To profit or not to profit

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

Business and Human Rights

#CSR #Human Rights #UN #Global Compact

A Practical Approach for Businesses to Implement the United Nations “Protect, Respect and Remedy” Framework

UN’s  Protect Respect Remedy framework and guiding principles are a great first step of broadly agreed upon international standards to define the scope, actors and framing of human rights issues, and creating accountability for businesses. Yet for many companies it remains a challenge to embed human rights in their day-to-day operations. In some of the places they do business, the rule of law is non-existent, not enforced or in conflict with international human rights. As a result, merely respecting local law may not always be a sustainable approach.

Given the broad scope of human rights as it relates to company activities and relationships; the capacity, capabilities and systems to address human rights or lack thereof; a simple, practical and actionable framework is needed to help companies bridge their human rights knowledge and implementation gap. Outlined below is a proposed framework to help companies conduct a human rights due diligence and translate the corporate responsibility to respect into action.

Step1: Start with identifying human rights issues and risks at the country/region level. The Human Rights and Business Country Portal aims to describe human rights conditions in law and practice in more than 100 countries, and provide companies with practical advice for preventing and mitigating violations.

Step 2: Identify and prioritize issues and risks at the industry/sector level. Certain industries such as the extractive sector, food and beverage sector, apparel sector etc. have specific human rights risks tied with their operations and business activities.

Step 3: Map human rights risks at the stakeholder level specifically employees, community and extended relationships such as suppliers, distributors and customers.

Step 4: Assess the human rights risks at a functional level i.e. internal due diligence within the activities and processes of different functions such as HR, Procurement etc.

This funneling approach of human rights due diligence can help companies identify and prioritize risks at the system as well as the organization level. Once, the company has identified the potential issues and risks at these different levels, identifying the impact of these human rights issue, using the impact assessment matrix in Table 3, will help companies further define their short term and long term human rights action plan.

Also for a company, human rights risk, like all operational risk, is constantly changing. To meet the challenge of an evolving and changing risk environment, due diligence to detect human rights risk should be continual and embedded into the core business processes and systems (see below diagram).

In short, while the company responsibilities have been clarified in theory using the Protect Respect Remedy framework and guiding principles, a key step towards ensuring good human rights performance by the company is the conduct of human rights due diligence as part of its core business strategy and operations.

The Business of Giving

When you shop for yogurt there is more than the pink lid that catches your eye. Millions of yogurt lovers like you have helped Yoplait, through its Save Lids to Save Lives and other breast cancer initiatives, donate over $30 million for breast cancer outreach programs across the country. Surely a delicious and healthy way to do good.

It may surprise you to know that philanthropic giving equals almost 2% of the United States GDP. This translates to roughly $290 billion in charitable giving and mostly comprises of donations from individuals, according to a recent Giving USA survey. Only 5% of the total giving is by corporations at $15 billion - a small number in itself that closely follows the ebbs and flows of recessions and profits.

Several innovative models at the intersection of business and charitable causes are trying to create new stimulus for businesses to give. Crowdsourcing giving campaigns such as the American Express Members Project, Chase Community Giving and Pepsi Refresh Project allow companies to tap into individual charitable passions to vote for the charities they should direct its charitable funds to. Social media giants such as Facebook, Twitter and Groupon have all launched their own cause related platforms to encourage companies and individuals alike to advocate and raise funds for charitable causes.

Another brave attempt in this arena is cause marketing where marketers use sales of a particular product to benefit a charitable cause. We have all been touched by long standing cause campaigns such as the Nike Live Strong Campaign.

The most recent attempt in the do good mix is cause shopping, a new breed of Internet startups such as CauseOn.com, Recoup.com and Socialgoodies.com that offer consumers shopping deals to support causes they care about by connecting with brands and businesses that want to do good. These fresh and bold endeavors use charitable causes as a catalyst to generate real and measurable returns for businesses by acquiring new customers, increasing sales of their products and building brand and customer loyalty. The opportunities to innovate at the intersection of charitable causes, consumer needs, and business interests are immense and necessary.

 Now, some would argue that these cause initiatives are mere public relations and image building stints and philanthropy and business goals should not be mixed. Which brings me to the question – why do companies give? Several studies have attempted to answer this question and concur that beyond their CSR and social goals, businesses give for business reasons. According to a global McKinsey survey, when companies were asked what business goals they try to reach through philanthropy, they most often cite “enhancing the corporate reputation and/or corporate brand”.

Hence, what we need are business models and solutions that truly incentivize corporate giving by helping them achieve these desired business goals along with their social goals. Corporate giving programs should be a strategic part of the marketing mix with other marketing vehicles that build and enhance brands such as advertising, public relations and consumer promotions.

