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Related Experiment Videos

Should nonprofits seek profits?

William Foster1, Jeffrey Bradach

  • 1Bridgespan Group. william.foster@bridgespangroup.org

Harvard Business Review
|February 24, 2005
PubMed
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Nonprofits often pursue earned-income ventures for financial discipline, but these ventures rarely succeed. Unrealistic optimism leads to distraction from core missions and wasted resources.

Area of Science:

  • Nonprofit Management
  • Social Entrepreneurship
  • Organizational Behavior

Background:

  • Nonprofit organizations increasingly adopt earned-income ventures to enhance financial stability and demonstrate business acumen.
  • Despite widespread adoption, the actual financial success and impact of these ventures are often overestimated.

Purpose of the Study:

  • To analyze the prevalence and effectiveness of earned-income ventures in the nonprofit sector.
  • To investigate the gap between the perceived benefits and the reality of nonprofit entrepreneurial activities.
  • To examine how nonprofits evaluate potential earned-income enterprises and the factors influencing these decisions.

Main Methods:

  • Qualitative analysis of nonprofit case studies and financial data.
  • Examination of decision-making processes for launching earned-income ventures.

Related Experiment Videos

  • Comparison of projected financial returns versus actual profitability.

    • Main Results:

    • Earned-income ventures constitute a small fraction of nonprofit funding and seldom generate significant profit.
    • Nonprofits exhibit unwarranted optimism, exaggerating financial returns and underestimating business challenges.
    • Social objectives can conflict with commercial viability, and the distinction between revenue and profit is often blurred, leading to financial losses.

    Conclusions:

    • Earned-income ventures can distract from and potentially undermine core social missions.
    • Unrealistic expectations surrounding these ventures lead to misallocation of resources and unmet social needs.
    • While having a potential role, a more realistic approach to evaluating and implementing earned-income strategies is crucial for nonprofits.