A social enterprise is a venture established to achieve a primary social or environmental mission using business methods. It either produces products or services that advance a social or environmental mission, or it employs disadvantaged people who would otherwise not have the same opportunity to work.
Social enterprises differ from socially responsible businesses in that social or environmental improvement is their principal aim rather than a secondary objective. They are distinguished from nonprofits or public sector agencies by their dependence on earned revenue. As delineated by an ACT team in Marin County, it is useful to recognize two general types of social enterprises as indicative of the range of reliance on earned revenue among social enterprises (see Recommended Reading for reference):
Business Driven - Double-bottom-line businesses that sustain their operations largely from customer revenues and generally can be scaled. They may depend to a limited extent on subsidies from established public sector programs or benefit from set-aside contracting programs. For start-up funding they look to philanthropies or public sector sources, justifying this based on the social benefits of the employment opportunities created.
Social Mission – Single bottom line programs that earn some revenue from customers by providing them services. They, however, are largely sustained with funding from government or philanthropic sources provided because of the demonstrable social benefit and/or public sector savings they provide as a result of the employment they create. Typically, they negotiate their government and philanthropic funding in customized arrangements and the programs themselves do not expand beyond local jurisdictions.
The strategic plan will be used to set goals, allocate resources, and measure success within a specified time frame.
ACT can help a non-profit client assess whether to start a social enterprise and what type of social enterprise the client could implement. Its assessment will be aimed at determining whether the social enterprise concept meets the following success requirements:
- The social enterprise offers a clear value proposition to the customers of its services and to its public sector or philanthropic funders. That is, the direct revenues it earns combined with the value of the public sector services it saves and the social benefits it creates exceed the social enterprise’s costs.
- Revenue from all sources, such as from customers, public sector entities, and philanthropic funders, pays for the costs of the enterprise.
- The non-profit operating the social enterprise is capable of operating the business so it realizes the value proposition for customers and funders.
- There are sources for funding the start-up of the social enterprise.
- The Management and the Board of the non-profit have the bandwidth and expertise to oversee the operation of the social enterprise.
At the outset of the project (screening or sounding board phases) ACT should determine how developed the client’s vision of its social enterprise is.
Does the social enterprise concept include solid hypotheses for satisfying each of the criteria listed above? If so, ACT could help the client by validating the concept with some or all of the following steps:
- Market analysis of potential customer demand.
- Competitor analysis to gauge the strength of the value proposition.
- Development of a financial model that can be used to validate whether the social enterprise is sustainable.
- Quantification of the benefits of the proposed social enterprise from the perspective of target public sector or philanthropic funders.
If the concept appears viable, the ACT team could help develop a business plan to guide the start-up of the social enterprise.
Alternatively, if the client does not have a well-developed concept and instead wishes to know more about social enterprises (e.g. because its peers operate them), ACT could help with research that explains how the peer organizations have satisfied the various success criteria. The ACT team could then help the client use the findings from this research to try to develop a promising social enterprise concept. Depending on how much time was required to complete the peer research and concept development, it might be possible to move on to the concept validation and business plan creation work described above. If there is not enough time for this, the client could apply for a follow-on project.
Meet with the ED and relevant staff and Board members. Discuss the social enterprise they wish to start and their rationale including alternatives they’ve considered for achieving their goals. Understand how defined their concept is and how it satisfies the success criteria described above. Talk about the information they need to decide whether to proceed with launching a social enterprise and the support an ACT team would require from the client to gather the information. Based on this, decide whether to launch the project or not.
Develop a work plan that describes the state of the client’s concept definition, in particular whether they are in an exploratory stage or whether they are ready to validate a well-conceived concept. List the work required for the ACT team and client to gather the information required to reach a “go/no-go” decision (refer to the Project Definition section for examples of the kinds of analysis that might be conducted). Have all major stakeholders in the project sign the work plan.
Conduct the work.
Hold a mid-course meeting to review the findings. Facilitate a discussion amongst the relevant decision-makers at the client to decide how to adjust their concept based on the information collected or that pursuing a social enterprise is not justified at the current time. If pursuing the concept further, identify next steps. For example, are there specific issues that need further research to validate or refine the concept? Is the concept sufficiently compelling that a business plan can be drafted?
Document the client’s decision and list next steps. Assist the client with the next steps (either further validation or business plan drafting).
Depending on the work undertaken in the second phase, present at a final meeting either:
- The results of the further validation along with implications as to “go/no-go” and next steps, or
- A plan for the social enterprise summarizing the rationale for launching the enterprise, a financial model and staffing plan that shows the required start-up investment and how the enterprise will sustain itself financially, and the cases that should be made to justify any funding needed from public sector or philanthropic entities.
- Work plan describing current state of client’s social enterprise concept and analysis required to further understand its viability.
- Mid-course report summarizing findings and implications about the viability of the concept.
- Final report summarizing the social enterprise concept and results and implications of additional validation work or a plan that describes the rationale for the social enterprise, financial and staffing model and cases to present to public sector and philanthropic funders.
- Roberts Enterprise Development Fund has developed detailed models and methods for estimating the social return on investment. These can be helpful to an ACT team seeking to gauge public sector or philanthropic interest in funding a social enterprise.
by Jim Dern, MBA ’78