Week 2 - Definitions
Overview:
Social entrepreneurship is a new and rapidly changing field. Much of
understanding what social entrepreneurship is lies in defining the context
and situation around social entrepreneurship. For example, this class will
talk about different organizational structures and how a social enterprise
fits within each of these categories. We will also explore many of the
different terms that have been used to describe theories, methodologies, and
practices currently being used. A lot of examples will be used, so a
background in the top 20 social enterprises is useful, plus a general
background of different businesses and non profits to provide as contrast is
helpful.
The objective of this class session is to provide a working language to
describe different things we see in the realm of social entrepreneurship as
well as provide the tools necessary to compare and contrast organizations.
By having a working knowledge, we can evaluate best practices and decide
what works and won't work for one organization that might work for another
organization. This is an introductory class to an ongoing process that
requires continual refinement and an open mind. As a disclaimer, we are not
claiming to know everything in this field and what is true as an example
today may not be true tomorrow. This field is rapidly changing, and even
though we could be wrong tomorrow, the potential and aspirations of this
field keep us excited and wanting to learn more to refine our thought
process.
Logistics:
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Introductions - Go
around the class introducing each other again. This time say your name
and one interesting thing that happened to you this week. (10 min)
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Definition Discussion -
The six main topics are For Profit, Nonprofit, Organizational
Structures, Foundations, Sustainability, Corporate Social
Responsibility, and finally Social Entrepreneurship. Below are the key
points to draw out for each and the reference sites used to provide
background information. (60 min)
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For Profit: Most of the organizations we interact
with day to day are for profit enterprises. From Walmart and Best
Buy to CNN and Microsoft, we are surrounded by organizations that
are structured as for profits. The signature characteristic of a for
profit enterprise, regardless of it's structure, is to maximize
shareholder value of whoever owns the organization. The distinction
of structure comes into play when determining who are the
shareholders and how profits as well as liabilities lie. In a
traditional C corporation (like Walmart), the corporation itself is
responsible for all liabilities (not the shareholders) and pays
taxes as a single entity. In contrast, a limited liability
corporation (LLC) is responsible for all liabilities but can elect
for all taxes to flow through to the shareholders. Further
discussion can be made regarding the structures and contrasts.
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Nonprofit: The goal of a nonprofit is to maximize
the impact of the organization to fulfill its mission. The key
distinction from a for profit enterprise, though, is that there is a
non-distribution constraint. What this means is that if the
nonprofit makes a profit, it cannot distribute those profits; they
must be used within the nonprofit to further the mission. Nonprofits
are also unique in that they don't coerce participation and they
exist without simple and clear lines of ownership and
accountability. Further discussion into examples of nonprofits, from
health care and education to think tanks and politics, would be
useful.
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Organizational Structures: For profits and
nonprofits are two examples of organizational structures, and to
introduce the area of social entrepreneurship, we must dive a little
deeper into the different organizational structures that exist for
'nonprofit' status (the 501(c) status). The distinction 501(c)
generally means that the institution is tax exempt. To maintain tax
exemption, they must 1) disclose all tax filings and 2) follow the
nondistribution constraint. There are 28 different 501(c)
distinctions, and the one we will discuss in most detail is the
501(c)3 distinction - traditional nonprofits. An example of one of
the distinctions is 501(c)4 versus 501(c)3. The 501(c)4 can lobby
congress, but as such can't claim tax deductible. The 501(c)3 cannot
lobby congress but can claim tax deductibility. To add some
interactivity to the discussion, one can ask questions regarding how
much money is given to nonprofits and what is the breakdown for that
giving, with the answers shown below:
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Total Giving: $ 300 billion
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Religion, $102.32 billion, 33.4%
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Education, $43.32 billion, 12.1%
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Human services, $29.64 billion, 9.7%
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Health, $23.15 billion, 7.6%
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Public-Society benefit (United Way etc), $22.65 billion, 7.4%
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Arts, culture and humanities, $13.67 billion, 4.5%
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International affairs, $13.22 billion, 4.3%
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Environment and animals, $6.96 billion, 2.3%
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Foundations, $27.73 billion, 9.1%
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Unallocated giving, $23.67, 7.7%
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Sustainability: This is a hot topic in more than
one academic circle, so it is important to clarify definitions and
discuss which one's apply to social entrepreneurship. The different
types of sustainability are environmental, organizational,
financial, and structural. The ones pertaining to nonprofits are
organizational and financial. Organizational sustainability entails
being able to maintain the organization through turnover and changes
in leadership. Financial sustainability is especially important to
social enterprises because the traditional nonprofit has mostly used
donations and foundations as sources of revenue while new
developments have been demanding that these enterprises start
developing internal revenue models that allow an organization to
continue even if they lose a particular grant or foundation
donation. Much of the innovation in financial sustainability comes
from thinking up innovative revenue models. For example:
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Tiered pricing - Aravind Eye Care has 70% of its surgeries
performed for free or below cost and 30% above. The 30% above
cost pays for the rest of the surgeries.
