SOCIAL ENTERPRISE - Plumb

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SOCIAL ENTERPRISE for SOCIAL IMPACT
Emerging Funding Strategies
Dr. Ralph E. Plumb
April 2014
The purpose of this paper is to succinctly outline how community-based organizations
and charities can generate new streams of revenue outside of traditional
methodologies. This paper represents a compilation of concepts in an intentionally
abbreviated form. Numerous articles and books have been written on each of the
contributing concepts, a few of which are referenced here. The leadership of organizations
and institutions which engage in social enterprise must be informed and prudent, but also
entrepreneurial opportunity thinkers who understand the dynamics of risk and reward.
There is a common misperception in some quadrants of the philanthropic world that charities
cannot engage in activities that generate “profit”. Of course, this is not true. They can and
where possible should but these profits are not distributed to shareholders, but rather to the
programs for which the social enterprise has been engaged.
Global Trends
Every social, charitable, philanthropic, service oriented . . . organization or institution needs
money. But the methods, means and decisions on where to access resources is changing
dramatically. No, in fact, it has changed dramatically – and most institutions are still panning
for gold in a stream long since depleted. Not only do we need to stop panning in the same
place . . . we need to get out of the stream and stop panning all together!
“Philanthropy is – by design – episodic, donor directed, temporal, fragmented,
decentralized and disaggregated” (Lucy Bernholz).
“Despite the best efforts of charities and governments across the world, the problems that
they have poured so much money into trying to solve over the last century persist. If
anything, they get worse. . . The more we looked at charity, the more it occurred to us that we
live in a world where charitable (dollars), tax (dollars) and investment (dollars) are operated in
isolation of each other, in three completely different ways . . . Charities must access (new)
capital if they are to succeed or even survive . . . It is capital that is the powerful force – not
income from capital. So the idea for deploying it all for our purpose, rather than merely the
income from it, is a revolutionary one. The most important feature of this new global
economic architecture will be to complete the half-built theoretical framework of
capitalism by including a second type of business, social business, in the global

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marketplace. Once social business becomes a recognized element in the framework, it
can play a very important role in solving the financial crisis, the food crisis, and the
environmental crisis. Furthermore, it can provide the most important institutional
mechanism for resolving poverty, homelessness, hunger and ill health” (James Perry).
The following chart illustrates the structure of these three sources of capital:
Another important global trend comes from an understanding of what is now a recognizable
term “the bottom of the pyramid”, the 5 billion people who represent the “invisible,
underserved market” as described and acclaimed in the ground-breaking work of C.K.
Prahalad. At the core of his work is the proposition that the private sector has a critical role in
alleviating poverty and should be involved in creating market-based solutions for the world’s
poorest consumers. There is an emerging trend in the public’s attitude away from direct
aid to one focused on an exchange of ideas and capital.
Until recently there was little attention paid to the role of the private sector in poverty
alleviation. The UNDP (United Nations Development Program) is now fully engaged in this
concept as is the World Economic Forum (Davos, Switzerland), which among various
consortium have created the Social Entrepreneurship Forum. (This author taught Social

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Entrepreneurship for a brief time at USC, Marshall School of Business at the MBA level and
has a strong passion and interest in this field.)
To reach this 5 billion consumer public requires a different business model. Charities and
organizations who are accustomed to “serving” this population will more readily adapt
IF they engage in a new way of thinking AND a new way of doing business. There is a
market for world-class goods and services if they can be made available at affordable prices.
For example, there is not a single country where the poor have not embraced the cell phone.
The North American model (although it is changing) requires two-year contracts, expensive
rates and the demand for costly smart phones. But a cell phone minute in India costs less
than $0.01. And many phones are inexpensive, even throw away. An entire industry has
been created around an ecosystem of mini-entrepreneurs who sell prepaid cards or “loads”.
Innovation and scalability are critical. And sustainability is emerging as innovations expand.
Charitable Context
Considering the charitable giving trends in our North American context leads one to some
sobering conclusions . . . and the realization that resource development must embrace new
models of replication. (Indiana Univ. & Purdue Univ. see www.philanthropy.iupui.edu).
This paper defines and encourages the engagement of social enterprise – not at the
exclusion of resource / donor / fund development but in addition to it (although some
charities have made the strategic decision to secure their required operating revenue
exclusively through social enterprise!)
First, note this simple empirical summary (from Giving USA using 2012 statistics):
 Charitable Donations Grew in 2012, but slowly like the economy
 Americans donated an estimated $316.2 billion (a 1.5% growth rate adjusted for
inflation)
 2012 also saw policy changes considered at the federal level that could alter future
giving, including proposals aimed at capping or eliminating the longstanding charitable
deduction.
 Giving by individuals rose to $228.9 billion – a 3.9% increase
 Giving by bequest decreased by an estimated 7% to $23.4 billion, but this is a volatile
category of giving affected by many variables
 Giving by corporations rose by 9.9% (adjusted for inflation) to an estimated $18.1
billion both directly from the corporation or their foundations.

