SOCIAL ENTREPRENEURSHIP 101: Reading 430 MINUTESSocial enterprises prioritize social impact, but they must also strive for financial sustainability.While they may rely on philanthropic capital, such as grants, to get their work off the ground, they ultimately look for a model that enables them to stay afloat without a constant infusion of charitable dollars.This is one of the key factors that differentiates a social enterprise from a typical non-profit organization or NGO.This means that, early on in their social entrepreneurship journey, a founder needs to determine the type of revenue engine that can effectively fuel their growth.In this reading, well walk you through several different revenue engines that social enterprises commonly use.Keep in mind that this is not an exhaustive list, but should help you identify some of the most common approaches that successful social entrepreneurs have pursued as they strive to keep their businesses solvent.Its important to remember that each enterprise must figure out a business model that fits with the unique character of the type of problem they are addressing.These models are not necessarily one-size-fits all solutions.As you read, try to think about which of these revenue engines you are familiar with, and which might be most appropriate for the type of social enterprise you want to create.All use, reproduction and distribution of this work is subject to a CC-BY-NC-ND license.SOCIAL ENTREPRENEURSHIP READING 4Once social enterprises have a diverse and stable set of income streams they are better placed to have greater social impact.-Dan Zastawny, in the GuardianSales, Fee-for-Service or Earned Income: These social enterprises package their products or services and sell them either to their beneficiaries or an organization willing to pay for themHow this revenue engine works: These enterprises identify a market need that is not being met and then develop corresponding services or products that people are willing to pay for.They generate income that allows them to continue to offer these services.Example: College Summit: One way that College Summit generates revenue is by developing a product that schools are willing to pay for: they provide a comprehensive set of guidance counseling and teacher professional development to assist their students with the college application process.Read more about their fee-for-service model here: http://www.fastcompany.com/social/2005/statements/college.html Burn Manufacturing is a company that sells the jikokoa, a best-in-class charcoal stove, to low-income consumers.Read more about its model here: http://www.burnmanufacturing.com/Microfranchising/ Business in a Box: These social enterprises license members of local community to run a business in a box or a microfranchise.The social enterprise typically coordinates overhead or central office functions to generate efficiencies of scale, and provide local people with capital and inventory to get their business off the ground. How this revenue engine works: The enterprise receives a percentage of the franchisees sales in order to fund its costs.Examples: Bridge International Academies: Bridge creates Academies in a Box in Kenya.Read more about their model here: http://www.bridgeinternationalacademies.com/approach/model/ BRAC: Although not its entire model, BRAC trains promoters who use a door-to-door salesman approach.Read more here: http://www.fastcompany.com/1753519/brac-largest-global-anti-poverty-organization-and-its-secret Vision Spring: Vision Spring employs local entrepreneurs to sell eyeglasses to local communities.Read more about their model here: http://visionspring.org/proprietary-distribution/All use, reproduction and distribution of this work is subject to a CC-BY-NC-ND license.SOCIAL ENTREPRENEURSHIP READING 4Cross-Subsidization: The revenues generated from some customers are used to subside the goods or services provided to other customers.How this model achieves financial sustainability: Some customers pay at a rate that allows the services that others receive to be highly subsidized or free.Examples: Aravind Eyecare has a pay what you want policy so that those customers who elect to pay do so at a rate that enables others to receive services for free. Read this New York Times article about how Aravind achieved financial success: http://opinionator.blogs.nytimes.com/2013/01/16/in-india-leading-a-hospital-franchise-with-vision/?_r=0 PaneraCares was an example of a pay what you can concept.However, the last one was discontinued in 2013.Read this Wall Street Journal Analysis of why it failed: http://www.washingtonpost.com/blogs/wonkblog/wp/2013/07/14/down-with-price-tags-heres-how-to-profit-when-people-pay-what-they-want/All use, reproduction and distribution of this work is subject to a CC-BY-NC-ND license.SOCIAL ENTREPRENEURSHIP READING 4What is a revenue engine?There are several terms that get tossed around interchangeably, but all serve distinct roles in helping your business achieve financial sustainability:Revenue stream or revenue engine: a single source of revenue for your businessRevenue model: This is the overall plan forhow all of the different revenue streams fit togetherBusiness model: A business model takes into account you finances, customer acquisition, and the revenue streams that the business