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November 2009Kristen J. McCormackInstitute for Nonprofit Management and Leadership at Boston University Getting Ready for an Earned Income Venture
Todays AgendaDefining Social Enterprise/Earned IncomeFun facts about earned income venturesAre you ready?If so, now what?Lessons learned from successful venturesQuestions
Kristen McCormack BU MNN/AGM Conference.2009
Most Common VenturesFee for service or tuition basedService businesses (cleaning, moving)RetailManufacturing/assemblySoftwareReal estateRental housingRestaurant/cateringConsultingAgriculturePackagingHome repair
Why pursue a social enterprise?Further the mission of the organizationGenerate incomeDiversify the revenue baseServe constituentsCommunity relationsRevitalize neighborhood
Did You Know?
In U.S., 20.9 million women lived below the federal poverty threshold in 2007
The Womens Bean Project in Denver CO employs women from backgrounds of chronic unemployment and poverty to manufacture gourmet foods.
The Women's Bean Project does not hire women to make and sell bean products. We make and sell bean products to hire women.
Characteristics of organizations operating successful business ventures6.45-10 years old100+ employees$12-24million budgetTop management is critical force
Profitable?35% generate a financial surplus19% are break-even35% of ventures require a subsidy
On generating revenueOn average successful enterprises generate 12% of annual budget revenue 26% say more than 20%
7% between 16-20%
7% between 11-15%
24% between 1 and 5%
13% less than 1%Source of Subsidy41% from foundation grants29% out of surplus11% loans and grants7% government grants5% corporate funding
Least SuccessfulSmall organizationsLess than five years old Under ten employeesBudget under $1 million
Before you Begin: Self-AssessmentMissionClarityStakeholdersUse of resourcesBoard of DirectorsStableEntrepreneurialRisk profile
Self-Assessment (cont)Compelling opportunityBased on current activity?Can anyone else provide better?How big is the opportunity?What do we need to start? Is there a revenue stream?  Do we have any customers?
Did You Know?
136 million tons of building-related waste is generated in the U.S. annually, nearly 60% of all non-industrial waste in the U.S.
But only 20 to 30 percent of this building-related waste is estimated to be recovered for processing and recycling.
Materials Matter diverts construction waste and materials from landfills and sells the products at discounts through a Home Improvement Outlet to nonprofits working in housing and community development.
Self-Assessment (cont)FinancesSecureHow much will this cost?Where will the money come from?How long are we willing to support the business before it makes money?What are the financial goals?
Ready to Go? Do a Business Plan Process not a productOngoing use as a management toolBenchmark real vs. projected revenue/expenseMany business failures can be prevented with a good plan80% of successful businesses had a written business plan (SBA)
Financing the VentureLow interest loans Surplus Grants (local foundations)Social venture capital (<10 nationally)
How much cash to start?50% of organizations secured total financing before operating44% had partial financingMore than half with total financing generated a profit while only 18% of those with partial funding generated a profit
Lessons Learned: Social Purpose Business Case StudiesLeadershipPeoplePlanningFinancing and CashReal EstateExpansion
LeadershipBoard of Directors: Readiness and VisionExecutive Leader: Entrepreneurial and Risk TakerSocial Enterprise Manager: Experienced in the same business
PeopleManagement team: balance of business and program experience Invest in an A team with a B idea rather than the other way aroundValue of volunteer laborKnow your population and choose businesses that match your populations needsStaff up to support the new venture
Product and CustomersIs your service or product needed? Do customers want it?Will they pay for it?How much will they pay for it?
