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Georgi Lossmann-Iliev: Social business Magdas


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Georgi Lossmann-Iliev, Head of Magdas Recycling, Austria

Social Entrepreneurship Foruma 2015

Georgi Lossmann-Iliev is head of magdas recycling and in charge of social business development at magdas, the social business company founded by Caritas Vienna. Magdas, an 100 percent affiliate of Caritas Vienna, was founded in 2012 with the aim of creating new job opportunities for people living in poverty with no or lower chances of getting a job. Run as a social business, magdas tries to solve social and economic problems with entrepreneurial tools. Magdas social business comprises projects from a design hotel run by former refugees in co-operation with hotel experts to a recycling enterprise recycling yearly almost half a million mobile phones.

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Georgi Lossmann-Iliev: Social business Magdas

  1. 1. 26.11.2015 Georgi Lossmann-Iliev magdas Social Business Development
  2. 2. magdas Mandate • Foundation of social enterprises by transforming existing projects into a social business • Social Business definition by Caritas Vienna standards – Prime objective is to (partially) solve social problems. – Self-financed by economic success. • Demand is generated through quality of services • Additional social value serves as surplus [facilitates purchase decisions]
  3. 3. The Idea Visionaries like Muhammad Yunus argue for the idea, to combine the conventional entrepreneurship with solving existing problems of our society. In accordance, Caritas Vienna is convinced, the so called Social Business Concept will greatly add to the already existing portfolio of services. Main objective is the partial solution of social problems. Funding is generated by economic success, without drawing on public subsidies, which wouldn’t be available to competitors. magdas is a potential response to present challenges of the welfare state on the one hand and to the profit oriented market system on the other.
  4. 4. magdas‘ Mission magdas likes Social Business. With magdas we prove, there is no contradiction between economic success and socially responsible behaviour. With our Social Business enterprises we create meaningful employment for people, who would otherwise have only limited chances, sometimes even none at all, to get a job. Even our customers benefit. While consuming high-quality products & services they simultaneously fulfil their need for being socially responsible. With magdas we show: It’s possible to make a difference.
  5. 5. magdas‘ Structure • 2 entities, working together under the umbrella of magdas: – Association: magdas – Social Business by Caritas of archdiocese Vienna – Limited liability company: Caritas Services GmbH • By now 115 employees (including 45 people with limited job perspectives) • 5 business segments
  6. 6. magdas business segments magdas CEO: Michael Kleinbichler, Gabriela Sonnleitner magdas RECYCLING magdas SERVICES magdas ESSEN magdas HOTEL magdas CANTEEN
  7. 7. magdas RECYCLING • Mobile Phone collection – „Ö3 Wundertüte“ (~OE3 Lucky Bag) – since 11 years – In 2014: • 470.000 mobiles • € 800 000.- contribution to families in distress – wunderbox @ carla • New project: business mobiles
  8. 8. magdas SERVICES • Facility Management for Caritas buildings • 180 real estates with over 200.000 m² • mobile teams • In buildup: cleaning project
  9. 9. magdas ESSEN • 2 large scale kitchens – many distribution kitchens • In 2014: 500.000 meal servings to clients in 14 Caritas-facilities • Forecast: 1 additional canteen kitchen • Variety of served menus – Seasonal – Regional – Special themes – Elaborated in cooperation with nutritionists, clients and professionals of social services
  10. 10. magdas CANTEEN • Operated by professionals and people soon-to-be professionals (disadvantaged employees) • Opened in september 2014 • Located in the old bread factory of Ankerbrot AG in Vienna‘s 10th district • Canteen and Catering • Regional, seasonal, near to nature products • Objective: Create opportunities for the neighbourhood
  11. 11. magdas HOTEL • Since 14.2.2015 operated by professionals and refugees • Temporary use of the former Caritas retirement and nursing home • 78 double bedrooms, apartments and suites (using upcycling- products) • Crowdfunding-campaign during retrofitting (over € 50.000 generated) • Target group: urban tourists, families, business travellers and globetrotters • Wide variety of services and features (rental bikes, garden,
  12. 12. magdas HOTEL Standard Room
  13. 13. magdas HOTEL Suites
  14. 14. magdas HOTEL Public Space/Social areas
  15. 15. magdas HOTEL Events, Seminars and Conferences
