How to build a Social Entrepreneurial Business.

Updated: Jan 16

Introduction


A high percentage of Americans live paycheck to paycheck, many depend on the government to help them through social programs like: Supplemental Nutrition Assistance Program (SNAP), Medicaid or Public Housing. The challenge is that those programs are not able to cover every single household that needs them. Nonprofits and certain businesses support those people in need through initiatives in order to counterbalance the lack of government reach to all the different constituents. According to the World Economic Forum, governments, international organizations, business and civil society can fulfill only one-third of the need to realize international goals focused on human and sustainable development.


Today our world faces an even bigger crisis in the health and economic arenas due to the novel Covid-19 pandemic. Some industries like aerospace or tourism have asked for government bailouts and more than 16 million people have filed for unemployment in the USA to this day. Analysts have started to compare these times to those of the Great Depression in 1929.


For the last 20 years Social Entrepreneurship has been getting more attention in the media and this might be the time to shine even more. Social Entrepreneurial businesses are market driven but not profit driven. The main goal of these operations is to make a difference around social services, Ashoka’s (social innovation intermediary) uses the slogan “Everyone a Changemaker”.


Although there are many social entrepreneurs, there are also a number of people that are interested in starting their own venture but don’t know where to start. Fortunately, the internet is full of great resources. However, someone that is just getting started can become daunted quickly. This paper illustrates some of the most important aspects of starting a social entrepreneurial business. Although it won’t cover any specific theme in depth, it does give enough information for someone to start taking action on their dreams and get a good overview of what to consider. The essay is divided into the following 4 topics: mission and vision, market research, legal matters and financing.


What makes this paper unique compared to any information on the web or in books, is that besides defining and explaining concepts it analyzes two examples of social entrepreneurial businesses: Coops to Co-ops Farmers Market (C2C) and The Social Entrepreneurship Conference (SEC). By comparing and contrasting both ventures, the reader should get a better understanding of what has and hasn’t worked and use the experience to be more effective.


Defining the idea with mission and vision statement for a Social Business


Mission and vision statements help guide decision making in a business. Merriam-Webster defines mission as, among other things, “a pre established and often self-imposed objective or purpose.” A social entrepreneur (SE) can translate that objective or purpose into a social impact on individuals, communities or a society.


The two SEC founding members grabbed a piece of paper and brainstormed for a few hours, what was the purpose of doing the conference. The method they used to create the mission statement was to define every single word and make sure that was the purpose of their efforts.


The mission statement had various transformations but the 3 critical ones were:


“To end the cycle of non action in educational conversations”

“To dissolve the the cycle of non action in the expression of ideas”

Ending the cycles of non action in the expression of ideas


Ending: a bringing or coming to an end; termination; close.

Cycles: any complete round or series of occurrences that repeats or is repeated.

Non: negation or absence of something.

Action: something done or performed; act; deed.

Expression: the act of expressing or setting forth in words.

Ideas: any conception existing in the mind as a result of mental understanding, awareness, or activity.


On the other hand, at Coops to Co-ops there wasn’t a clear creation session where the founders thought about the mission. As a result, the mission statement has changed more than 3 times along the process and there is no agreement to the mission from every member of the team. Currently it is: “To provide a community space where we can learn from each other about how to be good stewards of the earth.”


While the mission acts almost like a slogan at SEC and the team is proud of saying the mission statement, at C2C the mission statement is just a phrase that is on the website.


Also, when the founders at SEC would make important decisions, the mission statement always came up in the discussion and decisions were shaped by this important guideline, whereas C2C makes decisions without a clear compass.


Market research

A social entrepreneur might have an idea or a burning desire and wants to put it into action immediately. Although action is a crucial component to success, there needs to be careful market research prior to dedicating further economic and time resources.


There is no right way of doing market research, although it is important to understand the demand for the product or service being offered. It is really difficult to turn anything into a successful venture when there is no market for it.


Gaining knowledge about competitors is important since quite often there are many competitors in an area. An understanding of their offerings will help make decisions on how to differentiate from the rest, and attract more customers.


At SEC, the founders made sure to interview focused groups of students, asking their opinion on what would attract them to a conference of this type.


At C2C, there was little to no prior experience on farmers markets, the manager spent about eight weeks reading and getting informed about the topic. Gaining an understanding of what attracts people to a farmers market and what are the things that customers don’t like about farmers markets have allowed them to tweak the strategy accordingly.


The conference was primarily intended for college students attending the four major higher education institutions in Sarasota and Bradenton (Florida). SEC had 140 participants in the conference however, only 43 were students. The goal was to have 150 attendees but it was not foreseen that two thirds would be adults and not students. The founders failed to realize the fact that there was not an entrepreneurial culture in the schools and the first step to have a higher attendance of students was to develop the culture.


Covid-19 came 7 weeks before the soft opening of C2C. The market strategy was to create community experience at the farmers market and allow people to enjoy activities or relax in the lounge areas. Since the lounge areas and activities would not be permitted due to social distancing, the team had to make decisions of what to do about it. The market manager knew that farmers market customers did not like to wait in lines to purchase products or not know the exact price of what they were buying. Hence, he saw the opportunity of building an online store that would allow customers to put an order of their fresh and local products, pay and pick it up during market days without having to get out of their car. The outcome is yet to be known since this paper is being published before the first market day.



