Haboydem Social Enterprise the Holy Land Case Study Assessment Answers
Assessment Details
- Topic: Social Entrepreneurship
- Number of Words: 1500
- Citation/Referencing Style: APA
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On July 16, 2017, the co-founders of Haboydem, Elie Lederman,1 a successful businessman and philanthropist, and Guy Avihod, a Jewish rabbi who had started a religious learning centre for people with severe mental illness, sat together on the vintage couches that had been donated to Haboydem, a social enterprise store, in the industrial area of Talpiot in Jerusalem, Israel. The two co-founders were reflecting on their strange and unexpected experience, especially since beginning their social enterprise three years earlier. They needed to discuss the potential future of Haboydem, which now operated two second-hand clothing retail outlets, and hired and trained workers who were experiencing mental illness. By 2017, nearly 70 per cent of Haboydem’s trainees were able to find regular employment after leaving Haboydem. Yet, despite their apparent success, the co-founders were now facing several new issues. How should they deal with emerging competition from other second-hand clothing retailers? How should they address the possibility of partnerships? Should Haboydem expand to new locations or into additional sales activities? The co-founders needed to decide on the best way forward for their social enterprise.
BACKGROUND
Lederman and Avihod met in 2012 and decided to launch one of Israel’s first social enterprises.2 Botanica, their social venture in association with the Jerusalem Botanical Gardens, was located in the First Station, a new Jerusalem entertainment district. Botanica was a shop that sold various plants and was operated by employees who lived with mental illness.3 Botanica’s mission was to provide meaningful self-sustaining rehabilitation for individuals with mental illness, and thereby reduce their reliance on the government for services and support. Lederman and Avihod wanted to bring mental health to the community in a manner that was not too harsh for either the individual workers or customers. “We don’t want workers to feel they are any different than anyone else,” claimed Lederman. “We want the people who need the most help to be behind the counters.”
While Botanica’s mission had seemed promising and the store had received positive media exposure,4 it failed to generate sustainable income and was closed. Although Lederman and Avihod did not have to pay rent, their business model had not worked as planned. Quite simply, the location attracted mainly tourists and not enough customers who actually purchased plants. Also problematic from a business perspective was the cost of maintenance and the need to constantly buy new plant stock—Botanica was not growing its own plants. The mission of providing rehabilitation was also not being achieved, as Botanica was not attracting enough customers
with whom employees could engage in a meaningful manner. After Botanica was shut down, Lederman began to wonder whether a new direction was necessary. Despite the challenges that lay ahead, Lederman remained determined to pursue his dream of establishing a successful social enterprise in Israel.
Supported by their unbounded enthusiasm and optimism, Avihod and Lederman decided they would increase their efforts. They felt that the worldwide second-hand clothing market was booming and over the past several years, had indeed grown faster than the traditional retail market.
As a result, Avihod and Lederman discussed the possibility of establishing another social enterprise, which they would call Haboydem, which literally meant “attic” or “storage space” in the historical European Jewish language of Yiddish.5 The venture would sell used or vintage clothing and possibly other used goods such as second-hand shoes and jewellery. Unlike Botanica’s plant merchandise, Haboydem’s inventory would be donated and itwould not have any expiry dates. Similar to Botanica, Haboydem would hire trainees living with mental illness.
The venture was intended to be similar to the well-known non-profit organization Goodwill Industries International Inc. (Goodwill), which was based in the United States. Goodwill, which operated around the world, also sold used clothing but hired people who had barriers preventing them from otherwise obtaining a job. As a non-profit organization, Goodwill earned billions of dollars in revenue each year and had provided hundreds of thousands of people with jobs.6 Unlike Goodwill, however, which primarily targeted low-income families,7 Haboydem’s goal was to attract a broader spectrum of customers, in an effort to expose the general public to the transparent nature of mental illness. Haboydem’s motto was “Where people and clothes are given a second chance.” Its mission statement was “To create a self-sustaining second-hand clothing store which is serviced by people with disabilities who are being trained and empowered to maximize their potential, and integrate back into the competitive workplace.”
