There was a bit of a dust up in the (social change) Twitterverse yesterday. Ryan Seashore from CodeNow wrote a post on TechCrunch arguing that the majority of nonprofits are “broken,” and should act more like for-profit startups in order to create impact. The post follows a similar line of other arguments over the years (most recently Carrie Rich’s argument that nonprofits should all become social enterprises) that the nonprofit form is so dysfunctional that it should be tossed out. But there is a real danger to this idea of abandoning the nonprofit sector.
Debates like these are crucial not because of the entertainment value (although I do love good drama), but because they force us to uncover and analyze our underlying assumptions. Yesterday’s debate, and others like it, which take the nonprofit sector to task for being inefficient, broken, unbusinesslike, lay bare some false and destructive assumptions about nonprofits and about social change in general.
Ryan sees nonprofits as aging dinosaurs with “too much overhead, too much bureaucracy, and a lack of focus on impact. Everything feels slow.” But for real change to happen you have to integrate the institutions that already exist with the networks, or “startups,” that want change, as I discussed in an earlier post. The two (institutions and networks) must work together. Ryan’s argument that nonprofits need to be more like startups is fundamentally flawed because if everything were a startup, change wouldn’t happen.
To quote David Brooks from a recent The New York Times piece, “Post-Internet, many people assume that big problems can be solved by swarms of small, loosely networked…social entrepreneurs. Big hierarchical organizations are dinosaurs…[but] this is misguided…Public and nonprofit management, the stuff that gets derided as ‘overhead,’ really matters. It’s as important to attract talent to health ministries as it is to spend money on specific medicines.”
To be sure, in his blog post Ryan outlines some areas where many nonprofits could improve (becoming more focused, continually innovating, diversifying revenue sources, thinking big), but these are best practices that any organization (startup or established institution, for-profit or nonprofit) should embrace. It is simplistic and misguided to think, as Ryan writes, that “the nonprofit world must embrace the nimble ways of successful startups to become more effective, and do better.” I know its not sexy, but real social change is much more complex than startup versus institution.
So let’s move on from this either/or mentality. Effective social change requires institutions AND networks, it requires Millennials AND Boomers, it requires startups AND established organizations, it requires public AND private money (and lots of it), and it requires for-profit and nonprofit solutions. We are wasting our time (and our keystrokes) by creating false dichotomies. Let’s work together toward strategic, sustainable social change.
There is an article in Forbes this month that bothered me. Carrie Rich, co-founder and CEO of The Global Good Fund, argues that more nonprofits should move from a “donor-driven organization” to a “revenue-producing social enterprise.” Instead of “relying on donor funding” more organizations should “create revenue-producing services.” In essence she is encouraging more nonprofits to figure out how to sell their services.
The problem with her argument, though, is that it encourages nonprofits to think one-dimensionally about funding sources instead of developing an overall financial strategy that may or may not include earned income.
Rich’s argument is that earned income, or what she calls “revenue-producing social enterprise” is a more sustainable and impactful way to create social change. She goes on to list all sorts of reasons (10 actually) that revenue generation (or earned income) is better than contributed income. These reasons include that revenue generation allows nonprofits to be “more responsive to change,” “attract employees who seek growth,” “accelerate growth and impact,” “become more financially sustainable and mature,” and the list goes on.
Rich is echoing a repeated dichotomy in the social change space between traditional, broken nonprofit approaches, and new, more sustainable and impactful social entrepreneurship approaches. Her line of argument stems from a distaste for fundraising done badly.
Believe me, I get it. Fundraising is broken. But just because traditional fundraising is flawed doesn’t mean we should eschew all contributed income.Yes there is deep dysfunction within the nonprofit sector – I talk about it all the time. But the answer is not to simply dismiss the sector and all of its trappings (and revenue sources).
Let’s remember that a nonprofit organization is often created to provide a public good that is not offered by the market. In other words, nonprofits are selling what someone is unable to purchase.
Thus, nonprofits typically have two customers:
- Those who benefit from the services (“Clients”), and
- Those who buy the services (“Donors”)
When social change organizations are able to conflate the two – when the client becomes the buyer – a social enterprise is born. And while that is great, it is rarely the case. Therefore, market-based solutions will never provide all the social change we need.
