Mixing Charity with Business

There’s a financial management class as part of the Trinity Fellows Graduate Program at Marquette University, where students select a research project as part of a segment on income, and interestingly, social enterprise has been a popular choice.  Blending nonprofit and business ingredients remains a powerful ideal among our sector’s future leaders.  It is also an idea that was embraced, then faded, and has now experienced a rebirth in Milwaukee. 

According to the 1997 report entitled “Possibilities”, the Fund’s interest in social enterprise drew from several sources: 1) the need for a diverse income mix for nonprofits; 2) an interest by nonprofits in earned income strategies, ranging from marketing and sales to organized business ventures; and, 3) a response to external factors in the business environment, including the then popular concept of performance-based contracting.

At the time, the funding partners were divided on the merits of establishing an initiative aimed at increasing earned income.   Comments from committee members in early conversations ranged from strong support to total skepticism.  However, common interest in building capacity of organizations participating in finance/earned income and marketing finally forged a consensus to move ahead.  A well-known national intermediary, the National Center for Social Enterprise from Minneapolis was selected, and after a review by Fund partners and area nonprofits, the National Center was matched with 6 groups in arts and culture, community development, and social services.  Two participants wanted to develop business ventures, and 4 organizations sought to substantially improve their current earned revenues. Five of the six nonprofits would complete the 18-month project, with one deciding to chart its own course.

About the same time, two other signature efforts were launched locally, including a business financing or “venture fund initiative” led by Helen Bader Foundation involving 5 nonprofits, and the Denali Initiative, which was based on the successful Manchester Craftsmen’s Guild in Pittsburgh, PA that planned to train 5 executives as social entrepreneurs. By 1998, Milwaukee was, according to many observers, a national laboratory for social enterprise strategies to build organizational capacity, enhance financial stability, and breed a new type of entrepreneurial leader in the nonprofit sector.  While we orchestrated the National Center’s project, the Fund played a support role with the Denali Institute and the Venture Fund projects.

What became of these efforts?   In surveys of area nonprofits in 2002 and again in 2005, earned income was a prominent revenue source on the balance sheets of local organizations.  There was a community-wide increase in social entrepreneurship support, ranging from the Nonprofit Center, conducting several area workshops to UW-Milwaukee’s School of Business, which sponsored a Social Entrepreneur in Residence with a grant from the Fund.  A national conference on social enterprise came to Milwaukee in 2005, adding cache to local efforts.  In the Fund project cohort, groups tested business ideas, yet typically found them to be marginal or not to be feasible.   However, most reported solid management outcomes, such as revamped financial management systems, improved capacity in pricing, rigorous cost benefit analysis, as well as enhanced marketing techniques.  It could be argued that the Fund’s original goals and their outcomes could be viewed as a qualified success. 

It is difficult to point to a single specific business venture spawned during this period that is viable today.    Several, notably an effort to increase food distribution capacity, operated for a few years.   If the evaluation metric was establishing businesses, the projects had minimal impact.   Nonetheless, many seeds were planted, and several projects including the Skylight Music Theatre’s creative use of its pre-and post-performance lounge, as well as Pier Wisconsin’s educational program aboard its schooner, can trace their roots to work done during this period.        

From another vantage point, if an organization pursues an idea for business activities through a serious assessment, and finds it to be marginal or unsustainable, that can also be considered a positive outcome.  This approach is a small part of the counter-intuitive nature of the social enterprise recipe—philanthropy wants to be involved in launching big ideas…..reaching a conclusion to NOT start a project is often seen as an undesirable outcome.    Or, perhaps from the perspective of a grant maker, this is a case of “be careful what you wish for”.

Thankfully, others continued their explorations in financing with the Helen Bader Foundation entering the Program Related Investment realm, one of the very few Wisconsin foundations to do so.    Marquette University maintained an active partnership with Ashoka, an international fellowship for social enterprise leaders, until last year.  Goodwill Industries, Milwaukee Center for Independence, Feeding America of Eastern Wisconsin, Habitat for Humanity, and others have used business strategies to earn money and extend their mission.  The local Feeding America leader was an active participant in the Denali project.  Although, there are entrepreneurial successes in the nonprofit cosmos, there are just not as many as promised, nor are they typically generating revenues at a proportionate level to the investment.

With significant challenges along the way, and often disappointing results, why is there continued interest in social enterprise?  How could we do it differently in the future to ensure greater success?

 

Note: This Blog posting was written by Scott Gelzer, who was the Fund’s representative overseeing this initiative from 1998-2001, and is currently the Executive Director of the Faye McBeath Foundation.

4 comments | Add a New Comment
1. Ron Retzke | August 13, 2014 at 09:09 PM EDT

A good resource related to this topic is the book \Uncharitable\ by Dan Pallotta. Pallotta organized many very successful AIDS rides raising millions of dollars until donors started to question why dollars were being spent for marketing, advertising, etc. Pallotta argues that the for profit sector is permitted to use all the tools of capitalism to advance the sale of consumer goods, but the nonprofit sector is prohibited from using any of them to fight hunger or disease. The book raises many interesting questions.

2. Karen Higgins | August 14, 2014 at 12:23 AM EDT

Social Enterprise that is grounded and developed wisely takes a Board and organization that is willing to take a broader view of what they need to do to further/sustain the mission. It takes executive leadership with capacity to invest time in the discovery phase of such efforts, resourcefulness, and a belief such efforts could yield benefits that organization could not otherwise reap. This belief system and time/energy and knowledge factors all have to combine to help create what could be a viable social enterprise. My belief most of us have a hard time looking beyond survival and the day to day grind to be imaginative about how we help our mission remain financially viable. The Fund and others invested heavily in the Social Enterprise model and there were benefits to these processes for some but I do wonder though how easy it is ever for grassroots organizations to benefit from such education and encouragement. One thing I will affirm: bringing innovative, thought provoking presenters to have all consider options in this current funding environment must be maintained. Exec's need the encouragement to think outside the box, as we swim in all of responsibilities.

3. Jim Marks | August 19, 2014 at 12:11 PM EDT

I was on the social entrepreneurial band wagon early on, seeing it as an exciting new way for nonprofits to expand and diversify their funding streams. But have grown much more skeptical over time. I just think it's tremendously difficult for a nonprofit to attend to its core mission of providing service, making art, what ever it may be while at the same time operating a business. Aside from the matter of time and resources, most nonprofit executives do not bring a business background or expertise to their work. While they may have excellent management skills they usually lack the business basics of marketing, sales, inventory control - all the elements essential to a successful business operation.

There have, of course, been examples of nonprofits operating successful business models, Goodwill Industries being the most notable. But even Goodwill found itself in serious financial trouble many years ago when it tried to open a Styrofoam cup manufacturing facility.

All this being said, I think it was well worth the initial effort and investment to explore this new model - like the Denali initiative. The Helen Bader Foundation, in particular is to be commended for having the courage and vision to pursue this type of initiative. As a result, both funders and nonprofits are now much more aware of the challenges and limitations of social entrepreneurship. As the old saying goes, nothing ventured, nothing gained.

4. Scott Gelzer | August 25, 2014 at 10:39 PM EDT

Karen and Jim, both of you make great points to consider for the next wave of social entrepreneurs. Karen, your point about lasting benefit is something I thought about in drafting this piece....we could have stuck with a couple of the projects a bit longer. One thing for sure, the term \patient capital\ sums up what all parties have to do to make social enterprise viable.

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