nonprofit earned income
Nonprofits, like any organization, are constantly faced with new opportunities. In a world that is moving faster, becoming more competitive and increasingly requiring solutions, new opportunities crop up all the time. Should you offer services to a different kind of client? Should you collaborate with a competing organization? Should you pursue a new potential revenue stream? Because nonprofits are consensus-based and have multiple “customers” they sometimes go after new opportunities that they shouldn’t.
The trick is to analyze whether the new opportunity makes strategic sense for your nonprofit. Here are 5 questions to help you:
- Does it fit our strategic direction? You don’t want a strategic plan that sets in stone your organization’s future course, particularly given the tremendously volatile world in which we now live. So if your strategic plan is a good one, you’ve created filters for analyzing new opportunities. If this new opportunity fits within those filters that’s great, but you still need to determine what resources you will reallocate in order to do this new thing.
- Does it fit our core competencies? Even more important than your strategic direction, this new opportunity must play to your strengths. If you excel at running a pre-K reading program, a new math program might not be a good fit. Included in this question is the follow up: Could someone else do it better? If so, let them. Focus on what you do best.
- Is someone pushing this because of their own interests? Let’s face it, nonprofits are made up of many people, some of whom have their own individual interests or pet projects. But once you start following one of those individual interests instead of the interests of the organization as a whole you are in big trouble. Take a step back and make sure this new opportunity is really going to get the organization further.
- Do you want to do this because of your own baggage? Leaders are only human, and we humans all have our weaknesses. Sometimes when a nonprofit leader is making a critical decision some of their personal baggage gets in the way. Perhaps you are afraid of how you will look to your peers if you don’t pursue this opportunity, or maybe you want to keep your fiercest competitor from gaining turf, or perhaps you have a really hard time saying no. Whatever it is, you need to recognize when your baggage, instead of smart strategy, is calling the shots.
- Will this new opportunity further your mission or long-term financial sustainability? If it’s not about mission or money, why are you doing it? Don’t get caught up in vague ideas about “community goodwill.” You will achieve community goodwill by working toward your mission effectively. And be careful about assuming any potential money is a reason to pursue an opportunity. Not all money contributes to the long-term financial sustainability of the organization. Make sure that this new opportunity doesn’t cost more than it brings in.
Nonprofits should not fear new opportunities. Indeed innovation, which the sector so desperately needs, requires a real openness to change and risk. However, nonprofit leaders must take a disciplined approach to making new opportunities part of their overall strategy.
Photo Credit: mytmoss
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.
Earned income, or the sale of goods and services, is a somewhat misunderstood and unexplored financial opportunity for nonprofits. Yet there are countless examples of nonprofit organizations that sell goods or services to supplement their revenue, like the Girl Scouts, Goodwill, museum gift shops, hospitals, charter schools.
If you’ve ever wondered if earned income might be an opportunity for your nonprofit to raise unrestricted revenue, download our “Evaluating Earned Income” webinar. This webinar is part of our ongoing Financing Not Fundraising webinar series that shows nonprofits how to create a more sustainable financial engine for their organization.
Earned income is not right for every nonprofit, but every nonprofit should at the very least analyze whether earned income is a potential opportunity.
This webinar will help nonprofit leaders:
- Understand what earned income is and when it is most successful
- Learn about other nonprofits and their earned income businesses
- Evaluate whether earned income is a possibility for their organization
- Determine if their organization is ready to explore earned income
- Understand the steps in launching an earned income stream
Evaluating Earned Income Webinar
The registration fee will get you:
- A link to a recording of the webinar, which you can watch as many times as you like
- The PowerPoint slides from the webinar
- The ability to ask additional follow-up questions after the webinar
And if you missed last month’s sold out Raising Capacity Capital webinar, we are did repeat of that webinar. Capacity capital is the money that every nonprofit needs, but most find so hard to raise. Capacity capital can help your nonprofit to:
- Hire a development director
- Launch an earned-income stream
- Expand your programs
- Evaluate your impact
- Train your staff
It is money for infrastructure and organization building. If you want to move your organization out of the starvation cycle, you have to learn how to raise capacity capital.
