Social Enterprise Conference October 30-31, 2006 Social Enterprise Business Planning Workshop Presented by: Kim Alter Virtue Ventures LLC

Presentation Outline Social enterprise business plans Why? What for? What? Difference from regular plans SE Business plan components Q & A

Great planning tool for nonprofit Strategic Grounded in reality Responds to market forces Many uses Most nonprofits lack knowledge of how to prepare b-plans Demanded by more donors “Failing to plan is planning to fail” Why Business Planning?

What is a SE Business Plan? A detailed presentation about your social enterprise that demonstrates how it will succeed in business and financial terms AND the social impact that it will create.

5 Why Do you Need a Business Plan? For the investor/donor: Evidence of the nonprofit’s ability to conceive and execute an enterprise idea Use – sales document For the social entrepreneur: A planning framework A management tool for resource allocation and decision-making Use – Management and operations plan

Purposes Planning Framework Articulates vision and mission Sets goals and objectives Defines strategies and specific actions to achieve objectives Measures results Communicates ideas, plans & social value Projects necessary resources, expenses, & revenues Provides a basis for SOUND decision- making

Business Plans vs. Proposals Business plans are: Flexible documents that change in accordance to market forces Results-oriented Market-driven Internal management tool/blueprint for project Open - treat project as going concern Proposals are: Fixed for the life of the project or funding period Process-oriented Donor-driven Not usually used as management plan for project Closed – treat projects as time- limited

A Road Map Business plans chart the course to realize the organization’s vision. To Vision 2 new senior Staff hired 25 Links between business & citizen’s sector Social Entrepreneur Acquisition up 20%

Anatomy of a Business Plan Vision Mission Marketing Plan Operations Plan Human Resource Plan Financial Plan Concept & Objectives Market Research

Information Flows Mission Objectives Market Research: Target Market Competitors/external factors Business Assessment Marketing Plan Operations Plan Financial Plan Human Resource Plan Vision Financial Plan Financial Plan Contingency Plan

Social Enterprise Conference October 30-31, 2006 What’s Different about Social Enterprise Business Plans?

12 Business Plan Components Executive Summary Business Description Industry Analysis Competitive Analysis Marketing Plan Management and Personnel Plan Operations Plan Financial Plan Risk Assessment and Contingency Plan Supporting Documents

SE vs. Regular Business Plan Regular business plan single focus Financial bottom line only Profitability and financial return Reflects decisions to earn maximum $ Shareholders simple Social enterprise business plan has double focus Multiple bottom lines: social, financial, environment Social returns (impact) Reflects decisions to manage dual objectives Stakeholders complex Final business plan documents look similar

Objectives are Aligned Vision Social Impact Objectives Social Impact Objectives Sustainability Objectives Sustainability Objectives Mission

Examples of SE Objectives Social Impact (target population) Scale Services rendered Clients served Economic security Health benefits Education Skills/Capacity Financial Viability (social enterprise) Cost efficiency Net profit/loss Cost recovery Donor dependency Costs savings public sector Objectives defined by nature of social enterprise and results being measured

Social Value Proposition Indicates the problem your social enterprise is solving for its clients & beneficiaries and how much value they place on the resolution of this problem. You can do this by telling how your social enterprise will create change in beneficiaries’ behavior, condition, or quality of life and how important that impact is from the clients’ perspective.

Market Research Traditional B-Plan Opportunities & Barriers Industry dynamics Demand & Market Social Enterprise B-Plan Social Need Social problem enterprise is trying to mitigate Specific social needs of clients/beneficiaries Community and environmental Impact

Target Market Same for traditional & social enterprise Business plans Who are your customers? What are their wants, needs, tastes, preferences? Where are they? What are their characteristics? Social Enterprises have several stakeholders they often view as “customers.” Target market are ONLY those buying social enterprise products and services. Note: donors and clients may be customers

The Five Plans for All B-Plans Marketing Getting products and services to target market Operations Day-to-day functions of running your social enterprise Human Resources The people you need to execute your enterprise Finance Capital required to finance social enterprise and project income earned. Contingency Plans What could go wrong and what will you do about it if it does?

