Nonprofits Venture into the For-Profit World for Funding

With fewer grants available today, nonprofit organizations are looking toward social enterprise as a way to develop revenue and sustain programs. To address this issue, HHD’s National Center for Mental Health Promotion and Youth Violence Prevention Programs sponsored a teleconference in December, 2004 for its grantee sites. During the event, three experts in the area of social enterprise described methods and answered questions on how nonprofits of all sizes can generate much-needed income to continue their valuable work even when grant funding dries up.

Alfred Wise, managing director of Community Wealth Ventures, and Cynthia Massarsky, co-deputy director of the Goldman Sachs Foundation Partnership for Nonprofit Ventures at the Yale School of Management, offered tips and advice on the types of social enterprises that might be successful in today's market and how nonprofits can begin to explore opportunities. Lori Kaplan, executive director of the Latin American Youth Center, shared from her own experience how a nonprofit can create a business to sustain an existing program.

According to Massarsky, with dwindling funding sources, interest in social entrepreneurship is increasing. "It's becoming more and more mainstream every day." Before venturing into the world of profit, however, organizations should keep a few concepts in mind.

First of all, social entrepreneurship is not fundraising. It is a business that delivers a consistent stream of income earned through selling products, services, sponsorships, or space. Even though revenue is generated, organizations will not lose their nonprofit status, provided that all related laws are followed.

Next, social enterprises are a proven way for nonprofits to generate their own sources of funding. The idea has been successfully applied for nearly 70 years by the Girls Scouts through its annual cookie sale and by the Children's Television Workshop through the marketing of its Sesame Street brand.

Finally, planning is key. “You can’t go in with a half-baked idea,” said Massarsky. “If you’re starting a business, you have to have the numbers to back it up.”

Before starting any revenue-generating program Massarsky said that nonprofits need to consider the following:

1. Find a market niche that offers a competitive edge. Just like with any new business, market research is essential in feeling out potential customers.
   
2. Determine whether to use outside staff or in-house staff. Using clients as part of the business can provide valuable job training.
   
3. Make a plan for capitalization. Raising money is a critical step before launching any for-profit venture.

The secret of many successful social enterprises is expertise. "Nonprofits are more likely to succeed if they create businesses aligned with their passions," said Wise. "You'll find people who say nonprofits shouldn't be doing for-profit work because they don't have the skill sets. But they ARE doing it and succeeding at it."

One nonprofit that has had particular success in revenue development is the Latin American Youth Center (LAYC) in Washington, D.C. LAYC has embraced creative enterprises as a way to earn money to support and expand its mission as well as to develop business ventures that introduce youth to entrepreneurial skills to help them lead productive lives. The center's Ben & Jerry's Partnershop offers job training and work experience; its Art & Media House allows youth to express themselves and generates revenue as a community darkroom, gallery and studio; and IMPACTO consulting provides technical assistance and training services for Latino and immigrant youth and families.

Startup costs can be steep. LAYC needed $150,000 to get its Ben & Jerry's shop off the ground. However, with the support of its board, they launched the first ice cream store and eventually opened a second one.

Starting these businesses has been a lot of hard work, but the experience has been worth it, according to Kaplan. "They are fun to do — much more fun than crying the blues about having no funding."