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APS 1015H: Social Entrepreneurship

               Class 7: Business Model Considerations for
                             Social Enterprise

                             Saturday, October 27, 2012
Instructors:
Norm Tasevski (norm@socialentrepreneurship.ca)
Karim Harji (karim@socialentrepreneurship.ca)
                                                            1
© Norm Tasevski & Karim Harji




Agenda


•    Admin – next Design Jam
•    Marketing for social enterprise
•    Operational considerations
•    Legal Considerations
•    What did we learn – today?




                                                           2
© Norm Tasevski & Karim Harji




Next week

Design Jam!

•    Location Change!:
     –  Centre for Social Innovation (720 Bathurst Street)
     –  Meeting Room 1, 2nd Floor
     –  Saturday, November 3, 1-4pm


•    Format:
     –  Similar to 1st Idea Jam: 3 minute presentation, then 2 rounds of brainstorming
     –  Key difference: focus on refining your existing idea (vs. brainstorming new ideas)




                                                                                                   3
Marketing for Social Enterprises…




                                    4
© Norm Tasevski & Karim Harji




A caveat…




 “Social    “Social
 Media”     Enterprise”




                                    5
© Norm Tasevski & Karim Harji




A Second Caveat…




    Marketing!     ≠!   Sales!




                                                     6
© Norm Tasevski & Karim Harji




Where does Marketing Fit?




                                                7
© Norm Tasevski & Karim Harji




Some Definitions
•    Social Marketing is the systematic application of marketing, along with other concepts
     and techniques, to achieve specific behavioral goals for a social good.
      –    The primary aim of social marketing is "social good", while in "commercial marketing" the aim is
           primarily "financial". This does not mean that commercial marketers can not contribute to
           achievement of social good.
                                                                                                     Wikipedia
•    Cause Marketing (or cause-related marketing) is a mutually beneficial collaboration
     between a corporation and a nonprofit in which their respective assets are combined to
     (1) create shareholder and social value, (2) connect with a range of constituents (be
     they consumers, employees, or suppliers), and (3) communicate the shared values of
     both organizations.
                                                                         Jocelyn Daw (Marketing Consultant)
     –     Cause marketing differs from corporate giving (philanthropy) as the latter generally involves a
           specific donation that is tax deductable, while cause marketing is a marketing relationship
           generally not based on a donation.
                                                                                                      Wikipedia
•    Sustainable Marketing is the process of planning, implementing and controlling the
     development, pricing, promotion and distribution of products in a manner that satisfies
     the following three criteria: (1) customer needs are met (2) organizational goals are
     attained, and (3) the process is compatible with ecosystems.
                                                               Donald Fuller (Sustainable Marketing Consultant)
      –    Sustainable Marketing encourages the process of innovation by turning the marketing process into
           an experimental, iterative process that has close ties to the customer. Individuals and interactions
           on a daily basis are important. Customer Collaboration over customer transactions. Responding to
           change over blindly following a plan.
                                                                                                                8
                                                                Ivan Storck (founder, SustainableWebsites.com)
© Norm Tasevski & Karim Harji




  Social Marketing

                    Individual
                                     Mind             Heart               Spirit
Social Enterprise




                    Mission        Deliver                                Practice
                     (why)                       Realize Aspiration
                                 Satisfaction                           Compassion




                    Vision
                                 ProfitAbility     ReturnAbility        SustainAbility
                     (what)




                    Values
                                 Be Better         Differentiate      Make a Difference
                     (How)


                                                                                                              9
© Norm Tasevski & Karim Harji




Examples of Social Marketing…




                                                  10
© Norm Tasevski & Karim Harji




  Examples of Cause Marketing…


One of the first…
     Another…
        Most Recently…




1983 – American        2006 – Bono &    2010 – Pepsi & the
Express & the Statue   Product (Red)
   Refresh Project
of Liberty
Restoration Project



                                                                    11
© Norm Tasevski & Karim Harji




Another Example of Cause Marketing…




                                                12
© Norm Tasevski & Karim Harji


Sustainable
Marketing…
© Norm Tasevski & Karim Harji




Sustainable Marketing…is tricky…




h"p://
www.youtu
be.com/
watch?
v=p6aSlb_li
es	
  
	
  
