The Art of Social Enterprise

Business as if People Mattered

Carl Frankel, Allen Bromberger

• Publisher: New Society Publishers
• Year: 2013
• ISBN:
  9781550925340
• Topic: Business
• Subtopic: Sustainability in Business
• Index: Business

• Offers a conversational tutorial on how to succeed at social enterprise, including an overview of the emerging field, the mechanics of practice, and "success" principles.
  
• A social enterprise is an organization formed by one or more people whose entrepreneurial activities are primarily driven by the desire to create positive social change, and who are increasingly (though not necessarily) likely to identify themselves as part of a growing social movement.
  
• With the emergence of 'B' Corporations, which allow management to place there mandate ahead of stakeholders. IE. they are not legally bound to make a profit, social enterprise will become increasingly popular.
  
• The book distills social enterprise into three main areas of focus -- intention, money, and people -- and offers a short course in leadership and inner wisdom.
  
• Allen Bromberger is arguably the country's leading social enterprise lawyer and Carl Frankel has been writing about green business for over two decades, and is a serial social entrepreneur
  
• This book has the potential to become "the Book" in the this field.
  
• The book offers legal information and tips without the jargon, and provides deep insights into leadership as well as the mechanics of social enterprise.

Section Two

Key IMP-gredients

CHAPTER 4

Intention Is Where the Heart Is

It has been more wittily than charitably said that hell is paved with good intentions; they have their place in heaven also.

— Robert Southey

BEING A SOCIAL ENTREPRENEUR is kind of like being a chef. To be masterful — artistic, really — you can’t simply rely on recipes. You need to know your ingredients and be able to use them creatively. Social enterprises have three main elements: intentions, money and people. Each of the chapters in this section focuses on one of these essential ingredients:

• Every undertaking starts with a goal, an intention: I want to get rich; I want to provide affordable energy; I want to get rich and provide affordable energy. Every entrepreneur wants to journey from a here to a distant there. Every undertaking has this in its DNA. Intention is direction.

• You can’t get from here to there on will alone or wishful thinking. You need fuel. If you’re walking, you need food. If you’re driving, you need gasoline. This is what money contributes. Money is energy.

• You can’t get from here to there alone. You’ll need advisors, customers, teammates (including employees and consultants), funders, suppliers. Social enterprises are social enterprises. People make it possible.

Intention, money and people are the foundational “big three” for all entrepreneurs. The intention set for social entrepreneurs is markedly different, though. Partly this is because they have dual social and financial missions, which alone is enough to make the decision-making process more complex. In addition, and as we saw in the previous chapter, many social entrepreneurs feel responsible to a much more extensive stakeholder matrix than conventional entrepreneurs.

To be a skilled social entrepreneur, then, you need to be adept in two distinct though related areas. You need to make smart decisions vis-à-vis intentions, money and people. And you also need to sort out the complexities that at a minimum are a function of having dual financial and social missions and that often arise out of feeling accountable to an expanded stakeholder network.

Social enterprise — it’s complicated. But it’s worth the extra time and effort, not least of all because of the gratification you get from knowing that you’re working to make the world a better place.

The Primacy of Intention

While a clear sense of purpose is essential for all enterprises, it’s especially so for social enterprises. This is because a social enterprise’s intentions are central to its brand.

Conventional businesses exist to make money. Lots of it. From a communications standpoint, this basic truth can comfortably inhabit the background — it doesn’t require elaboration. Apple’s brand is about elegance, ease of use and innovation. No one needs to be reminded of its underlying purpose, which is to turn a fat profit.

For social enterprises, intention is identity — or, at a minimum, a significant aspect of its identity. We are here to serve people. We are here to model a kinder, gentler form of capitalism. If at some point you strip these intentions from the brand, you’re left with a conventional business and, possibly, a community of disillusioned supporters and a reputation crisis on your hands. You will be viewed as having broken faith.

