Business ventures created
by nonprofits can increase revenue. Diversified revenues generated through
the creation of commercial ventures can help your organization become
less reliant on donations, grants and corporate money, and more self-sustainable.
This strategy also allows you to create new, unrestricted funding sources.
Nonprofit business ventures are not a fad or a new idea. Many environmental
organizations, literacy efforts, youth groups, senior service providers
and affordable housing advocates, among others, are creating ventures.
Whether they are large or small, nonprofits run franchises, thrift shops,
food service companies, consulting firms and even manufacturing companies
to fund their programs. However, if you’re not an established nonprofit
with existing policies and procedures that run smoothly, take time to
build your infrastructure before undertaking a commercial venture.
The benefits of operating a business venture go beyond the bottom line.
The advantages include reducing vulnerability from changes in donor trends,
producing unrestricted income that can be used to fund administration
or unusual projects, improving the organization’s recognition and
reputation, enhancing the delivery of services and programs, sharpening
your mission, building an entrepreneurial culture with business discipline
and attracting and retaining donors, volunteers and staff.
Here are ten tips to ensure your nonprofit’s commercial venture
is a success:
Spend Time Planning:
Start by identifying an evangelist within the organization who
will champion the creation of your business venture, take ownership
of the planning process and invest the time necessary to work
on the plan. Creating a business plan will clarify your direction,
gain buy-in from stakeholders, confirm the venture’s feasibility
and identify risks.
By researching the market and its needs, you’ll understand
where the opportunities are and how to exploit them. Make sure
you cover the market’s characteristics, growth potential
and all relevant trends, and include a competitive analysis
that describes the strengths and weaknesses of your competitors,
as well as your competitive advantages. Define the features
and benefits of the product/service. Describe the strategies
you’ll use to reach the target market, such as positioning,
pricing, distribution channels, sales, advertising and publicity.
Budget expenses, project revenue, develop milestones and determine
how much money is needed and when. Start slowly and test before
doing an entire market roll-out.
||Stay True to Your Mission:
Evaluate the appropriateness of the venture to the nonprofit’s
mission. Does the business venture further the mission of the
organization or drift away from its purpose? Ventures that are
compatible with the nonprofit’s mission are more likely
to succeed and have the support of the nonprofit’s staff,
Board, funders, clients and others.
||Practice Good Governance: Get
the support of the Board early on. If you have to fight the culture
of the Board or the parent organization, the venture will fail.
Nonprofit Boards may need new skills and methods of operation
when their organization starts a business venture. Above all,
recruit directors with expertise and connections in the industry
you are entering and in the issues most likely to arise for your
venture. Managing expectations is important. Keep your Board and
parent organization informed, whether they are for, against or
indifferent to the venture.
||Get Connected: Leaders
of commercial ventures need connections to sources of business
expertise, industry connections and money. Broaden your existing
network by attending conferences, joining organizations and using
your Board’s connections. Professionals—such as lawyers,
accountants or bankers—can open doors for you, as can mentors
||Ensure Adequate Financing:
As any nonprofit knows, finding money is no easy task. The money
available through grants is limited and it also may be difficult
to get donations and corporate money for the creation of business
ventures. Therefore, it will be in your interest to learn about
new sources of capital, including debt, equity and alternative
financing. Educate yourself well and early in the process. Raising
money, even in the for-profit world, is a long and arduous process.
You’ll also need to conserve cash, find ways to do more
for less and persuade others to provide resources on favorable
terms. Try to find a business partner who needs your product
or service and will pay for it upfront.
||Put Together a Strong Management Team:
What makes a good team? For starters, the top person should be
entrepreneurial and have a track record in the industry you’re
targeting. Ideally, teams should not only have industry experience,
but also functional expertise and industry connections in sales
and marketing, technology and finance. Equally important, the
people you hire, especially the head person, must have a passion
for your mission and share the values of your organization. Make
the venture the manager’s sole responsibility. If this isn’t
possible, establish clear lines of authority and responsibility
to ensure that decision making isn’t slowed by the needs
of the nonprofit.
Be prepared to pay according to market scale, not nonprofit
wages, even though you may be paying your for-profit employees
substantially more than your nonprofit staff. Additional training
may be needed to help the team manage the unique challenges
faced by nonprofits entering the business world, such as social
return on investment (SROI) and mission drift. Finally, fire
employees who aren’t performing, which is particularly
difficult for nonprofits and may be counter to their mission.
||Benefit by Forming Strategic Alliances:
Both nonprofits and businesses have discovered that collaborations
are a way to leverage resources, share expertise and spread costs
to tackle complex challenges. Partnerships foster mutual benefits,
but the alliances exist only as long as they are advantageous
to both parties. Even so, the concept of gaining a marketplace
advantage by teaming up with another company whose products or
services fit well with your own is not only appealing, it’s
also critical for starting commercial ventures.
Financial, Operational and Social Performance:
Healthy revenue and profit margins are crucial to any commercial
venture. You must maintain adequate financial information systems
to determine the health of the business and hold the management
team accountable for making a profit.
However, monitoring your bottom line is only one part of the
formula. It’s essential that you determine the other factors
critical to your company’s success, measure those metrics
and put into place a system for continually improving performance.
Metrics might include customer retention, return rates, delivery
time, inventory levels and employee turnover as well as SROI
measures such as tax savings and decreased social service costs.
||Focus on the Customer: Every
business seeks satisfied customers who return again and again
because they trust the company’s product or service. Repeat
customers come at a much lower cost than those who must constantly
be enticed into buying. Put in place the proper mechanisms to
control the quality of your products and services and monitor
In addition to working on core products and services that build
customer loyalty, businesses must work on such issues as instilling
a helpful staff attitude, delivering on advertising promises,
developing a favorable return policy and providing accurate
||Adapt Quickly, Thoughtfully and Strategically:
Problems may arise for a variety of reasons, usually due to overly
optimistic sales projections. Stakeholders will want to know what
strategies you have in place to cope with this slippage. You may
have to think about strategic alliances, different marketing strategies
or slashing costs. Remember, even the most promising start-up
may need more investment to reach break-even.