APS1015 Class 7: Considerations for Social Enterprise
- 1. APS 1015: Social Entrepreneurship Class 7: Considerations for Social Enterprise Wednesday, June 19, 2013 1 Instructor: Norm Tasevski (norm@socialentrepreneurship.ca) Karim Harji (karim@socialentrepreneurship.ca)
- 2. © Norm Tasevski & Karim Harji Agenda • Building a Business Model for Social Enterprise • Intro to Storyboarding • Break • Marketing for social enterprise • Operational considerations • Legal Considerations • What did we learn – today? 2
- 3. Business Modelling for Social Enterprise… 3
- 4. © Norm Tasevski & Karim Harji A Caveat… 4 When we business model for social enterprise, we focus on the “business”, not the “social”… But don’t worry, we will come back to the “social” later…
- 5. © Norm Tasevski & Karim Harji 5 A Second Caveat… “Business Model” “Business Form/Legal Structure”
- 6. © Norm Tasevski & Karim Harji 6 A Third Caveat… “Business Model” “Business Plan” Business Model 1st!!! (Business Plan 2nd)
- 7. Why business model 1st and plan 2nd? 7
- 8. © Norm Tasevski & Karim Harji 8 Because… It is a cure for “We Need a Plan-itis”
- 9. © Norm Tasevski & Karim Harji 9 And… It is a Quick way to assess Profitability/Sustainability – Why spend months building a plan if you don’t have a real sense of profitability/sustainability? – If your model doesn’t make money, even with the most ideal conditions… …STOP!(…and rethink your business model)
- 10. © Norm Tasevski & Karim Harji 10 One More… It breaks down highly complex business ideas into easily digestible (and visual) chunks – Gets to the heart of what you need to know to: Set Strategy Make a Go No- Go Decision Make Potential Investors/funders (and business partners) Happy :)
- 11. © Norm Tasevski & Karim Harji 11
- 12. © Norm Tasevski & Karim Harji Some Definitions • “A business model describes the rationale of how an organization creates, delivers and captures value – economic, social, or other forms of value” Wikipedia • “A description of the means and methods a firm employs to earn the revenue projected in its plans. It views the business as a system and answers the question, “How are we going to make money to survive and grow?” BusinessDictionary.com • “A business model describes the specific way the business expects to make money. While a business plan is on paper (lots of paper!) a business model should be small enough to stay in the heads of the owner and staff. If a business model is on paper, it should be one page, and it would be more clearly shown as a diagram than as words.” AudienceDialogue.net 12
- 13. © Norm Tasevski & Karim Harji 13
- 14. © Norm Tasevski & Karim Harji 14 Customer Segments What you need to care about is… – Customer “Pain” – Difference between a “customer” and a “client”
- 15. © Norm Tasevski & Karim Harji Empathy Mapping
- 16. © Norm Tasevski & Karim Harji 16 Value Proposition (the “Offer”) What you need to care about is… – The “value” you are creating for customers (in terms of products/services), and the “pain” you are alleviating – An exchange of value
- 17. © Norm Tasevski & Karim Harji 17 Customer Utility
- 18. © Norm Tasevski & Karim Harji 18 Channels What you need to care about is… – How the customer receives the offer/value prop – The physical “movement” of the offer into the hands of the customer
- 19. © Norm Tasevski & Karim Harji 19 Relationships What you need to care about is… – Personal and impersonal interaction with the customer – The “movement” of information (e.g. marketing, communication)
- 20. © Norm Tasevski & Karim Harji 20 Revenue Streams What you need to care about is… – Cash!!! (specifically, how cash flows into the enterprise) – “Money In” – Pricing models
- 21. © Norm Tasevski & Karim Harji 21 Key Resources What you need to care about is… – Assets… – …and how these assets create value – Includes human, physical, intellectual, and financial resources
- 22. © Norm Tasevski & Karim Harji 22 Key Activities What you need to care about is… – Actions (specifically, the actions you plan to take to generate value) – Both “direct” and “indirect”
