Edited By Paul Clolery

When it comes right down to it, social enterprise is about money and jobs. When money and jobs blend with mission, it’s social enterprise. If those roads never meet, it’s earned income. That’s not a bad thing, either.

Drilling down further into social enterprise was the topic of a recent Executive Session, held in Minneapolis at the National Gathering For Social Entrepreneurs. The roundtable discussion included representatives from funds and from nonprofits operating businesses that spin off cash and job opportunities.

The panelist included, Cynthia Gair, portfolio director at The Roberts Enterprise Development Fund in San Francisco, Leslie Halperin, PartnerShop Program director for Ben & Jerry’s in South Bennington, Vt., Charles King, co-President/CEO, Housing Works, Inc. in New York City, and Julius Walls, Jr., chief operating officer of the Greyston Foundation, Yonkers, N.Y.

The session was moderated by Thomas A. McLaughlin, a senior manager in the Boston office of accounting and management firm Grant Thornton in Boston and Paul Clolery, editor-in-chief, The NonProfit Times.

Thomas McLaughlin: I’m going to start by asking each of you to briefly describe your own version of social enterprise. What does it look like? Who does it involve? How do you do it? Julius, can we start with you?

Julius Walls: When I think of social enterprise, I think of a business that accomplishes multiple goals. We provide job opportunities, not sheltered work, but real job opportunities. That’s how I distinguish between a social enterprise and a training program.

We provide dollars for the social mission of the parent company, sustain the parent company. And, we demonstrate corporate responsibility in our community. We’re able to sit at the table with other corporate entities and have a conversation about what the community should look like, the role of business in that community and how they should conduct themselves from a responsibility point of view.

McLaughlin: What is your social enterprise or is it enterprises?

Walls: Greyston Bakeries, in Yonkers, N.Y., is the largest of our businesses. It is a $4 million bakery, but we’re about to open a Greyston Bakery Cafe. We also have Greyston Health Services, which is actually about a $3 million health services business, based on service fees. We also have apartment buildings from which we collect rents.

Leslie Halperin: The PartnerShop Program is one of Ben & Jerry’s social mission programs. Essentially, we give nonprofit organizations a franchise. They operate their scoop shop businesses just like all of our other traditional scoop shops. The difference is that they’re also operating a job-training program to serve their clients.

So, the nonprofits that we work with are really working to achieve a double bottom line, to run a successful, strong, profitable business, while at the same time achieving their mission of providing job training to youth and young adults.

I would just like to add that Ben & Jerry’s is very interested in growing the PartnerShop Program. We’re actively seeking out nonprofit organizations to develop more PartnerShops.

Cynthia Gair: Broadly, I think of social enterprise as a business or businesses that work to achieve both business ends and social community ends. It is trying to improve both its own business performance and the community in which it resides.

The way that the Roberts Enterprise Development Fund (REDF) works toward that is by supporting a portfolio of nonprofits. Those organizations run businesses that provide jobs and training for homeless and low income people so that they can help themselves move out of their current situations.

REDF operates in the Bay area only and we are a closed fund. We have a set number of organizations we work with right now. We are not looking for new organizations right now.

McLaughlin: What do you mean by a portfolio, how many organizations?

Gair: A portfolio means that we do not own these businesses. We support a number of independent nonprofits, separate entities, and they operate in their own ways. They have their own boards of directors. The only thing that holds all of us together is a set of mutual interests in that we provide the funding and business assistance to all of them.

There have been as many at 10. Right now there are five agencies running 15 businesses.

McLaughlin: What do you mean by a portfo not own these businesses. We support a number of independent nonprofits, separate entities, and they operate in their own ways. They have their own boards of directors. The only thing that holds all of us together is a set of mutual interests in that we provide the funding and business assistance to all of them.

There have been as many at 10. Right now there are five agencies running 15 businesses.

Charles King: At Housing Works, we define social entrepreneurship as earned income strategies that further the mission of the organization. That ranges, in our definition, into probably three different types of strategies.

