Enterprising Mentality by NESsT

NESsT Practitioner Series

enterprising mentality

enterprising mentality A social enterprise guide for mental health and intellectual disabilities organizations

Authored by Joanna Messing, Nicole Etchart and Lee Davis

Abstract: Enterprising Mentality introduces social enterprise as a viable sustainability strategy for mental health and intellectual disability advocacy organizations. The manual offers background on self-financing activities and why mental health organizations in particular can benefit from such activities. The steps of developing a social enterprise are outlined, and the experiences and lessons learned of six mental health organizations that have launched a social enterprise are assessed.

enterprising mentality: A social enterprise guide for mental health and intellectual disabilities organizations Copyright ÂŠ NESsT 2005

enterprising mentality

Published by:

Nonprofit Enterprise and Self-sustainability Team (NESsT) José Arrieta 89 Providencia, Santiago, CHILE Tel: +(56 2) 222-5190 Fax: +(56 2) 634-2599 Email: nesst@nesst.org www.nesst.org

NESsT promotes the social, political, economic and religious rights of all people and does not discriminate on the basis of gender, race, national origin, mental or physical disability, sexual orientation, or political or religious opinion or affiliation. The entire contents of this publication are copyrighted by NESsT except where copyright is attributed to other individual authors or organizations. All rights reserved. No part of this publication may be sold in any form or reproduced for sale without prior written permission of the copyright holders. Copyright © 2005 NESsT ISBN: 1 930363 12 5

This publication contains information prepared by sources outside NESsT, and opinions based on that information. NESsT strives to provide accurate information and well-founded opinions, but does not represent that the information and opinions in this publication are error-free. This publication is for informational purposes, and NESsT is not engaged in providing legal, accounting or other professional advice. As professional advice must be tailored to the specific circumstances of each situation, the information and opinions provided herein should not be used as a substitute for the advice of a competent professional. Printed by: Andros P RINTED

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NESsT does not undertake to update this publication.

ON RECYCLED PAPER

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Table of Contents Acknowledgements ............................................................................................5 Introduction .........................................................................................................7 Section One

Background .........................................................................................................9 Section Two

Social Enterprise and Mental Health and Intellectual Disability Organizations .....................................................13 Section Three

Steps to Success .................................................................................................17 Section Four

Social Enterprise in the Mental Health/Disability Field ........................21 Section Five

Social Enterprise Business Models ...............................................................25 Conclusions ........................................................................................................41 Bibliography .......................................................................................................43 NESsT Publications ............................................................................................44 About NESsT ......................................................................................................48

enterprising mentality: A social enterprise guide for mental health and intellectual disabilities organizations Copyright ÂŠ NESsT 2005

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Acknowledgements NESsT would like to thank the Open Society Mental Health Initiative for commissioning and financially supporting the publication of Enterprising Mentality. NESsT would also like to thank the following individuals and institutions for their invaluable support in the preparation of Enterprising Mentality: Case interviews The directors and staff of the six civil society organizations Comunidad Terapéutica Peñalolen, Corporación Bresky, Estuar Foundation, Green Doors, La Morada, and Pentru Voi that contributed to the development of this handbook. Without generous donations of their expertise and their time, the production of this handbook would not have been possible. We greatly appreciate their commitment to sharing their experience of self-financing with the larger CSO community. Editorial guidance Geoff Cox- Director, Economic Partnerships Limited Judith Klein- Director, Open Society Mental Health Initiative Production Lee Davis- Cover design Carolina García- Layout Janis Foster- Editing Anna Raksany- Coordination

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INTRODUCTION

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Introduction Mental health and intellectual disability organizations are increasingly being recognized as the independent voice and champion of the interests of people with mental health problems1 and people with intellectual disabilities2 throughout the world. These organizations play a key role in promoting social inclusion by providing services and support to people with mental disabilities, their families and communities. Their number and range have grown significantly in the last decade, as has their strength in ensuring the inclusion and rights of people with mental disabilities. Despite this measurable impact and the increasing demand for their services, these organizations remain vulnerable because resources to support their work remain scarce and inflexible. The goal of this manual is to introduce social enterprise as a viable sustainability strategy for mental health and intellectual disability advocacy organizations and to assist those organizations that are interested in launching social enterprises to generate business ideas and understand the enterprise planning process. Social enterprises are missiondriven businesses that increase the financial sustainability and socialchange impact of civil society organizations (CSOs).3 If planned care1

The term “mental health problems” describes a broad range of mental and emotional conditions. Mental health problems are different from other conditions such as intellectual disability. The term ‘mental health problems’ is used when an individual’s mental condition significantly interferes with the performance of major life activities, such as thinking, communicating, learning and sleeping, among others. Someone can experience mental health problems over many years. The type, intensity and duration of symptoms vary broadly from person to person. Symptoms can come and go and do not always follow a regular pattern, sometimes making it difficult to predict when symptoms and functioning will worsen, even when treatment recommendations are followed. Although the symptoms of mental health problems often can be controlled effectively through medication (though some people experience very negative side effects from medication) and/or psychotherapy, or may even go into remission, for some people the condition continues to cause periodic episodes that require lifelong attention. 2

The term ‘intellectual disability’ (also described as ‘learning disability’ or ‘mental retardation’) refers to a lifelong condition, usually present from birth or which develops before the age of 18; is a permanent condition that is characterized by significantly lower than average intellectual ability; results in significant functional limitations in intellectual functioning and in adaptive behavior as expressed in conceptual, social and practical adaptive skills. A person with intellectual disability usually requires support in 3 or more of the following areas of major life activity: self-care, receptive and expressive communication, economic self-sufficiency.

NESsT uses the term “civil society organization” (CSO) to refer to the wide diversity of notfor-profit, nonstate organizations as well as community-based associations and groups that fall outside the sphere of the government and business sectors.

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INTRODUCTION

fully, these enterprises can generate new revenues for their parent organizations while also fulfilling other important mission-related goals, such as the creation of employment and employment training and rehabilitation opportunities. The manual is divided into five sections. Section One provides background on social enterprise in general and as a sustainability strategy for these organizations specifically. Section Two provides an overview of why mental health and intellectual disability advocacy organizations are particularly interested in social enterprise and why social enterprise is a viable option for these organizations. Section Three summarizes the steps in the enterprise development planning process and some of the specific areas that these organizations should be aware of. Section Four provides lessons learned by mental heath and intellectual disability advocacy organizations pursuing social enterprise. Section Five outlines various social enterprise models used by these organizations, highlighting some of the pros and cons of each and discussing real-life experiences of some organizations. This manual is the result of cooperation between the Open Society Mental Health Initiative and the Nonprofit Enterprise and Self-sustainability Team (NESsT) that has taken place in the past two years. The Open Society Mental Health Initiative (MHI), one of the Open Society Instituteâ&#x20AC;&#x2122;s (OSIâ&#x20AC;&#x2122;s) public health programs, supports initiatives that seek to address the overinstitutionalization of, lack of community-based services for, and general exclusion from society of people with intellectual disabilities and/or mental health problems throughout Central and Eastern Europe, South Eastern Europe, and the former Soviet Union. The Mental Health Initiative currently works in more than 20 countries. NESsT is an international nonprofit organization that works to strengthen the financial independence of civil society organizations dedicated to systemic social change. NESsT believes that through social enterprise, some CSOs can both advance their missions and increase their long-term sustainability by generating their own untied resources to supplement support from external donors. For the past eight years, NESsT has been the lead organization working in the promotion and development of social enterprise in emerging-market countries throughout the world. Since 2003, NESsT has been providing capacitybuilding and consulting support in social enterprise to mental health organizations supported by the Mental Health Initiative. The Mental Health Initiative aims to foster the long term sustainability of local CSOs which it supports and contracted NESsT to assist these partners in the social enterprise development process. This manual brings together many of the experiences and best practices learned during this collaboration.

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enterprising mentality: A social enterprise guide for mental health and intellectual disabilities organizations Copyright ÂŠ NESsT 2005

Section One: Background CSOs in Central Europe and other developing economies have played a crucial role in providing community-based services in mental health, lobbying for the human rights of people with mental disabilities and providing ways to include people with mental disabilities in society in a meaningful way. Foundations and international donors such as the Open Society Mental Health Initiative consider CSOs key partners in the process of deinstitutionalization and awareness raising. As a result of the efforts of CSOs, there has been significant growth in community-based services and in pressure on governments to implement policies leading to improved inclusion and respect for human rights. The impact of this work has been significant in terms of providing quality services and support to a marginalized and underserved community, decreasing discrimination, raising awareness in the general populace, and improving governmental policies and programs. However, the challenges remain daunting. There is still a great deal to be done, and the role of CSOs remains critical to these efforts.

