Little story of MakeSense’s legal model…for now!

The only exam I failed in my life was Corporate Law when I was studying at the ESCP Europe. What reconciled me with Corporate Law is MakeSense.

The best way I found indeed to understand the use and the power of Corporate Law was to use it as a problem solving tool and I loved the challenge of finding a way to embody and enable the mission and the model of MakeSense from a legal point of view.

Today the legal model we have crafted so far, thanks to the help of great lawyers, is being presented as a reference by many, and I have often been asked about it. So I decided to write this article to explain how we came up with this model.

Yet before I start, I want to stress on the fact that the existing model is a MVP (Minimum Viable Product). The legal structure and infrastructure of a company is a tool that serves the model and protects the mission. As the company evolves, the legal structure should evolve as well.

MakeSense has been created as a non profit association — loi 1901 in French law. Concretely, MakeSense is a community of volunteers who creates and organizes events to help social entrepreneurs whenever they want. Those workshops are open to all and free. When we created MakeSense, our first concern was to have a bank account in which we would receive the first donations.

From the very beginning, this was clear in Christian’s mind and mine that we would rather bootstrap (generate some revenues rapidly) than look for subsidies. In the first work sessions back in 2010, we brainstormed together on having a commercial entity, called CommonsSense. But it was to soon.

6 months after the 1st hold-up, thanks to all the hold-ups organized by Christian and the community in Paris, Corporations started to show some interest in the challenge-solving methodology we had developed and were willing to pay for it. This was the right timing we were waiting for. Who will deliver the services ? MakeSense ? No. We needed a way to generate revenues rapidly without compromising on MakeSense’s mission or putting in danger the dynamic of the open community. We hence agreed that MakeSense could not be the legal entity that was going to provide this service.

We decided to create another legal structure that would provide the service and fund MakeSense via the revenues generated. CommonsSense was born (first company born from MakeSense, as a for-profit company).. At first, CommonsSense would make repetitive donations to MakeSense to fund different projects. Our first concern was to find a way to link CommonsSense to MakeSense. The legal status of CommonsSense was written with the help of Anne-Laure Brun Buisson, founder of Sharelex, and David Guitton, student in law at the time, member of MakeSense. We wanted MakeSense to play a role in CommonsSense governance in a hassle-free way and ensure that CommonsSense activities would have a positive impact on MakeSense. We were inspired a lot by what Babyloan had done to ensure a limited/tapped « profit-making ».

At that time, Christian and I were both in charge of MakeSense and CommonsSense. We decided the following :

• MakeSense is part of the advisory board of CommonsSense
• CommonsSense’s employees give up to 20% of their time to MakeSense activities
• Part of the annual result is given to MakeSense as donations
• A « social impact » report is written every year to explain the impact of CommonsSense’s activities on MakeSense. Here is the first one in 2012.

Slightly after CommonsSense, a second for-profit company was born from MakeSense, SenseSchool. We quickly acknowledged the fact that the first legal system we had created was not sufficient to ensure regular revenues to MakeSense and was not constraining enough for the commercial entities.

Inspired by the existing hybrid and open source models, we asked for some guidance to imagine the legal structure that would help us to move forward. Once again, Anne-Laure helped us by putting us in touch with Alexandre Vuchot lawyer at TwoBirds who gave us great pieces of advice in order to come up with a model complying with the following constraints — the model should:

• Be applied in a simple way to multiple companies, which could have different legal structures.
• Keep a strong entrepreneurial spirit.
• Be prototyped without too many heavy constraints.
• Combine consistency, agility, efficiency and commitment.

We came up with the following solution with the help of a courageous young lawyer Florian Saguez : we first made sure to transfer all the assets (code, graphic designs…) to MakeSense. We then created a partnership contract that is signed by MakeSense and each company (for-profit or not). This partnership contract states that each company has access to a list of assets owned by MakeSense in exchange for an annual fee. The fee of the year Y is a percentage of the turnover signed for the year Y-1. The percentage ranges from 2% to 8% depending on the volume of the turnover signed (verified by a certified accountant). This can be compared to a licensing fee paid to MakeSense by each business unit.

This licencing system allows us to:

• Have a direct, formal and legal link between MakeSense and each business unit,
• Have the same model for all business units,
• Ensure a clearer link between the revenues generated and the impact on MakeSense
• Anticipate a fixed amount of revenues for MakeSense for the year and allocate them better

We have implemented this system at the end of 2013. For the year 2014, the « licensing fee » was paid by the 2 existing structures generating revenues (CommonsSense & SenseSchool) and represented 27,434€.

This legal system is the proof that a community-based project like MakeSense can have a business model that can preserve the community open model of the community as well as generate revenues. Moreover, it is a business model that expands the impact of MakeSense itself.

Indeed, each business unit is created by an active member of MakeSense that wishes to find professional and innovative ways to involve new actors of the society in helping social entrepreneurs and finding solutions to social and environmental problems. Therefore, each business creates new professional tools, methods, and knowhow that helps engage more stakeholders, source more challenges and more volunteers. Each business does not only generate revenues, but is a source of impact, innovation, empowerment and new opportunities by itself.

A year and a half after having designed this legal structure, there are now 5 business units linked to MakeSense and MakeSense itself is scaling up ! We now feel that given this new context, getting more complex, we need to develop an even stronger legal structure that will support of the ambitious and crazy projects and opportunities the community brings ! We are working on some improvements to strengthen the governance of this ecosystem to secure the business model and avoid any mission drift.

Working on such challenging legal questions and legal models forces you to look ahead in the future, to better assess the potential risks and imagine all the possible scenarii. It is not an easy task but this is also a great opportunity to once again recall the vision and innovate !