One strategy is businesses that are intended to produce a profit to support the larger mission of the parent organization and at the same time carry out that mission by providing training and employment opportunities. Then there are businesses that actually are directly a part of the core mission, but earn income and perhaps even earn a profit for the larger organization. For example, our health care programs have third-party reimbursement.

And then finally there are the businesses that help to sustain the larger organization by providing services to the larger organization, while at the same time hopefully operating at a profit, hopefully providing employment. An example of that is a management services organization that we’ve partnered in to provide back office,

financial management for nonprofits. Another enterprise is a facilities management company that manages our facilities and those of other companies, thereby providing us with a needed service, but also generating revenues and providing opportunities.

Paul Clolery: You said two interesting words that send a lot of nonprofit executives screaming from a room -- “earned income.” How do you explain to the CEO who hasn’t been involved, and hasn’t been exposed to this type of revenue, that earned income is not a bad thing?

Gair: For us, that is not hard. We haven’t come into this trying to convince anyone to do this, to tell you the truth. The agencies have come to us having already started businesses. Some of them didn’t even know they were starting businesses or starting earned income streams. It’s the CEOs and the executive directors of the agencies convincing funders that this is a good thing.

In our case, all of the enterprises are directly related to their agencies’ exact missions. Their income streams are part of what they do to accomplish their missions, and in particular to create opportunities for people who don’t have opportunities.

For instance, one of the agencies we’ve worked with is involved with homeless youth. The businesses that they created allowed those homeless youth to get jobs and to help them pull themselves off the street, if they wanted to, when they were ready to. Now, it didn’t take any convincing for that executive director to think that running a store that created jobs for the youth was a good thing.

Halperin: As the funding streams that nonprofits have traditionally relied upon are drying up or not flowing as they used to, it seems natural to turn to other income streams. In terms of the number of inquiries that we’re getting, I think the numbers are increasing. I think the notion of earned income is becoming more widely accepted among leaders in the nonprofit community.

McLaughlin: With how many different nonprofit organizations do you work?

Halperin: There are six organizations that operate 12 PartnerShops. We have four PartnerShops that are slated to open in the first quarter of 2003. One is with Greyston, which will be the first cafe featuring Ben & Jerry’s ice cream. It’s a new PartnerShop model that we’re very excited about. Common Ground, one of our partners in New York City, will be opening up its third full franchise on 104th Street and Broadway. The Chicago Children’s Choir will be opening up a PartnerShop in the theater district in Chicago. And, an organization in Evanston, Ill., will be opening up a shop in February (this month).

One thing I hear over and over from our PartnerShop operators is that their reputations have changed within the nonprofit community, within the funding community and within the for-profit community. As a franchisee, they are now a serious business operator.

McLaughlin: These are just regular Ben & Jerry’s ice cream shops that happen to be run by nonprofits? Would consumers recognize anything different about them?

Halperin: When you walk into a Ben & Jerry’s PartnerShop, for the most part it should look, smell, feel, taste just like any of our other scoop shops. There are a couple of key factors that differentiate a PartnerShop, physical factors. Each of our PartnerShops has a very large mural that tells the story of the nonprofit and the PartnerShop, so that when customers go into the store they know that there’s a connection, and they know that their money is going to that nonprofit. We create flyers and other information that folks can take with them.

Some of our PartnerShops also have their scoopers wear hats with the nonprofit’s name on it while they’re wearing a Ben & Jerry’s T-shirt or vice versa. So there are a couple of factors in each PartnerShop that will let the consumer know that it’s unique.

McLaughlin: And how about Greyston’s bakery, Julius? Would it and your future bakery cafe, look like any other bakery or any other bakery cafe? Is there anything to distinguish it?

Walls: We would hope not. We believe that the experience of the customer, the consumer, needs to be one in which they’re not expecting or forgiving any issue because we’re a social mission or socially driven organization. We expect that the customer, consumer, should go into our cafe and have a great experience because we provide a great product.

They shouldn’t be coming in and giving dollars, or paying a premium for, or accepting less, because we’re a socially mission-driven organization. We definitely go out into the marketplace to run a business that will generate a profit. We believe we should be able to do that without making excuses.

McLaughlin: Do you change the standards?

