Description
Detailed description concerning profit making in nonprofits an assessment of entrepreneurial ventures.
Driven by increased competition for funding at all levels, nonprofit
organizations are looking for new ways to diversify their revenue streams,
and they are turning with increasing frequency to various types of business
ventures as a means for generating unrestricted “earned” revenue. This trend
has spawned a new term describing the marriage of mission and entrepre-
neurial activity as a “social enterprise” or even “social entrepreneurship.”
In the business sector, return on financial investment (ROI) is the widely
used measure of success. Within the new realm of social enterprise, the
term “double bottom line” refers to outcomes that are both mission-oriented
and financial. With the creation of this new vocabulary comes the need to
define success and develop strategies that can help organizations succeed if
they chose to pursue a social venture.
There is a growing body of research on social enterprise, but the emphasis
has been on developing anecdotes of success — case studies of nonprofit
organizations that have creatively designed and managed for-profit
ventures. The effort so far has been to develop a set of “best practices” for
nonprofits to follow when they enter the risky world of social enterprise.
In Pittsburgh, one of the anecdotes of success has been the work of Bill
Strickland, CEO of the Manchester Craftsmen’s Guild and Bidwell Training
Center on the Northside. Strickland has launched a wide variety of social
enterprises to generate earned revenue, and his entrepreneurial strategy has
attracted national attention and praise. Also, the new Social Enterprise
Forum, a partnership of several foundations, will soon provide technical
assistance and expert advice to selected nonprofit social enterprises.
These promising programs are more likely to succeed if we have some
basic research on the actual experiences of Pittsburgh nonprofits with this
new method of revenue generation.
• What are the most promising practices in the field of social enterprise?
• Do nonprofits in Pittsburgh use these promising practices when
launching revenue-generating enterprises?
• Do these promising practices have an impact on the success or failure
of revenue generating enterprises?
The Forbes Funds commissioned Olszak Management Consulting, Inc. (OMC) to answer these questions. The OMC team reviewed
the literature on social enterprise to catalogue the wide array of recommendations for how to plan, launch, and manage a social enterprise.
They also identified 52 organizations in Pittsburgh that are experimenting with entrepreneurial ventures and obtained survey responses
from 25 of these organizations. The focus of the survey was to examine their experience with this approach and to document the extent
to which they actually follow the “best practices” recommended in the literature. Finally, in-depth case studies were conducted with six
organizations to gather additional insights on what works and what doesn’t in the realm of social enterprise.
PROFIT MAKING IN NONPROFITS:
An Assessment of Entrepreneurial
Ventures in Nonprofit Organizations
ENCOURAGING INNOVATIVE THINKING, LEADERSHIP DIALOGUE AND STRATEGIC MANAGEMENT FOR THE NONPROFIT SECTOR NOVEMBER 2002
THE FORBES FUNDS
THE FORBES FUNDS
Envisioning Pittsburgh’s nonprofit sector as
innovative, informed, and engaged, The Forbes
Funds advance capacity-building within and
among the region’s nonprofit organizations.
THE COPELAND FUND FOR NONPROFIT MANAGEMENT
The mission of The Copeland Fund for Nonprofit Management
is to strengthen the management and policymaking capacity
of nonprofit human service organizations to serve better
the needs of their communities.
• Management Enhancement Grants
• Emergency Grants
• Cohort (Professional Development) Grants
THE TROPMAN FUND FOR NONPROFIT RESEARCH
The mission of The Tropman Fund for Nonprofit Research is
to support applied research on strategic issues that are likely
to have profound effects on nonprofit management and
governance, especially among human service and community
development organizations.
• Applied Research Projects
• Annual Research Conference
THE WISHART FUND FOR NONPROFIT LEADERSHIP
The mission of The Wishart Fund for Nonprofit Leadership is
to encourage pioneering nonprofit leadership by promoting
public learning and discussion about issues critical to ethical
and effective management, as well as by celebrating exemplary
practices.
• Leadership Roundtables
• The Frieda Shapira Medal
• Alfred W. Wishart, Jr., Award for Excellence
in Nonprofit Management
TROPMAN REPORT
2002 SERIES
volume 1 : number 5
PROFIT MAKING IN NONPROFITS: AN ASSESSMENT OF ENTREPRENEURIAL VENTURES IN NONPROFIT ORGANIZATIONS
PROMISING PRACTICES IN SOCIAL ENTERPRISE
Based on a thorough review of the literature, Olszak identified seven “promising
practices” and 34 specific activities that ostensibly are associated with successful social
enterprises.
