Case Study: NESsT Performance Management Tool (PMT) by NESsT

Nonprofit Enterprise and Self-sustainability Team (NESsT)

Grupo para la Autosustentación de las Organizaciones del Sector Civil

Groupe d'Autofinancement des Organisations Non Gouvernementales

CASE STUDY: NESsT Performance Management TOOL

BACKGROUND

NESsT is an international, nonprofit, nongovernmental organization dedicated to finding lasting solutions to systemic poverty and social injustice through the development of social enterprises1 – mission-driven businesses that increase the financial sustainability and social change impact of civil society organizations (CSOs)2

NESsT works as a social enterprise catalyst worldwide through three priority initiatives: NESsT Venture Fund, NESsT University and NESsT Consulting. NESsT achieves its mission by combining the tools and strategies of business entrepreneurship with the mission and values of nonprofit entrepreneurship to support the development of social enterprises in emerging democracies worldwide.

The first of the three priority initiatives is the NESsT Venture Fund (NVF). This is a philanthropic investment fund that provides financial and capacity-building support to a select portfolio of social enterprises owned and operated by CSOs in Central Europe and Latin America. All of the social enterprises in the NVF portfolio are intended to generate revenues to help diversify the financing base and to further the mission of the parent non-profit organization. The NESsT Venture Fund was launched in 2001 as a response to two challenges that NESsT identified in the non-profit capital market of Central / Eastern Europe and Latin America: 1) CSOs have insufficient capital and lack access to mainstream financing sources to capitalize their social enterprises; 2) CSOs lack the capacity and skills to develop their social enterprise ideas.

The NVF has two very distinct portfolio stages in which CSOs fall into: Early-Stage Portfolio and LaterStage Portfolio. The Early-Stage Portfolio deals primarily with preparing the organization to launch a social enterprise and assessing the feasibility of a social enterprise idea. During five to seven months of intense cooperative work, NESsT provides on-going technical assistance and consulting advice (capacity-building) to guide CSOs through the evaluation of their prospective social enterprises. The amount of assistance provided is approximately 30 consulting days per organization. CSOs are provided with tools and training in organizational readiness for social enterprise, business plan development and sustainability planning. This assistance both helps to professionalize the CSO, and to evaluate the feasibility of the proposed enterprise. Each step in the process builds upon the previous one to deepen the level of analysis, culminating with the development of a business plan. CSOs are assessed at the end of each stage to determine if they will advance to the next and are expected to take the initiative to push through the entire process.

The Later-Stage Portfolio consists of CSOs which are ready to launch, and then implement, their social enterprises. Organizations that are selected to join the NVF Later-Stage portfolio receive tailored multi-

NESsT uses the term “self-financing activities” to refer to diverse strategies used by civil society organizations to generate their own revenues (sale of products, service fees, use of hard or soft assets, and dividends or investment income). NESsT uses the term “social enterprise” to refer to self-financing activities that are designed by a CSO to significantly strengthen the financial sustainability and the mission impact of the CSO.

2 NESsT uses the term "civil society organization" (CSO) to refer to a wide range of formally registered nonprofit, non-state organizations or community-based associations and groups that fall outside the sphere of the government and business sectors.

United States: 563 Garden Gate Way Turlock, CA - USA• Tel: +1 (209) 988-9604

LatinAmerica: José Arrieta 89 Providencia, Santiago - CHILE • Tel: +(56 2) 222-5190 Fax: +(56 2) 634 2599

Central Europe: Kalvin ter 2 .1/2 H -1053 Budapest - HUNGARY • Tel: +(36 1) 267 0231 Fax: +(36 1) 266 0206 Email: nesst@nesst.org • http:// www.nesst.org

year (three to five years) support combining strategic, managerial, and financial support from NESsT and its collaborating team of business experts and partner institutions. The amount of technical and financial assistance provided by the NVF to later stage portfolio varies according to the needs of each organization and depends on the levels of human and financial resources available by NESsT each year, but tends to average 30 days per year. Typical amounts of financial support range from US$1000$10,000, with an average of US$5000. These grants are investments that are made not with the goal of a financial return, but rather a social return. NESsT works with each portfolio organization to ensure that it meets the enterprise development, social change impact, institutional development and financial sustainability goals established during the planning (Early-Stage) process. Over the period of time that CSOs are in the NVF, portfolio members develop the ability to operate their enterprises independently and in a sustainable manner.

At both Early and Later-Stages, NESsT is assisted by members of its Business Advisory Network, individuals who offer their knowledge and skills on a pro bono basis to members of the NVF. The Performance Measurement Tool (PMT) that is at the heart of this case study is used solely with LaterStage Portfolio CSOs.

The second priority initiative is NESsT University, an incubator of ideas and initiatives that promote accountability, innovation, leadership and professionalism in the social enterprise field worldwide. The aims of NESsT University are to achieve the following:

• To develop professional training opportunities to prepare a new cadre of leaders with the unique blend of skills needed to manage social enterprises

• To promote accountability, ethical behavior and transparency in the social enterprise field

• To conduct practical research and develop new tools and strategies to support social enterprise development

• To promote wider support for an excellence in the fields of social enterprise and philanthropic investment

Among the many ways that NESsT aims to achieve the above are through initiatives such as:

• NESsT Social Enterprise Toolkit (SET)

The NESsT SET is a series of useful analyses and tools intended for donors, nonprofit leaders, philanthropists and researchers worldwide to help foster the effective and responsible use of social enterprise.

