March 28, 2024

You’re the Boss Blog: Should a Social Enterprise Go for Profits?

Saul Garlick: Looking for a sustainable business model.Matthew Staver for The New York Times Saul Garlick: Looking for a sustainable business model.

Case Study

What would you do with this business?

We just published a case study about a young entrepreneur, Saul Garlick, who is debating which business model to adopt for his social enterprise, ThinkImpact.

In high school, Mr. Garlick started a nonprofit organization called Student Movement for Real Change. By the age of 23, he had graduated from college, and the nonprofit had evolved with a new name, a new mission and a small team of employees. The organization, ThinkImpact, was coordinating trips for young adults to go to South Africa where they gained firsthand experience developing community projects and social businesses. But as the nonprofit grew, Mr. Garlick felt overwhelmed by financial burdens. Rather than focusing on the operations, he spent the bulk of his workweek connecting with potential donors and trying to raise money.

As a result, he is debating whether he should keep ThinkImpact a nonprofit that is dependent on donors or transform it into a commercial organization — or possibly some sort of hybrid that combines both.

Staying a nonprofit would mean Mr. Garlick would have to continue his constant fund-raising. On the other hand, converting to a commercial business would give Mr. Garlick a blank slate. He would gain the ability to take on debt, raise equity and build a sustainable business model. But it would also mean rebranding the organization, which can be tricky. Would other individuals and organizations be as responsive to ThinkImpact if it were in business to make a profit?

As a hybrid, the organization might keep its nonprofit status but develop a commercial offshoot. This way, the company could continue to apply for grants and take donations but also obtain debt capital. This would allow Mr. Garlick to ease off on fund-raising and build the business.

Below, you will find the recommendations of an academic and expert, a nonprofit executive and a social entrepreneur. Please read the case study and use the comment section below to tell us whether you agree or disagree with their advice — and to offer your own suggestions for Mr. Garlick. Next week, we will publish a follow-up.

Pamela Hartigan, director of the Skoll Centre at the University of Oxford, England, said, “ThinkImpact has to get itself off the treadmill of donor dependency and create a revenue stream through a fee-for-service approach. This does not mean morphing into — or separately setting up — a for-profit venture. After all, ‘nonprofit’ is not synonymous with ‘no revenue.’”

Jonathan C. Lewis, founder of MicroCredit Enterprises, which converted from a commercial business to a nonprofit, said, “The distinction between nonprofit and for-profit in my estimation is overestimated. The test should be what works in any given situation.” In the case of ThinkImpact, Mr. Lewis said he would recommend starting a new commercial company because it would “allow ThinkImpact to grow at its own pace, based on revenues, while avoiding donor fickleness.”

Shivani Siroya, founder and chief executive of InVenture, a mobile technology social enterprise that incorporates both structures, said, “Neither entity type constrains their efforts to earn revenue. As a nonprofit they can earn revenue and bring in donor funds that can additionally support their work until they become sustainable or potentially support the work that they may not earn revenue from. I think deciding to be a nonprofit is more about marketing and the way that you discuss your work with the public and your supporters.”

What do you think?

Article source: http://boss.blogs.nytimes.com/2013/07/10/should-a-social-enterprise-go-for-profits/?partner=rss&emc=rss

Case Study: An Entrepreneur Chooses Potential Growth Over Proven Profits

Aseem Badshah has to decide which promising start-up to pursue.Matthew Ryan Williams for The New York Times Aseem Badshah has to decide which promising start-up to pursue.

Case Study

What would you do with this business?

Last week, we published a case study about a young entrepreneur in Seattle, Aseem Badshah, who has been deciding how to divide his time and attention between two ventures.

His first business, Uptown Treehouse, creates online marketing campaigns to promote products for companies. Three years old, it earns an annual profit of more than $300,000 on annual revenue of $1.3 million. His new business, Socedo, scans social media and other Web sites to find sales leads for clients. Two hundred companies are already using a test version of the software, and Mr. Badshah has received positive feedback on it.

Now he needs to decide if he should spend all of his time on one of the businesses or split his time between the two. In last week’s article, we asked three experts to offer opinions, and they all gave different advice.

