Making Money With a Mission

Many charities are starting business ventures, but their goals are as much social as they are financial

In the past decade, the number of charities running businesses has exploded as organizations sought

new sources of revenue. Nonprofit organizations today have a hand in activities as diverse as day-care centers for dogs, used-car lots, organic farms, specialty restaurants, and pest-extermination businesses.

But as charities have gained more experience, they have come to realize that many of their expectations need to be tempered. Many business ventures take years to make money, and even when they do, the returns are often modest. Others never make a profit.

So while the prospect of generating unrestricted income remains alluring, a growing number of charities have come to believe that operating a business is an important tool for meeting their social goals — and not a replacement for other efforts to stay afloat financially, such as seeking government grants or private donations.

“By and large it’s not a new way to raise money to keep doing what you’re already doing,” says Rolfe Larson, who runs a social-enterprise consulting company in Denver. “It’s a new way to approach how you accomplish your mission.”

No matter how much interest in business activities has been growing, Mr. Larson and other experts believe that far more groups could benefit from experimenting with ways to bring in revenue from sources other than private donations and government aid.

But fear of failure holds too many organizations back, he says.

“To actually fail is considered a problem in the nonprofit sector,” he says. “It’s a badge of honor in the corporate sector. There are venture capitalists who will only provide resources to an entrepreneur who’s already lost $5-million or $10-million because she’s made some good mistakes and learned from them.”

A Business ‘Pioneer’

One of the most financially successful nonprofit groups, Pioneer Human Services, runs nine businesses that provide a little more than half of the Seattle charity’s annual $62-million budget. With that money, the group provides counseling, job-skills training, low-cost housing, and other services.

The charity got its start in business ventures in 1966 when it set up a small machine shop with used equipment to make parts for Boeing.

Now, Pioneer has become so well known for its business ventures that it even started a consulting business. The group charges $2,500 a day for tours of its operations and meetings with Pioneer executives that are tailored to the customers’ interests.

The revenue from the businesses gives Pioneer the flexibility and autonomy that it relishes, especially when compared with the restrictions that foundations place on grants, says Mike Burns, Pioneer’s chief executive officer.

Yet the businesses are very much a means to an end.

“What makes us successful is the passion for the mission, not the passion for the business disciplines,” says Mr. Burns. “The business disciplines are just a vehicle for us to accomplish our mission,” he says, noting that the ventures provide jobs for people who have faced tough challenges in life.

The prospect of being able to give clients work experience in a real business, rather than just talking about job skills in the classroom, has prompted many charities that help people move into the work force to take the leap.

Golden Gate Community, in San Francisco, runs three businesses — a screen-printing business, a café, and a bike shop — that provide training opportunities to low-income teenagers and young adults, many of whom are dealing with difficult issues, like homelessness or addiction.

“The reason we run the businesses ourselves is because we want to control the experience,” says Caroline Pappajohn, Golden Gate’s enterprise director. “It’s all about how to mimic the real world, but how to do it in a much more compassionate way, because we’re dealing with a client population that if you just threw them into a normal job, they would fail.”

Balancing the charity’s two goals — helping troubled young people and building strong businesses — is one of the central challenges the managers who run the enterprises face, says Ms. Pappajohn.

“Every day they walk in saying, ‘How can I help more youth? How can I help them more deeply?’” she says. “They’re also thinking with the other side of their brain, ‘And, I’m running a business. What do I need to do to grow this business?’”

While enterprises designed to provide job experience and training opportunities tend to be the most prevalent, a range of organizations with other types of charitable missions are also experimenting with commercial efforts.

Creativity Connection, a business started by Americans for the Arts, in Washington, acts as a booking agency for artists and cultural groups that help corporations integrate the arts into training programs for their employees.

Companies like McGraw-Hill, General Dynamics, and Wachovia have hired artists represented by Creativity Connection to conduct workshops designed to help spark creativity, foster teamwork, and improve communications among their employees.

Some charity business ventures are developed to improve the price and quality of services available to nonprofit organizations.

Two years ago, the Housing Partnership Network, in Boston, together with 18 of its member housing organizations, created an insurance company to provide property and liability insurance for the multi-unit housing developments those groups operate.

The company has been able to bring down rates for member organizations and help the housing groups identify and remedy potential safety risks.

No Strings Attached

While business ventures are not quick fixes for charities facing revenue shortfalls, some enterprises do get to the point where proceeds can be taken out of the business and put toward the organization’s charitable mission.

Recently, Warren Tranquada, chief executive officer of Aperio, an East Orange, N.J., company that advises charities, spoke to the leader of an organization whose business venture generates $5,000 of the group’s $1-million annual budget.

The nonprofit leader is often asked whether such a small sum is really worth it. Mr. Tranquada says the reply is always the same: “This is the most valuable $5,000 we have in our entire budget because it’s the only $5,000 that doesn’t have any strings attached with it.”

The organization uses the money for staff training, something it hasn’t been able to get grant money to pay for.

Mr. Tranquada cautions that charities need to be sure that the product or service its business sells is competitive. They can’t expect customers to purchase their offerings just because of the organization’s mission.

“If the only reason why someone’s going to purchase from you is because you’re a good cause, you might as well just ask them for the money, because the only people who are going to buy your product are those who would have been prepared to give you money,” he says.

With a business, he says, “the social purpose should be the kicker that seals the deal.”