Emerging Private Sector SEs

Private sector SEs are now gaining momentum and recognition.  Truth be told, the private sector started thousands of social enterprises in the ‘70s, ‘80s and ‘90s, long before a large number of nonprofits “discovered” the field in the ‘90s.  Today, there’s a return to the private sector, as many social entrepreneurs prefer the legal flexibility and access to capital found in for-profit business models.  We’re also seeing new strategies and partnerships between the sectors to build on each other’s strengths.

SE Surge on Campus

SE has become a “hot” academic topic, with an explosion of courses and degree programs in social enterprise and related topics, including social innovation and social entrepreneurship.  Last year, we created a list of graduate school SE programs; today, more programs could be added to list, including many at the undergraduate level.

SE Gets Younger

As SE becomes more mature, the practitioner is getting younger.  That’s a good thing, on campus and elsewhere.  Many young people are graduating today with a strong desire to start their own social enterprises rather than work for a corporation.  And going even younger, there are programs like SAGEGlobal, which works with high school social entrepreneurs in 21 countries.

The Resurgent Practitioner

While the modern SE movement was founded and initially propelled by consultants, it is now being driven more and more by SE practitioners.  Sure, consultants, lawyers, and academics have an important role to play in this work (and, hey, I’m one of them), but the SE movement needs to be about SEs, not service providers or anyone else.  The good news is that things are moving in that direction.  For the first time in its history, Social Enterprise Alliance now has a practitioner as its CEO.  Here in the Rockies, SEA Colorado requires a majority of practitioners on its board, as is its chair and vice-chair. Most SEA chapters include a healthy mix of practitioners in their leadership teams.  Similarly, a number of recent SE books have been written by practitioners.

Mapping The Sector

New efforts to catalog the sector are emerging, in ways designed to drive sales to existing SEs.  In previous blogs, I’ve written about Buy With Heart, the online guide for Rhode Island, the SE Dining Map, and the Directory of SE Directories.  There is also now an initial map of Colorado SEs.  This new focus on driving sales, by increased visibility and ultimately by attracting corporate and government contracts, is designed to increase sustainability and growth of existing SEs, as well as encourage new ones to form.

Global Movements Gets Local Boost

There is now much more going on with SE at the local level than just a few years ago.  There arethirteen SEA chapters across the US, with more on the way.  Each one is bringing together local social enterprisers, academics and support providers, to build communication networks and share information among existing SEs and to encourage the creation of new SEs. Similarly, SEA is planning a series of local conferences in 2012, rather than one-big Social Enterprise Summit.

Less Rhetoric, More Market-Focus

One thing I’ve noticed in the workshops I’ve presented recently is an increased understanding that SE’s need to compete in the marketplace like any other business.  That they must be approached with the same kind of flexibility and market-savvy that private sector companies have to carry out every day to survive let alone prosper.  Mission does not sell products; only good products can do that.  Also, I’m hearing less hyperbole about SE replacing the need for grants (for nonprofits), but rather as a strategy to increase impact and  gain greater sustainability.

Hybrid Organizations

There are now more and more L3C’s and for-benefit corporations, with some of them having years of experience under their belts. While the expected availability of special financing (especially program related investments from foundations) has not been realized so far, these companies are blazing the trail on how private sector companies can focus on both financial and mission bottom lines.  They are also writing the book on how to measure social impact, an essential but difficult topic that needs to be addressed to attract investments in the future.

Social Capital/Social Impact Markets

Finally, numerous alternative forms of financing are emerging for social enterprises through social venture funds and crowd sourced financing strategies. Recently I wrote a blog about the proposed Entrepreneur’s Access to Capital Act, which, if approved, would dramatically increase small business access to individual investors.  Also, the federal Social Innovation Fund supports social impact markets by funding organizations that actively invest in high-impact solutions to a social problem, including social enterprises.  Catalyst Kitchen, for example, is now an Innovation Fund grantee and able to re-grant funds to members of their collaborative.  Incidentally, these kinds of collaborative networks (SEA is another one) play a significant and growing role in increasing impact and sustainability of SEs.