© Norm Tasevski & Karim Harji


Sustainable Marketing Toolkit
Checklist 1!
© Norm Tasevski & Karim Harji


Sustainable Marketing Toolkit
Checklist 2!
© Norm Tasevski & Karim Harji


Sustainable Marketing Toolkit
Checklist 3!
© Norm Tasevski & Karim Harji




Which of these techniques work for you?
                Social Marketing
                Cause Marketing
             Sustainability Marketing



        Which ones could work for you?
          How would you act on them?
   What are the challenges to implementation?
             What could go wrong?
          Are there any ethical issues?


                                                           18
Break




        19
HR Considerations…




                     20
© Norm Tasevski & Karim Harji




Where does HR Fit?




                                       21
© Norm Tasevski & Karim Harji




A Caveat…




Think of your HR from the perspective of “running a
          business”, not “running a charity”




                                                              22
© Norm Tasevski & Karim Harji




A Second Caveat…




Your HR Strategy must align with your business model
        and align with organizational values




                                                              23
What if you were a…

Product-based Social Business…!



                                     Tethered Social Enterprise…!




Employment-Based Social Business…!



                                     Accessibility-Based Platform…!
                                                                    24
1. Product-Based
                                                © Norm Tasevski & Karim Harji




        A business/business model that provides
        products or services with social benefit.
2. Employment-Based
                                                  © Norm Tasevski & Karim Harji




                         	
  
      A business that hires marginalized people
         in good employment opportunities.
3. Tethered
                                                 © Norm Tasevski & Karim Harji




An enterprise started by a charity or non-profit that
generates revenue for the organization.
4. Accessibility-Based
                                                        © Norm Tasevski & Karim Harji




	
  

       A business that maintains a purposely low profit margin
                 to make their products accessible.
© Norm Tasevski & Karim Harji




Other HR Considerations…
•  Who/what do you need?

•  What do you have today?

•  How do you find the right people?

•  How do you define what they do?

•  How (and from where) do you pay them?




                                                             29
Operational Considerations…




                              30
© Norm Tasevski & Karim Harji




DAY 1!




         What do you do first?




                                                   31
© Norm Tasevski & Karim Harji




DAY 42!




          What is most important to do?




                                                            32
© Norm Tasevski & Karim Harji




DAY 180

    What does your average week look like?




                                                         33
Legal Forms Applicable to Social
Enterprise…




                                   34
© Norm Tasevski & Karim Harji




A Caveat…




There is no defined (national or provincial) legal form
            for social enterprise in Canada




                                                                35
© Norm Tasevski & Karim Harji




A Second Caveat…




          Form follows function




                                                    36
For-Profit      Non-Profit
 Corporation!     Corporation!


  Partnership!    Charity!


          Sole    Co-Operative
Proprietorship!   Corporation!


                                 37
© Norm Tasevski & Karim Harji




  For-Profit Corporation!
  •    Incorporated under the Business Corporations Act (Ontario) (the “OBCA”)
       or the Canada Business Corporations Act (federal) (the “CBCA”)!
  •    With share capital!


•  Most flex in terms                              •  Pay corporate tax!
   of profit-making                                •  Cannot access grants!
   activities!
                                                   •  Cultural/
•  Can access all
   forms of investment                                psychological barriers
   (debt, equity, etc)!                               with operating a “for-
•  Provides clarity of                                profit social
   purpose (i.e. the                                  business”!
   financial bottom
   line)!
•  Limited personal
   liability!

                                                                                    38
© Norm Tasevski & Karim Harji




  Charity!
  •    Incorporated via Letters Patent under the Corporations Act (Ontario) or
       Canada Corporations Act (federal)!
  •    Without share capital!



