Boost recently worked with a national organization to develop a business plan for a new earned income venture. For many organizations, earned income ventures can be a great way to generate revenue while advancing the nonprofit’s mission. They can diversify an organization’s offerings, increase visibility, contribute to self-sufficiency, and unlike many grants, the money earned through earned income ventures is unrestricted, and can be used however the organization chooses.
Earned income ventures are not for every nonprofit though. There must be enough supply (at a cost that makes sense) and demand for the product or service provided through the venture. For instance, in order for a bakery that employs disabled people to be successful, there needs to be enough potential workers, with the right skills and interest in working there, as well as enough customers who are willing and able to pay for the baked goods. Similarly, a nonprofit moving company that raises funds for a substance abuse treatment program also depends on a skilled labor force (who may also happen to be program participants), and a large customer base. While it is time-consuming to do market research to determine competitors and customers, develop a business plan, and prepare financial projections, it is important to do these things to make sure that the venture is viable.
Here are some other things to consider:
- There must be alignment between the earned income venture and the values and mission of the organization. The most attractive ventures both advance the nonprofit’s mission, and allow the organization to reduce their dependence on philanthropic donations.
- Organizations need the right human resources to execute the venture. This may entail hiring additional personnel with different skills and competencies than currently exists within the organization.
- Capital may be necessary to start-up the venture, requiring the organization to draw from reserves, get a loan from a bank, or raise funds from individuals, foundations, or corporations.
- A risk assessment should be conducted, and strategies to mitigate these risks should be identified, prior to launching the venture (many times, this is part of the business plan).
- Since earned income ventures differ from traditional forms of philanthropy, the Board and staff should be educated about the new initiative and what the benefits are. Everyone should embrace an “entrepreneurial spirit” when designing the venture.
- Pilot testing the product/service is important to ensure that it works, that there is a market for it, and that the resources it will take to develop it are not more than expected. Pilot testing also results in insight as to the challenges the new venture will face.
Nonprofits need to remember that earned income ventures are meant to compete with other offerings, and therefore, the products or services that they are providing must be of appropriate quality, and priced competitively. And, nonprofits must continuously adapt to changing markets, providing products and services that are responsive to customer needs. These considerations, combined with the above, will help organizations develop earned income ventures that are positioned for success.
 This blog post refers to nonprofit social ventures. For-profit organizations can also have a social mission built into their business model but they differ from nonprofits in elements such as ownership, transparency, and profit distribution.