Business Activities Have Benefits

To the Editor:

While the most obvious reason for nonprofits to initiate earned-income activities is to generate funds to support their mission, other important benefits often emerge as well.

In “Business Ventures Go Beyond the Bottom Line” (August 8), Evan Hochberg points out that if ventures achieve results in improved visibility, access to donors, and community outreach in ways that the organization would otherwise spend money on, those cost savings should be factored in when evaluating the success of an earned-income activity.

We agree with Mr. Hochberg’s basic assessment, but believe his analysis can be broadened. There are a number of additional compelling, but less measurable, benefits that can result from pursuing these kinds of activities.

While nonprofits have been generating earned income for decades, only recently has there been an increased focus on this activity due primarily to nonprofits needing to find more unrestricted dollars. What has arisen from this focus is a movement led by the National Gathering of Social Entrepreneurs, a national membership organization whose mission is to improve the effectiveness and sustainability of nonprofit organizations that employ earned-income strategies to achieve social objectives. On December 4-6 this movement will bring together nonprofit leaders from across the country, providing further insight into the many ways focusing on earned income assists an organization overall.

For example, many nonprofits are finding that the pursuit of earned income enables them to become more entrepreneurial, market-driven, and focused. This puts them in a better position to identify and pursue new service opportunities, improve existing ones, and respond quickly when funders discover new interests and when competitors emerge from unexpected places. The discipline required by earned-income projects can also lead to improved fiscal responsibility and efficiency for the nonprofit as a whole. These new skills and insights can also impact all future planning of the organization. Many nonprofits find that what they learn is as important as what they earn from their earned income.

Nonprofits are also finding that pursuing earned income creates an opportunity to improve the internal culture of the organization.

While we believe that all nonprofit organizations should be market-driven and most have assets they may not recognize as such upon which to develop earned-income activities, an organization must have an internal cultural readiness, including buy-in from board and staff, in order to succeed. Earned-income activities require expertise often not found in a nonprofit. They force flexibility in staffing, budgets, and decision making. Initially they may drain rather than produce resources. They may clash with nonprofit cultural norms, creating more problems than they solve. But, if executed well, the organization often comes out stronger and overall more focused.

Nonprofits are also finding that pursuing earned-income activities provides an opportunity to improve upon their specific and overall pitch for funding. Start-up financing is often a barrier that many nonprofits face when considering earned income activities. Banks usually shy away from lending funds for this purpose, and foundations and other philanthropists are often just as reluctant.

While this is changing, slowly, the reality is that most small start-up “businesses” (whether for-profit or nonprofit) are strapped for cash. Successful organizations often turn this into an advantage, developing business plans and presentations, encouraging strategic planning, creativity, and efficiency not often found when resources are more plentiful. They must hone their pitch, seek a variety of creative ways to raise funds, and watch each dollar more carefully.

Finally, nonprofits are finding that pursuing earned income is providing an opportunity for them to focus on what assets they may have developed over the years. Assets may include a curriculum, specific service expertise, or a job-training program. These assets can then be used to pursue a variety of earned-income opportunities, including starting a social-purpose business, licensing, consulting, manufacturing, or entering into a cause-related marketing partnership. Some ventures are large in scope, some are an expansion of an existing service to a new market, and others are small adjuncts to existing services. The common thread is earning unrestricted income to benefit the mission, typically paying for expenses that are difficult to cover through fund raising.

A final note: Earned income should not be seen as a way to replace existing funding sources. With rare exceptions, earned income can only supplement, not replace, grants. For that reason, they usually work best as one part of a broader revenue strategy.

Rolfe Larson
Andrew Wolk
Co-Chairs, 4th Annual Conference, National Gathering for Social Entrepreneurs
Minneapolis