Pre-Planning — focuses on the organization’s readiness to take on a social enterprise.
This should include a systematic assessment of internal management practice, avail-
able resources, organizational culture, and commitment to addressing the risks and
demands associated with a venture. Specific pre-planning activities include:
• Secure staff/board support for pursuing a venture
• Review the mission of the organization to provide clear direction
• Thoroughly assess and develop organizational capacity to undertake a social
venture
• Ensure that the CEO or a key staff member are able to devote a significant
amount of time to the start-up effort
• Anticipate the changes and challenges that accompany a social enterprise
(organization, management, resources, culture, funding and community response)
• Produce a well-defined strategic plan and associated financial plan
• Allocate enough time to venture planning to help strengthen organizational
and operational systems
Venture Planning — this phase includes organizing the planning effort, conducting
a “venture audit,” generating ideas, assessing opportunities and culminates in the
selection of a venture. Specific activities include:
• Access technical and business expertise, in-house legal and tax advice AND
secure senior mentors from the business community with general and specific
management expertise
• Involve the entire management team and all appropriate staff in the planning
and development process
• Identify a social enterprise leadership team
• Generate enterprise ideas that match resources with market demand
• Establish and apply a set of criteria to identify promising social enterprise ideas
Feasibility Study and Market Analysis — a wide-ranging effort to investigate and
quantify the market opportunity for the venture’s products and services. Specific
actions include:
• Research other ventures providing a similar product or service
• Determine the competitive advantage(s) of your organization in selling the
product or service
• Focus research on the segment of potential customers that would be likely to
make up the vast majority of sales
• Seek information about customer needs/wants through direct interaction and
focus groups
• Evaluate the findings against the stated goals of the venture
• Conduct a preliminary feasibility study allowing factual information, not hunches
or guesswork, to inform decisions
Venture Design — this is a comprehensive plan for meeting the financial, human
resource, development, marketing and operational requirements of the venture,
taking into account risks, contingencies and assumptions. Specific actions include:
• Determine the resources that are needed, when they will be needed, how long
each will last and how they will be acquired (financial, management, consultants,
research & development and equipment)
• Determine the requirements to operate the venture (start-up and on-going
marketing, operations, production/service delivery and
pricing, etc.)
• Define the capabilities required for success (include administrative capabilities)
• Design an operating structure that capitalizes on organizational strengths
LESSONS
The Forbes Funds is committed to
using the results of this and other
studies to help organizations
responsibly explore their options in
the realm of social enterprise.
Nonprofit organizations must
remember that even in the private
sector about half of all new businesses
fail. In the private sector, venture
capital may be at risk, but in the non-
profit sector, charitable community
assets are at risk. Thus, nonprofits are
bound by their fiduciary responsibility
for good stewardship to take the steps
necessary to mitigate those risks.
The Yale study proposes three types
of services (see pg.4) needed to help
nonprofit organizations plan, create
and manage profitable business
venture. Given the findings in the
Pittsburgh study, it is easy to see
how their suggestions could be
applicable here.
• Investments in human and
organizational capacity to help
ensure that the proper skills,
processes, and structures are in
place to manage a revenue-
generating enterprise.
• Educational opportunities for
nonprofit executives to acquire
the skills they need and to develop
networks with other executives
who are experimenting with social
enterprise models.
• Tools and models that serve as
market standards.
These and other resources are
available in Pittsburgh. Also,
The Forbes Funds web site
(www.forbesfunds.org) contains
tools and links to other sites on
social entrepreneurship. We urge
nonprofits to make full use of
available resources and expertise
before placing charitable assets at
risk with revenue generating
enterprises.
• About 3/4 of the organizations are running some type of service-
related ventures (e.g. curriculum development, literacy training,
office/meeting space rental) the remainder are mostly retail
operations, with one organization engaged in manufacturing.
• Most of the social enterprises in Pittsburgh were established
after 1995, but several have been in operation prior to 1980.
• Half the organizations staffed their ventures with existing staff,
the other half used a combination of full-time, part-time or
outside staffing.