Every social change organization must analyze their overall strategy and develop a financial model that best delivers on that strategy. That financial model may have earned income elements, contributed income (individual, corporate and foundation grants) elements, government funding or, most likely, some combination of all of these. And every nonprofit should at least analyze whether earned income is right for their financial model. But social enterprise will never be right for all nonprofits, or even a majority of them.
Instead of completely throwing out “traditional charity models,” let’s make them better. Rich argues that one of the many reasons earned income is better is that it allows organizations to “afford the best technologies to help them succeed.” If social change organizations need more capital investments for technology (which they definitely do) then let’s make capacity capital ubiquitous in the sector. But let’s not erroneously assume that more earned income equates to more capital investment.
Let’s move past these social enterprise vs. charity debates and instead focus on helping social change organizations develop smart, sustainable financial engines that include the right revenue (and capital) mix.
Photo Credit: Yoel Ben-Avraham
In today’s Social Velocity interview, I’m talking with Ted Levinson. Ted is the Director of Lending at RSF Social Finance, a San Francisco-based financial services non-profit dedicated to transforming the way the world works with money. Levinson manages RSF’s flagship $75 million Social Investment Fund which provides debt capital to US and Canadian social enterprises.
You can read past interviews in the Social Innovation Interview Series here.
Nell: RSF Social Finance is really the leader in the social finance market, you’ve been doing this long before anyone started talking about a “social capital marketplace.” Given that long history, how do you view the current state of the social capital market? Are we where we need to be to funnel enough and the right kinds of capital to social change efforts? And if not, how do we get there?
Ted: RSF has a twenty-nine year operating history, but it’s still early days for the field of social finance. The industry is at the same stage of development as natural food stores were thirty years ago – we’re established, we’re growing, we’re doing good work, and yet we’re still considered a fringe movement. I believe we are on the cusp of mainstream acceptance which will mean a much broader audience of impact investors (especially young people and unaccredited investors) and far greater demand for social capital from the growing number of social enterprises that are just now becoming investment-ready.
There’s been a shift in society’s view of natural food stores – we’ve overcome our fear of the bulk bins and now all grocery stores look more like natural food stores. I expect the same thing to happen with our conventional financial institutions which are just now beginning to pay attention to social finance.
What the field really needs is to expand the financial products available to social enterprises and address some of the existing gaps. Frustrated social entrepreneurs may disagree, but I think the angel capital and large-scale venture capital spaces are meeting the needs of for-profits. Incubators, business plan competitions and seed funds are providing modest amounts of funding to emerging non-profits and for-profits. RSF and some of our friends including Nonprofit Finance Fund, Calvert and New Resource Bank are addressing the middle market market.
The big voids in social finance include:
- True “risk capital” for non-profit social enterprises. We need more foundations willing to place bets on high-potential organizations.
- Bigger finance players or (better yet) a more robust consortium of social finance organizations that can band together to meet the $5 million + needs of high growth social enterprises such as Evergreen Lodge, Playworks and other organizations that are reaching scale.
I believe the field will get there but we’re playing “catch-up” now and social entrepreneurs are an impatient bunch.
Nell: RSF does something pretty revolutionary in that you combine philanthropic giving with impact investing, whereas these two sides of the social capital marketplace have not yet really found a way to work together in any large scale or significant way. Why do you think that is? And what needs to change in order to encourage foundations and impact investors to work more closely together?
Ted: We call our approach of combining debt and philanthropic dollars “integrated capital,” and we think it’s going to have a profound effect on impact investors, philanthropists and the social enterprises it serves.
Most non-profit social enterprises rely on a combination of earned revenue and gift money. There’s no reason why a single transaction can’t bridge these two forms of capital. With integrated capital we can leverage philanthropic grants or loan guarantees to push high-impact loan prospects from the “just barely declined” category into the “approved” category. In fact, even some for-profit social enterprises are eligible for this. Our loan to EcoScraps – a fast-growing, national, composting business was made possible by a foundation that shared in some of RSF’s risk.