- 23. © Norm Tasevski & Karim Harji 23 Key Partners What you need to care about is… – People/organizations that are integral to enabling you to do business – How you partner, and what you partner on
- 24. © Norm Tasevski & Karim Harji 24 Cost Structure What you need to care about is… – Fixed costs, variable costs, economies of scale…“money out” – At this stage, focus on your cost assumptions! (don’t worry about actual $$)
- 26. © Norm Tasevski & Karim Harji 26 -Access to space -Coffee shops -Personal (Baristas) -Store front sign -Wireless -35 yr old Young professional that wants a place to relax and work quietly -Locations -Coffee making equipment -Furniture -Internet -Baristas -Hire staff -Long hours -Maintain space -Coffee roasting/brewing -Interior design -Coffee suppliers -Staff training -Asset acquisition -Marketing -Rent -In-store Purchases (multiple per visit)
- 27. © Norm Tasevski & Karim Harji Tip… • Be a Business Model “Alchemist” – You need to go through the business model process many times in order to figure out which model best fits 27
- 28. An Introduction to Storyboarding 28
- 29. © Norm Tasevski & Karim Harji What is Storyboarding? A set of images/graphics displayed in sequence as a means of pre-visualizing a process or sequence of events 29
- 30. © Norm Tasevski & Karim Harji The Importance of Storyboarding • From a business perspective, it provides clarity on how the business will work (e.g. how value is created, how revenue is generated) • It helps identify gaps/flaws in the business model • If can provide a foundation for a communications/ sales campaign to customers, investors, etc. 30
- 31. © Norm Tasevski & Karim Harji An Example – “Here’s How it Works” 31 ID office building to serve as a “Delivery Hub” ID merchants within the “Delivery Zone” Merchants market the service to customers 1st 2nd 3rd Professionals in Sick Kids will have access to the delivery service Professionals at Sick Kids can receive deliveries from the hot dog vendor, Subway and Starbucks, but not Freshii or Tim Hortons We Deliver! An SSO delivery person picks up and delivers the food to the professional
- 32. © Norm Tasevski & Karim Harji A 2nd Example – “Here’s How it Works” 32 First time youth drug offenders referred to Peacebuilders Youth participate in Restorative Circles & Business Training Youth placed in kiosks/venues to sell products 1st 2nd 3rd Peacebuilders work with established relationships with the federal youth prosecutor at the youth court at 311 Jarvis Through this process, we build a trust relationship and empower youth to genuinely change their lives and break the cycle of violence and poverty Youth sell in controlled environments, with Peacebuilders/Venture Deli staff support
- 33. Break 33
- 34. Marketing for Social Enterprises… 34
- 35. © Norm Tasevski & Karim Harji A caveat… 35 “Social Media” “Social Enterprise”
- 36. © Norm Tasevski & Karim Harji A Second Caveat… Marketing! 36 Sales!≠!
- 37. © Norm Tasevski & Karim Harji Where does Marketing Fit? 3737
- 38. © 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. Ivan Storck (founder, SustainableWebsites.com) 38
- 39. © Norm Tasevski & Karim Harji Social Marketing 39 Deliver Satisfaction Realize Aspiration Practice Compassion ProfitAbility ReturnAbility SustainAbility Be Better Differentiate Make a Difference Individual SocialEnterprise Mind Heart Spirit Mission (why) Vision (what) Values (How)
- 40. © Norm Tasevski & Karim Harji Examples of Social Marketing… 40
- 41. © Norm Tasevski & Karim Harji 41 Examples of Cause Marketing… One of the first… 1983 – American Express & the Statue of Liberty Restoration Project 2006 – Bono & Product (Red) Another… 2010 – Pepsi & the Refresh Project Most Recently…
- 42. © Norm Tasevski & Karim Harji Another Example of Cause Marketing… 42
- 43. © Norm Tasevski & Karim Harji Sustainable Marketing…
- 44. © Norm Tasevski & Karim Harji Sustainable Marketing…is tricky… h"p:// www.youtu be.com/ watch? v=p6aSlb_li es
- 45. © Norm Tasevski & Karim Harji Sustainable Marketing Toolkit Checklist 1!
- 46. © Norm Tasevski & Karim Harji Sustainable Marketing Toolkit Checklist 2!
- 47. © Norm Tasevski & Karim Harji Sustainable Marketing Toolkit Checklist 3!
