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Ten Tips for Nonprofits When Creating Business Ventures

FOR PROFIT TIPS

NONPROFIT TIPS

-Cause Marketing
-Earned Income
-Strategic Alliances
-Strategic Planning

 

 

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:

1.

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.

2. 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.
3. 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.
4. 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 and coaches.
5. 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.

6. 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.

7. 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.
8.

Measure 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.

9. 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 customer satisfaction

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 product information.

10. 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.
Prepared by:

Geri Stengel, president of Stengel Solutions, a business strategist.  She can be reached at 212-362-3088 or E-mail

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Contact Geri Stengel at
  212.362.3088 or E-mail

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