Alex Budak April 15 , 2010 Social Enterprise IPODERAC This memo examines the case of Instituto Poblano de Readaptaction

AC (IPODERAC), a social enterprise dedicated to housing and caring for Mexican street children. The memo examines the organizations revenue model, assessing its efforts to date with becoming sustainable as well as turning to recommendation for its newest venture: goat cheese. Sustainability Thus Far IPODERAC must first be commended for attempting to achieve financial sustainability, as many social ventures continue to rely upon uncertain government and/or foundation grants to survive. That they have the dedication to financial viability from the leadership is crucial. The results of their efforts in finding a revenue model have, however, been mixed. Though their car raffle in the 1990s brought in over 300,000 pesos, this ultimately was not a successful venture as it was an annual event, and to expect one days work to support the following 364 is not sustainable. Recognizing this, IPODERAC deserves credit for looking to diversify its funding sources. Through creative partnerships with companies like Hewlett-Packard, IPODERAC was able to work with major companies in addition to foundations. That the director, Agustin recognized the importance of personal connections in fundraising was key as he parlayed his charisma to net the organization other donations and support. IPODERAC also achieved success in government grants; however the organization gave up quickly when the politics of elections got in the way. IPODERAC should have continued fighting in spite of these governmental and bureaucratic hurdles. While elections at this time in Mexico were indeed precarious, ideology should not have gotten in the way of a robust program to help its countrys street children -- and more effort could have been made to appeal to all political parties for support, becoming a non-partisan organization for the greater good (and, as a result, procuring greater financial support for IPODERAC). Though perhaps a function of the limited labor inputs at IPODERAC, the organization would have done well to diversify the sectors in which it operated. While the organizations subsequent businesses were hampered by a number of external factors beyond their control -- from avocado trees being stolen, to rabbit meat sales hampered by a disease threat and the market for quail eggs drying up -- in each unsuccessful instance they focused on a single product at a time. Had IPODERAC been active in producing goods in a more diverse cross-section of products, their revenue would have been more protected from the vicissitudes of the volatile markets described above.

The Goat Cheese Venture Having identified a niche market thanks to trade-liberalization-induced demand, the organization turned its efforts in 1998 to producing and selling goat cheese. Agustin was wise in searching out private donations to provide the capital needed to begin production, including a crucial $25,000 grant from General Electric for a new cheesefabricating facility. Additionally, from a social-enterprise perspective, goat cheese production was a great venture as it produced a marketable product while at the same time served as a learning and training mechanism in its education program for its children. Having acquired the basic inputs needed, Agustin turned to marketing the organizations cheese with some success as well as some room for improvement. The cheese was sold to four different clients in various forms including an unbranded product to Unilac. This was a mistake on IPODERACs part as the value-added of its product is in the story of how the cheese was produced. Certainly other larger, more efficient farms can better produce goat cheese, but IPODERAC differentiates itself from its competitors because of the children doing the work to produce the cheese, and what a purchase of the cheese means for its organization. IPODERAC should have eschewed any arrangement in which it had to forfeit its branding to sell the cheese and focus, instead, on its comparative advantage: cheese that the purchaser can feel good about buying because it is helping a worthwhile cause. To this end, pricing can be a bit higher than its competitors because it has a value-added component that its competitors lack. Through slightly raising its price of cheese, simple supply and demand dictate that the demand will be lessened slightly, allowing the farm to focus on producing a higherpriced quality product within the confines of its limited land and labor. Thus they can continue to earn the same revenue while focusing on quality and higher margins -- while at the same time building a brand-name for both its cheese and its organization. Doing so will help alleviate concerns about a large dairy producer usurping market share from IPODERAC. If instead of focusing on a race-to-the-bottom in price of cheese, it instead focuses on quality and its unique story, a niche market within the cheese sector will be established and dominated by IPODERAC. At the same time, given the interest in the United States both for goat cheese as well as for supporting sustainable and socially-conscious organizations (for example Starbucks fair-trade coffees popularity), IPODERAC should look towards international markets. The willingness to pay among Americans is likely higher than that of Mexicans, and given the Geographic proximity to Mexico, transport costs should not be cost-prohibitive. Further recommendations moving forward include bringing on additional full-time farmers to focus on just the milk and cheese production, as well as including farm experience as a prerequisite for becoming an educator. As mentioned previously, it is

still advisable to diversify the products sold in the market should the demand for goat cheese plummet, or an insurmountable competitor enter the market. Conclusion IPODERAC deserves commendation for its efforts to create a sustainable revenue model for its organization, especially one that ties in so directly to its mission of educating Mexican boys who otherwise would be on the street. At this point, IPODERAC should pursue its goat cheese production, but should adjust its marketing and distribution mechanisms, focusing instead on its story and its comparative advantage, as well as entering international markets, and on creating a high-quality product that consumers know comes from a great organization. Doing so will help IPODERAC remain sustainable and ensure the children continue to get the valuable education and experience they deserve. Word Count: 988