Social Enterprise: Implications for South Africa s Non-Profit Sector

Social Enterprise: Implications for South Africa s Non-Profit Sector Presented by Marcus Coetzee at the NPO Conference hosted by the SA Accounting Academy in Johannesburg 24 May 2016

Agenda 1. Introduction 2. Charity Model 3. Social Enterprise Model 4. Mindset versus Business Model 5. Strategic Inflexion Points 6. Journey to Social Enterprise

Who is Marcus Coetzee? Helps leaders to cultivate Strategic Clarity Social enterprise advocate Advocates for mixing social purpose and business thinking Works very closely with: o Social Enterprise Academy o Bertha Centre for Social Innovation and Entrepreneurship o Imani Development o Business Sculptors o Citizen Surveys Served over 100 clients since 1996.

Traditional Charity Model Model Ingredients: 1. Extensive fundraising. 2. Strive for funding with wide coverage of expenses and less strings attached. 3. Keep costs down and overheads under 10% to please donors. 4. Be accountable and transparent. Treatment Action Campaign (TAC) relies primarily on donations for its advocacy and community development work.

Traditional Charity Model Disadvantages: Advantages: 1. Difficult to build reserves. 2. Limited discretionary expenditure. 3. At mercy of donors goodwill. 4. Impact constrained by availability of donor funding. 5. Saturated funding market - intensive competition for funding 6. Donor only funds the costs they like. 7. Potential cash flow problems. 1. Less risk of mission drift able to focus on intended social or environmental purpose. 2. Clear communication of social agenda to everyone 3. Able to serve vulnerable or advocate against establishment without need for commercial business models. 4. Open governance structures are ingrained. 5. Assets locked to mission.

Golden Age of the Traditional Charity Large Government NPO Funds Reconstruction of SA SA low priority on international agenda Increased awareness of social issues Massive HIV Funding Well Funded NPO Sector Social Issues Exclusive Domain of NPOs B-BBEE codes 150,000+ NPOs < 100,000 NPOs Anti-Apartheid Struggle Businesses getting involved in tackling social issues NPO contracts put out to tender The 1980s and 1990s we saw a wellfunded NPO sector in South Africa. During the 2000s a different world emerged.

Social Enterprise Model Model Ingredients: 1. Generate the majority of their income through trade (i.e. sale of goods or services). 2. Wide range of possible business models. 3. Use profits to further social mission. 4. Be majority controlled in the interests of the social mission. 5. Be accountable and transparent. Shonaquip is a social enterprise that designs and manufactures mobility and postural support devices for the disabled.

Local Social Enterprises

Potential of Social Enterprise 70,000 social enterprises 18 billion (approx. R400 billion) turnover 1 million people employed (Small Business Survey, 2013) Social Enterprises in the European Union Account for over 3.5 million jobs (Study on Practices and Policies in the Social Enterprise Sector in Europe, 2007.) Formed in 1996 as a Micro-finance institution Serves over 85,000 villages in Bangladesh alone Issued loans to 8.4 million people by 2011 80% of loan recipients reduced level of poverty. Formed in 1956 in Spain as a federation of worker cooperatives. Employing 74,061 people in 257 companies

Social Enterprise Model Advantages: 1. Increased self reliance and independence from donors. 2. Discretionary expenditure. 3. Able to build reserve 4. Scale with right business model. 5. Able to access impact investment. 6. Opportunity for tighter control. Disadvantages: 1. Sometimes difficult to balance mission and business activities 2. New skill-set + mind-set needed. 3. Stakeholders struggle to box it. 4. Not always the best business model to tackle a social issue. 5. Many struggle to access donor funding.

Social Enterprise: Business Model versus Mind-set versus I believe that social enterprise is both a business model and a way of thinking. Although the business model may not be for everyone, many organizations can benefit from thinking like a social enterprise.

Business Model of a Social Enterprise 1. Entrepreneur Support Model 2. Market Intermediary Model 3. Employment Model 4. Fee for Service Model 5. Low-income Client Model 6. Cooperative Model 7. Market Linkage Model 8. Service Subsidization Model 9. Organization Support Model 10. Certification Model* 11. Sponsored Product Model* The Clothing Bank has an interesting business model that provides benefits for corporates and beneficiaries.

