In Exploring New Revenue Opportunities, Charity Leaders Say to Learn From the Past

As nonprofit organizations seek out innovative approaches to melding income-generating activities with efforts to advance their charitable mission, they need to recognize and learn from the experiences of charities that have been incorporating such methods into their work for decades, Kenneth Gladish, the recently departed president of the YMCA of the USA, told more than 500 charity and business leaders gathered here. The meeting, organized by the Social Enterprise Alliance, focused on ways in which charities can diversify their sources of revenue by charging fees for the services they provide and starting related companies.

Mr. Gladish said that the YMCA’s economic model, “which combines enterprise, market, sales, and charity,” was one of many longstanding examples of social entrepreneurship in American philanthropy. Local YMCA’s rely on charitable donations as well as fees for access to their pools and gyms from those who can afford to pay.

“We have an obligation to this generation to really understand the history and not to claim that we’re the new guys,” said Mr. Gladish. “This idea didn’t arrive on the noon balloon from Rangoon. It’s been around in America since the 19th century.”

At the gathering, nonprofit leaders, grant makers, and businesspeople from across the United States and numerous other countries shared ideas and discussed the challenges that charities face when starting and running business ventures.

Several speakers emphasized the critical, and sometimes misunderstood, role that marketing plays in an enterprise’s success.

“A lot of people think that marketing is advertising — you know, telling people that you should like our product,” said Katherine Freund, founder of the Independent Transportation Network and ITNAmerica, in Portland, Me. “That’s advertising. Marketing is understanding what it is that consumers want and doing your very best job to make that for them. Give them what they want, and they will buy.”

For Ms. Freund, that meant creating a transportation service for the elderly that came as close as possible to the service that her customers preferred, the private automobile.

The result was the Independent Transportation Network, which operates something like a taxi service. People who sign up with the service can call to schedule rides, which they pay for, any time of the night or day. The service offers a wide variety of payment options. Users can trade in their cars in exchange for credit toward future rides, or earn credit by volunteering for the organization. Family members can purchase gift certificates for their loved ones, and some local merchants pay for part or all of the cost of transporting customers to their businesses. A combination of fares and private donations supports the group’s operations.

Ms. Freund founded another organization, ITNAmerica, to help other cities start similar services. Organizations are currently working to create affiliate services in Charleston, S.C.; Mercer County, N.J.; Orlando, Fla.; and Santa Monica, Calif.

For charities contemplating a new business venture, interviews with customers who have bought the kind of product or service they are thinking about providing can be a key to figuring out whether to go forward, Rolfe Larson, a social-enterprise consultant in Denver, said in a conference session.

“The best way to get the broadest sense of the market that you’re not too familiar with is to talk to customers,” he said. “They will tell you the most.”

Identifying who to talk to isn’t easy, said Mr. Larsen, but if it’s too difficult, it might be a sign that the proposed business venture isn’t a good fit with the organization.

After a charity has found potential customers to interview, Mr. Larson recommends asking them questions like, Why do you buy this kind of product? Who makes the purchasing decision? What alternatives do you consider? What do you actually buy? How much do you pay?

Much less helpful, he said, are questions like, Would you buy my product?

Hypothetical questions, said Mr. Larson, often elicit flawed information. “If they like you, they’ll say yes,” said Mr. Larson. “And if you’re a nonprofit, they’ll say, ‘Oh yeah, sure, I would do that.’”

Project Open Hand/Atlanta faced a significant challenge getting its business venture off the ground: The people the organization expected to be its key customers were not interested in buying its products.

The 18-year-old organization’s mission is to provide healthy home-delivered meals to people with HIV, AIDS, and other diseases or disabilities, as well as to the elderly. Fifteen months ago, the charity purchased Good Measure, a local business that delivered meals to customers who wanted to lose weight, as a way for the charity to expand its reach and create a new source of revenue.

Project Open Hand’s plan was to retool the company’s menus to satisfy the nutritional requirements of people with chronic health problems, such as diabetes and hypertension, and market the meals through referrals by physicians, dieticians, and medical centers. Eventually, the organization thought, revenue from the business could help support its charitable work.

But six months after it started the service, sales were lagging behind the targets Project Open Hand had set in its business plan.

Elston Collins, director of marketing and communications, said the organization realized it wasn’t enough to get health-care providers to make referrals, because many of the patients were not yet ready to make major changes to their diets.

So Mr. Collins, who has a background in sales, decided to focus on promoting the service in health clubs in the hopes of generating revenue that would allow the business to become profitable and give it more time to develop the medical market.

“We found that those customers and consumers were already engaged in improving their health and their lifestyle,” said Mr. Collins. “They were a much, much easier sell.”

The business broke even in January, a little more than a year after its start. Total sales for 2005 were just below $600,000. The charity projects sales will reach $1.2-million this year and that the business will generate $120,000 in profits to support the organization’s charitable mission.

Charities that run money-making operations need to know how much it costs to provide the product or service they offer, Jan Cohen, director for new business ventures at HOPE Services, told participants at a session on mid-course corrections.

HOPE Services provides assistance to people with developmental disabilities in the San Francisco Bay Area. The charity employs 700 workers in five businesses, including a data-destruction service.

To try to even out the business’s uneven growth spurts, Ms. Cohen looked at its three primary types of customers — those in downtown, multistory office buildings, those in single-story buildings in office parks, and those at car dealerships — to see how much it cost to serve each type of customer.

She discovered that for HOPE Services’ data-destruction business, large downtown office buildings were “a hugely expensive thing to do,” — a discovery that flew in the face of all the advice the organization had received when it was researching the business.

But armed with the cost information, Ms. Cohen has been able to concentrate on the types of customers that generate the most revenue for the business.

“Who would have ever thought that we would make more money on all these car dealerships and their shredding than we would on major corporations?” said Ms.Cohen. “If you don’t tear it all apart, you don’t know. And when you keep marketing for what you think, then you end up deeper in the hole.”