Charities Debate Best Ways to Serve Society and Create New Sources of Revenue

For significant social change to occur, charities and businesses need to become more each other, Gary Hirshberg, president of Stonyfield Farm, in Londonderry, N.H., and a former nonprofit executive, told more than 600 participants here at a conference on social enterprise. The meeting focused on how charities can advance their mission and diversify their sources of revenue by charging fees for the services they provide and starting business ventures.

“This idea that there are for-profits and nonprofits, that’s a myth,” said Mr. Hirshberg. “The only way that the world’s going to be saved is for for-profits to act more like nonprofits have traditionally,” and for nonprofit organizations to act more like businesses.

The company Mr. Hirshberg founded, Stonyfield Farm, produces organic yogurt, and is committed to socially responsible business practices.

The company buys organic milk from family farmers who have pledged not to use synthetic bovine growth hormone, recycles 75 percent of the solid waste it produces, and offsets its carbon-dioxide emissions by investing in activities that reduce carbon-dioxide levels, such as planting trees and converting diesel buses to natural gas. In the 21 years since it was founded, Stonyfield has become the third largest yogurt company in the country, with sales of $150-million in 2003.

The key to Stonyfield’s success, Mr. Hirshberg said, has been integrating the company’s social and environmental mission into every aspect of its business and then using the mission as a way to build relationships with customers. “It has absolutely been our competitive advantage,” he said.

For example, when the company was trying to break into the Chicago market, it spent three days distributing yogurt to commuters, along with brochures thanking them for riding public transportation and doing what they could to stop global warming. At the beginning of the week, Mr. Hirshberg said, the company had a market share of 1.2 percent, but by the end of the week, it had risen to 4.2 percent.

As part of its mission, Stonyfield Farm also donates 10 percent of its profits to environmental causes. When Mr. Hirshberg announced the program at an environmental conference in New England 14 years ago, he told organizations that they should include a line in their proposal explaining how awarding them a grant would sell more yogurt — an idea that he said initially shocked his former nonprofit colleagues. But he advised participants at the social-enterprise conference, “If you have for-profit partners, believe me, you’ve got to show how your partnership is going to profit them. I don’t think we should be embarrassed on either side of that equation.”

Nonprofit leaders, grant makers, and businesspeople from 39 states and several other countries were among the participants who attended the 5th Gathering of the Social Enterprise Alliance.

Jed Emerson, who has been a leader in the social-enterprise movement since the early 1990s, told conference participants that the conventional wisdom that for-profit companies generate economic value while nonprofit organizations and foundations produce social and environmental benefits keeps all institutions from maximizing the value they create.

“We’re leaving economic value on the table by thinking of ourselves as nonprofits, as social workers who basically say, ‘Gosh, we’re here for the children, we don’t really do well with numbers,’” said Mr. Emerson, who is a senior fellow at the William and Flora Hewlett Foundation and the David and Lucile Packard Foundation.

Mr. Emerson said he understood the tendency, and quipped that when he ran a nonprofit organization, he loved to receive $100,000 grants because they were easy to divide among four staff positions to cover expenses.

But given that the nonprofit field accounts for 7 percent of the country’s gross domestic product, he argued, charities need to be more strategic in the way they manage the financial assets they control, and foundations need to think about how they use their endowment investments to advance — or at least not harm — their social missions. On the flip side, he said, most for-profit companies fall into the same trap by overlooking and failing to take advantage of the social and environmental value they create in the course of their work.

Even some players in the capital market are starting to seek returns that blend economic, social, and environmental returns, Mr. Emerson said. He pointed to the California Public Employees’ Retirement System, which in the last three years has invested $10-billion of the more than $150-billion it has under its management in community-development funds. In addition to spurring new businesses, real-estate development, and home ownership in California’s urban neighborhoods, the investments also have outperformed some other parts of the system’s portfolio. In February, the state treasurer proposed that the state’s pension funds invest $1.5-billion in the environmental-technology sector and in environmentally responsible companies.

Mr. Emerson said several fields are pursuing a blend of economic, social, and environmental goals: social enterprise, corporate social responsibility, sustainable development, social investing, and strategic philanthropy.

In his research on these fields, he found that people in each were grappling with many of the same challenges, such as how to measure social and environmental performance and gain access to capital, but that these people didn’t seem to know what was going on outside their own area of activity.

So Mr. Emerson, along with his colleague Sheila Bonini, a senior research fellow at the Hewlett Foundation, spent more than a year documenting the leading organizations in each field and the issues that affected many of the fields in the hopes that the disciplines can learn from one another.

Mr. Emerson and Ms. Bonini’s report, “The Blended Value Map,” is available online at http://www.blendedvalue.org.

For most charities, successful entrepreneurship requires a change in the way they approach their work, leaders of the Wisconsin Women’s Business Initiative Corporation advised participants at one conference session.

The Milwaukee economic-development group provides business education and small-business loans to women, minorities, and low-income individuals. The organization has 22 employees. Fees for the services it provides and income from the two coffee shops it runs account for 30 percent of the organization’s $2-million annual budget.

The first step the organization took toward earned income was to start charging a nominal fee for the classes it offers on how to start a business. “We said, ‘Hey, people have a value attached to a training experience. Let’s charge them something,’” said Julann Jatczak, vice president of the group. “So even though something might be $5, $10, $20 — that adds up when you teach 2,000 people a year.”

But, Ms. Jatczak said, even this small move meant that the organization’s leaders had to educate staff members who were uncomfortable with the idea of charging a fee for what had been a free service. The group’s leaders argued that by acting more like a business, the group would be able to help more people.

Entrepreneurial charities have to keep “one eye on that mission part, and one eye on the money part,” said Wendy K. Werkmeister, president of the Wisconsin Women’s Business Initiative Corporation. “If I had kept just one eye on the mission piece and not the money piece, our organization would still be two people, $225,-000, and one federal funding source.”

The Social Enterprise Alliance hopes to spur more discussions about earned income and nonprofit business ventures by organizing monthly “Meetup Days.”

The group encourages people interested in social entrepreneurship to hold local gatherings on the fourth Tuesday of every month — starting March 23 — using Meetup, a Web site that allows people with similar interests to organize face-to-face meetings.

For more information: Go to http://www.se-alliance.org.