• The most common source of start up funds were foundation
grants. Once started, some derive operating funds from sales,
but many (41%) cover operating costs with foundation money.
• Half the organizations expected to lose money or break even
in the current year, but most say they expect to make a profit
next year.
• Keeping in mind the “double bottom line,” the majority of
respondents believe their social enterprise is a good “fit” for the
organization’s skills and resources, and that it helped them
move closer to mission fulfillment.
• Only about half the respondents believe the venture generated
enough income to justify the time and effort spent launching it.
• Respondents indicated that their social enterprise has “halo”
effects for the organization, including increased visibility and
reputation in the community.
USE OF PROMISING PRACTICES OF SOCIAL
ENTREPRENEURSHIP
The researchers learned that nonprofit organizations in Pittsburgh
are following some, but not all, of the “promising practices.”
Organizations seem to be using the early stages of planning and
venture design to their best advantage, but fall short when it
comes to the more rigorous analysis and actual development of a
business plan. Two practices highly recommended in the
literature — market research and financial analysis — are the
practices that are most infrequently used. Very few organizations
use common business planning tools such as breakeven analysis to
account for fixed and variable costs and fewer than half the
organizations report that they completed a written business plan
prior to launching their social enterprise.
From the six case studies, some significant concerns surfaced
regarding the accuracy of financial projections and estimates.
These findings confirmed for the researchers that financial analysis
is a weak link in the management of social enterprises and raised
questions about the validity of profit projections reported by the
25 organizations that completed the survey.
Overall, nonprofit leaders seem to place value on the practices
they relied upon the most, but the investigators could not verify
that there was a correlation between those practices and success.
THE ROLE OF AN INTERNAL “PRODUCT
CHAMPION”?
The business literature extols the value of so-called “product
champions” —a staff person whose sole responsibility is to take
all the appropriate steps necessary to ensure the success of a new
venture or new product. Although Olszak and her colleagues did
not explicitly address this question, their impression is that
PROFIT MAKING IN NONPROFITS: AN ASSESSMENT OF ENTREPRENEURIAL VENTURES IN NONPROFIT ORGANIZATIONS
• Calculate resource gaps and established targets for closing them
• Identify milestones for testing crucial assumptions
• Develop a contingency plan for unexpected outcomes
Financial Analysis — a rigorous effort to develop reasonable
and compelling assumptions that underlie the projected financial
position of the proposed venture and its impact on the organization.
Specific actions include:
• Identify and quantify sources of financial support for the
venture for a period of time (usually three to five years)
• Develop a pro forma budget and cash flow needs
• Conduct a breakeven analysis
• Establish pricing strategies
• Use common financial ratios to gauge the viability of the venture
• Establish a minimum profit margin or return on investment (ROI)
Business Plan — development of a document that communicates
the venture’s design, management and physical structure, market
potential, resource demands and potential for success (financial
impact and other consequences). The purpose of the business
plan is to convert the information collected in the venture
design phase into steps that can be implemented once the plan
is approved.
• Complete a comprehensive business plan
Assessment — regular review of the venture’s progress and the
validity and reliability of the underlying assumptions. Specific
actions include:
• Conduct a regular review of the venture’s planned versus
actual performance
• Review the financial, management, marketing and operational
plans on an annual basis and adjust assumptions based on new
conditions
THE LOOK OF SOCIAL VENTURES IN
PITTSBURGH
Olszak’s survey of social enterprise activities reveals some interesting
patterns:
Type of Venture. Most (72%) of the ventures surveyed are
engaged in providing services. Some examples of the types of ser-
vices provided include: literacy training, multi-media production,
office/meeting space rental, and curriculum development. Retail
ventures constituted 22% of those surveyed. There was one small
manufacturing venture and another that combined wholesale and
retail operations.
• Most of the organizations in this study started their social
enterprise either to enhance program delivery or to generate
unrestricted net revenue. Several wanted to do both.
PROFIT MAKING IN NONPROFITS: AN ASSESSMENT OF ENTREPRENEURIAL VENTURES IN NONPROFIT ORGANIZATIONS
product champions in nonprofit organizations can be instrumental
in the success of an entrepreneurial revenue-generating enterprise.
In general, this person may or may not be the CEO, but must be
someone with strong business skills and determination to lead the
venture.
