Social Entrepreneurship: Implementing Business Concepts with your Nonprofit

Nonprofit organizations do an incredible job of making the world around us a better place.  Their staff members and volunteers devote tireless hours as change agents, so that the hungry are fed, the homeless are sheltered, the sick are attended to…and the list goes on.  Too often, however, organizational leadership focuses its attention on its program needs and accomplishments and forgets that, at the end of the day, a nonprofit organization is a business.  The stakeholders are different, but it is still a business nonetheless.
Since it is a business, business concepts and practices need to be implemented into nonprofit organizations if the sector is going to thrive and prosper in the new economy we now find ourselves in.

Beyond just being community leaders, nonprofit leaders need to become social entrepreneurs.  Social entrepreneurs have, among others, the following characteristics:

  • They are constantly looking for ways to improve their service delivery models and increase the value they deliver to their constituents/patrons.
  • They are willing to take on a certain level of “reasonable risk” to expand services and better serve their constituents/patrons.
  • They are market-sensitive while still being mission-driven.  In order to accomplish this, social entrepreneurs go beyond understanding what people (both constituents and donors) need and deliver what they want.
  • They understand that they have a responsibility to utilize the organization’s resources effectively to get the most mission output possible.
  • In making decisions, they consider both the social and economic impact of each decision.
  • They always look at how their decisions impact missions, but also understand that without adequate funding there can be no mission.

Successful businesses know how to effectively compete.  They have determined their target markets, have done market research to determine what these markets want, and have tailored their products or services to meet these wants.  They focus on their core competencies and eliminate those product or service lines that do not add to their success and fall outside of what they do well.  They have established a flow of information that allows them to effectively monitor their operations and have developed benchmarks to be able to understand the impact of their decisions in a timely manner.  They go beyond customer service and focus on customer satisfaction, looking for improvement daily.  They monitor their competition and their expenditures and they plan before they jump into new ventures or expand existing operations.  These are concepts that the nonprofit sector needs to embrace.

With the downturn in the economy, nonprofits are competing for the same funding streams and are expected to serve more people than ever before.  This puts more strain on internal systems.  In the new environment nonprofits find themselves in, they are required to understand their outcomes, collaborate with other agencies, be more transparent, and increase the level of fiscal responsibility they exercise within their organizations.  In order to be successful, business concepts need to come into play.

If you think about the life cycle of a nonprofit organization, most small organizations rely on contributions (or fundraising events) and usually some sort of basic grants.  It is very difficult for many organizations to expand beyond a small program without adding some level of fee-based services.  This raises a bunch of questions: how do you determine what program is right for your organization, how do you limit the risk associated with growth, does it make sense to collaborate with another organization, and are my current services (or projected new services) the best use of my resources (e.g. funds, staff, space, etc.)?  Becoming a social entrepreneur means learning how to properly budget and forecast, how to develop feasibility studies, how to create a business/strategic plan for your agency/idea, and how to monitor results to track the effectiveness of your decisions.

By adapting to a social entrepreneurism model, which incorporates business concepts into nonprofit agencies, organizations can increase the level of mission they perform.  This includes adding new programs, developing additional revenue streams to support existing and future programs, focusing more efforts on core services and eliminating those services that are ineffective, and truly understanding the wants of constituents to improve the overall services delivered.  In addition, entrepreneurial thinking will help you to expand your view about the markets you serve.  Most nonprofits look at their constituents as their primary focus, but what about your employees, your volunteers, and your funders?  In order to be effective, you need to go beyond the traditional thinking, and focus on all of the markets you serve.  This will help you to better identify how best to utilize your agency’s limited resources.

At its core, social entrepreneurism is a concept built on taking reasonable risk through established business practices, as opposed to risk avoidance which is so prevalent in the nonprofit sector today.   In order to be effective, when making growth-related decisions (e.g. adding new programs, expanding existing programs, merging or collaboration with another program, etc.) there are some basic steps that an organization should take:

  • Review your mission:  Ensure that the decisions being made are aligned with your agency’s overall mission.
  • Determine your organization’s risk tolerance:  Remember there is risk in everything we do, including nothing.  Determine the appropriate level of risk your organization is willing to accept, remembering that proper planning will help mitigate, but not eliminate risk.
  • Establish appropriate mission outcomes:  Make sure such outcomes are definitive and measurable.
  • Generate ideas:  Include all members of your management team (program, fiscal, development, etc.) to develop ideas for growth – this helps to get everyone engaged, ensures mission outcomes are appropriately considered, and increases ultimate buy-in.
  • Perform a feasibility study:  Do research to determine the appropriateness of your ideas.
  • Develop a formal business/strategic plan:  This provides a formal document that you can provide to your Board, banking relationships, funders, etc.
  • Implement and monitor plan:  Use the business plan as a guide and monitor actual results to expectations.  Be flexible to modify your operations accordingly.

Social entrepreneurship doesn’t just happen.  It takes a concentrated change in attitude and perspective and the need to bring all facets of the organization together. Take the time to try and apply some of these concepts to your organization, which is, like it or not, still a business at its core.