APS1015 Class 7: Considerations for Social Enterprise

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This class will cover some of the key considerations social entrepreneurs face when launching and growing their social enterprise. Emphasis will be placed on operational, human, legal and marketing considerations. Students will also develop a basic financial analysis for their enterprise to determine the financial feasibility of their venture.

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APS1015 Class 7: Considerations for Social Enterprise

  1. 1. APS 1015: Social EntrepreneurshipClass 7: Considerations for SocialEnterpriseWednesday, June 19, 20131Instructor:Norm Tasevski (norm@socialentrepreneurship.ca)Karim Harji (karim@socialentrepreneurship.ca)
  2. 2. © Norm Tasevski & Karim HarjiAgenda•  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. 3. Business Modelling for SocialEnterprise…3
  4. 4. © Norm Tasevski & Karim HarjiA Caveat…4When we business model for social enterprise, wefocus on the “business”, not the “social”…But don’t worry, we will come back to the “social”later…
  5. 5. © Norm Tasevski & Karim Harji5A Second Caveat…“BusinessModel”“BusinessForm/LegalStructure”
  6. 6. © Norm Tasevski & Karim Harji6A Third Caveat…“BusinessModel”“BusinessPlan”Business Model 1st!!!(Business Plan 2nd)
  7. 7. Why business model 1st and plan 2nd?7
  8. 8. © Norm Tasevski & Karim Harji8Because…It is a cure for “We Need a Plan-itis”
  9. 9. © Norm Tasevski & Karim Harji9And…It is a Quick way to assess Profitability/Sustainability–  Why spend months building a plan if you don’t have a realsense of profitability/sustainability?–  If your model doesn’t make money, even with the mostideal conditions……STOP!(…and rethink your business model)
  10. 10. © Norm Tasevski & Karim Harji10One More…It breaks down highly complex business ideas intoeasily digestible (and visual) chunks–  Gets to the heart of what you need to know to:Set StrategyMake a Go No-Go DecisionMake PotentialInvestors/funders(and businesspartners) Happy :)
  11. 11. © Norm Tasevski & Karim Harji11
  12. 12. © Norm Tasevski & Karim HarjiSome Definitions•  “A business model describes the rationale of how an organizationcreates, delivers and captures value – economic, social, or otherforms of value”Wikipedia•  “A description of the means and methods a firm employs to earn therevenue projected in its plans. It views the business as a system andanswers the question, “How are we going to make money to surviveand grow?”BusinessDictionary.com•  “A business model describes the specific way the business expects tomake money. While a business plan is on paper (lots of paper!) abusiness model should be small enough to stay in the heads of theowner and staff. If a business model is on paper, it should be onepage, and it would be more clearly shown as a diagram than aswords.”AudienceDialogue.net12
  13. 13. © Norm Tasevski & Karim Harji13
  14. 14. © Norm Tasevski & Karim Harji14Customer SegmentsWhat you need to care about is…–  Customer “Pain”–  Difference between a “customer” and a “client”
  15. 15. © Norm Tasevski & Karim HarjiEmpathy Mapping
  16. 16. © Norm Tasevski & Karim Harji16Value Proposition (the “Offer”)What you need to care about is…–  The “value” you are creating for customers (in termsof products/services), and the “pain” you arealleviating–  An exchange of value
  17. 17. © Norm Tasevski & Karim Harji17Customer Utility
  18. 18. © Norm Tasevski & Karim Harji18ChannelsWhat you need to care about is…–  How the customer receives the offer/value prop–  The physical “movement” of the offer into the handsof the customer
  19. 19. © Norm Tasevski & Karim Harji19RelationshipsWhat you need to care about is…–  Personal and impersonal interaction with thecustomer–  The “movement” of information (e.g. marketing,communication)
  20. 20. © Norm Tasevski & Karim Harji20Revenue StreamsWhat you need to care about is…–  Cash!!! (specifically, how cash flows into theenterprise) – “Money In”–  Pricing models
  21. 21. © Norm Tasevski & Karim Harji21Key ResourcesWhat you need to care about is…–  Assets…–  …and how these assets create value–  Includes human, physical, intellectual, and financialresources
  22. 22. © Norm Tasevski & Karim Harji22Key ActivitiesWhat you need to care about is…–  Actions (specifically, the actions you plan to take togenerate value)–  Both “direct” and “indirect”
  23. 23. © Norm Tasevski & Karim Harji23Key PartnersWhat you need to care about is…–  People/organizations that are integral to enablingyou to do business–  How you partner, and what you partner on
  24. 24. © Norm Tasevski & Karim Harji24Cost StructureWhat you need to care about is…–  Fixed costs, variable costs, economies ofscale…“money out”–  At this stage, focus on your cost assumptions! (don’tworry about actual $$)
  25. 25. 25So…whatdoes acompletedBusinessModelLookLike???
