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Exploring the Continuum of Social and Financial Returns: Kathy Brozek

Exploring the Continuum of Social and Financial Returns: Kathy Brozek

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FEDERAL RESERVE BANK OF SAN FRANCISCO
Community Development
 
INVESTMENT REVIEW7
Exploring the Continuum oSocial and Financial Returns:
When Does a Nonproft Become a Social Enterprise?
 Kathy O. Brozek 
G
oodwill Industries and the YMCA have something in common: by most deni-tions they each would be considered a “social enterprise,” a relatively new andincreasingly popular term in the United States. Yet both these nonprot organi-zations have a history dating back more than 100 years. For Goodwill Industrieso San Francisco, which serves three counties in the San Francisco Bay Area, a whopping 89percent o its $28 million revenue or scal year ending June 2008 came rom its businessenterprises, not rom government grants or oundations. By any standard, this is an enviablenonprot revenue stream. Goodwill provides training, lie coaching and jobs or those whopossess a track record considered too risky or the private and public sector employment.
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 In 2005, 54 percent o all U.S.- based nonprot revenue, excluding that rom hospitalsand universities, was generated rom the ees or goods and services. (Fees include govern-ment payments or services, but are not grants).
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Yet even though ees account or more thanone-hal o the sector’s total revenue, nonprots with social enterprise models like GoodwillIndustries are not pervasive. Rather, the ee income o most nonprots is not integral to itsoperational model and supplements other, more substantial, unding sources.The dierences between a nonprot with earned income and a social enterprise nonprotare core to this discussion and go beyond semantics and nuance. I posit that these distinc-tions lie in organizational structure, unding sources, ormation, employees, ounders, execu-tion o tactics, and other parameters. I am not advocating one model over the other, butinstead will ocus on the challenges, opportunities, and trends acing nonprots and thecircumstances in which each model is a better t. With insight, stakeholders can create thesustainable and innovative nonprot organizations that this resource-strapped sector sodesperately needs.
In general, all nonproft and or-proft organizations all along a continuum rom social tofnancial returns. Eecting social change by combining in one organization social and fnancialreturns, also reerred to as blended value, is a key component o the evolving social capitalmarket.
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Figure 1 captures the essence, and the inherent ambiguity, o the social enterprise model.
1
Goodwill Industries of San Francisco, San Mateo and Marin Counties 2007-2008 Annual Report (990 tax return)(San Francisco: Goodwill Industries, 2008).
2UrbanInstitute,NonprotAlmanac2008(Washington,DC:UrbanInstitutePress,2008),p.145,gure5.3.3SeeJedEmersonandSheilaBonini,TheBlendedValueMap:TrackingtheIntersectsandOpportunitiesofEconomic,SocialandEnvironmentalValueCreation(Blendedvalue.orgwebsite,February24,2004),availableatwww.blendedvalue.org/publications/.
 
FEDERAL RESERVE BANK OF SAN FRANCISCO
Community Development
 
INVESTMENT REVIEW8
Figure 1. Spectrum o Social and Financial Returns
Source: Stanord Social Innovation Review, Spring 2008; Jed Emerson cited as a contributor 
Presently there is no universally accepted denition o “social enterprise” or either aor-prot or nonprot organization. The Social Enterprise Alliance denes social enterpriseas “an organization or venture that achieves its primary social or environmental missionusing business methods.” According to the Blended Value organization, a social enterprise isa “nonprot organization that uses business solutions to accomplish social goals; the socialobjective is the primary driver.”
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Here, I dene social enterprise as a nonprot organiza-tion with a sustainable, scalable revenue stream generated rom activities related to its socialmission; it has an entrepreneurial operating model and leadership team.Another example o a social enterprise is the entrepreneurial and nancially sustainableDelancey Street Foundation, a 501(c)(3) nonprot. Despite many naysayers, in 1971 a ewvisionaries decided to help the unemployable--ormer drug addicts, people living on thestreet, and ex-elons—to turn their lives around through vocational training and entrepre-neurial endeavors by “empowering the people with the problem to become the solution.”To this day, they continue to use this sel-help model to run twelve social enterprises in velocations across the country, all without any government unding.Where a nonprot lands on the continuum o social and nancial returns is determinedby the vision o the leadership, its executive director and/or the board. However, this deci-sion is, or should be, a dynamic process, as depicted in Figure 2. The vision is infuencedby a core belie about how to address a social issue and a pragmatic assessment o how bestto achieve the mission. For a nonprot social enterprise, the question is whether the socialmission can be integrated into a scalable, protable, ee-based model with ongoing nancialsustainability. The answers are not always clear-cut, and the risks oten hard to quantiy.Ideally, it would be an iterative decision process with a due diligence rigor similar to what acompany would undertake in its early stages.
4SocialEnterpriseAllianceisatwww.se-alliance.org;E.Bibb,M.Fishberg,J.Harold,andE.Layburn,“BlendedValueGlossary”(BlendedValue,July2004),availableatwww.blendedvalue.org/publications/.
 
FEDERAL RESERVE BANK OF SAN FRANCISCO
Community Development
 
INVESTMENT REVIEW9
Figure 2. Assessing the Nonproft Models
 The rst question in locating an organization’s place on the continuum is whether a eerevenue model o any type is embedded in the operations; is it likely, in other words, togenerate a timely, protable cash fow? Questions to ask include: Is the inrastructure (sta,accounting, IT systems, building space, etc.) in place or does it need to be acquired? Will therevenue model detract rom accomplishing the organization’s mission? Does sta have thenecessary business acumen? Are the nancial projections realistic?I the answers point to relying strictly on outside unding, the organization lands ar let on the continuum. Otherwise, whether it is a small, contained revenue stream or a ull-fedged nonprot social enterprise depends on the ollowing criteria (see also Figure 2):
•Asocialmissionintegratedintoarevenuemodel:Willthisbetterservetheconstit
-uents? Does the operations model involve a workorce development strategy? I necessary, is the market willing to pay a price premium or a “socially responsible”service or product? What are the tax implications o not having the social missionintegrated in the model?
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•Scalability:Istherecapacitytoincreaserevenueseachyear?Canthebusinessmodel
be easily replicated? Is growing the model easible on the basis o unding, market-place, sta, systems, etc.?
•Sourcesoffunding:Isitamultiyearfundingcommitmentorseriesofone-year
grants and ongoing undraising? Do the unders provide a collaborative coachingprocess? Without a ee-generating revenue stream, are other sources o undingavailable?
•Sustainability:Towhatextentwillthefeerevenueaddtothefuturesustainabilityof
the nonprot? What is the ongoing risk o losing money? Will it detract rom thesocial mission over time?
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5AnthonyMancuso,HowtoFormaNonprotCorporation(Berkeley,CA:Nolo,July2007),pp.80-81.6AlexNichols,ed.,SocialEntrepreneurship:NewModelsofSustainableChange(NewYork:OxfordUniversityPress,2008),pp.205-206.
Entrepreneurial track record; Market reasearch;Competitor analysis; Stakeholder assessment;
Value proposition; Full-cost fnancial analysis.
Due Diligence: 

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