Integrated capital is possible because RSF works with individuals and foundations that have overcome the prevailing view that how you invest your money and how you give are distinct activities. We’re also fortunate to work with an enlightened bunch of people who recognize that philanthropic support for social enterprises isn’t a crutch or a sign of a failed enterprise.
Our work at RSF is driven by a belief that money ought to serve the highest intentions of the human spirit. Conscientiously investing money, giving money and spending money can all further this goal.
Nell: What do you make of the emerging social impact bond movement? Is this a social finance vehicle that you think will work?
Ted: I’m deeply hopeful and deeply skeptical of the future of social impact bonds. I’m hopeful because our government is notoriously risk-adverse and slow to adopt new ways of improving education, reducing recidivism, or curbing our runaway health care costs. I think spending money on early interventions could go a long ways towards improving these fields societal challenges, but paying now to save in the future is at loggerheads with the short-term view which prevails in politics. Social impact bonds are a clever way to push the risk on to investors who are willing to take a longer view for the potential of a big upside.
I’m also a fan because social impact bonds are an alternative to the financial engineering which brought us collateralized debt obligations. They demonstrate that Wall Street doesn’t have a monopoly on financial innovation.
That being said, I’m skeptical that this market can ever reach a stage where transactions costs can drop enough to make it economically viable. Bringing together the multiple parties that are required for such a transaction (the government, the investor, the non-profit, a monitoring entity, a social finance organization, an attorney and possibly a foundation) just seems unaffordable to me.
Nell: What sets the nonprofits and social enterprises you invest in apart? What characteristics do you look for in the investments you make?
Ted: All of our borrowers fall into one or more of three focus areas – sustainable food systems, the environment and education & the arts. These borrowers all have capable, committed management who recognize that financial sustainability is a prerequisite for lasting change. Our best borrowers have strong communities supporting them whether it is donors, customers or suppliers.
Evaluating these stakeholders is a key component of our underwriting process at RSF.
Our experience demonstrates that performance improves when social enterprises engage all of their stakeholders. RSF’s long-standing support of fair trade is an example of this commitment. We also regularly expect borrowers to solicit their community members to join RSF’s investor community as a precondition to approval. We take community seriously at RSF!
Our borrowers are all addressing major social or environmental problems such as a lack of adequate housing for developmentally disabled adults (Foundation for the Challenged), inefficiencies in the wind industry (FrontierPro) and poverty and environmental degradation from rice farming (Lotus Foods.) As social enterprises, they’re primary activities are DIRECTLY making the world a better place. We believe our borrowers have the potential to scale their organizations and make a real dent in these problems, or become a model for others to do the same.
For example, we were one of the first lenders to Revolution Foods when they were operating out of a defunct fast food restaurant in Alameda, CA. Today they deliver over 200,000 healthy meals a day to public school children.
Similarly, we think DC Central Kitchen’s model of combining culinary training for adults with barriers to employment with a robust meals business (they deliver 5,000 meals a day to schools and homeless shelters) is a winning approach that can be replicated throughout the country.
Nell: Some have argued that nonprofit leaders lack a level of sophistication when it comes to financial strategy and use of financial tools. Obviously you find nonprofits and social enterprises that are able to effectively employ sophisticated financial vehicles, so how do you respond to that argument?
Ted: Rather than argue I prefer to let the results of our borrowers speak for themselves. DePaul Industries, for example, is a $30 million non-profit that employs over a thousand disabled Oregonians. The Portland Business Journal ranked them one of the most admired companies in the state and they did this all with 98% earned revenue. Network for Good processes over $150 million of online donations every year while Digital Divide Data has a decade of year over year revenue growth in the field of impact outsourcing.
I see no lack of financial sophistication in the non-profit sector. I do, however, see a lack of risk-taking, which can sometimes be misinterpreted as unsophistication when compared with the for-profit world. It’s a shame this mentality is so pervasive because of the importance and urgency of the work that so many non-profits do. Many icons of industry have biographies filled with risky expansion, leverage, false starts and failures. We need to de-stigmatize failure in the non-profit sector and adopt that same boldness which has led to so many of the biggest successes in the commercial world.