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 Giving by private foundations increased by 2.3% (adjusted for inflation) for an
estimated $45.7 billion.
Now note this informative generational donor giving summary by Pam Loeb, Gayle Vogel
and Emily Hahn of Edge Research.
In our recent survey “The Next Generation of American Giving,” it was no surprise that
Boomers and Matures report giving the most money to the most charities; they are more
established financially and in their charitable values. Add to that the sheer size of the Boomer
generation, and it is clear that they have taken the reins as the primary source of charitable
giving now and into the foreseeable future. Boomers are the generational cohort that
charitable organizations should focus on today.
But don’t forget the long game – our research shows that most Boomers and Matures first
learned about their top charities in their 30s. Now is the time to cultivate the pipeline for future
giving among younger generations. The return won’t be immediate, but it will pay off in the
long run.
The generations are as similar as they are different in their giving behaviors. A fundraising
strategy should be integrated across many channels, but with a slightly different emphasis by
generation:
Gen Y (b. 1981-1995)
They are the “social” generation, both virtually and in the real-world. Build engagement and
harness the power of word-of-mouth through the social media they check in with daily and
face-to-face events. Gen Y is more likely to give at check out and purchase a product where
a portion of the proceeds goes to a charity; think of these shop-to-give opportunities as ways
to raise a little cash and brand build with the younger generation. They are also comfortable
making a mobile gift – but more so through a website or app than text.
Gen X (b. 1965-1980)
Gen X is more established and more likely than Y to give money as a primary means of
supporting a cause. They are truly multi-channel donors, and they want to hear about the
impact of their donation. However, they are also still figuring out which causes they care
about. Cultivate them through peer-to-peer fundraising opportunities (like fun runs) and
workplace philanthropy. Though not as evangelical as Gen Y, large numbers of Gen X use
social media for news and updates and to show their support for organizations.
Baby Boomers (b. 1946-1964)
Many Boomers established a connection with the organizations they care about in early
adulthood, and they are now in a position to give financial support. Your strategy with
Boomers can be less about increasing brand awareness and more about bringing in dollars.
While many still give through direct mail, don’t dismiss digital channels – Boomers’ online
giving and social media usage shot up since we last checked in with them in 2010. In fact,

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Boomers appear to be the transitional generation – the last one where direct mail will do the
heavy lifting.
Matures (b. 1945 or earlier)
Tried-and-true direct mail fundraising has worked with this group for years, and continues to
— they give regularly and generously. Direct mail is still incredibly important, far from dead,
but it won’t last forever.
Bottom-line
Stop obsessing about younger donors, that’s not where the money is. However, if your
average donor is 80, it’s time to worry. If the average age is 60, you are in the sweet spot. But
younger generations are paying attention, and it’s important get on their radar with an
integrated strategy today.
(See more at: http://www.npengage.com/analytics/learning-who-gives-how-generations-baby-
boomers-and-matures-donate).
And consider these very useful insights on “Top 10 Trends: How Major Donors are
Changing and What to do About It” by Gail Perry – see www.gailperry.com/2013 for
complete article and details.
Trend 1 - Donors are wary of trusting us
Trend 2 - The Boomers are becoming the #1 donor population
Trend 3 – Older ladies are THE major donor demographic
Trend 4 – Donors want donor-centered communications
Trend 5 – Major donors who volunteer give more. MUCH more.
Trend 6 – Major donors are all over social media
Trend 7 – Major donors look at their gifts as investments. They want to see impact and
ROI
Trend 8 – Major donors are assured when they see the financials and the numbers
Trend 9 – Like most of us, donors are feeling overwhelmed and jaded…
Trend 10 – Major donors love a BIG IDEA.
Finally note these astute principles and observations from James Perry.

