Stacey Corriveau

BC Centre for Social Enterprise

www.centreforsocialenterprise.com

604.859.4618

Social enterprise :

considering emerging issues /

approaches

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We’re going to cover:• Definition of social enterprise (SE)• Why start one?• Pitfalls / best practices• Structural considerations• The ‘third’ bottom line• Example of a useful venture selection

process2

• not a legal expression in Canada• no national or provincial social

enterprise act or regulation that defines it or gives it legal form or structure

• not addressed in the federal Income Tax Act

• …so for now, we create our own definitions, which emerge from the actual practices of social enterprise practitioners!

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What is social enterprise?

Social enterprises are, for the most part, businesses operated by non profits and charities to meet a need in the marketplace that the traditional business sector does not offer; and/or to provide training and employment opportunities to the marginalized; and/or to provide unencumbered income to community-based groups, to achieve more of their social / environmental visions with greater self-determination.

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What is social enterprise?

• Many within the sector talk about the ‘triple bottom line’.

• This is meant to reflect attention to economic, social, and environmental imperatives.

• Sadly, the environmental aspect is often ignored.

• True ‘triple bottom line’ social enterprises are rare.

A challenge...

Is there room in the Canadian social enterprise landscape for the intentional inclusion of business?

Folks from the private sector may act as:...investors...mentors...partners

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Another challenge...

• Social enterprise is a business; • The profits are used to fund the organization’s

social mission, or jobs are created (or training is provided) for community members in need;

• A possible solution for long-term sustainability (not a quick fix);

• Offers goods or services into the market place; • Requires full Board and decision-maker buy-in.

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Features of social enterprise

• Create training / employment opportunities for marginalized individuals;

• Offer a needed good or service;• Lessen reliance on grants and government

funding; • Control the services that are offered to

constituents, instead of following funders’ mandates.

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Benefits of social enterprise

• Abbotsford Farm & Country Market• InsideArt Cooperative• Clayburn Village Community Society

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Some examples of my own...

• This curriculum was designed by the Canadian Centre for Community Renewal

• Based on an earlier iteration that focuses on Aboriginal community development

• A detailed workbook on the Development Wheel, including helpful checklists, is available!

• Building Community Wealth can be uploaded at www.cedworks.com

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Introducing the Development Wheel ...

Social enterprise tends to occur on 4 (concurrent) levels:

1. Organizational development2. Enterprise development3. Community participation and

strategic networking4. Technical assistance

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Helpful insights from the Development Wheel curriculum...

Social enterprise tends to occur in 4 phases:

1. Getting started2. Building the base of SE

development3. Focusing the opportunities4. Detailed planning and

mobilization of resources12

Helpful insights from the Development Wheel curriculum...

Dedicated staff / volunteer timeA ‘champion’Business acumenAdequate financingExpertise in good / service being offeredComfort with the idea of ‘profit’Organizational desire of autonomy

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What’s necessary for SE success...

Acknowledgement of time and resources needed to start and operate a business

Comfort (and organizational capacity!) to make mistakes and learn from them

Willingness to spend time on exploration and planning

Adaptability to new information, changed environments, opportunities, market changes

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What’s necessary for SE success...

Viewing SE as a quick-fix to financial pressures of the host organization

Not enough energy put into market research (i.e. proving demand for the offering)

Lack of comfort with generating revenuesBeing married to a certain business idea or

approach when research is against itOrganization inertia / resistance to change

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Beware of SE pitfalls...

Tensions between financial imperatives and social goals

Being misunderstood by the business community e.g. ‘unfair competition’

‘Mission drift’... allowing mismatched SE goals to draw the parent organization away from its core values and mandates

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Beware of SE pitfalls...

The biggie: expecting a social enterprise to generate significant profits for the parent organization while creating significant training and/or employment opportunities for the marginalized!

If you read nothing else... Google Seedco’s The Limits of Social Enterprise... and Social Capital Partners’ The Five Critical Factors of Social Enterprise Profitability

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Beware of SE pitfalls...

