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Social Entrepreneurship and Earned-income Strategies: The Next Wave
Independence and self-sufficiency. Earned income strategies. Entrepreneurship. Becoming more business-like. Improving the double bottom line. Pursuing social and financial returns. Words and phrases borrowed from the for-profit world to fit the nonprofit world.
Should nonprofits follow these principles that are being expounded by a growing number of nonprofit professionals and funders? Do these principles apply to the nonprofit world in a useful way?
The Debate
Although social entrepreneurship and earned income strategies are not new ideas, they are still hotly debated in the third sector. What makes nonprofits different from for-profits if they follow earned-income strategies? For some in the nonprofit world, the very idea of earned income seems at odds with their core social mission. How can nonprofits honor that mission while worrying about profit-making and financial viability? Others in the nonprofit world take offense at the assumption that seems to underlie the argument for social entrepreneurship, that nonprofits are inherently inefficient, waste money, and need to revamp themselves to run more like businesses.
Workbooks and articles on the subject abound. One organization is taking steps to train the foot soldiers of the movement. The National Gathering for Social Entrepreneurs (http://www.ngse.org/) was founded and held its first meeting in 1998. It is a yearly conference designed to teach strategies to those already running profit-making enterprises within their organization, to recruit new believers, and to provide a forum for debate for the entire nonprofit community.
One Evangelist and His Strategies
At the third NGSE conference in Seattle at the end of November 2001, Jerr Boschee, senior fellow at the Northland Institute (http://www.northlandinst.org/), one of the six co-founders, and a longtime advocate of nonprofit-run social enterprise businesses, explained the principles behind social entrepreneurship.
He outlined what he sees as the weakened state of charitable giving and government spending in the nonprofit sector. He encouraged the audience, made up mostly of nonprofit professionals, to adopt entrepreneurial strategies back home in their organization, to sharpen the focus of their programs, and to kill programs that are not central to their mission, in order to increase the self-sufficiency and viability of their organization.
Boschee shared with the audience his raw materials for success in organizations that adopt earned income strategies:
- Do it if you have passion about the project. You will not succeed if your heart is not in the venture.
- Have clarity of purpose: define what success will look like and quantify your goals. Write a business plan for the new venture.
- Make sure you have "sufficient" resources to succeed: money, time, psychic energy. If you are already wiped out from your job, you will have a hard time finding the extra energy and passion you will need to make the venture successful.
- You must have personal and organizational commitment and courage to succeed Is your organization ready to take this on? Is everyone on board with the plan?
- Articulate your organization's core values: does this venture fit in with the list? If not, don't do it.
- Be focused on the customer.
- You must have a willingness to plan: do not hesitate to ask for help.
- Be #1 or #2 in the marketplace, or don't do it at all. Like General Electric, you should plan on being the top player in the marketplace of services for your venture, or you should not bother to do it.
- Build the right team to carry it out.
Boschee has authored a book of strategies and case studies of successful entrepreneurs and their ventures: The Social Enterprise Sourcebook: Profiles of Social Purpose Businesses Operated by Nonprofit Organizations (brought out in 2001 by Northland Institute, Minneapolis, Minnesota).
Lynette Boone of WSEP Ventures, a market-based strategy and management consulting group, also drilled home to the audience the importance of intrapreneurship, or advocating within your organization, and having a clearly articulated business plan that can be used within and outside an organization.
Legal and Other Issues
Simply deciding to pursue income-producing ventures is not enough for success, said the experts on legal and business matters present at the conference. There were multiple sessions on legal issues, copyright and trademark issues, and even a "how-to" on writing a business plan, all key components of running a successful new venture.
Getting good legal advice is paramount for nonprofits considering earned income programs. LaVerne Woods from Davis, Wright, Tremaine in Seattle outlined the differences between tax-exempt and non tax-exempt activities by nonprofits, with the defining characteristic being whether or not the activity itself is charitable. Robert Wexler from Silk, Adler & Colvin in San Francisco walked the audience through issues connected to unrelated business income and implications for different types of ventures in which a nonprofit might participate.
Intellectual property issues and the protecting of ideas and business processes is also a key area that nonprofits must pay attention to as they develop earned income programs.
Success Story
Perhaps most compelling were the stories of social entrepreneurship strategies that had large payoffs for small nonprofits. June Mansfield, CEO of Community Services for the Blind in Seattle, described how she had led the push to create an online e-commerce site for the organization's store, which specialized in reading aids and implements for vision-impaired people.
Her goals for the venture? Enhance awareness and understanding about living with vision loss, increase access to their inventory of specialized products, and generate sales revenue to further enhance the mission of her organization. Mansfield shared her success: Over the three years since the site (http://www.sightconnection.com/) launched, the amount that the organization had to subsidize the store has been reduced by 74 percent. And the customer base of the organization's services (in the form of products they sold) has been expanded to include people all over the world.
Mansfield is passionate, she had a clear vision of what she wanted to accomplish, and she had organizational commitment to back her up. And the venture has succeeded beyond her organization's expectations--and her own.
Where Funders Stand
If the funders in attendance at the Seattle conference are representative of the funding community at large, it is clear that the potential social return is most important in determining whether a venture will be funded. But it is less clear whether financial return on a project is also an important criterion for funding.
David Bley of the Federal Home Loan Bank in Seattle said that his bank is leaning towards "recoverable grants" and wanted to encourage nonprofits to think entrepreneurially. Bill Clapp of the foundation Global Partnerships represents the opposite view. His primary criterion for funding an enterprise is the amount of social return on a project and whether that particular project is scalable. Paul Shoemaker of Social Venture Partners in Seattle suggested that "social outcome" was the ultimate end of any investment made by SVP and that "business outcome" was simply a means to that end.
The message at this panel? Check with potential funders on what their criteria and success markers are for funding new ventures, and match your organization with funders who align with your values, vision, and plan.
Conclusion
The debate over new strategies in the nonprofit world will likely continue for some time. Paul Light, in his article "'Nonprofit-like'--Tongue Twister or Aspiration" in The Nonprofit Quarterly (Volume 8, Issue 2), argues that nonprofits should define for themselves what "high-performing" and "efficient" are in the nonprofit world, in order to "reclaim their ownership of terms such as innovative, strategic, and entrepreneurial." His conclusion is an insightful one: "Until the sector creates its own language of higher performance, it is likely to be buffeted by whatever new idea flows over the transom from government and business."
Whether the ideas that flow "over the transom" are useful ones to the nonprofit world has yet to be decided. Social entrepreneurship is an idea and set of strategies whose time might have come, but will not be accepted without much debate and soul-searching in the nonprofit community.
Note
As we were going to virtual press, the Flatiron Foundation and the Atlantic Philanthropies released a report, written by Jason Scott, entitled "After the Bubble: Investing in Internet-based Social Enterprise in Challenging Times." The report consists of "recommendations for foundations, philanthropists, and social investors interested in supporting the Internet-based earned income revenue activities of nonprofit organizations." It can be downloaded from http://www.flatironpartners.com/index_foundation.html.
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