory of social enterprise products & services

4. Venture Philanthropy

5. Engaged Philanthropists • 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)

6. Engaged Philanthropists • Engaged in organization as volunteer (Board, expert advice, etc.) • Multi-year support • Build organizational capacity (systems, admin staff, policies)

7. Definition of “venture philanthropy”

8. Business Advisory Network Expertise Networks Funding • Strategy • Marketing • Fundraising • Finance • Accounting • New programs • New countries • Specialized expertise • Multi-year • Co-financing NESsT • Specialized expertise • Training and advice • Feasibility studies • Business plans • Trainings and advice • Business plan funding Social enterprises

9. Social Enterprise

10. What is Organizational Sustainability? 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.

11. Organizational Sustainability Organizational Sustainability Financial Sustainability Self-Financing Organizational sustainability Organizational sustainability Organizational sustainability Financial sustainability Financial sustainability Financial sustainability Self- financing Self- financing Self- financing

12. Organizational Sustainability Strategy/Strategic Plan Social enterprise Fundraising Social enterprise Fundraising

13. Typical NGO FinancingThe Short-Run Approach • short-term project cycles • limited, competitive pool of donor resources • difficulty securing core operating resources • shifting donor priorities

14. More Sustainable NGO Financing The Long-Run Approach • more steady flow of secured income • diverse funding sources, • decreased dependence • more unrestricted income • ability to think and plan more long-term

15. Social Enterprise: Definitions

16. Social Enterprise: Definitions Hybrid Spectrum NGO with Income Generating Activities NGO Enterprise Socially Responsible Business Corporate Social Responsibility Traditional NGO Mission Motive Stakeholder Accountability Income reinvested in social programs Profit-making Motive Shareholder Accountability  Profit redistributed to shareholders  Source:Alter, Kim, Social Enterprise Typography. The Inter-American Development Bank, Washington, DC, 2003.

17. What is Social Enterprise? - an activity providing products or services through an on-going, 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.

18. Social Enterprise Methods 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., cross-subsidy). Services are often the most time consuming strategy but potentially lucrative. Product Sales Selling products produced by or for the nonprofit’s constituents; reselling donated products; or producing and selling new Products. 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.

19. Social Enterprise Methods METHOD EXAMPLE PROFITABILITY/RISK 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. 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. 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 Dividends from active or passive investments of financial resources (e.g., savings, endowments, reserve funds, etc.). Your nonprofit invests its savings in high-yield interest bearing accounts or mutual funds. 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 interest-bearing accounts can be low risk.

20. 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).

21. Spectrum of NGO Social Enterprise Activities Program Activities Existing Product/Service Existing Customers New Product/Service Existing Customers Existing Product/Service New Customers New Product/Service New Customers Services specified in the NGO charter, bylaws, mission Earned income directly from the NGO’s program activities 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: Example: 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 eco-tourism travel agency Related to CSO Mission Unrelated to CSO Mission

22. Social Enterprise: Definitions Social Enterprise Archetypes Embedded Integrated Complimentary Source:Alter, Kim, Social Enterprise Typography. The Inter-American Development Bank, Washington, DC, 2003.

23. Social Impact NGO Social Impact NGO Social Impact Enterprise Social enterprises can help organizations increase social impact • 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

24. Benefits of Social Enterprise • Increased income • Diversified revenues • Greater flexibility • Improved overall organizational performance • Positive impression on donors • Strengthened board • Increased visibility • Increased self-confidence

25. Later Stage Portfolio Central Europe: Vydra Vydra (Slovakia) www.vydra.sk Mission: Preservation of local traditions, culture & environment in rural Microregion, Cierny Hron. Social Enterprise: With support from NESsT, 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.

26. NGO NGO Social Impact Social Impact Enterprise Enterprise Goals will not be met if the enterprise is not well planned! • 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

27. Benefits of Social Enterprise • 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

28. Comunidad Terapeutica PeñalolenSantiago, 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

29. Examples from Sports Organizations

30. 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

31. 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

32. 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

33. Other Examples • sports events • T-shirts • township tours • manufacture and sale of sports equipment • sports tourism • workplace trainings on HIV/AIDS • job placement agency

34. Enterprise Development Process Organizational Readiness: Are we ready? Is this the best moment? Are we committed? Timing: 2/ 4 weeks Pre-feasibility:Is the idea worth investigating in-depth? Feasibility:Is the business worth pursuing? Business Plan:How can I implement 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