has. The revenue model is a sub-section of the businessmodel.Market Linkage: These social enterprises work to connect entrepreneurs to markets.This could take the form of buying a product from local craftsmen at local market prices and then selling it to an international market at an increased price OR the social enterprise could provide a value-added service to local entrepreneurs such as marketing, technical assistance or financing and then connect them to expanded markets. How this revenue engine works: The social enterprise will typically take a share of the profits when the product is sold, or charge the local entrepreneurs a fee for their services.Examples: One Acre Fund works with smallholder farmers in Africa to provide them with a complete set of services including financing for farm inputs; distribution of seed and fertilizer; training on agricultural techniques and; market facilitation to maximize profits from harvest sales. Training on agricultural techniques.Read more about their approach here: http://www.oneacrefund.org/our-approach/visionMicrophilanthropy: An emergent model of social enterprise, micro-philanthropy or crowdfunding for good facilitates the donation of money, goods, or services to people in need. How thisrevenue engine works Most of these crowdfunding sites allow donors to opt into allowing part of their donation to be used to fund the social enterprises operating expenses (tip jar); show screen shot of donationExamples: DonorsChoose.org crowdsources donations for classrooms. Read more about the DonorsChoose.org model here: http://www.fastcompany.com/3025597/donorschoose-hot-for-teachers Kiva crowdsources loans for small business owners and entrepreneurs in the developing world.Watch a video about Kivas loan program here: http://www.kiva.org/about/howAll use, reproduction and distribution of this work is subject to a CC-BY-NC-ND license.SOCIAL ENTREPRENEURSHIP READING 4Employment Generation:This model of social enterprise creates job opportunities for a target population such as refugees, women, youth, disabled, the homeless, or formerly incarcerated individuals. These employees are engaged in an enterprise that sells products or services on the open market.How this revenue engine works: Goods and services are sold at market rate so that the employees can be paid and the business can be self-funded.Examples: Samasource: Creates digital work opportunities for women and youth in the developing world.Learn more about their concept of microwork here: http://www.samasource.org/microwork/ Rubicon Bakery is an enterprise in California that employs formerly incarcerated people to produce baked goods that are sold at market price.Learn more about the model here:http://www.csmonitor.com/World/Making-a-difference/2014/0314/Andrew-Stoloff-s-Rubicon-Bakery-gives-a-second-chance-to-ex-consAll use, reproduction and distribution of this work is subject to a CC-BY-NC-ND license.SOCIAL ENTREPRENEURSHIP READING 4Can sustainability be subsidized?In many cases social enterprises remain reliant on donations and other forms of subsidy for at least several years. As Acumens Blueprint to Scale report notes, on-going subsidies from private or public sources could sustain models that are not fully commercially viable. In the energy sector, for example, governments will subsidize green technology and so this is another way that sustainability can be supported. You can read more about the role of philanthropy in helping social enterprises achieve scale and sustainability in this report from Acumen and the Monitor Group: http://acumen.org/content/uploads/2013/03/From-Blueprint-to-Scale-Case-for-Philanthropy-in-Impact-Investing_Full-report.pdfAll use, reproduction and distribution of this work is subject to a CC-BY-NC-ND license.SOCIAL ENTREPRENEURSHIP READING 4To succeed, (social enterprises) must adhere to both social goals and stiff financial constraints..The endeavor must be financially sustainable. Otherwise the new socioeconomic equilibrium will require a constant flow of subsidies from taxpayers or charitable givers, which are difficult to guarantee indefinitely.To achieve sustainability, an enterprises costs should fall as the number of its beneficiaries rises, allowing the venture to reduce its dependence on philanthropic or governmental support as it grows.In some cases a social enterprise may even spawn a profitable business.-Roger Martin and Sally OsbergRead more here: https://hbr.org/2015/05/two-keys-to-sustainable-social-enterpriseAll use, reproduction and distribution of this work is subject to a CC-BY-NC-ND license.SOCIAL ENTREPRENEURSHIP READING 4Want to learn more about financial sustainability? Read this Skoll World Forum post by Andrew Wolk that explains financial sustainability. http://skollworldforum.org/2008/04/15/definition-part-iii-financial-sustainability/ Read this very recent piece from Sally Osberg and Roger Martin on two keys to achieving financial sustainability, published in the Harvard Business Review https://hbr.org/2015/05/two-keys-to-sustainable-social-enterprise This article from the Harvard Business Review presents the controversial claim that social enterprises that prioritize financial results over their social mission ultimately achieve greater impact https://hbr.org/2013/01/new-research-if-you-want-to-sc