The initial seed money for the venture would need to be provided once again by Lederman, with no expectation that this money would ever be returned. The idea was that the trainees would be coached and instructed at Haboydem for several months. Once fully trained, they would continue working at Haboydem as part of their rehabilitation process but for no longer than one year. After that, they would be expected to leave Haboydem and either find permanent employment elsewhere or continue their education. Having learned from their mistakes with Botanica, Avihod and Lederman made two decisions: the Haboydem trainees would have greater responsibilities and be expected to sort, display, and sell the clothes directly to customers; and they would make much greater efforts to build up the customer base through advertisements. Lederman knew that the concept of social enterprise was a fairly new development in Israel, and despite their initial failure with Botanica, he was prepared to go forward again with Avihod, but with a better strategic plan this time.9
The Creation of Haboydem
Lederman and Avihod set out the basic operating plan for their new social enterprise. Haboydem would hire social workers or occupational therapists who would have responsibility for the files of each of the trainees. The organization would also hire other staff members, who were not facing mental health issues, including a store manager and an in-store stylist who could, if customers desired, offer advice on which clothes to purchase. The idea was that the Israeli government, through its Ministry of Health and its National Insurance Institute, would provide funding toward most of the trainees’ salaries, which would remain just below minimum wage so that trainees could work for only part of the day. The goal was that once the trainees had received training and regained their confidence to work with customers, they would go on to find more permanent and stable employment that offered longer hours and higher pay elsewhere. Both Lederman and Avihod settled on the motto for their social enterprise: “Haboydem: Where people and clothes are given a second chance.”
Challenges When Entering the Market
Back in 2014, Lederman and Avihod were concerned about entering the second-hand clothing market. They knew they would need to overcome a number of significant challenges to successfully launch their new social enterprise: the stigma of second-hand clothing, the stigma of mental illness, employees being forced to leave, sourcing of the product, and the possibility of working with social impact investors.
The Stigma of Second-Hand Clothing
Lederman and Avihod were aware that second-hand clothes carried a certain stigma for customers, especially in Israel.10 Some of the concerns included the following: Did the clothes smell? Who had previously worn the clothes? Are the clothes defective? Will someone notice they are buying or wearing second-hand clothes, and think less of them as a result? Lederman and Avihod needed to convince customers not only to enter the store, but also to not immediately walk out. Would customers know that the prices were low, and would this knowledge affect their decision to enter the store and buy the clothes? Would only low-income customers enter the store, or would high-income customers also be interested?
The Stigma of Mental illness
Lederman and Avihod were determined that their second attempt at setting up a social enterprise would hire and train individuals with mental illness, similar to their earlier approach with Botanica. But this arrangement raised their next challenge. Would customers be concerned about being served by employees with mental illness? Would difficult human resource management issues arise? Both Lederman and Avihod understood that they needed to have an environment and store design that would avoid any sense of stigma for the trainees and the customers.
Employees Being Forced to Leave
Lederman and Avihod strongly believed that Haboydem should merely be a stepping stone toward future stable employment. This approach would mean that trainees would always know that their time at Haboydem was limited. One of the benefits would be that new people would always be around, ideally with older trainees sharing their life experiences with younger trainees. However, this situation would create a paradox. After the trainees were fully trained and performing well, they would be forced to leave Haboydem.
Sourcing of the Product
Another challenge for Haboydem was sourcing the used clothing it sold. Haboydem had a variety of options, such as encouraging individuals to donate clothing in a bin placed outside the store, having volunteers collect clothing from various communities around the country, or asking retail store chains to donate their unsold or out-of-season clothing. However, Israel currently had few clothing donation bins, unlike in many cities in developed nations where hundreds of clothing recycle bins could be found.
The Possibility of Working with Social Impact Investors
When Lederman and Avihod founded Haboydem, Israel had two major social investment organizations, the Israel Venture Network11 and Dualis,12 both of which received millions of dollars from the Israeli government. The mission of these organizations was to provide funding, in the form of loans or grants, to Israeli social enterprises, and to help develop their business plans and provide continuous mentorship. Both organizations had offered to assist Haboydem.