  26. 26. © Norm Tasevski & Karim Harji26-Access tospace-Coffee shops-Personal(Baristas)-Store front sign-Wireless-35 yr old Youngprofessional thatwants a place torelax and workquietly-Locations-Coffee makingequipment-Furniture-Internet-Baristas-Hire staff-Long hours-Maintain space-Coffeeroasting/brewing-Interior design-Coffeesuppliers-Staff training-Assetacquisition-Marketing-Rent-In-storePurchases(multiple pervisit)
  27. 27. © Norm Tasevski & Karim HarjiTip…•  Be a Business Model “Alchemist” – You need to gothrough the business model process many times inorder to figure out which model best fits27
  28. 28. An Introduction to Storyboarding28
  29. 29. © Norm Tasevski & Karim HarjiWhat is Storyboarding?A set of images/graphics displayed in sequence as ameans of pre-visualizing a process or sequence ofevents29
  30. 30. © Norm Tasevski & Karim HarjiThe Importance of Storyboarding•  From a business perspective, it provides clarity onhow the business will work (e.g. how value iscreated, 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. 31. © Norm Tasevski & Karim HarjiAn Example – “Here’s How it Works”31ID office buildingto serve as a“Delivery Hub”ID merchants withinthe “Delivery Zone”Merchants marketthe service tocustomers1st2nd 3rdProfessionals in SickKids will have accessto the delivery serviceProfessionals at Sick Kids can receivedeliveries from the hot dog vendor, Subwayand Starbucks, but not Freshii or Tim HortonsWe  Deliver!  An SSO deliveryperson picks upand deliversthe food to theprofessional
  32. 32. © Norm Tasevski & Karim HarjiA 2nd Example – “Here’s How it Works”32First time youth drugoffenders referred toPeacebuildersYouth participate inRestorative Circles &Business TrainingYouth placed inkiosks/venues to sellproducts1st2nd 3rdPeacebuilders work withestablished relationshipswith the federal youthprosecutor at the youth courtat 311 JarvisThrough this process, we build a trustrelationship and empower youth togenuinely change their lives and break thecycle of violence and povertyYouth sell in controlledenvironments, withPeacebuilders/VentureDeli staff support
  33. 33. Break33
  34. 34. Marketing for Social Enterprises…34
  35. 35. © Norm Tasevski & Karim HarjiA caveat…35“SocialMedia”“SocialEnterprise”
  36. 36. © Norm Tasevski & Karim HarjiA Second Caveat…Marketing!36Sales!≠!
