1. Focus is on “business ventures initiated by a nonprofit organization for he purpose of generating net income to support their mission and programs or to provide employment and other benefits to their clients.” New Developments
a. Greater interest among nonprofits in income generating activity
b. New players (Social Enterprise Alliance, Center for Social Innovation, Cause Marketing Forum, Partnership on Nonprofit Ventures, Community Wealth Ventures, etc.)
c. Increased interest among funding and investment communities
d. New terms (social enterprise, affirmative business, nonprofit business venture, nonprofit enterprise)
e. “Business Plan Competitions” for nonprofits
f. Research & academic course offerings
g. Debate about accountability and return on investment
i. Must there be a social return on the investment component (such as employing clients of the parent organization)? Or is using the funds for the charitable purpose of the parent sufficient?
ii. What is best way to measure social return on investment, and how to incorporate it into financial statements?
iii. Is an enterprise that incorporates social return but makes less money overall as profitable as one that does not incorporate social return but makes more money overall?
a. Business Ventures
i. Program-related products
ii. Program-related services
iii. Hard property
iv. Soft property
1. cause-related marketing
a. transactional programs (share of the profits for use of name)
b. joint messaging (piggyback on each others’ promotions or recruiting)
c. member-related service
d. affinity credit cards
3. Questions about Business Ventures
a. Questions typically asked
i. What is a good way to net some money quickly? (None. It takes time.)
ii. Can nonprofits make money? (Yes. Being nonprofit doesn’t mean losing money. But can’t pass the profits on to equity owners.)
iii. Won’t we lose our tax-exempt status if we are successful? (No, but will have to pay tax on any “unrelated business income”)
iv. Why not try it and see if it works? (Bad idea. Can significantly damage reputation and good will if it doesn’t work. And create significant liability—financial and legal.)
b. Questions you should ask
i. How will earned income help us?
ii. Is business venturing consistent with our mission? Or is it a distraction?
iii. Will we have the support of board, staff, members and others?
iv. Is there a champion within the organization? Are we prepared to put time and other resources at the champion’s disposal?
v. Do we have access to the capital to start up a new business?
vi. Do we really have a product or service that people will be willing to pay for?
4. Answering the Questions
a. Designate a team to explore the issue
b. Conduct organizational audit
i. Organization, management, personnel
iv. Equipment & facilities
v. Other assets
c. Brainstorm ideas
d. Conduct one or more feasibility studies
i. Market analysis
ii. Marketing strategy
iii. Operating plan
iv. Financial plan & legal structure
e. Secure organizational commitment
f. Develop the Business Plan
i. Description of business (including mission statement)
ii. Industry & market analysis
iii. Marketing plan
iv. Management plan
v. Operational plan
vi. Financial plan
vii. Risk assessment & contingency plan
g. Seek capitalization
5. Lessons Learned
a. Nonprofit enterprise is not for everyone
b. There is no substitute for analyzing your marketable assets and conducting thorough research and planning for your business
c. Develop a market-driven, full-cost pricing strategy
d. Strong management is the first of the two most important keys to success
e. Acquiring sufficient capital is the second of the two most important keys to success
f. Borrow some key marketing strategies that are used in the private sector (presell, wholesale, cross-market)
g. Think through each step in operating your business, yet expect to adapt to changes in your organization and in the marketplace.
© 2004 A.J.Filipovitch
Revised 2 April 2008