It happens all too often. A nonprofit executive director called me the other day because they have just completed a beautiful strategic plan with some exciting goals and a new direction for the organization, but they don’t know how to bring the money in the door to make the plan a reality. They don’t have a financing plan for their nonprofit, so they are just hoping for the best.
A financing plan galvanizes board and staff to bring enough of the right kinds of money in the door to make the organization’s goals a reality. It creates a sustainable financial model for the nonprofit so that it can survive and thrive. Instead of rolling the dice and hoping for the best, a financing plan puts your nonprofit’s financial destiny squarely in your control.
But very few nonprofits have a financing plan. Which is why I’m excited to be offering one of my most popular webinars again this month. In the April 24th Creating a Financing Plan webinar I will take you step-by-step through what a financing plan looks like and how to create one for your nonprofit. If you truly want to break free from the exhausting hamster wheel of fundraising and start bringing enough money in the door to achieve your goals, you need a financing plan.
The Creating a Financing webinar will help you create an overall financing plan for your nonprofit, which includes:
- All revenue streams flowing to the organization
- A strategy for funding programs and operations
- Opportunities to raise money for infrastructure
- Tactical steps with activities, deliverables, people responsible
- Ways to divide tasks by staff and board members
- A process for monitoring the plan going forward
Here’s what some past Creating a Financing Plan webinar participants have said:
“This session was one of the best on this topic I have seen…presented in an excellent and logical manner.”
“I loved the reframing of financing for desired results instead of funding for operations… your message to wed money to the mission was a big AHA moment and I am now figuring out how to bring this to life for staff and Board.”
And remember, as with all of our webinars, if you can’t make this day and time, don’t worry. When you register for the webinar you will gain access to the slides and the on demand recording of the webinar which you can watch whenever you want.
I hope to see you there!
Photo Credit: jDevaun
The news is not good lately about how effective the head fundraiser is at nonprofit organizations. A new study by CompassPoint reveals some startling realities about the fundraiser role in the nonprofit sector:
- 25% of executive directors fired their last development director
- 33% of executive directors are lukewarm about their current development director
- More than 50% of executive directors say they can’t find well-qualified fundraisers
- 50% of development directors plan to leave within the next two years
- And 40% plan to leave fundraising altogether
That sounds like a fundraising crisis to me. And it’s just another example of why fundraising in the nonprofit sector is broken. So in today’s installment of my regular Financing Not Fundraising blog series, I’m talking about how to find and keep a great fundraiser.
If you’re new to this series, Financing Not Fundraising recognizes that fundraising in the nonprofit sector just doesn’t work anymore. Nonprofits have to break out of the narrow view that traditional FUNDRAISING (individual donor appeals, events, foundation grants) will completely fund all of their activities and instead work to create a broader approach to securing the overall FINANCING necessary to create social change. You can read the entire series here.
What I find most troubling about CompassPoint’s recent study is that it makes nonprofits sound so powerless to do anything about this deep dissatisfaction with fundraising performance. But I think it’s not staff, board or donors who are lacking, rather it’s the entire fundraising approach.
Here is how to go about finding and keeping a great fundraiser.
- Hire a Money Head. Don’t hire someone who can just write grants or someone who can just work with individual donors. Take a look at the entire financial engine of your organization and hire someone who can develop and execute a strategy for strengthening and growing ALL aspects of that financial engine. If you have significant government grants or earned income, make sure you have someone on board who understands and can work with those aspects as well as the private money that flows to the organization.
- Develop a Financing Plan. Don’t just expect to hire someone who will magically make money appear. Your head fundraiser has to be in charge of developing and executing an overall financing strategy for your organization. And that means that you need an overall financing strategy for your organization. Without a strategy, your chief fundraiser and your nonprofit are sunk.
- Pay a Real Salary. It amazes me how many nonprofits expect to entice a great fundraiser by offering a salary that is comparable to someone with only a few years of experience . If you don’t have the current budget to pay a market rate, raise capacity capital to fund the first 1-2 years of the position. Once you have a great fundraiser on board he will raise his own salary while growing your nonprofit’s overall revenue.