  37. 37. © Norm Tasevski & Karim HarjiWhere does Marketing Fit?3737
  38. 38. © Norm Tasevski & Karim HarjiSome Definitions•  Social Marketing is the systematic application of marketing, along with other conceptsand 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 isprimarily "financial". This does not mean that commercial marketers can not contribute toachievement of social good.Wikipedia•  Cause Marketing (or cause-related marketing) is a mutually beneficial collaborationbetween 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 (bethey consumers, employees, or suppliers), and (3) communicate the shared values ofboth organizations.Jocelyn Daw (Marketing Consultant)–  Cause marketing differs from corporate giving (philanthropy) as the latter generally involves aspecific donation that is tax deductable, while cause marketing is a marketing relationshipgenerally not based on a donation.Wikipedia•  Sustainable Marketing is the process of planning, implementing and controlling thedevelopment, pricing, promotion and distribution of products in a manner that satisfiesthe following three criteria: (1) customer needs are met (2) organizational goals areattained, 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 intoan experimental, iterative process that has close ties to the customer. Individuals and interactionson a daily basis are important. Customer Collaboration over customer transactions. Responding tochange over blindly following a plan.Ivan Storck (founder, SustainableWebsites.com)38
  39. 39. © Norm Tasevski & Karim HarjiSocial Marketing39DeliverSatisfactionRealize AspirationPracticeCompassionProfitAbility ReturnAbility SustainAbilityBe Better Differentiate Make a DifferenceIndividualSocialEnterpriseMind Heart SpiritMission(why)Vision(what)Values(How)
  40. 40. © Norm Tasevski & Karim HarjiExamples of Social Marketing…40
  41. 41. © Norm Tasevski & Karim Harji41Examples of Cause Marketing…One of the first…1983 – AmericanExpress & the Statueof LibertyRestoration Project2006 – Bono &Product (Red)Another…2010 – Pepsi & theRefresh ProjectMost Recently…
  42. 42. © Norm Tasevski & Karim HarjiAnother Example of Cause Marketing…42
  43. 43. © Norm Tasevski & Karim HarjiSustainableMarketing…
  44. 44. © Norm Tasevski & Karim HarjiSustainable Marketing…is tricky…h"p://www.youtube.com/watch?v=p6aSlb_lies    
  45. 45. © Norm Tasevski & Karim HarjiSustainable Marketing ToolkitChecklist 1!
  46. 46. © Norm Tasevski & Karim HarjiSustainable Marketing ToolkitChecklist 2!
  47. 47. © Norm Tasevski & Karim HarjiSustainable Marketing ToolkitChecklist 3!
  48. 48. HR Considerations…48
  49. 49. © Norm Tasevski & Karim HarjiWhere does HR Fit?4949
  50. 50. © Norm Tasevski & Karim HarjiA Caveat…Think of your HR from the perspective of “running abusiness”, not “running a charity”50
  51. 51. © Norm Tasevski & Karim HarjiA Second Caveat…Your HR Strategy must align with your business modeland align with organizational values51
  52. 52. What if you were a…52Product-based Social Business…!Tethered Social Enterprise…!Employment-Based Social Business…!Accessibility-Based Platform…!
  53. 53. © Norm Tasevski & Karim HarjiA business/business model that providesproducts or services with social benefit.1. Product-Based
  54. 54. © Norm Tasevski & Karim Harji2. Employment-Based  A business that hires marginalized peoplein good employment opportunities.
  55. 55. © Norm Tasevski & Karim Harji3. TetheredAn enterprise started by a charity or non-profit thatgenerates revenue for the organization.
  56. 56. © Norm Tasevski & Karim Harji  A business that maintains a purposely low profit marginto make their products accessible.4. Accessibility-Based
  57. 57. © Norm Tasevski & Karim HarjiOther 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
  58. 58. Operational Considerations…58
  59. 59. © Norm Tasevski & Karim HarjiDAY 1!59What do you do first?
  60. 60. © Norm Tasevski & Karim HarjiDAY 180What does your average week look like?60
  61. 61. Legal Forms Applicable to SocialEnterprise…61
  62. 62. © Norm Tasevski & Karim HarjiA Caveat…There is no defined (national or provincial) legal formfor social enterprise in Canada62
  63. 63. © Norm Tasevski & Karim HarjiA Second Caveat…Form follows function63
  64. 64. For-ProfitCorporation!64Non-ProfitCorporation!Charity!Partnership!SoleProprietorship!Co-OperativeCorporation!
  65. 65. © Norm Tasevski & Karim HarjiFor-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 termsof profit-makingactivities!•  Can access allforms of investment(debt, equity, etc)!•  Provides clarity ofpurpose (i.e. thefinancial bottomline)!•  Limited personalliability!•  Pay corporate tax!•  Cannot access grants!•  Cultural/psychological barrierswith operating a “for-profit socialbusiness”!
  66. 66. © Norm Tasevski & Karim HarjiCharity!•  Incorporated via Letters Patent under the Corporations Act (Ontario) orCanada Corporations Act (federal)!•  Without share capital!66•  Don’t pay corporatetax on earnings!•  Can issue taxreceipts!•  Can access manygovernment/foundation/corporate grants!•  Least flex in terms ofprofit-making activities!•  Limited in the types ofinvestments you canaccess (e.g. equity)!•  Time-consuming!!•  Psychological barrierswith operating a “socialbusiness”!•  An aversion to “risktaking”!•  Can lose status if “toosuccessful”!