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The way in which donors give to charity inadvertently causes problems, through:
• One-off gifts make it difficult for charities to plan
• Restricted gifts contort management decisions and force management
to make decisions that are not consistent with their long term strategy
• Feeding the myth that money spent on administration is wasteful
• A passive attitude and lack of engagement with the charity beyond the
cursory, leading to the lack of functional accountability dynamics
The inadvertent consequences of these practices are:
• Distracted and overworked leaders with two jobs, unable to focus exclusively
on their leadership or fundraising role
• Short term thinking, aversion to success, delusional thinking
• Level funding playing field, regardless of charity effectiveness
• Low pay for charity workers… and hence inadequate skills and experience
There are some facts of current charitable life that also conspire to make success
more difficult:
• Genuine issues around measurement and the probable impossibility of
establishing a universal, meaningful measure of effectiveness… the need to
engage on an individual charity level to establish optimal measurement
• Accountability vacuum for leaders, caused by the ‘gift’ culture of donors, the
dual-role of the leaders and the structural inadequacies of the trustee system.
No answer to the question of where – in reality – ownership of the charity’s
mission resides
The highly functional world of business has enormous knowledge that can be
leveraged for the benefit of charities. But the knowledge must be distilled and reapplied
for a sector with a different history, opposing objectives, a different culture,
different drivers and some unique knowledge of its own:
• Functional ownership dynamics from business, with funders driving

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accountability, are key to future success of charity
• This leads to the donor adopting an investment mindset to complement their
giving motivation. By so doing, they will force charities to answer questions
such as:
 Strategy: what is the strategy that will achieve the vision?
 Management: are the people capable of delivering the strategy in place?
 Governance: who will oversee my investment/gift in this charity to
ensure that it will be successful, and do they have my confidence to do
that?
 Success Criteria: how will we know that we have been successful, and
what are the key milestones?
• Different financial levers (soft loans, hard loans, convertible loans, equity
etc) all have a powerful role to play if the correct lever is employed to
contribute to the direction that the investee charity needs to go
• To borrow from L .P. Hartley, charitable donors or investors must realize that
charity is like a foreign country, ‘they do things differently here’. Business
culture does not translate - and charity culture could teach business a thing
or two
• In business, competition drives progress. One is not required to look beyond
one’s own fate. In charity, co-operation drives progress. We cannot move
forward without joining with others. We must avoid the trap of placing
ourselves at the heart of a solution to the issues in charities, and instead look
upwards and outwards with the objective of joining hands with others. United we
stand, divided we fall.
To conclude this section, commentary on both the “state” of charitable giving and the inherent
limitations of it were given to set the stage for the timeliness of considering social enterprise
as a planned, significant revenue generating source for the organizations involved in the
business of making a “social impact.”
Social Enterprise
One acknowledged definition of social enterprise (though not the only one) is, business
whose primary purpose is the common good and who use the methods and disciplines
of business and the power of the marketplace to advance the social, environmental
and human justice agenda.