WHAT IS SELF-FINANCING? NESsT uses the term “self-financing” to refer to the diverse strategies used by CSOs to generate their own resources, including - Fees for services - Product sales - Use of “soft” assets (e.g., licensing agreements, patents, copyrights) - Use of “hard” assets (e.g., rental of equipment or real estate) - Investment dividends - Membership dues

A key challenge for many of these organizations concerns their financial sustainability and long-term impact. As is the case with many CSOs, organizations working with people with mental disabilities continue to be underfunded, dependent on a few key donors, or dependent on funding that is limited to short-term projects as opposed to organizational development and projects with a wider impact. As well, many organizations find that grant funds come with restrictions that hinder the recipients’ ability to grow and develop independently. As these organizations build experience and gain a reputation in the field, their own institutional strength, independence, and long-term sustainability become increasingly important. In order to become more financially sustainable, organizations are pursuing a range of activities to diversify the types and sources of income they receive and to generate untied and sustainable revenue sources. In addition to the more traditional grant-writing and philanthropic approaches, organizations are increasingly using self-financing as a way to generate untied revenues for their organizations. Many nonprofits around the world have addressed the need to accomplish both the goals set out by their social mission and the need to be financially viable by launching what are known as “social enterprises”— business enterprises that operate with both a financial and social bottom line. NESsT defines social enterprises as self-financing strategies used by CSOs that are designed to provide sources of sustainable income and to strengthen the CSOs’ missions in a significant way. These social enterprises take a wide range of approaches. enterprising mentality: A social enterprise guide for mental health and intellectual disabilities organizations Copyright © NESsT 2005

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SPECTRUM OF CSO SELF-FINANCING ACTIVITIES, FROM HIGHLY MISSION-RELATED (LEFT OF CHART) TO LESS MISSION-RELATED (RIGHT OF CHART)4 EXISTING PRODUCT/ SERVICE, EXISTING CUSTOMERS

NEW PRODUCT/ SERVICE, EXISTING CUSTOMERS

EXISTING PRODUCT/ SERVICE, NEW CUSTOMERS

NEW PRODUCT/ SERVICE, NEW CUSTOMERS

Services specified in the Earned income directly CSO’s charter, bylaws, from the CSO’s promission gram activities

New products/services offered to existing constituents

Extension of missionrelated activities to new paying clients

New product/service to new paying customers (unrelated/ancillary business activities)

Example:

Intellectual disability CSO runs an activity center for children with mental disabilities, including an arts and crafts center

Mental health CSO starts to charge parents a fee for classes offered

Mental health CSO offers health and home care classes to parents

Mental health CSO starts to offer art classes to public

Mental health CSO opens a café for the public, does not offer employment opportunities to clients

100% grant subsidized

Cost recovery

Cost recovery/ break-even

Small/ average profit

Larger profit

High mission impact

Average mission impact

Low mission impact

PROGRAM ACTIVITIES

This spectrum illustrates the wide range of approaches, risks, and financial and social returns related to social enterprise. At one end of the spectrum, some organizations are pursuing what is known as social enterprise with a cost-recovery goal, aiming to cover a percentage of the program costs through self-financing or fees with the understanding that the remaining percentage will be covered by grants or donations. This is a strategy that is often used with programs that are core to the organization’s mission, with the goal of increasing the sustainability of the program by reducing the amount of grant funding needed.

Modified from Get Ready, Get Set. . . Starting Down the Road to Self-Financing (Santiago, Chile: NESsT, 2004).

At the other end of the spectrum are enterprises that are primarily focused on generating profits to support the organization and that are non-mission-related or have low mission impact. Here the primary goal is to generate enough revenues to either cover operational costs of the parent organization or support a key program. For example, if a CSO is opening a café for the public that is not mission related, the goal would be to make a profit to subsidize the organization, and the enterprise itself—the café—should not be subsidized after an acceptable start-up period.

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There is no “right” place to be on this spectrum, but it is important to understand the organization’s goals and the potential risks and viability of an enterprise in order to decide whether to launch it and to be able to evaluate its impact. In general, the farther the enterprise is from the mission, the lower the mission impact but the higher the expected profits. As well, the farther the enterprise is from the mission, the higher the risk to the organization. Of course, in an ideal situation, the enterprise would generate high profits and have a high mission impact. This has been known to happen, but not often.

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Section Two: Social Enterprise and Mental Health and Intellectual Disability Organizations While mental health and intellectual disability organizations launching social enterprises have a range of characteristics, they share some common goals. Organizations tend to launch a social enterprise for one or more of three main reasons: to provide meaningful activity for their clients, to provide employment for their clients, or to provide revenue for the parent organization.

Providing Meaningful Activity for Clients Some enterprises have been started primarily with the goal of providing a fulfilling activity for clients or participants in their programs. For example, many sheltered living programs also aim to provide activities during the day. In enterprises started for this purpose, revenues characteristically will go to benefit the parent CSO or will be pooled to pay for group activities. The focus here is on the therapeutic quality of the work activity, and the enterprise is most likely a cost recovery program. Sometimes these evolve into more profitable social enterprises as demand evolves and the organization focuses attention on the business side of the activity. Many social enterprises began in this way, as in the case of Pentru Voi in Romania5, which began involving clients in a copy center as an activity and then evolved this activity into a full-scale business when the organization discovered there was an unmet need for this service in the community.

Providing Employment for Clients Organizations that work in the mental health and intellectual disability area often find that a key challenge for their clients is that they are not able to find employment. At the same time, these clients require spending money, and they crave the recognition and increased self-esteem that can come with a job. Some organizations launch social enterprises in order to find meaningful employment for their clients as part of an overall approach to inclusion. Employment is a key challenge for the mental health field in Central and Eastern Europe (CEE), and nongovernmental organizations working in CEE countries have raised the following concerns about access to employment6: - There is a general societal perception that people with mental health problems and intellectual disabilities are unemployable.

enterprising mentality: A social enterprise guide for mental health and intellectual disabilities organizations Copyright ÂŠ NESsT 2005

Pentru Voi is a nongovernmental, nonprofit organization based in Timisoara, Romania. The organization provides community-based services to people with intellectual disabilities in partnership with the National Authority for Persons with Handicap and Timisoara City Hall. 6

Judith Klein and Camilla Parker, â&#x20AC;&#x153;Making Social Inclusion a Reality: The Challenge for People with Mental Disabilities in Central and Eastern Europe,â&#x20AC;? Eurohealth (Autumn 2003): 16.

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- Restrictive and discriminatory labor laws make it very difficult to employ people with mental disabilities. People with disabilities often lose their state benefits if they receive income from another source (i.e., employment). - There is a severe lack of (re)habilitation/training to help people with mental or intellectual disabilities make the transition from schools and institutions to employment. - Only a tiny fraction of individuals with mental disabilities who are capable of working are actually employed in the open market, illustrating society’s resistance to hiring such people.

In addition to placing clients in mainstream workplaces and attempting to change policy, some CSOs have turned to social enterprise as a way of providing training and employment to their clients. They may have had limited success in placing clients in mainstream companies, often because of discrimination or clients’ lack of education, and therefore decided to create their own jobs. Others see their social enterprise as a complementary activity to job placement or as a job training program. The strategies that can be used depend on the individual organization and the country in which it is located. As mentioned above, some countries are stricter with disability benefits, which may lead organizations to not pay clients but rather provide nonfinancial incentives. Some organizations treat positions for clients as permanent positions, while others expect clients to transition into mainstream employment after a sixmonth period. The latter type of enterprise often includes a training and support component, and the clients are paid a minimum or market wage. These enterprises often operate near the break-even point, and some are subsidized. If extensive training is required and large numbers of clients are employed, the need for subsidy increases. A key part of planning is to define the mission and financial goals of the venture. This will help to set shared expectations among stakeholders as well as drive operational decisions, such as choice of legal entity. Some organizations may choose to operate their social enterprises with the primary goal being social impact. Others may view the social enterprise as a key part of their strategy to achieve financial sustainability and diversify revenue sources.

Judith Klein and Camilla Parker, “Making Social Inclusion a Reality: The Challenge for People with Mental Disabilities in Central and Eastern Europe,” Eurohealth (Autumn 2003): 17.

Regardless of its primary purpose, a social enterprise can have a significant social impact. These enterprises provide a safe environment in which clients can receive training and employment experience, can help combat discrimination by exposing the general populace to the fact that people with mental disabilities can be productive members of society, and increase clients’ self-esteem. Access to employment opportunities is “fundamental to participation in society, and the lack of access . . . leads to social exclusion.”7 Operating a social enterprise requires significant plan-

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ning and management and is challenging for many CSOs, but many organizations have found this a rewarding way to stabilize their own finances and provide a life-changing experience for their clients.