Dan J. Cunningham, chief executive of the Business Ferret, a financial and cash flow analysis consulting firm, suggested a conservative route, noting that Uptown Treehouse’s profits were established and healthy, while the risk of the new venture could leave Mr. Badshah with nothing. Steve Blank, an associate professor at Stanford University and co-author of “The Startup Owner’s Manual,” told Mr. Badshah to stick with one business or the other and put all his energies into it. Fred Dewey, a former chief executive of Kachingle and a co-founder and a partner at  Emotional Intelligence at Work, recommended that Mr. Badshah divide his time between the two businesses.

Many readers agreed with Mr. Dewey. They said that finding a good team to run Uptown Treehouse and focusing there only when needed would help Mr. Badshah grow as a manager. Others pointed out that having a source of capital (Uptown Treehouse) for the new start-up (Socedo) was a rare luxury for an entrepreneur and could help Mr. Badshah negotiate from a stronger position with outside investors. And at only 24 years old, readers commented, Mr. Badshah has plenty of time to learn and try again if things don’t work out.

We contacted Mr. Badshah for a follow-up conversation that has been condensed and edited.

The three experts pointed you in different directions.

It was interesting that each of the three gave me completely different things to think about. That makes me think there is no right answer, and I should do what I believe is best in my particular situation.

What did you take from the reader comments?

There were a lot of different opinions, but no one said I should stop pursuing Socedo, even though it is a risky start-up. I felt a lot of encouragement from people telling me to “Go for it!” and to pursue what I was most excited about.

Does that mean you will try to keep both businesses going?

Yes, I am going to keep both but pause the search for Socedo funding. I had been flying around making presentations to outside investors, but I think my time is best spent working on the business itself and giving my energy to that. The Uptown Treehouse profits mean we don’t need outside money yet if we can operate in a really slim, low cost way. Plus, from initial feedback, we felt that we could get a better valuation later if we continued to leverage the Uptown Treehouse income to achieve more traction milestones with Socedo.

Can you do both?

I do have a strong team in Los Angeles led by my manager, Dillon Bianchi, and over the past six months they have brought on new clients and have continued to grow existing accounts while I have focused on Socedo. They have given me confidence that they can flourish without me and that I am doing the right thing by placing my confidence in them and pursuing both businesses.

Are there any synergies between the businesses?

Yes. The products of the two companies work together — one helps with sales and the other with marketing, so they are related. Lessons one team learns on what works or doesn’t work can help the other team. Also, when I do go to raise funds for Socedo, the fact that I have a proven business that has been running successfully for a few years helps my credibility as a C.E.O.


This post has been revised to reflect the following correction:

Correction: June 5, 2013

An earlier version of this article misstated the title of Fred Dewey at Emotional Intelligence at Work. He is a co-founder and a partner, not the chief executive.

Article source: http://boss.blogs.nytimes.com/2013/06/05/an-entrepreneur-chooses-potential-growth-over-proven-profits/?partner=rss&emc=rss

Small Business: Young Entrepreneur Sees Little Help in Washington

Mr. Blumenthal said he made the trip to learn more about how the federal government viewed entrepreneurship. Like a lot of founders of start-ups, he has little interest in hiring a lobbying firm, but he is all too aware of the impact government and politics can have on business. For one thing, his New York-based company, which he says has 40 employees and produced more than $1 million in revenue in its first six months, is subject to regulations that vary widely from state to state.

The following is a condensed version of a recent conversation in which Mr. Blumenthal spoke, among other things, about what politicians don’t understand about business, what he had to promise the Small Business Administration he wouldn’t do with his borrowed money, and what the Bloomberg administration is doing right.

Q. What was it like trying to get an S.B.A. loan?

A. Finding a bank that did S.B.A.-term loans was a challenge. We were surprised that they needed two years and that banks had absolutely no flexibility. Many of the loan officers said we had a reputable business that was cash-flow positive and we had the most sophisticated business plan they’d ever seen, but they can’t provide loans to people who don’t have two years of tax returns.

Q. Isn’t that a reasonable request when you’re talking about using taxpayer dollars to guarantee a loan to a private company?

A. I understand where the banks are coming from. It probably was necessary to implement hard and fast rules to stop the bleeding when the crisis hit, but they should be looking at the policies and thinking: Does this make sense now?