- 49. © Norm Tasevski & Karim Harji Where does HR Fit? 4949
- 50. © Norm Tasevski & Karim Harji A Caveat… Think of your HR from the perspective of “running a business”, not “running a charity” 50
- 51. © Norm Tasevski & Karim Harji A Second Caveat… Your HR Strategy must align with your business model and align with organizational values 51
- 52. What if you were a… 52 Product-based Social Business…! Tethered Social Enterprise…! Employment-Based Social Business…! Accessibility-Based Platform…!
- 53. © Norm Tasevski & Karim Harji A business/business model that provides products or services with social benefit. 1. Product-Based
- 54. © Norm Tasevski & Karim Harji 2. Employment-Based A business that hires marginalized people in good employment opportunities.
- 55. © Norm Tasevski & Karim Harji 3. Tethered An enterprise started by a charity or non-profit that generates revenue for the organization.
- 56. © Norm Tasevski & Karim Harji A business that maintains a purposely low profit margin to make their products accessible. 4. Accessibility-Based
- 57. © Norm Tasevski & Karim Harji Other HR Considerations… • Who/what do you need? • How do you find the right people? • How do you define what they do? • How (and from where) do you pay them? 57
- 59. © Norm Tasevski & Karim Harji DAY 1! 59 What do you do first?
- 60. © Norm Tasevski & Karim Harji DAY 180 What does your average week look like? 60
- 61. Legal Forms Applicable to Social Enterprise… 61
- 62. © Norm Tasevski & Karim Harji A Caveat… There is no defined (national or provincial) legal form for social enterprise in Canada 62
- 63. © Norm Tasevski & Karim Harji A Second Caveat… Form follows function 63
- 65. © 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! 65 • Most flex in terms of profit-making activities! • Can access all forms of investment (debt, equity, etc)! • Provides clarity of purpose (i.e. the financial bottom line)! • Limited personal liability! • Pay corporate tax! • Cannot access grants! • Cultural/ psychological barriers with operating a “for- profit social business”!
- 66. © Norm Tasevski & Karim Harji Charity! • Incorporated via Letters Patent under the Corporations Act (Ontario) or Canada Corporations Act (federal)! • Without share capital! 66 • Don’t pay corporate tax on earnings! • Can issue tax receipts! • Can access many government/ foundation/ corporate grants! • Least flex in terms of profit-making activities! • Limited in the types of investments you can access (e.g. equity)! • Time-consuming!! • Psychological barriers with operating a “social business”! • An aversion to “risk taking”! • Can lose status if “too successful”!
- 67. © Norm Tasevski & Karim Harji Sole Proprietorship! • Registered via Business Names Act (Ontario) or Canada Corporations Act (federal)! • Without share capital! 67 • The simplest (and quickest) legal form! • You have full control of business decisions! • Flexibility to make business decisions quickly! • No separate filing for income tax! • Unlimited liability!!! • The business is the entrepreneur! • Hard to find investors! • Limited creative input (i.e. you’re the only one with ideas!)! • Less “professional” than other forms!
- 68. © Norm Tasevski & Karim Harji Non-Profit Corporation! • Incorporated via Letters Patent under Corporations Act (Ontario) or Canada Corporations Act (Federal)! • Generally without share capital! 68 • Can access grants! • Can access debt financing! • Tax exempt as long as organized and operated for defined social/community benefit! • Some NPs are more open to (limited) risk-taking! • Can’t issue tax receipts! • Limited in the types of investments you can access (e.g. equity)! • Psychological barriers with operating a “social business” ! • Can lose status if “too successful”!
- 69. © Norm Tasevski & Karim Harji Partnership! • Registered under the Partnerships Act (Ontario)! • With or without share capital! • Usually organized using a Partnership Agreement! 69 • Similar benefits to sole proprietorship! • Combines skills/ competencies of two people! • Can sign contracts and borrow money in its own right! • For most partnerships, unlimited liability! (at least in Canada…)! • Acrimony between partners is common! • Difficult to find investors!
- 70. © 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! 70 • Well-established structures! • Integrates the concept of “community benefit” already! • Cannot issue tax receipts! • Generally not exempt from paying tax! • Psychological barriers with operating a “social business”! • Difficulty making decisions (too many people at the table)!
- 71. © Norm Tasevski & Karim Harji Talk to a Lawyer! 71
- 73. © 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 73
- 74. © 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 74
- 75. © 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. 75
- 76. © Norm Tasevski & Karim Harji 76
- 77. © Norm Tasevski & Karim Harji What did we learn? 77