Businesses tackling social ills

Good ideas and savvy planning are requirements when businesses tackle societal problems

A look inside of The Modern House Coffee Shop in Titusville. Photo by Cary Norton.

Troy Whetstone of Birmingham is the founder and CEO of The Modern House Coffee Shop, a nonprofit he launched this past Sept. 23 at 422 6th Ave. South, in the city’s Titusville community.

The Fairfield native says his pathway to entrepreneurship started after high school when he worked in retail. By age 19, he was promoted to manager at a Sprint store. By 22, he joined his dad’s aviation detailing business.

“I’ve been an entrepreneur and working for myself since I was 22,” says Whetstone. “I’ve always had that unction even when I was a younger boy that I wanted to be a businessman. And so, I felt that was always my purpose in life, to run businesses.”

But one day in 2016, Whetstone, a devout Christian, says he received a word from God.

Troy Whetstone offers a mug of coffee from The Modern House Coffee Shop. Photo by Cary Norton.

“I’m a spiritual man, and I believe in God, and I just heard the calling of coffee,” Whetstone says.  Then the words “coffee shop” came to him, he says.

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Around the time of that revelation, Whetstone was volunteering at the Faith Chapel Care Center in downtown Birmingham, which offered shower facilities, a laundry service, computer access and other resources to the homeless.

Whetstone says he decided to open a coffee shop that would provide employment to individuals who have struggled with homelessness to help them get back on their feet. But he questioned the idea of a business doubling as a nonprofit.

“I had never seen a nonprofit coffee shop. I had never seen that model. So, I dismissed it, but once I started researching, I saw that there was actually a model,” he says.

To gain an understanding of coffee shop operations, the different types of coffees and the customer base, Whetstone visited local coffee shops, including SEEDS Coffee Co., in Birmingham that offers coffee subscriptions and advertises on its website that “25 percent of the profits for each subscription goes directly to help farmers and coffee communities around the world.”

For help getting started with his own coffee shop, Whetstone says he turned to REV Birmingham, a revitalization and economic development nonprofit that supports local small business owners. At REV, he attended classes and got help writing his business plan. 

By July 2019, he was already holding popup coffee shops in the Ensley community. But he wanted a permanent location.

Eventually, Whetstone obtained funds from the Community Foundation of Greater Birmingham, a local nonprofit, and others and settled on a shotgun house, which he refurbished in Birmingham’s Titusville community, just west of downtown.

To further fund the operation, Whetstone says he also received a low-interest loan of $10,000 from the nonprofit Urban Impact Birmingham. Meanwhile, the Community Foundation helped him access a $25,000 grant that allowed him to buy all of the needed equipment for his Modern House coffee shop. He also received small donations from individual supporters.

Whetstone says he and his team are busy serving The Modern House’s best sellers: café lattes, chai tea and sparking chai tea.

Whetstone says he is now working toward hiring people in need of the chance to get back on their feet. 

“We pay really good. That was one of the things that I wanted to do. I wanted people to earn a livable wage and be able to support themselves and their family. That’s part of our mission.

“Every day is fun,” he says. “Honestly, I never knew in my lifetime that I would be a barista. But here I am, learning and trying to perfect the skill of latte art. That’s something that I never imagined myself doing.”

What is a nonprofit social entrepreneurship?

Troy Whetstone’s coffee shop is an example of an approach to business known as nonprofit social entrepreneurship.

The U.S. Chamber of Commerce defines social entrepreneurship as “the process by which individuals, startups and entrepreneurs develop and fund solutions that directly address social issues.”

“It’s a common misconception that all nonprofits are charitable, and that all for-profits are not,” says Jeremy Thornton, Ph.D., a professor of economics and associate dean of Samford University’s Brock School of Business. He also directs the school’s social entrepreneurship and nonprofit management program.

“It really depends on the objectives or mission of the organization that makes it charitable or not,” Thornton says.

“What makes a social enterprise unique is that they’re trying to combine business with a social mission,” he says.

Social entrepreneurship falls into two camps. Companies that follow what is called the for-profit social enterprise model, which supports and donates to causes that address social ills like climate change, poverty, hunger or racism. But while they aim to do good in the world, the primary mission of these companies is making profits for their shareholders.

Examples of for-profit social enterprises include companies like the coffeehouse chain Starbucks that, through its foundation, supports projects and programs around the world that address issues such as economic opportunity, youth empowerment, diversity and inclusion.

Another example is Warby Parker, the prescription eyeglass retailer, which donates a pair of eyeglasses to people in need for every pair sold. And, the shoe retailer TOMS supports a number of initiatives and makes donations to help ensure that Americans have greater access to mental health resources.

On the other hand, when nonprofits run businesses where providing solutions to social ills or donating to causes is the primary mission rather than making profits, they are engaging in what is called a nonprofit social enterprise.

Examples of nonprofit social enterprises include thrift stores run by religious organizations to support women’s shelters and light assembly operations run by nonprofits to provide jobs to adults with developmental disabilities.

Nonprofits have some advantages over for-profit entities. First, under the federal tax code, they are eligible for income and property tax exemptions.

Nonprofit social enterprises are also free to diversify their funding streams outside of selling goods and services by accepting donations, and, in turn, donors can deduct those contributions from their own taxes.

But nonprofits also have some restrictions.

To qualify for tax breaks, nonprofits must state what their social mission is and form a board of governors, Thornton says. They also have to publish their financial documents publicly.

Furthermore, unlike their for-
profit counterparts, nonprofit social enterprises cannot sell shares in their companies because they do not have owners or shareholders, Thornton says. And all revenues in excess of costs must be reallocated to the missional purpose of the organization as stated to the IRS.

Thornton says the first step in establishing a social enterprise is having a good idea and figuring out your business model.

 “Running a business, particularly small business, has its own challenges. You’re trying to simultaneously run a business and at least mitigate a social problem,” he says. “So, think carefully about your business model first. ‘How are we going to earn revenues and how are those revenues going to exceed what it costs to make this product?’ Then you have to think about, ‘What is our model for social impact?’”

Second, Thornton says, having a business plan can help a founder think through the elements to get their business up and running. The plan is also a good tool to help founders communicate their ideas to other people.

A business plan, however, does not have to be a 30-page tome, he says. It can be just a couple of pages of notes and ideas on what is important in one’s business and how one plans to work both the business and charitable sides of the organization, he says.

“How are you going to cover your costs, the business side of it? How are you going to achieve your social mission?” he says.

Gail Allyn Short is a Birmingham-based freelance contributor to Business Alabama.

This article appears in the December 2022 issue of Business Alabama.

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