 Companies should not be shy of reaping the business benefits tied to their giving. But giving also needs to be accountable and responsible, requiring a paradigm shift in current corporate giving habits and practices. If you examine the current giving process, most senior management or corporate foundations start with a philanthropic budget and go through an exhaustive process to identify a charity or two that meet their social goals. In other instances, companies pick and support causes at the whims of their CEOs. These traditional models of engagement typically lead to them choosing a charity that few people are passionate about and the gift goes largely unnoticed - not a surprising fact given the long tail of charitable interests and passions that guide individual donations.

Companies need to connect their giving programs and efforts with those of their consumers and stakeholders. 47% of global consumers buy brands that support a good cause at least monthly, as per the Edelman goodpurpose® study. However, consumers are demanding more choice and control as to what specific causes should benefit from their purchases and think companies should consider giving in the communities in which they do business. The selected causes should also be consistent with the overall brand purpose and messaging and reinforce their long-term and focused commitment to an issue.

Why does this matter? One, we want the $290 billion philanthropic pie to flourish and grow to and not succumb to donor fatigue. The more strategic we make corporate giving, the more it will sustain the pressures of the economic downturn and dwindling profits.  Second, consumers care. Over 70% of American households give to charity and over 80% of consumers would switch a brand for an equivalent, but socially responsible product, Moreover, consumers want companies and brands to overtly tell them the ways in which they are supporting causes.

Consider this - the future of giving could be for-profit models for supporting non-profit causes. Imagine if a fraction of every dollar you spend on purchasing gets translated into charitable good. That’s a lot of good in this world - for you, for the business and for the cause you jointly support. Makes good sense?

The Environment’s Consumer

Keeping our personal ecological footprint in check

My personal ecological footprint is 4, which means that we would need four planets worth of resources to support my lifestyle. Surprisingly, this is still lower than the ecological footprint of the average American. According to the Global Footprint Network, if everyone lived the lifestyle of the average American, we would need 5 planets to provide the resources we use and to absorb our waste.

For a long time I was able to rationalize my consumption under the pretext of satisfying my essential needs. How could I survive motherhood without disposable diapers?  How could I not take the yearly flight back home to the other side of the world to see my family? I am, however, out of excuses. I can no longer tell my 4-year-old son that the reason mommy can’t walk the one-mile to his school every morning is because she is running late for class. He deserves to put a green leaf on the tree for “walk and ride” day at his school every Friday.

The lack of clarity and concurrence on the definition and scope of global climate change has led to various debates on the net costs and benefits of environmentalism and most importantly who incurs them. Is it the government, the business or the individual? While there are many stakeholders involved and responsible, I want to focus on the environment’s biggest and perhaps the most impulsive consumer – us.

Keeping our ecological footprint in check requires an unlearning process of current thought models and behaviors in the way we shop, consume and live. In spite of our best intentions we require a system of checks and balances to engage us in a more meaningful and accountable way. Like consumer behavior, the sociology of consumption and behavioral psychology can help drive our green actions. We need new and innovative models of behavioral engagement that tap into our personal, and most often, different green motivations.

Competitive nudging works. My energy provider NSTAR recently started sending me a home energy report, which compares my energy use to other households in the neighborhood. Given my dismal performance, I was motivated to take positive steps and bridge this energy gap versus my neighbors. NSTAR and several other utilities companies use energy platforms such as Opower to motivate consumers to save not only energy but money on their bills by providing them personalized information about their energy usage, comparative feedback and tangible easy to follow tips that can lead to energy savings.

Behavioral science also shows that you make change if others around you change. Indeed, research suggests that “Home Energy Reports” have had success in nudging people to make better energy-use decisions, reducing energy demand by 1.8% on average with the effectiveness of individual programs ranging from 0.9% to 2.9%. Furthermore, the research claims that reducing residential electricity usage across the United States by 1.8% would save over 26,000 GWh of electricity, reduce greenhouse gas emissions by roughly 8.9 million metric tons of carbon dioxide per year, and save households just over $3 billion dollars per year on their electric bills.

Rewards can also be a driver for green consumerism. Consumers can use their purchasing power to reward brands for their environmental performance, but the reverse is true too. Indeed, this was an impetus for Recyclebank, an environmental social platform with over 3 million members that rewards people to take green actions. Through its web platform and partnerships with municipalities, haulers, local businesses and corporate brands, Recyclebank reinforces and incentivizes green actions with points that can be redeemed by its users for discounts and rewards. Practically Green, another such innovative effort, is a LEED inspired green standard for daily life that aims to make green living simple, personal, trackable, shareable and fun!