The Raising Capacity Capital webinar will show you how to:
- Talk about the importance of capacity capital to your donors and board
- Create a budget for the capacity dollars you need
- Break the goal into donor ask amounts
- Identify prospective donors
- Give your board a role in the campaign
- Gain the confidence to start asking for the money you really need
Raising Capacity Capital Webinar
Photo Credit: www.girlscouts.org
After 3+ years of a difficult recession it looks like the economy might be starting to turn around. That’s great news. But for the nonprofit sector, which is always the first hit by and last to rebound from a recession, it might still be awhile until they enjoy the looming economic recovery. But it does no good for nonprofit leaders to throw up their hands and curse the economy. Instead, nonprofits should seize this opportunity to rethink how their organization brings money in the door.
There are some key things nonprofit leaders can do to create a sustainable financial model in the midst of lingering economic uncertainty:
- Take a Step Back. Stop putting your organization in the “fundraising” box and take a big step back. Figure out an overall financial model for your organization that connects with your mission and your organization’s core competencies. Don’t just go through the regular fundraising motions (direct mail, events, grants). Rather, analyze how to create a long-term financial model for your organization.
- Harness Your Board. Your board of directors ideally is a group of people who bring connections and expertise that could help your organization. Tap into that. Educate them on what your organization needs and brainstorm how they can help. Now is not the time to be shy. Be strategic about what your board can do and get them to do it.
- Create a Plan. If your organization doesn’t have a strategic plan and a revenue plan, create them. You raise money by being strategic, first about what your organization is and does, and second about how you are going to create sustainable revenue streams. People give to causes that they care about, and they give even more money to organizations that are strategic about what they do and how. A good strategic plan is an invaluable tool around which you can build investment. And a good revenue plan gives you a step-by-step way to generate money.
- Reallocate Resources. As a nonprofit organization you have limited resources (money, staff, technology, time) with which to raise money. You want to make sure that the effort you put in has the highest return on investment. Calculate the direct and indirect costs of every revenue-generating activity and determine the real net income you generated. Are there better, more effective ways to raise more money for less cost and effort?
- Use Technology. Move your communications with donors and prospects online. You’ll save money and have a better chance of getting more and bigger gifts. Send email newsletters, campaigns, event invites. Survey your donors. Create an online community through social media where people can get to know your organization and become involved. People will become more interested in your work and more invested in the organization.
- Learn from the Best. Now is the time to learn from others, get a fresh perspective, find a mentor or coach for your Development Director. Use social media to find interesting and innovative people and ideas. Talk with your fellow social change leaders locally, nationally and internationally. Attend online conferences and webinars. By getting out and hearing what others have done and how they have innovated you will find new ways to grow revenue.
- Strengthen Your Case. Money is raised around a case for support. It can be tempting when times are tough to fall back on a message of need. “We need to raise $50,000.” But the better way is to clearly connect donors with the change you are creating in the community. If you don’t have a case for support write one. If you have one, revisit it and make sure that it is compelling, clear, concise, inspiring. Invest donors in the change you are creating.
- Clone Your Best Donors. When you are struggling to find new donors, go back to the source. Dig into your database to determine the characteristics (demographics and psychographics) of your best (most years of giving, biggest dollar, greatest upgrade) donors. Then survey them (formally or informally) to find out why they give, what messages resonate with them, what they read, where they get their information. You want to understand how they tick so that you can find others like them.
- Diversify Your Funds. When one revenue stream (or several) are down, you want to be able to draw on other streams. Are there other revenue streams you could launch or strengthen? Have you explored earned income? Could you grow your individual donor base? There are many ways to raise money and always potential for new avenues. Explore whether some of these make sense for your organization.
Things may be looking up, but it’s going to be awhile for the nonprofit sector. Instead of waiting around for a better economy, make some significant changes now to how you raise money. In so doing you’ll be turning this challenge into a tremendous opportunity for your organization.
Even if you aren’t a subscriber to Netflix (the DVD and online streaming video service) you have probably heard about how their bad decisions have cost them thousands of customers in recent months. Although a nonprofit might seem worlds apart from Netflix, there is still much to be learned from their debacle.