Q. Was the application process difficult?

A. We had to sign so many documents that my hand hurt after I was done. I had to pledge not to open a zoo, swimming pool or aquarium. It struck me as strange. Yes, it’s the bank’s duty to do due diligence, but this was just a silly restriction.

Q. But there was a happy ending, right?

A. Yes, after being turned down by 15 banks, it was a personal relationship that introduced us to a regional bank in New Jersey that gave us a $200,000 loan.

Q. What reasons did the 15 banks give for turning you down?

A. They didn’t have the authority to bypass the rule that you have to have two years of tax returns.

Q. Was your company profitable at the time?

A. Yes, we were profitable and we had a ton of traction. We had higher customer satisfaction scores than Zappos or Apple. A rational bank should have wanted to support us, even though we were a more risky bet than a company that had been around longer.

Q. What did the bank that lent you money do differently? Did it demand collateral?

A. We came through a personal relationship at a very high level at a regional bank in New Jersey that didn’t have the draconian guidelines because their management was empowered to make decisions. For the $200,000 S.B.A.-backed loan that we got, the bank wanted $100,000 in collateral in either cash or marketable products. The reason they wanted so much collateral was that if we default, the regional bank is not going to go through the process of getting the money from the S.B.A. because it’s so onerous.

Q. What did the loan allow you to do?

A. We were able to hire 20 employees. The loan also helped us with cash flow and to purchase inventory. If we didn’t get that loan we would have had to go to the equity markets. Between the four of us co-founders, we own 90 percent of the company and that, in our opinion, is a good thing.

Q. What could Washington do to help?

A. The first is streamlining regulation. The rules of optical dispensing vary from state to state. Dispensing eyeglasses is not that complicated and even if it were complicated, there should be uniform rules. I’d also do something about the dearth of technical talent — it is really difficult to hire Web developers and engineers. We aren’t educating enough of these people. It was refreshing to hear the politicians talk about the STEM — science, technology, engineering and math — subjects, but come on, let’s get some of the smart engineers into the country by granting them their H-1B visas.

Q. Are you involved in the political process?

A. We have never met with politicians. I don’t know the first thing about how to get heard. My suspicion is that it’s to donate a lot of money.

Q. Have you had any positive experiences with government?

A. What the Bloomberg administration is doing in New York City is nothing short of amazing. They are listening and problem-solving. The typical process to get permits from the Department of Buildings takes several weeks, and if you are in a landmarked building it takes even longer. The Bloomberg administration put together the New Business Acceleration Team that helps business cut through the red tape and get those approvals faster.

Q. You mentioned that some members of Congress didn’t seem comfortable talking about technology. One senator, for example, didn’t know what a Web developer is. Do you think members of Congress should be required to go to a class to get up to speed?

A. Who would design that class? I hope not members of Congress. I was pretty surprised at the lack of mastery.

Q. Do you think the government is doing enough to encourage entrepreneurship?

A. I was recently told a statistic that the majority of entrepreneurs are foreign-born or haven’t graduated from college — which means the best and the brightest and the most educated are not pursuing entrepreneurial paths. For whatever reason, we aren’t encouraging these people to start their own business.

Q. Why do you think consumers should be encouraged to buy from young entrepreneurs?

A. I think consumers should buy whatever they want. I personally try to buy the best-quality items at the best price that do the least harm and from companies that are striving to do good — many of those companies are run by young entrepreneurs. Still, I think it would be strange to be encouraging people to buy based on people’s age rather than the strength of their product.

Q. But isn’t that the cause that brought you to Washington?

A. I came to Washington primarily to meet other entrepreneurs. That being said, I was also curious to hear how our federal government was thinking about entrepreneurship.

Q. What do you make of the economic turmoil we’ve been experiencing?

A. It highlights that it might be too much to ask Washington to help with entrepreneurship when they can’t even get the basics right, like maintaining a decent credit rating.

Q. Is your company doing anything different because of the economy?

A. We are not right now, but we do fear our ability to get working capital and debt. It’s something we are monitoring closely.

Article source: http://feeds.nytimes.com/click.phdo?i=7a54ce7a764a031d4d8cad7e91bfa8f7