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Introduction to social enterprise loic comolli nesst nairobi kenya february 9 2007

Introduction to

Social enterprise

Loic Comolli

NESsT

Nairobi, Kenya

February 9, 2007


Nesst mission

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.


Introduction to social enterprise loic comolli nesst nairobi kenya february 9 2007

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


Venture philanthropy

Venture Philanthropy


Engaged philanthropists

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)


Engaged philanthropists1

Engaged Philanthropists

  • Engaged in organization as volunteer (Board, expert advice, etc.)

  • Multi-year support

  • Build organizational capacity (systems, admin staff, policies)


D efinition of venture philanthropy

Definition of “venture philanthropy”


Business advisory network

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


Social enterprise

Social Enterprise


Introduction to social enterprise loic comolli nesst nairobi kenya february 9 2007

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.


Introduction to social enterprise loic comolli nesst nairobi kenya february 9 2007

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


Introduction to social enterprise loic comolli nesst nairobi kenya february 9 2007

Organizational Sustainability

Strategy/Strategic Plan

Social enterprise

Fundraising

Social enterprise

Fundraising


Introduction to social enterprise loic comolli nesst nairobi kenya february 9 2007

Typical NGO FinancingThe Short-Run Approach

  • short-term project cycles

  • limited, competitive pool of donor resources

  • difficulty securing core operating resources

  • shifting donor priorities


Introduction to social enterprise loic comolli nesst nairobi kenya february 9 2007

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


Introduction to social enterprise loic comolli nesst nairobi kenya february 9 2007

Social Enterprise: Definitions


Introduction to social enterprise loic comolli nesst nairobi kenya february 9 2007

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.


Introduction to social enterprise loic comolli nesst nairobi kenya february 9 2007

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.


Introduction to social enterprise loic comolli nesst nairobi kenya february 9 2007

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.


Introduction to social enterprise loic comolli nesst nairobi kenya february 9 2007

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.


Introduction to social enterprise loic comolli nesst nairobi kenya february 9 2007

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).


Introduction to social enterprise loic comolli nesst nairobi kenya february 9 2007

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


Introduction to social enterprise loic comolli nesst nairobi kenya february 9 2007

Social Enterprise: Definitions

Social Enterprise Archetypes

Embedded

Integrated

Complimentary

Source:Alter, Kim, Social Enterprise Typography. The Inter-American Development Bank, Washington, DC, 2003.


Introduction to social enterprise loic comolli nesst nairobi kenya february 9 2007

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


Introduction to social enterprise loic comolli nesst nairobi kenya february 9 2007

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


Introduction to social enterprise loic comolli nesst nairobi kenya february 9 2007

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.


Introduction to social enterprise loic comolli nesst nairobi kenya february 9 2007

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


Introduction to social enterprise loic comolli nesst nairobi kenya february 9 2007

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


Introduction to social enterprise loic comolli nesst nairobi kenya february 9 2007

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


Examples from sports organizations

Examples from Sports Organizations


Introduction to social enterprise loic comolli nesst nairobi kenya february 9 2007

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


Introduction to social enterprise loic comolli nesst nairobi kenya february 9 2007

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


Introduction to social enterprise loic comolli nesst nairobi kenya february 9 2007

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


Introduction to social enterprise loic comolli nesst nairobi kenya february 9 2007

Other Examples

  • sports events

  • T-shirts

  • township tours

  • manufacture and sale of sports equipment

  • sports tourism

  • workplace trainings on HIV/AIDS

  • job placement agency


Enterprise development process

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


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