Unlike for-profit companies that have only one customer group, nonprofits actually have two. First are those customers to whom nonprofits provide services — their clients. For a homeless shelter these “customers” are their homeless clients. Their second customer group is those who pay for the services — their funders. So for nonprofits, customer management is much more complex. I would argue that nonprofits generally do a good job of understanding and taking care of their client customers. But their second customer group, funders, can sometimes get lost in the shuffle.
Which makes the lessons from Netflix even more important. Here’s what Netflix teaches us about taking care of your supporters:
Listen to Your Supporters
Netflix assumed that their customers were so in love with their services that a 60% price hike wouldn’t phase them. When customers flooded the Netflix blog and took to Twitter to complain, Netflix largely ignored their customer’s anger. Then Netflix was shocked when customers started leaving in droves. Organizations make mistakes and will at times irritate their customers, the trick is to listen to your customers and quickly correct any missteps. This is particularly important now that social media is so prevalent and is often the first place people go to vent about an organization. Listen to your funders, volunteers, supporters and other community advocates wherever they are and respond to their feedback, concerns, ideas. Don’t build walls around your nonprofit and ignore the outside world. Meet people where they are talking about you and listen and engage in a conversation with them.
Understand How Your Supporters Tick
It’s not enough, however, to simply listen to your customers, you have to understand what they want and need. Netflix assumed that separating DVD rentals from online video streaming was no big deal to customers. Boy were they wrong. The introduction of Qwikster, a separate DVD-only service from Netflix, threw an already angered customer base into a tailspin. Netflix failed to understand how their customers operate. Having two separate websites, two separate passwords and two separate queues for movies was completely untenable to their customers. As a nonprofit you have to understand how your supporters operate and what makes them tick. What about your mission and programs appeals to your supporters? How do they want to be involved? Invest some time in getting to know your donors, volunteers, board members, friends, advocates and what makes them passionate about your nonprofit, how best to engage them, what they’d like to do to support the cause, and how to make it easy for them to do so.
Acknowledge That Your Supporters Ultimately Run Your Business
Netflix forgot that their customers run their business. Without customers, there is no Netflix. Similarly for nonprofits, you may like to think that you exist solely to achieve your mission, but you have no mission without a way to fund it. You cannot separate your mission from how you financially support it. You need to take a step back and understand what types of funding and funders your mission would appeal to (Is your organization a good sell to individuals? Is there an opportunity for school or other government contracts? Is earned income an option?) and then develop a plan for going after and sustaining those funders.
Figure Out a Viable Business Model
Netflix used to have a very viable, profitable business model. But movie studios have realized that there is more money to be made in content, so their financial demands on Netflix have increased dramatically. Which pushed Netflix to increase customer prices. Now Netflix’s business model is out of whack. I’m not a media content expert, so I have no idea what a viable business model is for Netflix, but I don’t think they do either. The trick is to figure out how to get revenue and expenses to create a net positive. For nonprofits, the same is true. Funders will be more likely to support a viable entity with a bright future. Get your financial house in order by aligning your mission with a way to bring sustainable money in the door and funders will be more likely to support you.
Netflix’s missteps have almost been painful to watch. But watch we must if we are going to learn how to avoid their pitfalls. Whether you run a for-profit or nonprofit organization, you must be ever-cognizant of your customers and constantly work to fully integrate them into a successful, viable financial model.
Last Thursday I was a guest on Michael Chatman’s The Giving Show, a weekly radio show about philanthropy. I was delighted to talk with Michael and his listeners about how nonprofits need to rethink the ways they bring money in the door. If you missed the show, you can still listen to the podcast here.
Michael and I talk about:
- How nonprofits need to finance, not fundraise for, their social impact
- The difference between revenue and capital, and why it’s such an important distinction for nonprofits
- When earned income is right for a nonprofit
- The opportunity the recession poses for nonprofits
- Why nonprofits must let go of the status quo
- How to educate donors to be organization builders
- Where innovation is happening in the nonprofit sector
- The convergence of the nonprofit, for-profit and government sectors
- Why overhead is NOT a dirty word
And much more. You can listen here.