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Another description of social enterprise is businesses with primarily social objectives
whose surpluses are principally reinvested for that purpose in the business or in the
community, rather than being driven by the need to maximize profit for shareholders
and owners.
As with all businesses, social enterprise activities compete to deliver goods and services. The
difference is that social and environmental purposes are at the very heart of what they do,
and the profits they make are reinvested towards achieving those purposes.
Social enterprises operate in almost every industry from health and social care to renewable
energy, from retail to recycling, from employment to sports, from housing to education.
Whatever they do, they do it differently from typical business, because they are driven by a
social and environmental mission, and they are focused on the community they serve.
Our global system is failing us as humans. Governments are not efficient or innovative
enough to address the challenges of our new world, which is characterized by
interconnectivity, knowledge economies, and urbanizing populations. Businesses can no
longer avoid the question of 'sustainability,' but few are practicing truly responsible corporate
citizenship. The not-for-profit sector is growing faster than the public or private sector, but its
outputs (social change) aren't keeping pace with its inputs (cost).
In this context, we need a new formula to address major challenges that are emerging and
growing domestically and abroad. Social enterprise, using business models and practices to
create market-based solutions for social problems, is not a silver bullet, but an important part
of that new formula. And existing, high-performing not-for-profits can lead the charge, if they
take a social enterprise approach and use business principles to build scalable and
sustainable solutions.
“There's a ton of buzz about social enterprise these days. Which thrills me. I believe that we
can all do well by doing good. Here are three ingredients required to mainstream social
enterprise” (N.D. Debevoise).
1. Hybrid skill sets
Social enterprise requires a blend of skills and perspectives. Effective social enterprises and
their teams have to use best-in-class business practices, while also pursuing a mission. This
hybrid approach requires analytical skills like market research, product design, and revenue
modeling, as well as soft skills like empathy, vision, and dedication, qualifications that don't
co-exist in traditional roles.
2. Training, Recruitment, and Management
Cultivating this new mix of skills requires new structures. Traditional education and training
programs prepare professionals for corporate or not-for-profit careers. Similarly, recruitment
and management processes and personnel specialize on one side of the fence or the other.
To grow the talent required to build social enterprises, we need formal and informal training

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opportunities to cultivate hybrid skill sets described above. Then recruitment and
management processes need to catch up: identifying the right candidates, developing and
rewarding them appropriately for creating a blend of financial and social value.
3. Investment
As for most change processes, this growth and maturation of the social enterprise sector
investment requires investment. Many forms of capital are needed, from early, field-building
philanthropic capital to impact investments with adjusted timelines and return expectations,
and even commercial investment. Such funding will establish training programs; enable social
enterprises to pay adequate salaries (Dan Pallotta explains this need here) and develop
suitable talent; and facilitate action-focused research to inform the social enterprise
ecosystem. (N.D. Debevoise)
All those committed to social impact (organizations or institutions) need to consider
“generous solidarity with the poor and the utilization of impact investors” (Claude
Alexandre) which now more than ever will be creatively achieved through the
employment of social enterprise.
Replication Models
Who is involved today in social enterprise and how are they doing it? The list is growing.
And the areas of engagement are as diverse as the imagination!
Goodwill - www.goodwillsocal.org
This well known national organization, as well as the Salvation Army, some rescue
missions and many other charities have been actively engaged in the operation of thrift
stores (both low-cost and high-end) for many years. But Goodwill Southern California
has invested significantly in the development of a Center for Non-profit Innovation and
Social Enterprise in conjunction with the University of Southern California - Marshall
School of Business. This author recommends to the readers the “Innovation Process
Handbook: Transforming Ideas Into Social Enterprise” as an excellent primer and
guideline for any institution who wishes to engage in social enterprise. The paper
outlines everything from idea generation to opportunity identification and selection to
business concept development to business model development, to launch. In addition
this paper articulates social enterprise considerations including: explicit social aims,
funding composition, investment, risk aversion, scale, stakeholders and sweat equity.
Enterprise for Humanity –
EFH was a concept created out of the environment of the Claremont Colleges by
Claude Alexander. It was design to function as a non-profit business advisory