Providing Revenue for the Organization Some organizations focus their efforts on enterprises that will generate profits to support the activities of the organization. These enterprises may be non-mission-related, may not involve the organizationâ&#x20AC;&#x2122;s clients at all, or may involve clients only on a small scale. Such enterprises should operate at a profit that outweighs the opportunity cost of time and resources invested by the organization (i.e., opportunity cost takes into account the potential benefit of the use of those resources in other areas). As illustrated, there are diverse approaches to the mix of social and financial goals of social enterprises. There is value in each approach, but it is critical to identify early on the goals of the social enterprise, as different goals have different implications. The range of approaches is not limited to goals; ways of implementing the enterprises differ too. Some social enterprises pay their client employees, while others provide benefits in kind, such as the opportunity to participate in group activities. Some organizations aim to use the enterprise as a training ground, which will then help their clients transition into the mainstream workforce, while others aim to provide long-term positions for their clients within the social enterprise. Some view their enterprises more as programs, with any revenues an added bonus. Other enterprises cover only 60%-80% of their costs but are viewed as having such positive mission impact that the subsidy is worth it, and they are still more cost-effective than a 100% subsidized activity. Others aim to generate enough excess revenue that they also support the parent organization with the profits. One common feature is that any profits generated are reinvested in the enterprise or the organization. While many organizations recognize the theoretical value of social enterprise, this approach is still relatively unknown in the sector, and many challenges to successful implementation remain.

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Section Three: Steps to Success There are several important steps each organization deciding to pursue a social enterprise must take to reduce risk and increase the chances of success. In this section, we outline key steps and considerations and provide case studies for some of the most common types of social enterprise in the field. NESsTâ&#x20AC;&#x2122;s guidebook Get Ready Get Set . . . Starting Down the Road to Self-Financing describes the process of organizational assessment and enterprise analysis in greater detail.

Step 1: Assessing Organizational Readiness It is crucial that your organization be ready to launch an enterprise. The assessment process ensures that the organization has the necessary systems, capacity, and financing available to begin to look at enterprise ideas. While many organizations considering launching a social enterprise have not fully developed all of their policies and systems, it is important that there be some basics in place. For example, an organization should not launch an enterprise when it is in a state of financial crisis, as it can take some years before the enterprise becomes profitable. The organization should have resources in place to fund its expenses for at least one year, but preferably two, as well as enough to enable the organization to survive if the enterprise is not successful. It is also critical at this stage to identify your specific financial and mission goals for the enterprise. Is the primary goal to provide employment opportunities, or to support the organization financially? Can the enterprise be subsidized? If so, by how much? There are also nonfinancial questions to be asked at this stage. Are all of your staff, board, and key stakeholders supportive? How will you decide which idea to pursue? What are your primary mission and financial goals for launching a social enterprise? Will you employ your clients? Step 2: Selecting an Enterprise Once you have decided that you are ready to launch a social enterprise, there is the critical question of what type of enterprise you should choose. You will have to consider both internal factors, such as the skills and interests of your employees and clients, and external factors, such as the competition. We recommend that you select up to three ideas for initial analysis. 8

According to Geof Cox, an organizational development consultant with Economic Partnerships, social enterprises employing people with mental health and intellectual disabilities should pay particular attention to the following factors when considering ideas8:

enterprising mentality: A social enterprise guide for mental health and intellectual disabilities organizations Copyright ÂŠ NESsT 2005

Adapted from an analysis first described by Geof Cox at the Social Firms UK Summer School in June 2003. Economic Partnerships Ltd. is a UK-based consulting firm (www.economicpartnerships.com).

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- The enterprise must be able to absorb a wide range of skills and work times—for example, by allowing somebody with mental health problems to work part-time or seasonally, or somebody with a learning disability to work within structured routines. - The enterprise must be able to offset the higher costs of using clients with mental disabilities as staff by increasing price or reducing costs. Prices can generally be increased if there is added value to the product or if the market is price-insensitive (concerned more with the quality of the item than the price). Sometimes a grant subsidy for start-up, training, or operational costs can offset the increased costs of employing clients. A full financial analysis should be completed to determine the extent of increased staff costs that will be incurred; the price that the market can bear and whether there are additional features that can be added to increase the price; and the potential for cost-cutting, cost-sharing, or cost-subsidizing in other areas. - An enterprise employing people with mental health and intellectual disabilities has the potential to sell to sympathetic markets, such as ethical consumers, perhaps at a slight premium. Step 3: Developing the Enterprise Once you have decided on your top ideas, it is time to analyze their potential in more detail through the planning process. The enterprise development process consists of three stages, which build on each other: the preliminary feasibility (pre-feasibility) study, the feasibility study, and the business plan. This process enables the organization to analyze the potential of the proposed enterprise to meet the organization’s financial and mission objectives and whether it is a good fit with the organization’s capacity and tolerance for risk. A. Pre-feasibility study. This is the first stage in the enterprise development process. The purpose of the pre-feasibility study is to define the goals of self-financing, define the business concept, identify target market and demand, gather initial information on competitors or similar businesses, and complete some initial financial analysis, primarily a break-even analysis (this analysis shows at what level of sales the enterprise will cover costs, or break even; it is helpful in assessing the viability of a proposed enterprise). The pre-feasibility study also aims to identify any major red flags or stumbling blocks that would keep an enterprise from becoming viable, as well as to get an overall sense of the enterprise and the industry so that the organization can assess whether it is a good fit before investing significant time or financial resources. It is meant to allow the organization to make an informed decision about whether to go forward with a full feasibility study.

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B. Feasibility study. The feasibility study helps social entrepreneurs to realistically assess the proposed enterprise and its ability to meet their goals. It entails significant research and analysis and forms the heart of the business plan. The feasibility study includes analysis of the proposed product or service, market opportunity, operations and management, the financial plan, mission impact, risk, and risk mitigation. C. Business plan. A full business plan for the enterprise builds on the feasibility study to create a professional document including business description, products and services offered, competitor analysis, market analysis, marketing strategy, management team, implementation plan, financing sources, and revenue projections. This plan is often used for external fundraising purposes as well as internal planning, management, and decision-making. Although the enterprise development process requires a significant time investment (it can take six months to one year), it can save the organization from making a significant financial investment in a nonviable enterprise. Step 4: Implementing the Business Plan and Launching the Enterprise If the business plan is approved by internal stakeholders and receives the external financial and other support necessary, it is time to launch the enterprise. Description: Estuar is a Romanian nongovernmental organization founded in 1993 whose mission is to provide social options and alternatives for adults with mental health problems leading to their reintegration within the community. Estuar has four main branches in different regions of Romania. With the support of NESsT, Estuar’s branch in Cluj worked on the development of a social enterprise during 2004. This process began with a social enterprise introductory workshop that included an organizational readiness assessment that helped the Estuar team realize the need to find additional, untied revenue sources to cover operational costs of their office. They also wanted to provide employment opportunities for their clients. After an extensive brainstorming session, Estuar Cluj decided to focus on a crafts enterprise. Many of the clients participate in crafts classes and make a range of products including baskets and decorative wall hangings made from leather. The Estuar team completed a pre-feasibility study and discovered two important factors—that in order to break even they would need to sell more items than their clients were able to produce, and that no one was very interested in the idea. They decided to abandon the enterprise, and they are now completing a feasibility study on a café. www.ong.ro/ong/estuar

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Section Four: Social Enterprise in the Mental Health/Disability Field In this section we share lessons learned from mental health and intellectual disability organizations that have undergone the social enterprise development process, and we provide case examples of some of the most common types of social enterprise launched by mental health and intellectual disability organizations. We hope that these shared lessons and experiences will stimulate other organizations to learn from these pioneers and launch their own enterprises (after a detailed and well thought-out planning process, of course!) We also hope to raise awareness in the field about this approach. Employing Mental Health Clients A. Clarify the goal for the clients. Is it to provide long-term employment, or to prepare them to transition into the mainstream marketplace? Think about the implications of each; they have different ramifications for your program and finances. A limited employment period allows more clients to benefit, but it also means that they move on as soon as they are trained to work well. Make sure that you communicate your goal clearly once it is decided. B. Clarify the organizational goals. According to Geof Cox of Economic Partnerships Limited, The parent CSO needs to be very clear, and honest, about what its aims and intentions are. Does it in fact want to create a social enterprise principally to maximize an income stream for itself, or is it sponsoring the social enterprise development primarily out of its commitment to the real empowerment and social inclusion of the beneficiary group? If the latter is the case, it might well be considered important to give employees in the beneficiary group themselves a major role in managing the social enterprise, with the parent CSO taking the supporting role. However, the most important aspect of the relationship between a social enterprise activity and a parent or sponsoring CSO is that the organizational structuring of this relationship is consistent with what is happening in reality. This means that if the social enterprise is to continue to be financially dependent on the parent CSO, the fact that formal control remains with the parent will probably not cause problems; if, however, the intention is for the social enterprise to become largely practically and financially independent, the fact that it does not control its own desenterprising mentality: A social enterprise guide for mental health and intellectual disabilities organizations Copyright ÂŠ NESsT 2005

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tiny, or the destination of financial surpluses—that formal control remains with the parent—will almost certainly become a source of tension in future. If indeed the social enterprise starts to generate financial surpluses which are welcome donations to the parent CSO, and the parent CSO cannot ‘let go’ for this reason, the whole exercise can become a very negative experience for those closely involved in the social enterprise.9 C. Select an enterprise that is appropriate for your clients. If the goal of the enterprise is to employ clients, then the jobs must be appropriate for them. Mental health problems and intellectual disabilities cover a wide spectrum, and skills will be different. Typically, however, jobs that require speed, long hours, or high skill levels, or that involve high stress, may not be appropriate. On the positive side, clients with intellectual disabilities may be very detail-oriented, willing to do repetitive tasks, and flexible regarding schedules. Design a business that takes the specific profile of your clients into account. What kinds of work are your clients able to do, and what kind of experience are they looking for? If there is a limit to the amount of work that your clients can do or to their speed, add additional employees or limit the amount of work accepted. Be sure you understand the financial implications of making these adjustments and include them in your initial business plan. D. Consider the appropriate mix of staff—clients, social workers, and external hires. Even if the goal is to provide employment for clients, hiring external workers can alleviate some of the pressure with regard to production, improving profitability, and the setting becomes more inclusive, improving the quality of the experience for clients. Keep in mind that when the business grows, demands on your workforce will grow as well. How much can you push your clients? What role will social workers play? Will they be an active part of the support for the enterprise? Will you need to budget for additional social workers? E. Consider whether or not you will communicate the involvement of your clients to others. How will people react to your clients? Will they know this is a social enterprise? Should they know? Be honest about the impact this may have.