In our ongoing blog series, 10 Great Social Innovation Reads, below are my top 10 picks (ok, if you really count it’s 11, but consider it added value) for what really stood out in the world of social innovation in April. But I’d love to hear what you think the best reads last month were. Please add your favorites from the past month in the comments.
- Are Better Days Ahead for Fundraising? It could be, according to a new fundraising survey and this infographic.
- But maybe not, since according to new IRS data (that disputes the annual GivingUSA survey) Americans gave about 20% less during the recession than before it.
- What Can Junk Food Teach Philanthropy?: Sean Stannard-Stockton from Tactical Philanthropy takes a look at how junk food is marketed and wonders if we could apply the same principles to get more people to become philanthropists.
- An interesting controversy has been brewing around the social enterprise darling, TOMS Shoes, which gives a pair of shoes away for every pair purchased. But some have begun to argue that this type of cause-related marketing is actually quite harmful. The Triple Pundit blog summarizes the debate: B1G1 Virus and the Cause Marketing Paradox.
- There are two new generations of donors on the horizon, Millennials and Generation Z. Do you know what you need to about Millennials?: What do – and don’t – we know about Millennial donors?
- And Is Your Nonprofit Connecting with Generation Z?
- The Nonprofit Finance Fund has been building a treasure trove of information, discussion, tools etc on social impact bonds, a revolutionary way to fund nonprofit impact through government, all in an effort to make them a reality in America.
- The Path to Sustainability: Bob Ottenhoff from GuideStar gives a great argument about the lifecycles of nonprofits and how revenue must move from foundation support to some sort of market support over time.
- From the Philanthropy411 blog comes a great list of resources for nonprofits entering, or looking to enhance their presence in, the world of social media: 20 Social Media Resources for Nonprofits
- Impact Market Failure: Kevin Starr from the Mulago Foundation challenges funders to start funding organizations that can achieve impact and address the failure of the impact funding market.
Photo Credit: susivinh
Nonprofit leaders sometimes suffer from small, or short-term, thinking. It makes sense that they would. The sector’s funding, structures and standards are set up to encourage, if not reward, small, risk-averse thinking. But small thinking can actually be a bigger risk to an organization and ultimately to the solution it exists to achieve. To really reach solutions, at the scale that we increasingly need, nonprofit leaders must break free from short-term thinking and lead by example into the world of big, long-term, game-changing approaches.
Here are few ways that small thinking actually jeopardizes a nonprofit and the solution it is working towards:
- Not creating a growth plan when there is obvious need for the solution. Someone started a nonprofit for a reason–a need existed. Either the nonprofit is working to significantly get rid of that need, or they are just getting by. I understand that we are in the midst of a recession, but if you don’t have a big vision and big, bold plans to get there, who will be inspired to invest in a big way?
- Not pushing your donors to give much, much more. Connected to creating bigger plans is stretching your donors further. Nonprofits at times seem afraid to upgrade donors. They are happy if a donor simply returns for another year. But with a little research into the capacity of a donor, and a compelling plan for what you would do with an increased investment, the money is sure to follow.
- Not adequately investing in an earned income stream with a demonstrated market. A nonprofit may have done the research and made an attempt at selling a new product or service, but they are afraid of taking the plunge and significantly going after that market. The end result is that a competitor finds the market the nonprofit identified and the opportunity is gone.
- Not hiring, and paying for, the best and brightest staff available. Sometimes nonprofit organizations pay salaries well below the going rate, even within the nonprofit sector. It is no surprise, then, that the staff they do recruit lack the experience, vision or skills to take the organization to the next level. If you want big results, you need to recruit people who have the ability to plan and execute in a big way.
- Not investing in next generation tools for doing your work. So many nonprofit organizations exist on a shoe string, but the advent of free-ware and social media has leveled the playing field immensely. Now you can have a state of the art sales team for very little upfront cost. You can spread your message, garner support, find advocates, track them and customize your communication with them all for the investment of some staff time. Climb on board this new train, experiment and see where it leads.
These are challenging times, to be sure. But the worst thing to do is to lock yourself in a box of your own making. Challenge your donors, your board, your staff, your volunteers to do more, to be more, to achieve more. Paint the big picture, instead of the small one, and see where it leads.
Photo Credit: ilovememphis