•  Don’t pay corporate                               •  Least flex in terms of
   tax on earnings!                                     profit-making activities!
                                                     •  Limited in the types of
•  Can issue tax                                        investments you can
   receipts!                                            access (e.g. equity)!
•  Can access many                                   •  Time-consuming!!
   government/                                       •  Psychological barriers
   foundation/                                          with operating a “social
   corporate grants!                                    business”!
                                                     •  An aversion to “risk
                                                        taking”!
                                                     •  Can lose status if “too
                                                        successful”!
                                                                                      39
© Norm Tasevski & Karim Harji




  Sole Proprietorship!
  •    Registered via Business Names Act (Ontario) or Canada Corporations Act
       (federal)!
  •    Without share capital!



•  The simplest (and                                •  Unlimited liability!!!
   quickest) legal form!                            •  The business is the
•  You have full                                       entrepreneur!
   control of business                              •  Hard to find investors!
   decisions!                                       •  Limited creative input
•  Flexibility to make                                 (i.e. you’re the only
   business decisions                                  one with ideas!)!
   quickly!                                         •  Less “professional”
•  No separate filing                                  than other forms!
   for income tax!


                                                                                     40
© Norm Tasevski & Karim Harji




  Non-Profit Corporation!
  •    Incorporated via Letters Patent under Corporations Act (Ontario) or Canada
       Corporations Act (Federal)!
  •    Generally without share capital!



•  Can access grants!                                •  Can’t issue tax
•  Can access debt                                      receipts!
   financing!                                        •  Limited in the types of
•  Tax exempt as long                                   investments you can
   as organized and                                     access (e.g. equity)!
   operated for defined                              •  Psychological barriers
   social/community                                     with operating a
   benefit!                                             “social business” !
•  Some NPs are more
                                                     •  Can lose status if
   open to (limited)
                                                        “too successful”!
   risk-taking!

                                                                                      41
© Norm Tasevski & Karim Harji




  Partnership!
  •    Registered under the Partnerships Act (Ontario)!
  •    With or without share capital!
  •    Usually organized using a Partnership Agreement!



•  Similar benefits to                                •  For most
   sole proprietorship!                                  partnerships, unlimited
•  Combines skills/                                      liability! (at least in
   competencies of                                       Canada…)!
   two people!                                        •  Acrimony between
•  Can sign contracts                                    partners is common!
   and borrow money in                                •  Difficult to find
   its own right!                                        investors!



                                                                                     42
© Norm Tasevski & Karim Harji




  Co-Operative Corporation!
  •    Incorporated under the Co-Operative Corporations Act (Ontario) or Canada
       Cooperatives Act (Federal)!
  •    Wither with or without share capital!



•  Well-established                                 •  Cannot issue tax
   structures!                                         receipts!
•  Integrates the                                   •  Generally not exempt
   concept of                                          from paying tax!
   “community benefit”                              •  Psychological barriers
   already!                                            with operating a
                                                       “social business”!
                                                    •  Difficulty making
                                                       decisions (too many
                                                       people at the table)!


                                                                                     43
© Norm Tasevski & Karim Harji




Talk to a Lawyer!




                                      44
Legal Innovations…




                     45
© Norm Tasevski & Karim Harji




Legal Innovation: CIC (UK)
•  Established to trade (goods or services) for the
   community good
•  Requires “community interest statement” application to
   the CIC Regulator. Publically-available annual reports
   required to confirm (adherence to) community interest
   requirement
•  May issue shares in order to raise capital
•  Cap on returns (dividends paid) set by the Regulator
•  Subject to an “asset lock”
     –  Assets and profits must be permanently retained by the CICs
        for community benefit, or transferred to another CIC subject
        to an asset lock, or to a charity
•    Taxed in the same manner as other businesses

                                                                            46
© Norm Tasevski & Karim Harji




Legal Innovation: L3C (US)
•  Variation on American Limited Liability Companies (LLCs)
•  LLC investors are members rather than shareholders
•  Terms of the operating agreement guarantee the public
   benefit nature of the entity’s work
•  Like LLCs, L3Cs are not subject to federal income tax
   themselves, but the income they pay to members is
   taxable according to the rates applicable to each
   member
•  Able to attract private capital through the sale of shares
   and other securities, various forms of loans, or other
   commercial financial arrangements.
•  Ability to receive Program Related Investments from
   foundations
•  No asset lock and no dividend cap

