Social Enterprise Conference

October 30-31, 2006

Social EnterpriseBusiness Planning Workshop

Presented by:Kim Alter

Virtue Ventures LLC

Presentation OutlinePresentation Outline Social enterprise business plans Why? What for? What?

Difference from regular plans SE Business plan components Q & A

Great planning tool for nonprofit Strategic Grounded in reality Responds to market forces Many uses

Most nonprofits lack knowledge of how to prepare b-plans

Demanded by more donors “Failing to plan is planning to fail”

Why Business Planning?

What is a SE Business Plan?

A detailed presentation about your social enterprise that demonstrates how it will succeed in business and financial terms AND the social impact that it will create.

5

Why Do you Need a Business Plan?

For the investor/donor: Evidence of the nonprofit’s ability to conceive and execute an enterprise idea

Use – sales document

For the social entrepreneur: A planning framework

A management tool for resource allocation and decision-making

Use – Management and operations plan

Purposes Planning Framework Articulates vision and mission Sets goals and objectives Defines strategies and specific actions to achieve objectives

Measures results Communicates ideas, plans & social value

Projects necessary resources, expenses, & revenues

Provides a basis for SOUND decision-making

Business Plans vs. Proposals

Business plans are: Flexible documents

that change in accordance to market forces

Results-oriented Market-driven Internal management

tool/blueprint for project

Open - treat project as going concern

Proposals are: Fixed for the life of the project or funding period

Process-oriented Donor-driven Not usually used as management plan for project

Closed – treat projects as time-limited

A Road Map

Business plans chartthe course to realize the organization’s vision.

To Vision

2 new senior Staff hired

25Links

betweenbusiness &

citizen’s sector

Social Entrepreneur Acquisition up

20%

Anatomy of a Business Plan

Vision

Mission

Marketing Plan

Operations Plan

Human Resource

Plan

FinancialPlan

Concept & ObjectivesMarket Research

Information FlowsInformation FlowsMission

Objectives

Market Research:Target Market

Competitors/external factorsBusiness Assessment

MarketingPlan

OperationsPlan

FinancialPlan

HumanResource

Plan

Vision

FinancialPlan

FinancialPlan

ContingencyPlan

Social Enterprise Conference

October 30-31, 2006

What’s Different about Social Enterprise Business Plans?

12

Business Plan Components

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

SE vs. Regular Business Plan

Regular business plan single focus Financial bottom line only Profitability and financial return Reflects decisions to earn maximum $ Shareholders simple

Social enterprise business plan has double focus Multiple bottom lines: social, financial, environment

Social returns (impact) Reflects decisions to manage dual objectives Stakeholders complex

Final business plan documents look similar

Objectives are Aligned

Vision

Social ImpactObjectives

Social ImpactObjectives

Sustainability Objectives

Sustainability Objectives

Mission

Examples of SE Objectives Social Impact(target population) Scale

Services rendered

Clients served Economic security

Health benefits Education Skills/Capacity

Financial Viability(social enterprise) Cost efficiency Net profit/loss

Cost recovery Donor dependency

Costs savings public sectorObjectives defined by nature of social enterprise

and results being measured

Social Value Proposition Indicates the problem your social

enterprise is solving for its clients & beneficiaries and how much value they place on the resolution of this problem. You can do this by telling how your social

enterprise will create change in beneficiaries’ behavior, condition, or quality of life and how important that impact is from the clients’ perspective.

Market Research Traditional B-Plan

Opportunities & Barriers Industry dynamics Demand & Market

Social Enterprise B-Plan

Social Need Social problem enterprise is trying to mitigate

Specific social needs of clients/beneficiaries

Community and environmental Impact

Target Market Same for traditional & social enterprise Business plans Who are your customers?

What are their wants, needs, tastes, preferences?

Where are they? What are their characteristics?

Social Enterprises have several stakeholders they often view as “customers.” Target market are ONLY those buying social enterprise products and services.

Note: donors and clients may be customers

The Five Plans for All B-Plans

Marketing Getting products and services to target market

Operations Day-to-day functions of running your social enterprise

Human Resources The people you need to execute your enterprise

Finance Capital required to finance social enterprise and project income earned.

Contingency Plans What could go wrong and what will you do about it if it does?