COMPARISONS WITH NATIONAL RESEARCH
The findings of this study are similar to those in a recently
released national study conducted by Yale School of Management
– Goldman Sachs Foundation Partnership on Nonprofit Ventures.
In a study of 519 social ventures, they found similar social returns
reported by their survey, but more significantly their study found
that sound business planning has a significant impact on the
success of the venture. While they could correlate business
planning to success, their study revealed that, more often than
not, nonprofit organizations are not applying standard business
protocols when initiating a business venture; only about half of
their respondents reported completing a written business plan. The
Yale study does offer one caveat regarding business planning for
social ventures. They make the case that in the nonprofit sector,
operating a business is not only about making money. As a result,
they caution that business planning for nonprofit ventures needs
to proceed using multiple lenses.
1.
Capacity-building in the Nonprofit Sector: A Comparison
of Resources and Practices in Pittsburgh and Denver
2.
How Do Nonprofits Compare with For-profit Providers?
An Application of Customer Value Analysis
3.
Leveraging Human Capital: How Nonprofits in Pittsburgh
Recruit and Manage Volunteers
4.
New Economy Entrepreneurs: Their Attitudes
on Philanthropy
5.
Profit Making in Nonprofits: An Assessment of
Entrepreneurial Ventures in Nonprofit Organizations
6.
Recruitment and Retention of Managerial Talent: Current
Practices and Prospects for Nonprofits in Pittsburgh
7.
Social Services in Faith-Based Organizations:
Pittsburgh Congregations and the Services They Provide
8.
Staying Ahead of the Curve: An Assessment of Executive
Training Needs and Resources in Pittsburgh
9.
Strategic Planning: Positioning Identity, Values
and Aspirations
This TROPMAN REPORT is one of a series of briefing papers generated by The Tropman Fund for Nonprofit Research.
TROPMAN REPORTS in this 2002 series are:
To read the full text of this study,
log onto The Forbes Funds’ web site
at www.forbesfunds.org.
STAFF
Kevin P. Kearns — President
Gregg Behr — Managing Director
Amy Thomas — Executive Assistant
doc_401689947.pdf
Detailed description concerning profit making in nonprofits an assessment of entrepreneurial ventures.
Driven by increased competition for funding at all levels, nonprofit
organizations are looking for new ways to diversify their revenue streams,
and they are turning with increasing frequency to various types of business
ventures as a means for generating unrestricted “earned” revenue. This trend
has spawned a new term describing the marriage of mission and entrepre-
neurial activity as a “social enterprise” or even “social entrepreneurship.”
In the business sector, return on financial investment (ROI) is the widely
used measure of success. Within the new realm of social enterprise, the
term “double bottom line” refers to outcomes that are both mission-oriented
and financial. With the creation of this new vocabulary comes the need to
define success and develop strategies that can help organizations succeed if
they chose to pursue a social venture.
There is a growing body of research on social enterprise, but the emphasis
has been on developing anecdotes of success — case studies of nonprofit
organizations that have creatively designed and managed for-profit
ventures. The effort so far has been to develop a set of “best practices” for
nonprofits to follow when they enter the risky world of social enterprise.
In Pittsburgh, one of the anecdotes of success has been the work of Bill
Strickland, CEO of the Manchester Craftsmen’s Guild and Bidwell Training
Center on the Northside. Strickland has launched a wide variety of social
enterprises to generate earned revenue, and his entrepreneurial strategy has
attracted national attention and praise. Also, the new Social Enterprise
Forum, a partnership of several foundations, will soon provide technical
assistance and expert advice to selected nonprofit social enterprises.
These promising programs are more likely to succeed if we have some
basic research on the actual experiences of Pittsburgh nonprofits with this
new method of revenue generation.
• What are the most promising practices in the field of social enterprise?
• Do nonprofits in Pittsburgh use these promising practices when
launching revenue-generating enterprises?
• Do these promising practices have an impact on the success or failure
of revenue generating enterprises?
The Forbes Funds commissioned Olszak Management Consulting, Inc. (OMC) to answer these questions. The OMC team reviewed
the literature on social enterprise to catalogue the wide array of recommendations for how to plan, launch, and manage a social enterprise.