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organization which provides an array of social enterprise services to transform the way
churches and faith-based organizations enhance their local communities. The EFH
model combines the resources of the faith-based community with socially-oriented
businesses. The proposed EFH services include: Organizing CDCs (community
development organizations); directing socially responsible business enterprises in
local communities; filling gaps in products or services offered to residents in the
community; creating businesses with living wage jobs and benefits for local residents;
and, advising CDCs regarding best practices. This initiative included specific reference
to various enterprises including Mama’s Hot Tamales and Templo Calvario Home
Care. The EFH is not currently in operation, but its principles of practice live on!
The Brookwood Community – www.brookwoodcommunity.org
Located in Brookshire, TX, 40 miles west of Houston this non-profit is a residential
facility and vocational program for adults with disabilities. “Through the Grace of God,
the Brookwood Community provides an educational environment that creates
meaningful jobs, builds a sense of belonging, and demands dignity with respect for
adults with disabilities. We see every individual as a unique creation of a wise and
loving God, deserving not only of our abiding patience and respect, but of boundless
awe. We cherish diversity in all forms and eschew narrow-minded normalcy.” (How is
that for a powerful statement of vision and purpose!) Committed to this purpose and
with planning and intentionality The BC engages in multiple, income generating, job
creating and self-worth building social enterprises including: The BC Gift and Garden
Center; the BC Store On-line (which sells everything from crosses and nativities, to
Christmas cards, soaps and fragrances, ornaments, gourmet food and dinnerware);
The Gallery at Brookwood (jewelry, paintings, ceramics, sculpture and other arts
creations); Shuddle Brothers Hatters “not just a hat…a piece of history”; The Café at
Brookwood and more. Check out their web site.
The Great Commission Foundation – www.tgcfcanada.org
Founded by Dr. Marvin Kehler, globally successful business man and significant social
investor, this foundation located in Alberta, Canada has established a broad vision, and
capacity which supports “people and projects – national & international, registered
charities (in Canada) and international charities.”
They have found a unique niche in serving the philanthropic community in Canada with a
range of social enterprise services that assist the registered charities navigate a rather
complex Canadian charitable tax structure. Their services include: Administrative
services (audit, donation processing, group benefits and payroll), management training,
values-based estate planning and investments.

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In discussions with Dr. Kehler this author understands their interest in intentionally
expanding the breadth and scope of social enterprise offerings and capabilities with a
higher level of engagement in the U.S. as a part of their planning.
Lutheran Social Services – www.lssmn.org/housing AND www.frontporch.net
This paragraph is intended as a composite emphasis rather than focusing on just the two
organizations whose URLs are identified above. The social enterprise sector
represented is housing – permanent affordable, permanent supportive, mixed use etc.
Among many statements of purpose include, “ending long-term homelessness and
obtaining affordable options for those who are …. Active members of the labor force.” All
social sector planners indicate we are about to be hit by a tsunami of Baby Boomers,
some 10,000 per day who reach retirement and 80% of whom are inadequately prepared,
financially, to thrive or successfully survive their elongated retirement years. Hundreds of
social service agencies – particular those in the Lutheran community, but also many
others, have embraced the provision of affordable housing – on its own merits, or
supporting housing which serves various client cohort and provides vitally
needed, safe and affordable housing while at the same time generating significant
operating funds through the receipt and management of rental income.
Micro-Franchising –
Micro-franchising, simply stated, is business replicated to scale. It addresses three core
problems that prevent people from becoming economically self-reliant: 1.The lack of skills
needed to grow a successful business; 2. The lack of jobs in under-developed areas of
the world (including the U.S.); 3.The lack of goods and services available to the poor
(Fairbourne). (Micro-lending solves the issue of start up capital.) The word franchise
conjures up images of a McDonalds or other fast food enterprise. But the franchise
model is viable around the world (from micro levels and up) in practically every industry.
Characteristics of a franchise include:
 Local owners in a symbiotic relationship with an enabling institution
 A brand or other significant intellectual property
 Shared know-how codified in an operating system
 An overt mission to alleviate poverty through enterprise
“Micro-franchising is not a hand out; rather it is a handover mechanism or tool. The
opportunity of running a proven business model is handed over to willing and able
individuals who would otherwise be forced to learn through the very painful and often