• NESsT Entrepreneurs-in-Residence (NESsTERs)

The NESsTER program provides opportunities for students and mid-career professionals to gain first-hand experience in social enterprise development. NESsTERs assist with all NESsT initiatives including the development of tools, publications, business plans providing an overall objective / outside view on NESsT´s inner workings. They are also a key component in working with CSOs to assess and train with regard to PMTs.

• Social Enterprise Legal Advocacy Working (LAW) Group

The Social Enterprise LAW Group aims to foster an enabling regulatory environment for social enterprises in emerging market countries, and to provide practical legal/tax guidance for social enterprises in the NESsT Venture Fund portfolio.

• Social Enterprise Workshops (SEWs)

The SEW series has provided skills-development training on social enterprise for hundreds of social enterprises worldwide.

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The third and final priority initiative is NESsT Consulting, which is NESsT´s own social enterprise. Since 1997, NESsT has offered over 50 consultancies to nonprofit organizations, donors and international organizations in 32 countries. Previous consultancies have included:

• Group trainings/workshops: NESsT offers group trainings on a variety of social enterprise topics, including: introduction to self-financing; feasibility study and business plan development for social enterprises; etc.

• Individual consulting: NESsT provides tailored consultations and technical assistance to social entrepreneurs on feasibility study and business plan development; enterprise management and development; social enterprise accounting and financial management; product development and pricing; etc.

• Expert services: NESsT researches and writes publications on social enterprise and venture philanthropy and provides country assessments on the state of social enterprise for donors and international organizations

THE PERFORMANCE MANAGEMENT TOOL

The NESsT Performance Management Tool (PMT) is intended to help NESsT and its portfolio to:

• better manage, plan and strategize in order to achieve enterprise and sustainability goals

• measure and protect the value of NESsT’s investment

• anticipate risks arising from deviances from business plan projections and plan for appropriate capacity building

• provide accountability and incentives based on real data

• disseminate results and raise awareness / support for social enterprise and venture philanthropy.

The origin of NESsT’s PMT dates back to 1999 when NESsT’s co-founders, Lee Davis and Nicole Etchart, set out to determine how self-financing activities of CSOs affected the overall health of the parent organization.3 The method used was a detailed examination of 43 case studies of social-change CSOs, from 15 countries, that were conducting self-financing activities. It should be noted that NESsT uses the term “self-financing” to refer to diverse strategies used by civil society organizations to generate their own revenues (sale of products, service fees, use of hard or soft assets, and dividends or investment income). NESsT uses the term “social enterprise” when these strategies are carefully assessed and planned to significantly strengthen the financial sustainability and the mission impact of the CSO. The majority of the cases studied would be considered “self-financing” activities under the NESsT definition.

NESsT did not set out to identify a group of self-financing “success stories” but rather, the cases were selected to represent a variety of characteristics, including geographic distribution, a mix of CSOs working both in rural and urban settings and at a local and national levels, a range of CSOs (e.g., community development, culture, education / training, environment, health, and social services), and a variety of self-financing methods used.

To understand the effects of self-financing on the CSOs, data was gathered in eight distinct categories for all 45 cases.

The findings of this research were published in Risky Business: the Impacts of Merging Mission and Market, Santiago, Chile, 2003.

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1. Organizational Operations: How did the self-financing activity impact the operations of the organization? Did it help the Organization have more transparent and efficient systems?

2. Mission and Values: Is the venture having an impact on the mission, priorities, and/or core values of the organization?

3. Resource Diversification: Is the venture helping the organization to leverage a wider range of income sources? Does the venture help the organization reduce financial risk from dependence on only a few sources?

4. Asset Building: Did self-financing contribute to a steadier stream of income? Did self-financing contribute to more permanent assets?

5. Organizational Autonomy: Is the venture helping the organization to function more “independently” in its work and decision-making?

6. Financial Performance: Is the organization achieving its financial objectives for the venture?

7. Stakeholder Relations: Is the venture having an impact (either positive or negative) on the organization’s relations with its various stakeholders?

8. Organizational Culture: Is the venture affecting the attitude and/or behavior within the organization? Has adoption of for-profit mentality and methods had an impact?

The findings from the research showed a strong interdependence between the performance of the selffinancing activities and the overall performance of the parent organizations in these eight areas. There were no obvious or consistent positive or negative correlations. That is, self-financing did not necessarily have a negative impact on mission or organizational culture or a positive impact on financial performance or resource diversification. Rather, the findings showed that those activities that were better planned and managed, had overall greater positive effects on organizational mission and sustainability than those that were not. It pointed to the need for CSOs to have clear benchmarks for measuring and managing their social enterprise performance and having contingency plans for responding when they are not meeting their objectives.

A framework with four main categories was then constructed for assessing the relationship between the performance of the self-financing activity and the eight areas analyzed above. These areas are grouped in the figure below under three key impact areas—social change, institutional development, and financial sustainability—and self-financing/social enterprise performance is the driver for these three interrelated areas. Ideally, with the right capacity-building and financial support and with the guidance of a clearly articulated performance management system, all three areas should move toward organizational sustainability.

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These four main categories became the basis of the NESsT Performance Management Tool currently used today. They are:

1. Enterprise Performance: Performance of the social enterprise in relation to the goals and objectives set in the business plan

2. Social Change: Social (i.e. mission) gains and risks to the portfolio organization as a result of the social enterprise

3. Institutional Development: Organizational development gains / losses to the portfolio organization due to the social enterprise

4. Financial Sustainability: Financial sustainability gained by the portfolio organization as a result of the social enterprise

The basic premise of the NESsT PMT is that social enterprise performance is one component of overall organizational sustainability. The Tool is designed to capture and maximize the effects of social enterprise on the other three areas and vice versa so that organizations can achieve greater organizational sustainability through social enterprise. The Tool is set up to identify the tensions in the relationship between the social enterprise performance and these three areas, to recognize that at times, the organization might retrieve in one area as it advances in another. But ultimately, the Tool is based on the assumption that by setting realistic goals and monitoring these effects, the enterprise will drive organizational sustainability.

