The first time I visited Te Hana Te Ao Marama Māori Cultural Centre in 2013, a group of American travel agents were visiting the property. They were delighted to offer their clients an authentic Māori cultural experience near Auckland. For my part, I was in awe of the dogged determination of volunteers to save a community on the verge of collapse. The demise started in the 1980s when the dairy closed, along with the disappearance of railroad and forestry jobs. Unemployment soared. Youth left school in droves; 85% by age 15, and drug and alcohol addiction increased dramatically. In 2004, the Council decided to abandon the town due to hazardous living conditions, lack of potable water, and crime.

Linda Clapham, Thomas de Thierry and other members of the tangata whenua had a different idea. They envisioned a beautiful, culturally and socially vibrant place of opportunity. They coordinated efforts to raise funds, upgrade infrastructure, and lease land. They planted 15,000 trees to protect the water quality of the river and “did what needed to be done,” according to Linda. Trust members volunteered thousands of hours to realise their dream. Today, Te Hana Te Ao Marama is a gorgeous property. The marae was the second in New Zealand to receive the official tourism mark of quality. They offer marae visits with overnight accommodation, a cafe, an indigenous art and craft studio, cultural concerts, and tours of a 17th Century replica of a pre-European Māori fortified village. Over 7500 students visit annually. Local residents operate Te Hana, and revenue is reinvested into education, upskilling, and social programmes for youth.

Te Hana is a social enterprise. Fundamentally, it exists to serve multiple social and environmental purposes. They create employment, care for the natural environment, support local youth, educate school children about Māori culture, and maybe most importantly, serve as a symbol for community empowerment. Like any social enterprise, Te Hana is also a bona fide business. Any startup that involves property development takes substantial capital risk, so achieving profitability has been an arduous task for over ten years. As of last year, the operation was debt-free, valued at approximately $4 million. They have a 99-year lease on the land from the Council. Once they earn profits—anticipated in the next few years—they can expand community programmes without depending on charity.

Early Stages

I arrived in Wellington from the US in 2013 as an Ian Axford Fellow, to explore questions about the impact and perceptions of social enterprise in New Zealand. I was based in the policy office of the Ministry of Youth Development in the Ministry of Social Development. I quickly became aware that social enterprise is at a very early stage in New Zealand, and set out to better understand the field and whether social enterprise merits policy attention here. I travelled extensively from Northland to Dunedin to interview people from diverse backgrounds and roles, drinking countless flat whites with executives from not-for-profits, students, business leaders, investors, Māori entrepreneurs, and many others. I researched the field, seeking to understand it from a historical perspective as well as through the lens of New Zealand’s contemporary economic, social, environmental, cultural, and political life. I came to appreciate that overall, social enterprise is poorly understood, and that this confusion inhibits its potential. 

Social enterprise is a fuzzy concept in New Zealand and globally. This confusion is understandable because the field is new. Internationally, there is no precise or agreed upon definition in government, academia, or among practitioners. Various constituencies have developed definitions, but these vary depending on the source and audience. What is clear is that the public, private, and community sectors are blurring in the quest for better, faster, cheaper solutions to complex and entrenched social and environmental problems. Social enterprise, sometimes described as a fourth sector (after the trifecta that is public, private, and not-for-profits), seems to be a market response to these shifts, applying business models to achieve positive social and environmental change. Social businesses aim to achieve social impact more efficiently than government, more sustainably and creatively than not-for-profits, and more generously than business.

Some leaders view the emergence of social enterprise as evidence that capitalism is fundamentally transforming. Bill Gates, founder of Microsoft, calls this shift “creative capitalism.” In 2007 he stated:

“We can make market forces work better for the poor if we develop a more creative capitalism—if we can stretch the reach of market forces so that more people can make a profit, or at least a living, serving people who are suffering from the worst inequities.”

