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'social enterprise' rarely works
Casselman, Wall Street Journal
June 01, 2007
For more than a decade,
a number of nonprofits have been embracing the tactics of the for-profit
world, starting businesses such as bakeries or catering companies
that employ disadvantaged people while using the proceeds to help
break free of the shackles of fund-raising.
But now some nonprofit
leaders and academics argue that this "social enterprise"
model is flawed. Few if any of the businesses set up by nonprofits
are truly self-sustaining, they maintain, and many have failed.
Moreover, some experts say an overemphasis on creating a viable
business can detract from an organization's social mission.
In a report set to be
released Monday, the Seedco Policy Center -- a newly formed research
arm of a New York nonprofit called Seedco -- argues that "overzealous
encouragement may have pushed too many nonprofits into ill-advised
commercial projects." The report advocates a new model that
embraces the entrepreneurial spirit of the business world without
expecting social-service groups to be self-supporting. "There's
no shame in subsidy," says Neil Kleiman, who heads the Seedco
policy center and is one of the report's authors.
gained prominence in the 1980s and 1990s, as cutbacks in government
grants and a downturn in private funding pushed many organizations
to seek ways to generate revenue. Prominent grant-making organizations
such as Pew Charitable Trusts and Kauffman Foundation began asking
recipients develop plans to sustain themselves. Many nonprofits
saw social enterprise as a way to become both more efficient and
Some nonprofits started
businesses that generate a significant percentage of their budget,
and a few approach self-sufficiency. FareStart of Seattle, which
trains homeless people for food-service jobs and provides related
services, generates about $1.5 million of its $3.5 million annual
budget by providing food to soup kitchens and child-care centers,
among other ventures.
Baltimore's Harbor City
Services, a nonprofit moving and document-storage concern that hires
workers with histories of mental illness and drug abuse, comes even
closer to funding its entire budget. The organization has certain
advantages, including loan guarantees that chief executive John
Herron acknowledges wouldn't have been available to for-profit competitors.
But Harbor City has operated for more than a decade without direct
government support and without soliciting private donations.
Many efforts have been
less successful, however. Mr. Kleiman and his fellow researchers
say they failed to find a single subsidy-free social enterprise.
Other studies, using different definitions, have found at least
a few examples, but experts agree they are the exception. A 2001
survey, published in the Harvard Business Review, found that 71%
of social enterprises lost money, even without factoring in indirect
costs covered by their parent nonprofit.
president of New Capital Consulting, which advises social enterprises,
says most will always rely on grants or other subsidies -- and that
isn't necessarily a problem. The risk, she says, is that in striving
for self-sufficiency, nonprofits will miss other opportunities to
achieve their missions.
That's what happened
at Seedco. In 2001, the organization -- a 20-year-old nonprofit
that runs work-force development and small-business support programs
-- launched a program to provide emergency backup child care to
low-income workers so that they wouldn't miss work when their primary
child care fell through. It was set up as a social enterprise: Seedco
contracted with child-care providers, then sold the program to businesses
as an employee benefit. Seedco thought the program would cover much
of its budget, help working parents keep their jobs, ensure quality
care for their children and give business to small child-care providers.
But few employers joined
the program, in part because it couldn't accommodate sick children
or late shifts. And relatively few employees signed up, preferring
to stay home with their kids rather than send them to a stranger's
house. Seedco shut the program in 2003.
Mr. Kleiman says Seedco
missed a chance to help its clients through more traditional means,
such as looking for sustained government or foundation support to
subsidize the program. "A lot of it was getting caught up in
the [social enterprise] mantra," he says. Seedco President
Diane Baillargeon adds that the program proved too complex, especially
for an organization without experience in either business or child
Ms. Beinhacker says there's
a lesson in such failures: "Stick to the thing that you know,"
she says. "Business is hard."
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