Geof Cox, e-mail to the authors, October 14, 2004.

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F. Consider how to pay your clients. Will they receive a salary? A stipend? A percentage of earnings? Nonmonetary incentives? There are many strategies that can be used successfully, but they must be clearly communicated, transparent, and consistent. In some countries, clients will lose their state benefits, temporarily or permanently, if they take a paying job. Be sure to factor this into your plan. Will clients be willing to risk their benefits? Do you think they should? If you don’t pay them a salary, how you can you be sure that you don’t end up exploiting them? Some organizations offer nonmonetary incentives. The ethical question of not paying enterprising mentality: A social enterprise guide for mental health and intellectual disabilities organizations Copyright © NESsT 2005

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clients can be addressed by making it clear to everyone that all profits from the enterprise staffed by clients will go to benefit the clients through programs. The strategy you choose will be based in large part on state regulations and individual circumstances. It is crucial that you understand the implications of the strategy you choose and communicate them clearly to all stakeholders. G. Consider possible additional advantages of operating a social enterprise. Are there any benefits that you can take advantage of as a social enterprise, for example, tax benefits for employing people with disabilities, or preferential access to contracts with the state or other contracting agencies? Planning A. Plan carefully. Your investment of time and energy in formulating a business plan and considering how this enterprise fits into your organizationâ&#x20AC;&#x2122;s strategic plan will be more than repaid if your careful planning saves you from making costly mistakes down the road. B. Set both mission and financial goals. As part of the planning process, clarify both the mission and financial goals of the enterprise. Is your purpose to provide jobs for your clients? To provide revenue for the organization? Both? If both, one will probably have to take priority. Will it be enough to break even? How about some limited amount of subsidy? It is critical that success be defined clearly and that the whole team be in agreement. Business Analysis A. Be aware of external factors. Often social enterprises are started with a view to addressing only internal factors (i.e., the capacity and needs of clients). It is critical that you also consider external market needs. You may have determined that your clients can make the product, but do people want to buy it? Can your clients produce the quality and quantity required? Do you have distribution channels that will allow you access to your target market? Before you launch the enterprise, complete a thorough market analysis. B. Decide whether or not to communicate that this is a social enterprise. It is important to consider the context you are working in and whether to publicize the fact that you are a social enterprise or rather let the product or service sell itself. Depending on your market, the fact that you are a social enterprise can be positive, negative, or neutral. Will you market the social aspect? How? For some organizations, this is a selling point that wins them new clients. For others, it is something they keep quiet to avoid discrimination or because it does not matter to the customer. You will need to know and understand your customers to determine whether the social aspect is a selling point or not. But one thing is certainâ&#x20AC;&#x201D;at the end of the day, the product must be competitive. Customers will not purchase it for social reasons alone.

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C. Be aware of competition and how to handle it. Many social enterprises are entering the mainstream market. That means competition with a whole new kind of entity. Many of the social enterprises that are launched to provide jobs for mental health/disability clients are in high-competition industries. They are attractive to other entrepreneurs for the same reasons they are attractive to you—they require low start-up capital and staff with low skills, and they are relatively easy to run. How will you compete? D. Consider the enterprise’s impact on your organization’s mission. While social enterprise has the potential to effect social change, it also requires a change in organizational culture and a different set of skills than nonprofit management. Operations A. Address inefficiencies. Are there ways to make the process more efficient to make up for the inefficiencies resulting from employing clients? For example, could some tasks be performed by machines, or could you incorporate pre-made items into the process? One of the biggest challenges for social enterprises is producing consistent amounts and quality of product and producing the quantity needed to reach the break-even point. B. Assess logistical aspects from both the business and mission perspectives. For example, can clients easily get to the place of work? C. Consider location from both business and mission perspectives. Is there a location that may be friendlier than others to your social mission? For example, near a hospital or state welfare department? D. Think about ways your nonprofit status can benefit you. For example, can you negotiate a reduced rent or favorable contracts? E. Be aware of the state benefits system in your country. Are there benefits for providing employment or for operating a social enterprise? For example, in Hungary, “[b]y law, people with disabilities (defined by the Central Statistical Office as a condition that diminishes the capacity to work) must make up five percent of the workforce at Hungarian companies with over 20 employees. . . . Companies that meet certain requirements (for example: employers with more than 50 employees, 60 percent of whom have a chronic health problem or disability) are eligible to apply for generous state grants.”10 These incentives offer benefits and also impose some restrictions. Are there benefits that you can take advantage of? If so, will they affect the operations of the enterprise? Will they cause any conflicts with the parent organization?

Judy Szakacs, “Hungary, Job Placement That Works,” Transitions On Line (November 2003), http://www.tol.cz

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Section Five: Social Enterprise Business Models A successful social enterprise is one that meets your mission goals and responds to a need in the marketplace. Geof Cox of Economic Partnerships says, “Often it is harder to turn what has been organized as a primarily therapeutic activity into a business-like one than it is to start with a new idea with good commercial potential. . . . We express this idea by saying that such social enterprises are ‘facing the wrong way’ because they have started by looking inwards towards production rather than outwards to the market. To maximize income they will have to turn around—sometimes turn around a deeply ingrained organizational culture—and this may not be easy.”11 In our research on mental health and intellectual disability organizations, we have found that some common social enterprise ideas have surfaced repeatedly. The following is by no means a comprehensive survey or analysis of these ideas but is meant to share lessons learned and to help stimulate thought in the idea selection process.

CAFÉ While we are all familiar with the café concept, social entrepreneurs considering launching cafés must consider what type of café to start. There are many types of cafés, from those that offer meals to those that offer only coffee. Style, location, sale of alcoholic beverages, type of coffee— these characteristics often spell the difference between a successful café and one that loses money. Benefits - This is a business that has been done before, and there are models and experienced people available to learn from. - Coffee offers a high profit margin (the amount earned after direct expenses are subtracted from revenues—the price of a cup of coffee minus the cost of the coffee, milk, sugar, etc.). - The work experience gained by clients is transferable to the wider job market. - Sometimes the café can be incorporated into the organization’s center, adding to the vibrancy and community of the center. Challenges - The café business may seem simple, but there are many cafés that go out of business. It may be difficult for a nonprofit to afford the location, good coffee, and good atmosphere that are critical to success. - While there is the potential for profit, there is also the potential for loss, particularly if there are training or support costs for clients. A careful financial analysis must be carried out, and the organization must have a

Geof Cox, e-mail to the authors, October 14, 2004.

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clear understanding of whether it can afford to take a loss during the start-up period. - Depending on the type of café, a relatively high financial investment may be required. - Space will need to be approved by health authorities. - Unless it is really a full-service restaurant, a café provides relatively few jobs. - There is high competition in this business. Questions to ask yourself - Do you love coffee? Most successful cafés are run by people with a passion for coffee. - Can you obtain a good location for your café, one with high foot traffic? (Sometimes nonprofits can open a business in a state or public building. This can provide you with lower costs and a receptive audience— but it can also mean a limited customer base.) - Can you offer something special to attract customers (special events, a unique location, live music)? - What is the market like? What is the competition like? - Will this be a sit-down café or one where people order and pick up their own food and drinks? Will you have takeout coffee? - Will you offer alcohol? Does offering alcohol conflict with your mission? - Will you offer food? Offering food involves additional logistic and operational requirements, so consider carefully—it may not be worth it. - Are your clients a good match for the type of work required? Café jobs involve dealing with the public—some people with mental disabilities are well suited for this, while others are not. - Are there health regulations you need to consider? Things to consider - Consider a coffee bar or other simple arrangement rather than a fullscale café. This requires lower start-up costs. It also provides fewer jobs, but it can be a good starting place. - Consider offering takeout coffee in paper cups to increase volume. Keys to success12 - Location, location, location. - Good quality coffee. - Excellent customer service. - Efficient layout (good workspace; easy customer access to coffee, sugar, milk, etc.) - High volume. - Attractive, comfortable atmosphere. - Something that sets you apart (e.g., live music, outdoor seating). - Easy-to-read, understandable menu. 12