  16. 16. Social Challenges Basics • All employees are deployed and remunerated according to the relevant collective bargaining agreement • Potential placement obstacles of an employee will not be disclosed to colleagues– in contrast to projects where disclosure is required • Termination management is a component of the concept as well. • Both limited and open-ended job contracts are available • Executives are recruited from professionals of the respective line of business (whether with or without placement obstacles) • Impact measurement will be and social advisory board is already established
  17. 17. Social Challenges Lessons learned • Training phase of unskilled employees should be as long as possible– favourably by means of internships in other companies • Executives need training and guidance in respect of the social business concept • Extensive supervision/mentoring of the executives to master the social challenges of certain employees and teams • Recruiting processes of employees (with placement obstacles) shall not be influenced by “recommendations” of employment agencies or other job centres • Notice of termination and appropriate outplacement is to be considered as an option right form the start of an employment and organized if necessary. Social business requires consequences to be fair but swift alike.
  18. 18. Social Challenges Perspectives • Professional education and training of the executives is part of the requirements of social business • Employees and managers receive support via external and internal coaching and internal social assistance • Employment-mix of professionals (without placement obstacles) and semi-professionals or untrained employees (with placement obstacles) shall not exceed 50:50 • Objective is to meet the predefined quarterly results and noncompliance need to entail consequences in order not to risk impairment of the social business model. • Establish impact measurement
  19. 19. Economic Challenges Basics • Return on Equity (ROE) of max 3.5% – potentially exceeding profits are used to establish new projects • Max. 3 years of start-up phase – break-even point must be achieved by then (including preproduction costs) • Make use of possible tax benefits, provided charitable(value-added tax, corporate income tax, municipal tax…) • Utilization of alternative methods of financing (crowd funding, economic promotion programs, social investment funds, social impact bonds …) • Involvement of industry insiders welcome • Internal services (catering, cleaning) organized as social business as well
  20. 20. Economic Challenges Lessons learned I • For investments by alternative investment funds, (social) business angels, venture capitalists and industry insiders the limited return of 3.5% is unsatisfactory – discussions start at 6% • Charitable corporations are not eligible (at least so far) to receive start-up financing from the business agency as they don’t meet the current criteria. • Don’t bite off more than you can chew (too many business segments, projects, contradicting objectives, too diverse target groups etc.) – if necessary, the creation of new corporate entity is advisable • Potential partners (Investors, banks, public sector) are reluctant to expose themselves to the stat-up risks • Crowd funding is a learned trade – benefit from well established systems
  21. 21. Economic Challenges Lessons learned II • Taking over enterprises and operations from previous owners into a legal entity for social business sparks fierce resistance from employee representatives • Lots of convincing is necessary to communicate the advantages of social business • Labour-intensive industries (gastronomy, cleaning) often benefit from exploiting or even circumventing relevant obligations stipulated in (collective) contracts or legal standards– such practices violate the core-principles of Caritas, leading to higher labour costs compared to the industry benchmark • Advantages due to non-distribution of profits don’t cover the additional cots of reduced performance & training requirements of employees
  22. 22. Economic Challengens Perspectives • If the core business is charitable from both legal and tax perspective, the potential advantage shall be utilized • Outsourcing additionalcosts of social busines ( trainings, qualifications, team supervisions, job coaching, social work,…) to an entity that is not market financed (e.g. foundations, state programs) => magdas ACADEMY • Cost management as good as it gets • Social Franchising?
  23. 23. magdas_ACADEMY • Additional demand driven trainings/HR development • Goal: – optimal and sustainable inclusion of people with low job chances in working life – development of special-, communication- and social skills – job-related training – tailor-made support of people under consideration of their respective needs and personal challenges
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