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The Business of Nonprofits

This blog post has been the hardest I've ever had to write. The answer is so simple and trite; but, deserves a fuller explanation. The one thing that non-profits need most of all in regards to funding is a systemic change in the organization. The trend in non-profits today seems to be that more Executive Directors are coming from the for-profit sector. Therefore, they have the business acumen to lead and grow the organization. However, they still have a Board to contend with as well as a staff that has "traditional non-profit thinking". Now I know you are thinking: "This may be true in some non-profit organization; but, not in mine." Bear with me a bit longer as I dig deeper into this thought. I have spoken to people who consult with non-profit EDs on an almost daily basis; I have sat at round table discussions with consultants who travel the United States speaking, consulting, and training non-profit organizations. This is the norm; systemic change is necessary!

Nancy Lublin stated "Non-profits have huge inefficiencies and overlaps....This is wasteful and bad business." In Nancy's blog "The Foundations Four Biggest Faux Pas" she states: Stop mistaking marketing for overhead -- and stop hating on overhead. We're all running businesses, and we've all got more expenses than we want. But your constant refrain about us spending too much on communications staff, graphic design, and public relations is misguided. "Scaling up" means that people need to know about us. It also means that we'll have to spend money on expenses that you label with the most unfairly pejorative word in our business: overhead.

Non-profits are being seen by philanthropists more as a business; those in the non-profit sector need to think more like businessmen and women. Results are trumping the cause and the personal relationship as high net worth donors look at giving. They are looking at sustainable income, outcomes, ROIs, and a multi-year funding cycle. This is the mindset of an investor not a donor! Funders (investors) and donors think differently in five key areas: a need for funding, an approach to the problem, funding level, measuring success, and delivering results. (More information can be found in "ROI for Nonprofits and Asking Rights" by Tom Ralser.)

Systemic change and a forward-thinking leadership team may just be the keys to your success. Wishing you success!

Turning Passion Into Profit

To help you define what you are passionate about, I suggest you read about issues plaguing our society and our world. Reflect on causes that strike a nerve with you and network with others that have an interest in similar causes. It is my belief that if you speak with those who are interested in similar causes you may gain a different perspective and perhaps be able to see solutions that you wouldn't otherwise see. The passion of some of the Changemakers from these organizations can be found in these books: Tattoos on the Heart, Black Faces in White Places, Who Owns the Ice House. I'm sure there are many other stories; but, these are truly inspirational and will get you started.

So once you find your passion and launch, how can you sustain and grow? Understandably, impact is a priority for the social entrepreneur. The key is to stay true to your passion, and to operate with persistence and patience. But, it's also important to find support. There is so much support available. First, find someone you can communicate directly with. That goes back to the advice of finding a mentor. Next, leverage your existing resources; this includes community, current staff and volunteers, and your funds.

As I spoke to the leaders from various social enterprises, they all shared the trials of growing pains. Sometimes the founders had the vision that inspired others to join them. These founders led the movement to address the social injustice close to their heart; however, at a certain point they found that their skills were causing the enterprise to become stagnant. To grow, they would have to pass the baton to someone else or they would be ineffective at moving forward to touch more lives. That is not failure; that is recognizing that each of us is capable of a certain level of vision and leadership.

Sometimes our purpose in life may be only to plant the seed and launch a team of advocates, and then the team together becomes a catalyst for something bigger. Sometimes growing pains meant learning that they had programs that weren't marketable. One organization that worked with people with a criminal background tried to market services; however, found that clients wouldn't let the former criminals in their homes to perform services. Other organizations just found that there wasn't enough of a market for their products, so that offering wasn't profitable. If you are a social enterprise that offers multiple products and/or services it's good business practice to keep your accounting practices separate for each one so you know if you have a product/service that is draining your revenue dollars or carrying your enterprise. To entrepreneurs this may seem elementary; but, to someone focused on mission they want everything to work. This feedback was given to me several times in my interviews. I was guilty of this as well in my social enterprises. When you are focused on mission and every idea was your "baby" it's hard to see when it's not working. A good resource for the entire journey from idea to incubation and growth is your local non-profit resource center.

In recent years the lines have blurred between non-profit and for-profit entities; non-profits have become more "business like" and profit seeking while for-profits have begun to embrace social and environmental causes clearing supporting those causes on their marketing collateral. There are two areas where social enterprises have admittedly fallen short: business plan development and sales and marketing. For those entrepreneurs ready to dive into the world of social enterprises, be aware and plan ahead, to seek business acumen in these two areas. Social enterprise is definitely on the rise and there are so many resources, both free and tuition or fee based. For large scale resources to obtain knowledge I would highly recommend Social Enterprise Alliance and Ashoka U. There is a rise in discussion regarding "B Corps" and "L3Cs". These are terms that are being entered into legislation to have a specific designation for social enterprises.