Standard Marketing Plan Objectives Marketing mix: 4 Ps Product Promotion Price Place Sales Plan On going market research

SE Product Market Matrix Existing Product Existing Market Selling to clients Or donors New Product Existing Market Selling to clients or donors New Product New Market Open Existing Product New Market Selling NGO services to External customer

SE Marketing Considerations In addition to standard marketing plans designed to reach paying customers for a SE’s products and services… Is there an outreach component for the target population? Obligations to stakeholders—i.e. donors and social investors? Partners or networks? Pricing considerations for target group? PR component to protect organization’s reputation?

Standard Operations Plan Objectives Manufacturing Systems: Information Management Inventory management Impact Measurement Order fulfillment Quality control R&D Customer service Budget

Operations adaptations for SE B-Plan Social Impact and Monitoring Systems Systems that collect and measure social impact Direct Impact Indicators Result of social enterprise i.e. Jobs created, income per client, scale of services Indirect Impact Indicators Indirect result of social enterprise i.e. improved housing, quality of life, social conscience

Human Resource Plan Traditional B-Plan Management team Roles & responsibilities of various actors Staffing and recruitment plan Governance Social Enterprise B-Plan + Capacity building plan Staff, institution, target group + Considerations for SE staffing duality Program and business

Schizophrenic Staff Plan Business Functional business skills Marketing Accounting Operations Led by Enterprise Manager Industry Specialists X Manufacturing Y Retail Social Program Programmatic skills Aid workers Social workers Humanitarian relief Led by Program Manger Program specialist X Doctor Food Security expert Educational specialist

Structure and relationship to players Social Enterprise Contracted Technical Assistance Parent Organization Partner Clients Parent Organization Technical Assistance Clients Social Enterprise

Capacity Investment Choices A Job Hard Skills Soft Skills Client Productivity Return on Investment? Credit/Savings Education Literacy Heath $ Jobhard skillssoft skillscredit/savingseducation $$$$

Capacity Building Plan Capacity Building MethodBenefit to Enterprise Mission On-the-job training Provide a jobSkilled labor Processing skills Training/TAImproves productivity, product quality Inventory tracking Training/TAImproves inventory management Soft skillsTraining/pract ice Stabilizes work force Leadership development Training/pract ice Higher self-esteem, morale, productivity, self- management Savings program Savings service Reduces risk aversion through financial security Health services Health program linkage Improved health = higher productivityNo

Financial Plan Traditional B-Plan Objectives Financial statements: Income Statement – financial bottom line Balance Sheet Cash flow Projections/Statement Social Enterprise B-Plan + SE financial objectives + Social expenditures in business activities + Income Statement - social bottom line + Resource Acquisition Plan Includes grants and gifts

SE Financial Objectives In addition to regular financial objectives Decrease in donor dependency Cost recovery of social services Operating self sufficiency Cost efficiency to render social services Target group income (also social impact) Cost savings to social system (value of tax) Community wealth creation

Financial Projections SE RevenueSE ExpenseBusiness ExpenseBusiness revenue $$$ Years Social Enterprise Breakeven Point Private Business Breakeven Point

Role of Income and Subsidy Years Enterprise RevenueSocial Expense Business Expense Breakeven AFTER Social Costs Breakeven Before Social Costs Social Subsidy Investment Enterprise Revenue Subsidizes Social costs

Double Bottom Line Income Statement Total Operating Expenses Total Gross Revenue NET PROFIT/LOSS BEFORE SOCIAL COSTS = Financial Bottom Line Less Social Costs = Social Bottom Line NET PROFIT/LOSS AFTER SOCIAL COSTS = Double Bottom Lines

Subsidy in Income Statement Income Statement Gross ProfitIncome earned through enterprise Operating Expenses (before taxes)Costs related to operating enterprise NET PROFIT/LOSS (before taxes)Income less expenses SubsidyLess Grants, donations, gifts NET PROFIT/LOSS AFTER SUBSIDYTotal lost or gained after subsidy

Financing mix and resource acquisition Year 1Prospect Year 2Prospect Earned income (sales) Interest income Parent organization Grants Gifts/contributions Soft Loans Commercial loans

Social Return and Impact “ Social Bottom Line” for social enterprises. Social Return on Investment (SROI) measures the social value the social enterprise creates in financial terms as a ratio of the investment. Social impact measures qualitative and quantitative social impact based on social objective and type of organization Most nonprofits are accustomed to using this type of measurement.

