Saturday, December 16, 2006


Follow-up to Dec. 9th post on Social Enterprises

I admit it, I have an unabashed love for Harvard Business Review! Why? Because I love a well constructed argument, because I love to see nonprofit issues explored with laser-focus, because I'm a nerd, because, because. Alright already, judge for yourself. Back in 2005, they published an article "Should Nonprofits Seek Profits?". For only six dollars you can download a reprint of the article for your Executive Director (or your organizations biggest proponent of launching a for-profit business venture, maybe someone on your Board???).

In case the title isn't enticing enough, here's the description they offer:

Nonprofits increasingly feel compelled to launch earned income ventures--not only to appear more disciplined and businesslike to stakeholders but also to reduce their reliance on fundraising. There's plenty of hype about the value of earned income ventures in the nonprofit world, but such projects account for only a small share of funding in most nonprofit domains, and few of the ventures make money. ... when the authors examined how nonprofits evaluate potential enterprises, they discovered a pattern of unwarranted optimism. ...potential financial returns are often exaggerated, and the challenges of running a successful business are routinely discounted. ...the biggest downside of such ventures is that they can distract nonprofit managers from their core social missions and, in some cases, even subvert those missions. There are several reasons for the gap between the hype and the reality. One is that an organization's nonfinancial concerns--such as a desire to hire the disadvantaged--can hamper it in the commercial marketplace. Another is that nonprofits' executives tend to overlook the distinction between revenue and profit. ...Earned income ventures do have a role in the nonprofit sector, the authors say, but unrealistic expectations are distorting managers' decisions, wasting precious resources, and leaving important social needs unmet." (emphasis mine)

I couldn't have said it better. To purchase the full article from the Harvard Business School Publishing website, click here.

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