Social enterprise in the United States

New article name is SOCIAL ENTERPRISE IN THE UNITED STATES
DEFINITION OF SOCIAL ENTERPRISE IN THE UNITED STATES
In the United States, two distinct characteristics differentiate social enterprises from other types of businesses, nonprofits and government agencies:
• Social enterprises directly address social needs through their products and services or through the numbers of disadvantaged people they employ. This distinguishes them from “socially responsible businesses,” which create positive social change indirectly through the practice of corporate social responsibility (e.g., creating and implementing a philanthropic foundation; paying equitable wages to their employees; using environmentally friendly raw materials; providing volunteers to help with community projects).
• Social enterprises use earned revenue strategies to pursue a double or triple bottom line, either alone (as a social sector business, in either the private or the nonprofit sector) or as a significant part of a nonprofit’s mixed revenue stream that also includes charitable contributions and public sector subsidies. This distinguishes them from traditional nonprofits, which rely primarily on philanthropic and government support.
In the United States, “social enterprise” is also distinct from “social entrepreneurship,” which broadly encompasses such diverse players as B Corp companies, socially responsible investors, “for-benefit” ventures, Fourth Sector organizations, CSR efforts by major corporations, “social innovators” and others. All these types of entities grapple with social needs in a variety of ways, but unless they directly address social needs through their products or services or the numbers of disadvantaged people they employ, they do not qualify as social enterprises.
SCOPE OF SOCIAL ENTERPRISE IN THE UNITED STATES (U.S.)
Social enterprises in the United States proliferate in both the private and nonprofit sectors:
• An explosion of activity took place across the United States during the 1970s and 1980s as private sector entrepreneurs, small businesses and major corporations discovered social markets and started social enterprises. They began to run adult day-care centers; educational programs for small children, high-school dropouts and adult students; low-cost housing projects; vocational training and job-placement efforts; home care services for the disabled and elderly; hospice care; outpatient mental-health and rehabilitation services; prisons; wind farms; psychiatric and substance abuse centers; and dozens of other businesses that delivered products and services previously provided only by nonprofits or government agencies.
• The social enterprise movement began to accelerate in the nonprofit sector during the 1990s as a series of pressures made it more and more difficult for nonprofits to survive without adding earned revenue to their mix of resources. Today the five most common types of nonprofits operating social enterprises are those that specialize in workforce development, housing, community and economic development, education, and health. More than 30% of the nonprofit social enterprises responding to a 2009 national survey reported annual sales of more than $1 million, and many achieved profitability. Unfortunately, some nonprofit Board members, employees, funders and supporters still believe nonprofits are not legally allowed to make a profit from the sale of goods and services. This is not the case: So long as the organization’s profits are re-invested in the nonprofit’s mission and its senior executives do not receive excessive compensation, there is no legal limit on the level of profitably a nonprofit social enterprise is allowed to achieve.
• Additional information about the origins and growth of the social enterprise movement in both the private and nonprofit sectors appears below.
Today, there are three types of social enterprises operated by private sector and nonprofit organizations in the United States. The first treats the people it serves as potential employees, the second views them as customers - and the third combines the two approaches.
• EMPLOYEE-FOCUSED social enterprises (known in the United States as “affirmative businesses” and in the U.K. as “social firms”) are created specifically to provide four things for people who are mentally, physically, economically or educationally disadvantaged: Permanent jobs, competitive wages, career tracks, and ownership opportunities. It has been estimated that more than two-thirds of all social enterprises created by nonprofits in the United States are affirmative businesses, primarily because one of a nonprofit’s greatest assets is an available, untapped labor force (and also because these types of businesses are more difficult to scale and therefore less appealing to the private sector). The businesses themselves are typically straightforward enterprises such as janitorial services, telemarketing, packaging/assembly plants, temporary employment agencies and the like -- their social missions are workforce development, job creation and career development. (A selected list of employee-focused social enterprises may be found in Appendix A.)
• CUSTOMER-FOCUSED social enterprises directly address social needs other than workforce development, job creation and career development. They can be sub-divided into categories such as “human service businesses,” “environmental businesses,” “education businesses,” and so on. Examples include such enterprises as home care services for people who are frail or elderly, adult day care, assistive devices for people who are physically challenged, management of low-income housing units, employee assistance programs, publishing companies, and dozens of others. (A selected list of customer-focused social enterprises may be found in Appendix B.)