They also identified 52 organizations in Pittsburgh that are experimenting with entrepreneurial ventures and obtained survey responses
from 25 of these organizations. The focus of the survey was to examine their experience with this approach and to document the extent
to which they actually follow the “best practices” recommended in the literature. Finally, in-depth case studies were conducted with six
organizations to gather additional insights on what works and what doesn’t in the realm of social enterprise.
PROFIT MAKING IN NONPROFITS:
An Assessment of Entrepreneurial
Ventures in Nonprofit Organizations
ENCOURAGING INNOVATIVE THINKING, LEADERSHIP DIALOGUE AND STRATEGIC MANAGEMENT FOR THE NONPROFIT SECTOR NOVEMBER 2002
THE FORBES FUNDS
THE FORBES FUNDS
Envisioning Pittsburgh’s nonprofit sector as
innovative, informed, and engaged, The Forbes
Funds advance capacity-building within and
among the region’s nonprofit organizations.
THE COPELAND FUND FOR NONPROFIT MANAGEMENT
The mission of The Copeland Fund for Nonprofit Management
is to strengthen the management and policymaking capacity
of nonprofit human service organizations to serve better
the needs of their communities.
• Management Enhancement Grants
• Emergency Grants
• Cohort (Professional Development) Grants
THE TROPMAN FUND FOR NONPROFIT RESEARCH
The mission of The Tropman Fund for Nonprofit Research is
to support applied research on strategic issues that are likely
to have profound effects on nonprofit management and
governance, especially among human service and community
development organizations.
• Applied Research Projects
• Annual Research Conference
THE WISHART FUND FOR NONPROFIT LEADERSHIP
The mission of The Wishart Fund for Nonprofit Leadership is
to encourage pioneering nonprofit leadership by promoting
public learning and discussion about issues critical to ethical
and effective management, as well as by celebrating exemplary
practices.
• Leadership Roundtables
• The Frieda Shapira Medal
• Alfred W. Wishart, Jr., Award for Excellence
in Nonprofit Management
TROPMAN REPORT
2002 SERIES
volume 1 : number 5
PROFIT MAKING IN NONPROFITS: AN ASSESSMENT OF ENTREPRENEURIAL VENTURES IN NONPROFIT ORGANIZATIONS
PROMISING PRACTICES IN SOCIAL ENTERPRISE
Based on a thorough review of the literature, Olszak identified seven “promising
practices” and 34 specific activities that ostensibly are associated with successful social
enterprises.
Pre-Planning — focuses on the organization’s readiness to take on a social enterprise.
This should include a systematic assessment of internal management practice, avail-
able resources, organizational culture, and commitment to addressing the risks and
demands associated with a venture. Specific pre-planning activities include:
• Secure staff/board support for pursuing a venture
• Review the mission of the organization to provide clear direction
• Thoroughly assess and develop organizational capacity to undertake a social
venture
• Ensure that the CEO or a key staff member are able to devote a significant
amount of time to the start-up effort
• Anticipate the changes and challenges that accompany a social enterprise
(organization, management, resources, culture, funding and community response)
• Produce a well-defined strategic plan and associated financial plan
• Allocate enough time to venture planning to help strengthen organizational
and operational systems
Venture Planning — this phase includes organizing the planning effort, conducting
a “venture audit,” generating ideas, assessing opportunities and culminates in the
selection of a venture. Specific activities include:
• Access technical and business expertise, in-house legal and tax advice AND
secure senior mentors from the business community with general and specific
management expertise
• Involve the entire management team and all appropriate staff in the planning
and development process
• Identify a social enterprise leadership team
• Generate enterprise ideas that match resources with market demand
• Establish and apply a set of criteria to identify promising social enterprise ideas
Feasibility Study and Market Analysis — a wide-ranging effort to investigate and
quantify the market opportunity for the venture’s products and services. Specific
actions include:
• Research other ventures providing a similar product or service
• Determine the competitive advantage(s) of your organization in selling the
product or service
• Focus research on the segment of potential customers that would be likely to
make up the vast majority of sales
• Seek information about customer needs/wants through direct interaction and
focus groups
• Evaluate the findings against the stated goals of the venture
• Conduct a preliminary feasibility study allowing factual information, not hunches
or guesswork, to inform decisions
Venture Design — this is a comprehensive plan for meeting the financial, human
resource, development, marketing and operational requirements of the venture,
taking into account risks, contingencies and assumptions. Specific actions include:
• Determine the resources that are needed, when they will be needed, how long
each will last and how they will be acquired (financial, management, consultants,
research & development and equipment)
• Determine the requirements to operate the venture (start-up and on-going
marketing, operations, production/service delivery and
pricing, etc.)
