#4] Social Enterprise: Proceed, with Caution — Steven L. Dawson

In a burst of entrepreneurial spirit, the workforce development field is showing new enthusiasm for an old idea: creating “social enterprises” to employ low income jobseekers.

Download the full paper (PDF)

11 responses:

  1. Hilary Abell
    Co-founder
    Project Equity

    I’m grateful to Steven for highlighting so many key lessons in the field of social enterprise with his characteristic mix of caution and wise optimism; among them:

    1. learn the lessons of those who came before you in this work and build upon them (rather than re-inventing the wheel)
    2. know that this is hard work – and it always will be
    3. measure what you’re doing so you know if it’s working, and how well; and
    4. my favorite: “Despite the relentless pressure of fundraising, the secret to a sustainable [social] enterprise strategy is as simple as it is difficult: under-promise and over-perform.” I often find myself repeating this one to idealistic coop developers and even business owners and employees who are transitioning their companies to employee ownership and planning to run a marathon before they can walk.

    Many excellent points have been made in the comments as well, furthering a critical dialogue for those of us directly engaged in social enterprise and all who can help develop the ecosystem to support it (funders, policy-makers, etc.).

    I’d like to comment on Will Hueston’s question about the case study, which is critical for our field: “will Opportunity Threads outlast Molly Hemstreet?” Knowing Molly well, I can say that yes, it will. She, like so many “servant leaders,” is very careful to both cultivate leadership among her colleagues and to always recognize and build on their existing talents, and she does so not only at OT, but also in her approach to building the Carolina Textile District and, now, The Industrial Commons, with which Project Equity is proud to collaborate.

    That said, I share Will’s concern for our field more broadly. It is true that many great initiatives don’t thrive after a great leader moves on. So planning for succession – early and often – and building shared leadership capacity are key. Steven Dawson himself succeeded in this at PHI when he passed the reins to Jody Sturgeon, and Cooperative Home Care Associates has just done an exemplary job of passing senior leadership from Michael Elsas to Adria Powell after years of planning.

    Per Steven’s message – let’s learn from success and from failure and build resilience into our systems – both at the enterprise and the field levels. In the case of leadership and management, cultivating a pipeline of business-savvy servant leaders (and managers) for social enterprises – both from within and outside of the enterprises themselves – is one of our biggest and most exciting challenges.

  2. Rebecca Lurie
    Progam Director and Founder
    Community & Worker Ownership Project, CUNY

    There is so much in this article I want to underscore. So much so, I may just say, if you are considering a social purpose business, or currently run one, “Read it again! And share broadly!”

    Steve elucidates well just how it must be done to accomplish business growth and social impact. I would punctuate one aspect of what he recommends to draw together the best practices of workforce development and business development for a social purpose. “Even more powerful is a ‘systems strategy’ that leverages change, beyond the walls of the enterprise, into the broader labor market.”

    When we go into the business of a social enterprise for social impact we are aiming to improve the lives of the workers and the people in the community where the business exists. By systems thinking we must think yet broader than the labor market strategy and pay attention to the community where the industry exists. Having the ability to influence policy (from the vantage point of a business) will ultimately enlarge your capacity to have greater impact socially. Historically, unions understood this when they formed industry associations with all the competitors in their market to help set standards and policies that included and went beyond the workers’ contracts.

    An old friend of mine, who, like Dawson, worked with Cooperative Home Care Associates and PHI over 30 years ago has gone on to be a small business consultant. Christine Rico of CFO on Speed Dial suggested recently in her blog http://www.cfoonspeeddial.com that there are 4 things a business needs to consider to be profitable and effective. Her fourth recommendation is to join others; to pick a social impact business group and declare shared impact.

    The larger impact of a social enterprise is that it is social and not about any individual business. Yes, there is the “no money no mission” aspect of making it work. And there is the way we make it work by shooting for broader social impact. We can do it all. But we must be vigilant and thorough in our approaches. Dawson’s paper here provides an excellent checklist. Thanks!

  3. Will Hueston
    Virginia

    Nicely written Steve. Informative and realistic. Acknowledges the potential while pragmatically discussing the criteria for success. Add to this some lovely quotable phrases like “mission alone is not a business strategy”. That’s a hard lesson for a cause-motivated idealist to accept… I fear I’ve failed on that very point several times…

    The case study adds tremendous value to the article AND raises a point that I didn’t see discussed – the need to develop sustainable leadership strategy. Often I’ve seen the business strategy built around a charismatic ‘leader’, only to have the initiative collapse along with the ‘leaders’ demise. Will Opportunity Threads outlast Molly Hemstreet? Your case study positions her as key to the organizations development and success.

