Is a Business Venture Right for your Organization?
by Karen Perry-Weinstat
Event Journal client, Family Residences and Essential Enterprises, Inc. (FREE) of Long Island, NY is a nonprofit organization supporting more than 4,000 individuals with intellectual / developmental disabilities, mental illness and traumatic brain injury. When FREE was seeking better career opportunities for its constituents, administration decided to look within and develop its own opportunities through affirmative business ventures. FREE now operates Terry’s Cafe, a full service catering outfit, made up of individuals with special needs who are interested in food service careers. The same organization also operates a commercial cleaning service called Swept FREE and a retail store called Fancy FREE, which sells gifts and handmade crafts, many created by program participants.
“In addition to providing useful services to the community, our Affirmative Businesses provide a sense of independence and freedom to the men and woman we serve,” said Greg Varro, Affirmative Business Development Manager for FREE. “On top of the income they earn, these individuals obtain valuable training and experience, enabling them to seek employment anywhere else they may choose to live.”
Geri Stengel of Ventureneer is a seasoned consultant to nonprofits in the area of business ventures. She shares some helpful information for organizations considering embarking on such ventures:
Nonprofit business ventures are not a fad or a new idea. Many organizations — from literacy efforts to senior service providers — are creating ventures. Whether large or small, nonprofits run thrift shops, food service companies and even manufacturing companies to fund their programs and motivate program participants.
Benefits of such ventures include producing unrestricted income, enhancing organization’s mission, building an entrepreneurial culture, improving the organization’s recognition and attracting donors, volunteers and staff. Business ventures can increase organization revenue, while reducing vulnerability from changes in donor trends. These diversified revenues can help your organization become less reliant on donations, grants and corporate money, and more self-sustainable.
Here are ten tips Geri provides to ensure your nonprofit’s commercial venture is a success:
- Spend Time Planning: Start by identifying an evangelist within the organization who will champion the creation of your business venture, take ownership of the planning process and invest the time necessary to work on the plan. Creating a business plan will clarify your direction, gain buy-in from stakeholders, confirm the venture’s feasibility and identify risks. Define the features and benefits of the product/service. Describe the strategies you’ll use to reach the target market, such as positioning, pricing, distribution channels, sales, advertising and publicity. Budget expenses, project revenue, develop milestones and determine how much money is needed and when.
- Stay True to Your Mission: Evaluate the appropriateness of the venture to the nonprofit’s mission. Does the business venture further the mission of the organization? Ventures that are compatible with the nonprofit’s mission are more likely to succeed and have the support of the nonprofit’s key stakeholders.
- Practice Good Governance: Get board support early on. If you have to fight the culture of the board or the parent organization, the venture will fail. Managing expectations is important. Keep your board and parent organization informed.
- Get Connected: Leaders of commercial ventures need connections to sources of business expertise, industry connections and money. Broaden your existing network by attending conferences, joining organizations and using your Board’s connections. Professionals—such as lawyers, accountants or bankers—can open doors for you.
- Ensure Adequate Financing: Money available through grants is limited, and it may be difficult to get donations and corporate money for the creation of business ventures. Therefore, it will be in your interest to learn about new sources of capital, including debt, equity and alternative financing.
- Assemble a Strong Management Team: Your top person should be entrepreneurial and have a track record in the industry you’re targeting. Ideally, teams should have, not only industry experience but, functional expertise and industry connections in sales, marketing, technology and finance. Equally important, the people you hire must have a passion for your mission and share the values of your organization. Establish clear lines of authority and responsibility to ensure decision making isn’t slowed by the needs of the nonprofit. Be prepared to pay according to market scale, not nonprofit wages, even though you may be paying your venture employees more than your nonprofit staff.
- Benefit by Forming Strategic Alliances: Collaborations are a way to leverage resources, share expertise and spread costs to tackle complex challenges. Partnerships foster mutual benefits, but the alliances exist only as long as they are advantageous to both parties.
- Measure Financial, Operational and Social Performance: Healthy revenue and profit margins are crucial to any commercial venture. You must maintain adequate financial information systems to determine the health of the business and hold the management team accountable for making a profit.
- Focus on the Customer: Every business seeks satisfied customers who return because they trust the company’s product or service. Repeat customers come at a much lower cost than attracting new customers. Build loyalty by instilling a helpful attitude, delivering on advertised promises, developing a favorable return policy and providing accurate product information.
- Adapt Quickly, Thoughtfully and Strategically: Problems may arise for a variety of reasons, usually due to overly optimistic sales projections. Stakeholders will want to know what strategies you have in place to cope with this slippage. Remember, even the most promising start-up may need a greater investment to reach break-even.