Social enterprise brings together two worlds (business and non-profit) that should never have been separated in the first place. Now that people are finding innovative ways to achieve social and financial missions at the same time, it’s hard to argue that social enterprise isn’t the wave of the future.
Take AbilityFirst, a Pasadena-based non-profit serving services adults and children with disabilities. In addition
to day camps, after-school enrichment and affordable housing, it also runs a profitable business that gainfully employs 200 of its adult clients.
The challenges it faces are typical of those seen at any business or non-profit. But since AbilityFirst is both, the interweaving of objectives demands careful attention, nuanced understanding, and multi-purpose solutions.
AbilityFirst’s social enterprise was the purpose of the consulting engagement that brought in a team of five consultants from USC‘s Los Angeles Community Impact, of which I was one.
The client asked our team to look into ways to strengthen the two revenue-generating services that AbilityFirst Employment Services provides:
- Secure Document Shredding: competitively priced, NAID certified document destruction, offered through through a mobile shredding truck, door-to-door pick-up service, or drop-off service.
- Subcontract Fulfillment: packaging, light assembly, labeling, and mailing.
Secure Document Shredding and Subcontract Fulfillment are highly standardized businesses where the providers are highly fragmented. Said differently, the providers are mostly locally-focused enterprises that are very close substitutes for one another. Competition is intense and differentiation is very difficult. Customers expect high quality and will generally choose the provider who offers the lowest price.
The disabled workforce members are paid on a piece-rate basis, meaning that they are paid according to volume of shredding, units packaged, envelopes labeled/mailed, and so on. There are three Work Centers that perform this work: Downtown LA, Pasadena and Woodland Hills. NDAs prevent me from sharing more granularity, but Private Program Revenue accounts for 11% of total revenue, or over $1.1 million (see Audited Financial Statement) for the year ended June 30, 2009. This number is far less than AbilityFirst’s total operating expenses, but thanks to charitable contributions, government subsidy and interest income, the organization’s net loss is lessened. As you can imagine, downturns in the endowment portfolio accounted for a large part of its net loss.
Our Project
In the process of preparing to offer advice, we had to conduct substantial research and, in the process, learned a lot about effective brand positioning for and organization culture of a social enterprise.
Positioning
If AbilityFirst wants to compete, it has to convince potential customers that it provides an equally high product at an equally competitive price. After all, these customers are business owners or managers themselves, and they are accountable to maximizing the bottom line.
That AbilityFirst provides a social benefit matters little if price and quality are not competitive. In fact, many people raise doubts about quality control if the workers are disabled, not because they are mean-spirited, but because it’s admittedly rational that mentally disabled people might make more mistakes than the average worker. To compensate for this perception and to make sure there are no mistakes, AbilityFirst invests substantially more time than would otherwise be necessary to ensure that quality is just as high, if not higher, than the competition.
Therefore, when AbilityFirst advertises itself, it should logically stress price and quality first, then seal the deal with the social mission. In other words, win the contract based on the logical business appeal, then win their hearts (loyalty) by showing them how they are helping disadvantaged people earn a living wage.
In a similar vein, hurried business customers should be able to quickly find the information they need on AbilityFirst’s website. This includes information about exact services offered, contact information, and certification. They don’t need to spend their valuable time reading about AbilityFirst’s wonderful impact on the lives of the disabled; frankly, they’ll stop reading if they don’t get what they need quickly.
Furthermore, they don’t need to be struggling through the home page content to find the specific subpage of the website that discusses the Employment Services. Impressions have to be made quickly.
An excellent case study in this regard is Chrysalis, an LA homeless agency that runs a street-cleaning service that doubles as a job-training experience for LA’s homeless and ex-felons. As part of its rebranding effort, it created a separate website for business services. This separated webpage borrows upon the look and feel of the parent website while using more business-oriented language (profit, cost, certified, reliable, efficient, solution, etc.) as opposed to social-service oriented language (people, happiness, meaningful lives, doing good, etc.). The domain names were different too: ChangeLives.org (non-profit parent) and ChrysalisEnterprises.com (social enterprise).
Finally, the two-pronged value proposition (business + social) best appeals to senior people at a company, and thus the message should be targeted there. Mid-level managers might have more direct authority over the decision to hire AbilityFirst, but they are unlikely to take a risk on AbilityFirst when they know their bosses will hold them accountable if anything goes wrong.
In contrast, senior people set the tone for other employees, so if the CEO says yes to a socially-conscious vendor, then everyone knows that such actions are sanctioned. Further, senior people are more concerned than junior people about the organization’s reputation in the community, and would view hiring AbilityFirst as good way to reach out into the community, get some favorable PR, generate goodwill, and drive sales.
