Baking a Bigger Pie: A Spectrum of Earned Income Strategies

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Baking a Bigger Pie A Spectrum of Earned Income
Strategies

• Vanessa Finley, First Step Fund
• Wendy K. Baumann, WWBIC
• Julann Jatczak, WWBIC
• AEO Summit May 2008

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Agenda

• Welcome Introductions
• Who we are
• Setting the Stage What is earned income?
• Case Study Coffee with a Conscience
• Is it Worth it?
• Setting Goals, Assessing Risk
• Facing Obstacles Head-on
• Getting Started
• QA

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First Step Fund

• Nonprofit microenterprise development
  organization founded in Kansas City in 1993
• Primarily training-led
• First Step FastTrac, Family Child Care Training,
  Ongoing Support
• Served over 1,800 low-income individuals
• Only organization in Kansas City working
  exclusively with low-income individuals wanting
  to start or expand businesses

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First Step Fund Revenue

• 1999 2001 earned revenue 25 of all revenue
• 2002 - 2006 earned revenue 40 of all revenue
  (high of 71 in 2004)

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First Step Funds Earned Revenue Sources

• Subcontracts
• Fees-for-services
• Participant fees and loan interest
• Curriculum sales
• Investments and interest

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Nonprofit Revenue

• Foundations
• Government
• Individuals
• Corporations

• Membership
• Special events
• Client fees
• Other earned revenue

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Wisconsin Womens BusinessInitiative Corporation

• Statewide economic development organization
• 501(c) 3 founded 1987
• Quality Education Programs Access to Capital
• 2.5 million annual budget
• Work with 2,500 clients annually
• Staff of 28
• Emphasis women, low-wealth individuals, people
  of color

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WWBICs Primary Services

• Business Education Workshops
• Creative Financing Solutions Microloans
• One-on-One Business Assistance
• Networking Opportunities
• Financial Awareness Education Individual
  Development Accounts
• Social Business Venture, Business Laboratory
• Consulting Train-the-Trainer

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WWBIC Blended Approach

• Agency Revenue
• 53 Public Support
• 24 Donated Revenue
• 23 Earned Income
• Blended Approach to Earned Income
• Income from existing programs (training
  lending)
• Contract for Services
• Consulting
• Coffee with a Conscience, social business venture

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Earned Revenue A Couple of Definitions

• Earned revenue is the income an organization
  receives in exchange for providing a service or
  product and that is not given as a donation,
  grant, or charitable contribution.
• Income is earned when there is a quid pro quo
  a direct exchange of product, service, or
  privilege for monetary value. Jerr Boschee,
  Migrating from innovation to entrepreneurship

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Social Enterprise A Couple of Definitions

• A social enterprise is an organization or venture
  that advances a social mission through
  entrepreneurial,earned income (or commercial)
  strategies
• A social enterprise is any organization, in any
  sector, that uses earned income strategies to
  pursue a double bottom line or a triple bottom
  line, either alone or as part of a mixed revenue
  stream that includes charitable contributions and
  public sector subsidies.

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Dont Be Confused . . .

• Entrepreneurial
• vs.
• Innovative

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But Wait . . .

• Are nonprofit organizations allowed to make a
  profit?

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Is It Earned Revenue?Ask Yourself . . .

• What does the buyer get in return for its funds?
• Does the buyer intend to deduct the funds
  provided to your organization?
• How did you pitch to the buyer? (Did you ask for
  a donation or did you offer a good or service for
  a particular price?)
• Do you have reporting requirements to the buyer?
• Had you been a for-profit business, would the
  buyer still buy from you?
• What would an outsider observer conclude?
• What would the buyer conclude?

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Earned Revenue?

• Participant fees?
• Government contract?
• Sponsorship of special event?
• Scholarship funds?
• Sale of raffle tickets?
• Rent?
• Another nonprofit provides funds from its grant
  to your organization to provide specific
  services?

• Advertising/promotion in one of agencys
  publications?
• Membership dues?
• Bake sale?
• Silent auction?
• Girl Scout cookies?
• Thrift store?
• Bachelor/Bachelorette auction?

