Social Enterprises & Earned Income Strategies for Nonprofits

Category:Bootcamp
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*Sheila Warren - Coblentz, Patch, Duffy & Bass LLP (Moderator) 
*Caroline Pappajohn - New Door Ventures
*Kirsten Gagnaire, Social Enterprise Group
*social enterprise - An organization or venture that advances its social mission through entrepreneurial, earned income strategies.
**spans all corporate forms
**organization or venture
**sometime nonprofit has social enterprise component, or entire model
**social enterprise is changing the world
*biggest challenges for social enterprise
**same as what face enterprise
**capital market issues
**effective technical assistance
**sba, score don’t quite meet needs 
**nonprofit orgs also don’t quite needs
**cultural issues – when starting within existing org
**board issues – wearing nonprofit hat, different when managing social enterprise; needs board education
**when starting something new, you may do due diligence but things you didn’t expect pop up
*be crystal clear on what you want to do
**if objective is to train single mothers, needs flex hours, proper day care
**cant be bakery, cant expect them to be there at 5am
**most small business have only small chance to succeed in first five years
**when do plan, expect 5 years before you break even
**be really thoughtful about objectives and outcomes
**when's the right time to invest? to close?
**finding the right manager – businessperson? nonprofit background? two people?
**having the right manager is key
*boards
**mix of nonprofit & for profit members
**have committees – enterprise, evaluation, youth development
**look at the enterprise and find what the skills sets are that you need
**find people who have been entrepreneurs themselves
**social mission understanding
**different people to round out your board
**find people who understand to blend profit & nonprofit
**some board members of nonprofit adamantly opposed to social enterprise
*how do you ensure everything in the enterprise leads to the mission
**now part of culture and dna – 6 months of planning with several board approvals along the way
**many checks that mission of business maps to mission of organization
*structures that work
**what are your goals
**why are you engaging in social enterprise
**develop skills assets, get unrestricted income for organization, branding opportunity, 
**be incredibly clear on goals and reasons
**keep it simple
**different ways: for profit llc wholly owned by nonprofit; division of nonprofit; 
**blanket advice: as you're planning you social enterprise, don't get caught up on the structure. goals, business model, then talk to attorney and accountant re corporate form that best fits that
** mission, goal, orientation, purposes 
**seek local counsel
**a lot of these are investigated and audited on a regular basis
**what's more important is the mission, e.g. if job training, makes sense to have all under one org
**demand same level of accountability
**financial bottomline, social mission, go before board every month
**a lot of transparency
**run it like a business even though its part of a nonprofit
*viability
** look at just the business part and see if just the business is at least a break even business, then figure out how much extra does it cost to do the mission (e.g. job training)
**factor that cost of goods sold will be higher since it's on the job training
**women will need case management support
**are we really subsidizing a for profit business?
**is it sustainable, not just profitable
*two major sources of funding: foundations and individual donors
**know the funder you're pitching to, know what they're angle is
**skoll foundation – funding scale
**some others want smaller
**find the right funders, eg early stage; fewer that do due diligence; if they want scale, that's what you have to pitch them – the resources, intellectual capital
**Draper Richards Foundation
**look for entrepreneurs for funding, much better likelihood of getting support; it's an entrepreneurial model
**foundations not interested in long term funding, they do three years
**have overview of business model that' realistic, with a reasonable degree of reality
**seattle – paul allen foundation
**medina foundation
**write down everything you care about that’s important, and what's important for them
**you need an advocate inside
**day one mission alignment
**then bring in legal help
*models
**hybrid corporate form – not there yet
**try to make the structures we have work
**"getting to scale" by jill bamburg - analyzes businesses with explicitly social missions, case studies on how they got to scale; the only real text and resource – easy read, fascinating
*branding vs cause related marketing
**you cannot rent a c3 – so many problems giving your name – illegal – you can't give away your name
**laundering money through the c3
**when it goes sour, big problem, not thought through properly
*Resources
**checklist – fundamental questions when you're starting a new; what's the level of risk taking - sustayne.blogspot.com
**social enterprise alliance
*audits
**started as compensation audits, then general audits
**people don’t think about it, don’t think it's ubi, their income spikes, they get audited
**how much ubit can you generate – no too much – call your accountant
**that's why charities spin off their income making – to get ubit out 
**what's ubit? (unrelated business income tax) limits charitable organizations
*how find lawyer? social enterprise-alliance.org
**look for one with specific social enterprise knowledge – what clients have you had, what kinds of issues, what common issues you see in your practice
**foundations will also refer you 
**there aren’t that many – centered ion seattle and sf bay, one in ny
**needs experience with charities; many business lawyers don’t get charity – most law firms don’t have charity dept – find one with a charitable law department
*outlook for growth in social enterprise vs c3
**huge – exploding here, lagging behind rest of the world
**not a fad, here to stay, hugely growing sector in the world
**looking at the way we do business and meet social issues
Notes by: Vanae Tran, Rock Your Awareness; Leo Romero