In 2007, CouchSurfing, a social network (and certified B Corporation) whose members open their homes to travelers, learned this the hard way when it shifted from non-profit to for-profit status and raised over $7M from venture capitalists.¹ The management team didn’t have much of a choice: the IRS had turned down its application for tax-exempt 501(c)(3) status, doing away with the organization’s main reason for non-profit status. This didn’t keep a stakeholder outcry from occurring, though. A vocal minority of CouchSurfing community members objected to the move, partly because they felt a bit fleeced — in open-source spirit, they’d contributed time and money to the then non-profit — and partly because the enterprise’s embrace of for-profit status and venture capitalist dollars appeared to take it out of the “alternative” ranks of people-against-the-system and make it just another soulless venture.

This was probably harsh, but it’s what you get when people feel betrayed. We can safely assume there were mixed motives for the managerial shift in direction: the unavailability of 501(c)(3) status, the belief that the organization’s B Corporation status would supply sufficient proof of its ongoing commitment to being in service to its community, the need for capital to grow the business — and probably a dollop of good ol’ capitalist greed as well, at least for the investors. That’s more complexity than many people are comfortable with — it’s much easier to view things in black-and-white terms: CouchSurfing is one of us; CouchSurfing is one of them. This reasoning may be misbegotten, but it’s the sort of reaction that a shift in organizational form can trigger. Unlike formal corporate documents, which tend to be somewhere between low profile and invisible, a social enterprise’s organizational form is publicly visible and impactful: it’s baked into the brand.

For better and for worse, people have higher expectations for social enterprises than they do for conventional businesses. One result is that enormous care has to be taken throughout your enterprise’s life cycle with regard to how you establish, communicate and preserve your intention.

Let’s examine each in turn.

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We don’t include a separate discussion of manifesting intention in this chapter. This is, of course, what every business exists to do — manifest intention. And they do it through their business strategy.

Establishing Intention

Let’s follow the advice of the King to the White Rabbit in Alice in Wonderland and begin at the beginning. Before anything else, you need to get clear about what your own intentions are. You can do this superficially or more thoroughly. At one level, your social mission is a one-line sentence: We will create jobs with dignity for women in Monrovia. People are complex, though, and your intentions probably are, too. For this reason, consider asking yourself questions like the following:

• Does your intention set include helping to bring into being a new form of capitalism that marries service with profits?

• How about modeling ethical behavior for other entrepreneurs?

• How much extra time and effort are you willing to put into having a workforce that’s diverse in gender and ethnicity?

• Do you believe all your employees from your CEO down to the hourly worker on the factory floor merit an ownership interest in your company?

• How groundbreakingly innovative, how cutting-edge, do you aspire to be?

Questions like these go directly to your values and core identity. Somewhere down inside, we each have a sense of who we are, but it’s often vague and preverbal. There’s value in taking those intuitions and unpacking them so that knowledge becomes explicit. After all, before you can effectively explore your intentions with others, you need to have clarity about them inside yourself. You need to know which intentions are paramount and which are secondary. You need to know which are negotiable and which are not. You need to know which of your values you require your teammates to share. All this requires you to spend some quiet time contemplating the image in your mirror — and not just any mirror, but a soul-mirror that reveals your desires, values and intentions in their inevitable depth and complexity.

Once you’ve done this, it’s on to other people. No social entrepreneur is an island. You need a team to build a business — partners, employees, financial supporters and so on. When these key stakeholder groups aren’t aligned around your intention, your business will inevitably suffer. Valuable time will be wasted internally sorting through issues that wouldn’t have surfaced in the first place if there had been better communication. External messaging will be unreliable. You are likelier to have unhappy investors if it turns out that they didn’t really understand the enterprise’s core intention.

Aligning key stakeholders doesn’t just happen, though. It takes work.

How you go about achieving this alignment depends on which stakeholder group you’re reaching out to. Let’s start with founders, who for purposes of this discussion we’ll define as the people who are heavily involved in planning and setting up the enterprise during its earliest days and who legitimately feel as if the enterprise is their baby. A social enterprise may have only one founder; it may have several; there may be an entire posse. Whatever the number, it’s essential to have alignment around the enterprise’s reason for being.

