Posts

Wowed by Structure Lab

by

Find My HeartStructure Lab – the place to learn what structure to ask your legal advisor for. It can also be useful for foundations, investors, and others working with social benefit start-ups.

I feel wowed. I have been reading about structures for social benefit start-ups and considering my own for years now. I felt like I had a pretty good idea. Now I feel like I have a clear map. I even know what signs to look for.

Creative Commons License photo credit: PharCyder
A hearty thank you to Joy Anderson, whose breadth of experience and warm comfortable facilitation style made the day fly by delightfully. I appreciate clarity. Now, I see more clearly the people collaborating with me and the roles they play. I understand better the vehicles for getting funding (and the structures those work with). And I grasp better what the asset types of the organization are and who I want to own and control them. I also gained clarity about some of my fears! Let me share with you some of my key learnings:
  • No one owns a nonprofit. You can’t do investment vehicles with equity. And you can’t close them easily.
  • Certain core factors drive decisions at different layers of your structure from the legal form to the governance structure. And governance structures can help manage mission/vision holding.
  • Understanding what makes the IRS nervous helps uncover which structure will work for your organization.
  • Foundations and investors avoid making their heads hurt. Your strategy for structure can help reduce their confusion and headaches.utzon died today at ninety
  • The last two are about understanding where those relationships fit on several values matrices. Knowing where you are in relationship to them, helps you communicate. Understand where you are on those matrices helps more smoothly facilitate many of your relationships.
  • The difference between PRIs and MRIs.

Key questions and explanations allow participants to create solutions that fit their situation.

  • Some structures are easy to start or end, and others are hard (read, take time or capital). Consider where you will encounter resistance and what benefit that will bring you. Choose the resistance in a legal sense and resistance in the market that is right for you and your endeavor.
  • It is hard enough to describe a new enterprise. Consider that when choosing a form – what structures do people understand.
  • Clarity about the roles different relationships play and the degree of formality of your agreements support each.
  • The management of your assets and your access to capital dance with the structure of your organization. There is a complex choice set that doesn’t neatly fit a decision tree.
  • Consider the exit plan. It has implications in the structure. Do you plan to sell the org? What if you get hit by a bus?
  • Don’t be seduced by scale nor lured in by the idea of wild profits. What is the right approach for the appropriate growth of your organization. Yes, it has implications for certain structures.
  • Mediate the concerns of one level of structure (for example LLCs at the legal form level) with tools of another level (for example, governance and agreements).
  • When creating hybrids, there are benefits and drawbacks to the 3 simple forms (and
    one complex form). The workshop explains what each one is useful for.

look downstairs into stairwell whirl

Creative Commons License photo credit: quapan

There is more, but this hopefully gives you a sense of the information provided. The approach of the workshop is playful, and the process allows for each person to understand their specific needs and values.

We also delved into L3Cs. They were legalized in January for Illinois. We discussed what makes them useful as well as what the alternatives are.

I wanted to come away with a clear decision on how to structure thrivable.org. I have that decision. I also know now how that can change over time, and what my plan can be for the organization(s) over time. Best of all, I feel equipped to manage the unexpected, in terms of structure. So I feel resilient and flexible structurally.

Way to go Criterion Ventures!

Transformative Structures

by

I read the latest issue of Beyond Profit magazine on my flight to the west coast. I was headed to Beyond Social Media conference. What I most enjoyed reading was about going beyond existing structures. For years now, as part of several startups with varying degrees of social good intent, I have pondered over appropriate legal structures. It was so exciting when BCorp certification came out. Finally something to say that an organization was for-benefit with rigorous criteria. However, BCorps were, at that time, just a certification. We still had to operate in the space of either for-profit business (but working on double or triple bottom line outcomes), or as a nonprofit. The very name nonprofit annoys me. It is so far from being aspirational in purpose. It is framed by the profit issue and not by what drives a nonprofit — the mission to serve.

The first article I devoured discussed advances in hybrid organizations, Blended Value: Weaving Profit into Social Mission through Hybrid Models. Which states,

In the nomenclature created by Pamela Hartigan and John Elkington in their book, The Power of Unreasonable People, there are three categories of social enterprise: leveraged nonprofits, hybrid nonprofits, and social business ventures. As these categories indicate, where there is no single legal form that meets the need of an entrepreneur, they create their own: engaging in profit-making activities within a nonprofit, yoking a nonprofit with a for-profit, or creating a profic-making subsidiary within a non-profit.

Several states in the US have adopted new L3C legislation. L3C’s are low-profit, limited-liability companies designed to help foundations comply with program-related investment rules (as foundations push to use more than 10% of their endowments toward mission/program related opportunities). As a long-time advocate for mission-related investing, I was really excited to see L3Cs enter the market. However, they have not been tested with the IRS enough to build deep confidence in their worth and security.

And to be frank, this is really about confidence, trust, security. And while the B-corp certification acts as a “trust-mark” according to the article in Beyond Profit, it is not legally binding the way legal structures are. These legal models are all about trust! Founders want to be sure that the organization survives with the original intent (to make a profit or to serve the public). Combining the two is transforming the legal system and the structures we use to create organizations. Beneficiaries of a service also want to trust an organization to do what it is structured to do.

Lakra, citing the preconceived notions people have about certain structures, said. “You wouldn’t use a non-profit courier company, nor would you trust a for-profit company to provide HIV education to the deaf.”

We know we can trust that a for-profit company, no matter what gloss and cover elides it, will be driven by the need for revenue. They will be generous, helpful, and good citizens to the degree that serves their “rational actor” in the market approach. And a well-meaning entrepreneur can end up selling a for-profit business and seeing the core values get wrecked in the pursuit of revenue. Creating a structure that ties the organizational activity to a social mission is tricky. There are paths through it. And legal forms are actually more complex then just “for-profit” and “non-profit” lead us to think. There are member-owned organizations and cooperatives of different flavors. To create a legal structure that the founder and the public can trust to be consistent requires some expert advice.

I am off to get mine. March 3rd, I am going to Structure Lab, a workshop held by Criterion Ventures at innovative cities around the United States. I am told the workshop involves a game (and I love games!) as well as focused help on my particular concerns, so I can walk away much more clear about what organizational structure meets my needs.

I have some serious transformation in mind. I need a transformative structure to match, please.