Harvard Business School professor Michael Porter describes the responsibility of business to generate both economic and social value as “shared value.”  He advocates that capitalism has betrayed its promise by focussing on a narrow equation of value with short-term economic returns. Whether or not these interpretations prove prescient, new types of ventures that blend social purpose and market-based enterprise are growing and gaining prominence.

Social Enterprises vs. not-for-profits

Several combined attributes differentiate social enterprises from traditional businesses and conventional not-for-profits:

  • Intent—fundamentally, social enterprises exist to address social and/or environmental problems, and
  • Business models—these ventures employ business models, skills and tools to develop products and services, that are traded in the marketplace, and
  • Profits—ownership is structured to assure that profits are reinvested to advance the core social/environmental mission and grow the enterprise sustainably

One reason that social enterprise confuses people is that legal forms have not caught up to match the blended purposes. Social ventures are not-for-profits, for-profit businesses, and hybrids; and they operate in every industry imaginable. (This continuum is illustrated in the graphic).

On the far right of the graphic are commercial businesses that focus squarely on producing profits for owners or shareholders. Businesses that “do good” contribute money and/or time to support the community, but these activities are tangential to their core purpose of maximising profits. Generally, marketing departments manage these efforts, which can tend to serve a public relations function more than authentic social impact.

Businesses approaching social responsibility with stronger commitment and investment may fit Porter’s notion of shared value. Ben and Jerry’s ice cream, founded in 1978, was the early poster child for a socially responsible business. When the company was sold to Unilever in 2000, it was criticised for conceding profits over social responsibility. A similar controversy is following the recent sale of 50% ownership of TOMS shoes to Bain Capital. TOMS pioneered a model of social impact through its innovative one-to-one giving campaign, which gives one pair of shoes to a child in need for every pair it sells—donating 10 million pairs of new shoes to date. As TOMS gained commercial success, its credentials as a true social enterprise started to be questioned. The leveraged buy-out by private equity firm Bain was valued at $625 million USD, and even though Bain endorses an ongoing commitment to pursue TOMS’ social purpose, sceptics abound. The sale raises questions about whether enterprises started for social impact lose their independence and accountability once private investors underwrite their growth.

An example of a social purpose business in New Zealand is All Good Organics, which distributes fair trade beverages and bananas. The owners explain on their website that they are passionate about treating growers fairly, caring for the natural environment sustainably, and producing a healthy, organic product. Even though All Good Organics is a commercial business, concern for responsible practices is central to their operation. This commitment was recognised with an International Fairtrade award in June of this year.

Not-for-profits exclusively funded by government and/or philanthropy typically serve the most vulnerable people and community needs. Since this is a fundamental role of government and philanthropy, the financial viability of these organisations should not depend on the whims of market forces. Some not-for-profits have had trading operations for years, primarily to diversify income streams and strengthen financial stability. Before social enterprise entered the lexicon, the term “earned income” described these operations. For instance, consumers pay for tickets to attend cultural events sponsored by not-for-profits. People purchase second hand items at op shops, aware that the proceeds support causes such as The Salvation Army or a hospice. Whether or not these not-for-profits define themselves as a social enterprise, they still exist to serve a core social mission and use revenues from commercial operations to fund this social purpose.

two people work te hana enterprise

A NEW BOTTOM LINE

Social enterprises measure a “double bottom line” encompassing both social and profit benefit, and even a “triple bottom line” once the environment is also factored in. In some countries, specific criteria designate requirements for these competing priorities. For instance, certification from the Social Enterprise Mark in the UK requires a social enterprise to earn at least 50 per cent of its revenue from trading.

Benefit Corporation certification, commonly known as B-Corp, also establishes criteria to validate social and environmental guidelines. Patagonia, the outdoors clothing and equipment company, may be the most well-known B-Corp company. Certification is gaining popularity; there are approximately 1000 companies in 60 industries and 27 countries currently certified. Eagle Consumables, a New Zealand company, earned B-Corp certification in 2012. The company imports and distributes disposable products to the food processing/preparation, medical, automotive, cleaning, and beauty industries.