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traumatic start-up, fail and start again cycle prevailing in the informal economy. With the
capital available either through microcredit institutions or NGOs and the guidance,
training and direction of the micro-franchisor, talented but inexperienced and untrained
individuals can bridge the gap between the informal and formal economies in ways that
were previously nearly impossible (S.L. Hart, Chair Sustainable Global Enterprise,
Johnson Graduate School of Management, Cornel University).
Excellent examples of this model include –
 Global Med Partners Portable Laboratory which fosters low tech jobs in mobile
clinical laboratory services . . .
 Honey Care Africa promoting sustainable community-based bee keeping . . .
 Mama’s Tamales fostering entrepreneurship by providing existing and future
business owners with the tools they need . . .
 The HealthStore Foundation model to improve access to essential drugs, basic
health care and prevention services for children and families . . .
 Vodocom Community Services offering rural telephone service . . .
Monetization –
Billions of dollars each year in goods are donated to 501 c 3 charitable organizations in
the U.S. Commonly called gifts-in-kind, these donations must be used toward the
furtherance of the charitable intent and purpose of the organization but the disposition of
how they are used will vary. A charity may use the GIK to reduce operating cost. It may
donate the goods to another charitable organization (with or without a handling fee) to
achieve the highest or best use of the donated product. Or it may monetize the product,
that is liquidate it for cash provided: 1. The corporate donor did not receive an enhanced
tax deduction (170 e 3) for the gift, 2) There is tacit or implicit permission of the donor,
and 3) That the cash is used in accordance with the charitable purposes of the
organization.
Fee For Service / Fee for Space –
There is nothing new about churches and institutions utilizing an un-used or under-
utilized asset to generate revenue. In the context of social enterprise this will either: 1)
Be done by the church or institution on an intentional and more aggressive basis, with
revenue included in operating budget projects, and/or 2) Will involve the creation of a
separate LLC or business structure to do the same. A few (of many) examples included:
 Cell phone tower rental (St Olaf’s Lutheran Church)

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 Sub-letting space to other congregations and entities (many churches)
 Skid Row commercial laundry services (rescue missions)
 Operating a pre-school, K to 8 or high school (many churches)
--------------------------------------------------
Social Enterprise . . . is an emerging funding strategy which . . .
 Is compatible with global trends
 Is vital when considering our changing charitable context
 And which uses the methods and disciplines of business and the power
of the marketplace to advance the social, environmental and human
justice agenda
RELATED RESOURCES & REFERENCES CITED
Alexandre, Claude. 2004. “Enterprise for Humanity: Help People Help Themselves”.
Unpublished document. Submitted to Claremont, CA: Claremont School of Theology.
Alexandre, Claude. 2008. “Goodwill of Southern California Center for Non-Profit Innovation
and Social Enterprise: Innovation Process Handbook, Transforming Ideas Into Social
Enterprise.” Submitted to Los Angeles: USC Marshall School of Business.
Fairbourne, Jason, Gibson, Stephen W. and Dyer, W. Gibb, Editors., 2007. Microfranchising:
Creating Wealth at the Bottom of the Pyramid. Northampton, MA: Edward Elgar Publ. Ltd.
Grant, Heather McCloud and Crutchfield, Leslie R. Fall 2007. “Creating High-Impact
Nonprofits”. Stanford Social Innovation Review. www.ssireview.org
Holly, Marc J., Carr, Mathew J and King, Mindy Hightower. 2014. “Informing and Inspiring
Leaders of Social Change.” Stanford Social Innovation Review. www.ssireview.org
McCrae, Jennifer and Walker, Jeffrey C. 2013. The Generosity Network: New
Transformational Tools for Successful Fund-Raising. New York: Deepak Chopra Books.
Perry, James. 2011. “The End of Charity…and the Renewal of Welfare”. Panahpur. Great
Britain. www.panahpur.org
Prahalad. C.K. 2010. The Fortune at the Bottom of the Pyramid: Eradicating Poverty
Through Profits. Upper Saddle River, NJ: Wharton School Publishing.
Yamamori, Tetsunao and Eldred, Kenneth A., Editors, 2003. On Kingdom Business:
Transforming Missions Through Entrepreneurial Strategies. Wheaton, IL: Crossway Books.

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