Working with Social Enterprises Tested Everything I Learned in B-School – Kyle Clark, 2016 Farber Fellow

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k clarkThis past summer, after my first year in business school, I interned at REDF, a venture philanthropy that invests in social enterprises that employ and support people who face high barriers to employment. Before I started my MBA, I spent four years in management consulting working with Fortune 500 companies in a variety of industries; my smallest client in that period had $8B in annual revenue and employed over a hundred thousand people. At REDF, I consulted with two social purpose businesses: New Avenues for Youth – a social enterprise located in Portland that serves at-risk and homeless youth, and Mile High Workshop – a social enterprise located in Denver that employs people striving to overcome a range of employment barriers. In addition to operating a Ben and Jerry’s franchise, New Avenues for Youth runs a screen printing business. Mile High Workshop provides contract manufacturing and production services to businesses. Together these social enterprises employ about 20 people and bring in annual revenues of around $150,000, each.

I knew that working with small social enterprises would present exciting challenges for me as a graduate business student. What I didn’t expect was just how much the experience would stretch my knowledge of how business actually works.

Let’s start with the basics: accounting. Three days into my internship, my companies sent me their financials in the form of a Profit & Loss statement. In accounting, we studied the financial statements of enormous companies with billions of dollars in assets. Now I was struggling to figure out what it meant for a small t-shirt company to have Bad Debt Expense.
Once I worked my way through the P&L’s, I came to my first assignment: creating a 5-year forecast for the company’s budget (finance). I made the classic mistake of diving headfirst into Excel; half a day and 100 unnecessary =index(match) formulas later, I realized I had gotten nowhere. Fortunately, REDF employs an ex-banker as a financial consultant, so I sat down with him over coffee and learned how private equity folks build a 3-statement financial model (it’s magical).

Armed with my shiny new, conditionally-formatted forecast, I met with my social enterprise CEOs and learned that the assumptions I’d made in my models were all wrong. I needed to do two things: 1) map out their historical pricing per item, and 2) break down that data into a per-unit analysis to understand how much they should charge. I constructed a histogram of their past pricing data (statistics) and figured out the per-unit pricing they would need to hit their goals going forward (microeconomics).

Social enterprises have a double-bottom line, which means that they work to grow both their financial bottom line and their social impact bottom line (in this case, the number of people they employ). I used Bureau of Labor Statistics data to study up on the local labor markets of my two companies (macroeconomics), and then learned about how the companies engage and manage employees (organizational behavior) who have struggled  with addiction, incarceration, and/or homelessness.

Once I had the models right, it was time to confront each social enterprises’ major challenge for the summer. The t-shirt business thought their machines were at capacity, and they were planning to make a big move and buy expensive new equipment in order to expand production. After analyzing their production data, however, we discovered that the bottleneck (operations) was caused by too few staff spending too much time on important but low value-add tasks, like last-minute change orders.

The second social enterprise was trying to figure out what kind of business they should be; their work at the time spread across shipping, light manufacturing, pillow stuffing, and laser etching, among other things. We sat down at a white board and asked “how might we combine all of these businesses into an offering that customers will understand?” (design thinking). Then we took the ideas we’d generated, identified the competitive advantage the business had (strategy), and decided on how to craft a brand and story around that strategy (marketing) in order to attract new customers.

Running a business is hard. Running a business that employs people who are striving to overcome employment barriers is even harder. . My summer internship at REDF gave me the opportunity to test almost every facet of what I learned in my first year of business school, from accounting to econ and strategy, with social enterprises that are operating with a number of challenges on top of the usual business problems.

I loved my MBA classes this past year, but I’ve heard that experience is the best teacher. After this summer, I couldn’t agree more.

Kyle Clark is an MBA student at Berkeley’s Haas School of Business where he is a David S. Ng Fellow. At Haas, he is co-president of the Haas Christian Fellowship, leads an MBA program for applied tech startups, and is a Berkeley Board Fellow. Kyle came to Berkeley from Higher Expectations, an education and employment initiative he helped lead in his hometown of Racine, Wisconsin. Prior to that, he was a Consultant in Accenture’s Strategy practice where he focused on human capital and corporate strategy consulting for energy, financial services, and federal government clients. He also co-launched a K-12 education consulting group at Accenture. Kyle graduated from Rice University with a BA in History and International Affairs Policy Studies.

This is part of our Farber Blog Series.