Business Ventures Are Realistic for Many Charities

LETTERS TO THE EDITOR

To the Editor:

News coverage of the recent report by Seedco titled “The Limits of Social Enterprise: A Field Study and Case Analysis,” (“Charities’ Business Ventures Hard to Sustain, Study Finds,” June 14) suggests that nonprofits have been sold a bill of goods when it comes to social enterprise, because business ventures generally do not yield significant income. Therefore nonprofits should launch a social enterprise with extreme caution, or perhaps not at all.

The irony of all this hype and counterhype is that complete financial sustainability has never been the goal of social enterprise, or the message of its knowledgeable advocates. Indeed, the Seedco report itself does not recommend that nonprofits avoid social enterprise. Using the kind of hard-nosed feedback you find in the business world, the report actually highlights some of the real challenges nonprofit groups need to be aware of when considering earned-income ventures.

While the business community does not consider the high failure rate of business startups reason to shut down private-sector entrepreneurialism, when social enterprise is looked at from the perspective of the nonprofit sector, it is promoted as an all-or-nothing endeavor.

The reality is, social enterprise can have a number of much-needed impacts on the nonprofit sector, and financial self-sufficiency is generally not even the goal.

However, a social enterprise may well contribute to sustainability by covering investment and operating costs. It is not uncommon for social ventures to lose money in the first several years of operation, meanwhile contributing income to overhead expenses. The reluctance of foundations to provide operating support may mean some nonprofits can use commercial ventures to offset basic overhead expenses (rent, utilities, insurance, bookkeeping, etc.) more easily than they can find a grant maker to cover those same costs.

The pursuit of earned income can enhance a sense of self-determination in nonprofits that live under the threat of changing funder priorities and endless fund raising.

Distraction from mission is a threat no matter the cause — whether the enterprising effort of starting a social venture or the traditional activity of fund-raising auctions, bake sales, and charitable dinners.

Pursuit of earned-income activities attracts and even demands an influx of new talent with business expertise at both the board and staff level, resulting in a fresh perspective on a nonprofit group’s traditional services and operations. Competing in the open marketplace helps a nonprofit shift its focus from process to results, with a parallel benefit to its overall effectiveness and accountability. Social enterprise often raises a nonprofit’s public profile and exposes it to new audiences that may be the source of additional human and financial capital. And finally, social enterprise represents good stewardship; when successful, it reduces demand for philanthropic resources that are more appropriately invested in organizations that have no earned-income potential.

Global economic trends, a shifting competitive environment, and mounting social challenges are spawning interest in social enterprise as a strategy for realizing social outcomes. As with any new field, let’s approach this emerging discipline with the mix of practicality and optimism it warrants, as an additional means of addressing some of our most pressing problems.

Kris Prendergast
President
Social Enterprise Alliance
Washington