                                                                     47
© Norm Tasevski & Karim Harji




Legal Innovation: B Corp (US)
•  To be certified as a B
   corporation under the B Lab
   system, the corporation
   must:
   –  Achieve a minimum score of
      80 (out of 200) on the B
      Ratings System, a tool to
      assess a company's social
      and environmental
      performance.
   –  Agree to make legal
      changes to its articles of
      incorporation to expand the
      responsibilities of the
      company to include
      consideration of stakeholder
      interests.
   –  Pay B Lab an annual
      licensing fee.
   –  Recertification is required
      every two years.


                                                       48
© Norm Tasevski & Karim Harji




                  49
© Norm Tasevski & Karim Harji




What did we learn?




                                       50

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APS1015H Class 7 - Operational Considerations for Social Enterprise

  • 1. APS 1015H: Social Entrepreneurship Class 7: Business Model Considerations for Social Enterprise Saturday, October 27, 2012 Instructors: Norm Tasevski (norm@socialentrepreneurship.ca) Karim Harji (karim@socialentrepreneurship.ca) 1
  • 2. © Norm Tasevski & Karim Harji Agenda •  Admin – next Design Jam •  Marketing for social enterprise •  Operational considerations •  Legal Considerations •  What did we learn – today? 2
  • 3. © Norm Tasevski & Karim Harji Next week Design Jam! •  Location Change!: –  Centre for Social Innovation (720 Bathurst Street) –  Meeting Room 1, 2nd Floor –  Saturday, November 3, 1-4pm •  Format: –  Similar to 1st Idea Jam: 3 minute presentation, then 2 rounds of brainstorming –  Key difference: focus on refining your existing idea (vs. brainstorming new ideas) 3
  • 4. Marketing for Social Enterprises… 4
  • 5. © Norm Tasevski & Karim Harji A caveat… “Social “Social Media” Enterprise” 5
  • 6. © Norm Tasevski & Karim Harji A Second Caveat… Marketing! ≠! Sales! 6
  • 7. © Norm Tasevski & Karim Harji Where does Marketing Fit? 7
  • 8. © Norm Tasevski & Karim Harji Some Definitions •  Social Marketing is the systematic application of marketing, along with other concepts and techniques, to achieve specific behavioral goals for a social good. –  The primary aim of social marketing is "social good", while in "commercial marketing" the aim is primarily "financial". This does not mean that commercial marketers can not contribute to achievement of social good. Wikipedia •  Cause Marketing (or cause-related marketing) is a mutually beneficial collaboration between a corporation and a nonprofit in which their respective assets are combined to (1) create shareholder and social value, (2) connect with a range of constituents (be they consumers, employees, or suppliers), and (3) communicate the shared values of both organizations. Jocelyn Daw (Marketing Consultant) –  Cause marketing differs from corporate giving (philanthropy) as the latter generally involves a specific donation that is tax deductable, while cause marketing is a marketing relationship generally not based on a donation. Wikipedia •  Sustainable Marketing is the process of planning, implementing and controlling the development, pricing, promotion and distribution of products in a manner that satisfies the following three criteria: (1) customer needs are met (2) organizational goals are attained, and (3) the process is compatible with ecosystems. Donald Fuller (Sustainable Marketing Consultant) –  Sustainable Marketing encourages the process of innovation by turning the marketing process into an experimental, iterative process that has close ties to the customer. Individuals and interactions on a daily basis are important. Customer Collaboration over customer transactions. Responding to change over blindly following a plan. 8 Ivan Storck (founder, SustainableWebsites.com)
  • 9. © Norm Tasevski & Karim Harji Social Marketing Individual Mind Heart Spirit Social Enterprise Mission Deliver Practice (why) Realize Aspiration Satisfaction Compassion Vision ProfitAbility ReturnAbility SustainAbility (what) Values Be Better Differentiate Make a Difference (How) 9
