Reflecting the growing national commitment to social enterprise, Rhode Island Congressman David N. Cicilline, joined by eleven co-sponsors from eleven states, introduced a bill in the U.S. House of Representative on May 17, 2013, that would create a Social Enterprise Ecosystem and Economic Development Commission. The Commission would identify opportunities for the federal government to engage social enterprises more effectively in creating jobs and strengthening local economies.
In the United States, government has been most encouraging of mission-driven ventures at the state and local levels. A growing number of states, laboratories of innovation, have adopted legislation that authorizes the creation of “Benefit Corporations” – business corporations pursuing a material, positive impact on society and the environment, as measured by a third-party standard. Eight states and two tribal nations have adopted legislation that authorizes the creation of low-profit, limited liability companies (“L3Cs”). The L3C combines the financial advantages and governance flexibility of the traditional limited liability company with the social advantages of a non-profit entity.
Illinois has even created a Task Force on Social Innovation, Entrepreneurship, and Enterprise (which the author chairs), whose purpose is to make recommendations to the governor and legislature on how the state can create, scale, and sustain innovative social programs; build the capacity of non-profit organizations and government to pursue entrepreneurial ventures; and attract funding to the state to support these ventures.
New York City stands out among municipalities in its steadfast determination to fund innovation. The NYC Center for Economic Opportunity (CEO), the 2011 winner of the Innovations in American Government Award, collaborates with twenty-eight city agencies to launch and scale up more than fifty programs and policy initiatives. CEO, the brainchild of then-Mayor Michael Bloomberg, not only designs, implements, and measures unique programs intended to combat poverty. It also spurs private-sector investment and fosters a culture of invention and evidence-based decision making throughout city government.
Innovative, private-sector efforts are also grabbing the attention of governments outside the United States. In the United Kingdom, 131 elected officials, including Prime Minister David Cameron and Liberal Democratic Party Leader Nick Clegg, pledged their support for the social enterprise movement by signing a charter published by the Social Enterprise Coalition, a sister organization of the Social Enterprise Alliance in the United States. In addition, the European Commission has established a Social Business Initiative to create an environment favorable to the development of mission-driven ventures in Europe.
The Pay for Success model, piloted in the United Kingdom and Australia as Social Impact Bonds and Social Benefit Bonds, respectively, is a new way of financing social services to help governments target limited funds to achieve a positive, measurable outcome. The approach has been adopted by the U.S. government in separate efforts to reduce recidivism rates and homelessness. A number of U.S. cities, counties, and states are following suit.
This surge of enthusiasm for mission-driven ventures is itself empowering. More and more non-profit organizations, businesses, universities, and governments in the United States and abroad have become believers and dedicate the talent, capital, knowledge, and spirit it takes to help mission-driven ventures realize the enormous potential each of them clearly sees.
Our Agenda
This book was written for those who, like Juma Ventures', Homeboy Industries', and WorkSquares' champions, have enthusiastically signed on to the new social compact – entrepreneurs; socially conscious individuals; thought leaders; impact investors; and non-profit, social enterprise, and foundation managers who are passionately committed to social innovation and positive social change. It will offer actionable guidance about business models and entity choices available to the social entrepreneur, governance issues that can arise when mission and profit objectives clash, funding challenges and solutions, tax advantages and traps, entrepreneurial linkages between non-profits and for-profits, certification opportunities, and the measurement of social outcomes. We hope that the real-life case studies we report will inspire you to become the agent of change you were destined to become, to face down the most daunting of social problems that plague society, and to empower the disenfranchised whose lives you never imagined you'd change forever.
Chapter 2
Where to Begin? Constructing the Mission-Driven Venture
The mission-driven entrepreneur – whether a socially conscious individual, a member of a startup team, or a nonprofit's social enterprise champion – is likely to agree with management guru Jim Collins, the author of the groundbreaking bestseller Good to Great, who once observed that “When [what you are deeply passionate about, what you can be best in the world at and what drives your economic engine] come together, not only does your work move toward greatness, but so does your life.” But how does the mission-driven venture take shape?
A growing number of professionals are encouraging their entrepreneurial clients to forego formal business planning in favor of a “lean startup,” an alternative the mission-driven entrepreneur should seriously consider. After all, the conventional process – drafting a comprehensive business plan, pitching it to likely investors, recruiting talent, bringing a product or service to market, and lining up customers – hasn't worked very well. According to Harvard Business School's Shikhar Ghosh, as quoted in The Wall Street Journal, three-quarters of all startups fail. The odds are probably even worse for the mission-driven startup, balancing objectives including positive social change and its own financial sustainability.
To mitigate risk, proponents of the lean startup argue in favor of iterative business design rather than systematic business planning. Customer input is invited at an early stage so that the entrepreneur need not guess about whether or not a product or service would be well-received in the marketplace. Trial-and-error, which eventually reveals a marketable value proposition, takes the place of granular planning.
Lean startups reject the notion that an entrepreneur can realistically develop operating assumptions and financial forecasts – and divine the needs and wants of customers – before money has been raised or while the embryonic business idea has yet to be executed. Rather than guessing, the founder identifies the elements of his proposed business model as well as the hypotheses he'll need to test. Both are charted in Table 2.1.
Table 2.1 The Business Model's Elements and Hypotheses
Adapted from www.businessmodelgeneration.com/canvas. Canvas concept developed by Alexander Osterwalder and Yves Pigneur.
Once the hypotheses have been identified, the founder then goes out and determines empirically whether or not he can build a sustainable business around the product or service he envisions. Fully consistent with the mission-driven entrepreneur's unwavering commitment to both transparency and accountability, would-be customers and partners are canvassed about every aspect of the business model. Their reactions help inform the founder's course corrections, or “pivots,” to assumptions that will then be revised accordingly and presented in their new form for customers and partners to consider. While never forsaking research and analysis, the founder repeats the cycle as necessary – building, measuring, and learning –