Blog: Social Enterprise

This recent report summarizes a recent survey of 740 organizations on the current state of the SE field in the US.  This work was prepared by the Social Enterprise Alliance, in partnership with Community Wealth Ventures and Duke University’s Center for the Advancement of Social Entrepreneurship.  REDF funded the survey.

Some interesting findings include:

• Top five SEs: education/training, retail/thrift stores, consulting services, food services/catering, arts ventures.
• Top five mission areas: workforce development, housing, community economic development, education, health.
• 87% of respondents currently operating an SE anticipate launching another one within three years.
• 60% operate their SEs as a division of a larger organization, with smaller percentages utilizing a for-profit (15%) or nonprofit subsidiary (8%), or a joint venture (5%).
• One third of the 400 respondents currently operating an SE had SE revenues above $1 million.
• Larger organizations generate more SE revenue, both in terms of dollars and percentages.  For example, 42% of respondents with operating budgets greater than $10 million reported SE revenue of $5 million or more.  In contrast, 43% with operating budgets below $1 million reported SE revenue of less than $100,000.
• Not surprisingly, 80% of SEs lack sufficient growth capital. More surprising: for SEs launched since 2000, individual donations were the second most cited capital source, after foundation grants. Less than 9% of the SEs mentioned debt or equity financing as a major source of start-up funds.
• Finally, in terms of biggest challenges, 27% mentioned sales and marketing, 23% financial issues, 14% human resources, and 12% operations.

All in all, this report provides some useful baseline measurements, along with six informative SE case studies worth reading.  We hope efforts will be made to update this data regularly. Among things to watch: Will the new L3C and B-Corp organizational structures gain traction among SEs?  Will equity and debt financing become more common for SEs as social capital markets expand?

Stay tuned!

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This blog was written by guest writer Andy Horsnell.

While working for a nonprofit capacity building service, I had occasion to put together an “Executive Director Boot Camp” that would help EDs identify and begin addressing issues that were critical for their on-the-job effectiveness.  Early in the development of this project, I almost had myself convinced that I knew enough, given my twenty years in capacity building, to just roll it out to the market.  Almost.  Instead, I invested in interviews and focus groups with about two dozen executive directors to see what I could learn.

I learned plenty.  First, make it exclusively for executive directors; resist the temptation to open it up to other senior staff and board members. “We want to be free talk about our issues, without worrying about what our staff and board members might think.”  Then they told me the issues what they wanted the session to address, and gave me specific input on the session format, timing, promotion and pricing.  They said, “If you can pull this off as we’ve outlined, we’ll happily pay $400 for a two-day session.”  This from a group of people who were known to complain about paying $20 for a lunch presentation by an expert on the latest ‘critical issue’.

We launched the program with the initial goal of thirty participants.  The common wisdom around the office was, “We’ll be lucky to get twenty.  I mean, how many EDs are there that will come up with $400?”  Sixty-five, to be exact.  And we could have taken another twenty, had we had the room to accommodate them.

In short, the program almost sold itself, because we had the audacity to give our paying customers what they actually wanted, instead of what we felt they needed.  It’s a lesson I won’t forget quickly: don’t ever fool yourself into believing that you can think for your customers.  It’s so much easier (and effective) to just ask them in the first place and, if you do, they’ll reward you for it.

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Andy Horsnell is an accomplished social entrepreneur with deep roots in nonprofit management, consulting and training.  He is the guide to the Social Enterprise section of the Free Management Library.

Financial reward can be a powerful motivator. The potential for personal profit can provide intense focus and efficiency to almost anyone. Indeed, incentives drive entrepreneurs in their relentless search for success, overcoming obstacles along the way. Money might not be their only motivator, but dollars (the kind they get to keep) are always their favorite measure of success.

That’s mostly missing for most nonprofit social enterprisers. Why?  Many folks in the nonprofit sector believe that incentives are not permitted by the IRS. In fact, if structured properly, incentives will not put your tax exempt status at risk. Sales people can receive part of their compensation through commissions; and managers can be incentivized as well — as long as it’s “reasonable.”  (Caveat: I am not a lawyer; be sure to discuss with counsel.)  Secondly, many nonprofits believe that making a difference in the world is all the motivation that’s needed to get the most from people.

Fair enough, but the fact of the matter is that incentives work. In public radio, where I worked for many years as an executive and now as a consultant, an important source of revenue comes from underwriting. Underwriting is a kinder and gentler form of on-air advertising that public radio stations are allowed to “sell” to companies that want listeners to hear their messages. Some stations incentivize their underwriting staff, others do not. Guess which stations tend to do a better (in fact much better) job of generating revenue to support the station?

I’m confident that many social enterprises would be more successful if they structured incentives that line up with their priorities. Don’t miss out on an important tool that firms in the for-profit sector never ignore.

Consider making greed part of your social enterprise creed. It works.

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Author of Venture Forth! Endorsed by the late Paul Newman of Newman’s Own
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