Standard Marketing Plan Objectives Marketing mix: 4 Ps

Product Promotion Price Place

Sales Plan On going market research

SE Product Market Matrix

Existing ProductExisting MarketSelling to clients

Or donors

New ProductExisting Market

Selling to clients or donors

New ProductNew Market

Open

Existing ProductNew Market

Selling NGO services to External customer

SE Marketing Considerations In addition to standard marketing plans designed to reach paying customers for a SE’s products and services… Is there an outreach component for the target population?

Obligations to stakeholders—i.e. donors and social investors? Partners or networks?

Pricing considerations for target group? PR component to protect organization’s reputation?

Standard Operations Plan

Objectives Manufacturing Systems:

Information Management Inventory management Impact Measurement

Order fulfillment Quality control R&D Customer service Budget

Operations adaptations for SE B-Plan

Social Impact and Monitoring Systems Systems that collect and measure social impact

Direct Impact Indicators Result of social enterprise

i.e. Jobs created, income per client, scale of services

Indirect Impact Indicators Indirect result of social enterprise

i.e. improved housing, quality of life, social conscience

Human Resource Plan Traditional B-Plan

Management team Roles & responsibilities of various actors

Staffing and recruitment plan Governance

Social Enterprise B-Plan + Capacity building plan

Staff, institution, target group + Considerations for SE staffing duality

Program and business

Schizophrenic Staff Plan Business

Functional business skills

Marketing Accounting Operations

Led by Enterprise Manager

Industry Specialists

X Manufacturing Y Retail

Social Program Programmatic skills

Aid workers Social workers Humanitarian relief

Led by Program Manger

Program specialist X Doctor Food Security expert

Educational specialist

Structure and relationship to players

SocialEnterprise

Contracted Technical Assistance

Parent Organization

Partner

Clients

Parent Organization

Technical Assistance

Clients

SocialEnterprise

Capacity Investment Choices

A Job Hard Skills Soft Skills

Client Productivity

Return on Investment?

Credit/Savings Education Literacy Heath

$Job hard skills soft skills credit/savings education

$$$$

Capacity Building PlanCapacity

Building Method Benefit to Enterprise Mission

On-the-job training

Provide a job Skilled labor

Processing skills

Training/TA Improves productivity, product quality

Inventory tracking

Training/TA Improves inventory management

Soft skills Training/practice

Stabilizes work force

Leadership development

Training/practice

Higher self-esteem, morale, productivity, self- management

Savings program

Savings service

Reduces risk aversion through financial security

Health services

Health program linkage

Improved health = higher productivity No

Financial Plan Traditional B-Plan

Objectives Financial statements:

Income Statement – financial bottom line Balance Sheet

Cash flow Projections/Statement Social Enterprise B-Plan

+ SE financial objectives + Social expenditures in business activities

+ Income Statement - social bottom line + Resource Acquisition Plan

Includes grants and gifts

SE Financial Objectives In addition to regular financial objectives Decrease in donor dependency Cost recovery of social services Operating self sufficiency Cost efficiency to render social services

Target group income (also social impact)

Cost savings to social system (value of tax)

Community wealth creation

Financial Projections

SE Revenue SE Expense Business Expense Business revenue

$$$

Years

Social EnterpriseBreakeven Point

Private Business Breakeven Point

Role of Income and Subsidy

Years Enterprise Revenue Social Expense Business Expense

Breakeven AFTERSocial Costs

Breakeven Before Social Costs

Social Subsidy

Investment

EnterpriseRevenue Subsidizes Social costs

Double Bottom Line

Income Statement

Total Operating Expenses

Total Gross Revenue

NET PROFIT/LOSS BEFORE SOCIAL COSTS

= Financial Bottom Line

Less Social Costs = Social Bottom Line

NET PROFIT/LOSS AFTER SOCIAL COSTS

= Double Bottom Lines

Subsidy in Income Statement

Income StatementGross Profit Income earned

through enterprise

Operating Expenses (before taxes)

Costs related to operating enterprise

NET PROFIT/LOSS (before taxes)

Income less expenses

Subsidy Less Grants, donations, gifts

NET PROFIT/LOSS AFTER SUBSIDY

Total lost or gained after

subsidy

Financing mix and resource acquisition

Year 1 Prospect

Year 2

Prospect

Earned income (sales)

Interest income

Parent organization

Grants

Gifts/contributions

Soft Loans

Commercial loans

Social Return and Impact

“ Social Bottom Line” for social enterprises.