The PMT focuses on managing rather than simply measuring the performance of social enterprise. NESsT Enterprise Development Managers (EDMs), staff that directs the NVF´s operations and lead

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CASE

overall fund direction and performance, along with the PMT NESsTER4, work with each CSO to establish performance goals, indicators and baseline data under each of these four categories based. Information gathered during the early stage process from NESsT due diligence and from each individualized business plan serves as the baseline in year one of later stage. These performance indicators are then tracked by the CSO on a trimester and yearly basis and are reported to NESsT EDMs to determine if progress is being made, to identify any potential issues early on so they can be addressed in a timely fashion and to understand if the CSO is on the overall right track in meeting all of their goals. This allows NESsT to anticipate and pinpoint the kinds of capacity building support that will be needed by the organizations. EDMs can then plan portfolio workshops and one-on-one capacitybuilding support that address these needs. It also allows the CSO to shape and maximize the impact of the social enterprise on the four areas that are key to the organization’s sustainability, and ultimately, its ability to advance social change.

The Tool includes a standard set of goals and indicators under each of the four main categories for each CSO to pick and choose according to their personalized business plan and organizational situation (see below for a sample of some of the goals and indicators of the Tool and see attached Appendix for full version of the NESsT PMT). There is a fifth category which is identifies goals and indicators for NESsT capacity building support during later stage.

In large part because the quality of goals and indicators are high, the information produced from the PMT is accurate, well thought out and has a very direct translation to the performance of the social enterprises. A PowerPoint presentation explaining the PMT, how it should be used, why it is important and other useful information is presented to each group, ensuring they utilize the PMT to its fullest. Along with the presentation, a detailed document outlines in closer detail the intricacies of the PMT and provides a reference point for general questions about the Tool.

4 Each year, NESsT recruits a NESsT Entrepreneur in Residence that is responsible for working with the EDMs on implementing the PMT with later stage portfolio groups. The PMT NESsTER provides an objective assessment of the organization’s goals and indicators.

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Categories Goals to be Measured Indicators

Enterprise Specific Goals and Impact

Market Goals of the Enterprise Penetrate New Markets

Operational Goals of the Enterprise Improve / Maintain product or service quality

Social Change Goals and Impact

Achieve Mission Goals

Promote Systemic Change

1. Number of market segments under analysis /year

2. Key market trends identified during the year

1. How have your quality control procedures improved / maintained the quality of your products during the past year?

2. Customer satisfaction survey

3. % returned items vs. sold/year.

4. % of repairs requested/year

1. To what extent have you achieved the mission goals of your enterprise during the past year?

2. Have these goals changed or evolved over the last year? (please specify)

1. In what ways has your organization changed public policy regarding issue X?

2. Have you published and distributed new findings in your field during the past year?

3. Has your work been recognized as innovative or groundbreaking by external observers and have you received any awards in recognition of this during the past year?

Institutional Development Goals and Impact

Human Resources Improve Human Resources Management

Strategic Planning and Learning Establish compatibility between organizational strategy / plan and enterprise strategy

Financial Sustainability Goals and Impact

Diversification / financial autonomy Increase # and diversity of donors

1. How have you improved your organization’s human resources management policy over the past year?

2. Please state the positive affects these new policies had on your human resources?

3. Staff turnover / year

1. Has your organizational strategy / plan and your enterprise strategy affected each other in a positive or negative way over the past year?

2. Risk Mitigation Strategies

1. How many active donors do you have? How many are private vs. public? International vs. national/local?

2. # of new donors / year

3. Funding sources lost / year Asset building Increase # of assets / build assets

1. What are your current assets? Please specify those assets acquired as a result of the enterprise

2. Newly acquired assets / year for / by enterprise

3. Newly acquired assets / year for / by NGO / Organization Evaluation of NESsT

Evaluation NESsT as an Organization Achieve / Maintain NESsT Value Added

New Support /

Technical Requirements

Identify and express capacity building requirements from NESsT

1. Please describe your relationship with NESsT

2. What did you gain from NESsT’s involvement and support of your enterprise over the last year?

3. Please describe the top two difficulties of working with NESsT

4. Please describe the top two benefits of working with NESsT

1. What new specific support do you feel your organization will require?

2. Within what timeframe will you require this specific support?

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EDMs prepare an end of the year internal report which analysis the information gathered from the trimester reports alongside notes that have been developed from meetings and trainings during the year The internal report serves as the baseline for the following year. In years two and three of portfolio membership, EDMs work with the organizations to add goals and indicators from the Tool identifying further capacity-building needs. The internal reports also form the basis of external reports that are generated for investors and donors. To date these reports have been incorporated into more general reports however NESsT is planning to publish stand alone reports starting in 2007.

The Tool also allows both NESsT and portfolio organizations to determine appropriate “exit strategies.” NESsT defines exit strategies with each CSO based on agreed-upon performance indicators and consider “exiting” portfolio CSOs when they have reached an agreed-upon goal and / or they no longer benefit from NESsT support

The Tool was first rolled out in 2004. The lessons from this pilot year were incorporated and the current Tool has been in use since early 2005. This is a more streamlined Tool, with clearer indicators and a more efficient training and implementation process (see below for more details).