  67. 67. © Norm Tasevski & Karim HarjiSole Proprietorship!•  Registered via Business Names Act (Ontario) or Canada Corporations Act(federal)!•  Without share capital!67•  The simplest (andquickest) legal form!•  You have fullcontrol of businessdecisions!•  Flexibility to makebusiness decisionsquickly!•  No separate filingfor income tax!•  Unlimited liability!!!•  The business is theentrepreneur!•  Hard to find investors!•  Limited creative input(i.e. you’re the onlyone with ideas!)!•  Less “professional”than other forms!
  68. 68. © Norm Tasevski & Karim HarjiNon-Profit Corporation!•  Incorporated via Letters Patent under Corporations Act (Ontario) or CanadaCorporations Act (Federal)!•  Generally without share capital!68•  Can access grants!•  Can access debtfinancing!•  Tax exempt as longas organized andoperated for definedsocial/communitybenefit!•  Some NPs are moreopen to (limited)risk-taking!•  Can’t issue taxreceipts!•  Limited in the types ofinvestments you canaccess (e.g. equity)!•  Psychological barrierswith operating a“social business” !•  Can lose status if“too successful”!
  69. 69. © Norm Tasevski & Karim HarjiPartnership!•  Registered under the Partnerships Act (Ontario)!•  With or without share capital!•  Usually organized using a Partnership Agreement!69•  Similar benefits tosole proprietorship!•  Combines skills/competencies oftwo people!•  Can sign contractsand borrow money inits own right!•  For mostpartnerships, unlimitedliability! (at least inCanada…)!•  Acrimony betweenpartners is common!•  Difficult to findinvestors!
  70. 70. © Norm Tasevski & Karim HarjiCo-Operative Corporation!•  Incorporated under the Co-Operative Corporations Act (Ontario) or CanadaCooperatives Act (Federal)!•  Wither with or without share capital!70•  Well-establishedstructures!•  Integrates theconcept of“community benefit”already!•  Cannot issue taxreceipts!•  Generally not exemptfrom paying tax!•  Psychological barrierswith operating a“social business”!•  Difficulty makingdecisions (too manypeople at the table)!
  71. 71. © Norm Tasevski & Karim HarjiTalk to a Lawyer!71
  72. 72. Legal Innovations…72
  73. 73. © Norm Tasevski & Karim HarjiLegal Innovation: CIC (UK)•  Established to trade (goods or services) for thecommunity good•  Requires “community interest statement” application tothe CIC Regulator. Publically-available annual reportsrequired to confirm (adherence to) community interestrequirement•  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 CICsfor community benefit, or transferred to another CIC subjectto an asset lock, or to a charity•  Taxed in the same manner as other businesses73
  74. 74. © Norm Tasevski & Karim HarjiLegal Innovation: L3C (US)•  Variation on American Limited Liability Companies (LLCs)•  LLC investors are members rather than shareholders•  Terms of the operating agreement guarantee the publicbenefit nature of the entity’s work•  Like LLCs, L3Cs are not subject to federal income taxthemselves, but the income they pay to members istaxable according to the rates applicable to eachmember•  Able to attract private capital through the sale of sharesand other securities, various forms of loans, or othercommercial financial arrangements.•  Ability to receive Program Related Investments fromfoundations•  No asset lock and no dividend cap74
  75. 75. © Norm Tasevski & Karim HarjiLegal Innovation: B Corp (US)•  To be certified as a Bcorporation under the B Labsystem, the corporationmust:–  Achieve a minimum score of80 (out of 200) on the BRatings System, a tool toassess a companys socialand environmentalperformance.–  Agree to make legalchanges to its articles ofincorporation to expand theresponsibilities of thecompany to includeconsideration of stakeholderinterests.–  Pay B Lab an annuallicensing fee.–  Recertification is requiredevery two years.75
  76. 76. © Norm Tasevski & Karim Harji76
  77. 77. © Norm Tasevski & Karim HarjiWhat did we learn?77

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