Making Social Enterprise Work: A Funder's Perspective

09/07/2011 05:00 pm ET | Updated Nov 07, 2011

"This has been a profound growing experience. One that has really changed the culture of our non-profit for the better in many areas."

These are the words of a nonprofit executive taken earlier this year from an anonymous survey by ZeroDivide of its grantees. The San Francisco-based Foundation has spent the last five years developing a social enterprise incubation program, designed to help nonprofits working with underserved communities become more effective and sustainable through tech and media-related business ventures.

Several of the ZeroDivide-supported ventures leverage the talents of low income youth to produce videos and websites for nonprofit and business clients. Another, Youth Radio, syndicates youth-produced content for radio and on the Web, with the goal of giving voice to marginalized young people. Women's Audio Mission even trains women for sound engineering jobs -- a field traditionally dominated by men.

The good news: four out of five current grant recipients reported profitability in the last quarter, during an economically challenging period. More importantly, most have consistently achieved or exceeded their social objectives.

According to ZeroDivide's CEO, Tessie Guillermo, "It all starts by validating a proven service delivery model that produces outcomes, then working with our portfolio grantees to build and deploy a business approach that monetizes and scales the model."

What has ZeroDivide learned from the experience to date? Lots! I know because I have consulted directly on the project since its launch in 2007.

Some key lessons include:

  • Do your homework. It takes a good deal of probing, and certainly more than reading a grant application, to determine if a nonprofit is a cultural fit for an earned income strategy. Making small "pipeline" investments up front can help weed out organizations that don't have what it takes.

  • Financial support is not enough. Especially for new enterprises, understanding how to build, run, and sustain a business is just as important as getting it funded. Ongoing technical support is critical for long term success.

  • It's all about the people. Nonprofits are famous for repurposing staff each time a new program is launched. Making sure staff -- new or old -- have the right skills to run the selected business cannot be overstated.
  • Think long term. The expectation that a one year investment is all it takes to get a new venture off the ground and sustainable is unrealistic. Foundations need to think and act long term just as they encourage their grant partners to do.
  • Measure the results. It is imperative to create clear financial, operational, and social metrics and have ventures report on their progress quarterly in the same way public companies do for their shareholders. This way the venture is able to track its own success and for the investor to know how their investments are performing.
  • Stand by your man (or woman). Innovators and risk takers fail often. The potential of a nonprofit venture may not appear in its balance sheets over the short term and business models may need to be tweaked. If something isn't working do your best to get help and have a little patience before getting a divorce.

There are many other lessons to be learned and shared when it comes to supporting the launch and growth of community-based social enterprises in the nonprofit sector.

At the end of the day, the job of the funder is not just to move a social venture along to the point where it is fully sustainable and no longer needs its support. Ideally it's about getting to a place where the nonprofit believes the venture aspect is part-and-parcel of its financial, social, and environmental mission(s) -- whether an investor is in the picture or not.

That's when you know an investment has truly paid off... and that the culture is truly shifting.

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