• Define the capabilities required for success (include administrative capabilities)
• Design an operating structure that capitalizes on organizational strengths
LESSONS
The Forbes Funds is committed to
using the results of this and other
studies to help organizations
responsibly explore their options in
the realm of social enterprise.
Nonprofit organizations must
remember that even in the private
sector about half of all new businesses
fail. In the private sector, venture
capital may be at risk, but in the non-
profit sector, charitable community
assets are at risk. Thus, nonprofits are
bound by their fiduciary responsibility
for good stewardship to take the steps
necessary to mitigate those risks.
The Yale study proposes three types
of services (see pg.4) needed to help
nonprofit organizations plan, create
and manage profitable business
venture. Given the findings in the
Pittsburgh study, it is easy to see
how their suggestions could be
applicable here.
• Investments in human and
organizational capacity to help
ensure that the proper skills,
processes, and structures are in
place to manage a revenue-
generating enterprise.
• Educational opportunities for
nonprofit executives to acquire
the skills they need and to develop
networks with other executives
who are experimenting with social
enterprise models.
• Tools and models that serve as
market standards.
These and other resources are
available in Pittsburgh. Also,
The Forbes Funds web site
(www.forbesfunds.org) contains
tools and links to other sites on
social entrepreneurship. We urge
nonprofits to make full use of
available resources and expertise
before placing charitable assets at
risk with revenue generating
enterprises.
• About 3/4 of the organizations are running some type of service-
related ventures (e.g. curriculum development, literacy training,
office/meeting space rental) the remainder are mostly retail
operations, with one organization engaged in manufacturing.
• Most of the social enterprises in Pittsburgh were established
after 1995, but several have been in operation prior to 1980.
• Half the organizations staffed their ventures with existing staff,
the other half used a combination of full-time, part-time or
outside staffing.
• The most common source of start up funds were foundation
grants. Once started, some derive operating funds from sales,
but many (41%) cover operating costs with foundation money.
• Half the organizations expected to lose money or break even
in the current year, but most say they expect to make a profit
next year.
• Keeping in mind the “double bottom line,” the majority of
respondents believe their social enterprise is a good “fit” for the
organization’s skills and resources, and that it helped them
move closer to mission fulfillment.
• Only about half the respondents believe the venture generated
enough income to justify the time and effort spent launching it.
• Respondents indicated that their social enterprise has “halo”
effects for the organization, including increased visibility and
reputation in the community.
USE OF PROMISING PRACTICES OF SOCIAL
ENTREPRENEURSHIP
The researchers learned that nonprofit organizations in Pittsburgh
are following some, but not all, of the “promising practices.”
Organizations seem to be using the early stages of planning and
venture design to their best advantage, but fall short when it
comes to the more rigorous analysis and actual development of a
business plan. Two practices highly recommended in the
literature — market research and financial analysis — are the
practices that are most infrequently used. Very few organizations
use common business planning tools such as breakeven analysis to
account for fixed and variable costs and fewer than half the
organizations report that they completed a written business plan
prior to launching their social enterprise.
From the six case studies, some significant concerns surfaced
regarding the accuracy of financial projections and estimates.
These findings confirmed for the researchers that financial analysis
is a weak link in the management of social enterprises and raised
questions about the validity of profit projections reported by the
25 organizations that completed the survey.
Overall, nonprofit leaders seem to place value on the practices
they relied upon the most, but the investigators could not verify
that there was a correlation between those practices and success.
THE ROLE OF AN INTERNAL “PRODUCT
CHAMPION”?
The business literature extols the value of so-called “product
champions” —a staff person whose sole responsibility is to take
all the appropriate steps necessary to ensure the success of a new
venture or new product. Although Olszak and her colleagues did
not explicitly address this question, their impression is that
PROFIT MAKING IN NONPROFITS: AN ASSESSMENT OF ENTREPRENEURIAL VENTURES IN NONPROFIT ORGANIZATIONS
• Calculate resource gaps and established targets for closing them
• Identify milestones for testing crucial assumptions
• Develop a contingency plan for unexpected outcomes
Financial Analysis — a rigorous effort to develop reasonable
and compelling assumptions that underlie the projected financial
position of the proposed venture and its impact on the organization.
