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IIC: A New Catalyst for Social Enterprise (part III)

October 15, 2010

If you’ve hung with me so far, congrats. If you’re just coming to this post, I recommend you glance back at the preceding two for a little context (or feel free to jump in here and divine what you may).

Situating IIC Along the Social Enterprise Spectrum

IIC falls right in the middle of this social enterprise spectrum described earlier. It is an independent social enterprise- a NGO* that aspires to be fully self-sustaining. If you’re unfamiliar with IIC, now might be a good time to acquaint yourself with our model by reading a few earlier posts, or by visiting IIC Online (though I’ll describe the model generally below).

IIC will support itself and advance its mission using a Hybrid Value Chain (HVC). Internally, IIC generates financial returns by charging participating professionals modest annual dues, and by retaining 8.75 % of all funds disbursed through IIC to NGO Partners (with the goal of taking that down to 0%). Externally, it creates financial and social value by generating unrestricted funds for IIC NGO Partners. Drayton and Budinich identify cost of capital as one of the most significant barriers CSOs* face in attempting to scale operations and increase impact. They cite a McKinsey study, which estimates that for CSOs, the cost of obtaining capital amounts to 25-40% of what they ultimately secure (vs. 2-5% for private sector firms). Thus, CSOs across the globe will significantly benefit from access to the new stream of zero-cost, unrestricted funding that IIC generates. IIC will therefore produce external social value by empowering Partner NGOs to better execute their missions.

IIC: a Model CSO-Private Partnership

In addition to being a social enterprise driven by a HVC, IIC is intrinsically an example of the private-civil sector partnerships that Drayton and Budinich endorse. By virtue of its design IIC represents a partnership between private sector actors (real estate brokers) and a CSO (IIC itself). IIC assembles and organizes a new market: socially conscious real estate consumers. It provides a platform that allows these consumers to support their preferred nonprofits with funds generated from their real estate transactions. In this way IIC serves to aggregate demand – one of the crucial roles Drayton and Budinich identify for CSOs in private-civil sector partnerships. Real estate professionals partner with IIC by joining as Members. Joining enables brokers to embed the IIC HVC within their own business operations- thereby turning Members into social entrepreneurs. Members pledge to donate a minimum of 10% of their commissions on IIC-related deals to the IIC NGO Partner(s) their client selects. In return IIC gives Members a competitive advantage in the form of positive publicity, increased exposure, and access to a newly organized market – all of which help Members secure new business. Thus, the partnership between IIC and Real Estate Members generates financial value in the form of increased business for Members, and social value in the form of increased funding for NGOs. By partnering with IIC, real estate professionals simultaneously adopt and become part of IIC’s Hybrid Value Chain.

A Catalyst for Private Sector Engagement

More exciting, however, is the potential for IIC to catalyze additional partnerships between corporations and Partner NGOs. IIC can stimulate these partnerships both directly and indirectly. Directly, the relationship between IIC itself and corporate “Friends” (corporate real estate consumers using IIC) represents a corporate – CSO partnership (like that between IIC and Broker Members).  By electing to use an IIC Member for its real estate needs, a corporation can imbed an HVC directly within its standard business operations: with IIC, the corporation generates social value – financial support for NGOs – as a direct result of physical expansion, relocation, or even just continued operation (i.e. lease renewal). It will also strengthen its philanthropic reputation among consumers, and contribute to corporate social responsibility at no additional cost (the philanthropy is directed by a corporate client, but occurs at the broker’s expense).

Indirectly, IIC connects participating businesses to a universe of IIC NGO Partners, who are eligible to receive the IIC funds generated by companies’ real estate transactions. Now, a business could choose to use IIC funds traditionally- i.e. writing a charitable check. But IIC affords corporations a massive opportunity to innovate instead. A company could use the IIC funds generated by its real estate transactions to support collaborative partnerships with CSOs working in the communities and markets the company serves or seeks to enter. IIC funds are directed by a corporate client, but are generated at the expense of IIC Members, meaning these funds are a zero-risk means to explore and finance CSO partnerships. IIC is not just a source of funds however, it is also a connector – enabling companies to easily find and support diverse NGOs working across the country. IIC provides companies with a risk-free way to explore strategic partnerships with CSOs, which may culminate in more of what Drayton and Budinich encourage: the design and implementation of HVCs throughout the private sector.

The potential is vast. Let us take Chicago as an example. What are several ways a company based here could leverage IIC dollars from its real estate transactions to fund a CSO partnership? How could it use that partnership to implement a HVC that generates social and financial returns? Tomorrow I’ll offer few thoughts on that, and the conclusion of this four-part post.

* IIC refers to its 501 (c) (3) nonprofit Partners as Nongovernmental Organizations, or NGOs. Drayton and Budinich use the term “Civil Sector Organizations” (CSO)s to describe similarly mission-driven organizations. For our purposes, the acronyms CSO and NGO are interchangeable.

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