I, and many experts in the industry, believe that the way non-profits sustain is changing. Non-profits cannot be as dependent upon donors and grants to fund them. That funding has decreased in recent years. Therefore, non-profits must look at the idea of social enterprise for sustainability and covering operational costs through unrestricted funds. It amazes me that in traditional business we know that profit helps keep the lights on; but, in non-profits most grants won't cover keeping the lights on. Is this thought provoking to you?

Social Enterprise: From Its Roots to Mainstream Conversation

Can you believe the social enterprise business model has been in existence since before 1900? Yes, it's true! Goodwill Industries was founded in 1895 (although that wasn't its official name until 1915) in Boston by Reverend Edgar Helms. Reverend Helms, theological student, was sent to minister in a struggling inner city mission. When he saw the deplorable conditions these immigrants lived in, Reverend Helms knew he must find a way to employ them. He collected unwanted goods from the homes of the wealthy and allowed immigrants to repair and refurbish them. After they were made suitable for sale, the goods were sold in thrift stores. The profits from the sales paid the impoverished immigrants wages. By 1920 there were 15 Goodwill stores around the country. Reverend Helms had a larger vision for this enterprise though; his goal was to make Goodwill an international organization. Amazingly, this model is successfully used today by Goodwill Industries, and copied by thousands of other organizations. Goodwill Industries is quite obviously a successful social enterprise model that has withstood the test of time. Reverend Helms was a visionary entrepreneur before his time. The Wagner-O'Day Act was passed in 1938 by President Roosevelt. This legislative action paved the way for over 600 social enterprises to employ over 48,000 people with disabilities today. If Social Enterprise has been a successful business model for over 100 years, why are we just now giving it the attention it deserves?

Social Enterprise is practiced around the world. The largest social enterprise in terms of annual sales and size of staff was founded in Spain in 1956. The inspiration for it was due to the large amount of unemployment after the Spanish Civil War. Today theMondragon Corporacion Cooperative (MCC) consists of 120 companies, 42,000 worker-owners; and operates 43 schools and one college. The internet has given rise to the awareness and effectiveness of the social enterprise movement. Before the rise of the internet several organizations made an impact on their causes, such as Ten Thousand Villages and Denver Children's Museum. Again, these business models have proven successful and have been modeled by others. Bajalia International Group has an online model similar to Ten Thousand Villages supporting artisans in disadvantaged areas and selling their goods around the world. The internet has allowed us to see the impact Social Enterprises are having, and enabling us to study them. Women's Bean Project in Denver, Colorado not only sells there products locally; but, is able to have a worldwide customer base through their website and Wal-Mart.com. Many of our college students want to have a career that provides an income while making a change in the world. By studying model organizations that have created an effective Social Enterprise, they can gather inspiration and knowledge. Some Social Enterprises that are worthy of studying can be found on www.se-alliance.org Here is an excerpt from Seth Godin's blog "Non-profits have a charter to be innovators": "Non-profits have an obligation to be leaders in innovation, but sometimes they hesitate. One reason: "We're doing important work. Our funders count on us to be reasonable and cautious and proven, because the work we're doing is too important to risk failure." One alternative: "We're doing important work. Our funders count on us to be daring and bold and brave, because the work we're doing is too important to play it safe." This is the reason we have to educate the non-profit and philanthropic sectors about social entrepreneurship.

The Stanford Social Innovation Review conducted a webinar recently; in that webinar social entrepreneurs from 4 countries spoke on their experiences in the social enterprise sector. Although social enterprise is in the early adopter phase, it has become a mainstream topic of conversation around the world. Will you join the conversation? I look forward to hearing from you.

Social Enterprise: Is It a Necessity

They say necessity is the mother of invention. After the recession of 2008, government funding declined for social programs. Despite recovery, we will probably never see the same level of government funding again. The major reason, in my opinion, is that health care costs are expected to grow at twice the rate of state revenue growth over the next 20 years. This is due to an aging population and spiraling health care costs. Have you heard that approximately 8,000 people a day are turning 65?!

What does health care have to do with social enterprise? Well, as a result of government funding cuts there are fewer resources available for human services. Programs that address workforce development Cafe Reconcile , higher education , recidivism rates, poverty, and homelessness are an investment in long-term social and economic growth. These programs are imperative to a healthy society, and can be addressed by successful models of social enterprise.

As one who has been immersed into these social ills of our society, I am passionate about promoting the idea of social enterprise. I have always been entrepreneurial; but, being entrepreneurial AND addressing social ills of our society is a win-win-win. The approach to social enterprise needs to integrate the best practices of the non-profit sector with the business acumen of the for-profit sector. As I have interviewed several senior level executives in the for-profit sector recently, they typically feel that non-profits do not have the business acumen for social enterprise, thus hindering them to achieve important long-term outcomes. There are times I agree with this statement. The non-profit world has long since been known to operate on a shoestring and focus on the mission; this usually meant eliminating best practices used by the for-profit sector. What is the solution if those leading the non-profit organizations in our communities don't have the necessary business acumen? (Stay tuned for Part 2)