- Work WITH Them. It drives me crazy how many times a nonprofit’s lone fundraiser is trying to raise all the money by herself. If you are going to align mission and money, you have to make sure that EVERYONE in the organization (board and staff) understand their role in bringing money in the door. Create a culture of philanthropy among the staff so that even a staff member who doesn’t have dollar goals in her job description understands that talking to prospects and donors, giving tours, writing thank you notes are critical to keeping the organization going. And make sure the board is trained in fundraising, has a give/get requirement, and has specific individual and board money goals.
- Hire Enough Fundraisers. The rule of thumb is that it takes one full time person to raise $500K, including anyone who touches prospects and donors (database manager, prospect researcher, etc). If you are asking a single fundraiser to raise $1.5 million there is little wonder why she is (and you are) miserable.
- Give Them Tools. Don’t hire a great fundraiser and then fail to give him a donor database, an interactive website, marketing materials, prospect research, support. It does no good to hire someone with great ideas but no way to bring those ideas to fruition. If you don’t have the budget for additional support and tools, raise capacity capital to find it.
- Train Them. No one knows it all. In every other profession we expect to send employees to conferences, provide them classes, coach them along the way. Don’t expect that your fundraiser automatically knows all there is to know. Give him opportunities to gain new knowledge, meet others in the field, and continue to grow his skills.
If you want to attract and retain someone who will develop a sustainable financial engine for your nonprofit, don’t leave her out in the cold. Fully integrate your head fundraiser into your organization and give her the tools, support and resources necessary to succeed.
If you want to move your nonprofit from fundraising to financing, check out the Financing Not Fundraising page of our website with articles, e-books and webinars to get you started. Or if you’d like to find out more about how I could help your nonprofit develop a financing plan or coach your fundraising staff to greater success, send me an email at email@example.com.
Photo Credit: Sahaja
I can’t tell you how often I hear nonprofit leaders complain about how difficult it is to raise money, how tired they are of banging their head against the wall, how difficult this economy is. Well, there really is a better way. And it starts with a really good money plan for your organization. But again and again I see the same mistakes being made in nonprofit fundraising plans, which is the topic of today’s installment of our regular Financing Not Fundraising blog series.
If you’re new to the series, our Financing Not Fundraising blog series shows nonprofits how to break out of the narrow view that traditional FUNDRAISING (individual donor appeals, events, foundation grants) will completely fund all of their activities and instead work to create a broader approach to securing the overall FINANCING necessary to create social change. You can read the entire series here.
Here are the 7 mistakes to avoid in your fundraising plan:
- Not Having A Plan At All. Yeah, not even having a plan is a huge mistake. It boggles my mind how many nonprofit organizations expect that money will magically appear at their doorstep. It takes an overall money strategy, what I call a Financing Plan, to effectively marshal your resources (staff, board, other volunteers, technology, materials) so that enough, and the right kind of, money comes in the door to achieve your goals.
- Creating Just A One Year Plan. You cannot expect to create a financially sustainable organization if you are only planning for money one year at a time. Your financing plan should project at least 3-years into the future in order to ensure that you have sound financial footing from which to operate. A true financial strategy takes a long view and plans accordingly.
- Including Only Private Dollars. Your money strategy must include ALL sources of money flowing to your organization, making it a Financing Plan. You cannot just plan for individual, corporate and foundation dollars, you also must plan for how government and earned income sources will flow, if they are appropriate to your model. And if you don’t have other sources of money beyond private dollars, you probably need to at least explore whether diversifying makes sense for your organization.
- Not Connecting It to Your Strategic Plan. Ok, I’m going to assume that your nonprofit has a strategic plan, even though many nonprofits don’t have one or they have a poor one. But once you have a strategic plan in place, you have to connect your money strategy to that plan. What good is it to have lofty program goals if you have no idea what those goals will cost (expenses) and how you will raise the money to make them a reality (revenue). You must have a multi-year financing plan that directly relates to your multi-year strategic plan.