[*Special thanks to people who offered suggestions to an earlier version, specifically Jerr Boschee, David Carleton and David Weisberger]

• Copyright © 2012 Rolfe Larson Associates – 15th Anniversary!
• Author Venture Forth! Endorsed by Paul Newman of Newman’s Own
• Read my weekly blogs on Social Enterprise and Business Planning

Social Enterprise Shopping Guide* was created this fall by the npEnterprise Forum for those who would prefer to make online purchases that create positive change in the world.  Approximately 40 ventures are profiled where purchases provide training and employment for disadvantaged individuals, deliver needed supplies to underserved communities, or address critical environmental issues.

Social Enterprise Dining Map* was created this summer by the npEnterprise Forum listing 108 social enterprise cafes, restaurants, coffee shops, ice cream stores, bakeries, and catering services in the US and Canada.

Social Enterprise Directory, from Community Wealth Ventures (in partnership with Social Enterprise Alliance), is a “directory of nonprofits with business ventures and strategic alliances.” It was created almost ten years ago and thus is fairly dated, but still sometimes useful.  It covers the US.

Social Enterprise Database from Give To Get Jobs (a new organization) aspires to include “everything from sustainable non-profits and L3Cs to B Corporations and soon FPCs and everything in between.”  Currently list 1200 organizations in the US, with plans to expand to other countries.

Canadian Social Enterprise Marketplace, from the Social Enterprise Council of Canada, is more recent and provides a useful tool for researching SEs in Canada.

Buy With Heart, from Social Venture Partners/Rhode Island, presents more than 100 social enterprises in Rhode Island.  Their definition: “Social Enterprises provide high-quality, locally produced products and services while addressing some of society’s most pressing challenges.”

Colorado Social Enterprise Map*, created by SEA Colorado (Social Enterprise Alliance chapter) presents more than 100 SEs in that state.

Latest L3C Tally from interSector Partners L3C lists 500+ firms that have achieved L3C status.

B Corp Directory from B Lab lists almost 500 certified B Corps.

iuMap, described as the “world’s largest social enterprise map,” from Next Billion, lists 450 enterprises employing market based solutions to poverty in 65+ developing countries.

* Disclosure: I created the three directories marked with *’s.  For each of those, the SEA definition was used.

• Copyright © 2011 Rolfe Larson Associates – 15th Anniversary!
• Author Venture Forth! Endorsed by Paul Newman of Newman’s Own
• Read my weekly blogs on Social Enterprise and Business Planning

Support the SE sector while shopping online!

Here’s the web address for the Guide:  http://bit.ly/qsDUzN

It’s only a start, with less than 30 entries. We’re sure there are dozens (hundreds?) more out there. So if you have favorites to add to the Guide, email them to Rolfe@RolfeLarson.com.

To qualify, the SE needs to have a web page that lists products for the general public to order online. The SE can be located anywhere in the world, and can be nonprofit/NGO, forprofit or hybrid. SE defined at http://bit.ly/nbXGHj

Incidentally, this is the third npEnterprise project for 2011. The first two have already attracted more than 10,000 viewers.

In case you missed the earlier ones, here they are again:

US Nonprofit SE Tax/Legal Compilation http://bit.ly/n4BqNZ
Social Enterprise Dining Map http://bit.ly/niLeCX

Or just google “npEnterprise”.

The SE Dining Map has grown to 106 locations, in 18 of the top 25 US metro areas, 28 US states and 5 Canadian provinces. UK cafes will be added soon.

While SE cafes are not listed in the Shopping Guide, remember that many sell gift certificates, which can often be purchased by phone and mailed as a gift.

Happy Shopping.

• Copyright © 2011 Rolfe Larson Associates – 15th Anniversary!
• Author Venture Forth! Endorsed by Paul Newman of Newman’s Own
• Read my weekly blogs on Social Enterprise and Business Planning

For this blog, we’ve used the Social Enterprise Alliance definition:

“SEs directly address social needs through their products and services or through the numbers of disadvantaged people they employ. SEs use earned revenue strategies to pursue a double or triple bottom line, either alone (as a social sector business, in either the private or the nonprofit sector) or as a significant part of a nonprofit’s mixed revenue stream that also includes charitable contributions and public sector subsidies.”

The SEA definition goes on to distinguish SEs from “socially responsible businesses,” which “create positive social change indirectly through the practice of corporate social responsibility (e.g., creating and implementing a philanthropic foundation; paying equitable wages to their employees; using environmentally friendly raw materials; providing volunteers to help with community projects).”