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Dual Model - Zoos are sometimes set up as nonprofits with their
gift shop providing much of the revenue needed to cover
operating costs.
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Diversification - Upwardly global receives government funding,
program revenue, and donations to support its mission.
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Foundations: Foundations are divided into two types
- private foundations and community foundations. Private foundations
are the types that one normally encounters with the Ford Foundation
and the Bill and Melinda Gates Foundation. Community foundations
focus on the needs of a given community and examples include the
Cleveland Foundation and the Silicon Valley Community Foundation.
Private foundations are usually set up to fulfill the mission of the
founder, and are set up so that their operating budget consists of
what the endowment makes in interest a year (usually 5%). The result
is that private foundations usually exist in perpetuity. This
contrasts with community foundations because they must collect at
least 10% of their annual expenses in donations each year to remain
tax exempt (private foundations do not). This results in the
community being much more involved with the foundation, determining
which issues it focuses on and how it allocates the funds to serve
the community. As a final point of interest, there are also two
types of private foundations - "operating" foundations and
"grand-making" foundations. Operating foundations, like the
Wikimedia Foundation, use their endowment to achieve their goals
directly. Grant-making foundations, like the Rockefeller Foundation,
use their endowment to make grants to other organizations, which
indirectly carry out the goals of the foundation. Operating
foundations have preferential tax treatment in a few areas,
including allowing individual donors to contribute more of their
income and allowing grant-making foundation contributions to count
towards the 5% minimum distribution requirement.
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Corporate Social Responsibility: Corporate social
responsibility is the idea that corporations have to maximize value
not only for their shareholders (those who own stock, for example),
but for all stakeholders (employees, customers, communities, and
shareholders). Proponents say this is good for business because it
takes a long term approach to maximizing value and generating
goodwill instead of only short-term profits. Opponents say that it
is nothing more than publicity stunts and that their only
responsibility is to maximize shareholder value. There are quite a
few different areas of study occurring within this sector, which
include ways of measuring environmental social impact (triple bottom
line economics) to how a corporation should determine its socially
responsible initiatives. For example, some corporations only do
"sustainability" initiatives when they reduce their internal costs
(such as switching to fluorescent from incandescent lights) while
others take the step a bit further. Others, who are using it as a
publicity stunt, will sell a bottle of water and provide a donation
to a nonprofit in a developing nation; the problem occurs when they
charge 20 cents more for the bottle of water and donate only 5 cents
to the nonprofit (which is an example of greenwashing).
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Social Entrepreneurship: Social entrepreneurship,
in its highest aspirations, tries to combine the best of all these
terms. Creating an organization that has a nonprofit organizational
structure but sells products for a fee to support it's mission can
be considered socially entrepreneurial. Being a for profit
organization that has a non profit arm to sustainably fulfill a
social good is an example of social entrepreneurship. Bring up
examples of Kiva, Ashoka, Benetech, and the Kaiser Family Foundation
are great.
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Organization Presentations -
After the discussion of terms and examples, each student is now asked to
give their presentation on a social enterprise. After the presentation,
ask the class to discuss which aspects of the previous discussion were
incorporated into the presentation. (20 min)
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Need Finding - Bring
the discussion full circle and discuss how need finding is very
important to developing a social enterprise. Having a vision for the
future depends on finding something you don't like about the status quo
and being willing to work hard to change the situation so that you can
create a new status quo. (10 min).
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Motivation - If you
are going to decide on a specific need, you need to be passionate and be
willing to work day and night to fill that need. Starting with the trip
leaders, discuss why you are interested in social entrepreneurship and
what motivated you to take this class. What's your story? (10 min).
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Conclusion - Wrap up
with the in class assignment as well as the out of class assignment (10
min).
Exercises:
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What do you want out of this class? Before
leaving class, write down on a piece of paper your goals for this class.
What you want to get out of it and how we can tailor the class to fit
your particular needs.
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Find 7 needs. Keep
an eye out on the world around you. Find 7 'problems' in your day to day
life that you would like to change. Can be anything as simple as poor
food choice to homelessness.
Readings:
There are no readings for next week.
Next Week:
Next week will be a discussion of need finding and brainstorming! Bring
your creativity caps and be ready to think outside the box. We will have
a lot of fun and utilize IDEO's method of brainstorming to find
solutions for everyday problems. A more hands on class and thought
exercise that should be repeated regularly.