LA MORADA EXAMPLE

History

A Later-Stage Portfolio organization, La Morada, will be used in this case study to provide real life examples of how the PMT is used.

The nonprofit organization La Morada operates in Santiago, Chile as a center for advancing women’s rights. Established in the mid-nineties, one important division of La Morada is a psychological treatment Clinic for low-income women, many of them victims of domestic violence. During its early years of operation, the Clinic had become heavily reliant on donor funding. This funding began to dry up toward the end of the decade, and the Clinic increasingly found it difficult to make ends meet. The revenue and donor support the organization did receive was not enough to cover operating expenses. During this time, La Morada was undergoing significant personnel changes that only made this difficult situation all the more challenging.

La Morada solicited the help of NESsT to strengthen its financial sustainability and mission impact. With NESsT’s guidance and support, La Morada began the process of preparing and transforming the Clinic into a full-fledged social enterprise. The organization traditionally provided psychological therapy services at no cost to its low-income patients, while the social enterprise would involve expanding this service to higher income clients and charging fees to all clients based on a sliding scale. The management, strategy, and culture of the organization needed a transformation in order to successfully apply the knowledge and expertise that NESsT was providing.

Social Enterprise

Product Strategy

La Morada’s business plan defined its service as treatment and therapy to individuals using a systemic psychoanalytical model from a gender perspective. The Clinic does not offer group counseling sessions

The Social Enterprise consists of extending these services to paying clients across Santiago, particularly middle income women. In addition, the Clinic planned to reach out to university students, both male and female, also at middle income levels.

Price Strategy

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The Clinic does not charge each person a flat fee, but varies the fee based on the client’s ability to pay. La Morada charges its clients a price, per session, ranging from CLP 3,000 (USD 5.77; EUR 4.57)5 to CLP 15,000 (USD 28.85; EUR 22.87). For La Morada’s lowest income clients, the fee of CLP 3,000 was still within reach. The final price charged is determined by the psychologist during an initial appointment. The average price per session established in the business plan is CLP 8,400 (USD 16.00; EUR 12.70).

In an effort to reach the lower income women who cannot afford the more expensive clinics, this price is significantly lower than the competition. This average price can, in some cases, be as low as half that of the competition. The strategy was designed to increase the quantity of middle-class patients served who were able to pay a higher rate, but a rate that was still lower then most private Clinics. In this way, the higher-income clients would cross-subsidize the lower income clients that pay less than the average fee. An average price would be maintained to cover the cost of operations.

Marketing Plan

In the first year of the enterprise (2004), La Morada conducted a marketing campaign that introduced a new corporate identity and logo. NESsT sought the support of a member of its Business Advisory Network, the director of a well-known communications agency, who assisted La Morada with this campaign. The objectives of implementing this marketing plan were as follows:

• Increase the number of clients

• Attract middle-class clients

• Become known as a self-sustaining organization

• Position the Clinic as a standard and reference for quality and as a leader in forming professionals in the mental health industry

• Position the organization as a leader in human rights and gender discrimination.

The Clinic has had to overcome the image of being a low-cost provider and the misconception associated with charging significantly less than the competition. It was felt by some potential patients that the Clinic was charging less for their services to make up for a lack of quality. A word of mouth marketing campaign has helped improve the image of the Clinic. As more clients have discovered the high-quality services that the Clinic offered, the low-price equaling low-quality stigma has lessened.

Sales Plan

One of the goals of the social enterprise was to expand services into markets that were not being reached by other psychological Clinics. La Morada would achieve this by disseminating information about the Center, building on its contacts and database, as well as through patients’ word-of-mouth. To attract University students, the goal for the first two years of the five-year plan was for La Morada to enter into a partnership with a local university where the university would subsidize a portion of the cost of student treatment. La Morada is currently looking at tapping into new similar partnerships with government ministries, labor unions and private companies to increase the number of clients.

Clinic’s Competition

The business plan identified that La Morada’s competition came primarily from the health sector which is made up of public and private facilities. These facilities often provide treatment for a wide variety of issues such as psychosis, schizophrenia, drug addiction, and depression. The Clinic’s comparative advantage is that it specializes in treating women and charges a much lower price. La Morada has seen an increase in the number of students studying psychology over the past few years. The organization believes that this increase, along with the expected increase in demand of patients, will bring many new competitors into the market in the future.

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Human Resource Plan

A team of six psychologists was contracted part-time (10-20 hours per week) to carry out their psychological treatment sessions (60% of their time) as well as coordination, outreach and public policy advocacy tasks (40% of their time). This human resource plan is significantly different then the one in place prior to the business plan where psychologists were paid on a per patient basis only and were not contracted on a half time salary. The new plan provides the team with a steady wage that includes a fixed amount or base salary for the outreach and advocacy tasks that each hold plus a variable amount based on the number and type (fee level) of patient hours completed per month. This strategy provides the team with security and motivation while at the same time ensures the Clinic that it has the human resources necessary to be able to offer ongoing services for its clientele.

Financial Plan

La Morada worked closely with NESsT to develop its five-year plan to become sustainable. This plan called for increasing the average fee received per session and increasing the number of sessions sold per month. Projected revenues were to double by year two, increase by 20% in year three and remain the same in the following two years. Variable costs would follow a similar pattern, while operational costs were projected to remain relatively stable during the five year period. With this scenario, the Clinic would break even in year three. NESsT’s financial investment would be used to close this gap and primarily to pay for the staff base salaries. Seventy percent of monthly revenues would be allocated for the variable component of staff salaries and the remaining 30% would be allocated to cover operational expenses. A reserve fund would be created to cover ongoing operating expenses in cases when staff was absent and unable to perform fee-based services

La Morada PMT

Below is a chart that shows goals and indicators under each main category, and subsequent subcategories, in La Morada´s 2005 PMT or second year in the later stage portfolio.

