Is social enterprise the road to sustainability for nonprofits?
#nonprofit management #social enterprise
PlayStation, UGG and Coach are just some of the brands one finds in the 2500 Goodwill retail stores, which contribute to over 65 percent of the $4 bn revenue for the nonprofit. Nonprofits such as Goodwill, FareStart and Greyston Bakery have successfully integrated business activities with their mission not only to earn revenues but also to further their purpose. Sustainability, Scalability and Self Sufficiency seems to be the new mantra making its way from the for-profit to the nonprofit world.
Not all of 1.4 million US nonprofits have sustained donor support to finance their program activities. The overwhelming majority of these nonprofits are extremely small, with annual budgets under $500,000, as per the National Center for Charitable Statistics.
Social enterprise development offers nonprofitsa path to sustainability and greater self-sufficiency and nonprofits are scrambling to develop revenue-generating models to support and sustain their mission. Pursuing a well-defined social enterprise strategy can help nonprofits prioritize and divert their resources to their core mission versus chasing and funder and donor agencies. Moreover such a strategy is also enticing nonprofits with funding opportunities from a new breed of impact investors such as venture philanthropists, social investment funds and banks.
However, for every successful role model, there are numerous examples of nonprofits that have failed in establishing self-sustaining revenue models. A social enterprise may choose a nonprofit route to fulfill its mission but the vice versa is not necessarily true. The nuance here lies in understanding the difference between a nonprofit with earned income and a full-fledged social enterprise nonprofit.
The largest source of revenue across all reporting public charities was fees from the sale of goods and services, as per the Nonprofit Almanac 2011. But the fee income of most nonprofits is not integral to its operational model and supplements other, more substantial, funding sources. On the other hand, social enterprise nonprofits operate businesses both to raise revenue and to further the social missions of their organizations.
With all its gung ho, one must also acknowledge that not all nonprofits lend themselves to creating a self-sustaining social enterprise model and their desperate efforts to do so could well put them on the path of mission drift. Thus, social enterprise development should not be considered merely as a revenue generation strategy, but rather as a strategy that allows a nonprofit to achieve its mission and objectives more effectively and efficiently. Another concern with this pursuit is the lack of adequate resources (human, financial and operational), capabilities and capacities that can help nonprofits develop and sustain a scalable and profitable model.
Clearly social enterprise development is not a one size fits all approach and needs to strategically aligned with the mission, resources and revenue model of the nonprofit. Instead of trying to ride this new wave, nonprofits need to carefully evaluate where they want to be on the continuum of social and financial returns.
Where a nonprofit lands on the dual objective of social and financial returns is determined by whether its social mission can be integrated into a scalable, profitable, fee-based model with ongoing financial sustainability. The answers are not always clear-cut, and the risks often hard to quantify. Legally too, nonprofits need to be careful that an unrelated activity does not begin to overshadow the exempt purposes and activities of the organization. Ideally, it would be an iterative decision process with a due diligence based on organizational capacity and constraints. To be successful, not only does the nonprofit develop a different motivation, namely profit, the nonprofit also has to develop a different set of tools and skills to increase efficiencies and achieve its business goals.
Nonprofits can use a phased approach to test the waters before going all out. NFTE’s (Network for Teaching Entrepreneurship) licensed partner model, contract services, training fee and material sales has allowed it to create additional revenue streams to supplement its traditional sources of funding and it continues to invest in and grow these activities into a viable business.
The world of nonprofits and for profits is blending with both seeking to implement a double bottom-line strategy. Social enterprise startups now have a variety of legal structures open to them from conventional nonprofits to for profits and other forms of hybrid organizations. Increasingly grant makers and investors are looking at the financial and business sustainability of nonprofits versus just their social mission. Nonprofits need to be more enterprising and open to exploring new models for serving and sustaining both their financial as well as mission related needs. While social enterprise is worthy of consideration, it is not the panacea they are seeking.
#nonprofit management #social enterprise