Halperin: No, not at all. Our PartnerShop operators are held to the same exact standards of quality as our traditional scoop shop operators. We always say to our PartnerShop operators that unless you’re running a strong, healthy business, you’re not going to be able to support your job-training program.

McLaughlin: Are your programs competitive with others? Are there any special subsidies?

King: Our largest business is health care. Health care is health care, except that what we provide is a specialized service that targets people who are living with AIDS and HIV and also who have mental health problems and problems around chemical dependence.

Our next largest enterprise is our thrift stores and a used bookstore. Thrift stores by definition are benefiting a charitable purpose. But frankly, we take pride that we run the most upscale thrift stores in town. We probably have the highest price points and (probably) highest profit of any thrift store in town.

We’ve surveyed our donors, our customers. I can tell you that in the main, people do not donate nor do they shop because they have any particular connection or care about the cause. People donate primarily because we’re a consumer society, which means if people need to get rid of stuff, we make it very easy for them to get rid of things they no longer want.

We alleviate their guilt for throwing away things that they might feel guilty if they had set it out in the garbage. We give them a tax deduction. We give people a shopping credit in the store if they have to take a cab to bring stuff to us.

What we try to operate is a highly professional store, with lots of emphasis on good and creative merchandising that makes shopping fun. Our average customer has an income in excess of $50,000 a year and is somebody who shops not out of necessity but for entertainment. We want them to have their fun with us.

McLaughlin: From a foundation perspective, Cynthia, is your grant-making process different in any way from a traditional foundation’s grant-making process?

Gair: Yes, it’s different in almost every way. We build long-term relationships with the organizations we’re funding and with which we are interacting. We are not granting just on a traditional grant cycle. At the beginning of a year we can tell the organization how much money we’re going to be able to give them throughout the year and when it’s available.

In the past, we’ve granted bet-

ween approximately $100,000 and $200,000 per organization, per year. Some of these organizations we’ve been working with since 1990. We don’t solicit proposals. We have a process for evaluating each year, but it’s an evaluation to some extent that runs both ways. We ask for input from the agency as to how it’s been to work with us in the last year. And we give them feedback on how it’s been to work with them.

We all work together to create a business plan for the coming year. That business plan helps determine how much money is going to be needed by that enterprise.

McLaughlin: We have at this table two providers of service, a national corporation and a foundation, all representing three distinct types of entities in our society. Is there anything special about what you do or the way that you do it that others wouldn’t be able to do? Is it replicable?

King: I think that nonprofit social enterprise is highly replicable on all fronts. I think that there should be 100 foundations out there replicating the REDF model. There are so many businesses that have franchises that could be setting up a program similar to Ben & Jerry’s.

I think just about every nonprofit organization could benefit from taking a look at earned income strategies, how they could further their mission and how they can use earned income strategies not just for the dollar but to actually enhance what they’re trying to accomplish.

McLaughlin: Can any of you give a concrete example?

Gair: I would like to say something that is slightly more cautionary. Maybe this gets back to Paul’s question about those CEOs or executive directors who hear the words “earned income” and want to run screaming from the room. I think for those CEOs, executive directors, who are inclined to say, “We’ve never done this and we don’t want to do it,” I think they may be responding to some very valid caution about doing something that is not their core competency. We have worked with a number of agencies that had some real issues with doing this. They thought they wanted to do it, but it ran into some cultural and value conflicts.

McLaughlin: Can you give us an example?

Gair: One agency that we worked with does very good work in youth violence prevention. They wanted to run a business. And, they ran sort of a business, but they had some problems. They would not ever fire anybody. They could not. It ran against the principles of their organization and of what they were promoting within their community.

For a while we walked along together and it was okay. But when it came down to making that business financially viable, it turned out that they couldn’t keep everyone employed there that they had employed. There were several other issues that were more complex that I can’t get into here. And in fact, we felt it was very valid for them to stick to their mission, their values and not do this thing that was going to be very disruptive to some of the core of their mission.

King: That answers a slightly different question that has to do with should every organization do this. The question is whether or not they’re willing to make the appropriate cultural shifts that will allow them to do it. That’s where the “should” question comes in. There are certain types of organizations that are going to benefit far more from taking this step than others. I’ll give you an example.