Two business factors:1. Business acumen of the

operators2. Business complexity

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Social Capital Partners’ The Five Critical Factors of Social Enterprise Profitability:

Three ‘trade-off’ factors:1. Size / nature of the employment

barriers of employees2. Skills / training gap (between

people being hired and levels required)

3. Degree of emphasis on the social mission in the day-to-day decision making process 19

Social Capital Partners’ The Five Critical Factors of Social Enterprise Profitability:

Legal structures for social enterprise:1. Project of a charity2. Project of a non-profit3. Co-operative4. Corporation5. Joint venture

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Structural considerations:

Must meet 90% volunteer rule, or be linked and subordinate to the charity’s purposes.

If the social enterprise does not meet one of these tests, then it must be hived off into a taxable corporation (‘unrelated business’).

The corporation can then donate up to 75% of its profits to the charity.

Must be complete separation between the charity and the corporation. 21

Structural considerations: charities

‘Linkage’ to the organization’s charitable purpose means that the business must meet one of the following tests. It must:

Be a usual and necessary concomitant of charitable programs (e.g. a hospital parking lot, a university bookstore); or

Be an offshoot of a charitable program (e.g. a church that records and sells choir recordings); or

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Structural considerations: charities

Represent a use of excess capacity (e.g. charging for parking lot use during hours of closure, or renting out event tents when not being used by the charity); or

Involve the sale of items that promote the charity and its objects (e.g. calendars, T-shirts, etc.).

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Structural considerations: charities

Training businesses are charitable:classroom training occurs before or

accompanies the on-the-job training; the participants are employed in the

business for a limited period of time; the charity offers a job placement service

to help graduates of the program find work in the labour force;

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Structural considerations: charities

Training businesses are charitable:the proportion of workers from the target

population in relation to the total number of employees is no lower than 70%, but alternative ratios may be justifiable if considerable supervision is required; and

revenues derived from the business do not substantially or consistently surpass the break-even point.

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Structural considerations: charities

Social businesses are charitable:the work is specifically structured to take

into account the special needs of the workers;

the workforce is comprised entirely of people who are physically, mentally, or developmentally challenged, with the exception of a few persons with specialized skills required for operating the business;

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Structural considerations: charities

Social businesses are charitable:the workers are involved in decision-

making for the organization and sit on its board to foster their sense of competence and control over their lives; and

income derived from the business may pay the workers' wages, but the organization is subsidized, usually by government grants.

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Structural considerations: charities

It is generally believed that the non-profit structure is a ‘safer’ haven for social enterprise operation, since there seem to be such tight limits on charities operating social enterprises.

Five CRA rulings and two pieces of case law (court decisions) suggest otherwise.

Key ruling: November 2009. CRA estimates that 75% of non-profits are currently offside.

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Structural considerations: non-profits

Questions asked were... Can a 149(1)(l) organization [i.e. a non-

profit] earn a profit?If the profit is intentional, but used to fund

the activities of the organization, will the organization qualify for the 149(1)(l) exemption from tax?

Answers: ‘only by mistake’ and ‘no’.

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Structural considerations: non-profits

In general, the ‘safest’ forms are:1. Cooperatives 2. Taxable corporations Note -- Joint ventures are intended for projects

with specific end-dates, not ongoing business.

Participate in the BC Government’s consultation on a new legal structure for SE

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Structural considerations: safest forms

...and what’s the relevance to social enterprise ??

Emerging issues

Info mainly from The Transition Handbook, 2008

Historically, social, economic, and ecological challenges have been addressed in a piecemeal, uncoordinated manner.

The response to all three of these global challenges must be integrated at the community level.

Communities must lead the way for regions and nations around the world—and quickly.

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Aren’t these issues just for environmental activists...???

Emerging issues

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• No longer considered a ‘fringe’ topic.• ‘One of the disturbing things about

listening to scientists studying climate change is the fear in the voices and words of people not accustomed to be[ing] fearful, and the sense that generally speaking, scientists are far more worried than the rest of us are.’

– Sharon Astyk, How fast is global warming happening?

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Climate change – no longer ‘fringe’

• We are all noticing dramatic weather changes, even year to year. These include more temperate seasons, changes in precipitation patterns, and more dramatic weather events.

• We see changes in growing seasons, animal migrations, and water levels.

• We are learning about accelerated animal extinctions and damage to ecological systems (e.g. the bees!).

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Climate change – what we notice

• Burning fossil fuels;• Deforestation;• Methane emissions from

livestock, mining, and wetland reductions;

• Nitrous oxide emissions from agriculture and airplanes.

