Entrepreneurial auditing in the not-for-profit sector

An entrepreneur is a person embodying the spirit of capitalism - able to scan the scene, locate an unmet need, assemble the resources to address it, and make money on the deal.  The skills and the attitudes of the entrepreneur have until now been more often displayed in the for-profit sector.  That is now beginning to change, and the approaches of commercial and voluntary organisations are starting to converge.

Many large companies now regard flexibility, innovation, and responsiveness to opportunity - the cluster of qualities that together make up entrepreneurship - as the foremost creators of value in an organisation, and thus see the ability to achieve and encourage these qualities as among the most important features of a well-managed organisation.  Not-for-profits are faced with an even greater temptation to fall into self-satisfied complacency, and they should thus attach an even higher value to entrepreneurial skills, drives, and attitudes.

The differences between for-profit and not-for-profit projects are summed up in this table.


FOR-PROFIT ENTREPRENEURS NOT-FOR-PROFIT ENTREPRENEURS
Strength Personal skills The organisation's knowledge, energy, and collective wisdom
Focus Short-term gain Building the long-term sustainability of the organisation
Boundaries No limit on type or scope of projects Ventures must be based on core competencies and mission
Beneficiaries Profit pocketed and/ or distributed to shareholders Profit plowed back into organisation to do more
Risk Personal and/ or investor The organisation's assets and image, and public trust
Motivation To be in charge of their own destiny rather than depending on an employer To enable your organisation to be in charge of its own destiny rather than depending on funders
Goal To be rich: frofit is an end To benefit the client group;  profit is a means

Used properly, not-for-profit entrepreneurship enables non-profits to maintain a productive balance between doing good and paying for it.

The Task

Adoption of an entrepreneurial approach begins with an analysis of your mission, your organisation, your finances, and the environment in which you operate.
  • Mission
Review your mission and your strategic plan. Assess how well your mission has been comprehended and adopted by the Board, the CEO, and the staff.  Confirm that the mission is the guiding principle in your strategic planning and your administrative decisionmaking.
  • Organisational analysis
Begin by identifying and enhancing your current core competencies.  Be very cautious indeed about applying your efforts outside your core competencies;  it is seldom advisable to start up something that's new to you in a commercial arena you know nothing about.  
Effective social entrepreneurs
*  find out what they are good at and try to do more of it.
*  find out what they are not good at and get out of it
*  find out what they're not capable of and don't even think about developing it.
Review your administrative capacity.  Does your organisation have an infrastructure - the information systems, personnel systems, financial and accounting systems - that can accommodate significant growth?  Is its financial reporting system able to track multiple projects and/or businesses so that their success can be assessed separately from the rest of the organisation?
  • Financial Analysis
Is there any prospect of seeking philanthropic venture capital funding for innovations designed to strengthen the organisation and facilitate its mission?
Is there any prospect of increasing the organisation's earned income through fees, contracts, product sales, or non-traditional business activities, thus reducing your reliance on governments and foundations, and reaching greater financial sustainability?
  • Environmental scan
The issue of social auditing is too large to be covered adequately in this paper.  See the Ourcommunity helpsheets at http://www.ourcommunity.com.au/management/view_help_sheet_list.do?categoryid=372 for further material.

Developing innovation

A commercial business can often be driven by one charismatic individual, but a sustainable not-for-profit organisation needs the commitment of all levels (the Board, the managers and the staff) to the entrepreneurial process if it is to be effective. All parts of the organisation need to develop the skills in planning and marketing that will allow them to identify opportunities and make informed decisions. The task is to learn to think like a business, and the challenge is to know exactly when to think like a business.

The Board

  • The Board needs to see its expenditure as investment in its mission.
  • The Board needs to be able to balance and weigh financial return and return on mission within the same decision-making processes.
  • The Board has to establish the level of risk, if any, with which it feels comfortable.
  • The Board may be able to drive the entrepreneurial process itself, or it may want to set up an Enterprise Committee of their Board to guide and nurture an entrepreneurial approach.  The Enterprise Committee would then have the responsibility for the overall direction and development of entrepreneurial activities. Membership of the Committee should include current Board members, the CEO, and outside community "business mentors" with solid expertise and connections in such areas as marketing, finance and operations.
  • The Board may find that it helps to go on a retreat from time to time to brainstorm strategies and projects - to identify and expand their most effective and needed programs, to eliminate truly unnecessarily or duplicative programs, and to add new services to meet identified community demand.

The CEO

Not-for-profit managers are often uncomfortable with taking responsibility for generating change, but social entrepreneurship needs people with the ability to put together ideas, knowledge, financing, and other resources into a coherent business plan.  The Board's expectations should be made clear.  In searching for a CEO not-for-profits should be seeking someone who combines an entrepreneurial spirit with a concern for social outcomes --  as David Bornstein said in a 1998  article,   "...a pathbreaker with a powerful idea, who combines visionary and real world problem-solving creativity, who has a strong ethical fibre and who is totally possessed by his or her vision for change"("Changing the world on a shoestring", Atlantic Monthly, January 1998, 281:1:36). 

