Cheryl Sesnon, Nonprofit management Consultant
| Brief
Biography |
Paul Shoemaker, Social Venture Partners
| Brief
Biography |
Kay Sohl, Technical Assistance for Community Services, Portland
| Brief
Biography |
Putnam Barber, Moderator, The Evergreen State Society
| Brief
Biography |
PB: Could we start this discussion with each of you giving examples from your
personal experience of practices or organizations that are notable for embodying
the spirit of entrepreneurship in nonprofit work.
PS: It is not easy to define Social Entrepreneurship.
It is not necessarily about revenue generation, though it can be.
At it's heart, I think, Social Entrepreneurship describes individuals
and organizations that are constantly on the lookout for ways to use
the resources available to them more effectively. Three examples of
organizations that Social Venture Partners has worked with recently
are Homebuilders,
Project
Look, and a public school that found it could rent space in its
building at high enough rates to provide funds for extended services.
Each has assessed its resources and found ways to build on them. For
example, the school discovered enormous potential in the recognition
it had from parents and neighbors; it was broadly seen as a good place
for kids to spend time outside of school hours and for locating other
community based programs. With that information, the school is able
to look for ways the community can support an extension of programming
in support of its mission.
KS: Entrepreneurialism is actually a long-standing practice among
nonprofits. Program have charged on a sliding scale, for example, to
generate funds that allow reaching more people. And of course, day-care,
employment and community-development programs have long used program revenues in
this way.
Change is happening today though as governmental programs and funding
transitions away from grants and toward a purchase-of-services model. Often governments can
get very tied up in red tape. This move puts the programs in the context of
risks and rewards and offers opportunities for more effectiveness. In the
future, we will see growth in the numbers of programs that are supported not
through grants but by innovations in earned income. These changes often require
new skills of nonprofit leaders, though, and funders have been too often
reluctant to support developing them. We need increased investment in
financial management skills, for example, if organizations are going to be
responsible about accepting new levels of risk and successful in achieving
commensurate rewards. Social entrepreneurship can't mean that funders shift the
risks onto nonprofits without helping them recognize and manage those risks
effectively.
CS: My start in this kind of work was sort of through the back door. I
was serving on the board of an organization that was about to close. When
we looked at things from a business point of view, we were able to see
opportunities that had not yet been fully explored. Happily, we were able
to shift things to take advantage of those opportunities before it was too
late. And since then the program has been flourishing.
The idea of social entrepreneurship includes applying business principles
to nonprofits' operations. There are important differences in the way
entrepreneurial organizations work. But there are also important similarities.
The most important is the central focus on the mission; entrepreneurial
nonprofits want to see the mission fueled by their efforts. To make this happen,
they need to have their own infrastructure in place.
PB: How do you balance meeting needs today against the need to develop
infrastructure for expanded operations in the future? How do you choose
where to commit your resources?
KS: Every organization has to invest in developing infrastructure. It is
simply necessary to improve capacities.
PS: We need to remember to distinguish between the mission and the strategy.
Entrepreneurialism is about strategy, about adopting strategies to improve the ways you achieve your mission.
Bringing in the word "business" or the word "money" into the
conversation doesn't change the allegiance to the mission.
KS: There is a divide that is much deeper than the so-called digital divide.
This is the divide between the opportunities for organizations that have access
to capital and those that don't. Struggling communities often don't have the
same avenues for approaching funders; for this and other reasons, the
distribution of resources is not equal. Too often, organizations that are
already well-connected are the winners and those that are not end up
CS: I'm concerned, similarly, about the concept of "outcome
evaluation." It's a good idea, but too often it is adopted without
consideration of the necessary costs. A phenomenal amount of resources is
required to stay in touch with clients for months or years after they no longer
receive services or participate. The challenge for smaller organizations is very
difficult and they often simply can't accomplish the necessary tasks. What's
missing in too many cases is support for the tools needed to put these practices
in place efficiently.
PB: Does becoming more entrepreneurial represent a particular challenge for
boards? Must boards adopt new approaches to oversee entrepreneurial
organizations effectively?
CS: There are many different styles of entrepreneurs that range across a
spectrum from innovators through implementers to managers. Different styles suit
different programs, different degrees of risk. Boards need to
understand what sort of talents are required for the programs they want to see
in place and make the necessary decisions. There's a business practice that's
all too familiar in the nonprofit sector, the refusal to enter into any activity
that entails a realistic risk of failure. This leads to excessive caution
and rigidity. Organizations can do better if they assess their assets and
strengths carefully and agree on the degree of risk the board and the staff are
prepared to take. Failing to do adopt such an approach can cause programs
to fail and place severe stress on staff. It would be great if someone could
develop a tool that would measure the degree of alignment between the executive
and the board in terms of responsibility for strategies and innovations.
KS: Board need to look at the balance sheet and support practical down to
earth management. Often doing this requires a different business model from the
familiar nonprofits we are all used to. Boards are not set up to do
rapid-response business planning, they don't have the capability to do quick
decision-making. That sort of work is not included in the traditional governance
role of the board. The skills that are needed on the board depend importantly on
what sort of management team is in place. Boards can, of course, coach managers.