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Some Social Enterprise Stats

• Total number of public charities in the U.S. in
  2006 904,313
• Increase in nonprofit commercial revenue
  generated from program and service fees including
  government contracts and sale of goods between
  1982 and 2002 219
• Average annual increase of nonprofit revenue
  generated through commercial sources, including
  social enterprises from 1982 2002 9.87

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Stats Continued

• Amount of total nonprofit revenue generated
  through commercial activity
• in 1982 48.1
• in 2002 57.38
• Estimated commercial revenues by nonprofits
• in 1982 79 billion
• in 2002 252 billion

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The SE Continuum

• Faster to launch/less risk
• Fees from current programs
• Not Quite as Fast
• Contract for services
• New programs/departments
• Slower to launch/increased risk
• Social Purpose Business Venture

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Case Study A Café Story

• Coffee With A Conscience
• Established 1994
• Coffee café, catering, product sales
• Social, Environmental, Global conscience
• Two locations (art museum office park)
• Business laboratory training model
• Managed operated by paid staff

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Coffee with A Conscience The Mission

• Revenue Generation
• Business Training Laboratory
• Client Merchandising and Marketing
• Selling Client Products
• Merchandising Client Products
• Business Cards
• Client Business Incubation
• Clients in daily business contact
• Client related training
• Clients change

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Coffee with A Conscience The Conscience

• Economic Independence
• Microenterprise Development
• Small Business Development
• Economic Development
• Environmentally Sound Practices
• Buy recycled
• Recycle
• Market it all
• Awareness of World Economics
• Social (Fair Trade)
• Global (Seek Shade Grown)
• Environmental (Organic)

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Coffee with A Conscience The Journey

• Context for Coffee with a Conscience
• The Interest
• The Idea
• The Plan
• The Next Plan
• Timing for Coffee with a Conscience
• The Opportunity
• The Risks
• Easier to ask for forgiveness than permission
• Entrepreneurial tendencies...Just do it!
• Maintenance

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Whats the Difference?

• Self-sufficiency
• vs.
• Sustainability

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Why is Social Enterprise Appealing?

• Diversification of funding base
• Stabilization of funding base
• Widening reach of mission
• Many funders like it
• Ability to fund activities that philanthropic
  donors wont

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A good earned income venturewill always

• Fit your mission
• Be feasible
• Respond to a genuine need in the market
• Build on your strengths and assets
• Energize your Board members, senior managers,
  staff stakeholders
• Make enough money to achieve your financial goals
  

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Setting Goals Assessing Risk

• Be realistic but, with a stretch
• Start small, grow big (not vice versa!)
• Market Pull vs. Market Push
• Financial health financial risk (what are you
  willing to bear?)
• Whats your timeline?
• Need a champion AND a project leader
• Write a business plan!!

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What Are Some Pitfalls?

• Mission drift
• Nonprofit and for-profit skill-sets not
  necessarily in line
• Business losses
• Unrealistic market analysis
• Confusion between client and customer
• Mission goals given greater weight than profit
  goals
• No business plan, poor management

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Nonprofit Business Income Taxes

• No income tax if related to charitable purpose of
  the nonprofit
• If profits are from an unrelated business then
  must pay Unrelated Business Income Tax (UBIT)
• Some nonprofits form a separate for-profit entity

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Facing Obstacles Head-on

• Mission vs. Money
• Whos got the time?
• Impact on the nonprofits staff
• Finding the right staff
• Were in sales now!
• Keeping the Board on board
• Funders who dont get it
• Patience, passion, persistence
• Make new mistakes

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Take A Step

• SCOT the Agency
• Strengths, Challenges, Opportunities, Threats
• Understand the why before the what or the
  how
• The Entrepreneurial pop quiz
• Do you have the stomach for this?
• Learn from the business world
• Nothings for free
• Write a business plan/take class
• Are we having fun yet?

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Final Thought

• A social enterprise can truly provide great
• benefits to a nonprofit organization
• BUT
• it must be entered into with eyes wide open.

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Resources

• Social Enterprise Alliance
  www.se-alliance.org
• The npEnterprise Forum www.npenterprise.net
• The Institute for Social Entrepreneurs -
  www.socialent.org

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Questions?
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For More Information

• Vanessa Finley, First Step Fund
• vfinley_at_firststepfund.org
• www.firststepfund.org
• Wendy K. Baumann, WWBIC
• wendy.baumann_at_wwbic.com
• www.wwbic.com
• Julann Jatczak, WWBIC
• julann.jatczak_at_wwbic.com
• www.wwbic.com