As these examples suggest, there really is no such thing as a “classic” social enterprise. Ventures vary as widely as the complex issues facing communities do. Social enterprises deliver job training and make available micro-loans; they design, develop and distribute healthcare products to people in need. Hybrid businesses are redefining approaches to education and energy. New enterprises emerge in response to emergent needs, as happened after the earthquake in Christchurch. EPIC, Enterprise Precinct and Innovation Campus, is one example. Wil McLellan was running a successful technology business when the earthquake destroyed both his business and home. With co-founder Colin Anderson, they developed a site for 16 tech businesses that were also struggling to get back to work. Rather than relocate away from the city, they were determined to contribute to rebuilding the CBD. EPIC is a symbol of resilience, a sanctuary for these businesses and an important gathering space for the community. EPIC blends commercial and social purposes. Wil was selected for the prestigious Eisenhower Fellowship and will be in the US in late 2014 to expand EPIC’s network of innovators and its reach of social and commercial impact.

Social businesses aim to achieve social impact more efficiently than government, more sustainably and creatively than not-for-profits, and more generously than business.

WikiHouse is another social enterprise that emerged in response to Christchurch’s post-disaster housing crisis. Danny Squires and Martin Luff found the rebuilding plans to be inadequate; in their opinion missing opportunities to apply innovative solutions in the wake of the disaster. WikiHouse is a construction set that enables anyone to design and build durable, versatile buildings. Originating in the UK, this unique system is affordable and eco-friendly. Squires and Luff left successful careers and stable salaries to pursue this venture, and the journey hasn’t been easy. They had trouble securing early stage investment from private, public, and philanthropic sources in New Zealand because their company doesn’t fit the traditional criteria for these separate markets. Now, after three laborious years, WikiHouse is poised to shift from a cutting edge idea to a marketable product in the next six to nine months. It has taken tenacious determination to persuade a range of partners to support a product that could revolutionise the housing industry.

Social enterprises in New Zealand face an uphill battle, with negligible support from government, philanthropy, academia, or business. I detailed these issues in my fellowship report, which can be accessed through Fulbright New Zealand. In February 2014, the Government made a slight shift from its previously agnostic position toward the field, articulating a formal position statement on social enterprise. This position signalled the Government’s willingness to partner with businesses and the community sector to enable an environment where social enterprises could grow and attract investment. The announcement was complemented by a private-public partnership investment of $1.27 million.

I returned to New Zealand in May 2014, and the new interest in the field was palpable. I led workshops in Auckland, Wellington, and Christchurch and was impressed by newcomers pursuing the field and the presence of new initiatives to cultivate startups and venture growth. I was also especially impressed by Canterbury Community Trust’s leadership to launch a social enterprise fund. The Trust is a pioneer in search of more innovative and impactful solutions to the challenges facing Christchurch, even while investment vehicles for blended structures are complex.

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One sector in New Zealand that is remarkably out of step with international trends is academia. Last year, I only identified a handful of options for university papers in social enterprise, and none of these for undergraduates. In contrast, in the US and around the globe students are flocking to the field of social enterprise, launching new ventures and inspiring a whole new generation of business savvy social change leaders.

the new wave

Even youth at intermediate level are getting in on the act. In my home community of Rhode Island, intermediate students started Turn Grease Into Fuel (TGIF) in response to a request for a donation for heating assistance for low-income residents of their community. Rather than simply make a cash donation, these industrious students researched the process of converting recycled cooking grease into fuel. They orchestrated a new city ordinance and launched an enterprise that earned them international acclaim.