• HYBRID social enterprises simultaneously deliver a product or service that directly addresses a social need and employ the members of a target population such as people who are developmentally disabled, men and women coming off welfare, former prisoners, recovering drug addicts, high school dropouts and others. (A selected list of hybrid social enterprises may be found in Appendix C.)
ORIGINS OF THE SOCIAL ENTERPRISE MOVEMENT IN THE UNITED STATES
Private sector: Although there had been isolated incidents of private sector companies addressing social needs through their products and services, William C. Norris, founder of Control Data Corporation, codified the principles of social enterprise for the private sector when his Fortune 100 company responded to the torching of American cities during the inner city riots of 1967. Norris immediately built plants in five inner cities and two depressed rural communities -- and then proclaimed his company's new strategy would be "to address the major unmet needs of society as profitable business opportunities." Control Data began to use its expertise in computing services to revitalize urban and rural neighborhoods, incubate small businesses, promote alternative energy sources, create jobs, deliver education, and respond to other social needs.
During the next two decades, Control Data's example prompted other companies to follow its lead, and, in 1982, the management expert Peter Drucker and the economist John Kenneth Galbraith, as well as more than 250 chief executives from around the world, joined Norris at Control Data’s headquarters in Minneapolis for an international conference to promote the concept.
Drucker spoke about simultaneously "doing good and doing well," Galbraith debunked the business bromide that "our social responsibility begins and ends at the bottom line," and Norris repeated the message he had been trumpeting for years: The transformative power of business, he told his colleagues, is the ability to merge two often opposing forces -- the profit motive and moral imperatives.
Norris and his admirers were creating something new, something the business world had never seen. Their social enterprises went beyond the traditional concept of corporate social responsibility by directly confronting social needs through the businesses themselves in addition to grappling with them indirectly through socially responsible business activities.
Nonprofit sector: It took nearly a generation before most people in the nonprofit arena grasped the power of the social markets. Once they did, in the mid-1990s, nonprofits around the country began to pursue sustainability by adding business activities to their traditional mix of volunteers, charitable donations and government grants. A few have even abandoned dependency on donors and government subsidies entirely, achieving self-sufficiency by focusing exclusively on profits from their businesses.
A series of tectonic shifts occurred during the last 30 years of the 20th century that changed the rules of the game for nonprofits and prompted them to join the private sector in the social enterprise arena:
• Operating costs began to escalate and nonprofit reserves eroded: In 1977, the average nonprofit in the United States had more than three months of operating capital in reserve at any given time - by 1989 it had less than four days, not enough to cover even a single week’s payroll
• Annual support from individual, corporate and government sources all declined or flattened
• More nonprofits began to compete for the available charitable funds (there are three times as many nonprofits in the U.S. today than there were 30 years ago)
• More people needed help with the basics of food, clothing, shelter and health care
• Donors and government officials began calling for nonprofits to do more with less, insisting on greater accountability and better results
By the late 1990s, we began to see a response to this pincer movement closing in on the sector, especially a shift in mindset away from viewing service recipients as objects of charity toward one that viewed them as capable individuals who could benefit more from opportunity and empowerment than from handouts. That led to the expectation that programs should intervene in people’s lives in ways that create growth and independence rather than dependence, and earned revenue initiatives - especially affirmative businesses -- met that expectation perfectly.
Severe cuts in government funding for human services during the 1980s (federal and state support for human services alone plunged by 23%, in real terms, during the decade) also forced nonprofits to either find new ways of doing business (e.g., leaner, meaner, more self-sufficient) or watch their organizations disintegrate. Simultaneously, at the close of the 1980s, the triumph of capitalism over communism in Eastern Europe ushered in a new respect for the power and legitimacy of the marketplace, even among the liberals who were managing most nonprofits -- and not just as a transactional environment but as a transforming one.
In addition, throughout the latter half of the 20th century, the “entrepreneur” had emerged as the hero of the new economy in the United States, leading to greater tolerance for informed risk-taking and innovations, even among staid nonprofits: In 1967, only eight American universities and colleges were offering even a single course in entrepreneurship; by 1984 there were more than 250, including 212 business schools and 41 engineering schools.
And, as we neared the end of the century, volunteers and Board members who came from the business world began importing new philosophies and management theories. Coupled with escalating demands for superior leadership and accountability, these new ways of thinking and behaving led nonprofits inexorably toward strategies for improved performance and sustainability, which in turn pointed toward social enterprise.