- Ignoring Capital Goals. You can’t just raise revenue (the day-to-day money to keep the organization going), you also probably need capital (the money to build infrastructure, technology, systems) once in awhile. If you don’t include dollar goals for the amount of capacity capital your nonprofit needs, I doubt you will ever raise it. You cannot continue to operate with infrastructure, staffing, technology and systems that are inferior to your needs and goals. Determine how much capacity capital you need and include those goals in your financing plan.
- Not Giving Your Board a Role. You cannot leave the burden of raising money solely on the shoulders of your staff. One of the key responsibilities of a nonprofit board of directors is to ensure the financial viability of the organization they serve. So this means that the board as a whole and each individual board member must understand and play a role in the money strategy of the organization. So start by requiring each board member to give and/or get a certain amount (usually your major donor level) and then make sure your board “money committee” is active and engaged, and finally integrate money into every meeting and conversation your board has. Money MUST be top of mind for the entire board.
- Not Focusing On High Return Activities. Some fundraising plans include activities that a nonprofit has always done to bring money in the door without analyzing their effectiveness or expanding into new or more profitable activities. Start by analyzing the return of every money raising activity you engage in and then focus your money strategy on those that actually have a positive return.
I would love to see more nonprofits create a smart, long-term financing plan for their organizations. Because the reality is that those that do so will create more sustainable social change.
If you want to learn more about how to creating a financing plan for your nonprofit, sign up for our Creating a Financing Plan webinar.
And if you want to apply the other concepts of Financing Not Fundraising to your nonprofit, check out our Financing Not Fundraising Webinar Series, or download the 27-page Financing Not Fundraising e-book.
Photo Credit: Hiking Artist
John Walker, Finance Director at Echoing Green and Nardia Haigh, Assistant Professor of Management in the College of Management at UMass Boston are investigating social entrepreneurs who went through a process of deciding whether to establish their organization as a non-profit, a for-profit, or a hybrid. They want to understand the range of circumstances under which social entrepreneurs identify which type of business model fits best for different situations.
While they have already interviewed many for-profit social entrepreneurs, they are having a hard time finding nonprofit social entrepreneurs, which is where you come in.
If you are a social entrepreneur and struggled with the decision about whether to form a for-profit/nonprofit/hybrid entity, Nardia would like to interview you about your organization’s strategies, structure, and direction.
According to Nardia, there are many circumstances under which hybrid organizations are established, and to date, two distinct variations of the hybrid business model are evident: Multi-entity and Integrated:
- Multi-entity hybrids link for-profit and nonprofit entities – often through contracts and/or ownership. A nonprofit may establish and own all or part of a for-profit subsidiary (e.g. Embrace and Embrace Innovations), or a for-profit may establish a nonprofit and provide it with equity or other means for it to derive non-discretionary revenue.
- Integrated entities are either for-profit companies with a strong social or environmental mission deeply embedded within its business model (e.g. TOMS Shoes or Maggie’s Organics, and companies registered as L3Cs), or are nonprofit organizations that use for-profit methods to generate revenue (e.g. Ten Thousand Villages or Ecosia.org).
In this study, they seek to understand the decision-making process entrepreneurs go through in choosing which to pursue.
Nardia’s research at UMass Boston focuses on business models and strategies that address large-scale sustainability issues in positive ways. And John has significant experience as an entrepreneur, an executive, and as a board member in a range of industries, where he specializes in financial analysis, capital raising, and structuring acquisition and investment deals.
If you are a social entrepreneur and would like to participate in this research study, contact Nardia at Nardia.Haigh@umb.edu.
Nardia has promised to share the results of the study with Social Velocity readers when it’s completed. I can’t wait to hear what they find out.
Photo Credit: piermario
In this month’s Social Velocity blog interview, we’re talking with Dennis Morrow, the Executive Director of Janus Youth Programs, a multi-service nonprofit agency that works with children, youth, and families in Portland, Oregon and Southwest Washington. Janus Youth caught my eye a few months ago when Village Market, a nonprofit inner city grocery store they launched, turned a year old. Their solution to inner city food deserts fascinates me, and I wanted to learn more.
