Nonprofit social entrepreneurship

Nonprofit social entrepreneurship

Blogs / By Mike Crum

According to the Urban Institute’s Nonprofit Sector Project, approximately 15 percent of Nonprofits actually engage in commerce, but more than 70 percent now earn some money through fees and service charges.

Ask your Nonprofit: Is this something we can do? Do we have the skills to pull this off?

More likely to start very small if there is any doubt about having the skills and experience on staff or in hiring an outside consultant to assist in starting the business.

It is widely believed by executives of  Nonprofits that raw energy and lofty motives can make a success of almost any endeavor. This is a false and even dangerous assumption.

Nonprofits are set up to minimize risk. For-profits are the opposite. Government and foundation funding remove the room for risk, whereas business success almost requires innovation and change.

In the business world things happen quickly and feedback is almost immediate. This environment requires quick decision making. On the other hand, Nonprofits often make some dreadful errors by acting fast.

Goal setting is ambiguous at best for non-profits. Very long term oriented. Versus the immediate and measurable returns of the marketplace. Non-profits often take action based on uncertainty and without precise measures of effectiveness.

Benefits of Operating Social Enterprise

  • Financial contribution to Nonprofit’s programs. STRONG link between financial rewards and bolstering Nonprofit’s programs.
  • Makes you savvier. Rubs off on how the Nonprofit is managed.
Downsides of Operating a Social Enterprise:
  • Potential for distraction from mission of Nonprofit
  • Endanger financial and program stability of Nonprofit.
  • Potential for conflict among staff for scarce resources.
  • Potential for hurting staff morale.
  • Opportunity cost of doing something else.
  • Is it worth it versus grant writing or hosting a fundraising event?

The reputation of the Nonprofit for good works is seldom sufficient to sustain a business venture. At best, customers will buy a product or service once on the strength of the standing Nonprofit’s reputation. If the quality of what they buy is inferior, all the good will in the world will not induce them to purchase again.

Just like with any programmatic offering, BEFORE a Nonprofit thinks about launching ANY kind of social enterprise the management team must conduct an Internal Audit. If the Nonprofit cannot see its way clear to remedying the internal problems identified, an earned-income venture will only exacerbate its problems.

The tendency in most Nonprofits is to ignore the weak spots and expect, or hope, that the venture’s momentum will carry the Nonprofit along to success. This is an erroneous belief. Efforts must be made to deal with internal problems before they negatively affect operations.

When envisioning starting / expanding a social enterprise in a Nonprofit, consider the following stages:

Stage 1: Defining the Business. No venture can succeed without a clear articulation of the business. This is commonly done through a written business plan.

Stage 2: Creating the Nonprofit. The Nonprofit should reflect the conception of its founders and it should accurately mirror their purposes. It should link the board and staff of the Nonprofit in a way that serves them as well as the venture.

Stage 3: Raising Capital. The venture – start-up or ongoing – needs money to run it. Capital has two important facets. First is the absolute amount of dollars, say $ 250,000 in working capital. Second is the timing of the money, i.e. when it is available for use.

Stage 4: Creating and Maintaining the Market Niche. This is the market analysis and marketing strategy component of the venture. By segmenting, targeting, attracting and retaining customers, the venture’s position in the marketplace can be identified, maintained and enhanced.

Stage 5: Hiring and Retaining the Management Team. Management is the crucial ingredient. Especially in Nonprofits, where business skills are commonly in short supply, the caliber of management will make or break the enterprise.

Stage 6: Marketing the Enterprise. Every conceivable cost-effective vehicle for putting the venture before the targeted audience should be utilized.

Stage 7: Expanding the Business. When the venture has become a serious presence in the marketplace and has been integrated into the Nonprofit, it must ultimately move to secure its position by expanding its product or service line, or its clientele.

Stage 8: Course Correcting. All aspects of the enterprise should constantly be reviewed, and action taken when projections are not met. Re-calibration is the rule, not the exception, since no business, from day one, works as planned.

Author

Mike Crum

Subject Matter Expert

Mike is a recognized expert, thought leader, advisor and speaker in the Nonprofit world. Over the past four decades, Mike served as an Executive Director, COO, see more

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