  4. Rebecca Bauen
    Director of Communities of Practice
    Democracy at Work Institute

    I appreciate the key points Steven makes and will share this paper with all the developers who have been through our cooperative development programs. At the Democracy at Work Institute, we are the go-to place for information on starting a worker cooperative. We run monthly webinars on this topic, as well as workshops and intensive fellowship programs for developers from across the U.S.. We are doing this in response to the surge of interest in developing cooperatives by community based organizations. In our work, we regularly encounter what seems to be a magical belief that somehow a coop will create better jobs for low-income communities. While this can be true, without a clear market strategy, neither the cooperative nor the developer can fulfill this promise. Most often, considering competition, pricing and margins is new for the nonprofit developer, so we intentionally and continually redirect developers toward the market as the first step in the development process. Thank you Steven for providing such a clear directive.

  5. Nicole Simoneaux
    Vice President
    Investments & Advisory Services
    REDF

    So many aspects of this paper resonate with me from my experience advising and funding employment-focused social enterprises. I really appreciate a realistic voice on the subject.

    Profitability, in particular, is something I’ve thought alot about at REDF. Is it reasonable to expect that a social enterprise providing jobs to people overcoming very significant barriers will ever generate a profit? i.e. cover both their business and their “social costs” with earned income? Should that even be the goal? We asked ourselves this as we were sunsetting our first Social Innovation Fund portfolio last year and trying to honestly assess our triumphs and our failures.

    While I don’t think it’s impossible- of course there are outliers- I do believe it’s highly unrealistic. Show me an employment social enterprise that is running a profit and I’ll show you a social enterprise whose long-term outcomes suggest they are not investing enough in employee supports and training. I want to see the conversation, particularly with funders, move away from “when will you be profitable?” or “we don’t fund social enterprises because they earn revenue” and more towards “how could our philanthropic funds leverage better outcomes for the people you serve?”

    If I could offer any feedback it would be that the minimum data set needs to be fleshed out more. Without consistency in how we define those metrics across enterprises we risk alienating good programs or comparing ourselves to inflated benchmarks.

    I’m a true believer in the power and sustainability of this model, but I still read this paper and think you’d have to be crazy to try to run one of these businesses! And yet, when you have the chance to work up close with the entrepreneurs who beat the “steep odds” described in the paper, it somehow makes sense!

  6. Christopher Mackin
    Partner
    American Working Capital
    chris.mackin@awcfund.com

    Steve Dawson writes with clarity and candor. Confessing that my views may be biased by spending 10 of the first 40 years of my career in this field across the hall from the author, I assert that he is conveying some important truths that newcomers should take to heart. Broad-based employee ownership is gaining ground as an idea that can make a dent in problems of economic inequality. But how one does it matters very much. Today’s Bloomberg has former Obama OMB Director Peter Orszag singing the praises of employee ownership and tracing it to Alexander Hamilton – see this link –
    https://www.bloomberg.com/view/articles/2017-02-22/alexander-hamilton-loved-employee-ownership-so-should-we.

    Broad-based employee ownership takes place through start-ups, through conversions or through the kind of sprinkling of stock that Orszag praises (alongside other ideas) in larger, publicly traded companies. Most foundation-supported work in this field has focused on start-ups and with small companies. That is one end of a theoretical spectrum. Stock options in publicly traded companies is another. The middle ground of converting healthy, established firms of scale to broad-based employee ownership is the most promising place to stand.

    What should be considered in addition to the baseline social impact objective of sharing the wealth through employee ownership is the composition of the workforces of those firms. It is our claim that converting successful firms of scale ($50MM to $500 MM in sales) that employ women and minority workers will do more than dozens of well-intended but invariably more difficult and risky cooperative start ups of the kind described in Steve’s essay.

    Aluminum Precision Products of Santa Ana, California employs close to 900 workers, many of whom are women and people of Hispanic and African-American heritage. They manufacture landing gear for Boeing and kits that convert diesel bus fleets to natural gas. This successful business is substantially employee owned and considering a 100% conversion. Convincing founders of companies like APP to “convert” is a preferred strategy. Raising and deploying capital of scale that can partner with workers and managers to carry out these transitions should be a priority for social impact capital.