NESsT Performance Management

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SubCategories

Goals Suggested Indicators

Enterprise Specific Goals and Impact

Suggested Frequency

Baseline 2005

Target 2006 Actual 2006

Mgmt. of business activities

Increase the average price

Surpass projected financials

Social Change

Systemic change Contribute to the national dialogue on the situation of social injustice faced by Chilean women

Expand or improve programs

Offering psychotherapy to women, men, adults, adolescents, couples and families

Institutional Development

Human Resources Consolidate the professional team of the clinic

Strategic Planning and learning

Strengthen the relationship between the social enterprise and the parent organization

Financial Sustainability

Diversification and financial autonomy

Increase the number and diversity of donors

Self-financing Increase percent of self-financing of overall budget

Average projected price

Achieved? % difference vs. last year

Annual $14.00 9.5% increase $15.00

$13.15 $1.85 under Measurement of operational bus. activities

3x per year Projected cost Q1 $6,939.00

Improve cash flow for each type of sale

Actual cost $6,443.00 %7.15 less

Bring together participants of institutional action and network of peers

Number of 1) Individual patients

2) Couples patients 3) Family patients

Consolidate equipment space Consolidate supervision on therapy offered

Incorporate lessons and methodology from Psychology Area to overall institutional decision making process

3x per year

Student texts Distribution of material on 14 radio stations Participation on TV

3x per year 269 annual patients

Improve the opportunities for debate dissemination of issues related to social injustice

Growing the number of overall patients / while still being profitable

3x per year Weekly coordination of space and equipment Weekly clinical supervision

Annual Coordinator of the Center sits on the Board of Directors

To maintain regularly coordinated equipment & supervision Align pay w/ responsibility

Maintain level of participation of Coordinator on the Board

Creation of a website to help distribute information to associates

348 annual patients

# Current donors? Public vs. Private? International vs. Local?

income as a percent of costs

Performance Management

3x per year 2004: 3 donors (NESsT, Fondo de Población and AVINA)

Annual 91 percent of budget covered through sale of services

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Increase fundraising to more and different donors

Maintain 91 percent of budget covered despite increase in fixed costs

Twice weekly coordinated equipment and supervision Pay is the same

Level was maintained

4 donors for 2005

91 percent maintained

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INDICATORS OF SUCCESS

The PMT has multiple indicators of success, some of which can be easily measured as they are quantifiable, and others which are best described as observable.

Since 2000, the NESsT Venture Fund has provided over US$1 million of capacity building and financial capital support to over 175 CSOs in an effort to help them plan for, start up and manage their social enterprises. These resources have been used to support social enterprises at both the “early stage” (i.e., feasibility study and business plan development) and “later stage” (i.e., start-up or expansion).

- Early stage portfolio: NESsT has provided over US$430,000 in early-stage capacity investments and venture planning grants, enabling 175 CSOs to complete all or part of a rigorous process to assess their readiness and capacity for social enterprise; test the feasibility of enterprise ideas; and complete a business plan. Not all social enterprise ideas prove feasible and NESsT does not select all of the social enterprises in our early-stage portfolio for continued support. However, every organization completing this rigorous process with NESsT is instilled with an entrepreneurial management capacity, and skills and tools necessary to independently plan for social enterprise. For as little as US$6,440 per organization in capacity investment or a venture planning grant as small as US$1500, NESsT has enabled organizations to achieve a stronger footing and foundation for success, to increase their organizational capacity, financial sustainability and social impact in the community.

- Later stage portfolio: In addition to providing early support to a wider number of social enterprises, NESsT has also designated a portion of its resources to directly invest (philanthropically) in a few highimpact, later-stage social enterprises in emerging markets. Thus far, NESsT has helped to launch 20 social enterprises by providing a multi-year package of capital and capacity support. Our relationship with our portfolio is highly-engaged, modeled on a venture capital approach of working closely with a small number of social entrepreneurs who have the potential for realizing high social impact in their area of work. Since 2000, NESsT has provided 31 venture grants totaling US$157,080 and over US$415,000 in capacity investment to our later-stage portfolio. In addition we have leveraged co-financing and over 1200 hours of in-kind support for our portfolio through our Business Advisory Network.

The social enterprises that NESsT supports are diverse in both geographic location and also in the focus of their work. Whether in the fields of poverty alleviation, disabilities, education, environmental conservation, health, rural development, or opportunities for ethnic minorities or indigenous people, NESsT’s portfolio of social enterprises generates significant benefit for the community. NESsT entrepreneurs are also agents of social change – they create innovative solutions that overcome community problems but also change the policies, practices and systems that are the root causes of these problems. Support from the NESsT Venture Fund portfolio has enabled our portfolio members to demonstrated unique, financially-viable and sustainable social enterprise models for achieving social impact that can be replicated in other communities. Social enterprises in our portfolio have:

- generated hundreds of jobs for unemployed, “unemployable” or otherwise marginalized people in emerging markets;

- demonstrated new employment models for people with intellectual and physical disabilities as alternatives to institutionalization;

- developed new financially-viable options for environmental conservation, sustainable forestry management, organic agriculture production, alternative energy;

- demonstrated new sustainable development models for revitalizing depressed rural communities;

- developed new models for providing free or affordable health services to lower-income groups by cross-subsidizing services to higher income paying clients;

- demonstrated a sustainable organic agriculture supply line by organizing and educating community farm producers, local grocers and farmers market resellers, and consumers;

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- demonstrated an economic model that serves customers with high-quality products (from jewelry to ceramics to organic pesto to firewood) while also respecting the environment and creating economic opportunities for ethnic minorities, indigenous people and other marginalized communities.