These are individuals who, in John Catford's words, "...combine street pragmatism with professional skills, visionary insights with pragmatism, an ethical fibre with tactical thrust.  They see opportunities where others only see empty buildings, unemployable people and unvalued resources....Radical thinking is what makes social entrepreneurs different from simply 'good' people.  They make markets work for people, not the other way around, and gain strength from a wide network of alliances.  They can 'boundary-ride' between the various political rhetorics and social paradigms to enthuse all sectors of society"("Social entrepreneurs are vital for health promotion", Health Promotion International, 1998, 13:2:96).  

The CEO needs to have a management style that fosters innovative, collaborative, and multi-sectoral approaches to problem solving in their staff.   

The staff

Yes, the existing staff need to be reconciled with the entrepreneurial approach, but that may not be enough. Not-for-profits must also allocate adequate staff time to handle the day-to-day tasks of entrepreneurial endeavors. At least one half-time position is generally appropriate for a the early stages of a vigorous program.   You may also want to ask for help from local small businesses and from your financial, educational and volunteer contacts.
The behaviours that are wanted by an entrepreneurial organisation must be reinforced by being included in staff position descriptions and by featuring prominently in performance reviews. Staff should receive training or study time to help them adjust to the new demands.

The process

Whether in the Board's Enterprise Committee or in a management-run social entrepreneurship team, the organisation must establish processes and timetables to match its competencies with the needs of the market. Processes and procedures are called for that can
  • generate business ideas.
  • develop feasibility studies.
  • set mission outcomes
  • review key financial data
  • develop a business plan

The Audit

Anything that is valued should be set as an organisational goal, and anything that is set as a goal has to be measured so that it's possible to say definitely whether or not you've achieved it.  This has created the need for the entrepreneurial audit.
An entrepreneurial audit is a comprehensive examination of an organisation's entrepreneurial and innovative characteristics that can help you decide whether your organisation is ready to test the water.  
Such an audit evaluates
  •  your Board's willingness to support entrepreneurial development with appropriate resources
  • your management's ability to create, foster and maintain an environment that rewards entrepreneurial activities and the pursuit of innovation
  • your staff's ability to identify opportunities and respond to them swiftly
  • your structure's ability to incorporate entrepreneurial activity into your teamwork
  • your ability to evaluate innovation outcomes and act on the findings.
It is not meant to be a rigid policy blueprint but, rather, a guide for moving forward with policies informed by effective practices from across the sector. and made relevant for the enhancement of not-for-profit innovation investments.


Entrepreneurial Audit Sheet

 Very true .......... Not true    
(Circle one)
1. Your organisation has reviewed its mission statement recently
     1       2       3       4      5
2. Ask five Board members to repeat the mission statement.  How many can?     1       2       3       4      5
3. Ask five staff members/volunteers to repeat the mission statement.  How many can?     1       2       3       4      5
4. Your organisation  has reviewed its strategic plan recently     1      2       3       4      5
5. The progress of the strategic plan is reviewed at every Board meeting     1       2       3       4      5
6. Your information, personnel, financial, and accounting systems are able to accommodate significant growth     1       2       3       4      5
7. Your organisation's financial reporting system is able to track multiple projects and/or businesses separately     1       2       3       4      5
8. You have explored funding sources favouring social entrepreneurship and innovation     1       2       3       4      5
9. You have explored funding sources supporting organisational development and sustainability
     1       2       3       4      5
10. The organisation's culture has expanded to value entrepreneurial qualities     1       2       3       4      5
11. The Board has given clear indications of its preferred level of risk
     1       2       3       4      5
12. The Board has delegated powers to a committee responsible for entrepreneurial activities
     1       2       3       4      5
13. The Board is willing to support entrepreneurial development with appropriate resources
     1       2       3       4      5
14. The committee includes Board representation, management, and outside businesspeople     1       2       3       4      5
15. The organisation has conducted brainstorming sessions to explore entrepreneurial possibilities     1       2       3       4      5
16. The CEO's job description includes entrepreneurial benchmarks     1       2       3       4      5
17. The staff feel that the management encourages innovation
     1       2       3       4      5
18. Additional resources have been directed towards servicing the entrepreneurial function
     1       2       3       4      5
19. Staff position statements require entrepreneurial outcomes
     1       2       3       4      5
20. Entrepreneurial success is taken into account in performance reviews
     1       2       3       4      5
21. There is provision for staff training in business skills
     1       2       3       4      5
22. Your staff has the ability to evaluate innovation outcomes and act on the findings
     1       2       3       4      5
23. Your organisation has identified your current competencies
     1       2       3       4      5
24. You have identified products and/or services that use these competencies
     1       2       3       4      5
25. There is a market for these products and/or services
     1       2       3       4      5
26. There is a market niche where you can earn money off  fees,  sales, or other business activities
     1       2       3       4      5
27. Your organisation  has carried out feasibility studies
     1       2       3       4      5
28. You have developed a business plan
     1       2       3       4      5
29. You are confident that your organisation has a full understanding of the entrepreneurial mindset
     1       2       3       4      5
30. You are ready to roll!     1       2       3       4      5