Culture
Sales Manager
In most for-profit businesses, paying salespeople according to a minimal base salary plus commission makes a lot of sense. That person is strongly incentivized to aggressively generate and pursue leads, build and cultivate relationships, and, after the ink has dried, is handsomely compensated by earning a substantial commission on each sale. As a result, salespeople tend to be aggressive, highly competitive risk-takers with thick skin.
Such people rarely find themselves heading for the non-profit world. For one, the pay generally isn’t good enough. People who work at non-profits or social enterprises generally feel some sense of “reward” from knowing that they are helping people who could not otherwise help themselves; this intrinsic reward offsets the organization’s inability to compensate them with salaries typical of the private sector.
Second, even if AbilityFirst or organizations like it were to find a high quality sales manager who did a great job, auditors, senior Board members, and the community would scrutinize a generous compensation package. This issue is disheartening, because it goes to the very core of one of the limiting double standards of the non-profit world, which is the overall impression that returns must be achieved with a minimal level of expense. What for-profit business could compete without advertising? Without compensation high enough to attract top talent? Without “overhead?”
None. But all of the above are frowned upon for non-profits. Websites like CharityNavigator do more harm than good because they stress meaningless metrics like the percentage of dollars spent on program vs. “overhead.”
The “immorality” of the current model of charity is addressed in a great book by Dan Pallotta called Uncharitable. Dan came to USC to speak to Net Impact members about the issue.
Let’s say two charities have been around for 10 years and both seek to improve breast cancer awareness. Charity A spends 90% on programming, and 10% on overhead. Charity B spends 80% on programming and 20% on overhead. CharityNavigator would give A the better rating. Is this wrong? No, not necessarily, but amount spent on programming vs. overhead does not necessarily correlate with effectiveness of achieving the social mission. If B spends 20% of its resources (vs. 10%) on improved advertising and paying employees better, it might actually do a better job than A at reaching the mass population. But you wouldn’t know that from the rating, and thus you probably wouldn’t donate to B because it wouldn’t appear on the list of top breast cancer charities.
For what it’s worth, AbilityFirst has tried to have a dedicated sales manager in the past, but had not enjoyed success in finding the right person for the role and thus the position was eliminated.
Specialization of Labor
As I mentioned earlier, AbilityFirst takes on packaging, light assembly, labeling, and mailing contracts. These jobs are highly task-repetitive and therefore provide minimal intrinsic stimulation. Furthermore, it takes AbilityFirst Work Center managers longer to train their workforce on how to perform a particular task than it would take them to train a non-disabled worker.
Would it be more resource-efficient to have groups of workers specialize on particular types of contracts?
Before answering, we must also remember that AbilityFirst manages a bottom line and a social objective. The social objective is to provide employment to a segment of the population that would not otherwise have a job. The type of work they do is already commensurate with their intellectual capacity, so providing diversity of experiences within a range of otherwise repetitive tasks is very important. Economically, the workers are already paid piece-rate, so if specialization causes more downtime for some workers, that not only earns less income for the organization, but it also means the workers are earning less individually.
Economically and socially, specialization of the workforce is not optimal. That said, AbilityFirst could certainly attempt to focus on obtaining contracts that tend to be more profitable.
For our deliverable, we presented our recommendations with regard to the above issues as part of a strategic action plan. We also presented our project to an audience of LACI consultants, clients, friends, family and USC professors at the semi-annual LACI Showcase, held at the end of each academic semester when projects conclude.
The Higher Calling
I was drawn to AbilityFirst for personal reasons in addition to the intellectual challenge. My aunt and uncle are both mentally disabled adults in their late 40s. They live in India with my grandfather, who understandably cannot commit his children to an institution given that highly regarded programs such as AbilityFirst do not exist in India.
To make matters worse, the public attitude toward the disabled is ignorance, and this often manifests itself in exploitative mistreatment. At the same time, my grandfather is in his 70s, and the physical drain of taking care of dependents at his age is immense, just as it was for my grandmother before she passed away. If there was a program like AbilityFirst that could provide my aunt and uncle with gainful employment and a sense of community, I imagine all three of them would breathe a little easier.
Social enterprises are the wave of the future when it comes to welfare. Combining direct, active action with a willingness to create a new equilibrium rather than incrementally improving the extant condition will take substantial time to perfect, especially since the capital market for identifying and allocating resources to growing these ventures barely exists, and business models that incorporate social good are still relatively immature.
Nevertheless, business is fundamentally about the reorganization of resources (labor, materials, capital, and intellect) to not only create value, but also make conscious decisions about how and to whom that value should be distributed. Proprietors have downplayed society and the environment as stakeholders for too long.
With compelling business models such as the one used by AbilityFirst and other social entrepreneurs, the dream is to make the world a better place while also earning a healthy financial return.
Prophet of Profit 