However, to receive their funding and mentorship, both organizations had criteria, including the need for Haboydem’s trainees to work longer than three-hour shifts and to be paid at least minimum wage.13 But Lederman and Avihod wanted a slower integration process, with less pressure being placed on trainees of being a full-time employee. They expected that many of their trainees needed flexibility in their schedules and would be unable to handle additional hours beyond a three-hour shift. According to Avihod, acceding to the demands of the social impact investors would essentially mean changing the essence of Haboydem. The additional funding Haboydem could obtain from the organizations would, however, help with financial stability and further expansion, and the additional mentoring could also be beneficial. They wondered if they should agree to abide by the criteria required by the two social investor organizations or continue on their own desired path. For at least the time being, Lederman and Avihod decided they would attempt to launch and develop Haboydem on their own without any additional assistance from the other Israeli social investment organizations.
CHALLENGES AND OPPORTUNITIES
The first store location Lederman and Avihod found for Haboydem was “off the beaten path” in Talpiot in the industrial area of Jerusalem; attracting customer traffic was difficult. Although the location wasn’t ideal, the rent was reasonable, and the store was sufficiently large to properly display clothing. Avihod began work to promote the store by distributing flyers, emailing community synagogues, posting on social media sites such as Facebook and Instagram, and accessing some media exposure. Haboydem finally opened in September 2014. The store was designed by a top Israeli designer to be a fun and “cool” hangout, dominated by a positive mood, rather than be stigmatized as a place of rehabilitation. The Israeli government paid for most of the trainees’ wages, which represented less than 20 per cent of Haboydem’s total expenses. The remaining expenses included employees’ wages and benefits, advertising, and rent for the store.
After breaking even after only nine months, Lederman and Avihod decided to open a second Haboydem store in January 2016, which would be located in the heart of downtown Jerusalem. This store would be more upscale, would cater more to tourists, and would be designed by the same professional designer who designed the first retail store, to make it better suited for the tourist crowd that tended to shop in the area.
Initially customers avoided the downtown store, believing the prices would be high based on the professional look of the outside of the store. Eventually, sticker prices of 10, 20, and 30 shekels (US$3–$10) were placed in the storefront windows, and a rack of low-priced clothing was situated outside the store, making it clear to potential customers that the clothing was in fact affordable.
Lederman and Avihod ultimately wanted their social enterprise to be part of a new “social start-up nation” for Israel, which had already established itself as a high-tech start-up nation.14 Given the economic failings with Botanica, they were pleased with the relative success of Haboydem. Nearly 60 workers had already completed their training at Haboydem, with the majority finding full-time employment elsewhere. Haboydem was not
intended to be the final destination for its trainees, but merely the launching pad for further employment leading ultimately to living better and more meaningful lives. This mission meant providing the training and tools for their trainees to have self-confidence, become self-sustaining, develop and maintain personal relationships, and better face the typical challenges of life while living with their mental illness.
Lederman believed that Haboydem’s success had been similar to the same long-term investment strategy he recommended for his clients. Rather than seeing any short-term changes in the trainees on a day-to-day basis, the gains from the investment would appear only at the end of the process: “At Haboydem, you don’t notice any daily incremental changes in the workers, but you can definitely see a change in confidence levels at the end of the process.”
Haboydem had clearly changed the lives of many current and former trainees. According to one trainee with mental illness:
This place gives me a sense that I am worth something, that I have abilities, and that I am not invisible. It gives me strength and the tools [necessary] to deal with my difficulties. I learned here how not to succumb to pressure, which before would have resulted in outbreaks of depression. I also learned how to talk to people and not to get hurt by every little thing, since I am very vulnerable. I also learned to give instructions to people, which seemed very much against my personality This place has given me insight that the sky is the limit. I received security, warmth, and a supportive family, companions, and especially the will to live. Now I have hope and faith that I can work again outside of sheltered workshops.
The ultimate goal of Haboydem was to create a place where fashion, recycling, and social business all came together.16 Yet despite all of the success, Lederman and Avihod needed to address some new issues, including dealing with the emerging competition, addressing possible partnering opportunities, pursuing expansion into additional locations or into additional activities, and determining how best to measure Haboydem’s success.