    • Molly Hemstreet
      Founder
      Opportunity Threads

      I appreciate Chris’s response to Steven’s article. The somber fact is that poverty, increasing incarceration rates and the expanding chasm of the wealth gap is far outpacing our social/work innovation.

      As a deep believer in both the industry and regional strategy as a way to create true transformation, we must work along the continuum of scale and also employ the strategies Steven talks about in the other articles in this series.

      I was pleased to see that the largest employer in our county (a 1,000 person weaving mill- Valdese Weavers) recently converted to a 100% Employee Stock Ownership Plan (ESOP). The workers seem to be a bit confused, however–as good democratic conversions at such scale seem a rarity–but it is a powerful example. Much work must be done for these large conversions to carve out the space for the benefits of ownership (besides the equity piece) to take root.

      My hope, Chris, is to see continued measured growth in start-ups, and more growth in the larger conversions as you describe. We also need to see the converted businesses advocating for this change within their industry…not just the hopeful advocates for social change calling from the front lines.

  7. David Smathers Moore
    Founder
    TeamWorks Development Institute

    Steven’s “Proceed, with Caution” provides an excellent and concise overview of the issues to consider in this terrain — I will be handing to every nonprofit I encounter that is considering launching a cooperative!

    I particularly appreciate the point about creating either net new jobs or “jobs of higher quality than the ones you are replacing.” Practitioners and funders often focus on the “# of jobs created” metric without giving serious enough attention to the quality issues. Rarely are nonprofits and cooperatives/social enterprises going to be in a position to drive net job creation in a region. But they can transform job quality, something our economy desperately needs. Cooperative Home Care Associates is an inspiring example of this at a large scale.

    One suggestion: I would put more emphasis on the importance of having deep industry knowledge, a point that I know Steven advocates strongly, but didn’t come through so clearly in this particular piece. “Pursuing a high-quality competitive strategy requires ceaseless attention to detail, constant investment and reinvestment, highly accurate information loops, and a large helping of good luck.” Well said, and this is where I would add “deep industry knowledge,” including having people on your start-up management team who have worked many years in the industry and know intimately how it actually works. Even in an industry as seemingly straightforward as house cleaning I have seen again and again how critical tapping industry experience is to a group’s success.

  8. Sara Chester
    Project Manager
    Burke Development, Inc.

    Steven makes a lot of great points in this article. I particularly appreciate his stance that “social mission can spice a market strategy but should never be relied upon as the main ingredient.”

    I would make one suggestion about the metrics mentioned. I think there could be some additional factors included that directly impact workers, such as adding benefits.

  9. Carla Javits
    President and CEO
    REDF

    After 20 years investing in ‘employment-based’ social enterprise, it was invigorating for those of us at REDF to read Steven’s assessment – grounded as it is in his deep experience as a successful pioneer of the field. Thanks for the thoughtful piece! Three comments.

    Growing field. First, it may be a bit overstated to say that “the workforce development field is really embracing enthusiastically the idea of create social enterprises to employ low income job-seekers”. However, we do see signs of it. Some markers: (1) the hundreds of social enterprises that have applied to REDF for resources over the past two years via several national competitions; (2) the hundreds more that have joined our learning communities via REDFworkshop.org and SE4Jobs (more welcome!); (3) the traditional government workforce systems in Los Angeles and San Diego are leading the way by investing in social enterprise; and lastly (4) the social mission that predominates among Social Enterprise Alliance members – a broad trade association – is employment.
    Worthy investment.

    Second, while I agree that the field can be ‘thick with over-promise’, REDF sees more entrepreneurs and enterprises today embracing the hard-nosed business practices you cite – money, management and market — while also being clear about social impact. The Mathematica Jobs study Steven mentions demonstrates the powerful SROI of social enterprise. At a time when the nation is particularly troubled that the ‘forgotten Americans’ are not in the workforce or earning enough to support a reasonable standard of living, we need exponential growth of these practices that have demonstrated results.
    Workforce or economic development.

    Final point. Steven says ‘you will have truly advanced a workforce mission only if your enterprise creates net new jobs’ – he adds ‘particularly’ if you hire a more diverse workforce, or improve job quality. I disagree, and instead would say that you have indeed advanced a workforce mission whether or not you create net new jobs, as long as the people you’re hiring are more diverse, or your job quality is better, and most especially if, without social enterprise, they are people who would otherwise face too many barriers to get or keep a job. From my perspective, the mission you are advancing by creating net new jobs – a worthy objective – is economic development. More than semantics is at stake as public and private funders assess how to have impact on the workforce, and the economy.