03/05/2013 05:27 pm ET Updated May 05, 2013

How Nonprofits Can Do More With Less

With Congress and President Obama having allowed $85 billion of automatic, broad-cased cuts in federal spending to go into effect late last week, it's safe to assume that nonprofit social service organizations are going to have to learn how to do more with less in the coming years. The federal government -- along with severely strapped state governments -- will be cutting back on their spending for people in need.

This is a significant problem, of course, but it also represents an unusual opportunity.

Nonprofits that work with the most vulnerable Americans -- the homeless, veterans, disenfranchised young people, former offenders, people addicted to drugs or alcohol -- will have to become more enterprising. They can create new sources of income and withstand a reduction in government support if they flex their entrepreneurial muscles, creating new businesses to sustain worthy programs.

These businesses, known as social enterprises, serve two fundamental purposes: they train people on the margins of the economy, preparing them for good, full-time jobs in the private sector, and they raise money to finance more social-service efforts.

This idea is not at all new, of course. Housing Works, an advocacy organization for people with AIDS and HIV, operates a catering service, a café/bookstore and a dozen thrift shops in New York City.

Homeboy Industries, which works with former gang members and ex-offenders in Los Angeles, has demonstrated an unusual entrepreneurial zeal. Among many businesses, Homeboy operates a bakery, a café, and a diner. It makes tortilla strips and salsas that are sold in Southern California supermarkets and it sells food from its bakery and café at more than 20 farmers markets in the region. And that's not all: there's also a catering business, and a silkscreen and embroidery service for customized shirts, pens and other items.

These organizations and others like them have managed to provide on-the-job training for their clients and create new sources of income. In an era when government largesse is surely on the wan, nonprofits are going to have to rely much more heavily on these kinds of enterprising business models.

Our nonprofit, The Doe Fund, has been creating new enterprises for more than two decades. We work with single, homeless men, and we have specialized in providing our trainees with paid transitional work, along with a host of other supportive services. To prepare them for the rigors and discipline of work, we created our Ready, Willing and Able program, in which formerly homeless men in our three residences in New York City, along with a fourth in Philadelphia, clean sidewalks and streets in business improvement districts.

We have added a number of other social enterprises over the years. We have a pest control business, from which some of our best clients have graduated to private-sector jobs paying as much as $25 an hour. We also run a culinary business, back-office and direct-mail enterprises, and a company that recycles cooking oil from restaurants. We are currently developing an urban farming venture.

With plenty of help from the city and state governments, and the generosity of thousands of charitable donors, we have grown into an organization with an annual budget of more than $50 million. Nearly 800 formerly homeless men live in our four residences at any one time, and we also serve nearly 500 more people in day programs.

About a third of our revenue comes from government, a third from private donations, and a third is revenue from our businesses. We feel a strong need to continually expand our social enterprises, as do many other nonprofit organizations.

Government could help promote this trend. City, state and federal governments could provide seed money to help nonprofits establish new businesses, for example. These grants could be for a limited time, say three years to jump-start a new business, and would cost far less than many governments are now spending on conventional social-service programs.

Enterprises run by nonprofits offer a compelling way for people with limited educations and minimal employment histories to lift themselves from lives of dependency and extreme poverty.

Working in the bakery run by Homeboy Industries in Los Angeles or in The Doe Fund's pest control business, people whose prospects were once minimal develop the discipline and attitudes essential to success as workers in the private sector. They also are taught specific skills that lead to real, full-time jobs, the kind that enable them to achieve responsible, dignified adult lives. They deserve no less.