Dealing with the Emerging Competition
An issue had arisen that Lederman and Avihod had never expected—competition. Second-hand clothing outlets were beginning to appear all over Israel. As one example, the owner of a completely for-profit used clothing store called HaMetzion that had been established in Jerusalem before Haboydem, visited Haboydem and had been impressed. Lederman and Avihod did not hesitate to explain everything about their operation to the owner. Realizing that the “social” aspect could be used to his competitive advantage, HaMetzion’s owner formed a relationship with an organization called Shekel, which worked with individuals with mental disabilities, such as autism.17 He opened a much larger used-clothing store directly across the street from Haboydem in the industrial area, and his store’s sales took off.18 Unfortunately, this store led to a drop in Haboydem’s sales. How should Haboydem respond to this challenge?
Addressing Possible Partnering Opportunities
Lederman and Avihod wanted Haboydem to be part of a “social network,” together with other philanthropic or social enterprise ventures. Tamnoon, a local clothing company, donated the hangers, some clothing racks, and the cash register stand to Haboydem. The co-founders had worked with Yad Leah, a New Jersey-based organization, which donated both clothing and clothes hangers to Israel,19 and they also worked with HaBayit Shel Benji,20 another organization, which provided accommodation for lone soldiers in Israel who did not have any family living in the country. Through HaBayit Shel Benji, Haboydem provided lone soldiers with vouchers worth approximately US$30 to purchase clothing at a temporary store that was set up at the soldiers’ residence. Haboydem also received donations of bulk clothes from Leket,21 a food bank organization that on occasion had received clothing; however, Haboydem’s customers wanted unique items, rather than more standard items. Was partnering with other social organizations a good idea, and if so, what kind of social partners should Haboydem search out?
Pursuing Expansion to Additional Locations or into Additional Activities
Lederman and Avihod also began to wonder whether Haboydem should expand beyond its two stores in Jerusalem into other parts of Israel. Haboydem had only recently broken even, moving from a net deficit of ILS 183,59322 in fiscal year 2015 to a net surplus of ILS 75,020 in 2016 (see Exhibit 1).
Many individuals were contacting the founders and asking about the possibility of additional stores opening. For Avihod, expansion was an important goal: “My dream is to establish a network of stores all over the country, to help as many people [as possible] facing mental illness to recover and live full and healthy lives.”23 Lederman, based on the success of the two outlets so far, believed the way to move forward was to provide guidance to others who wanted to set up Haboydem-type operations elsewhere. Lederman wanted to emphasize partnering with communities in a type of “social franchise” model, where individual communities could adopt the Haboydem branding with guidance provided by Lederman and Avihod. This model would enable Haboydem to focus on rehabilitation, while allowing local communities to assume the responsibility for the business side (i.e., the initial capital and clothes to be collected by the community). Lederman believed that this model would enable a more genuine partnership to permeate throughout the entire community.
The co-owners also considered expanding Haboydem’s sales activity and product line. Should Haboydem integrate vertically, and handle the recycling of the clothes that could not be sold? Or should it continue to sell such clothing to organizations that recycled the clothes into rags or sent them to the developing world? Should Haboydem move into online sales of second hand clothing, and if so, how would the online sales work? Should Haboydem try to move into selling other second hand goods, such as books, furniture, or toys? Or should Haboydem be content with and merely focus on its current operations?
Measuring Haboydem’s Success
One final issue Lederman and Avihod discussed was how to measure the success of Haboydem. Lederman and Avihod were not properly tracking the former trainees once they left their stores. Was it now time to implement a formal tracking system and be transparent about their successes and failures? Were there other measures of success they should also be recording and evaluating? These were just a few of the many questions and challenges that Lederman and Avihod considered as they determined how they might take Haboydem in new directions.24 Would Haboydem continue to be successful in having a positive impact on society, as a “quadruple win”25 in terms of business (being financially self-sustaining), society (improving the quality of life for the mentally ill trainees and by providing low-cost quality clothing for customers), the natural environment (by recycling clothing), and for the Israeli government (by reducing health-care expenditures for the mentally ill)? Could other social enterprises try to follow in Haboydem’s footsteps, in Israel or elsewhere in the world?
