If you've ever thought it impossible to make money while making a dent in the social problems of the world, think again. The resounding success of socially responsible businesses and mission-driven ventures has ushered in a new model for the 21st century: social enterprise. Armed with business acumen and market-driven strategies, social entrepreneurs stay focused on their number-one goal: saving the world, one customer at a time. Some even turn a profit while they're at it.
Of course, social enterprise isn't for everyone. In many ways, it requires an entrepreneur capable of launching both a business and a charitable organization (think the brains of a VC-backed internet startup with a soup-kitchen soul). But success can be doubly rewarding, too. "By incorporating a social mission into their business ventures, entrepreneurs can make profits in a way that affirms their values," says Shena Ashley, a nonprofit consultant and professor of public administration at Syracuse University's Maxwell School.
Think you have what it takes to start a social enterprise? Get off to a good start with these seven key steps.
1. Define your mission. As obvious as it sounds, a surprising number of people who start new businesses can't articulate the problem they're trying to solve. If you're starting a mission-driven venture, it's even more important to be able to rattle off your elevator pitch. Realize that as a social entrepreneur, you may have to articulate more than one goal, since the very concept of social entrepreneurship is built on the idea that market-based approaches can be effective in solving social problems. For example, your goals may include promoting responsible agriculture and generating profit through your sales of organic, locally sourced food products. Knowing your mission and allowing it to govern your decision making will help keep you focused when you confront the tough choices ahead.
A new kind of hybrid
The L3C, which stands for "low-profit limited-liability company," is a new option for aspiring social entrepreneurs frustrated by the limits of the corporate forms available to them. When its governor signed H.B. 0775 in April 2008, Vermont became the first state to offer a new solution to social entrepreneurs, who until then, were forced to choose between starting a business as a corporation, an LLC or a partnership, or a nonprofit 501(c)(3). L3Cs have the option of garnering startup funding from both charitable foundations and private venture capitalists or angel investors. L3C legislation has since been passed in Michigan, Utah and Wyoming, and similar legislation is under consideration elsewhere.
When Anthony Jewett, 28, founded Atlanta-based Bardoli Global in 2006, he began with market research. His plan was to create a nonprofit organization that would increase the number of minority students studying abroad. Jewett located the historically black universities and community colleges that serve most of the nation's minority students, identified the resources he knew he would need to get his startup off the ground and researched the statistics. He knew how many American college students studied abroad each year, what percentage of them were minorities and which destinations they most commonly chose.
But looking back, Jewett says some of the most crucial information he needed to accomplish his mission came from talking with minorities in the communities he was trying to serve. For example, he explains, "anyone who wants to work with the African-American community needs to partner with predominantly black churches, and anyone who wants to encourage Latinas to study abroad must first gain the trust of the girls' fathers." In retrospect, Jewett says, "market research is not just about knowing the statistics. You have to know the people."
3. Get creative with capital. For any aspiring entrepreneur without an angel investor waiting in the wings, finding startup capital is a challenge. As a social entrepreneur, though, you can tap into unique sources of funding. Consider foundation grants, capital reserved exclusively for social objectives and diversified ownership, to name a few.
When Ruffin Slater, 51, co-founder and general manager of Weaver Street Market, decided to start the Carrboro, North Carolina, local and fair-trade foods market in 1988, he and his partners, Marilyn Butler and Randy Talley, chose to form a community-owned cooperative. The community ownership model fit naturally into the market's mission of promoting local produce within the local economy, but it was also born from practicality: They had virtually no startup capital. "We didn't have the capital we needed at the inception of Weaver Street Market, so we had to ask, 'Where else are we going to get resources?'" Slater says.
Today, the co-op is still half employee-owned and half consumer-owned, which has had unexpected effects on Weaver Street's long-term success. Slater says that because the company's owners "are also the people who work in the market and shop in the market, [the co-op has] an immediate feedback loop" when it brings in a new product.
4. Make a plan--and use it. Don't even think about starting a social enterprise without a plan. No amount of passion for your cause will make up for a lack of planning. Just like any new business or nonprofit organization, your new venture needs a road map that projects at least three years forward. It's fine to change your route along the way and readjust when the horizon appears different from what you imagined. But don't expect to figure everything out along the way.
5. Consult with an expert. Before you hit the "launch" button, have a good accountant and a good lawyer in your back pocket--ideally, people who are familiar with the unique challenges faced by mission-driven businesses. Not only will you get a fresh perspective by bouncing your ideas off someone who hasn't been a part of the planning process, but with an expert's help, you can also avoid costly financial and legal pitfalls that could sink your new venture. At the same time, saving this step for further down the line in your planning process will allow you to design your venture creatively before you have to fit your ideas into the structure of, say, the Internal Revenue Code.
6. Let substance guide form. When Jessica Jackley, 31, co-founded nonprofit peer-to-peer microlending website Kiva in 2005, she knew her idea could have succeeded as a for-profit business. "At first, we wanted to provide interest to our lenders," she says.
There's no doubt Kiva could have been profitable. After all, the organization has proven that microloans to borrowers living in poverty can be relatively low-risk investments. (Kiva loans have a repayment rate of approximately 98 percent--a rate that would make many U.S. mortgage lenders green with envy.) But, Jackley explains, she and co-founder Matt Flannery, 32, wanted to focus on the organization's social mission. "By structuring Kiva as a nonprofit, we guaranteed that 100 percent of the investments go toward our mission of connecting people through lending with the goal of alleviating poverty." Kiva's nonprofit status has also allowed the San Francisco-based organization to remain eligible for tax benefits and a wide variety of grants.
A social enterprise can be organized as a for-profit, a nonprofit or even something in between. Because of the options and undue emphasis placed on legal structure, it's easy to become preoccupied with how you're going to set up your venture before you've allowed yourself to fully explore your objectives.
The lesson? Focus on your ideas and the problem you're trying to solve--then decide which tax structure will fit you best.
7. Cozy up to risk. The first priority of a true social enterprise is its social mission. If you're going to be a social entrepreneur, be prepared to take risks that a traditional business wouldn't.
Julius Walls Jr., 47, president and CEO of Greyston Bakery Inc. in Yonkers, New York, is familiar with taking risks calculated to achieve a high social return on investment. Greyston Bakery, which was originally founded in 1982 by Zen Buddhists, is a mission-driven business whose primary goal is to reinvigorate the surrounding community's economy by employing local residents. The bakery's tag line defines its mission: "We don't hire people to bake brownies. We bake brownies to hire people."
In line with its goals, Greyston Bakery implemented an open-employment policy. This means the bakery hires employees who otherwise might not get jobs due to their lack of work history or their criminal record. Walls readily admits that no purely profit-driven business would take such a risk, but he also explains that by hiring people previously considered unemployable, the bakery has experienced returns on its social mission and its financial bottom line. "We have employees that private enterprises would love to have. They're loyal, they appreciate the opportunity and they believe in our mission."
Anne Andrews is an attorney whose Atlanta-based practice focuses on legal issues of for-profit companies, nonprofit organizations and joint ventures across multiple stages of formation and growth. Andrews also has consulting experience in strategic planning for tax-exempt organizations. She can be reached at email@example.com.