Profitable Non-Profits

(Originally posted on Sisarina as part of our February blog series.)

I recently wrote about what businesses can learn from nonprofits, namely, how companies can evaluate company health and sustainability by looking not just at financial health, but also at environmental and social impact. [Post: Patagonia: Product, Planet, People]

This week, I want to flip that around and look at what nonprofits can learn from business, which is how nonprofits can be more profitable and thus more sustainable.

But nonprofits can’t profit, right? Not quite. Nonprofits can generate profits. They just can’t distribute those profits to owners or shareholders like for-profit organizations can, and they must use income to further their missions.

As many nonprofits have likely learned during the recession, relying on foundations and donors can be risky, particularly if a large portion of the nonprofit’s income comes from a small number of sources. Losing one funding source can put entire programs, and maybe even the organization, in jeopardy.

So, what’s a nonprofit to do? In econ-speak, organizations can think about where they are creating value and then about whether it’s possible to capture some of that value. The Sundance Institute (@SundanceFest) is a great example. The Institute discovers and supports independent talent in film, which it showcases every year at the Sundance Film Festival. The Festival’s audience is willing and able to pay to see films at the festival, and revenues from the Festival make up nearly a third of the Institute’s income.

Ok, you’re thinking, the Sundance Institute is lucky to serve a population that can afford to pay for its services, but how could an organization that serves low- or no-income people like the homeless possibly charge for services?

Let’s look at Haley House, which provides shelter and training for “forgotten” people in Boston, including the homeless. In 2005 Haley House launched a bakery café (@HHBakeryCafe), where it gives people job skills in a real-world setting. The bakery generated $356,090 in 2009, almost half of the organization’s revenues for the year.

The bakery is undoubtedly a lot of work to run, but it has a couple of additional benefits beyond just revenues - the community can see first-hand how Haley House’s training works and the community can more directly engage with Haley House.

What are other possible benefits of social enterprise like the bakery?

  • Lower risk: If your organization’s revenue comes from a handful of sources, a social enterprise can help diversify your portfolio and lower risk.
  • Increased responsiveness: Organizations that don’t have to cater to the whims of a particular grant maker have more flexibility to meet the needs of their communities in the way they see fit.
  • More room to grow: Nonprofits that rely on grants and donations can be limited by the amount of funding available. Social enterprise can allow an organization to scale up to meet the needs of the community it serves.
  • More engaged stakeholders: As with Haley House, social enterprise can give clients and the community a bigger stake in the organization, and a greater interest in seeing it succeed.
  • More competitive: Organizations that understand how sustain themselves are likely to be in a better position to be more effective and efficient.
  • They may even be in a better position to serve clients. As nonprofit director Alfred Wise said, "Can we teach [the people we serve] the importance of being self-sufficient while not being self-sufficient ourselves?"