We’d like to add a few more examples of what is NOT an SE:

First, a nonprofit that operates an unrelated business venture, say a coffee shop that does not employ disadvantaged workers, is not an SE.  If it makes money, that’s good for mission, but does not make it an SE.

Secondly, with rare exceptions, consultants and lawyers are not SEs, since they do not directly address social needs or employ disadvantaged people, apart from providing services to organizations that do so. These organizations are an important part of the social enterprise eco-system, and often work closely with social enterprises, but they are more appropriately classified as SE service providers.

Thirdly, forprofit companies whose products or operations broadly benefit the environment are not SEs, but rather they are environmentally-sensitive companies.  Again, a good thing, but not an SE.

Finally, no matter how entrepreneurial it is in obtaining labor, funding and supplies, a nonprofit or a program is not an SE if it doesn’t charge for its products and services, such as a soup kitchen.  Important contributor and example of social entrepreneurship, but not an SE.

What do you think?

• Copyright © 2011 Rolfe Larson Associates – 15th Anniversary!
• Author Venture Forth! Endorsed by Paul Newman of Newman’s Own
• Read my weekly blogs on Social Enterprise and Business Planning

For almost forty years, ShoreBank made more than $4 billion in mission investments and financed more than 59,000 units of affordable housing.  It spearheaded the national movement of community development financial institutions, played a significant role in federal policy around community investment, and was the role model f or dozens of smaller progressive banks in the US and abroad.

And yet it failed.  Why?  And what can we learn from that failure?

ShoreBank’s demise is dissected in exhaustive detail in a Fall 2011 article in the Stanford Social Innovation Review, “Too Good to Fail,” written by James E. Post and Fiona S. Wilson.  It’s available online at http://bit.ly/mTDzyE.

Did they fail because of plain old bad luck?  Certainly the Great Recession was a factor, which hit lenders to low and moderate income people with unexpected severity.  But was there more?  Politics also played a role, in that some of the “toxic politics” of Washington DC may have led to a rejection of ShoreBank’s application for additional capital from the Treasury Department.

And there may be some practical lessons here for the rest of us as well.  Post and Wilson write that: “A social mission should serve as a powerful incentive to strengthen an organization’s operating systems from the harsh consequences of the economy, competition, or a hostile environment.”  In a word, it may have gone too far on the risk curve, by overly concentrating its loans to low and moderate income people and businesses.

The authors’ note: “The lesson here is clear: For market-based social ventures, mission should be highly integrated with and responsive to the changing realities of the market.”  That said, ShoreBank was often held up as an example of a mission organization closely in tune with the marketplace.  Here’s how they conclude their article:

“Taken together, ShoreBank provides an important lesson about value creation that is social in nature. The world needs radical, more effective, scalable approaches to address social problems. These will come only from those who are willing to operate in uncharted territory. Innovative organizations like ShoreBank, which harness the capitalist system to produce positive social outcomes, continue to offer promise for the future.

ShoreBank was never perfect, but it was too good to fail.”

We agree.

• Copyright © 2011 Rolfe Larson Associates – 15th Anniversary!
• Author Venture Forth! Endorsed by Paul Newman of Newman’s Own
• Read my weekly blogs on Social Enterprise and Business Planning

See you there!

While such a national system is still a ways off, the first tentative steps were taken in this direction by Social Venture Partners of Rhode Island, who recently launched their Buy With Heart program.

With a lot of volunteer help and a barebones budget, they identified more than 100 social enterprises in Rhode Island, mostly nonprofits, organized them into logical categories, and created the above web site to present their offerings.  That by itself was an impressive accomplishment: the first-ever statewide directory of social enterprises.

They are now in the process of developing promotional strategies to drive traffic to this website, which would then (they hope) lead to demonstrable sales increases.  They are also now developing a methodology for identifying and vetting additional social enterprises to include to their directory, particularly for-profit companies, which is no small task to undertake.  Finally, they are exploring strategies to monetize this work so it will become self-funding.

Here in the Rockies, SEA Colorado (local chapter of the Social Enterprise Alliance) is also in the process of developing a statewide SE directory.  We intend to learn from the Buy With Heart program, and possibly develop some kind of partnership with SVP-RI to build on their expertise.  The eventual goal of course would be a national directory and procurement strategy for social enterprises.