As a rule, this is best achieved through dialogue, not legal documents. And indeed, coming to clear shared understandings is a key purpose of the business planning process. Every social entrepreneur starts with a bright idea: I want to set up dental clinics for children in inner cities; I want to convert rooftops to urban farms. Next, they need to put flesh on the bones of this intention. They need to develop a viable business plan, estimate revenue and expenses, conceive a marketing and sales strategy, do a competitive analysis, identify and assess other business risks and lay out a path to funding.

The outcome of a business planning process is, you guessed it, a business plan. It’s an important document for two reasons. First, because it’s Exhibit A in the sheaf of documents you’ll be handing prospective investors. Even if they don’t actually read it — and most of them will — your credibility is zilch without it. The second — and equally important — reason is that it gets team members talking and thinking things through, especially in getting clear about the business model and the things that have to be done right in order to succeed. We’ve all learned the hard way that dialogue doesn’t always produce consensus and alignment. The odds go up enormously, though, when the participants enter the conversation intending to produce a consensus document.

Business plans are never really finished. They’re snapshots that are subject to constant updating as a business’s operating environment and strategies evolve. That’s an annoying reality — they require a lot of work — but also a blessing in disguise because they’re engines for ongoing consensus and alignment.

Founders don’t need to reach complete agreement on every issue. Which is a good thing, because it’ll never happen. For instance, you may agree on the core intention to manufacture an environmentally friendly product but differ on whether to manufacture locally or use less costly foreign labor. Disagreement is inevitable and ultimately healthy. It’s what keeps a company creative and dynamic. But you do need to maintain alignment around the enterprise’s core intention, values and identity. The alternative is incoherence or even chaos.

Is it best to reduce these understandings to writing? File this one under “optional.” Intentions inhabit the mind, and minds are always changing, which makes a case for not bothering. Yet there’s also a compelling case to be made for setting your understandings down on paper, especially when there are outside investors. “Written in stone” (or bytes) declarations may provide a useful reminder during a heated argument about corporate strategy or intentions. For the most part, though, this sort of writing tends to devolve into one of those dusty artifacts you know you’ve filed somewhere but can’t quite remember what it said. Businesses are living entities. Ultimately, any understandings live in real time and are constantly refreshed in the social matrix of its stakeholders.

If you do decide to put your enterprise’s core intention into a legally binding document, the shareholder’s agreement or, in the case of an LLC, the operating agreement, which lay out the rights and responsibilities of the enterprise’s owners, are the likeliest vehicles for this.

Social entrepreneurs also need to be aligned with their investors, a group that may or may not overlap with the founders. The main business risk here is that the enterprise will elect to pursue a path that reduces profits and an investor takes issue with this, up to the point of litigation. The best way to ensure this scenario never happens is by managing expectations from the outset. If your investors know your business may not seek to maximize profits because of its social mission, they can’t fairly complain about the policy later.

How formal this understanding needs to be depends on what type of investor you’re dealing with. If your investors are friends and family, you probably don’t need a formal document. These people typically invest small sums of money because they care for you, not because they’ve made a cold-blooded calculation of expected profits. The odds that they’ll sue you are somewhere between minimal and nil. While it’s important to communicate clearly to them what your business is about, you probably don’t need to go to the time and expense of creating formal, legally binding documents. But beware: the Securities and Exchange Commission (SEC) has a lot of detailed rules that govern the ways companies can raise money from investors, and you need to follow those rules if you want to stay out of trouble. In particular, the exemption for raising money from “friends and family” is fairly narrow. Most importantly, you have to have a close personal relationship with these investors: friends of friends don’t count.

Climb up the ladder to arm’s-length angel investors and different rules apply. When angel investors are involved, the typical ask is in the six or low seven f...