Social Return on Investment (SROI) measures the social value the social enterprise creates in financial terms as a ratio of the investment.

Social impact measures qualitative and quantitative social impact based on social objective and type of organization Most nonprofits are accustomed to using

this type of measurement.

Examples of social impact measures

Impact from employment based Social Enterprise

Impact from non-employment SE or hybrid

Asset accumulation Improved education

Scale Improved housing

Client income Quality of diet

Job Creation Access to health care

Skills acquisition Increased autonomy

Monetizing SE Value Enterprise Value = economic value of the enterprise. Cash flow analysis of business performance.

Social Value = direct demonstrable cost saving and revenue contributions

Blended Value = enterprise value + social value – debt

Social Enterprise Conference

October 30-31, 2006

Planning the Plan: Recommendations

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

Realistic (achievable) targets

Clarify/Test the Vision, Mission & Values

A social enterprise can challenge an organization’s vision and mission Test assumptions/commitment to vision and mission.

Ensure strength of mission Align enterprise mission to social mission

Confirm compatibility of enterprise vision and values exists within organization.

“Planning” is a Cultural Concept NGOs often have shorter planning horizons than businesses.

Utility of plans can be questionable.

Sparse history of sticking to plans.

Planning may go well with close supervision, but comes unraveled if left alone.

Planning 1-2-3 Time spent convincing nonprofits merits of B-Plans, is time well spent!

Include appropriate stakeholders.

Link human resource incentives to achievement of B-Plan goals.

Make it official: celebrate the completion of the Business Plan or important sections.

Avoid Planning by Committee

Know the Limits of participatory planning: Too slow to respond to changing market Inefficient Can reduce quality Fails to identify the roles of generalist and specialist in the process

Believes all enterprise players must participate in every aspect of B-planning.

Appropriate Participation Identify for which Business Plan elements consensus must be reached

For each section clarify individual and small group roles for output.

Set strict deadlines Devise incentives to meet deadlines

Set Realistic Planning Targets

Business planning takes weeks or months and requires ample resources. Develop the Business Plan work plan, including:

deadlines, key people, financial resource

Plan on ample time and money for research

Conservatism is the rule of thumb - do not be overly optimistic with targets

Be flexible to changes

Beware of the Project Mentality

Lack of business acumen and entrepreneurial drive.

Inefficient operations/systems/structures supported by a history of subsidy.

One of several projects within the organization. Conflicting priorities.

Short sighted (no vision that enterprise will be a going concern)

The Market Drives the BP Low understanding of demand (due to subsidy)

Poor customer orientation. Educate NGOs about market demand and how to test demand.

Incorporate potential customers into B planning process (market research).

Prepare contingency plans for key elements of market demand.

Practice wearing the hat of the customer

Open eyes to competition

Dynamic Process within Limits

Random BP changes steers programoff course.

BP changes must be based on sound business decisions.

Agree on BP elements that are nonnegotiable.

Educate on the conditions that warrant BP changes (market, environmental/industry changes).

Schedule Business plan reviews to discuss.

Market Research is Key Conduct thorough analyses of the market

Know what constraints and opportunities exist

Understand your strengthens andweaknesses

Make Bplan decisions informed by market research

Markets are dynamic!

Business issues can overwhelm social objectives; often receive low priority.

Financial goals are easier to set and quantify, than social goals.

Insufficient funds and inadequateskills/systems to measure social impact.

Setting Social Targets is Challenging

Social Targets Require Brutal Reality

Select impact measurements early and do a baseline study

Build information system to collect and measure impact.

Collect anecdotes evidencing social impact.

Budget for social impact monitoring.

Timing and manner of social impact dependant on vision and mission.

Plan the Exit as You Enter

Often at program’s end (however determined), players are confronted with issues not anticipated during start-up. Develop exit strategy in the BP, include :

ownership of assets, and revenues. financial assistance plan if viability will not be reached by end.

Structure HR – what happens to them?

Other exit issues are linked to compatibility with vision & mission.

Plan Transition Project to Enterprise Selected a suitable partner (businesslike, compatible mission, values).

Employ results-based contracts.

Encourage an enabling environment for transition.

Create a flexible market-driven structure.

Risk Analysis & Contingency Planning

Often nonprofits don’t think through BP impact scenarios on the organization. Build capacity to make accurate projections

Add in buffer for expenses Use “what if…” scenarios Develop “Plan B” for major decisions

Test BP assumptions Objectivity