Another way of indicating success with the PMT is by observing the best effects the Tool has on the CSOs. The Tool allows organizations to have very concrete targets related to their social enterprises

Using their business plan as a starting point and as a guide, these concrete targets help to set out a roadmap to explain how CSOs should take incremental steps to focus on getting closer to their main overall goals. These clear targets help identify issues early, and thus prevent a deviation from the stated goals.

The PMT has proven to be helpful in providing suggested goals and indicators to each CSO. Instead of handing over a blank sheet of paper and asking a CSO to generate meaningful, quantifiable and measurable goals and indicators, which could be a very daunting task, NESsT provides a certain number of indicators that have been thought about carefully and that provide a baseline from which each CSO can start this process. Because of this, accurate and helpful information is able to be gathered and disseminated.

The PMT also helps NESsT to understand where its assistance can be best utilized. Looking at each CSO´s goals helps to pinpoint what capacity building needs are a priority, and assists in NESsT setting up a game plan on how to best go about helping each organization to the fullest.

La Morada Example

In the case of La Morada, there have been numerous indicators of success.

It took La Morada approximately one year to truly begin to own the PMT. In 2004, when the organization entered the later stage portfolio, it grappled with developing indicators that would allow it to manage key components of its enterprise. The initial set of indicators focused on many of the basic drivers of the business (i.e. increase sales, reach projections, improve cash flow etc). By the end of the year, La Morada began to see that the PMT could be a very helpful way to manage the enterprise and reach its goals.

By year two, having systemized this information, La Morada began to see the need to develop new indicators that would allow it to track other aspects of the enterprise and make more informed business decisions. With the assistance of the EDM, and using the many indicators outlined in the Tool, La Morada developed new indicators. To follow are several examples of year two and year three indicators which demonstrate this evolution and learning process.

A key driver of La Morada’s social enterprise is the average monthly price obtained from the sale of services. In order to reach its financial goal, La Morada knew that it had to reach this average price by charging more middle class patients the higher price. This has been very challenging for the team members who were not used to charging patients the higher fees and who were used to working mostly with lower income women. Since 2004 upon launching the enterprise and entering later stage, La Morada has continuously set a target to reach this average price but has come short of doing so. In Year Three (2006), the baseline was USD 14.00 and the target was USD 15.00, and La Morada again did not reach this average price but came very close to it at USD 13.15. In 2007, worried that it would again not reach its target of USD 15, La Morada decided to add a new indicator that would help it to reach the average price. By assessing the number of patients that were paying each price level, La Morada came up with a percent of patients that would need to pay a price higher then USD 14.00 (60%) and a percent of patients that could pay a price lower then USD 14.00 (40%). By being able to monitor the numbers on a monthly basis, La Morada will have a much greater chance of meeting the monthly average price target in 2007.

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In terms of quality of care, La Morada initially developed an indicator that would measure the number of patients reaching 3 months of continuous therapy. This was an indicator that the patient would most likely continue with the care and be able to benefit fully from it. Today, with a growing number of patients, which has more then doubled from 161 to 347, La Morada is not only interested in tracking the number who reach three months of continuous care, but has also added a new indicator that tracks the number of patients who successfully complete treatment. The target is a much better indicator of success and will help La Morada measure the impact of its service. In addition, concerned about being able to serve this growing demand, La Morada has begun to track its capacity—the number of patient hours that the team of psychologists can provide on a monthly basis and when those hours are currently not being used. By so doing, La Morada can develop strategies to make “off hours” more attractive to patients (i.e. reduced fares, extra low fare sessions per month), freeing up the more coveted hours for new patients. Again, this new indicator will have a direct impact on La Morada’s growth and social impact.

When La Morada first launched its social enterprise, its marketing plan called for mass mailings and advertisements. La Morada´s patient files now track a great deal more information on each patient: whom patients were referred by; why the patient is visiting La Morada, etc. La Morada now has a much better understanding of how its patients hear about services offered and has discovered that a very large percent of new patients come from referrals of past or present patients. With this information, La Morada has a clear idea of its current target market and who will make up its future clients. It can now focus its marketing and advertising in the appropriate geographic and socioeconomic areas and make more educated decisions to pro-actively expand or diversify this market.

In terms of goals and indicators in the “institutional development” and “financial sustainability” categories, La Morada has tracked basic indicators from the beginning. A goal for the organization was to offer its team of psychologists a more equitable payment plan. Each month the average fee is calculated by dividing the total fees brought in by the number of patient hours. Each psychologist is paid for the number of patient hours she completed times this average fee. This way, no one is penalized for seeing lower income patients versus higher income ones. Today, La Morada continues to track this indicator to make sure that the plan is still meeting this goal. Early on it identified the need to set up a system to replace psychologists when they are on medical or maternity leave and has developed a goal to do this in its 2007 PMT.

A major new goal in the institutional development area is that of transferring the systems and lessons from the Clinic to other program areas of the organization. It has developed the goal to do this in 2007 and will track it through the active participation of the director of the Clinic on the board and management team of La Morada.

