Enterprising nonprofits

Faced with rising costs, more competition for fewer donations and grants, and increased rivalry from for-profit companies entering the social sector, nonprofits are turning to the commercial arena to leverage or replace their traditional sources of funding. The drive to become more businesslike, however, holds many dangers for nonprofits. In the best of circumstances, nonprofits face operational and cultural challenges in the pursuit of commercial funding. In the worst, commercial operations can undercut an organization's social mission. To explore the new possibilities of commercialization and to avoid its perils, nonprofit leaders need to craft their strategies carefully. A framework-what the author calls the social enterprise spectrum--can help such leaders understand and assess their options. Nonprofits first must identify potential sources of earned income; then they should set clear and realistic financial objectives. Commercial programs don't need to be profitable to be worthwhile. They can instead improve the efficiency and the effectiveness of organizations by reducing the need for donated funds; by providing a more reliable, diversified funding base; and by enhancing the quality of programs by instilling market discipline. In the end, commercial operations will not--and should not--drive out philanthropic initiatives. But thoughtful innovation in the social sector is essential if organizations are to leverage limited philanthropic resources.