Social Capital Partners is a non-profit company that was founded in 2001 fuelled by the belief that hybrid models that generate both social and financial returns could change the landscape of how we as a society solve some of our pressing social challenges.
Our particular area of focus was on social enterprise - businesses where a significant number of the employees were from disadvantaged populations.
We set out to prove that these businesses could be successful at both their bottom lines; that is that they could provide a valuable service or product to their customers that would generate a profit as in a "normal" business and they could provide employment opportunities for people who faced employment barriers that would allow them to earn a sustainable livelihood and become productive, contributing members of society. Put another way we wanted to prove you could improve social outcomes in sustainable ways that didn't require government subsidies.
Purpose-Built Social Enterprise
In our initial phase (2001-2006) we facilitated various forms of financing (grants, equity and primarily loans) for what we call "purpose built" social enterprises. These were mainly start-up businesses expressly designed with both bottom lines in mind. We looked for viable business ideas with high quality management that had a significant number of entry level jobs with good career paths that could be used to employ those outside the economic mainstream. We not only facilitated financing for these businesses but invested a significant amount of our time, sometimes with the help of our pro-bono partner The Monitor Group, to help these businesses succeed.
We couldn't be prouder of the results that the companies we invested in during this phase have achieved. They are a diverse group of companies that are each profitable and growing and are providing quality jobs and sustainable livelihoods for people with limited employment options. They range from a property management company in Vancouver that employs women who are victims of violence and men from the downtown eastside (Atira Property Management), to a renovation company in Winnipeg that employs urban aboriginals (Inner City Renovations), to a bicycle courier company in Toronto that hires directly from youth shelters, to a thrift store chain in Montreal that hires primarily new immigrants and long-term unemployed from the provincial government's social assistance program (Renaissance/Fripe Prix). Each of these companies is described in much more detail in our Portfolio section.
Lessons Learned
This first phase allowed us to prove one of the things we set out to prove: that these hybrid businesses that had both a social mandate and a financial mandate could succeed at both. It is possible to transform lives and do it in a way that is financially sustainable.
On the other hand we had not succeeded at one of the other very important objectives we had set for ourselves: making these hybrid businesses a much more prevalent force in how we think about doing business. We wanted to change the landscape and notwithstanding the success of the businesses we were supporting we were still only providing 250 jobs to people who faced employment barriers. It wasn't enough.
So we asked ourselves the question: "How do we change the landscape?" In answering that question we arrived at two conclusions.
First we had to engage the private sector in what we were doing. In our first phase we had primarily partnered with non-profit sector organizations in developing successful social enterprises. It was easier for us to partner with them because non-profit organizations "get" the social mission. We knew explaining the social mission would take more work in the private sector. However we also understood that if we were successful in convincing the private sector of the merits of hiring job-ready disadvantaged populations there was far more scope to create thousands of job opportunities for the people we were looking to help.
The second conclusion we came to is that we had to find a more "cookie-cutter" approach to the work we were doing. Virtually all of our investments in our first phase were start-ups and start-ups are hard at the best of times and even harder with our double-bottom line model. We found that we were spending so much time on figuring out how to get these businesses to be successful that we couldn't do more than one investment per year and couldn't easily replicate them. We knew if we were going to take this model to scale we were going to have to figure out a way to make this easier to do.
Evolution to a Social Franchising Strategy
So for the last few years we have adjusted our strategy to implement these conclusions. Currently our main thrust has been with franchisors. Our attraction to the franchise industry is because we knew it would make the business aspect of the equation much simpler for us. The whole premise behind franchising is the business operations and systems have already been figured out - that's what the franchise fee buys. We could concentrate on the social side of the equation which means implementing a successful social hiring and retention strategy for the franchises we were supporting (see social hiring and retention).
Our value proposition to franchisors is described in more detail in the franchise strategy section. Essentially we arrange for attractive subordinate debt financing to an entrepreneur who wants to "buy' a franchise. In return the entrepreneur agrees to hire a significant proportion of their employees through our social hiring and retention program where we work with community service agencies to source job-ready individuals who face employment barriers. We even tie the interest rates we charge to the number of social hires the franchise owner hires to ensure that our own economic returns are aligned with our social objectives.
When we first approached different franchisors with this idea most were curious but wanted to see a proven model before they would sign up. We were very fortunate, however, to find one that was willing to partner with us to give this a try. As it turns out we could not have found a better partner than Active Green and Ross.
AG&R is a car service company that has approximately 80 locations throughout southern Ontario. In our first deal with them we provided the financing to the manager of a company owned store so that he could actually "own" the location as opposed to being a manager and employee of AG&R. In turn he made five social hires that we facilitated who turned into successful employees. The value proposition worked!
The success of the first deal has led to a full scale implementation plan of our financing and social hiring program across their network. As of the time of writing we have facilitated financing to the owners of 21 AG&R locations. Perhaps more importantly AG&R has been so pleased with the hiring results that they are now using our social hiring program in their company owned locations where we are not providing any financing.
Where We're Going
The success of our AG&R relationship is critical to us for a number of reasons.
First, we now have our proven model. We can now return to those franchisors who didn't want to be early adopters until they knew it could work. Currently we have commitments from four different franchisors to test our financing and social hiring program with the idea of implementing it across their network if the first one is successful. There is no reason that we can't be working with dozens of different franchisors, arranging for loans to hundreds of entrepreneurs that will provide thousands of jobs to people currently facing employment barriers within the next five years. This is the kind of impact we have been looking to achieve since we started.
Second our partnership with AG&R has proven this model is scalable as we suspected. We can complete four or five separate loans a month now whereas in our first phase we could only do one or two transactions a year. That's because we don't have to figure out how to make the business work with this approach.
Third, we have proven that the people we are trying to help can do the job. We already knew from our early social enterprise investments that there are job-ready segments of disadvantaged populations that have overcome many of their personal challenges and just need someone to give them the chance. But we needed to prove it in a private sector environment. The fact that AG&R is now using our social hiring program in their company owned stores without requiring the carrot of the attractive financing we provide is a testament to the fact that they are pleased with the quality and dedication of the individuals they have hired.
Fourth, when AG&R decided to use our social hiring program in their company owned stores it dawned on us that this idea is much bigger than arranging for loans to hundreds of entrepreneurs in return for their commitment to our social hiring program. We began to realize that the bigger idea is about transforming the HR function in companies that have lots of entry level positions. Currently most companies do not invest in their entry level employees. They will invest in their senior management and their middle management but they won't give more than a half-day of on the job training to their entry level employees because they turn over too fast.
What many companies fail to realize though is that many of their entry-level employees can still qualify for the services from community service agencies who can effectively make the investment on the company's behalf. They can be connected to programs that can help with housing or English as a second language or financial literacy. We believe the really big opportunity is to show companies that by giving job-ready disadvantaged individuals a job in a supportive environment working with someone like ourselves and employer focused community service agencies the companies can have a more productive, more loyal workforce and significantly reduce their turnover in these positions. If that in fact is the case this program is less about companies finding an innovative way to give back and more about how they can make their business stronger. Now that would be changing the landscape! (See Catalyst strategy for more on this).
We have plenty to work on for the next few years thanks to this new phase of our strategy. This does not mean we have shut the door on investing in purpose-built social enterprises but our conclusion is that we can ultimately have more social impact by working with already established private sector companies and changing the way they think and hire. Through the use of attractive financing and our ability to work with high quality community service agencies we believe that thousands of job opportunities can be created for people who face employment barriers. Stay tuned!