Nonprofits face a fundamental “business” challenge: they’re “nonprofits.” Most of the 1.5 millions US nonprofits don’t support themselves through “competing” or creating better products, services, or business models. They fundraise, get donations, and find grants.
Historically, the typical nonprofit business model has been based on dependence. Dependence limits innovative thinking.
Social business is gaining steam. The Old Skool Café in San Francisco, for example, delivers a 1940’s supper club experience that includes great food, music and service – all delivered by and in support of at-risk youth. And earlier this year, New York’s Mayor Bloomberg doled out awards specifically recognizing the city’s most innovative nonprofits.
But here’s the challenge: most nonprofit innovations come from socially minded start-ups that invented themselves from scratch. So what do the rest of the 1.5 million do?
Running a nonprofit today means reinventing existing business models – by acting like a business.
Imagine taking on three of the toughest challenges in America – homelessness, drug addiction, and HIV – all at the same time. Now imagine the amount of work and dedication that would take, not to mention money. And now try to imagine doing all of that, and turning a “profit” too. I put the word profit in quotes because New York-based Housing Works, which manages to do everything I just described, is technically a charity operation. But it acts an awful lot like a business. And a very successful one at that.
In an era when most nonprofits are cutting back, largely because they rely on private donors and government funding, New York’s Housing Works is expanding. It just opened subsidiaries in Haiti, Washington D.C., and Mississippi. Since Housing Works opened in 1990, an estimated 20,000 people have benefited from its work, and that number continues to grow, thanks to the company’s pioneering “social enterprise” approach.
If Mother Teresa had earned an MBA, she might have turned into someone a lot like Housing Works’ co-founder Charles King. King and his late partner Keith Cylar opened Housing Works’ first thrift store in Manhattan in the mid-90s. This was not your typical Salvation Army-style second hand shop. King and Cylar’s surprising approach began with the idea that thrift stores don’t have to be dingy caves with bins of unwanted scrappy clothes. In fact, they did not accept all, or even most, donations. Only the highest-end goods were allowed in. “We see ourselves as the Barneys of thrift shops,” King once said.
That first location was so successful that Housing Works soon opened another outlet to handle the demand, and then another, and another still. There are now ten Housing Works thrifts around the city. In 2009, the company expanded to Brooklyn. The new store across the East River made a million dollars in its first year – in the midst of the recession.
By hosting upscale events like fashion shows and celebrity clothes auctions, King and the rest of the Housing Works team have turned the thrifts into must-visit attractions. W Magazine once hailed the stores as the “hottest” in the city, “the place where the city’s fashionistas drop off last year’s Prada and Comme des Garçons.”
The organization has built prestigious brands for its other moneymaking enterprises as well. It recently hired well-known chef Michael Sherman to design the menus for its cafe and catering businesses. Famous writers give readings at a Housing Works-run bookstore. And big time music acts like Bjork have performed at Housing Works benefits.
All told, Housing Works’ social enterprise investments yield a quarter of its $43 million yearly budget. Most of its other revenues come from fee-for-service contracts with the government. Housing Works model seizes control of its future while ensuring its ongoing role in change the world for the better.
Any nonprofit can reinvent itself and its business model. Here are five strategies for doing so:
1. Think like a business. Assume your funding will dry up within the next year. How would you self-fund your activities?
2. Redefine “customer.” In addition to those you serve, consider who could become a paying customer. Who has money that would buy something you have to offer related to your world-changing mission?
3. Package up offerings. Think creatively about what you “sell,” whether a product, service, event, or experience. What could you do to add value to people’s lives (that they would pay for)?
4. Don’t go it alone. Innovation is about partnerships. What are the for-profit companies that could provide you with resources or revenue in return for positive press or promotion from working with you?
5. Create a sustainable business model. Measure your organization like a business. What percentage of revenue will come from revenue-generating activities, and how will this evolve over time?
In today’s challenging times, not making a profit doesn’t mean not thinking like a business. Nonprofits leaders who want to change the world know they must change themselves and their organizations in the process.