How can nonprofits adopt social enterprise strategies to create sustainable revenue streams?
The COVID-19 pandemic has had a significant impact on nonprofits nationwide. Organizations that rely on donations and grants for funding are being forced to look at their revenue portfolios and determine whether their revenue streams will be sustainable in the foreseeable future. Experts are not sure when it will be safe to hold large gatherings again, which hinders nonprofits that rely on an events-based structure to generate donations.
The pandemic has impacted unemployment rates, thereby limiting household income available for donations to charity. A recent survey of Arizona’s nonprofits conducted by the Alliance of Arizona Nonprofits found that, as a result of fundraising and program cancellations due to the pandemic, Arizona nonprofits have lost an estimated $53 million in revenue. The survey also revealed that 25% of nonprofits indicated that they have had to lay off or furlough employees and 69 % reported a loss of critical program volunteers. Last spring, the ASU Lodestar Center found that 11% of over 400 nonprofits surveyed were not able to operate at all during the first months of the pandemic.
Nonprofits are reimagining funding models and will have to think innovatively to ensure their mission continues. Several organizations across the U.S. have successfully adopted social enterprise strategies to diversify their revenue portfolios and create sustainable revenue streams, such as the YMCA and Goodwill Industries. Social enterprises are businesses whose primary purpose is the common good operated within a nonprofit or as a wholly owned subsidiary of the nonprofit.
Why pursue a social enterprise model?
R. Larson’s "Venture Forth: The essential guide to starting a moneymaking business in your nonprofit organization," notes a few reasons:
- Helps to increase a nonprofit’s funding base and also generate dollars that help diversify an organization’s finances to pay for expenses.
- Can strengthen relationships with existing constituencies.Can present favorable press coverage and thus increased public awareness if the venture proves to be successful and gains the attention of a broader audience.
- Opportunity to combine financial and mission-related goals.
- Could offer staff, especially millennials, both the prospect of a challenging career and the opportunity to customize their careers based on experiential learning and maximizing choice, according to an ASU Lodestar Center article.
- One research study found that, given similar price and quality, 90% of shoppers worldwide are likely to switch to brands that support a good cause.
How to start a social enterprise
You may be thinking, “well this sounds great, but how do I start one?” It is best to take the time to plan and evaluate issues before making a debut in the marketplace. There are many ways to start a business and it could be a lengthy process for nonprofits depending on the resources available to them to begin a venture. In Larson’s "Venture Forth," he outlines a venture planning process that includes time estimates and worksheets to help organizations build a successful foundation for a new social enterprise. There are seven steps in Larson’s proposed venture development process that takes six months-year, and at least 200 hours of work to complete, but ensures a business plan result.
Step 1: Get organized. Select a project leader and venture team to outline a process and timeline that fits your organization.
Step 2: Conduct a venture audit. Identify your core customers, core competencies, and organization’s venture capacity.
Step 3: Brainstorm and screen venture ideas.
Step 4: Analyze customers, advantages, and the business model for each venture idea.
Step 5: Do a feasibility market research plan.
Step 6: Prepare feasibility Financial Analysis.
Step 7: Write a business plan.
A social enterprise can be a way for a nonprofit to expand existing programs or services and help pay for essential operational costs. Nonprofit leaders could be entering new territory by taking on a venture. I offer five recommendations to nonprofit leaders who decide to launch a social enterprise:
- Focus on the business basics.
- Find a champion to lead the enterprise who is committed to the success of the venture.
- Review the social enterprise marketing strategies regularly.
- Recruit outside help from a partner or business professional in the community.
- Evaluate budgets, performance measurements, and conclusions from the business plan annually and make adjustments as needed.
The social enterprise model is worth exploring for organizations seeking to diversify their revenue portfolio and create a greater impact on the communities they serve.
Marina Sandoval is a graduate of the Master of Nonprofit Leadership and Management program at Arizona State University (ASU). Since earning her Bachelor of Arts Degree from ASU, Sandoval served in the Peace Corps as a Community Economic Development Volunteer in northern Peru from 2016 – 2018. She was also invited to join the United States Global Leadership Coalition (USGLC) Arizona Advisory Committee, an organization that advocates for a strong International Affairs Budget and works to make America’s international affairs programs a keystone of U.S foreign policy.
As Community Development Manager for the American Cancer Society (ACS), she is responsible for strengthening and developing relationships with key stakeholders in communities where ACS serves. During her time with ACS, she led the development of the first enterprise-wide Latino-focused initiative, “Latinos Contra el Cáncer.” Latinos Contra el Cáncer is a national ACS movement that aims to empower the Latino community with the resources necessary to lead the fight against cancer through advocacy, education and fundraising.
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