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Description: The Green Doors civic society is a nongovernmental, nonprofit organization based in Prague, Czech Republic, which is concerned with rehabilitation of people with schizophrenic diseases. Green Doors operates several cafés as part of its core programming. One of the cafés is “Na pul cesty,” the “Halfway Café,” which offers sheltered employment opportunities to prepare clients to enter the mainstream workforce. Clients work in a range of roles, including assisting behind the coffee bar, cleaning, washing dishes, making meals and drinks, serving customers, and working with money and computers. The rehabilitation period is limited to one year. The clients are young people (18-35 years old) with short-term illness (most of them became ill in the last three years). They are able to stand greater stress and are motivated to return to school or work. More than 100 clients have gone through the rehabilitation process in the Halfway Café’s five years of existence; 44% of the clients have gone on to work or study after this rehabilitation. Most of Green Doors’ revenues (80%-85%) come from the sale of products and services through their cafés and other social enterprises. Lessons: Green Doors has found cafés to be an effective social enterprise that provides jobs and rehabilitation for its clients as well as revenue for the organization. A large part of Green Doors’ success has been due to its ability to secure optimal locations and find the right staffing mix of clients and permanent staff. www.greendoors.cz/eng.htm

BAKERY Some bakeries offer bread only, some desserts only, and some full-scale bakeries offer both. Some bakeries deliver to stores and focus on a wholesale market, some sell directly to restaurants, and others sell directly to the public. The primary focus of social enterprise bakeries is generally on providing employment to their clients; these bakeries and aim to find a product mix and distribution/sales system that maximizes profitability while providing appropriate jobs for clients. Benefits - A bakery can provide appropriate and rewarding jobs for clients. - This is a business that has been done before, and there are models and experienced people to learn from. - A bakery offers known products for which demand is high. Challenges - Because there is a high demand for bakery products, there is generally also high competition. - It can be challenging for a social enterprise to make a high-quality product, particularly in the beginning, unless special training is provided. enterprising mentality: A social enterprise guide for mental health and intellectual disabilities organizations Copyright © NESsT 2005

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- Costs for equipment and utilities are high. - Operating a bakery requires specialized knowledge (how to produce baked goods of consistent quality on a large scale). - The number of positions for clients in a bakery may be limited. - Because the profit margin on bread is low, a high sales volume is required for profitability. Questions to ask yourself - What products will you make? This should be based on what the market demands and an analysis of the profitability of different products as well as your ability to produce. Can you target a niche or a gap in the market? - Do you know how to make the product? Can you make a high-quality product? What training will you need? - Can your clients work in the bakery? What special training or assistance will they need? - Can you offer something that will set you apart from the competition? - Is there a lot of competition? Is there space in the market for another bakery? - Do you know what equipment you need? Can you lease it or buy it used? Can you apply to a donor organization for funds to purchase equipment? - What health regulations will you need to consider? - Will you sell wholesale or direct? Profits are higher if you can sell direct, but you must have a storefront or other means of doing so. Things to consider - Bread often has a fixed price in the mind of consumers and a low profit margin. There is high competition from large chain stores and supermarkets that are able to sell at a very high volume, which is probably not possible for most nonprofits. Is there a way for you to differentiate your product (e.g., by improving taste or making the bread unique in some way) so you can sell it at a higher price? - Selling bread is often a break-even proposition for small bakeries, with profits being made on special products. - Since the profit margin is slim, it is important to control waste. What procedures will you put in place to accomplish this (e.g., monitoring use of ingredients and size of products, tracking finished products to avoid waste from overproduction and to control theft or “shrinkage”)? Keys to success - Access to someone who can provide the training and expertise necessary to make your product. - Access to distribution channels (in some markets, access to large stores is closely controlled). - Products that can compete on their own merits. - Products that stand out from the competition and allow you to charge a premium price.

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Description: Pentru Voi is a nongovernmental, nonprofit organization based in Timisoara, Romania. The organization provides community-based services to people with intellectual disabilities, in partnership with the National Authority for Persons with Handicap and Timisoara City Hall. In 2004 Pentru Voi launched a bakery to provide employment for its clients; the bakery has been operating on a pilot basis while Pentru Voi completes a business plan. Pentru Voi received funding from a Dutch donor and a large contract for bread from the city cafeteria, both of which have been crucial to the enterprise during the start-up phase. The organization has hired a baker and has a team of clients who are enjoying their work experience. In addition to the bread for the city cafeteria, the bakery has found a product (chocolate rolls) that is popular with a new target market (children from a nearby school) and offers a higher profit margin. This enterprise has not been without challenges. Pentru Voi had difficulty in locating the optimal oven and other equipment, affecting the bakery’s ability to produce high-quality bread, and the bakery has encountered significant competition in the bread market. Pentru Voi has also found that operating the bakery places new demands on staff and on the organization’s financial systems. Overall, Pentru Voi is finding the bakery enterprise a worthwhile addition to its programs. The organization is integrating what it has learned during the pilot phase into the business plan, refining the product mix to meet profitability goals and increasing the organization’s understanding of the business. Pentru Voi has found this enterprise to have a very high mission impact, and this justifies the initial investment and any ongoing subsidies required for training and support to clients. Lessons: Pentru Voi’s bakery is a good example of the importance of finding a product that the organization is able to make, that the market demands, and that generates enough sales to cover costs. The organization has had to develop an appropriate staffing structure that brings the skills necessary to run the business while meeting the mission goal of employing clients. www.pentruvoi.ro/prima_paine_en.htm

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COPY SHOP Copy shops offer photocopies, printing, and sometimes typing and preparation of documents. They are generally operated to provide employment for clients, and their success is highly dependent on the level of competition locally. Often equipment and startup expenses are provided by donations. Benefits - A copy shop can provide rewarding and appropriate employment opportunities for clients. - Clients’ employment experience can enable them to transition into mainstream employment. - The copy shop’s services can be used by the parent organization. - Successful business models exist and the service is well understood. - Relatively little training is necessary to work in a copy shop. Challenges - The level of competition is often high. - It can be a challenge to fill a short-turnaround order. - The organization should find a way to differentiate its service from others. - Start-up costs can be high. Donated equipment may be too outdated to provide the quality of service required. Questions to ask yourself - Is there a high level of competition already? Would you be able to offer something different to the market? - Will it be possible to get donated equipment that meets your needs? - Will you provide additional business services, such as typing, faxing, layout? Doing so will help to increase both sales and clients’ experience but also requires additional expertise and equipment. Things to consider - Will you be able to provide the new technology your customers may demand (such as color printing)? - Copy machines can be leased or purchased. Carefully consider the pros and cons of each, as well as service agreements. - Will you serve primarily business or walk-in customers? The type of customer you expect will greatly influence the type of services and location that you require. Keys to success - Excellent customer service. - Reliability.

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LANDSCAPING A landscaping enterprise provides gardening and other outdoor maintenance services for public and private clients. These enterprises typically aim to employ clients. The range of services is diverse, but social enterprises focus primarily on maintenance and basic landscaping services. Benefits - Outdoor work is therapeutic and good experience for clients. - Positions are generally appropriate for the experience level and ability of clients. - The business can sometimes gain public contracts because of its nonprofit status. - Because this is a service industry, start-up costs can be low. Challenges - While many positions in a landscaping business are appropriate for clients, it can be a challenge for them to perform at the level of efficiency and quality demanded by the customer. - Some expertise is required (e.g., to operate machinery). - There may be a lot of competition. - Depending on your location, landscaping may be a seasonal business, as most tasks are performed in the spring and summer. Questions to ask yourself - Do you have access to start-up capital for equipment? - Do you have access to landscaping expertise? - What kind of landscaping will you provide? More specialized, to enable you to charge a higher price? More basic, to reflect your mission (employing low-skilled workers)? What does this imply for the operations and financial potential of your enterprise? - Will you grow the plants yourself or buy from a supplier? Things to consider - What mix of clients and other employees will keep productivity up without overextending clients? - Because work is performed in different locations, transportation is an important consideration. Will your clients be able to get to the job sites on their own? Will you be able to provide transportation from a central location? Keys to success - A diverse customer base with long-term contracts. - The right mix of employees to ensure jobs are done without overtaxing clients. - Excellent customer service. - Personal contact with customers and networking with potential customers.

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- An understanding of the market that will enable you to offer the right service at the right price. - An efficient and well-planned operation that will integrate clients into your team while still providing a high-quality service.