One of the values that Housing Works finds very important is our ability to be self sustaining and autonomous. We have been at a point for the last five years, where 80 percent or more of our income is earned income. That allows us to engage in advocacy and other types of activities that, if we were constantly beholden to funders, we would be probably unable to engage in.

As change agents, having that autonomy, having the discretionary funding to do things that no government or private funder would fund, is critical to who we are. An organization that sees itself as a change agent really does need to explore opportunities that give it the freedom and independence to be who they are. That’s what money gives us.

Walls: I think organizations need to be clear about their goal, about why they’re getting into a, quote, unquote, business.

There are businesses and nonprofits that got engaged in training people. To train someone, say demonstrating how to run business machines, high-end copiers that require some computer skills, you had to actually develop a product so that you can know whether or not the client understood or the trainee understood how to operate the equipment. You had this document at the end that you had to throw away.

So someone said, ding, you know, “Let’s go to businesses and see if we can sell something and have an opportunity to train our people on a real product and recoup some of the expense of training.” Those are social enterprises, but they’re to fund a particular activity.

It is very difficult to make that next leap that has been successfully accomplished by a Housing Works, by Greyston and by some others, to run that business, fund that activity of job training, provide job opportunities, and have excess funding to put toward your nonprofit activities.

I think some of that subtlety is lost on a few people. They think they’re going to go in, start a business and throw off cash. And depending on who your constituent is, the people that you’re engaging in these employment opportunities, you may or may not be able to do that.

I’ve had conversations where I hear some unrealistic expectations about what they’re going to do and how they’re going to succeed. I believe that it is possible to run a business and succeed, but let’s understand the failure rate on businesses just in general, let alone in a nonprofit running a business.

Halperin: Can I address the issue of replicability on two levels? The first would be the PartnerShop model itself. The strongest evidence of replicability is several of our nonprofit partners have opened more than one shop.

I also want to talk about the replicability of the program within the corporation. Ben & Jerry’s was involved in “social enterprise” before people really knew the phrase. Over the 16 years, the program has evolved. We have built and are continuing to build a program that we think is replicable. I’m surprised that not more franchising companies have followed our lead. I think Ben & Jerry’s could and should do more to work with other franchising companies to help them learn about our model so that it could be replicated.

McLaughlin: Franchises would seem to be the ideal way to enter a social enterprise. Why haven’t there been more?

Gair: We’ve looked into that. That is, several nonprofits I’ve worked with have researched franchises as a way of getting a business going. Except for Ben & Jerry’s, it hasn’t made sense.

I think a lot of it’s the economics. It usually involves buying a franchise. That’s one of the things Ben & Jerry’s has been generous about. It makes it possible for nonprofits to get these franchises. If you want a franchise, usually the franchisor is selling it, and they’re not usually setting it up to do it at a discount.

Part of the franchise model is that then you do the business the way the franchisor has set it up. Often it does not allow for including social mission accomplishment. So, maybe it could be a vehicle for generating revenue, if you can map it out and see that it’s going to be profitable in X years, but it may be difficult to use it for accomplishing a social mission.

I’ve always worked with agencies that are trying to create jobs and

training for people who have been considered unemployable by the very franchisors that we’re talking about. So, that concept just hasn’t worked out.

McLaughlin: So the alternative is to grow your own business?

Gair: Yes, start something.

Halperin: If other franchising companies are considering implementing a model like ours, it’s important to recognize that the company must dedicate resources to support that program.

Gair: That’s right.

Halperin: When you were describing your relationship with the members of your portfolio, it struck a cord with me because we have a similar relationship with our PartnerShop operators. We enter into a 10-year franchise agreement, a 10-year relationship with these nonprofits. We take that relationship very seriously. As a company, we would be negligent if we didn’t dedicate the resources necessary to help those nonprofits succeed in their PartnerShop ventures.

So, is it replicable? Can other for-profit companies or franchising companies do it? Sure, but I think it’s important to recognize that Ben & Jerry’s dedicates resources to support our PartnerShops that are above and beyond the support we provide to our traditional scoop shops. Our PartnerShops face issues that are unique to social enterprises.

