Monthly Archives: April 2014

So you want to be a social entrepreneur? Consider this before that big leap

Image courtesy: http://www.udaipurblog.com

You have been bitten by the social entrepreneurship bug and are itching to save the world and are ready to give up a well-paying corporate job without batting an eyelid.  This maybe a good starting point. But before you embark on that journey, be prepared for what’s ahead. For its very easy to end up doing the wrong thing with the spirit of wanting to do something good. Here’s a checklist that you might want to consider before you take that big leap.

Doing it for the right reasons:

About giving back to society and saving the world. Here’s a piece of advice. Don’t. The world doesn’t need another misinformed savior who thinks its his or her job to save the world. Altruism is good if you making a donation, running a marathon for a cause or volunteering for cause. Being a social entrepreneur requires different motivations and desires, and ideally it should be because you have identified a serious problem that needs solving, and have chanced upon the solution.

Most social entrepreneurs jump headlong into social entrepreneurship because they have an itch to scratch that has been bothering them for a long time. Their decision is not a swift one based an emotion, some new passion a quarter-life or mid-life crisis. They have usually have given it a lot of thought, understand the problem they want to solve and perhaps even have a viable solution in their mind.

Assess all risks:

Now that you have made up your mind, its time to assess the risks involved, at least the known ones, because nobody can be fully prepared for the long winding road of entrepreneurship. The risks are many: reduced finances, lack of support from family and friends, reputation at stake, start-up failure, inability to solve the problem effectively and so on.

Since social entrepreneurship won’t make you a millionaire overnight or a after a few grueling years, your finances are going to take a hit, be prepared for that. Have a contingency plan, and make sure that you have kept your loved ones in the loop, their support will play a key role between success and failure. You maybe convinced of the venture, but letting friends and family see the vision is also important, because they maybe the ones who are your first investors and biggest cheerleaders. Also, be ready for the social enterprise failing, if that happens, don’t consider this as a personal failure, its just a lesson learned. Assessing all risks will reduce nasty surprises en-route.

Make sure you have entrepreneurial chops:

Having the passion, insight and the ability to nail down the problem maybe enough. Most social entrepreneurs are usually first-time entrepreneurs and may not have completely assessed their ability to execute on their grand vision. You may have the heart for the venture, but with having the head and entrepreneurial chops, you might be going into a gunfight with a knife in your hand.

Remember that social entrepreneurship involves using commercial strategies to solve a social problem. That means having some kind of management acumen and the ability to plan and execute. If you don’t have the skills, fret not, many social business incubators in India and overseas will help you learn them. Just be aware of what you can and cannot do. That could make all the difference.

Be prepared to collaborate and build a team:

Here’s a theory. One of the biggest reasons many great non-profits did not fulfill their potential is because they were unable to do succession- planning, build second level management and inability to build a complete team. A lot of social enterprises begin with the vision of a single founder. Now this is great for a start, but to keep the engine running will require a complete team. Ideally a second or third co-founder and highly competent top level team. This leaves the founder or founders with task of focusing on strategy and revisiting the vision, if required.

Collaboration is another very important aspect that determines the success and survival instincts of a social enterprise. Leaning on others who are more competent in certain areas ensures that social enterprises don’t attempt at doing everything themselves or be absorbed in activities that involve reinventing the wheel. Collaboration is not giving up power, but tapping the strength of other individuals and institutions, helping realize the goals of the organization faster and more efficiently.

 Patience and the ability to stick around for the long-haul will make all the difference:

It is always darkest before dawn. In the world of social enterprise, the darkness before the dawn is a long period, the reason being that, unlike start-ups targeting traditional sectors the gestation period for social enterprises is longer. Most of them are strapped for resources, lack talent, are in need of funding and find it hard to balance social impact and commercial gain.

The key here is to understand that there is no overnight success with social entrepreneurs. You don’t build an app, grow an audience with a two-member team and then cut a deal with Google or Facebook for a billion dollars. Success with social enterprise takes long years, and even then it does not come with a billion dollar exit.


But for those who wait, saving the world, does not remain a pipe-dream, it is a step closer to sweet reality.

You are ready

Note: This is the second article in a social enterprise toolkit series that SocialStory is doing. It is designed to be useful for the  first-time social entrepreneur, or for anybody interested in this space. Here’s the first article.