Description: Comunidad Terapeutica Peñalolén (CTP), now known as Cordes, is a nonprofit organization in Chile with the mission of promoting the social rehabilitation and employment of adults with schizophrenia and other mental health problems. CTP launched a gardening service in 2002 to provide employment for clients and their parents, who participate in their children’s therapeutic activities. The main services offered were creation, maintenance, and cleaning of public and private gardens and parks. The organization was able to gain a large contract quickly, which led it to launch the enterprise before finalizing a full feasibility study and business plan. CTP operated the gardening service for over a year with only this one client. The positive mission impact was that two people were employed in the mainstream labor market as a result of their experience, and other participating clients responded positively to being part of the enterprise. However, CTP realized that the enterprise was not sustainable, for a variety of reasons. Challenges: - The enterprise required a more complex operation than expected, particularly since the client—a zoo with an emphasis on educational activities for children—was located in an area with no public transportation. Since CTP’s clients are unable to drive, this was very difficult to manage logistically. - Costs were higher than expected, in part because of the transportation problems. - One of the initial goals of the enterprise was to provide employment for clients. This goal was met to some extent, but CTP also found that as business increased, the organization felt it could not increase the pressure on clients to work harder because of their mental health conditions. As well, there were some challenges in working with the public and helping customers understand the goals of working with people with mental health problems. - In Chile, recipients of mental health pensions are not allowed to work; if they receive wages, they will lose their pensions. There are no legal provisions for partnerships between private enterprises and therapeutic com-

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munities for inclusion of patients. CTP’s clients did not want to risk losing the pension, which left the organization with the moral dilemma of running a social enterprise on the free labor of their clients. Because of these challenges, CTP decided to shut down the gardening services enterprise. However, the organization learned from this experience and is currently beginning the business plan process for a new social enterprise. (This time they will finish the plan before launching the enterprise!) Lessons: - In planning its venture, CTP did not fully take into account its clients’ skills and limitations. This was particularly relevant for planning transportation, for assessing staffing structure, and for growing the business and meeting the clients’ needs. - A thorough planning process would have avoided many of the challenges CTP faced. A strategic plan would have helped the organization develop appropriate strategies to manage these key issues—or to decide that the enterprise was not a good fit before investing time and resources.

ARTS

AND

CRAFTS

Many mental health and intellectual disability organizations consider the sale of arts and crafts as a natural enterprise for them, as they already have arts and crafts programs in existence for their clients. While some organizations have been able to successfully launch arts and crafts–based enterprises, many others have found that at best they can operate as a cost-recovery program. This is primarily due to the quality of the products, compared with those already on the market, or to the limited quantity that clients are able to produce. Benefits - This can be very fulfilling work for clients. Many organizations have an arts and crafts program purely for therapeutic reasons. As well, sometimes clients with mental disabilities are able to perform repetitive, detail-oriented tasks, such as those involved in crafts, for a longer time than the average employee. - The understanding of and customer base for social marketing are more prevalent in the artisan industry. Customers may be more likely to buy your product because of your program’s social impact. Challenges - Prices for arts and crafts are limited, and in order to make a profit, you may need to sell more products than your clients are able to produce. This is primarily an issue for less unique products, such as candles and baskets. - Often the focus is on selling what clients produce, rather than what the market demands. It can be difficult to ensure that clients consistently produce work that is salable.

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- It is often challenging for nonprofits, particularly in rural areas or small cities, to gain access to the customers who would purchase their products. They therefore rely on retail stores that take a large percentage of the sales price. Questions to ask yourself - Can your clients produce the quality and quantity to make the business model work? - Is there a market for the arts and crafts you are producing? Can you make something different? - Can you publicize the fact that this is a social enterprise? Will that positively affect sales? - Who are your target customers, and how much are they willing to purchase? - Where will you sell your products? At craft shows, local shops, on the Internet? - Is this a seasonal business (e.g., will sales be highest during the Christmas season)? Keys to success - Ability to produce quantity and quality that market demands. - Products that meet both the abilities of your clients and the demand of the market. - Unique products that will draw more customers.

Description: Corporación Bresky is a civil society organization based in Valparaíso, Chile. Bresky’s mission is to work for the rights of people in psychiatric treatment, promoting, facilitating, and researching all feasible alternatives to improve their current conditions of social isolation, marginalized employment, poverty, and poor health. Bresky began holding artisans’ workshops as a program to provide activities for clients and is in the process of completing a business plan for expanding this program into a full social enterprise. The enterprise will produce and sell clay and glasswork crafts designed in the corporation’s sheltered workshop. The enterprise has the mission-related goal of providing employment to mentally disabled people and the financial goal of generating sufficient profits to finance the organization’s two daycare centers, which serve mental health clients of all ages.

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Challenges: The workshops are currently active as programs, and the transition to a social enterprise has held many challenges for Bresky. These include - The need to focus on a specific niche and product offering. The wide range of products produced in the therapeutic programs will not be appropriate for the enterprise. - Finding distribution channels that will allow Bresky to reach its target customers without great expense. - Launching the enterprise in stages. The Bresky workshops are making a range of products, and in the beginning of the social enterprise development process it was tempting to launch an enterprise that would sell them all. However, the target markets for the different products are quite different, and the organization is having to define a core set of products with a clear target market and distribution channel. Lessons: Corporaci贸n Bresky is a good example of an organization transitioning from running a therapeutic program to developing a cost-recovery social enterprise. Several important points are illustrated here: - The need to clarify mission and financial goals from the beginning, making sure to reconcile goals that are not compatible. For example, some products should be continued for therapeutic reasons but should not necessarily be sold on the market. They can be used for other purposes. - The need to change from an internal focus (what do we know how to make) to an external focus (what does the market demand) and to find ways to meet this demand. - The importance of understanding and analyzing both the market and the distribution aspects of an enterprise. www.bresky.cl

CONSULTING

OTHER NONPROFITS/SERVICE PROVIDERS

Some organizations do not choose to pursue the employment-generating model, and instead build on the expertise they have developed in other areas. In this type of social enterprise, organizational leaders, staff, and specifically assigned team members provide consulting services to customers for a fee. In general, the goal is to generate profits for the organization, but consulting can also have a positive mission impact by increasing the number of individuals or organizations targeted by the organization, increasing the professionalism of the nonprofit sector, or raising awareness of the issues involved.

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Benefits - Start-up costs are low. - Consulting has the potential to be quite profitable. - Offering consulting services builds the professionalism of the team and the image of the organization. - Offering consulting services helps the organization diversify its revenue sources. - Consulting can increase mission impact. Challenges - Core program staff generally provide consulting services, which can tax staff capacity. - It is important to communicate clearly with stakeholders about the goals of consulting and to differentiate these from other program goals. - This is a new area. Nonprofit services are an emerging business in many regions. Many recipients of these services are accustomed to receiving them free of charge, and other organizations offering similar services may become competition, changing the quality of the relationship between organizations. Questions to ask yourself - Do you have sufficient expertise in an area for which consulting is in demand? - Do you have the experience and ability to train others? Knowing a skill and being able to train someone else in that skill are not always the same. - Is there a real demand for your services? Are those who are demanding your service also able to pay for it? - Does your staff have the interest and capacity to provide consulting services? Will consulting require time away from the office? - What impact will offering consulting have on your programs? Keys to success - Excellent customer service. - Good reputation and network. - Experience and skills in the area, plus ability to provide effective training. - Time management skills and tracking systems. - A system to reduce preparation time and build on lessons learned.

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Description: Estuar provides consulting services on CSO development, management, strategic planning, and improving work performance and employee relations. These services are provided to CSOs and to companies on a fee-for-service basis. Estuar has developed this service based on its successful operation of a national-level organization and its excellent reputation in the sector. Challenges: - The primary expertise needed for consulting comes from senior management, who have limited time and capacity. - Organizations within the nonprofit sector have limited resources available to pay for consulting services. Lessons: Estuar has developed a revenue source using one of its core competenciesâ&#x20AC;&#x201D;effective organizational management. This is a good example of an organization thinking creatively to find ways to generate additional revenue to support its mission activities. www.estuar.org

FEE

FOR

SERVICE

Many CSOs have realized that while their mission is to provide services to people with mental disabilities, that does not necessarily mean that they have to provide these services for free. Some organizations have begun to charge a fee to clients who can afford it, helping to recover some of the costs of the services. A sliding-fee scale can be implemented to ensure that programs are accessible to low-income people. Other organizations have begun to subcontract to the government, providing social services that were previously offered directly through the government. Benefits - Charging fees for services provides key financial support to core programs. - Sometimes clients value paid services more than those given to them at no charge. - Fees charged for services can be used as matching funds for grants or to cover overhead. - The additional revenue gained from fees can result in a greater number of clients receiving services.

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Challenges - It may be difficult to communicate the change to constituents, especially if the services have been free in the past. - It is necessary to ensure that low-income clients can continue to benefit from your services if that is part of your mission. Questions to ask yourself - Is it core to your program to offer free services? - Are some of your clients able to pay even a small amount? Things to consider - If your staff is paid based on a percentage of income, be sure to consider the mission impact of different incentive programs. - Research the market price of your services and price yours appropriately. - Who is paying? The payer is not always the person receiving the service. Will your customers be institutions (e.g., corporations, universities) that are offering these benefits to their staff or clients? This is a critical point that will affect your planning and marketing. For example, if your customer is a university that offers your services to students, your marketing strategy will be significantly different from what it would be if you were marketing your services directly to the students. The payer affects the size of your target market, the number of customers you can expect, the price you can charge, and your overall strategy. - Even a nominal fee can help to cover costs. Keys to success - Potential recipients’ understanding of the value of the service and willingness to pay. - Ability of at least some of the recipients to pay. - A well thought-out cost structure that enables a proper mix of fundraising and fees that will cover costs. - Effective communication about why you are charging and what use will be made of the fees.