Mind-set of a Social Enterprise 1. Blend business thinking with your social purpose. 2. Clearly define the purpose of your enterprise. 3. Define the positive outcomes of your enterprise. 4. Gather convincing evidence of outcomes. 5. Demonstrate value-for-money and refine business model. 6. Earn income; don t rely on donations. 7. Market your successes more than the problem. 8. Sell benefits to your customers; don t beg for funding. 9. Collaborate with businesses. 10. Develop a powerful brand. GreenPop is a social enterprise that is particularly good at building a powerful brand and attracting volunteers

Convergence to Social Enterprise Donor- Dependent NPO NPO with Income Activities Social Enterprise High-impact Business or B-Corporation Socially- Responsible Business Traditional Business Journey for NPOs Journey for Businesses

Journey to Social Enterprise Social enterprises don t just magically appear. The Journey typically takes many years to complete. Multiple obstacles need to be overcome. Both non-profit organizations and businesses can embark on the Journey. Zip Zap Circus School is relying increasingly on its performances as a method of generating income.

Journey Takes Up to 5 Years The Journey involves a fundamental shift in an organization s strategy. Timeframe of 3-5 years before a new pattern can be established. o Year 1 Gather support from stakeholders o Year 2 Explore ideas, gather resources, develop plans o Year 3 Formal experiment with significant shift o Year 4 Refine and extend o Year 5 Consolidate and evaluate Good leadership and change management required throughout. This means that donors and impact investors should commit to a 3-5 year timeframe if they want to assist organizations on their Journey.

Strategic Inflection Points ( Transition Points ) A strategic inflection point (SIP) is a time in the life of business when its fundamentals are about to change. That change can mean an opportunity to rise to new heights. But it may just as likely signal the beginning of the end.

Transition Points on the Journey Donor- Dependent NPO NPO with Income Activities Social Enterprise High-impact Business or B-Corporation Socially- Responsible Business Traditional Business NPO 1: Experiment and Improve Skills NPO 2: Rethink Business Model Business 3: Dedicate Profits Business 2: Embrace a Social Purpose Business 1: Become a Good Citizen

NPO 1 Experiment and Improve Skills Donor- Dependent NPO NPO with Income Activities Social Enterprise High-impact Business or B-Corporation Socially- Responsible Business Traditional Business Possible Focus Areas: 1. Call to action. 2. Overcome objections to business activities. 3. Pilot various business ideas. 4. Share and learn from other organizations experiences. 5. Measure social outcomes. 6. Learn how to cost business activities, make proposals profitable. and track business income and expenses. 7. Understand SARS rules regarding income generation. 8. Learn how to develop, package and sell products.

Transition Point NPO 1 Example of STEPS STEPS works to eliminate clubfoot in Southern and East Africa. Helped over 8,200 children since 2005. Secured the rights to import a popular orthopaedic brace ( Ohio brace ) to sell to health services in Southern Africa. These braces are required for treating clubfoot using the Ponseti method. The feasibility has been assessed. Busy developing a formal business plan.

NPO 2 Rethink Business Model Donor- Dependent NPO NPO with Income Activities Social Enterprise High-impact Business or B-Corporation Socially- Responsible Business Traditional Business Possible Focus Areas: 1. Seek clarity of purpose. 2. Commit to chosen business direction. 3. Rethink fundamentals of business model. 4. Recruit specialized staff. 5. Change organizational culture. 6. Consider leadership change. 7. Create new governance structures (e.g. specialized steering committee) 8. Investigate whether hybrid structures are required.

Transition Point NPO 2 Example of Greater Capital Greater Capital is a social enterprise providing social research, enterprise development and due diligence services. After struggling to find donations, Greater Capital repackaged its work as consulting services. Eliminated certain product lines. Now over 100 paying clients. Earned income covers 100% of costs Become an influential organization.

Reflecting on the Journey Presentation has shared my observations from 16 years of consulting. It typically takes many years for organizations to transition from one state to the next, and for a new pattern to properly settle. Best to do it properly rather than quickly. My dream that all organizations undertake the Journey. Although social enterprise is not for everyone, the ideal of social enterprise should act as a beacon of hope for the future. The Carpenter s Shop provides social services to the homeless in Cape Town. It is running 7 income generation projects.

Thank you, and good fortune on your journey. An Old Irish Blessing: May the road rise up to meet you. May the wind always be at your back. May the sun shine warm upon your face, and rains fall soft upon your fields. And until we meet again, May God hold you in the palm of His hand.