Social Venture Partners is a good
example of an organization that provides important resources to strengthen
management without confusion about the board role.
PS: Is the a set of characteristics that you see as identifying organizations
that are ready to take on social entrepreneurial activities?
KS: First, you need an executive director who can think through the financial
consequences from different possible courses of action. Second, the organization
must already be financially stable. Entrepreneurial activities involve risks
that shouldn't be assumed by organizations in trouble. And third, there need to
be adequate financial reporting systems, systems that allow all concerned to
track what has been happening and make informed forecasts about the consequences
of changes. I guess I think having a combination of the visionary and the
implementer is a key to success.
CS: It's important that organizations not take on huge changes. Whatever is
done needs to be monitored. A successful entrepreneur will reach out, ask for
help, engage other people in providing help. If you do everything by yourself,
you can only do what you already know how to do. Successful executives use help
effectively and hone their skills in asking for it, accepting it. In this
context, coaching relationships are invaluable. An organization that has such
relationships in place already compares favorably to one that would have to
create them.
PS: From a funder's perspective, the challenge is to make sure financial
support can be used in as innovative ways as possible. But that leads
immediately to questions about how to assure accountability.
KS: For me the measure should be sustainability over time. If community
organizations can sustain themselves and provide services that are working to
improve lives, that should be the measure of success. The costs of this new
emphasis on entrepreneurialism include potential reduction or elimination of services to those most in
need, using /financial rather than client-service or community-betterment criteria for
decision-making. At the same time there are important benefits including increased control and autonomy, potential
to direct resources more effectively, potential for consistency, and stability in
serving the community.
PB: Are there success stories you can share about organizations that have
been entrepreneurial without necessarily generating immediate earned income?
PS: I think immediately of the adult employment organizations that have done
so well at putting people back on their feet. And I could mention again
the public school I talked about earlier, where they recognized the value of
their "brand" for extending their ability to serve the community.
KS: Community development organizations have been doing this sort of thing
for years. I'm particularly interested in the groups that recognize that
low-income communities spend significant sums of money and look for ways to turn
some of that money into opportunities for neighbors. One example is
setting up home child-care businesses to meet a real need while keeping some of
the money recirculating within the community.
CS: We need to distinguish social entrepreneurship by general approach to
operations, not by focusing on generating profits.
PB: Are there questions from people in the audience that the panel might be
able to address?
Participant: What can be done to reduce the frequency of unrealistic
RFPs. It seems like we are seeing more and more announcements of programs
that would cost more to implement than the funder -- often the government -- is
offering to pay.
CS: Well sometimes it is necessary just to say "no;" to take
a pass on bidding on such RFPs. We once had a funder approach us and ask
that we make a proposal. We looked into it and decided not to. They
were surprised. But we told them the guidelines for their program meant
that we wouldn't be able to work in the way we felt would be best for our
clients and that the reporting requirements would consume too much of the
available funding.
Participant: Shouldn't there be some standardized way that funders make
clear which funding is seed money and which is for sustained operations?
PS: I hope the range of funding of all sorts will increase in the future. I
don't think funders are likely to set up specific line items that fit into those
sorts of categories. At SVP, we believe different kinds of funder fit
different purposes and as the range of funding options expands, there will be a
better chance of non-profits finding better-fitting funding sources.
CS: Yes. And the funding needs to fit the cause. We nonprofits
need to learn to build the relationships that can open funding
opportunities. The Cascadia
Revolving Loan Fund, for example, can help NPOs look at the potential of
using debt financing to expand operations in the future.
[picture of PS as panelist] PS: The language of the nonprofit sector is
changing. We are paying more attention to entrepreneurial
activities. At the same time, we need to recognize that NPOs that are not
entrepreneurial are not bad groups; not all NPOs should be entrepreneurial. At
the same time we need to make it easier for groups to be entrepreneurial when it
is the right thing to do. For example, there is a need to re-examine some
of the regulations that govern the sector. Entrepreneurial activities do
not fit well within the traditional tax structure. Most important, though,
this is a time of terrific opportunities, one in which nonprofits of many sorts
have the opportunity to step back and examine their missions in a new
light. Social entrepreneurialism is, we all recognize, a buzz-word or
fad. It will stay with us over the long-run not because a lot of people
are talking about, but only if it works.
KS: Yes, there are great opportunities opening up. It is time for us to
break away from the golden handcuffs that hold us in the familiar funding
procedures. Entrepreneurialism gives us the opportunity to think
creatively about ways to find sustainable income streams. Looking at
examples of how other organizations do it, and exploring techniques with folks
who have examined many successful agencies will open new paths for many
organizations. The important thing to do is to let the mission lead. The
money will follow.
PB: Unfortunately, our time is up. Please join me in thanking Kay Sohl,
Cheryl Sesnon and Paul Shoemaker for sharing this stimulating conversation with
us.