PlanningBusiness Planning is key!Business must be connected to the missionMarket analysis-who else is out there?Run the program as a pilot firstBuild on your assets and strengthsStrategic alliances-you dont have to do it allMitigating risk  risk analysisGet good legal advice
Financing and CashHave enough cash to cover losses for a pre-determined period of timeBreak even takes time What are the true costs of the business?Access  to long term, adequate financingCash flow of federal or state funds
Real EstateIt takes longer than plannedIt costs more than planned (contingency)Contractors will always find stuff that will cost you more moneyTight contracts (performance based, caps, etc.), change orders and experienced real estate staff and/or consultants can help you avoid this
ExpansionSlow and steady growthBe willing to say no to businessBe willing to say no to expansionMake sure your first venture is successful before starting another
Resourceshttp://www.se-alliance.orgIncluding local Boston chapterhttp://www.redf.orghttp://www.socialent.orghttp://www.seedco.orghttp://www.communitywealth.org
Resources for Business PlanningLocal colleges and universitiesBU Social Entrepreneurship MBA studentsdavidstolow@citizenschools.orgBabson, Boston College, MIT and HBSCommunity Wealth VenturesIndependent consultantsESC (formerly ESCNE)
Ready to Go? Business Plan Description of the BusinessIndustry Analysis Marketing PlanManagement, Personnel and Organizational StructureProduction/Service Delivery Operations PlanAssessment of RiskFinancial Plan NarrativeFinancials
Elements of the Business Plan Executive Summary (1-2 pages)Its all they read!Should be able to stand aloneDescription of the BusinessNature of businessWhat industry?What products and services?What stage of developmentHow does it fit?
Business Plan (cont)Management and OrganizationBackground & ExperienceSkills & KnowledgeAbility to Recruit, Communicate & ManagePassion and commitment
Business Plan (cont)MarketCustomersWho are they?Do they need it?Do they want it ?Will they pay for it?How much?
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Kristen McCormack BU MNN/AGM Conference.2009

  • 1. November 2009Kristen J. McCormackInstitute for Nonprofit Management and Leadership at Boston University Getting Ready for an Earned Income Venture
  • 2. Todays AgendaDefining Social Enterprise/Earned IncomeFun facts about earned income venturesAre you ready?If so, now what?Lessons learned from successful venturesQuestions
  • 4. Most Common VenturesFee for service or tuition basedService businesses (cleaning, moving)RetailManufacturing/assemblySoftwareReal estateRental housingRestaurant/cateringConsultingAgriculturePackagingHome repair
  • 5. Why pursue a social enterprise?Further the mission of the organizationGenerate incomeDiversify the revenue baseServe constituentsCommunity relationsRevitalize neighborhood
  • 7. In U.S., 20.9 million women lived below the federal poverty threshold in 2007
  • 8. The Womens Bean Project in Denver CO employs women from backgrounds of chronic unemployment and poverty to manufacture gourmet foods.
  • 9. The Women's Bean Project does not hire women to make and sell bean products. We make and sell bean products to hire women.
  • 10. Characteristics of organizations operating successful business ventures6.45-10 years old100+ employees$12-24million budgetTop management is critical force
  • 11. Profitable?35% generate a financial surplus19% are break-even35% of ventures require a subsidy
  • 12. On generating revenueOn average successful enterprises generate 12% of annual budget revenue 26% say more than 20%
  • 15. 24% between 1 and 5%
  • 16. 13% less than 1%Source of Subsidy41% from foundation grants29% out of surplus11% loans and grants7% government grants5% corporate funding
  • 17. Least SuccessfulSmall organizationsLess than five years old Under ten employeesBudget under $1 million
  • 18. Before you Begin: Self-AssessmentMissionClarityStakeholdersUse of resourcesBoard of DirectorsStableEntrepreneurialRisk profile
  • 19. Self-Assessment (cont)Compelling opportunityBased on current activity?Can anyone else provide better?How big is the opportunity?What do we need to start? Is there a revenue stream? Do we have any customers?
  • 21. 136 million tons of building-related waste is generated in the U.S. annually, nearly 60% of all non-industrial waste in the U.S.
  • 22. But only 20 to 30 percent of this building-related waste is estimated to be recovered for processing and recycling.
  • 23. Materials Matter diverts construction waste and materials from landfills and sells the products at discounts through a Home Improvement Outlet to nonprofits working in housing and community development.
  • 24. Self-Assessment (cont)FinancesSecureHow much will this cost?Where will the money come from?How long are we willing to support the business before it makes money?What are the financial goals?