This article is being republished with permission from SocialStory.

Wondering which legal structure to choose for your social enterprise? Read on…

Image courtesy: http://www.psdnetwork.com

Image courtesy: http://www.psdnetwork.com

One of the most important decisions to be made before launching a social enterprise is choosing a legal structure.

Why is this important? There are a number of reasons and implications as to why it is important to pay attention to legal structure. Some of them are: how the social enterprise gets funded, how the profits (if any) get distributed, governance structure, reporting responsibilities, tax liabilities, and ownership pattern.

India, unlike many other countries – like the US and the UK – does not have plenty of leeway in terms of legally structuring a social enterprise. In the US, for example, there are many options, which have been specially carved out keeping the needs of a social enterprise in mind. They are low-profit limited liability company (L3C), Benefit Corporations, Certified Benefit Corporations (B Corps) and Flexible Purpose Corporations.

India, on the other hand, has limited options in terms of legal structure. Broadly speaking, there are four types of legal structures that social enterprise can opt for. We give you a gist of each one of them, along with the pros and cons.

Non-profit or public charitable organization:

Non-profits can register as a Trust (under the Indian Trusts Act, 1882),  a Section 25 company (under of the Companies Act, 1956) or as a Society (pertaining to societies registration, of the concerned state). The biggest benefit of registering as a non-profit is the eligibility to get tax benefits under the Income Tax Act of 1961 and they can also accept foreign donations under the Foreign Contribution (Regulation) Act.

The non-profit model is best suited for start-ups that do not expect revenues from their activities or have a long gestation period before they start to accrue revenues. Examples of non-profits include Agastya Foundation, Teach for India, Digital Green and Akshaya Patra Foundation. They strive to achieve scale and replicate their work across many geographies using commercial strategies. Their way of sustaining themselves financially is through grants and donations. One of the problems with this model is that perhaps the inability to hire top-class talent or invest in latest technology and infrastructure.

Pros: Ability to focus solely on creating social impact without the pressure of financial return.

Cons: Constant need to raise funds.

The for-profit social enterprise:

In India there are many choices when it comes to setting up a for-profit social enterprise. Broadly, there are five different types of for-profits: sole proprietorship, partnership, limited liability partnership, private firm and co-operative.

This type of legal structure is perhaps best suited for social enterprises that are looking for growth and profitability. It comes as no surprise, according to a study by Intellecap , Indian social enterprises 80 per cent of those polled, structure themselves as for-profit private limited companies (PLCs). Examples of for profit social enterprises include Vaatsalya Healthcare, Ujjivan Microfinance and dLight. These social enterprises have usually cracked the market, and have a product or service that consumers have accepted, and are willing to pay money for.  Also, because of their for-profit structure, they have the ability to accepting funding from VCs and issue shares and go public.

Pros: Ability to attract funding from VCs, pay top dollar for good talent and invest in technology and infrastructure.

Cons: Sometimes focus on profits leads to mission drift that makes the original shareholders and stakeholders unhappy.

The hybrid model:

These type of social enterprises start off as a non-profit or for-profit and then launch an exact opposite twin. Some of the reasons are fairly straight-forward. As funds start to dry up for non-profits they are under pressure from their funders to focus on revenue generating activities. This leads to them launching a for-profit sister entity. Head Held High Foundation, for example is a non-profit that promotes rural entrepreneurship, under its fold are two for-profit organizations- Head Held High Services Pvt. Ltd and Magic Wand Empowerment. The Times of India wrote about the hybrid model in a November, 2013 article, highlighting companies like Fractal Foundation, Waste Wise Trust and Under The Mango Tree. When it comes to for-profit social enterprises, they launch a non-profit so that they can attract donations and grants, which can be used for activities like training, research or subsidizing a product or service.

Clearly this is a great model that ensures that social enterprises can both attract donations and grants, and still be able to have access to social venture funding.

Pros: This is the best of both worlds, allowing a social enterprise to separate the social and revenue generating activities.

Cons:
Focusing on both types of entities could be a problem and so the issue of building a common culture.

Disclaimer: Our aim is provide you with a broad understanding of legal structures, please consult with legal and tax experts before making a decision.

This article is being published with permission from SocialStory