Cause marketing is one of the new hot topics in the nonprofit literature. However, many are beginning to question if the nonprofit benefits enough from these arrangements or if the direct donations of consumers are being redirected to corporations, with little going to the nonprofit. Amy O'Connor and I have been doing some work on collaborative relationships between corporations and nonprofits. This is a 30-40 minute presentation I made recently about our work. I would love to hear from you with questions or comments. Please excuse the watermark. I have not yet invested in trial software.

For profits making a difference: The for profit social enterprise

Another example of the blending of the traditional nonprofit sector and the for-profit sector is the emergence of the social enterprise. Social enterprises are organizations that have a social mission, but that operate on market-based principles. Let me provide three examples of such enterprises:

• Living Christmas rents live trees as Christmas trees. Their mission is "to change the way California celebrates Christmas." The founder was saddened by the number of trees discarded at the end of every holiday season, especially because of the negative environmental impact. The business has a social mission, the environment. Eco-businesses, or businesses whose mission is to protect the environment through selling/renting a product, are a new class of social enterprises.

• A second, more innovative type of social enterprise is Living Goods.  While still maintaining a 501c3 nonprofit status, making them eligible for tax-deductible donations, Living Goods uses "Avon-like network of door-to-door Health Promoters who make a modest income selling essential health products at prices affordable to the poor. The model combines the latest and best practices from the worlds of micro enterprise and public health to create a truly sustainable system for defeating diseases of poverty." Instead of relying on volunteers to distribute good, independent business agents grow their own businesses and through doing so, benefit the community. To hear more, listen to this podcast by the Stanford Center for Social Innovation.
  

• Of course, the greatest success story of the for-profit social enterprise is the Grameen Bank. Through micro-loans, the Grameen Bank makes a significant difference in the lives of the poor in rural Bangladesh. It is a self-sufficient banks owned by the borrowers that no longer accepts donations. Every year it has made a profit. When in conversations with those supporting social enterprise, micro-financing is among the most frequently cited examples of why the nonprofit sector should change its assumptions about how organizations should operate.
  

While I will take up a few key critical questions that these enterprises raise in a future post, I would like to point out the two most commonly cited benefits of these enterprises.
1. Scale - One of the biggest problems in the nonprofit sector is scaling-up. USAID and OXFAM capacity building efforts, for example, have directed significant resources to help the nonprofit sector, particularly in developing countries, achieve this goal. Many social ventures, especially like Living Goods and the Grameen Bank, have turned this issue on its proverbial head, viewing the size of the problem as market opportunity.
2. The ethics of dependency- Nonprofit organizations that require little of their recipients, such as direct-service agencies, have been criticized for creating a culture of dependency. This has been especially true in Africa and Latin America. A recent rise in the number of international volunteers has raised questions about the degree to which volunteers take away lower skill jobs. Social enterprises, because they do not rely on volunteers and they require something from recipients (e.g., repaying micro-loans, payment for health products), may create less dependency.

Next sector blending post: Cause-marketing

Nonprofts making profits: Earned income

As noted in the last blog post, in the last year donor and foundation revenue is down for nonprofits. Given that the interest on some foundation endowments is also likely to be down for 2009, 2010 may also be a down year for foundation dollars. So, what is a nonprofit, short on cash, to do?

Increasingly, entrepreneurial nonprofits are turning to earned income. Earned income is generated when a nonprofit makes money from a business or product not directly related to its mission. In the current economic crisis, several nonprofits have begun such ventures. Earned income is taxable and requires filing a Form-990-T with the IRS.

Such a move has some potential benefits for nonprofits including more independence from donor-driven or foundation-driven priorities and timetables. However, similar risks to starting any new business are present and such ventures can detract from the core-competencies of the nonprofit. Earned income is just one example of the blurring boundaries of nonprofits and businesses. In the next blog post, I will define another: the for-profit social enterprise.

Misconceptions about nonprofits

In an ongoing series in Smart Money, Jason Kephart has recently written about the 10 things that nonprofits won't tell you. None of these items are particularly surprising to nonprofit leaders. What may be the most telling about the article is how little most people outside of the social sector know about how most nonprofits work. Here are two misconceptions that colleagues and friends have mentioned to me in the last 3 months:


1. As there is more need, won't nonprofits grow? (or alternatively as a college professor, shouldn't there be more jobs for students in nonprofits since there is so much new need in the economic downturn?) The answer to this is unfortunately no. Nonprofits, like for-profit organizations, require resources. Unlike for-profit companies, often their core business activity doesn't bring in that money. Instead, nonprofits are behoven to multiple different stakeholder groups with different priorities including: clients/policy-makers (depending on type of nonprofit), donors, staff, and volunteers. So, while there may be more need among clients, there may not be more resources from donors.


2. Can you tell me which nonprofits are most effective? The answer to this question is again more complicated than for many for-profit organizations, since the bottom line is more ambiguous. Do you mean effective in terms of the proportion of administrative costs verses program costs (available via Charity Navigator)? Do you mean effective in the number of people served? What if a nonprofit serves fewer people but addresses their needs more completely? What if they are an advocacy nonprofit and don't do direct service? 
While there are a number of tools that have been developed over the years to help nonprofits identify areas for growth including: 

·         Institutional Development Framework (Renzi, 1996)

·         Participatory, Results-Oriented Self-Evaluation (Levinger & Bloom, 1997)

·         Organizational Capacity Assessment Tool (PACT, 1996)

·         Participatory Capacity Assessment Tool (CARE International, 2000), and

·         Institutional Strengths Assessment (Child Survival Technical Support Project, 2001).

they are largely designed to help nonprofits compare their past, present, and future. These metrics are ill equipped for comparisons among nonprofits. While evaluation is a growing area of interest among many, there is still a long way to go before more rigorous standards for nonprofit evaluation are available.

What other misconceptions about nonprofits have you heard? Post them in the comments section, and I will take them up in future posts.

What is the role of the nonprofit sector?

In my inaugural post to this blog, I would like to begin by offering a big question, why does the nonprofit sector exist? What is its global role?

The question is not purely academic, but one related to a number of issues being raised about the sector these days including:
1) Are there too many nonprofits? As discussed in today's NYT, there are over 1.1 million nonprofits registered in the United States. This have led some to decide that there are too many nonprofits (see this debate in the Blue Avocado nonprofit blog) and others to question whether what nonprofits do should free them from paying taxes. Many wonder, can the government do what nonprofits are attempting better or more efficiently?
2) One of the new trends/fads in the social sector is the for-profit social enterprise. Proponents argue that for-profit business models allow for the scaling-up of social impacts in ways that are not possible in not-for-profit models. Detractors argue that for-profit models work only for some social problems (e.g., microfinance) and that in such models values and profits may conflict. For more, see this podcast for an example of 1 year old social sector organizations using both for-profit and not-for-profit models.
3) A growing number of government-nonprofit and corporate-nonprofit partnerships have arisen in the past decade. For example, intergovernmental organizations, like UNDP, rely of nongovernmental organizations to accomplish development goals. New corporate-nonprofit partnership forms, including nonprofit certification of corporate practices and cause-marketing, have emerged. Critics argue that governments and corporations may co-opt nonprofits making them less distinctive.

So, here is the questions that I hope to investigate. What is the distinctive role of the nonprofit sector? What can nonprofit organizations do better than governments and for-profit organizations? Feel free to weigh in and offer suggestions. I will take up suggestions in future blog posts.