1. November 2009 Kristen J. McCormack Institute for Nonprofit Management and Leadership at Boston University Getting Ready for an Earned Income Venture
2. Today’s Agenda Defining Social Enterprise/Earned Income Fun facts about earned income ventures Are you ready? If so, now what? Lessons learned from successful ventures Questions
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4. Most Common Ventures Fee for service or tuition based Service businesses (cleaning, moving) Retail Manufacturing/assembly Software Real estate Rental housing Restaurant/catering Consulting Agriculture Packaging Home repair
5. Why pursue a social enterprise? Further the mission of the organization Generate income Diversify the revenue base Serve constituents Community relations Revitalize neighborhood
7. In U.S., 20.9 million women lived below the federal poverty threshold in 2007
8. The Women’s Bean Project in Denver CO employs women from backgrounds of chronic unemployment and poverty to manufacture gourmet foods.
9. The Women's Bean Project does not hire women to make and sell bean products. We make and sell bean products to hire women.
10. Characteristics of organizations operating successful business ventures 6.45-10 years old 100+ employees $12-24million budget Top management is critical force
11. Profitable? 35% generate a financial surplus 19% are break-even 35% of ventures require a subsidy
17. Least Successful Small organizations Less than five years old Under ten employees Budget under $1 million
18. Before you Begin: Self-Assessment Mission Clarity Stakeholders Use of resources Board of Directors Stable Entrepreneurial Risk profile
19. Self-Assessment (cont) Compelling opportunity Based on current activity? Can anyone else provide better? How big is the opportunity? What do we need to start? Is there a revenue stream? Do we have any customers?
21. 136 million tons of building-related waste is generated in the U.S. annually, nearly 60% of all non-industrial waste in the U.S.
22. But only 20 to 30 percent of this building-related waste is estimated to be recovered for processing and recycling.
23. Materials Matter diverts construction waste and materials from landfills and sells the products at discounts through a Home Improvement Outlet to nonprofits working in housing and community development.
24. Self-Assessment (cont) Finances Secure How much will this cost? Where will the money come from? How long are we willing to support the business before it makes money? What are the financial goals?
25. Ready to Go? Do a Business Plan Process not a product Ongoing use as a management tool Benchmark real vs. projected revenue/expense Many business failures can be prevented with a good plan 80% of successful businesses had a written business plan (SBA)
26. Financing the Venture Low interest loans Surplus Grants (local foundations) Social venture capital (<10 nationally)
27. How much cash to start? 50% of organizations secured total financing before operating 44% had partial financing More than half with total financing generated a profit while only 18% of those with partial funding generated a profit
28. Lessons Learned: Social Purpose Business Case Studies Leadership People Planning Financing and Cash Real Estate Expansion
29. Leadership Board of Directors: Readiness and Vision Executive Leader: Entrepreneurial and Risk Taker Social Enterprise Manager: Experienced in the same business
30. People Management team: balance of business and program experience Invest in an “A” team with a “B” idea rather than the other way around Value of volunteer labor Know your population and choose businesses that match your population’s needs Staff up to support the new venture
31. Product and Customers Is your service or product needed? Do customers want it? Will they pay for it? How much will they pay for it?
32. Planning Business Planning is key! Business must be connected to the mission Market analysis-who else is out there? Run the program as a pilot first Build on your assets and strengths Strategic alliances-you don’t have to do it all Mitigating risk – risk analysis Get good legal advice
33. Financing and Cash Have enough cash to cover losses for a pre-determined period of time Break even takes time What are the “true” costs of the business? Access to long term, adequate financing Cash flow of federal or state funds
34. Real Estate It takes longer than planned It costs more than planned (contingency) Contractors will always “find” stuff that will cost you more money Tight contracts (performance based, caps, etc.), change orders and experienced real estate staff and/or consultants can help you avoid this
35. Expansion Slow and steady growth Be willing to say no to business Be willing to say no to expansion Make sure your first venture is successful before starting another
37. Resources for Business Planning Local colleges and universities BU Social Entrepreneurship MBA students davidstolow@citizenschools.org Babson, Boston College, MIT and HBS Community Wealth Ventures Independent consultants ESC (formerly ESCNE)
38. Ready to Go? Business Plan Description of the Business Industry Analysis Marketing Plan Management, Personnel and Organizational Structure Production/Service Delivery Operations Plan Assessment of Risk Financial Plan Narrative Financials
Source: U.S. Census Bureau, Current Population Survey, 2008 Annual Social and Economic Supplement. http://pubdb3.census.gov/macro/032008/pov/new01_100_01.htm
Massarsky and Beinhacker, Enterprising Nonprofits
Massarsky and Beinhacker, Enterprising Nonprofits
Massarsky and Beinhacker, Enterprising Nonprofits, Golman Sachs Foundation
Massarsky and Beinhacker, Enterprising Nonprofits, Goldman Sachs Foundation
Source: U.S. EPA, Characterization of Building-Related Construction and Demolition Debris in the United States. 1998http://www.epa.gov/osw/hazard/generation/sqg/c&d-rpt.pdf
Source: U.S. EPA, Characterization of Building-Related Construction and Demolition Debris in the United States. 1998http://www.epa.gov/osw/hazard/generation/sqg/c&d-rpt.pdf