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Climate change – what causes it?

• A ‘thickened’ layer of greenhouse gases (e.g. carbon dioxide, methane, nitrous oxide) trap heat in the earth’s atmosphere (the greenhouse effect).

• Pre-industrial levels of CO2 were 278 ppm. By 2007, they were 385 ppm. This has resulted in an temperature increase of 0.8 degrees C.

• ‘The emerging consensus in recent years has been that the imperative is to keep below a 2C increase at all costs.’

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Climate change – what it means

Even if we were to somehow halt greenhouse gas (GHG) emissions today, we have created a domino effect that will continue to cause the release of greenhouse gases.

We are today only experiencing the effect of GHG emissions emitted in the 1970’s! as the gases heat up over time; methane released from tundra adds to the mix.

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Climate change – acceleration

It is estimated that the Arctic will be ice-free by 2013.

This will accelerate the melting of the Greenland ice sheet. (Revkin)

Sea levels could rise by 5 meters by 2099, affecting 2 million square meters of land, and 669 million people. (Kahn)

Climate change is a social issue!!!

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Climate change – ice turns to water

Until recently, it was believed that the scale of climate change necessitated cutting our GHG emissions by 90% by 2030. (Monbiot)

The latest modelling suggests that humanity has to ZERO its emissions by 2060, just to stay at the 2 degree C increase. (Global Commons Institute)

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Climate change – projections

...peak oil

Emerging issues

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Peak oil refers to the ‘peak’ in global oil supply.

Oil peaked in the U.S. in the 1970’s. It is generally thought that we are about to

peak globally, sometime in the next 2-15 years. Some believe that we have already peaked.

Peaks are normally not recognized until they have passed – we see them via the rear view mirror!

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Peak oil – what is it?

Peak oil does not mean that we have run out of oil – it means that we are halfway through our supply.

After we ‘peak’, every drop of oil is more expensive to extract (reduced pressure) and to refine (decreased quality).

Peak oil does mean that the market will switch from a buyers’ to a sellers’ market. Prices will increase quickly, on a steep curve until they simply become unaffordable.

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Peak oil – what is it?

We will begin to exploit any sources of oil, even the dirty, costly ones, which can create extreme environmental and social degradation.

Consider the tar sands... Likened to steam cleaning the carpet of an old pub in order to extract the very last drops of beer! High labour for poor quality outputs.

Fort McMurray, AB is experiencing rapid economic growth without the physical and social infrastructure to sustain it: increased crime, suicide rates, and drug use; housing shortages.

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Peak oil – and old beer

Use nearly any form of transportationUse any products that are imported

from beyond the regionEat (consider the oil required for

farming, and that fossil fuels are ingredients in fertilizers)

Use anything that is made of oil (plastics, electronics, and petro chemicals are examples)

Cannot use your own skills to get your basic needs met!

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Peak oil – you should care if you...

The globe is now in a phase of ‘overshoot’... using more finite natural resources than we have, ‘borrowing’ into the resource inventory of future generations.

It is projected that the globe will soon be in a situation of ‘peak everything’... Peak oil, peak land, peak water, peak food...

We need to dramatically alter our approach to consumption!

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Peak oil – as if that weren’t bad enough!

Business as usualWaiting for the magic elixirThe government will save usTechnology will save us‘Every man for himself’Atlantis scenario – collapse

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Peak oil and climate change – some common responses

‘Climate change says we should change, whereas peak oil says we will be forced to change. Both categorically state that fossil fuels have no role to play in our future, and the sooner we can stop using them, the better.’

– Rob Hopkins, author of The Transition Handbook: from Oil Dependency to Local Resilience

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When CC and PO are viewed as two aspects of the same problem:

‘Taken together, climate change and peak oil make a nearly airtight argument. We should reduce our dependency on fossil fuels for the sake of future generations and the rest of the biosphere; but even if we choose not to do so because of the costs involved, the most important of those fossil fuels will soon become more scarce and expensive anyway, so complacency is simply not an option’

– Richard Heinberg, author of Peak Everything and Powerdown

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When CC and PO are viewed as two aspects of the same problem:

Community-based approaches can include:• Planned relocalization of economies• Decentralized energy infrastructure• The Great Re-Skilling• Localised food production• Energy descent planning• Local currencies• Smart transportation• Connection / densification of work / home /

social settings50

When CC and PO are viewed as two aspects of the same problem:

• Consider how the market will change given the realities of PO and CC – what new goods and services will be needed?