King: You put your finger, I think, on something important. It’s not that nonprofits couldn’t take advantage of other types of franchises to create jobs, as well as generate revenue. It requires a franchisor partner who’s also willing to make the special effort to make it possible because these organizations aren’t in a position to put down a quarter of a million dollars to buy a franchise and then another $250,000 to build out whatever is required.

I want to go back to what Julius was saying. The issue of expectations is really important. I had a nonprofit group that provides wonderful social services in East Harlem (New York) come to me. They wanted to replicate a thrift shop and asked if I would give them advice. I asked them, “What do you want to accomplish?” They wanted a thrift shop in East Harlem that would sell affordable clothing to low income people who lived in the neighborhood, to provide employment and to provide a profit for the parent organization. I looked at that and I said, you know, “I really think you’re trying to do too many things here.”

McLaughlin: Let the record show that our panelists are laughing.

King: I told them, “You’re not going to be able to sell at a price point that allows you to make a profit, first of all. Your customer is your donor, so your donors are going to be largely lower income people. You’re not going to be able to generate enough revenue to pay a living wage to anybody. Maybe what we need to talk about in your case is not a business but maybe a clothing closet where you take donations of clothing and you distribute them, get some training money and turn that into a training program. But, that’s not a business.”

McLaughlin: Did Charles’ story sound familiar?

Halperin: I just think that it’s so important that the nonprofits that are interested in operating a for-profit business recognize that running a business is difficult work. Sometimes you need to make tough decisions. For example, one of the groups that we’re working with right now is in a position where they need to make some tough decisions to increase their profitability. And, it’s taken them a lot longer to come to the point to be able to make that decision than it should.

McLaughlin: You mean let people go?

Halperin: One of the issues that PartnerShops have to deal with is that they have higher labor costs because they’re employing more people since they’re job-training programs. When you look at the bottom line, if you’re not running a profitable business or at least one that can break even, if that’s your goal, then you’re going to have to close your doors.

Clolery: Why aren’t they looking at increasing price point? People are already spending, what, $10 for a cone at Ben & Jerry’s?

Walls: The price point issue is totally sensitive to the community you’re in. Ben & Jerry’s ice cream is not the lowest price point to start with, so it’s not simply if you want to make more money you raise your prices. That’s when you go into your market and you make a business decision whether or not it can sustain a higher price. You can raise your price and you’ll make more on that one cone that day, that time and that sale. But, you’ll lose money overall because there’s only one sale now instead of the five.

Halperin: I think I was misunderstood. The decision to let people go wasn’t to address profitability issues. It was the issue that they needed to let somebody go because of her performance.

Gair: I think what Charles said about expectations is number one. It’s number one in the discussion with anybody about starting a business. What is it that you’re planning to get out of this, what do you need to get, and what must you get? And, in my experience, none of us wants to set priority lists.

If we’re getting into something new that we don’t know much about, we want to think that it can do all the things that we need done. I’ve found it very useful to make CEOs, executive directors and planning committees come up with a priority list: Our number one priority is what? Is it jobs or is it excess profit? Maybe in the first three years it’s jobs, and maybe after the fourth year it’s got to be profit.

King: I would be harsher than Cynthia. I try to lay out different levels, or different types, of earned income strategies. Some earned income strategies are not going to cover 100 percent of your costs. They are going to supplement it. But that always means that you’ve got other funding streams coming in that are going to pick up those costs.

There’s a rationale to why business exists. It exists to make money. Part of training, part of being employed, is coming to understand that that’s why this business exists. If we make money, we can pay good wages. If we make money, we can provide good benefits. If we make money, we can give dividends to the parent. If we don’t make money, we can’t do any of that.

Walls: I want to ditto that. I’ve spoken to several nonprofits that want to start a business. I’m sorry, but when I hear language like “our labor cost is higher because of da, da, da, da and that’s okay,” I generally find that their labor cost is higher, and it doesn’t change.

We don’t accept higher labor costs at our bakeries. I give the managers certain parameters within which to live so that the business is profitable. When they start with, “Well, you know, the employee did this or that’s going on with those number of employees,” I don’t want to hear it.