I teach at Brown University where social enterprise had virtually no presence a dozen years ago. Now, we have a dedicated fellowship programme for undergraduate students that includes mentoring and summer funding. There are academic courses, extra-curricular programmes, and conferences. Social entrepreneurs on campus partner actively with community innovators, and many of these students pursue their ventures full time after graduation. I teach a class exclusively for students engaged actively in a social venture. Two of the students are developing a new beverage from the gac berry that grows in the highlands of Vietnam and has unique health properties. They spent the summer working with farmers in Vietnam to improve production in anticipation of US distribution. Another student developed NBA Math Hoops, a game that makes it fun to learn maths. He put his studies on hold for a year, won a national enterprise competition, and transformed his concept into a market-ready product. When he graduates in January he’ll work full time to grow the enterprise. In my experience, students often turn the kernel of an idea into a legitimate enterprise faster than traditional startups do. For instance, in 2011 three students at the University of Maryland started a programme to redistribute leftover food from campus. They started expanding to other campuses in January 2012 and, as of May, 95 universities in more than 26 states had recovered over 400,000 pounds of food.

computer room social enterprise office posters

Record numbers of Millennials are keen to pursue careers that blend social purpose and commercial success. In fact, surveys indicate that Millennials anticipate weaving in and out of social purpose and commercial work, sometimes straddling sectors simultaneously. New Zealand would benefit from an investment in academic and extra-curricular programmes to tap into students’ talent and motivation to do well and do good.

Social enterprise is not a fad and it is not a panacea. The notion that enterprise can produce surplus funds to channel back into the community has existed in many cultures, including iwi, for generations. If we pay attention to this idea and the hybrids they result in, test their effectiveness and showcase success stories, we may find that we all benefit from sustainable ventures that produce profits and create a healthier world for all of us.

*A portion of this article first appeared in MJ Kaplan’s Fulbright report.

Loomeo, enterprise, te hana, man shirt

About Loomio

Loomio is changing the way the world makes decisions. Based in New Zealand, Loomio is a technology tool that makes it easy for people to participate in decisions that affect them. Students use Loomio in Hungary to address the cost of higher education. In Ukraine activists are using Loomio to collaborate during political upheaval. In fact, groups are making decisions using Loomio in Argentina, Turkey, Germany, and 70 other countries. Loomio is a social enterprise. It achieves social impact by supporting citizens to come to agreement on decisions that improve their communities. Sometimes citizens work outside of government and at other times, they collaborate with officials to change policy. For instance, Wellington City Council engaged a variety of stakeholders to collectively revise the city’s alcohol policy, using the Loomio platform to discuss the issues and seek agreement.

Loomio is a free, open source tool (open source is a model of software development that promotes universal access and collaborative development). Loomio earns revenue from organisations that seek customised services, and businesses use the tool to improve team productivity and to engage with customers. Not-for-profits and networks use Loomio to resolve important agreements without being restricted by meetings or conference calls. 

I did a case study on Loomio as part of my research last year, and I was honoured to later be invited to join the team when I returned to the US. I believe deeply in the value of the tool because I have spent my career helping people strive to collaborate in work settings. I know how draining it is to suffer through poorly run meetings that produce plenty of talk and few actionable decisions. My own experience with Loomio shows me that it is incredibly possible for diverse groups of people to work through their differences and agree to actions. When people affected by a decision contribute to its development, implementation flows more easily because the choices reflect people’s actual needs. Being immersed in the challenges of developing Loomio, I am learning daily how tough it is to grow a sustainable social enterprise. I am also convinced more than ever that these ventures are here to stay and will play a powerful role in improving the landscape of our natural environment and the well being of our communities. I hope so for the sake of my three children and generations yet to come.

MJ

MJ Kaplan

MJ founded Kaplan Consulting in 2000, focussing on strategic alignment and partnerships, following leadership roles in the private, public, and not-for-profit sectors. She was the 2013 Ian Axford Fellow researching social enterprise startups and youth development in New Zealand. MJ is Adjunct Professor at Brown University teaching social enterprise and strategy. She joined Loomio in 2014, a social enterprise tech startup. She is trustee of Social Enterprise Greenhouse and former board leader at The Miriam Hospital and Moses Brown School. MJ earned a Masters of Education from Harvard University and a Bachelor of Arts from Brown University.

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