  • 10. © Norm Tasevski & Karim Harji Examples of Social Marketing… 10
  • 11. © Norm Tasevski & Karim Harji Examples of Cause Marketing… One of the first… Another… Most Recently… 1983 – American 2006 – Bono & 2010 – Pepsi & the Express & the Statue Product (Red) Refresh Project of Liberty Restoration Project 11
  • 12. © Norm Tasevski & Karim Harji Another Example of Cause Marketing… 12
  • 13. © Norm Tasevski & Karim Harji Sustainable Marketing…
  • 14. © Norm Tasevski & Karim Harji Sustainable Marketing…is tricky… h"p:// www.youtu be.com/ watch? v=p6aSlb_li es    
  • 15. © Norm Tasevski & Karim Harji Sustainable Marketing Toolkit Checklist 1!
  • 16. © Norm Tasevski & Karim Harji Sustainable Marketing Toolkit Checklist 2!
  • 17. © Norm Tasevski & Karim Harji Sustainable Marketing Toolkit Checklist 3!
  • 18. © Norm Tasevski & Karim Harji Which of these techniques work for you? Social Marketing Cause Marketing Sustainability Marketing Which ones could work for you? How would you act on them? What are the challenges to implementation? What could go wrong? Are there any ethical issues? 18
  • 19. Break 19
  • 21. © Norm Tasevski & Karim Harji Where does HR Fit? 21
  • 22. © Norm Tasevski & Karim Harji A Caveat… Think of your HR from the perspective of “running a business”, not “running a charity” 22
  • 23. © Norm Tasevski & Karim Harji A Second Caveat… Your HR Strategy must align with your business model and align with organizational values 23
  • 24. What if you were a… Product-based Social Business…! Tethered Social Enterprise…! Employment-Based Social Business…! Accessibility-Based Platform…! 24
  • 25. 1. Product-Based © Norm Tasevski & Karim Harji A business/business model that provides products or services with social benefit.
  • 26. 2. Employment-Based © Norm Tasevski & Karim Harji   A business that hires marginalized people in good employment opportunities.
  • 27. 3. Tethered © Norm Tasevski & Karim Harji An enterprise started by a charity or non-profit that generates revenue for the organization.
  • 28. 4. Accessibility-Based © Norm Tasevski & Karim Harji   A business that maintains a purposely low profit margin to make their products accessible.
  • 29. © Norm Tasevski & Karim Harji Other HR Considerations… •  Who/what do you need? •  What do you have today? •  How do you find the right people? •  How do you define what they do? •  How (and from where) do you pay them? 29
  • 31. © Norm Tasevski & Karim Harji DAY 1! What do you do first? 31
  • 32. © Norm Tasevski & Karim Harji DAY 42! What is most important to do? 32
  • 33. © Norm Tasevski & Karim Harji DAY 180 What does your average week look like? 33
  • 34. Legal Forms Applicable to Social Enterprise… 34
  • 35. © Norm Tasevski & Karim Harji A Caveat… There is no defined (national or provincial) legal form for social enterprise in Canada 35
  • 36. © Norm Tasevski & Karim Harji A Second Caveat… Form follows function 36
  • 37. For-Profit Non-Profit Corporation! Corporation! Partnership! Charity! Sole Co-Operative Proprietorship! Corporation! 37
  • 38. © Norm Tasevski & Karim Harji For-Profit Corporation! •  Incorporated under the Business Corporations Act (Ontario) (the “OBCA”) or the Canada Business Corporations Act (federal) (the “CBCA”)! •  With share capital! •  Most flex in terms •  Pay corporate tax! of profit-making •  Cannot access grants! activities! •  Cultural/ •  Can access all forms of investment psychological barriers (debt, equity, etc)! with operating a “for- •  Provides clarity of profit social purpose (i.e. the business”! financial bottom line)! •  Limited personal liability! 38
  • 39. © Norm Tasevski & Karim Harji Charity! •  Incorporated via Letters Patent under the Corporations Act (Ontario) or Canada Corporations Act (federal)! •  Without share capital! •  Don’t pay corporate •  Least flex in terms of tax on earnings! profit-making activities! •  Limited in the types of •  Can issue tax investments you can receipts! access (e.g. equity)! •  Can access many •  Time-consuming!! government/ •  Psychological barriers foundation/ with operating a “social corporate grants! business”! •  An aversion to “risk taking”! •  Can lose status if “too successful”! 39