You can read past interviews in our Social Innovation Interview Series here.
Nell: What was the impetus for starting the Village Market in North Portland?
Dennis: In 2006 Home Forward (formerly Housing Authority of Portland) rebuilt the former Columbia Villa Tamaracks, Oregon’s largest public housing development, through federal HOPE VI Project funds. Renamed New Columbia, redesign plans included both subsidized rental units and moderately priced homes for purchase, a new grade school, a Boys and Girls Club, service buildings, and expansion of Janus’ Village Gardens Urban Agriculture Initiative to New Columbia. This expansion included a second community-run garden site, a second children’s garden club program, and an orchard. The new community center included a park, office/community room space for services, and space for a privately run “main street” grocery store that operated for approximately 2+ years before closing.
As Village Gardens continued to expand leadership opportunities for residents in New Columbia and the adjoining low-income Tamaracks Apartment Complex (also a Home Forward property), residents and garden leaders voiced the need to reopen the local grocery store selling healthy, fresh, culturally relevant food (no alcohol/tobacco/lottery tickets) in New Columbia where 33% of the 3,000+ residents lack personal transportation and faced a 45 minute bus ride each way to the closest grocery store. These community members also had a vision that the store could be community-run and could provide additional employment opportunities for teens/adults. They also saw the store as a central meeting place for the exchange of information (focused on healthy eating/healthy living) and a community meeting place for New Columbia’s diverse residents.
Janus had worked in and with this North Portland community for over 15 years and had established ourselves as trusted partners who see our mission not as “doing for” or “doing to” but rather “working with” the community to realize the vision they have for their neighborhood and their families. Both Home Forward and the surrounding community specifically asked Janus to assume a leadership role in planning and overseeing the development/operation of the Village Market. With support from Janus’ Village Gardens staff, Janus’ Administrative Team and the Janus Board, New Columbia leaders spent nearly two years researching/surveying the community on the products that would be important to sell in the store, interviewing potential vendors, developing a business plan, and designing the store’s layout which included neighborhood murals. In 2011 after having secured foundation/public funding for start-up and operational capital, the Village Market was opened as a non-profit, community-run healthy corner grocery store.
As with every new initiative of Village Gardens, the impetus for the store came directly from the resident community’s expressed needs and desire.
Nell: The grocery store industry is a really competitive one. Do you think being a nonprofit store, instead of a for-profit one, puts you at a competitive advantage? Why or why not?
Dennis: There are definitely both pluses and minuses to our nonprofit status. The advantages it creates is that it was possible to secure public and private funding (literally worth over $800,000) for start-up and initial operational costs because of the programmatic issues also being addressed by the store including community health, employment for low-income teens and adults in an economically challenged area of Portland, community development/revitalization, social impact, and public safety. It has become a positive symbol of success for the community and in the community. What we do not know yet is the degree to which being community owned/managed and a nonprofit actually impacts on consumer behavior: do folks actually shop with us because of that? Our Store Advisory Committee is in the process of beginning customer and neighborhood surveys to answer this question more directly.
One disadvantage of being a non-profit operation is that there are very few models of success nationally to draw on. As a nonprofit youth-serving organization, running a retail business is also not part of our corporate skill set. We have a very good consultant who works hard to “train us” into the intricacies of successful store management. Ultimately, however, it is not the nonprofit status which represents our greatest challenge—it is the “healthy food” concept. The grocery industry is very competitive and, in a largely low income community, also very price sensitive. Margins on products/sales need to be much tighter than in a traditional store, and there is a smaller product mix due to space limitations. This makes it essential to have the right products on shelf so product moves, to manage inventory control very tightly, and to track pricing very closely. Featuring organic produce, for instance, instead of beer is a much more significant challenge in terms of shelf life and spoilage. Eliminating sale of alcohol/tobacco products and lottery tickets essentially removes the primary profit generators from a traditional convenience store. Essentially this puts us at a competitive disadvantage with for-profit stores but the disadvantage is not in being a non-profit but in being a small, organic/healthy food store.