Amid this green talk, however, consumers need to be green smart. Green can also mean greenwashing, a term describing the deceptive use of green PR and marketing. The majority of consumers misinterpret general environmental claims. More than two-in-five Americans erroneously believe that a product advertised as green and environmental friendly means a product has a positive impact on the environment, according to a recent Cone Green Gap Trend Tracker Study. In reality, these terms more accurately describe products with less environmental impact than previous versions or competing products. As a consumer, we need to be better educated about our consumption and lifestyle decisions and their impact on the environment and not get swayed by media savvy green actions. The Good Guide can be a good place to start.

We need the rise of a new breed of green consumers characterized by commitment to environmental friendly lifestyles, aware and critical of their own environmental practices and impact. Ultimately, we are all environments’ consumers and if we want it to continue to support and nurture us, we must reciprocate and learn to tread more lightly on the earth. Remember, not all our steps fit on this one planet.

"Click" for a good cause

This year, I advocated for humanitarian efforts for children in Sudan, got fit for a good cause by supporting a breast cancer walk, and raised funds to support rural education in India, all in virtual space. The emergence of online giving websites such as razoo.com and causes.com allows us to be not only passionate advocates but also generous donors and smart fundraisers.

Consider this - online giving in the United States surpassed $22 billion in 2010, versus $6.8 billion in 2006 and a mere $250 million in 2000. This trend continues its upward trajectory in spite of fluctuations in total philanthropic giving in this period.

The online giving marketplace, while still a small percentage of overall giving, can help address donor fatigue. Busy donors who want to give responsibly but do not have the time or inclination to do the research or post the check can now rely on these websites to select the most deserving causes and organizations. It also enables nonprofit organizations to receive donations at minimal or no cost to them.

 An important and emerging target for the online giving marketplace are the millennial generation, the so-called “Generation We.” They are deeply concerned about the common good, they believe in social change, and they are eager to play their role in making positive changes happen. This is also a generation that expects to conduct their philanthropic giving online. Social media permeates their lives, and thus it will permeate their philanthropy as well. Research by Network for Good suggests that online donors tend to be young and are significantly younger than offline donors.

Arguably, another key trend driving this phenomenon is the “democratization of philanthropy.” Charitable giving is no longer restricted to the rich and accomplished and the concept of micro charity is driving this change. Akin to the Obama fundraising campaign in 2008, the use of online fundraising tools has allowed the nonprofit sector to tap into the large pool of small donations.

The online giving marketplace effectively leverages Web 2.0 best practices and social media tools to educate and empower donors while raising funds and awareness for nonprofits. Peer-to-peer fundraising on sites such as fundly.com and chipin.com not only allow passionate advocates and donors to spread awareness for the causes they support but also taps into their social networks to raise money for these causes. It can be as simple as inserting a fundraising widget on your favorite social hangouts such as Facebook.

Social networks such as Facebook and Twitter are also integrating charitable giving into their service offerings. These social cause networks can influence, leverage, and mobilize preexisting members in their networks for a cause versus the traditional way of building donor networks around a cause. After all, peer pressure works. I have not only been nudged by fundraising drives and causes my friends feel passionate about, but also prompted to start ones of my own.

But not all is worthy in this virtual world of good. While these fundraising websites have contributed significantly to the development and growth of online donations, not many have been truly successful in increasing the overall size of the philanthropic pie by introducing new donors to participate actively in philanthropy. Research suggests that online donors are not new to giving, but they tend to be new to giving online.

A key challenge that these online models face is to engage users in active participation. It is easy for anyone to “like” a cause on Facebook but to get a share of their time or a share of their wallet is another story. The classic tradeoff these organizations face is investing in width versus depth - add a new donor member or charity or deepen the link with existing donors and charities. The “long-tail” phenomenon – a term devised by Wired editor Chris Anderson to describe how the Internet creates and serves low frequency distribution markets – is evident in charitable giving too. Our individual charitable passions are spread out along the long tail. So, what we need is a personal touch to strengthen the virtual bond.

Given the disparate donor interests, it is important for these websites to build bonding capital by allowing members to meet and engage in cause-related activities offline and develop strong-tie networks akin to traditional fundraising activities and events. Since these websites also engage nonprofits and corporates, there is also an opportunity to connect all stakeholders for a concerted effort and potentially greater impact. Social media tools are an effective way to engage the donors meaningfully through the lifecycle of the project or cause at hand.

Making fundraising more transparent, effective, and engaging benefits both the giver and receiver. At DonorsChoose.org, donors can support a specific funding need, ranging from pencils to violins, posted by a public school teacher and see how their contribution made a difference.

In today’s fast-paced world where the donor is inundated with choice and information, web tools that enable giving to be quick and simple can go a long way towards addressing the issue of donor fatigue and encouraging micro-donations.

Now doing good is just a click away.