Description: La Morada, a nonprofit organization in Santiago, Chile, is dedicated to improving the lives of lowincome Chilean women. Through direct service, counseling, and advocacy they address such issues as workplace discrimination, domestic violence, and women’s unequal access to health care. In the realm of public policy, La Morada encourages women’s participation in Chile’s newly founded democracy to create policies that benefit the nation’s under-served women. La Morada’s Eloísa Díaz Clinic and Investigation Center offers individual psychological therapy with a psychoanalytical focus to women in the Santiago area. The Clinic currently serves mainly low- to middle-income

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women, using a differential fee scheme according to the patient’s ability to pay and enabling low-income women to receive high-quality services. The clinic has well-defined objectives for the social enterprise in several areas. Social objectives: - To improve the quality of life for women in the Metropolitan Region. - To increase the relevance of civil society’s role in decentralizing mental health services by increasing its accessibility to all sectors. - To expand the space for open discussion and critical reflection of the role of women’s mental health in Chile. Financial objectives: - To initiate a sustainable self-financing strategy for the mental health center. - To make an economic contribution to the organization’s strength and sustainability. Organizational objectives: - To increase the impact of La Morada’s mental health support activities. - To position the clinic as a benchmark for quality in training new health care professionals from a feminine point of view. - To strengthen the professional team working at the clinic so they can optimize their work with clients and their research on women’s issues. Lessons: La Morada had to carefully consider the goal of its programs. The organization determined that its purpose was to provide services to women, not necessarily to provide free services to women. By charging on a sliding-fee scale, La Morada was able to increase the number of clients who were able to pay a higher fee for the clinic’s services while maintaining the existing client base, which pays a lower fee. By soliciting several large university contracts, the clinic was able to guarantee a minimum number of monthly repeat clients. Rather than staff the clinic with independent contractors, as before, the social enterprise has enabled the clinic to employ psychologists on a part-time basis and to allow them to spend part of their time on professional development, research, writing, and teaching. Overall, the sliding-fee structure has allowed La Morada to sustain and increase the impact of the clinic and to apply systems and lessons learned to other activities within the organization. www.lamorada.cl

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OTHER IDEAS In addition to the ideas explored above, there are many other ideas commonly explored by social enterprises in the mental health field that you might want to consider. - Janitorial/cleaning service (see Get Ready Get Set . . . Starting Down the Road to Self-Financing for a full study of Community Vocationalâ&#x20AC;&#x2122;s janitorial service) - Products for people with disabilities (manufacture or resale) - Recycling - Clerical services - Restaurant/catering service - Laundry - Greeting card manufacturing - Garden center/greenhouse - Packaging/assembly - Temporary services providing short-term labor to employers (see www.projecthired.org)

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enterprising mentality: A social enterprise guide for mental health and intellectual disabilities organizations Copyright ÂŠ NESsT 2005

CONCLUSION

enterprising mentality

Conclusion We encourage you to learn from these experiences and to use your imagination to explore the potential of social enterprises. It is crucial that you take your ideas through the development process and take into consideration the lessons learned by other organizations in the field. We have found that social enterprise is a challenging strategy, but one with valuable social and financial impacts when it is carefully planned and implemented. Please contact NESsT for further information.

enterprising mentality: A social enterprise guide for mental health and intellectual disabilities organizations Copyright ÂŠ NESsT 2005

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BIBLIOGRAPHY

enterprising mentality

Bibliography Judith Klein and Camilla Parker. “Making Social Inclusion a Reality: The Challenge for People with Mental Disabilities in Central and Eastern Europe.” Eurohealth. March 22, 2004. Available at: www.soros.org/initiatives/mhi/articles_publications/articles/easterneurope_03222004

NESsT publications. Available at: www.nesst.org/furthering_publication_tools.asp

Open Society Mental Health Initiative. Integrating the Disabled: Reports from Central and Eastern Europe and the Former Soviet Union. December 9, 2003. Available at: www.soros.org/initiatives/mhi/articles_publications/publications/integrating_20031209

Raymond J. Struyk. Contracting with NGOs for Social Services: Building Civil Society and Efficient Local Government in Russia. Available at: www.urban.org/UploadedPDF/410871_ContractingwithNGOs.pdf

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enterprising mentality

NESST PUBLICATIONS

NESsT Publications

Publications designed for donors, nonprofit leaders, philanthropists and researchers worldwide to help foster the effective and responsible use of enterprise activities in the nonprofit sector.

NESsT www.nesst.org

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enterprising mentality: A social enterprise guide for mental health and intellectual disabilities organizations Copyright ÂŠ NESsT 2005

NESST PUBLICATIONS

enterprising mentality

“Profit” is often considered an inappropriate or unattainable concept in the “nonprofit” world. Business activities are said to take the attention and resources of nonprofits away from their core mission. However, some nonprofit, civil society organizations (CSOs) can actually further their mission and increase their long-term viability, efficiency and independence through “selffinancing.”

Self-financing (e.g., social enterprise) refers to a number of entrepreneurial approaches to generating income. These methods include membership dues, fees for services, product sales, use of “hard” or “soft” assets, ancillary business ventures, and savings or other investment dividends. Self-financing strategies are currently used by many CSOs around the world. However, few resources and tools exist to help nonprofit practitioners use self-financing strategies more effectively and responsibly. Nor has there been sufficient critical examination of the impact and implications of such entrepreneurial activities on nonprofit organizations specifically or the nonprofit sector generally.

NESsT is an international, nonprofit organization working to support social enterprise in the emerging democracies of Central Europe and Latin America.

The NESsT Publications Series was designed to further the theory and practice of nonprofit self-financing by providing useful analyses and tools to donors, practitioners, researchers and students. The publications document experiences from around the world and examine the recurring challenges organizations face when attempting to use selffinancing strategies. They also provide CSO practitioners the necessary tools to determine how or whether to implement self-financing strategies.

NESsT

NESsT’s mission is to help strengthen the financial sustainability of CSOs working for systemic social change. Revenue from the sale of NESsT publications is used to support our work with nonprofits around the world.

Email: nesst@nesst.org www.nesst.org

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enterprising mentality

NESST PUBLICATIONS

NESST LEARNING SERIES Risky Business: The Impacts of Merging Mission and Market

Not Only for Profit: Innovative Mechanisms for Philanthropic Investment

Risky Business: The Impacts of Merging Mission and Market, examines the impact - both financial and nonfinancial of entrepreneurial activities on small social (2004; 286 pages) change organizations. Price: US $30 plus An important contribushipping and handling tion to the growing debate on “social E-BOOK (PDF format) Price: US $15 plus return on investment,” shipping and handling Risky Business uses ISBN 1-930363-04-4 analyses of 45 social enterprise cases from 15 countres to examine impact in terms of financial performance, mission/values, organizational culture, relations with stakeholders, etc. Risky Business challenges many of the assumptions made about performance “measurement” and “metrics”, pointing out the unique challenges of quantifying and qualifying the financial and social impacts of social enterprise. Risky Business is published in both English and Spanish.

Not Only for Profit documents the work of 11 pioneering “philanthropic investment” organizations in Europe, North and South Americas who are developing innovative mechanisms for using investment capital to achieve philanthropic or charitable goals. Through inten(2001; 250 pages; sive interviews of fund 176 mm x 250 mm) managers, investors Price: US $35 plus shipping and handling. and investees, NESsT ISBN 1-930363-05-2 examines the wide range of financial tools (e.g. debt, equity and grants) used by each organization, their approach to capitalization, risk management, portfolio selection, management, capacity-building, performance evaluation and exit strategy. NESsT uses these cases, along with information on some 40 other “venture philanthropists,” to establish a framework for donors and investors to understand the array of creative investment tools that can be applied to achieve philanthropic objectives. Not Only for Profit is the first book of its kind to offer a broad and deep analysis of the emerging “nonprofit capital market.”

Also in SPANISH ISBN 1-930363-07-9

ISBN 1-930363-06-0

Profits for Nonprofits: An Assessment of the Challenges in NGO Self-Financing

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The InterFFR RE EE E! ! national Venture Philanthropy Forum was the first event of its kind to bring together corporate leaders, foundations and philanthropists to share practical lessons from the field of venture philanthropy and to bring greater international attention to the shortcomings of the current “nonprofit capital market.” To view transcripts and presentations from the event visit the Forum website: www.nesst.hu

The NGO-Business Hybrid This seminal study examines 15 cases of T NGO-B HE nonprofit organizations US HYBRI I NESS D: in 13 countries and IS PRIVATETHE their attempts to S EC TOR THE A NSWER generate income ? through for-profit business activities. The first publication of its kind to examine self-financing (1997; 138 pages; among nonprofits 215 mm x 279 mm). in the “developing Price: US $20 plus world.” shipping/handling. From NESsT and the Program on Social Change and Development at the School of Advanced International Studies (SAIS) at the Johns Hopkins University, Washington, DC. TH E NGO -BU S I NES H YB S RID :

SPECIAL OFFER!!! Also in SPANISH

Enterprise activities are not for all nongovernmental organizations (NGOs), nor are they easy for those NGOs that do venture into the marketplace. Profits for Nonprofits examines the practical challenges and obstacles in implementing self-financing. The 20 Central European NGO enterprises documented in Profits for Nonprofits have not succeeded without significant effort, risk and sacrifice. The cases illustrate that management, access to credit, conflicts between for-profit and nonprofit mission, legal, tax and regulatory issues, potential fallout and competition with forprofit small-businesses, public accountability, ethics and potential abuses are all recurring issues that the NGOs face in using self-financing strategies. However, Profits for Nonprofits illustrates that, while not the panacea, self-financing can generate income and further the mission of nonprofit parent organizations.

