Social Enterprise: Implications for South Africa’s Non -Profit Sector Presented by Marcus Coetzee at the NPO Conference hosted by the SA Accounting Academy in Johannesburg 24 May 2016
Agenda 1. Introduction 2. Charity Model 3. Social Enterprise Model 4. Mindset versus Business Model 5. Strategic Inflexion Points 6. Journey to Social Enterprise
Who is Marcus Coetzee? • Helps leaders to cultivate Strategic Clarity • Social enterprise advocate • Advocates for mixing social purpose and business thinking • Works very closely with: o Social Enterprise Academy o Bertha Centre for Social Innovation and Entrepreneurship o Imani Development o Business Sculptors o Citizen Surveys • Served over 100 clients since 1996.
Traditional Charity Model Model Ingredients: 1. Extensive fundraising. 2. Strive for funding with wide coverage of expenses and less strings attached. 3. Keep costs down and overheads under 10% to please donors. 4. Be accountable and transparent. Treatment Action Campaign (TAC) relies primarily on donations for its advocacy and community development work.
Traditional Charity Model Disadvantages: Advantages: Less risk of mission drift – able to focus on 1. 1. Difficult to build reserves. intended social or environmental purpose. 2. Limited discretionary expenditure. 2. Clear communication of social agenda to At mercy of donors’ goodwill. 3. everyone 4. Impact constrained by availability of donor 3. Able to serve vulnerable or advocate against funding. establishment without need for commercial 5. Saturated funding market - intensive business models. competition for funding 4. Open governance structures are ingrained. 6. Donor only funds the costs they like. 5. Assets locked to mission. 7. Potential cash flow problems.
Golden Age of the Traditional Charity SA low priority on international Reconstruction of SA Large Government agenda NPO Funds Increased awareness of social issues Social Issues B-BBEE codes Massive HIV Well Funded Exclusive Funding NPO Sector Domain of 150,000+ NPOs NPOs Businesses getting involved in tackling social issues < 100,000 NPOs Anti-Apartheid NPO contracts put out to Struggle tender The 1980s and 1990s we saw a well- During the 2000s a different funded NPO sector in South Africa. world emerged.
Social Enterprise Model Model Ingredients: 1. Generate the majority of their income through trade (i.e. sale of goods or services). 2. Wide range of possible business models. 3. Use profits to further social mission. 4. Be majority controlled in the interests of the social mission. 5. Be accountable and transparent. Shonaquip is a social enterprise that designs and manufactures mobility and postural support devices for the disabled.
Local Social Enterprises
Potential of Social Enterprise • 70,000 social enterprises • £18 billion (approx. R400 billion) turnover • 1 million people employed (Small Business Survey, 2013) • Social Enterprises in the European Union Account for over 3.5 million jobs (Study on Practices and Policies in the Social Enterprise Sector in Europe, 2007.) • Formed in 1996 as a Micro-finance institution • Serves over 85,000 villages in Bangladesh alone • Issued loans to 8.4 million people by 2011 • 80% of loan recipients reduced level of poverty. • Formed in 1956 in Spain as a federation of worker cooperatives. • Employing 74,061 people in 257 companies
Social Enterprise Model Advantages: Disadvantages: 1. Increased self reliance and independence 1. Sometimes difficult to balance mission and from donors. business activities 2. Discretionary expenditure. 2. New skill-set + mind-set needed. 3. Stakeholders struggle to “box it”. 3. Able to build reserve 4. Scale with right business model. 4. Not always the best business model to tackle a social issue. 5. Able to access impact investment. 5. Many struggle to access donor funding. 6. Opportunity for tighter control.
Social Enterprise: Business Model versus Mind-set versus I believe that “social enterprise” is both a business model and a way of thinking. Although the business model may not be for everyone, many organizations can benefit from thinking like a social enterprise.
Business Model of a Social Enterprise 1. Entrepreneur Support Model 2. Market Intermediary Model 3. Employment Model 4. Fee for Service Model 5. Low-income Client Model 6. Cooperative Model 7. Market Linkage Model 8. Service Subsidization Model 9. Organization Support Model 10.Certification Model* 11.Sponsored Product Model* The Clothing Bank has an interesting business model that provides benefits for corporates and beneficiaries.