Nell: One year in, it looks like Village Market could be a model for solving the growing problem of food deserts in poor, urban areas. Do you think your particularly model could be a solution to this growing problem?
Dennis: We do not believe there is a one-size-fits-all solution to food deserts. The Village Market offers one potential road map. But remember, the essence of Village Market is that it was “birthed by” the community—not Janus, not Home Forward, and not some federal grant program. We trust each community to find solutions that will work for them—but in order to do this, you have to have an incredible faith in people who live in that community. We also refer to Janus as the “vehicle” through which the Village Market vision was made real, not the “owners” of the Market. A study was just completed by the Oregon Public Health Institute on Village Market which details out the various elements that have gone into its success so far, and this study could be a guide for other communities exploring these issues.
One element which does excite us is the core concept that the Market is much more than a store. It is a community hub where neighbors can gather, it is employment opportunities in a neighborhood where there are few, it is an educational program serving as home base for a team of Community Health Workers, it promotes inter-generational growth with a “Healthy Kids Snack Corner” designed by children from the neighborhood school, and it represents a beacon of hope that the community can thrive.
On the other hand, we are not yet a solution because we do not yet know for sure if the model is sustainable over time. Sales have gone up every month for the last seven months—but due to the lower profit margins inherent in the healthy food concept, we are still “living” on our start-up subsidy funds. The outstanding question now is whether a store like this can self-sustain or whether it will require some form of ongoing subsidy. If a subsidy is required, then there is a major policy issue of where it should/could come from—in essence, who will step up to provide the irrigation necessary to turn a food desert into an oasis?
Nell: How do you integrate Village Market with the other core homeless youth work of Janus Youth? Have you ever been concerned that the market might distract the organization from your mission?
Dennis: Janus’ organizational mission is to “be a leader in creating innovative community-based services that enhance the quality of life of children, youth and families by working in partnership with others to create a safe and healthy community.” We are actually not a homeless youth service agency but a multi-service agency for children, youth, and families. Janus operates over 40 different programs at 20 different locations including long-term residential treatment, a full continuum of services for runaway/homeless youth, home visiting/parent training for teen parents/infants/children, a youth scholarship fund, and Village Gardens. Our organizational chart is actually a tree reflecting different branches of service with each leaf being an individual program. The Village Gardens limb actually has several leaves besides the market including two community garden sites, a community health-worker project, a flock of organic hens, and an organic farm run totally by teenagers. The Village Market is a “stretch” for Janus, but it is a natural leaf on the Village Gardens limb—and when we were asked to be the vehicle for this community vision, our mission clearly tells us that is exactly what we should do. Each of Janus’ “limbs” of service operate with a high level of autonomy but with a core set of values based in Safety and Respect: creating a Safe environment for staff, youth, and families to grow, learn and heal and building Respectful relationships with others which empower them to find effective solutions for themselves. So the Village Market does not so much “integrate” with our mission as it “fits” within our mission.
Nell: The Village Market was obviously a big risk for Janus Youth to take on. Were board and staff initially concerned about the risks and how did you overcome those fears?
Dennis: This type of venture represents a huge risk to any organization. Our leadership staff and Board were extremely concerned particularly around the financial area. Starting up a new business requires substantial start-up capital as well as subsidized operational capital for an initial period of time. One of our Board members owns a business consulting firm, and he personally worked with the community planning team to build a sound business plan. This plan also had substantial input from our “grocery store consultant”. We then worked with Home Forward to solicit funding for the business plan and were successful in raising over $800,000. Home Forward contributes free rent and utilities as part of their investment. The Board approved opening the store based on two parameters: 1) We would not open until all of the start-up/operational capital in the business plan had been raised; and 2) Once open, we will operate the store as long as it does not require a subsidy from Janus. We were successful in meeting “1” and are now in the process of testing out “2”—but the Board is clear that we cannot afford to drain resources from other program areas in order to support ongoing operation of the store. Either it will reach a “break-even” point as a stand-alone business or we will need to find the operational subsidy necessary to maintain it on an ongoing basis.