Now, for the first time, there seems to be some movement in that direction.  Yeah!

• Copyright © 2011 Rolfe Larson Associates – 15th Anniversary!
• Author Venture Forth! Endorsed by Paul Newman of Newman’s Own
• Read my weekly blogs on Social Enterprise and Business Planning

We often do, which is why the npEnterprise Forum created the first-ever Social Enterprise Dining Map. This map lists more than 50 social enterprise cafes, restaurants, coffee shops, and ice cream stores in the US and Canada.

Later this year, we plan to add catering services and overseas cafes.

Incidentally, SEA Colorado is creating the first-ever directory of all social enterprises in the state, with help from SE-minded students at a local university. We hope to finish by the end of the year.  The only known statewide SE directory is for Rhode Island.

Happy eating!

• Copyright © 2011 Rolfe Larson Associates – 15th Anniversary!
• Author Venture Forth! Endorsed by Paul Newman of Newman’s Own
• Read my weekly blogs on Social Enterprise and Business Planning

What is Venture Capital?

Venture capital (VC) comes from a private fund that invests equity in high-potential, high-risk startup ventures.  Unlike angel investors who are well-to-do individuals investing their own dollars, VCs are firms that pool capital from numerous individual and institutional investors.  VCs usually focus on companies that offer a unique technology or compelling business plan for quick growth.

They look for deals that will provide them with two things.  First, a high return on their investment to compensate for the high risk that they’re taking.  They seek to get that return from selling the company in a few years (or an initial public offering), and secondly from gaining significant ownership and control over decision-making at the company.  One rough rule of thumb is a goal to double their investment in value in three years.

This is pretty stiff coffee for most ventures.  And the odds are pretty low too.  Of the roughly two million businesses started each year, only about 700 get venture capital funding.

Venture Capital And Social Enterprises

For 99% of social enterprises, VC is not relevant.  First, since no one can legally “own” a nonprofit organization, any social enterprise that is part of a nonprofit organization cannot, under current law, meet VC’s ownership requirements.

Secondly, since social enterprises by definition seek to “directly address social needs through their products or services or through the numbers of disadvantaged people they employ,” it is hard to imagine even a forprofit company with that unwavering focus achieving the growth rate that VCs expect.

Not impossible, but highly unlikely.  Indeed, a recent study of 740 operating social enterprises found that none of them reported venture capital as a source of startup capital.

In a future blog, we’ll review what kinds of investments do make sense for social enterprises, depending on where they are in the life cycle of their venture.

Good luck!

• Copyright © 2011 Rolfe Larson Associates – 15th Anniversary!
• Author Venture Forth! Endorsed by Paul Newman of Newman’s Own
• Read my weekly blogs on Social Enterprise and Business Planning

What are Angel Investors?

Angel investors are well-heeled individuals who invest sizable chunks of their own money into a new business, in exchange for equity.  Angels or informal investors can fill the gap between the “seed” capital the entrepreneur raises from personal networks (self, friends, family) and more conventional capital such as bank loans and venture capital which become  available after the business hits its stride.

Angel investors invest their own funds, rather than work through an organization that pools funds.  Angels are not easy to find.  (If you were one, would you want everyone to know?)  So mostly they’re located through personal networks.  There are few “social business angel networks” (SBANs) such as Investor’s Circle, Toniic, and ClearSo.

The downside of working with angel investors is that they usually expect very rates of return.  Roughly half of all startups fail within five years, and only about 1/3 of those that survive are profitable.  So, with those odds, angels look for young companies that have the potential to grow 20-30% per year, and then get sold within a few years.  That’s tough for most social enterprises to offer (or accomplish) and still maintain their social commitment.

Moreover, angels tend to watch over their investments, which seems reasonable enough at first but often reduces the entrepreneur’s authority and control.  Do you really want someone else looking over your shoulder?  Someone who might not get the social focus of your venture?

Now, not all angel investors match this pattern. Some are willing to accept lower financial returns for social enterprises, and some have no interest in meddling in your venture.  But don’t count on it.

The next blog will look at venture capital as a source for financing.

Good luck!

• Copyright © 2011 Rolfe Larson Associates – 15th Anniversary!
• Author Venture Forth! Endorsed by Paul Newman of Newman’s Own
• Read my weekly blogs on Social Enterprise and Business Planning