Legal structures, Permits and Licenses

Businesses have a unique legal structure in order to operate. In the USA there are five common structures: Sole proprietorship/ Partnership/ Limited liability company (LLC) / Corporations / Cooperative.


Business owners must make a decision of which kind of legal structure they want to use since each structure has advantages and disadvantages. Below is a brief explanation of some of these structures.


Sole proprietorships work well for low risk ideas and they are also less expensive to set up. There is no need to get a Tax ID (EIN) because the owner will use their own Social Security Number. What’s required, is to register a trade name.


A limited liability company is best for medium risk activities, it protects personal assets of the members although it requires a higher investment in setting up and it requires an EIN.


A corporation is considered an independent entity. Corporations can make profit, be taxed and be held legally liable. These entities are best for high risk ventures, the downturn is they require more record keeping, operational processes, reporting and higher costs to set up. S Corps and C Corps require directors to base their decisions on profit maximization, allowing shareholders to generate a lawsuit against the corporation because of a drop in stock value. In 2010, Maryland was the first state to pass the


Benefit Corporation legislation, ensuring that directors are required to consider other public benefits in addition to profits in their decisions.


There are non profit corporations, just like corporations, they require more record keeping, operational processes, reporting and higher cost more to set up. The advantage is that it’s exempt from paying taxes and can receive grants.


A cooperative is owned and operated by the employees or customers that receive the service. Small cooperatives make decisions based on participatory democracy, every worker helps make decisions. Large cooperatives use representative democracy, where employees elect different directors so they make decisions.


Many businesses require certain permits and licenses in order to operate. It is important to be aware of what those are and what will be required to obtain them. Without paying attention to this, business owners could find themselves not being able to start their venture due to a requirement not available by the entrepreneur.


At SEC, there were no thoughts on becoming a business at first, the founders were college students and all they wanted was to create a conference. After the first successful conference and support from the community, the team decided to become its own legal entity. After much consideration, the best legal structure was a Non Profit because it would allow donations.


C2C is a limited liability company, separating the owners assets from the business. There is an EIN and an independent bank account. In reality, the legal name is Chicken Houses to Green Houses but they are doing business as Coops to Co-ops. This is done by filing a D.B.A form and paying a small fee at the state department.


Financing

Starting a social venture will require a financial investment and much of the success of a company will depend on having this secured. A company will need to pay the salaries of full time and part time employees and will need the resources to retain talent.

There are various ways to raise money for a social business including: bootstrapping, friends and family, crowdfunding, angel investors, grants.


Bootstrapping consists of using money that the entrepreneur has in savings or by using credit cards. Wise use of the capital is critical.


Friends and family can serve as a funding source, most likely they will invest their money because they believe in the person, but they know that the money can be lost and there are no strings attached.


Crowdfunding is a technique of raising money with the support of many different individuals through online platforms. Backers are supporters that put money and get a perk as a reward, sometimes the perk is the product that the new venture will produce.


Seed grants allow new ventures to apply and get some money to get started, the grant can have certain guidelines for how the money needs to be used.


Seed money is where an investor puts money in a company in exchange for equity.

In the case of SEC, there was no funds behind the venture, there was enthusiasm and support from the college institution. The founders knew certain people in the community that joined the team and volunteered their time to accomplish the goal. There was fundraising done through sponsorship opportunities with businesses in the community with a total of $11,500 raised to pay for cash prizes, food and miscellaneous items.


Comparably, C2C has been fully funded by the owner's capital and they have been able to pay full time employees to accomplish the goal.

Although the main goal of a social entrepreneurship company is not profits, the company still needs to generate an income in order to carry on its operations. The following chart serves as a framework to understand and/or plan actual or future income activities.


The ideal kind of activity is the fourth quadrant (integral), which is highly mission aligned and the earned income is also high. Sometimes social entrepreneurs need to have a sustaining or supplementary income in order to survive, especially during the beginning stages. Any income that is disposable should be eliminated because it is not forwarding the mission and it is not bringing much money in.


At SEC many hours were spent on talks about ways to bring income and sustain the part time salaries of the core team. The first idea was to sell the tickets for the 2nd annual conference, the second idea was to sell merchandise with the brand. The most logical way to raise substantial funds was to apply for a grant at various community foundations, connections to the foundations would be made by a few individuals that had been sponsors for the previous conference.


Conclusion

Social entrepreneurship businesses are very similar to any other regular business. It is not hard to find information online on how to start a business, we are actually saturated with information. Today, more than ever, citizens need to innovate and think on solutions that benefit many others in need. Everyone can start a business, all it takes is some willingness to take risks and a strong desire to make something happen. Not everyone is interested in building and managing a business with all of it’s challenges and advantages, some rather work for a company that offers a steady income and clear instructions of what to do.


All of those that are interested in starting a business have a path to becoming successful as long as they do their due diligence. With a quality product or service, the right market and financing, a social entrepreneur has a good chance of making an impact. There are more intricacies of starting a business like forming the right team, setting goals, marketing, branding and crafting alliances. Even a well crafted plan will have it’s contingencies and social entrepreneurs will need to adapt to circumstances in order to have a higher impact.



Sources


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Rebecca Rainey, & Quint Forgey. (2020, April 9). Unemployment claims near 17 million in three weeks as coronavirus ravages economy. Politico. https://www.politico.com/news/2020/04/09/coronavirus-unemployment-claims-numbers-176794


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