Specific actions include:
• Identify and quantify sources of financial support for the
venture for a period of time (usually three to five years)
• Develop a pro forma budget and cash flow needs
• Conduct a breakeven analysis
• Establish pricing strategies
• Use common financial ratios to gauge the viability of the venture
• Establish a minimum profit margin or return on investment (ROI)
Business Plan — development of a document that communicates
the venture’s design, management and physical structure, market
potential, resource demands and potential for success (financial
impact and other consequences). The purpose of the business
plan is to convert the information collected in the venture
design phase into steps that can be implemented once the plan
is approved.
• Complete a comprehensive business plan
Assessment — regular review of the venture’s progress and the
validity and reliability of the underlying assumptions. Specific
actions include:
• Conduct a regular review of the venture’s planned versus
actual performance
• Review the financial, management, marketing and operational
plans on an annual basis and adjust assumptions based on new
conditions
THE LOOK OF SOCIAL VENTURES IN
PITTSBURGH
Olszak’s survey of social enterprise activities reveals some interesting
patterns:
Type of Venture. Most (72%) of the ventures surveyed are
engaged in providing services. Some examples of the types of ser-
vices provided include: literacy training, multi-media production,
office/meeting space rental, and curriculum development. Retail
ventures constituted 22% of those surveyed. There was one small
manufacturing venture and another that combined wholesale and
retail operations.
• Most of the organizations in this study started their social
enterprise either to enhance program delivery or to generate
unrestricted net revenue. Several wanted to do both.
PROFIT MAKING IN NONPROFITS: AN ASSESSMENT OF ENTREPRENEURIAL VENTURES IN NONPROFIT ORGANIZATIONS
product champions in nonprofit organizations can be instrumental
in the success of an entrepreneurial revenue-generating enterprise.
In general, this person may or may not be the CEO, but must be
someone with strong business skills and determination to lead the
venture.
COMPARISONS WITH NATIONAL RESEARCH
The findings of this study are similar to those in a recently
released national study conducted by Yale School of Management
– Goldman Sachs Foundation Partnership on Nonprofit Ventures.
In a study of 519 social ventures, they found similar social returns
reported by their survey, but more significantly their study found
that sound business planning has a significant impact on the
success of the venture. While they could correlate business
planning to success, their study revealed that, more often than
not, nonprofit organizations are not applying standard business
protocols when initiating a business venture; only about half of
their respondents reported completing a written business plan. The
Yale study does offer one caveat regarding business planning for
social ventures. They make the case that in the nonprofit sector,
operating a business is not only about making money. As a result,
they caution that business planning for nonprofit ventures needs
to proceed using multiple lenses.
1.
Capacity-building in the Nonprofit Sector: A Comparison
of Resources and Practices in Pittsburgh and Denver
2.
How Do Nonprofits Compare with For-profit Providers?
An Application of Customer Value Analysis
3.
Leveraging Human Capital: How Nonprofits in Pittsburgh
Recruit and Manage Volunteers
4.
New Economy Entrepreneurs: Their Attitudes
on Philanthropy
5.
Profit Making in Nonprofits: An Assessment of
Entrepreneurial Ventures in Nonprofit Organizations
6.
Recruitment and Retention of Managerial Talent: Current
Practices and Prospects for Nonprofits in Pittsburgh
7.
Social Services in Faith-Based Organizations:
Pittsburgh Congregations and the Services They Provide
8.
Staying Ahead of the Curve: An Assessment of Executive
Training Needs and Resources in Pittsburgh
9.
Strategic Planning: Positioning Identity, Values
and Aspirations
This TROPMAN REPORT is one of a series of briefing papers generated by The Tropman Fund for Nonprofit Research.
TROPMAN REPORTS in this 2002 series are:
To read the full text of this study,
log onto The Forbes Funds’ web site
at www.forbesfunds.org.
STAFF
Kevin P. Kearns — President
Gregg Behr — Managing Director
Amy Thomas — Executive Assistant
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