EXHIBIT 1: HABOYDEM’S BALANCE SHEET, 2015–2016
Balance sheet as at December 31
| 2016 | 2015 | ||
|
Assets |
Note | (in ₪) | (in ₪) |
| Current assets | |||
| Cash and equivalents | 3 | 229,029 | 90,781 |
| Post-dated checks for collection | 54,629 | 151,430 | |
| Other current assets | 4 | 440 | 40 |
| 284,098 | 242,251 | ||
| Fixed assets | 6 | 339,308 | 363,771 |
| Total Assets | 623,406 | 606,022 | |
| Liabilities | |||
| Current liabilities Debitory bank account |
60,000 |
– |
|
| Unpresented checks | – | 125,544 | |
| Creditors and other obligations | 7 | 175,847 | 146,998 |
| 235,847 | 272,542 | ||
| Liability for Severance Pay, net | 8 | 141,095 | 127,037 |
| Unencumbered net assets | |||
| For use in activities | (242,844) | (342,328) | |
| Used for fixed assets | 339,308 | 363,771 | |
| 96,464 | 21,443 | ||
| Total net liabilities and net assets | 623.406 | 606,022 |
_
Committee member Committee member
EXHIBIT 1: (CONTINUED)
2016 2015
Note (in ₪) (in ₪)
Turnover from operations
Donations 233,142 210,813
|
Grants and subsidies 9
Cost of operations
| Running costs of activities
General expenses |
1,125,107 | 878,622 |
| 151,580 | 169,413 | |
|
––––––––– |
––––––––– |
|
| 84,656
––––––––– |
(185,148)
––––––––– |
Annual Net Income (Deficit) 75,020 (183,593)
Note: ₪ = ILS = Israeli shekel; ₪1 = US$0.289 on July 16, 2017. Source: Company documents.
ENDNOTES
1 Haboydem’s two co-founders came from different backgrounds. Lederman was born in Melbourne, Australia, received his university degree in accounting and economics at the University of Melbourne, and then worked briefly as an accountant before undertaking a successful career in banking and property development. Together with his wife and four children, they moved to Israel in the early 1990s. Lederman had successfully built up his multi-family wealth management and real estate development practice, but he wanted to give more back to society, and ideally in a manner that was not purely philanthropic.
2 A “social enterprise” was a relatively new type of business entity. Rather than being solely a for-profit or a completely charitable activity, social enterprises tended to combine the desire to make money from a business activity and improve the welfare of society. For an overview, see Giulia Galera and Carlo Borzaga, “Social Enterprise: An International Overview of Its Conceptual Evolution and Legal Implementation,” Social Enterprise Journal 5, no. 3 (2009): 210–228.
3 Abigail Klein Leichman, “A Garden Shop with An Eco-Therapeutic Twist,” Israel 21c, September 24, 2013, accessed November 10, 2019, Aviva and Shmuel Bar-Am, “In Jerusalem’s Botanical Gardens, It’s Sometimes the Plants That Grow the People,” Times of Israel, May 31, 2017, accessed November 10, 2019, 4 Ibid.
5 “Haboydem—Giving People and Clothes a Second Chance,” Haboydem, accessed November 10, 2019. The word Haboydem literally means “attic” or “storage space” in the Yiddish language (the historical language of Ashkenazi Jews from Central Europe), which has become part of the Hebrew vernacular. The connection of Haboydem to an attic refers to the fact that individuals’ best clothes are often stored away in their attics waiting for a second opportunity, much like the second chance given to Haboydem’s employees.
6 Goodwill, “Our Purpose,” accessed November 10, 2019.
7 Ruth La Ferla, “Look Who’s Shopping Goodwill,” New York Times, June 10, 2009, accessed November 10, 2019.
8 “Our Mission,” Haboydem, accessed November 10, 2019.