• With decreasing reliance on imports (due to high transportation costs) plan your SE with this in mind – both inputs and outputs.

• How can communities be assisted through SE to cope with the emerging realities of our future?

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How does this relate to social enterprise?

• What skills will you need to foster in your employees / trainees?

• How can you ‘exploit’ the need for more local economies? This provides you with a competitive advantage over the Big Box stores – transportation costs will trump cheap overseas labour costs.

• How can your SE consume less or alternative energy? Consider carbon neutrality?

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How does this relate to social enterprise?

• What community members will become displaced or more marginalized given new realities? How can an SE help?

• What ‘green’ or ‘green collar’ jobs can your SE create? Build capacity in?

• How can your SE reduce transportation requirements, of goods, staff, and clients?

• How can your SE set an example for other organizations and communities?

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How does this relate to social enterprise?

How does this relate to social enterprise?

Consider the fact that manufacturers will move to the creation of products that last longer (as opposed to ‘disposable’ items). Repair businesses will be much more common.

How can SE’s be co-located in order to take advantage of economies of scale in energy use, or for one SE to use the ‘waste’ of another?

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How does this relate to social enterprise?

Might you consider the launch of SE’s that sell energy-efficient technologies or are connected to renewable energy production?

How can you undertake a true ‘triple bottom line’ social enterprise?

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Last year, we launched a popular web portal called Timely Topics.

www.resilientcommunitiescanada.com/timely_topics/

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For more information...

The portal includes web links to these topics:

Climate changeEconomicsEnergy Food securityLocal economiesNeighbourhood buildingPeak oilResilient communities / sustainabilityTransportation

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For more information...

Prerequisites... 1. An understanding of what social enterprise

means generally2. An understanding of why your organization

should launch one3. Affirmation that your organization has access

to the skills and resources required4. Recognition of structural limits5. Clarity on values / goals for the social

enterprise6. An open-minded group of ‘brain-stormers’

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... Finally, venture selection!

• What does this mean?• We need to narrow down the SE options

• How is it useful?• Saves valuable time (no need for

business plans for all venture ideas!)• Gives your organization clarity about

why certain venture ideas should be buried.

• Supports your decision for pursuing specific SE concepts.

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The venture selection funnel

• How will this help?• Narrow down the venture ideas• Build stakeholder buy-in

• How is it done?• First, agree on your values / goals... • Second, brainstorm your venture

ideas... • Third, map the ventures against the

values...• Fourth, score the ideas. • ...focus on the highest scoring ventures

only!60

The venture selection process

Step one: agree on your values / goalsExamples:• Revenue generation• Job creation for the marginalized• Pay living wages• Promote the host agency• Align with agency skills and interests• Specific green priorities • Social integration opportunities• Low start-up costs• Use of existing space / volunteers / staff• Access to grants• Replicability 61

The venture selection process

Step two: brainstorm your venture ideas

Examples:• Tim Hortons franchise• Restaurant• Consulting• Thrift store• Paper shredding

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The venture selection process

Step three: map the ventures against the values / goals:

On the vertical axis, list the values / goals.On the horizontal axis, list the venture ideas. Optional: assign ‘weights’ to the values / goals

that are most important.

Step four: score the ideas.

Focus on the highest scoring ventures only for feasibility research. Create business plans for feasible concepts.

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The venture selection process

Bookmark www.centreforsocialenterprise.com:

• Links page includes section on funding sources• Homepage item – sector brief on training and

employment SE’s• Homepage item – review of 3 ‘must-have’ SE

primers• Homepage item – The Fine Print… what every

charity must know about operating an SE• Sign up for our free e-newsletter! 64

Our fee-for-service (social enterprise) activities:

• Feasibility studies and business plans for social enterprises

• Applications for charitable status• Charity ‘check-ups’• Structural advice for social enterprise• Technical assistance for social enterprise• Advice on how to green organizations and businesses• Technical writing on social enterprise and social finance• Workshop delivery on related topics 65

Stacey Corriveau can be reached at:

stacey@centreforsocialenterprise.com604.859.4618

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Thank you...