February 9, 2011

4 ways nonprofits can learn from social entrepreneurs

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A screenshot from MapATL, a neighborhood analysis tool.

Guest post by Lorna Li
Founder & Editor-in-Chief, Green Marketing TV & Entrepreneurs for a Change

Ispent 10 years in the nonprofit sector before crossing over to the corporate world, in a sense, out of frustration. Don’t get me wrong. I love the work of many nonprofit organizations, and we need them to provide valuable services that governments fail to provide. However, having seen big, well-funded nonprofits reach levels of bureaucratic inefficiency deserving of communist governments, and having seen too many small, poorly funded nonprofits with big goals crash and burn, I decided to cross over and learn what business was doing right. In particular, one segment of the business community caught my eye, businesses whose goals not only included profit, but included people and the planet. Yep, that’s right – social entrepreneurs.

What is a social entrepreneur?

Like nonprofit activists, social entrepreneurs are visionary individuals with creative solutions for solving some of the world’s most perplexing social problems. Different from nonprofit activists, social entrepreneurs apply the rules of business to find these solutions. A social entrepreneur takes on a complex challenge: how to increase profits and lower the company’s ecological footprint and provide a living wage for its employees and improve the community in which it operates and serves.

That’s a tall measure. How do they do it?

Nonprofits’ reliance on donations can create a distorted set of services divorced from market realities

I think it boils down to the relationship with money. Most nonprofit organizations rely on donations and sponsorship. This relationship is valuable but somewhat dysfunctional as it makes nonprofit funding extremely vulnerable to economic downturns, when individual and institutional donors start tightening their purse strings. Often, for smaller nonprofits, program officers find themselves spending more time seeking donations to pay their administrative overhead rather than executing on their program services.

“Free money” also creates other distortions as well: the tendency to spend the money in the absence of powerful feedback mechanisms that businesses typically use such as market response, return on investment and the cost of capital over time. Ongoing “free handouts” in the way of services and goods have been well documented in many cases to exacerbate issues of poverty in developing countries, creating a cycle of victimhood that stymies local enterprise and fails to promote sustainable economic growth.

What nonprofits can learn from social enterprises

Here are four tips from the business world that can help nonprofits:

  1. Treat your charitable contributions as if they were investments. In a for-profit enterprise, money typically shows up in three ways: as bank loans, as investments and as earned revenue. When you are dealing with bank financing, you are dealing with interest. When you are dealing with investors, you are dealing with owing them convertible debt or equity. When looking at earned revenue, you are looking at achieving profitability and growth. Therefore, it is in your interest to leverage the capital in ways that generate a higher return. For nonprofits, this may involve adopting strategies that maximize social impact & social amplification for the charitable dollars spent. Programs that leverage charitable funding to empower its constituents to eventually become independent of the services they receive. For example, Samasource provides micro-work opportunities for marginalized people around the world.
  2. Design programs that scale. Businesses are always seeking profit maximization and economies of scale. As a nonprofit, your business is the social good, therefore if others copy and improve upon the work you do, the social benefit only spreads, and this good for everyone, especially if it doesn’t cost more to your organization. Design programs that can spread on their own with minimal added cost to the organization. For example, Amazon Conservation Team teaches indigenous peoples to use geo-mapping technologies like GPS and Google Maps to protect their ancestral territories from illegal exploitation. By training and empowering indigenous leaders, they in turn can train and empower other villages and tribes.
  3. Leverage the power of new technologies. Businesses are constantly investing in new technologies that improve business efficiency and communications, which improves their competitive edge. Nonprofits should do the same, as this frees up valuable time that can be used toward the execution of important programs. The great news is, a lot of these innovative technologies are low cost or even free. Web 2.0 technologies have enabled mass collaboration to achieve business goals, but they are incredibly powerful when being leveraged to achieve social goals. For example, Ushahidi develops free and open source software for information collection, visualization and interactive mapping. The mapping software allows users to crowdsource crisis information and plot it on a map, via email, the web, or SMS. When disaster strikes, it’s often difficult to know which areas are the hardest hit, especially since aid agencies and international journalists tend to report from areas that are the least impacted or compromised. Ushahidi’s crisis map of the 2010 Haiti earthquake allowed aid organizations to see which areas that were the worst hit by the disaster, as reported by local Haitian residents.
  4. Create earned income streams. Earned revenue streams can provide some relief donor dependency and also has a magical way of making the organization even more attractive to institutional funding. While arts organizations have more easily identifiable earned income streams from admission fees, membership dues, building rentals and sales of souvenirs, opportunities exist for other nonprofits. The Sierra Club has successfully tapped into product licensing, selling a range of products from backpacks, T-shirts and mugs to organic coffee and teas. A partnership with Clorox allows the Sierra Club to earn a percentage of sales from its Green Works natural cleaning product line in exchange for the Sierra Club stamp of approval. Given the tough philanthropic environment, many nonprofits are hitting the market to survive.

By adopting a more capitalistic approach to the business of social change, nonprofits can find new organizational efficiencies and better weather economic downturns. These four tips can help any nonprofit put their donation dollars to work for them rather than the other way around.Lorna Li is an online marketing consultant who writes about home solar and green business. Follow her on Twitter at @lornali.

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