Field Notes: Social Enterprise, Proceed with Caution

Steven Dawson offers ten tips on what it takes to be successful when launching a business for the purpose of employing nonprofit clients.

For a nonprofit seeking income and serving clients in need of jobs, a for-profit subsidiary can seem like a perfect solution. Steven Dawson, founder and former CEO of Heron grantee Paraprofessional Healthcare Institute, draws on his decades of experience in the field to help founders of these types of social enterprise avoid common pitfalls in his most recent installment of the "Pinkerton Papers," commissioned by the Pinkerton Foundation.

Dawson's message is clear: social enterprise initiatives can be effective, if monitored efficiently. He explores the reasons funding doesn’t necessarily correlate to a lasting, positive impact, and touches on the diffculties that organizations face while trying to create opportunities for prosperity for low-income workers. Dawson cautions those venturing into the social enterprise market to strategically maximize impact, through guidance points for both nonprofts starting out on the journey, and the funders supporting them.

For the nonprofits he advises:

Be clear of purpose: Are you creating an enterprise in the hope of generating surplus to fund your nonprofit? Or in the hope of directly employing your low-income constituents? You will most likely have to choose between the two. …

Design for workforce outcomes: Although many enterprise initiatives are funded under the banner of “job creation,” such initiatives rarely create jobs. Often, they simply move jobs from one neighborhood to another. …

Select your sector carefully: The tough choices start here. Your selection of enterprise must match your mission to support stable, decent employment for your low-income constituents. That mission—combined with constrained resources—has typically led nonprofits to choose labor-intensive enterprises such as house cleaning, childcare, eldercare, food service, taxi services, security agencies, low-end manufacturing and sub-contractor construction. …

Do your homework: Unless you succeed as a business—offering timely service, high-quality products, and competitive prices—you will never achieve your social mission. Employment-based social enterprises are subject to all the rigors of any business; each must navigate the unforgiving demands of “money, management and market.” …

Give yourself room to stumble: While business success is the essential long-term goal, you will inevitably make plenty of mistakes along the way. When building a social enterprise, everything takes longer; everything is costlier; everything is harder than you initially assumed. …

Leverage your hard work and good fortune: If you beat the odds and establish a profitable enterprise, what have you accomplished? For all your precious resources and hard work, perhaps you have employed 20 constituents? 50? The unemployment rate in your neighborhood, let alone your city or region, will take little notice. Given all you have invested, and risked, you will want to achieve far greater impact. Along the road to achieving profitability—which will likely take more than a single grant cycle’s effort—the leaders of your enterprise will have gained invaluable knowledge, skills and relationships. Those assets can in turn be leveraged in a variety of ways. 

Dawson has advice for funders as well:

Acknowledge the necessity of an entirely different skill set: When considering support for an enterprise strategy, recognize that workforce nonprofits typically have limited business expertise on their staffs. This lack of experience not only hampers the ability of nonprofit leaders to asses and build successful enterprises, it may even limit their understanding of how an enterprise initiative will impact their own organization's broader strategy. …

Hold fast to explicit employment expectations: When starting an enterprise, nothing goes exactly according to plan, and funders must be patient. Yet it is essential to remember that the fundamental purpose of an employment-based social enterprise is to provide stable jobs for low-income people. Other important benefits may well accrue, including worker voice, pride and education, yet those are all secondary to the primary purpose of securing stable employment. …

Craft a "minimum data set”: As demands increase within philanthropy for “evidence-based” practices, it is difficult to heed those calls when evidence is not shared. The place to start is to forge consensus on a “minimum data set” required of all employment-based social enterprises—both in the planning and then in the assessing of any publicly-or philanthropically-supported initiative.

Acknowledge the funder’s own limitations: Just as most nonprofit workforce organizations do not employ experienced business leadership, the same is generally true for the staffs of many foundations and public agencies. When entering this new territory, a measure of humility is appropriate. Even before considering a specific initiative, funders should invest time and effort in understanding what has been learned by others in this social enterprise field over the past 30 years.

If a new undertaking is met with success, facing daily business challenges can give credibility to both the mission and its staff members. However, Dawson advises social enterprises to tread lightly; balancing passion with caution and transparency will help emerging ventures achieve stability and long-term impact.


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