Mind-set of a Social Enterprise 1. Blend business thinking with your social purpose. 2. Clearly define the purpose of your enterprise. 3. Define the positive outcomes of your enterprise. 4. Gather convincing evidence of outcomes. 5. Demonstrate value-for-money and refine business model. 6. Earn income; don’t rely on donations. 7. Market your successes more than the problem. 8. Sell benefits to your customers; don’t beg for funding. 9. Collaborate with businesses. 10. Develop a powerful brand. GreenPop is a social enterprise that is particularly good at building a powerful brand and attracting volunteers
Convergence to Social Enterprise Donor- NPO with High-impact Socially- Social Traditional Dependent Income Business or Responsible Enterprise Business NPO Activities B-Corporation Business Journey for NPOs Journey for Businesses
Journey to Social Enterprise • Social enterprises don’t just magically appear. • The Journey typically takes many years to complete. • Multiple obstacles need to be overcome. • Both non-profit organizations and businesses can embark on the Journey. Zip Zap Circus School is relying increasingly on its performances as a method of generating income.
Journey Takes Up to 5 Years • The Journey involves a fundamental shift in an organization’s strategy. • Timeframe of 3-5 years before a new pattern can be established. o Year 1 – Gather support from stakeholders o Year 2 – Explore ideas, gather resources, develop plans o Year 3 – Formal experiment with significant shift o Year 4 – Refine and extend o Year 5 – Consolidate and evaluate • Good leadership and change management required throughout. • This means that donors and impact investors should commit to a 3-5 year timeframe if they want to assist organizations on their Journey.
Strategic Inflection Points (“Transition Points”) “A strategic inflection point (SIP) is a time in the life of business when its fundamentals are about to change. That change can mean an opportunity to rise to new heights. But it may just as likely signal the beginning of the end.”
Transition Points on the Journey Donor- NPO with High-impact Socially- Social Traditional Dependent Income Business or Responsible Enterprise Business NPO Activities B-Corporation Business NPO 2: “Rethink Business 1: “Become Business Model” a Good Citizen” NPO 1: “Experiment Business 2: “Embrace a and Improve Skills” Social Purpose” Business 3: “Dedicate Profits”
NPO 1 – “Experiment and Improve Skills” Donor- NPO with High-impact Socially- Social Traditional Dependent Income Business or Responsible Enterprise Business NPO Activities B-Corporation Business Possible Focus Areas: 1. Call to action. 2. Overcome objections to business activities. 3. Pilot various business ideas. Share and learn from other organizations’ experiences. 4. 5. Measure social outcomes. 6. Learn how to cost business activities, make proposals profitable. and track business income and expenses. Understand SARS’ rules regarding income generation. 7. 8. Learn how to develop, package and sell products.
Transition Point NPO 1 – Example of STEPS • STEPS works to eliminate clubfoot in Southern and East Africa. • Helped over 8,200 children since 2005. • Secured the rights to import a popular orthopaedic brace (“Ohio brace”) to sell to health services in Southern Africa. • These braces are required for treating clubfoot using the Ponseti method. • The feasibility has been assessed. • Busy developing a formal business plan.
NPO 2 – “Rethink Business Model” Donor- NPO with High-impact Socially- Social Traditional Dependent Income Business or Responsible Enterprise Business NPO Activities B-Corporation Business Possible Focus Areas: 1. Seek clarity of purpose. 2. Commit to chosen business direction. 3. Rethink fundamentals of business model. 4. Recruit specialized staff. 5. Change organizational culture. 6. Consider leadership change. 7. Create new governance structures (e.g. specialized steering committee) 8. Investigate whether hybrid structures are required.
Transition Point NPO 2 – Example of Greater Capital • Greater Capital is a social enterprise providing social research, enterprise development and due diligence services. • After struggling to find donations, Greater Capital repackaged its work as consulting services. • Eliminated certain product lines. • Now over 100 paying clients. • Earned income covers 100% of costs • Become an influential organization.
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