9 Other social enterprises in Israel included the restaurant chain Liliyot, which hired troubled youth to work in its restaurants; Shalva Café and Café Harutzim in Jerusalem, which trained young adults with developmental disabilities to work as waiters and kitchen staff with the goal to propel them into careers in food enterprises; Cooking Coexistence, which gave marginalized Israeli Moslem and Jewish women over the age of 35 employment and work skills, fostered friendships, and provided nutrition to underprivileged kids; Rebooks, which hired people living with mental illness to sell used books; or Leket, which as a food bank, collected or “rescued” perishable food, including thousands of tons of fruit and vegetables and millions of hot meals from Israeli farms, military bases, and catering halls, and then distributed the food to the needy; David Shamah, “A Good Steak, a Good Investment, and a Good Deed,” Times of Israel, February 22, 2013, accessed November 10, 2019.
Fran Kritz, “Disability Employment in Israel,” New York Jewish Week, June 23, 2017, accessed November 10, 2019, jewishweek.timesofisrael.com/disability-employment-in- israel/; Abigail Klein Leichman, “Jewish Muslim Israelis Cater Meals for Needy Children,” ISRAEL 21c, January 2, 2017, accessed November 10, 2019, Returning Store: Social Books Network [in Hebrew], accessed November 10, 2019, rebooks.org.il/; “Rescuing Nutritious Surplus Food for Those in Need,” Leket Israel: Rescuing Healthy food for Israel’s Needy, accessed November 10, 2019, “Leket Israel ‘Rescues’ Food for Needy during High Holidays,” Heritage Florida Jewish News, October 7, 2016, accessed November 10, 2019.
10 “Tell Me Another: Posts Tagged ‘Stigma of Second-Hand Clothes [blog],’” Josna Rege, April 24, 2016, accessed November 10, 2019, josna.wordpress.com/tag/stigma-of-second-hand-clothes/.
11 “Sustainable Social Change,” IVN: Israel Venture Network, accessed November 10, 2019.
12 “About Dualis,” Dualis, accessed November 10, 2019, Abigail Klein Leichman, “Venture Capital with a Conscience,” ISRAEL 21c, February 20, 2011, accessed November 10, 2019, conscience/.
13 “Social Venture Program: Apply Now,” IVN: Israel Venture Network, accessed May 6, 2020, “About Dualis,” op. cit.
14 Dan Senor and Saul Singer, Start-up Nation: The Story of Israel’s Economic Miracle (New York: Twelve Hachette Book Group, 2009).
15 Naava Stolar, “Getting on the Runway,” Nashim, January 22, 2016: 48–54, accessed November 10, 2019.
16 Ibid.
17 “SHEKEL: Inclusion for People with Disabilities,” Skekel, accessed November 10, 2019.
18 “About Us,” HaMetzion, accessed November 10, 2019.
19 “Home,” Yad Leah: Clothing for Israel, accessed November 10, 2019, yadleah.org/.
20 “A Place Our Lone Combat Soldiers Can Call Home,” HaBayit Shel Benji, accessed November 10, 2019, HaBayit Shel Benji (The House of Benji) was a residential home for Israeli lone soldiers (i.e., soldiers living without any family in Israel to support them) that was established in the Israeli city of Raanana, in honour of Israeli soldier Benji Hillman, who was killed in 2006 at age 26 during the Second Lebanon War only one month after getting married.
21 “Rescuing Nutritious Surplus Food,” op. cit.
22 ₪ = ILS = Israeli shekel; ₪1 = US$0.28 on July 16, 2017.
23 Stolar, op. cit.
24 In terms of their personal religious beliefs which were grounded in Judaism, both Lederman and Avihod felt extremely pleased about their achievements with Haboydem. For Lederman, Haboydem’s role in recycling and helping society directly matched his Jewish beliefs in charity. For Avihod, Haboydem was part of establishing a community, where everyone helps everyone else, which was an essential aspect of his Jewish belief system.
25 The term “quadruple win” (or quadruple bottom line) or “Q4” is, to the author’s knowledge, an original term, which built on the better-known “triple bottom line” (TPL) concept (i.e., people-society; planet-environment; profits-business, also referred to as the three Ps). Q4, however, also includes government in addition to the triple bottom line (or win) coined by John Elkington in Cannibals with Forks: The Triple Bottom Line of 21st Century Business (Gabriola Island, B.C.: New Society Publishers, 1998). Government might also be considered to represent the fourth P, as in “politics” (i.e., in addition to people, planet, and profits).
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