With regarding to financial sustainability, maintaining a diverse portfolio of donors was an important goal from the beginning since the Clinic was not targeted to reach break-even until Year 3. In 2006, this goal was reached, and La Morada was able to pay for all of the costs associated with the Clinic including new additional fixed costs originally paid for by the overall organization. This was an extremely important accomplishment, reached due to the strong efforts of the staff to make their sales targets and to keep operational costs to a minimum despite increasing number of patients attended. Going forward, the Clinic still aims to bring in donor funds to cover the remaining 10 percent of costs incurred to carry out research, outreach and advocacy.

CHALLENGES OF PERFORMANCE MEASUREMENT & MANAGEMENT

As with all management tools, there are challenges associated with the NESsT PMT. The PMT is seen by some members of the portfolio as a long and complex tool. There are rigorous data tracking requirements which many organizations are not able to fulfill adequately because of the nature of their

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social enterprise or due to a lack of organizational capacity. The most difficult part of using the PMT for many organizations is when they first begin to use it, when it is unfamiliar and seen as potentially cumbersome and confusing. When the Tool was piloted in 2004, many of the organizations applied a limited number of goals, and the indicators were of poor quality.

These challenges of the Tool were recognized by the NESsT EDMs early on, and steps were taken to alleviate these initial growing pains. The changes include: 1- EDMs now meet with organizations several times to train them on the Tool and to help develop the goals and indicators 2- EDMs provide timely feedback when reports are submitted on a trimester basis and meet with the organizations to discuss outcomes and plan for next steps; 3- The number of goals and indicators for organizations just entering later staged were reduced and a “minimum” level was established so that they would not feel overwhelmed; 4- Further, in the past year, NESsT created a PowerPoint presentation and a memo describing the use of the PMT which is used to train the organizations and also the EDMs when they first join NESsT. 5- Finally, the PMT NESsTER now dedicates more time in analyzing business plans and PMT indicators and provides objective suggestions to the CSO groups and EDMs alike.

There has also been the need to avoid the downward revision of goals and indicators. In those cases where goals are not met at first, or only little progress is shown, portfolio organizations can be tempted to immediately revise their goals and indicators to make them “easier”. Today, EDMS work with the organization to set goals that are well thought out and construed from the beginning. This way, it is clear if lack of progress is related to a lack of execution rather than with poor goals and indicators.

Other challenges to the Tool are related to its planning and external reporting purposes. NESsT has adopted a more rigorous approach in mandating that data be collected every trimester and year. This consistency helps each CSO to keep on task with regard to their goals, and also allows trends and developments to be observable. Further, since the businesses of the portfolio organizations are all very different, it has been challenging for NESsT to benchmark the outcomes of the PMT. One step in this direction was to the use of a “minimum set of indicators” that all organizations must have so that there is information that can be consolidated and analyzed on a portfolio-wide basis. As more and more organizations enter later stage, NESsT now has more information that can be benchmarked and reported to external investors. However, the organization is still in the process of developing the tools and mechanisms for packaging this information for its various stakeholders.

La Morada Example

At the end of the first year using the Tool (2004), La Morada reported back to NESsT that while it was very happy about many aspects of the Tool and the outcomes it had made possible, changes in the Tool could be helpful. It was suggested that the Tool was a bit too long and complex and that using a simpler version would be of greater benefit to the organization. La Morada also conveyed to NESsT that the time period where NESsT EDMs explained how to use the PMT, if done in separate stages rather than all at once, would allow La Morada´s employees more time for learning and facilitate better understanding of the Tool. As already mentioned, NESsT took both of these suggestions, alongside those of other portfolio organizations, and adapted the Tool and the overall introductory teaching approach. After Year 2 in the Later-Stage Portfolio, La Morada expressed how much easier and more effective the new Tool and introductory teaching approach were. It is this free flow of information, as well as having a dynamic Tool, that allows the PMT to be potentially successful to all CSOs.

NESST´S DONOR REQUIREMENTS & PERFORMANCE EVALUATION

NESsT has not used the results of the PMT for donor reporting purposes to date since the Tool was implemented during the last two years and it has only now begun to gather the quality and amount of information needed for reporting purposes. Until now traditional industry reporting requirements have

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been used. Quarterly and annual narrative reports explaining accomplishments of goals and objectives and financial reports outlining and justifying expenses have been the norm.

In NESsT’s experience, individual donors and corporations have fewer reporting requirements than do foundations and governments. Across the categories -- foundations, governments, individuals and corporations -- funders most want to see quantitative results. Examples of typical quantitative results are number of organizations in a portfolio, number of organizations trained, hours spent in a capacity building role, number of jobs created, number of beneficiaries reached, etc. More recently donors have been asking for performance measurement indicators from the beginning, which is a change and most likely a trend that will continue

Foundations, with their innovative mind-set, tend to be interested also in the methodology used, lessons learned and information disseminated from these lessons. Foundations always want to learn what is new and understand how this can lead to increased innovation in specified fields. Many of NESsT’s early donors were foundations who supported NESsT innovative approach to using social enterprise and venture philanthropy as a way to help CSOs become sustainable and were pleased with measurements that were more process oriented. However, despite the fact that they were supporting this pilot, they also called for more quantifiable results related to the NVF and did not always understand the more qualitative approach which NESsT believed was called for at that time.

Corporations are typically more interested in publicity, marketing and employee participation. NESsT often packages the NVF as a “business plan competition” where organizations compete and semifinalists receive NESsT capacity building support in developing a business plan and winners receive a financial investment. These competitions allow for opportunities for outreach to CSOs in the immediate community where the corporations are working and the use of their corporate logo and media coverage at training workshops and awards ceremonies. To provide ensure employee participation, NESsT invites employees to join the Business Advisory Network and provides them with opportunities to assist CSOs with their business plans, to help with trainings on marketing, sales or financial systems or even to help with the more logistical components of the training workshops and award ceremonies. The marketing aspects of these competitions also provide opportunities for employee involvement. In terms of reporting, corporations that are closer to the private equity and venture capital communities have been more demanding regarding the performance of the portfolio and have asked for performance management reports.