Increasingly, then, nonprofit leaders began embracing the concept of social enterprise and started working individually to change their organizations and collectively create a movement. We began to see the emergence of social enterprise heroes and role models in both the private and the nonprofit sectors, authors and activists who paved the way, people who provided the practical models and “proof of concept” that helped push recalcitrant Board and staff members to do what had previously been unthinkable -- endorse earned revenue initiatives.
In the United States today, nonprofits that adopt social enterprise strategies typically pass through three stages:
• Nonprofits in STAGE ONE are not yet seeking to make a profit from their earned revenue strategies, but do use them to reduce dependency on philanthropy and government subsidies. Earned revenue typically covers less than two-thirds of their operating budgets and may or may not be the driver for their strategic planning, but it still plays a significant part in the organization’s financial framework.
• Nonprofits in STAGE TWO have at least a five-year track record of aggressively pursuing self-sufficiency, defined as being fully committed to social enterprise, with earned revenue the driving force for strategic planning, and at least two-thirds of the organization’s operating expenses covered by earned revenue. Prominent examples include Melwood in Maryland, Skookum in Washington, Esperanza Unida, Inc. in Milwaukee, Rubicon Programs in San Francisco, and Triangle Residential Options for Substance Abusers in North Carolina.
• Nonprofits in STAGE THREE are businesses that retain their nonprofit status but in every other respect operate as for-profit businesses. They have at least a five-year track record of self-sufficiency, defined as consistently hovering around break-even or achieving profitability through earned revenue alone. Well-known examples include Pioneer Human Services in Seattle, Housing Works in New York, Minnesota Diversified Industries, Delancey Street Foundation in San Francisco, and Gulf Coast Enterprises in Florida.
APPENDIX A: SUCCESSFUL EMPLOYEE-FOCUSED SOCIAL ENTERPRISES (SELECTED LIST)
• CO-ARC is one of 55 chapters in the NYSARC family (formerly the New York State Association of Retarded Citizens) - its affirmative businesses had total sales of $21.1 million during 2008 and employed more than 400 people.
• Cooperative Home Care Associates (CHCA) is a South Bronx-based worker-owned cooperative with 100 employees and $14 million in annual sales. It was founded in 1985 to provide home care services (personal care assistance, light housekeeping, companionship) for the elderly and people who are chronically ill or disabled - and to simultaneously employ African American and Latino women who had previously been unemployed. Today CHCA anchors a national cooperative network generating more than $60 million in annual sales and creating jobs for more than 1600 individuals.
• Delancey Street Foundation is a residential self-help organization for former substance abusers, ex-convicts and homeless individuals. Founded in 1971 with four employees and a $1,000 loan, it currently operates 12 different businesses and has graduated more than 10,000 former convicts, drug addicts and prostitutes into the mainstream economy.
• Envision, which began in 1931 as a state school for the blind in Wichita, is today the largest employer of people who are blind or have low vision in a six-state area; with 175 employees, it registered $56 million in sales during its most recent fiscal year, with a net profit of 14 per cent.
• Esperanza Unida has been serving the Latino community in Milwaukee since 1971. During the past 20 years, it has created 12 training businesses and trained nearly 2,500 people.
• Gulf Coast Enterprises, founded in 1986, is today a $60 million business primarily employing 1,400 people, more than 1,000 of whom have severe disabilities such as cerebral palsy, mental retardation, blindness and hearing impairment). Based in Pensacola, it works in 10 states and the District of Columbia. It contracts with a range of governmental and commercial entities, including a large number of U.S. military installations. The company engages in everything from janitorial and housekeeping to health services and administrative and clerical support.
• Housing Works has provided housing, medical and job-training skills to more than 20,000 homeless New Yorkers living with HIV/AIDS since 1990. Its entrepreneurial business subsidiaries -- including upscale thrift shops, book stores, cafes and catering services, and property management, among others -- generated $15 million in revenue during FY09, with a net profit of nearly $4 million.
• JUMA Ventures in 1993 became the first nonprofit in U.S. history to receive a corporate business franchise. Its historic partnership with Ben & Jerry's ice cream was designed to give Bay Area young people the job experience they needed to transition from living on the streets to a sustainable livelihood and stable adulthood. Today, Juma operates seven social enterprises employing more than 160 youth annually in cart, vending and storefront operations at AT&T and Candlestick Parks in San Francisco, Oracle Arena and the Oakland-Alameda County Coliseum in Oakland, Memorial Stadium in Berkeley, and Qualcomm Stadium and PETCO Park in San Diego.