If we’re paying $7 or $8 or $9 or $10 an hour, the value that they’ve added to the business is higher than that. There are other models, because the goal of the operation is different. I don’t like the idea of those being called businesses, but I realize that they provide a real function in this society of providing people an opportunity to earn a living and getting some support to do so.

The models we have been engaged in primarily has been about an employee delivering a value to a business. And so, that’s something that we get excited about.

You need to run the business and become profitable. And it goes back to what Charles was saying, which is that I don’t think a business can be run as a business with a crutch. And, I don’t think it’s a good work force experience for an employee if they’re not treated as an employee.

An employee in a supportable work environment, but an employee nonetheless, needs to understand the word accountable. They need to understand that they will be held accountable because the business is going to be held accountable by the marketplace. If we don’t hold them accountable, we won’t be able to sustain ourselves, and we’re out of business. It’s just really that simple.

Gair: I have to jump in here because, while I agree with many of the things both of you guys are saying, I do strongly disagree with some of the take-aways. That might be influenced by the fact that some of the agencies that we’re working with are working with folks who are not going to be able to work to market standards. We’re employing some of those folks.

If you’ve got a business that’s employing low income folks who have never had a job and they’re coming in and you’re training them to work, I think you’re absolutely on the mark. Of course those people can work to the same level of productivity that anybody else can. But, we’re dealing with some disabled and other disadvantaged populations that are just not going to work to that level.

Walls: We need to be careful about that because the employees that we employ, someone is defining them as unemployable as you’re defining it.

Someone is categorizing them as people who cannot meet the mark. And until we came in and said you can meet the mark, they in fact couldn’t. Greyston did have to go through a transition where it was a for-profit business, but it did have some of that, where, “it’s okay if you don’t do all right” attitude internally. We started to move that to say no, it’s not.

Gair: It’s very sensitive. I am not in favor of sticking people with labels and then making them live with them for the rest of their lives. On the other hand, I am a realist. REDF and our portfolio agencies work hard to clarify who are the people that we are employing and what’s the best next step for them? How do they stretch, in what ways can they stretch to get to the next level they want to get to?

Halperin: If these nonprofits choose to spend more money to support their work force because they feel it’s necessary to either get people work-ready or perhaps to meet their social mission of training more people, that’s a decision that each organization has to make individually.

Ben & Jerry’s, as a company, expects PartnerShops to be strong, viable businesses. We would not enter into a relationship with an organization that didn’t have that vision, didn’t have that ambition. But at the same time, we’re sensitive to the fact that some of our PartnerShops employ people who might not necessarily be able to get a job. To give them the support that they need to be work-ready and work-able does require additional resources. The organizations would be setting their clients up for failure if they didn’t invest the extra resources to get them ready for work.

King: I want to suggest a model for dealing with that. What we’ve done at Housing Works is separate job training from the businesses. Job training is a social service that we provide that is paid for by profits from the businesses. It’s the job-training program that has instructors. We have job coaches; we have retention specialists. But when the businesses hire these people, they hire them as employees with an expectation that once they’ve graduated from their training cycle, the cost of which the training program pays, they’re going to be competent, capable workers.

Shifting back to what you’re saying, Cynthia, we don’t accept the notion that there are people who can’t live up to the requirements of a real job. The question is what real job is appropriate for that person, given whatever obstacles they face. I think that if we work at it, whatever somebody’s disability, we can identify productive jobs that can be remunerated at a living wage, without the notion that we have to subside that person. But, that’s a difficult thing to do.

Gair: Let’s face it. All of us have learned on our jobs. When I was a cashier, I learned about money and I learned in a way I never learned in class. Our agencies find that the jobs in these real businesses are the best training. And, they are willing to take on the inefficiency of someone who is just learning or is continuing to learn.

Halperin: Regardless of the model or how you set it up, it’s important for nonprofits to consider that there are business costs and there are social costs. How they account for them or secure resources to fund and meet those costs, is really up to the nonprofits to decide for themselves. What’s important is to recognize that those costs do exist.

McLaughlin: I want to talk about cultural change within the organization. Is an organizatio

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