Examples of social impact measures Impact from employment based Social Enterprise Impact from non- employment SE or hybrid Asset accumulationImproved education ScaleImproved housing Client incomeQuality of diet Job CreationAccess to health care Skills acquisitionIncreased autonomy

Monetizing SE Value Enterprise Value = economic value of the enterprise. Cash flow analysis of business performance. Social Value = direct demonstrable cost saving and revenue contributions Blended Value = enterprise value + social value – debt

Social Enterprise Conference October 30-31, 2006 Planning the Plan: Recommendations

B-Plan Essentials Consensus and ownership Appropriate participants Adequate preparation time Financial considerations Relevant flexibility Solid market research Participatory methods (within limits) Realistic (achievable) targets

Clarify/Test the Vision, Mission & Values A social enterprise can challenge an organization’s vision and mission Test assumptions/commitment to vision and mission. Ensure strength of mission Align enterprise mission to social mission Confirm compatibility of enterprise vision and values exists within organization.

“Planning” is a Cultural Concept NGOs often have shorter planning horizons than businesses. Utility of plans can be questionable. Sparse history of sticking to plans. Planning may go well with close supervision, but comes unraveled if left alone.

Planning Time spent convincing nonprofits merits of B-Plans, is time well spent! Include appropriate stakeholders. Link human resource incentives to achievement of B-Plan goals. Make it official: celebrate the completion of the Business Plan or important sections.

Avoid Planning by Committee Know the Limits of participatory planning: Too slow to respond to changing market Inefficient Can reduce quality Fails to identify the roles of generalist and specialist in the process Believes all enterprise players must participate in every aspect of B-planning.

Appropriate Participation Identify for which Business Plan elements consensus must be reached For each section clarify individual and small group roles for output. Set strict deadlines Devise incentives to meet deadlines

Set Realistic Planning Targets Business planning takes weeks or months and requires ample resources. Develop the Business Plan work plan, including: deadlines, key people, financial resource Plan on ample time and money for research Conservatism is the rule of thumb - do not be overly optimistic with targets Be flexible to changes

Beware of the Project Mentality Lack of business acumen and entrepreneurial drive. Inefficient operations/systems/structures supported by a history of subsidy. One of several projects within the organization. Conflicting priorities. Short sighted (no vision that enterprise will be a going concern)

The Market Drives the BP Low understanding of demand (due to subsidy) Poor customer orientation. Educate NGOs about market demand and how to test demand. Incorporate potential customers into B planning process (market research). Prepare contingency plans for key elements of market demand. Practice wearing the hat of the customer Open eyes to competition

Dynamic Process within Limits Random BP changes steers program off course. BP changes must be based on sound business decisions. Agree on BP elements that are nonnegotiable. Educate on the conditions that warrant BP changes (market, environmental/industry changes). Schedule Business plan reviews to discuss.

Market Research is Key Conduct thorough analyses of the market Know what constraints and opportunities exist Understand your strengthens and weaknesses Make Bplan decisions informed by market research Markets are dynamic!

Business issues can overwhelm social objectives; often receive low priority. Financial goals are easier to set and quantify, than social goals. Insufficient funds and inadequate skills/systems to measure social impact. Setting Social Targets is Challenging

Social Targets Require Brutal Reality Select impact measurements early and do a baseline study Build information system to collect and measure impact. Collect anecdotes evidencing social impact. Budget for social impact monitoring. Timing and manner of social impact dependant on vision and mission.

Plan the Exit as You Enter Often at program’s end (however determined), players are confronted with issues not anticipated during start-up. Develop exit strategy in the BP, include : ownership of assets, and revenues. financial assistance plan if viability will not be reached by end. Structure HR – what happens to them? Other exit issues are linked to compatibility with vision & mission.

Plan Transition Project to Enterprise Selected a suitable partner (businesslike, compatible mission, values). Employ results-based contracts. Encourage an enabling environment for transition. Create a flexible market-driven structure.

Risk Analysis & Contingency Planning Often nonprofits don’t think through BP impact scenarios on the organization. Build capacity to make accurate projections Add in buffer for expenses Use “what if…” scenarios Develop “Plan B” for major decisions Test BP assumptions Objectivity