• Melwood, founded in 1963, currently employs more than 1,000 people with disabilities working at more than 70 contract sites around the Washington, D.C., region. The company specializes in three primary businesses: Facility management, landscape and horticultural services, and custodial and janitorial services.
• Minnesota Diversified Industries (MDI) started in 1968 with $100 and 14 employees who were developmentally disabled. Today the company operates in three industries (plastics manufacturing, packaging and assembly, and fulfillment services) and registers annual sales of more than $11 million.
• Northwest Center Industries, which abandoned the philanthropic model during the economic recession of the late 1970s, today operates 15 affirmative businesses in the Seattle area that employ more than 350 people who are disabled - FY08 sales were $43 million.
• Peak Performers is a temporary staffing business based in Austin, Texas, that employs more than 200 people who have a variety of intellectual and other disabilities and has annual sales of more than $6 million.
• Pine Street Inn serves more than 1,300 homeless individuals daily in the city of Boston and more than 10,000 annually, providing permanent supportive housing, emergency and transitional shelter, food services, street outreach, job training, mental health support, and substance abuse treatment. Since 2000, Abundant Table, Pine Street Inn’s food service social enterprise, has prepared and delivered more than one million meals to nonprofits, schools and other organizations; its newest social enterprise, HandyWorks, offers home repair and maintenance services. Both social enterprises employ people participating in the organization’s job training programs.
• Pioneer Human Services has been named by FAST Co. magazine as a model for all nonprofits. Annual revenue exceeds $60 million and the company serves more than 11,000 people in 48 locations. Among many different business activities, Pioneer serves as a sub-contractor to major corporations such as Boeing, Starbucks, Hasbro and others.
• PRIDE Industries, which has annual sales of more than $145 million, employs more than 2,700 people who have a variety of physical and intellectual disabilities (about 65 per cent of its workforce) and is the third largest manufacturing and service company in the greater Sacramento region.
• Rebuild Resources is a nonprofit social enterprise founded in 1984 by a recovering alcoholic. Rebuild owns and operates businesses in St. Paul, Minnesota, that provide transitional employment for men and women who want to become sober and self-sufficient. Seventy-one per cent of its employees have previous felony convictions, 35 per cent are African Americans and 17 per cent are Native Americans. During FY08, 72 per cent of Rebuild’s costs were covered by $1.089 million in sales through its custom apparel and promotions division.
• TROSA, the largest residential therapeutic community in North Carolina, has returned more than 800 recovering substance abusers to mainstream society. The company employs more than 300 people at any given time (93% of whom have had a criminal record), and generated FY09 sales of $11 million from its eight affirmative businesses (including $3.6 million from its independent moving company alone). Revenue from the social enterprises covers approximately 60% of TROSA’s operational costs.
APPENDIX C: SUCCESSFUL HYBRID SOCIAL ENTERPRISES (SELECTED LIST)
• Goodwill of Southwestern Pennsylvania, whose motto is “building our community . . . one job at a time,” reached $17.5 million in revenue from its 24 regional thrift shops during FY07 and employed more than 900 people who previously had barriers to employment, 550 of them full-time.
• Missouri Home Care started life as a nonprofit in 1975 and converted to for-profit status in 1983. Today it serves more than 2,500 frail elderly people in 40 rural counties and creates 600+ second income jobs for farm spouses. It merged in 1999 with seven other non-medical home care companies to form a multi-state company called Auxi Health.
• Nuestras Raices Inc. is capitalizing on the agrarian roots of the Puerto Rican immigrants who flooded into western Massachusetts in the 1960s and 1970s by operating eight community gardens and two youth gardens. On average, each of the 100 families taking care of the gardens is producing $1,000 worth of organic produce each year. The company created Centro Agricola as a home for ag-related small businesses, including a restaurant and bakery owned and operated by community members, a commercial kitchen, a greenhouse operation, and a youth-designed plaza modeled after the town centers of Puerto Rico and Latin America. It also has a homegrown business that installs and maintains saltwater fish tanks and raises and sells tropical corals and fish. In addition, Nuestras Raices owns and rents small plots of agricultural land for ag businesses including a farm store, pig roasting operation and horse barn.
• Workforce Inc. came into existence when a computer refurbisher moved out of a building occupied by a welfare-to-work provider and left behind several tons of electronic waste, including keyboards, monitors, hard drives and more. Since 2004, Workforce Inc. has helped 225 ex-offenders transition back into the community while working in jobs recycling electronic parts in the burgeoning “e-waste” business. The recidivism rate for employees in the program for at least six months is just 15%.

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