the last decade, social enterprises – like Tom’s Shoes, One Hope Winery and FEED – have become a popular way of doing business successfully. The concept is simple: Make and sell a product whose sales will go directly to financially support and create visibility for a charitable cause. Given the success of social enterprises in the for-profit world, it is not surprising to see the rise of social enterprises in the nonprofit sector.
Are social enterprises a new idea for the nonprofit sector?
Not at all. Goodwill, a thrift store, is one of the oldest and most notable nonprofit social enterprise models – the sales of donated clothing and goods are used to employ and provide job training for people with disabilities and other barriers to employment. Social enterprise is not a new concept but it has become more popular in recent years across the nonprofit sector.
How does it work?
A nonprofit social enterprise provides a revenue source to the nonprofit organization through the sale of a product or service that complements the organization’s mission. The “profits” of the sale/business get funneled back into the organization to help it become more financially sustainable and scalable.
To be successful, many nonprofits need more predictable and sustainable revenue streams. That’s where social enterprise comes in. “Profit” is not a four-letter word!
Why is a social enterprise helpful to a nonprofit?
The short answer is that a social enterprise reduces a nonprofit organization’s reliance on philanthropy. While nonprofit social enterprise does not replace the need to raise philanthropic capital, it allows nonprofits to diversify their revenue portfolio by earning a portion of its own income through a social enterprise model. Almost all nonprofits could use additional revenue – especially one they can count on. According to the 2017 State of Nonprofits report published by the University of San Diego, the average nonprofit in San Diego has only 1.5 months of operating capital on hand, in turn creating a chronic state of instability and oftentimes an inability to provide quality services, fully meet the needs of their clients, and maximize their impact.
What are some examples of local nonprofit enterprises?
Of course, the first one that comes to mind is Mission Edge. About 90% of our annual revenue is derived from our fee-for-service model.
We also have a program, Social Enterprise Accelerator and Impact Lab (SAIL), that helps nonprofits create a social enterprise with the help of local funders (Qualcomm and the San Diego Foundation) and pro bono support from business leaders (280 hours in total). The program culminated with a final event at Qualcomm where participants pitched their social enterprises to an audience of 150+ funders and community members. In the short time that the program has been operating, it has seen success. A funder at the Pitch Night event with an interest to invest $25,000 approached one organization. Three other participants have since reported charitable donations or customer acquisition as a direct result of SAIL.
Kitchens for Good – a SAIL participant – is a great example of a social enterprise. The organization rescues surplus and cosmetically imperfect food from wholesalers and farmers for students to utilize in a culinary apprenticeship program. Not only are the students receiving job training and an opportunity for a better career, the food they cook becomes nutritious meals for hungry families. Kitchens for Good breaks the mold of typical non-profits by generating 69% of its budget from their catering and events business, retail condiment line, and contract meal services.
Second Chance has a Youth Garden that offers hands-on urban farming education and job readiness training for youth in the program. The produce that the youth grow in the garden is sold through a CSA program, as well as at restaurants and pop-up farm stands. As a social enterprise, the revenue from these sales circles back to provide the youth with stipends for their work. 1 CSA box sign-up ($300 for 10 weekly deliveries) supports one youth employed in the garden.
Why should more nonprofits create social enterprises?
Organizations that shift their mindset and leverage the tools, best practices, and market-based models that have proven to be successful in the for-profit world have the opportunity to create their own destiny and spur the impact that they strive to make in the community.
If you would like to find out how to start a social enterprise for your nonprofit, join Alicia Quinn on March 1st at the Hive at Leichtag Commons for her interactive workshop on social enterprises. Sign up here!