How to Start a Social Enterprise

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This toolkit article reviews some key resources offering recommendations on how to start a social enterprise. Individuals planning on starting a social enterprise can expect to face many of the same challenges as traditional businesses face (i.e. financing, sales, marketing, etc.). Consequently, many of the resources available to mainstream businesses are also relevant to Social Entrepreneurship. More information on social enterprise, including examples, can be found on the 'What is a Social Enterprise?' page of this toolkit.


Contents

Main Steps

According to Enterprising Non-profits (2010) social enterprise guide, there are five broad steps involved in starting a social enterprise:

1. Preparation - Begin by reviewing your mission, objectives and potential market. This will give you a better understanding of what it is that you are trying to accomplish.

2. Generate Ideas - Brainstorm and create a list of potential ideas. Then develop a rough set of criteria to access your ideas. For example, you may want to set criteria related to how the idea should help you achieve you social/environmental objectives.

3. Idea Screening - Once satisfied edit the list (idea screening) based on the evaluation criteria you set in step two and then select one or two ideas to research more thoroughly.

4. Feasibility Study - Conduct Market Research on the strongest one or two ideas and access their feasibility in greater detail. This will help you decide whether or not to move forward.

5. Business Plan Summary - Summarize the key elements of your idea in a business plan summary. This will help you focus on the practical elements of starting and operating your business. Your full business plan should include a detailed description of your marketing strategy, financials and a discussion of all the operational elements associated with running your business (i.e. legal structure, registration, licensing, insurance, taxes, suppliers, financing, management team, etc.).

Throughout this five step process it is important to keep in mind that your product/service should be able to stand-alone in the marketplace and not rely on its social purpose for sales (Aperio, 2010). Your business must be able to compete with corporations and your case for your business must reflect this.

Deciding on a Legal Structure

Social enterprises can be run by for-profit companies or by non-profits. The legal structure chosen is up to the entrepreneur / parent organization and their plans for the business. In general, businesses that are expected to provide a return on the initial investment should consider being for-profit, whereas those unlikely to generate a financial return should remain nonprofits (Tranquada & Pepin, n.d.). The following table summarizes the pros and cons of each structure:

Pros-cons.jpg

(Source: Tranquada & Pepin, n.d.)

LPP Law, based out of the UK, has also put together a comprehensive guide on "Structures for Social Enterprise". This document can be downloaded at: http://www.tpplaw.co.uk/site/publications_events/structures_for_social_enterprise_2_download.html

Accessing Capital (Acquiring Funding)

A study conducted by the SustainAbility Ltd and the Skoll Foundation (2007) found that accessing capital is the number one challenge social entrepreneurs face. At the time of this survey, foundations were the main source of funding for social entrepreneurs; however, many of the respondents felt that funding sources need to be diversified (SustainAbility Ltd. & The Skoll Foundation, 2007). To read about different sources of financing, see the pages Raising Money for Sustainable Enterprises and Microfinance. You will also find several country-specific pages relevant to acquiring capital in the categories Assistance and Support, Awards and Prizes, and Financing (linked along the bottom of this page).

Specific Steps

The following steps may be involved in starting a social enterprise (Please note: this is not an exhaustive list, but instead, is designed to present a very broad overview of what is typically involved. There will likely be additional tasks involved specific to your country/region and business idea that are missing here):


1. Come up with a business idea that helps address a cause/issue that you are passionate about

2. Examine your personal motivation and purpose for starting this business

3. Research your cause and your business idea. This should include an in-depth analysis of your industry, customer and competition

4. Calculate your breakeven point and put together a projected cash flow statement and income statement for at least your first year of business. Make note of any assumptions you have made in these calculations and prepare for the unexpected

5. Assess the ability of your business to compete in the market based on your research and financial projections. Decide if the level of risk is a level you are willing to take

6. Write a Business Plan

7. Choose a business name and register the relevant domain name

8. Look into the various legal structures for businesses in your country/region and determine the most appropriate structure for your social enterprise

9. Refine your business skills and begin to build your team

10. Register your business

11. Get Insurance

12. Look into and get any licenses that are required

13. Look into tax requirements and register for taxes accordingly

14. Find financing/raise money

15. Find a location/build your website if operating an online business

16. Get Organized

17. Open for Business

References

Aperio. (2010). Social Enterprise. Retrieved May 3, 2011 from http://www.aperio.ca/services/socialenterprise.html

Enterprising Non-profits. (2010). The Canadian Social Enterprise Guide 2nd Edition. Retrieved May 5, 2011 from http://www.enterprisingnonprofits.ca/sites/www.enterprisingnonprofits.ca/files/uploads/INDD_SEGuide_V2_2Dec2010__Full_LowResolution.pdf

Further Information and Resources to Consult

A good place to start is to research any social enterprises that are currently operating in your area and if possible connect with them to see if they can offer any advice. They may also be able to refer you to any local or regional associations supporting social enterprises in your area. In addition, the following resources provide some excellent information:

This guidebook contains information, tips and profiles to help social entrepreneurs choose a path, develop a plan and create impact.

IDEO’s free guide for social enterprises and NGO’s discusses how to use Human-Centered Design to create new solutions that fulfill peoples needs, while still being financially sustainable.

Enterprising non-profits offers a range of services for social entrepreneurs including a grant program, a social enterprise guide, a social enterprise marketing toolkit and access to HR, business and legal experts who will answer social enterprise related questions.

Aperio is consulting firm offering support to nonprofits who want to plan and implement a social enterprise. Their resource page includes links to a variety of articles/guides on social sector topics.

See More (in this Toolkit)