  • 25. Ready to Go? Do a Business Plan Process not a productOngoing use as a management toolBenchmark real vs. projected revenue/expenseMany business failures can be prevented with a good plan80% of successful businesses had a written business plan (SBA)
  • 26. Financing the VentureLow interest loans Surplus Grants (local foundations)Social venture capital (<10 nationally)
  • 27. How much cash to start?50% of organizations secured total financing before operating44% had partial financingMore than half with total financing generated a profit while only 18% of those with partial funding generated a profit
  • 28. Lessons Learned: Social Purpose Business Case StudiesLeadershipPeoplePlanningFinancing and CashReal EstateExpansion
  • 29. LeadershipBoard of Directors: Readiness and VisionExecutive Leader: Entrepreneurial and Risk TakerSocial Enterprise Manager: Experienced in the same business
  • 30. PeopleManagement team: balance of business and program experience Invest in an A team with a B idea rather than the other way aroundValue of volunteer laborKnow your population and choose businesses that match your populations needsStaff up to support the new venture
  • 31. Product and CustomersIs your service or product needed? Do customers want it?Will they pay for it?How much will they pay for it?
  • 32. PlanningBusiness Planning is key!Business must be connected to the missionMarket analysis-who else is out there?Run the program as a pilot firstBuild on your assets and strengthsStrategic alliances-you dont have to do it allMitigating risk risk analysisGet good legal advice
  • 33. Financing and CashHave enough cash to cover losses for a pre-determined period of timeBreak even takes time What are the true costs of the business?Access to long term, adequate financingCash flow of federal or state funds
  • 34. Real EstateIt takes longer than plannedIt costs more than planned (contingency)Contractors will always find stuff that will cost you more moneyTight contracts (performance based, caps, etc.), change orders and experienced real estate staff and/or consultants can help you avoid this
  • 35. ExpansionSlow and steady growthBe willing to say no to businessBe willing to say no to expansionMake sure your first venture is successful before starting another
  • 36. Resourceshttp://www.se-alliance.orgIncluding local Boston chapterhttp://www.redf.orghttp://www.socialent.orghttp://www.seedco.orghttp://www.communitywealth.org
  • 37. Resources for Business PlanningLocal colleges and universitiesBU Social Entrepreneurship MBA studentsdavidstolow@citizenschools.orgBabson, Boston College, MIT and HBSCommunity Wealth VenturesIndependent consultantsESC (formerly ESCNE)
  • 38. Ready to Go? Business Plan Description of the BusinessIndustry Analysis Marketing PlanManagement, Personnel and Organizational StructureProduction/Service Delivery Operations PlanAssessment of RiskFinancial Plan NarrativeFinancials
  • 39. Elements of the Business Plan Executive Summary (1-2 pages)Its all they read!Should be able to stand aloneDescription of the BusinessNature of businessWhat industry?What products and services?What stage of developmentHow does it fit?
  • 40. Business Plan (cont)Management and OrganizationBackground & ExperienceSkills & KnowledgeAbility to Recruit, Communicate & ManagePassion and commitment
  • 41. Business Plan (cont)MarketCustomersWho are they?Do they need it?Do they want it ?Will they pay for it?How much?
  • 47. Cost of acquiring a customer
  • 49. Servicing customerBusiness Plan (cont)Product and Services
  • 54. Growth and Exit (if applicable)Business Plan (cont)Financials (3 year minimum or until B/E)
  • 58. Financing Structure (if debt incurred)

Editor's Notes

  • #8: Source: U.S. Census Bureau, Current Population Survey, 2008 Annual Social and Economic Supplement. http://pubdb3.census.gov/macro/032008/pov/new01_100_01.htm
  • #11: Massarsky and Beinhacker, Enterprising Nonprofits
  • #12: Massarsky and Beinhacker, Enterprising Nonprofits
  • #13: Massarsky and Beinhacker, Enterprising Nonprofits, Golman Sachs Foundation
  • #14: Massarsky and Beinhacker, Enterprising Nonprofits, Goldman Sachs Foundation
  • #19: Source: U.S. EPA, Characterization of Building-Related Construction and Demolition Debris in the United States. 1998http://www.epa.gov/osw/hazard/generation/sqg/c&d-rpt.pdf
  • #20: Source: U.S. EPA, Characterization of Building-Related Construction and Demolition Debris in the United States. 1998http://www.epa.gov/osw/hazard/generation/sqg/c&d-rpt.pdf