  • 40. © Norm Tasevski & Karim Harji Sole Proprietorship! •  Registered via Business Names Act (Ontario) or Canada Corporations Act (federal)! •  Without share capital! •  The simplest (and •  Unlimited liability!!! quickest) legal form! •  The business is the •  You have full entrepreneur! control of business •  Hard to find investors! decisions! •  Limited creative input •  Flexibility to make (i.e. you’re the only business decisions one with ideas!)! quickly! •  Less “professional” •  No separate filing than other forms! for income tax! 40
  • 41. © Norm Tasevski & Karim Harji Non-Profit Corporation! •  Incorporated via Letters Patent under Corporations Act (Ontario) or Canada Corporations Act (Federal)! •  Generally without share capital! •  Can access grants! •  Can’t issue tax •  Can access debt receipts! financing! •  Limited in the types of •  Tax exempt as long investments you can as organized and access (e.g. equity)! operated for defined •  Psychological barriers social/community with operating a benefit! “social business” ! •  Some NPs are more •  Can lose status if open to (limited) “too successful”! risk-taking! 41
  • 42. © Norm Tasevski & Karim Harji Partnership! •  Registered under the Partnerships Act (Ontario)! •  With or without share capital! •  Usually organized using a Partnership Agreement! •  Similar benefits to •  For most sole proprietorship! partnerships, unlimited •  Combines skills/ liability! (at least in competencies of Canada…)! two people! •  Acrimony between •  Can sign contracts partners is common! and borrow money in •  Difficult to find its own right! investors! 42
  • 43. © Norm Tasevski & Karim Harji Co-Operative Corporation! •  Incorporated under the Co-Operative Corporations Act (Ontario) or Canada Cooperatives Act (Federal)! •  Wither with or without share capital! •  Well-established •  Cannot issue tax structures! receipts! •  Integrates the •  Generally not exempt concept of from paying tax! “community benefit” •  Psychological barriers already! with operating a “social business”! •  Difficulty making decisions (too many people at the table)! 43
  • 44. © Norm Tasevski & Karim Harji Talk to a Lawyer! 44
  • 46. © Norm Tasevski & Karim Harji Legal Innovation: CIC (UK) •  Established to trade (goods or services) for the community good •  Requires “community interest statement” application to the CIC Regulator. Publically-available annual reports required to confirm (adherence to) community interest requirement •  May issue shares in order to raise capital •  Cap on returns (dividends paid) set by the Regulator •  Subject to an “asset lock” –  Assets and profits must be permanently retained by the CICs for community benefit, or transferred to another CIC subject to an asset lock, or to a charity •  Taxed in the same manner as other businesses 46
  • 47. © Norm Tasevski & Karim Harji Legal Innovation: L3C (US) •  Variation on American Limited Liability Companies (LLCs) •  LLC investors are members rather than shareholders •  Terms of the operating agreement guarantee the public benefit nature of the entity’s work •  Like LLCs, L3Cs are not subject to federal income tax themselves, but the income they pay to members is taxable according to the rates applicable to each member •  Able to attract private capital through the sale of shares and other securities, various forms of loans, or other commercial financial arrangements. •  Ability to receive Program Related Investments from foundations •  No asset lock and no dividend cap 47
  • 48. © Norm Tasevski & Karim Harji Legal Innovation: B Corp (US) •  To be certified as a B corporation under the B Lab system, the corporation must: –  Achieve a minimum score of 80 (out of 200) on the B Ratings System, a tool to assess a company's social and environmental performance. –  Agree to make legal changes to its articles of incorporation to expand the responsibilities of the company to include consideration of stakeholder interests. –  Pay B Lab an annual licensing fee. –  Recertification is required every two years. 48
  • 49. © Norm Tasevski & Karim Harji 49
  • 50. © Norm Tasevski & Karim Harji What did we learn? 50