Coming Soon!

Order Profits for Nonprofits together with NGO Venture Forum and save US$5. Also means savings on shipping!

The NGO Venture Forum: Lessons in Self-Financing from the International Gathering The NGO Venture Forum is a handy “primer” for anyone seeking to better understand the fundamental issues of enterprise activities in the nonprofit sector. In 1999, NESsT convened a worldwide group of 75 leading thinkers and practitioners to examine strategies for supporting the enterprise activities of NGOs. Developed from the official NGO Venture Forum proceedings, the book (1999; 192 pages; contains chapters on: 176 mm x 250 mm). • how self-financing contributes to NGO sustainability; Price: US $30 plus • the unique ethical challenges of introducing shipping/handling. profit motives into mission-driven NGOs; ISBN 1-930363-01-X • “social auditing” as a method for measuring the “. . . should be essential reading for impact of nonprofit enterprise; • assessing NGO capacity for donors and practitioners alike self-financing; throughout the world . . . a highly (1999; 92 pages; readable contribution to the expand- • models of business planning 176 mm x 250 mm). ing debate about a nonprofit capital for nonprofit enterprise; Price: US $20 plus • capitalizing NGO enterprises. market . . .” shipping and handling. -- Malcolm Hayday, The Charity Bank (London) The NGO Venture Forum is an ISBN 1-930363-00-1 excellent introduction to the emerging field. enterprising mentality: A social enterprise guide for mental health and intellectual disabilities organizations Copyright © NESsT 2005

NESST PUBLICATIONS

enterprising mentality

NESST CASE STUDY SERIES NE N EW W!!

The NESsT Case Study Series provides in-depth, practical accounts of nonprofit enterprise and venture philanthropy activities. Starting with general background information on the mission and programs and the financial situation of each organization, the cases walk readers through the steps taken by organizations to start up, manage and develop enterprise and/or venture philanthropy activities. NESsT cases are excellent real-life teaching, training and research tools. Case Nos. 1-3: “Enterprising Foundations” Case Set: How can local grantmaking, community foundations use enterprise activities to build their endowment and sustain their activities? This is the question addressed by the first set of cases produced by NESsT in cooperation with the Synergos Institute. The cases focus on three Latin American foundations that use innovative enterprise activities to raise funds for their grantmaking activities and programs. Case No. 1: The Corona Foundation, a private, corporate foundation dedicated to social development in Colombia, uses a conservative investment strategy to invest all hard assets donated by its corporate founders for its endowment, using only cash donations for grant-making purposes.

Case No. 2: Hogar de Cristo, the largest operating foundation in Chile, raises 82 percent of its revenues through five types of selffinancing. The myriad of enterprises range from membership fees, to sale of products and services, to royalties and real estate rental income. Case No. 3: The FES Foundation, formerly one of the largest community foundations in Colombia, established Permanent Matching Funds as a way to build its endowment.

Get Ready, Get Set... Starting Down the Road to Self-financing

The first document of Get Ready, Get Set... is its kind, Commitment to designed to help the Integrity is a “code of ethics” staff and board of a for the self-financing nonprofit organization or enterprise activities consider their options of nonprofit organizafor self-financing. Get tions. The principles, Ready, Get Set... is a (2004; Includes work(2000; FREE! developed by NESsT beginner-level handbook binder with 38 2 pages, in cooperation with book that helps you worksheets, 210 mm x 297 mm) colleagues around decide whether (and 40-page case book Price: One copy free the world, address the with each purchase of how) starting up or & 80-page guide book; ethical dimensions of expanding a social 176 mm x 250 mm) other NESsT publications. Price: US$35 plus CSO commercial enterprise can help ISBN 1-930363-02-8 shipping and handling. activities in four key your organization ISBN 1-930363-03-6 areas: reach its financial and • commitment to mission and values; mission goals. Get Ready, Get Set... will help you • commitment to transparency; assess your readiness for social enterprise; • commitment to fairness; identify enterprise opportunities that match • commitment to accountability. your core values, mission, competencies and goals; and assess the feasibility of The principles are intended to enterprise ideas and your capacity to help nonprofit leaders recognize undertake them. Get Ready, Get Set... and better prepare for these ethiguides you through these “preplancal dimensions of entrepreneurial ning” stages of enterprise developactivity. Commitment to Integrity is a ment using: 1) a guide book outlinpractical tool to help you ensure ing each step in the process; 2) a that ethical and responsible stanworkbook of practical exercises; and dards are upheld at every stage of 3) a case study with six vignettes that your enterprise planning and provide a real-life example of how a development. nonprofit applied each step of the Also in SPANISH Also in SPANISH process. Get Ready, Get Set... is a perISBN 1-930363-08-7 fect roadmap for those considering Also available in Adobe Acrobat. PDF format in English and Spanish. a journey down the road to self-financing.

All NESsT case studies are All case studies also available approximately 20-30 pages in SPANISH in length (210mm x 297mm) Individual case price: US$8 (plus shipping and handling). Special offer !!! Save US$4 by purchasing any 3 case studies together for only US$20 (plus shipping and handling).

Case No. 4: Casa de la Paz (Chile) generates income for its activities in citizen participation, environment and conflict resolution through consulting contracts. Case No. 5: CIEM Aconcagua (Chile) generates income for its community development work by offering workshops and trainings and selling artisanal goods. Case No. 6: CODEMU (Chile), a labor rights group for women textile workers, generates income through its trainings and a for-profit laundromat in Santiago. Case No. 7: Mexfam (Mexico) generates 40% of its income through the sale of educational materials and products for family planning, health and sex education. Case No. 8: Fundamor (Colombia) generates more than 60% of its income from numerous enterprises in support of its services to children living with HIV/AIDS. Case No. 9: Fundaempresa (Colombia) generates nearly 80% of its income from trainings and consultations on business planning and enterprise development.

Commitment to Integrity: Guiding Principles for Nonprofits in the Marketplace

NESsT LEGAL SERIES The NESsT Legal Series consists of country-specific guides to help CSOs NEW! understand the legal/regulatory framework for social enterprise in their country: how such activities will affect their nonprofit status, how such income should be reported or how it is taxed. With extensive input from lawyers, accountants, nonprofit practitioners, tax specialists and others, the guides provide an assessment of: 1) what the current law states about CSO commercial activities; 2) how the current law is/has been interpreted; 3) effects of the law on the nonprofit sector; and 4) recommendations for NESsT Legal improving Guides are the law. approximately The first two 25-35 pages guides in the in length. legal series (for Chile PPrr iicce e:: US$12 and Colomper guide bia) are now (plus shipping available in and handling). English and Spanish.

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enterprising mentality

ABOUT NESST

About NESsT NESsT is an international, nonprofit organization dedicated to finding lasting solutions to systemic poverty and social injustice through the development of social enterprises â&#x20AC;&#x201D; mission-driven businesses that increase the financial sustainability and social change impact of civil society organizations. NESsT achieves its mission through four initiatives that combine the tools and strategies of business entrepreneurship with the mission and values of nonprofit entrepreneurship: - NESsT Venture Fund: philanthropic investment funds providing capital and capacity-building support to portfolios of social enterprises in the emerging market countries of Central and Eastern Europe and Latin America; - NESsT University: promoting accountability, innovation, leadership and professionalism in the social enterprise field; - NESsT Consulting: providing professional training and consulting services in social enterprise development to clients in more than 40 countries worldwide; - NESsT Marketplace: a global on-line shopping portal enabling social enterprises to reach a wider consumer market for their products and services. Founded in 1997, NESsT has been a pioneer in the engaged philanthropy field, particularly in emerging market countries. NESsT is incorporated as a nonprofit organization and operates from regional offices in Budapest (Hungary) and Santiago (Chile), with a representative office in California (USA). The NESsT team represents a combination of nonprofit and business professionals and six nationalities. NESsT receives support for its work from leading private philanthropies, individuals and corporations, principally in the European Union and the USA. Approximately 30 percent of NESsTâ&#x20AC;&#x2122;s annual income is self-generated through is consulting enterprise. In 2004, NESsT was awarded the Skoll Award for Social Entrepreneurship by the Skoll Foundation.

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enterprising mentality: A social enterprise guide for mental health and intellectual disabilities organizations Copyright ÂŠ NESsT 2005