Individual philanthropists seem to be most interested in the human-side of giving. The stories, lives touched and examples of how their money and time are contributing to the betterment of society are what moves and motivates these donors. Despite that many of these donors are businesspeople, and are attracted to NESsT’s business approach, as philanthropists they are less interested in how this happens, and more interested in the end result. They focus is on whether the social enterprise improved the life of the indigenous woman or the homeless child. Capturing these stories is a challenge but NESsT is currently exploring ways to do this better (see below for more details).

NEXT STEPS

The experience of working with its donors and investors for the past few years, has allowed NESsT to better understand the kinds of reporting that it needs to develop for the PMT. The next steps for the Tool will therefore focus on developing ways to take information from the current PMT and communicate it in a form that is useful for NESsT´s external stakeholders and supporters. This will be done in the form of three documents.

The first is a simple document that shows globally the impact of the NVF. This quantitative snapshot will be done by taking 2-3 key indicators from each category in the PMT that can be benchmarked and drafting an external document centered on these indicators. Examples are:

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• Enterprise Performance – % of the portfolio meeting or exceeding financial projections

• Social Change Impact - # of beneficiaries served through services and/or employment

• Organizational Development - % of portfolio meeting or exceeding institutional development goals

• Financial Sustainability - % increase in the portfolio’s funding from self-financing

The second document is a qualitative look on how CSO beneficiaries are being impacted. Because many outside stakeholders are interested in how lives are being changed as a result of social enterprise, NESsT is creating a “Story Form” that each organization using the PMT will be required to fill out on an annual basis. This form will have each portfolio organization highlight a real-life story that shows the impact that their social enterprise has had on one of their beneficiaries. The plan is to include this requirement in the Memorandum of Understanding (MOU) that is signed by each portfolio organization and NESsT outlining what is expected of each other throughout the partnership.

The third document is an annual external report based on the PMT outcomes of each portfolio organization. The report will highlight the goals and mission of the CSO, the Social Enterprise, progress made in the four performance categories, key challenges and accomplishments, and the assistance provided by NESsT. With these three documents, NESsT feels that it will give a comprehensive view to outside stakeholders on the impact that takes place with the help of the PMT.

There are other changes and improvements on the way with regard to the PMT model. NESsT currently uses a Customer Relationship Management system called salesforce.com (SFDC) that tracks the current portfolio members (Early and Later-Stages) in terms of enterprise development and implementation processes. Components of this information include dates indicating completion of the business plan, signing of the MOU, first year investment as well as highlights of each PMT trimester report, important meeting notes from EDMs, feedback sent to organizations regarding plans or tools etc NESsT is exploring ways to track quantitative PMT indicators mentioned above through SFDC so the information can be disseminated and used to its fullest.

NESsT is also going to begin to measure the impact that it has on Early-Stage organizations when organizations receive capacity building support in organizational readiness for social enterprise and in assessing the feasibility of the social enterprise proposed. NESsT has been capturing this learning for its own due diligence purposes. In 2007, NESsT will adapt this process and begin to measure the skills and knowledge gained by the organizations, even those whose ideas do not appear feasible but that after the early stage process are positioned to evaluate other enterprise ideas or to attend to other organizational sustainability needs.

Although NESsT currently evaluates its own performance in a number of ways, it has not adopted the NVF PMT for its own use. The NESsT Venture Fund PMT includes a section at the end of the Tool that discusses NESsT’s “value added” services. This allows for objective feedback from CSOs to determine if NESsT is truly adding value to their organization, and if so, what this value is. Portfolio organizations are asked to respond to this questionnaire on an annual basis. EDMs meet with them to review the responses and to build in ways to strengthen its value added during the subsequent year.

In addition, with all workshops, consultancies and events conducted by NESsT, there are evaluation forms that are filled out by participants to help assess performance. Along with these, Client Feedback Forms are also filled out by NESsT Consulting clients to determine how NESsT is working with their grantees and beneficiaries. From an internal perspective, NESsT conducts staff evaluations annually, evaluates overall goals and objectives at an annual staff retreat and an annual board retreat, and assess its tools and methodologies several times a year.

NESsT understands that this self-evaluation process can be improved. The current system is somewhat disjointed, and there is no immediate and smooth tie in between the feedback and evaluations that

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NESsT is conducting and the goals and plans that it is developing on a annual or three year basis. Overall, there is a lot of information being gathered, there is objective analysis of this information, clear and realistic goals are being set but these three aspects have not been working together as smoothly as they could.

Because of this realization, NESsT has decided to adapt the current NVF PMT to assess its own overall organization. This will provide a mechanism for addressing, developing and integrating internal systems. It will give a basis on which goals and indicators can be set. This will also provide a baseline from which internal processes can be managed and measured. Because NESsT asks NVF portfolio members to use a PMT Tool, it will also help NESsT to enhance its own credibility by practicing what it preaches.

NESsT will be able to speak from experience regarding the challenges, successes and best practices related to using the PMT to its fullest.

A challenge for NESsT will be to create a tool that will strikes the delicate balance of providing all of NESsT´s different stakeholders with the specific information that they each desire (both quantitative and qualitative) while, at the same time, keeping the Tool relevant and flexible for managing internal systems. This same concern will be addressed in the current PMT used by portfolio organizations, again providing NESsT with an opportunity to adapt its Tool based on its own experience of using it.

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