June 14, 2007 | Read Time: 2 minutes
The hype surrounding social enterprises has fostered the idea that nonprofit groups can produce significant income by creating spinoff businesses.
But a new report by the Seedco Policy Center in New York finds that most social-enterprise efforts fail to make money and that such ventures rarely, if ever, generate enough revenue to sustain a nonprofit organization.
“We could not identify a single example of an entirely self-sustaining nonprofit-based social enterprise,” says Neil Kleiman, director of the Seedco Policy Center and co-author of the report. “As the field has matured, it has shown that it is nearly impossible to be entirely self-sustaining. But I don’t think the message has gotten out to the wider press and the nonprofit industry in general.”
Mr. Kleiman interviewed more than 30 experts who have worked with business ventures started by charities or who had conducted research on such enterprises, and reviewed past research on the topic.
He also studied a failed business created by Seedco called Community Childcare Assistance, which sold emergency child-care services to companies that employed low-income workers.
The Seedco Policy Center is a newly formed research arm of the Structured Employment Economic Development Corporation, a nonprofit group that works with charities and government agencies to aid low-wage workers.
As a result of his research, Mr. Kleiman concluded that the most successful charities did not rely solely on a business venture to support their overall operations. Instead, those organizations also received support through more traditional sources such as government grants or donations.
The message, Mr. Kleiman says, is that nonprofit groups that consider starting a spinoff business should do so with the idea that the new business will be a secondary source of money rather than an opportunity to cease traditional fund-raising efforts. “Trying to have a pure, self-generating revenue model often doesn’t make sense,” he says. “Nonprofits should bring in earned income whatever way they can, but they need to do it in a balanced way.”
They also need to make sure that they do not allow their business ventures to interfere with their ability to fulfill their charitable mission.
“Nonprofits driven to meet a ‘double bottom’ line for customers and clients have far more typically led to frustration and failure, drawing attention and resources away from the organization’s core work,” the report says.
Copies of the report are available on Seedco’s Web site.
