Social entrepreneurs start businesses because they want to make a difference in the world but they still need revenue to make good on their meaningful work. How do you balance the demands of a meaningful mission and generating profits, too? Experts offer advice:
A HYBRID APPROACH
Every social entrepreneur will have to decide how to structure their business.
Laura Deaton, executive director of Multiplier, an Oakland, Calif. based accelerator for initiatives that foster a healthy, sustainable and equitable world, suggests a hybrid approach.
“If you start as a non-profit/for-profit hybrid, the LLC or B Corp can hold the intellectual property and assets that will be revenue-generating in the long term, and [you can] leverage philanthropic dollars by having a nonprofit that has specifically focused charitable work.”
She gives an example of a nonprofit company that came out of Stanford’s D-School, which has built curriculum for gap year folks just out of high school or in their first year of college about living a purpose-driven life. “The goal is to have the curriculum be marketable to school systems,” Deaton says. So all the intellectual property is held in a for-profit LLC, “but all the front end funding for building momentum and going into schools is funding by philanthropic dollars.”
THE FOR-PROFIT APPROACH
It might make more sense, however, for some entrepreneurs to take a for-profit approach and build social impact into the mission of the company, says Kendall Nelson, founder and CEO of Catalyst Ventures, in Frederick, Md. She works with entrepreneurs to build social impact frameworks into their businesses.
Nelson says that by asking, “What is the problem you want to solve?” and then building a market solution to do that, “You are generating the profits you need to make the change, which opens more avenues to you.”
Nonprofits can become bogged down in the work of just trying to raise the revenue for their mission, Nelson says.
Katie Horgan, co-founder and Vice President of Business Development for Giving Assistant, a company that aims to transform everyday shopping into charitable giving in San Francisco, Calif. also believes in starting with a for-profit approach.
They began their business with the goal of helping consumers save money in order to do charitable giving, but quickly learned, through market research, that they needed to start by helping their consumers save money first. Over the years, however, as the business has grown, they’re now ready to increase initiatives that are giving focused. “The better that we do in terms of growing our business, the more impact we’ll have on the nonprofits we serve,” Horgan says.
CONSIDER THE END AT THE BEGINNING
If you are going to choose the for-profit route first, Nelson encourages that you “Start with the end in mind. Build your business with [social impact] metrics built in,” she says.
Those metrics will be different than a purely for-profit business that does not have a social impact mission. “A lot of businesses stop tracking their social impact once they have counted how many dollars they donated,” Nelson says. Her advice is to not only track the dollars, but how those dollars are making a true difference.
“You’ve got to measure the mission just as diligently as you measure the money.”
Nelson says for-profit social enterprise has greater agility to make changes as necessary. “Your mission and solution are both informed by the people you’re looking to serve. If you stay in clear communication, you’ll have a pulse in the people you’re trying to help. Embrace that agility and don’t be afraid to iterate.”
HOW TO STAY ON MISSION WHILE YOU RAISE FUNDS
How does a company stay mission focused while it’s still building the capital and resources for the business?
Horgan’s company has created what they call “mission moments” where, as they work on building large-scale charitable initiatives, they find and celebrate “micro moments” and “micro donations” which they share before and after their financial reports.
Equally important, Horgan says, is hiring the right people who believe in the social mission of your company because they won’t let you lose sight of your mission.
“If you build your business by problem solving a need the market or consumer has, then you can add in the charitable element, that’s the right way to do it,” Horgan says.