Current nonprofit sector research and recommendations for effective day-to-day practice from ASU faculty, staff, students, and the nonprofit and philanthropic community.
Illustration by Jocelyn Ruiz
The disparities highlighted by the COVID-19 health crisis in health access, education equity, underinvested neighborhoods, and lack of or underemployment, all play a role in the disproportionate impact the crisis will continue to have on Latino and underserved communities nationwide. Nonprofit organizations meant to support these communities have suffered a similar fate in the federal response while foundations try to fill the void.
Nonprofits will see a rise in need stemming from people on the margins of the disaster recovery response. Nonprofits must engage in long-term strategies that will prepare them for the work that will remain long after federal, state, and private responses have receded. This crisis will only serve to exacerbate the effects of slight growth in traditional funding sources for nonprofits, already trying to do the best with what they have.
Social enterprise opportunity
For the most part social enterprise has been a response explored by larger nonprofits – think Goodwill, Habitat for Humanity. For these organizations, the balance of “money and mission” offered by social enterprise approaches was a promise fulfilled. Social enterprise is any earned income business or strategy undertaken by a nonprofit to generate revenue in support of its charitable mission. These early adopters understood the need to explore opportunities outside of conventional funding sources to achieve financing needed to scale their work and increase their impact on communities.
Most nonprofits are small, and community-based, serving local needs with over 90% spending less than $1 million annually. In looking at the problem from the perspective of smaller nonprofits serving high needs communities with growing multifaceted issues, sustainability becomes even more daunting. I propose a careful exploration of social enterprise strategies is a matter of relevance and survival for small nonprofits in low-income communities, as they cannot rely on their constituents for a high level of donations or otherwise support. Charitable giving declined in 2018 due to tax law changes. Foundation giving increased but only enough for a marginal increase overall. Traditional funding sources will not be enough to respond to the long term negative economic effects of the health crisis impacting low-income communities.
For nonprofits to rise to the level of need - government, funders, network organizations, and philanthropy will need to support nonprofits that engage in social enterprise approaches. The realization of the nonprofit sector's full potential in creating equal access for those most in need will allow for a sustained revitalization of the economy.
Why social enterprise?
- This shift in funding strategy allows the nonprofit to exercise increased control over the organization’s financial health and responsiveness to community needs.
- These revenue-generating businesses serve to provide unrestricted funding to the organization that sustains them and often expands organizational capacity to serve their client base.
- Successful social enterprise ventures also increase the efficiency and effectiveness with which the nonprofits carry out their social mission.
Key challenges to consider:
- The biggest concern faced by nonprofits engaging in social enterprise is the potential for allowing money to become the driving force over the mission.
- As a social enterprise, a nonprofit must begin to participate in a market-oriented framework that spotlights customer experience and environmental factors that impact their ability to provide a product/service in the most efficient and effective manner
- Nonprofits may have to look externally for some of the skills, capabilities, and resources needed to be successful in the venture
Recommendations for the nonprofit sector:
- Before considering a social enterprise approach, ensure your team immerses themselves in the mission and a robust code of ethics that drives a vibrant organizational culture.
- Answer the question – What community need am I responding to, and how does a social enterprise approach meet the need versus a traditionally funded program model?
- Understand the financial resources needed to engage in a social enterprise approach. Funding is required to launch or refine the product/service and should fall outside of current organizational financing wherever possible.
- Earned income strategies can help achieve unrestricted funding needed to establish a social enterprise:
- program income from an existing service line
- creating a public-private partnership where the private entity pays a fee for the nonprofit service for their clients
- traditional funders or social impact investors may provide seed money
- The nature of your services and market need should determine what level of earned income strategy you engage in.
- Take inventory of your internal (e.g., staff, board, funding) and external (e.g., funders, donors, beneficiaries) resources. Most, if not all, will have to align with and support the need to establish and implement the social enterprise strategy.
- Social enterprise approaches require a unit-based accounting model that allows for the evaluation of income generated, costs, and return on investment per client served.
- Understand the unique value the product/service brings to the market that will serve as a differentiator and allow for achievement of a return on investment?
- Determine if you have the internal expertise to implement and manage a social enterprise. Begin with a business plan.
Eric Salazar is a graduate of the Master of Nonprofit Leadership and Management program at Arizona State University. Since earning his Bachelor of Science Degree from Union College (NY), Salazar has been a dedicated leader in the public and nonprofit sector for over 20 years. Salazar spent much of his career helping nonprofits develop unique program models and strengthening their service delivery platforms through process innovation, technology enhancements, and performance evaluation that allowed them access to diverse funding streams.
More recently, as Director of UnidosUS’ housing counseling network, he was responsible for expanding and strengthening partner organizations. He accomplished this through a unique call center model that connects the counseling network’s workforce, providing them access to national fee-for-service partnership opportunities. As Director of Affiliate Investments at Raza Development Fund (RDF), he is establishing an outreach and technical assistance model that will help RDF educate, inspire and activate nonprofit organizations to develop earned income strategies, explore social enterprise opportunities, and seek CDFI investments along a path of transformational growth and impact in their communities.