Launching a Business With a Cause

From smSmallBiz

BEING AN AGENT for social change isn't easy. Neither is being a business owner. But a growing number of resources are cropping up to assist social entrepreneurs — that is, people who want to tackle society's problems through innovative business models.

Many social entrepreneurs already have a deep familiarity with the community or population they are trying to serve, but need to beef up business skills. Brothers Brian and Tim McCollum and Brett Beach, for instance, are co-founders of Madécasse , a for-profit importer of specialty foods from Madagascar, where cocoa and vanilla are grown. Tim McCollum and Beach spent years as Peace Corps volunteers in Madagascar, and saw a need to improve the standard of living for the people there. That's when the idea for Madécasse, launched in 2006, was born.

Madécasse sells products made in Madagascar, like these chocolate bars, in U.S. stores.

The company's goal: create more jobs in Madagascar by encouraging the crafting, manufacturing and packaging of food products within the country. Currently, Madagascar primarily exports its raw cocoa and vanilla beans at cheap prices — a leftover colonial mentality that effectively impedes the country's economic development. Making finished products in Madagascar (such as three-ounce fine-chocolate bars wrapped in black paper with gold lettering, shown in photo) that can be exported at higher prices would quadruple revenues for the people who live there, the founders estimate.

After partnering with a manufacturing plant in Madagascar, the three founders next had to raise funding (beyond their personal contributions) and work on getting Madécasse's products into U.S. retail stores. That's where special training in running a social enterprise came in handy. Brian McCollum attended New York University's Stern School of Business, which offers social entrepreneurship classes, and received his MBA in 2007. All three this past year entered NYU's rigorous eight-month business-plan competition (in the social entrepreneurship track), learning how to tweak their social-enterprise model and pitch their idea to social venture capitalists.

"Through the competition, we met a couple social investors, and they have helped us immensely along the way," says Brian McCollum. The three were advised by Investors' Circle, a network of socially-minded angel investors and venture capitalists, to create a "social balance sheet" to monitor job creation and labor practices in Madagascar. Madécasse, which won $25,000 in seed money through the business-plan competition, ultimately hopes to secure at least $1 million in venture capital from a social VC. (For more funding options for social entrepreneurs, read our story .)

In the past year, the Madécasse founders also have asked food purchasers and distributors for tips on getting their company's products into specialty food shops (currently, Madécasse products are sold in 100 retail stores, mostly in New York). The purchasers and distributors provided valuable feedback, McCollum says. "When you tell people you are doing something good that has a social bent, they want to help," he says. "We've gotten a lot of mileage out of just picking up the phone and calling people."

Just like starting any business, launching a social enterprise requires a good deal of know-how. Here are places to turn for help:

Colleges and universities

A number of business schools have added social entrepreneurship to the curriculum, and many hold conferences or business-plan competitions (sometimes open to non-students as well) for budding social entrepreneurs. In April, for instance, NYU hosted its Fourth Annual Conference of Social Entrepreneurs , a two-day series that brought together 100 leaders in the field for panels, speeches and workshops. Cornell University's Center for Sustainable Global Enterprise assigns students to real projects (sponsored by companies such as General Electric, BP and Pfizer) that foster sustainable development. Columbia University's ongoing Research Initiative on Social Entrepreneurship , studies management, funding and business practices of for-profit and nonprofit social enterprises. Babson College, Harvard, Yale, Stanford, Duke, University of California-Berkeley, University of Arizona and other schools all offer courses or special programs in social entrepreneurship.

Non-profits and foundations

A number of foundations provide training, mentoring and sometimes financial support to social entrepreneurs. Ashoka , which claims to be the largest community for social entrepreneurs in the world, provides three-year living-wage stipends to entrepreneurs "who have an innovative, cutting-edge or system-changing idea or solution for solving critical social issues," says Beverly Schwartz, Ashoka's vice president of global marketing. The foundation itself is supported by private donations from family foundations and individuals (including many entrepreneurs). The Skoll Foundation , created by eBay's first president Jeff Skoll, similarly invests in social entrepreneurs through a three-year $1 million award program, and host discussions "by social entrepreneurs, for social entrepreneurs" at companion site Social Edge . The Schwab Foundation for Social Entrepreneurship , which is affiliated with the World Economic Forum, seeks to connect social entrepreneurs to leaders of companies and public-sector organizations, and highlights the work of social entrepreneurs in videos on its site.

Social angel or venture capital networks

Much like in the traditional business world, socially-minded angel investors or venture capitalists take equity stakes in exchange for funding, but also provide expertise and mentoring in the field of social entrepreneurship. Investors' Circle , the investor network that Madécasse worked with, accepts applications for funding through its web site; typically, 25 out of as many as 700 applicants are selected to present to investors at the network's twice-a-year venture fairs in San Francisco and Boston. "We seek out entrepreneurs that have proven concepts and have traction in the marketplace," says Matt Lombardi, director of entrepreneur services at Investors Circle. Usually, the network's 250 investors only provide mentoring to companies chosen for funding — but some applicants with strong concepts get coaching and feedback on their executive summary and pitch. The two-day venture conferences are closed to investors and select applicants; however a third day (ppen to all) is set aside for education and networking. Other investors sites include Acumen Funds , which funds enterprises that address poverty, and Calvert , which invests in high-risk, socially and environmentally responsible enterprises.

Other recent smSmallBiz stories:

• Starting Up: Funding Your Social Venture
• Starting Up: Becoming a Social Entrepreneur

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