Social entrepreneurs – Faced with dwindling traditional revenues, nonprofits are turning to the corporate model to find sustainability.
Volunteers paying fees for the opportunity to lend a hand. Clients charged higher copayments for services. A homeless ministry with a shopping portal.
As the recession drags on, a decline in traditional funding sources such as grants and philanthropic donations, accompanied by a corresponding demand for services, has forced many Capital Region nonprofits to rethink the way they do business.
In fact, many are starting to think more like businesses.
Ann Silverberg Williamson, president/CEO of the Louisiana Association of Nonprofit Organizations, says many organizations are starting to model themselves after corporations, with an eye on things such as profitability, diverse revenue streams, and maximizing returns.
“These times have challenged nonprofits to really scrutinize and consider their viability,” she says. “Our identity as nonprofits remains true because we do this work for the greater good. But we are balancing that motive with a consciousness of business acumen, that we really have to be able to articulate the value of the return on investing and our mission, and then we have to be thoughtful and strategic about the way we finance that value.”
The shift comes at a time when demands for the services that nonprofits provide—food and shelter, counseling, job training, and arts and cultural experiences—are in greater demand than ever. Some families have been impacted by the recession, while others have been affected by a reduction in public resources. At the same time, corporate and individual giving is on the decline, making it difficult to rise to the challenge.
In the past year, LANO and many of its member agencies have come to realize the importance of focusing on the business side of charity and a concept that previously was rarely mentioned in nonprofit circles: profitability.
“If we’re only focused on our impact and there’s no profitability in that impact to the day-to-day operations and advancing of that service, we’re going to find ourselves out of business,” Williamson says. “At the same time, obviously our eyes are not solely on profitability because we are a nonprofit. It’s not profitability in the sense that we think of executive bonuses and shareholder dividend checks, but profitability in terms of our ability to advance the good work that we do.”
An important component of that new paradigm is a diversity of revenues. Grants and contracts with community foundations or governmental entities are giving way to self-generated fees and income.
Some agencies are even turning to social entrepreneurship to make money, either by offering specialized goods or services on the side, or in some cases selling items produced by clients, much as Goodwill and the Girl Scouts have been doing for decades.
“A nonprofit that is solely relying on one source, whether that’s a special event or a government contract or a foundation grant, is not going to have the sustainability or the viability to remain present and healthy in our community,” Williamson says. “Without multiple sources of funding, you can imagine when there’s any change at all in that single source, there’s a significant detrimental impact.”
There is perhaps no better example of that than the Baton Rouge Center for World Affairs. The Metro Council recently voted to redirect $115,000 in funding to another nonprofit, effectively eliminating more than 76% of the organization’s total annual budget. Center for World Affairs President/CEO Monika Olivier referred to the unexpected vote as “a death blow for us.”
Perhaps the most unusual step some charities in the New Orleans area have taken is charging volunteers a fee or per diem.
Lowernine.org charges as much as $50 per volunteer for corporate partner projects, and Common Ground Relief charges a $20 per diem for college students who volunteer.
While charging volunteers who are giving up their time might seem questionable, Williamson points out that there are significant costs associated with providing meals, lodging, materials and tools to volunteers.
“We in Louisiana, particularly the New Orleans area, were sort of national trailblazers in this concept, because as you can imagine, there’s been a tremendous influx of volunteerism to respond to the aftermath of the storms of 2005 and the oil spill,” she says. “There was a recognition that while the volunteer hours and the human capital are of tremendous value, it does cost. The fees come into play when there are significant expenses incurred with that volunteerism engagement.”
At Alzheimer’s Services of the Capital Area, the organization prepared for the shaky economy, even when it didn’t hit too hard.
The organization’s board of directors conducted a study of its respite center and decided that raising the daily fee for Charlie’s Place to $50 kept it affordable for families, but more important, brought the program closer to self-sustainability. At one point, the center cost $213,000 annually to run but was bringing in less than $100,000. Even with the fee increase, families are paying just $8 an hour, where other facilities charge $15 an hour.
Executive Director Barbara Auten says Charlie’s Place is becoming a model for social entrepreneurism.
“Many nonprofits are looking at how the services they offer can become a social entrepreneur project that can become a source of income,” she says. “The funders don’t have endless deep pockets. They may want to fund a pilot program, but they want to see that you can sustain it somehow without having to come back to them every year. Developing programs or services where you can charge a fee for a service the public service doesn’t provide is a niche for social entrepreneurs.”
Alzheimer’s Services recently received a grant from the Irene W. and C.B. Pennington Foundation for another potential source of revenue related to the respite center. The organization is developing a model for replicating Charlie’s Place in other communities, including a technical manual and a consulting program.
Another grant from the Alzheimer’s Foundation of America is making it possible to develop the Recollection Collection, which is a resource toolkit that nursing homes can use to work with patients with Alzheimer’s or dementia. The grant covers development costs and distribution in 40 locations; after that, sales will provide a revenue source.
LANO has even borrowed the corporate model of outsourcing: The agency has done away with its own financial staff and is instead partnering with a Baton Rouge company called Execute Now, which handles the organization’s financial accounting and reporting. As a bonus, the company provides the same services to LANO members at a reduced rate.
Janet Simmons, director of operations and social enterprise for HOPE Ministries, knows how difficult it can be for nonprofits. After Hurricane Katrina, the organization had 12 staff members. Today, just seven employees remain.
“You have more and more organizations going after the same money, so the competition is higher,” she says. “You also have everybody going after the same people donating, so it does become a challenge to bring in money for your agency.”
In 2006, HOPE Ministries became involved in the Social Enterprise Alliance and started searching for ways to generate nontraditional revenue. At a meeting that year, the board vetted 55 earned-income possibilities before narrowing the list to three.
The organization, which is devoted to preventing homelessness, developed a training course, “Understanding the Dynamics of Poverty,” that it teaches for a fee to professionals who work with people in need across Louisiana. Case managers, social workers and others enroll in the six-hour course, which is approved for continuing education credits. For the private sector, they have a similar program called DREAM—Dare to Reach Employees Achieving More—designed for employers who have low- to moderate-income employees.
One of its more unique moneymakers, though, is the Louisiana Community Marketplace, which is a portal to more than 200 online retailers that return a portion of their profits to the charity for every visitor who clicks through. HOPE plans to work with Louisiana Economic Development to feature a page on Louisiana retailers for those who prefer to spend their money with businesses close to home.
“Every year, Louisiana spends $4.5 billion in online shopping,” Simmons says. “We’re trying to capture some of that and bring it back to Louisiana in the form of donations to nonprofits.”
Simmons says the trend toward nonprofits behaving more like businesses is necessary, and she believes the trend will continue long after the recession is over.
“The reality is, we are a business,” she says. “The only difference is, we don’t pay dividends and we don’t provide profits to our investors; we put the money back into our programs. But we should be acting more like businesses. We’re promoting self-sufficiency and dignity to our clients, and we as a nonprofit need to strive for the same.”