A post to Exponent Philanthropy's blog

How to Evaluate a Nonprofit Social Enterprise

How does a nonprofit organization operate effective programs and also run a successful social enterprise? How does its enterprise generate both earned revenue and significant benefits to the organization’s target population? Balancing these two goals is harder than it looks, requiring adept leadership that is mission-focused and skilled in resource management and clear messaging.

Some of our region’s brightest nonprofit leaders, working on dual fronts to change peoples’ lives through business-style programs, shared their methods with us in a recent NPO Conversation at GMA Foundations. It turns out, the complexity of simultaneously managing both a nonprofit and a business is real.

Here are three ideas funders should consider when evaluating the strength of a nonprofit social enterprise.

Is the enterprise embedded in the nonprofit’s mission?

The most successful nonprofit social enterprise uses sound business practices while meeting the specific and evolving needs of its target population. In other words, the organization’s clients could not be well served without the enterprise, and the enterprise would lack meaning without the social mission.

The social enterprise’s impact is multifaceted and evident not only in its business metrics but also in the lives it changes, the benefits radiating to its surrounding community, and the harder-to-measure contribution it makes to a movement for social change.

These nonprofit managers must be ever mindful of staying true to their social mission while pursuing business goals. Most are engaged in continual recalibration, shifting to meet their clients’ needs.

Does the business model focus on two or more bottom lines?

Nonprofit social enterprises present an intricate business model, competing with for-profits to serve customers with appropriately priced quality products while benefiting a population—often the enterprise’s own workers—whose needs may be greater than those of typical workers.

Successful leaders articulate a clear understanding of how the enterprise and the nonprofit programs support one another. They find ways of incorporating data on client needs and benefits into the enterprise’s profit and loss statements.

Success is sometimes defined by the things that aren’t happening. One leader asked, “What’s the ROI on our overall work? One homicide prevented could be $17 million in societal savings.”

The business model puts the goals of profitability, efficiency, and growth in the context of effectively meeting the needs of the people who are the focus of the nonprofit’s mission. Enterprise profitability would lead directly to an expansion of programs to the nonprofit’s target population.

Leaders of these programs are necessarily resourceful, forging cross-sector partnerships, attracting private-sector expertise, and testing ideas with their peers.

“We found a guy who knows warehouses to help,” reported one director about an operations challenge. An enterprise’s strength may derive in part from its access to transformative support; many of the leaders we met with mentioned organizations like the Roberts Enterprise Development Fund (REDF) and Catalyst Kitchens.

Is the story well told?

This complex organization must tell a clear, compelling story. It needs to shape a strong value proposition that resonates with the nonprofit’s clients and funders, the enterprise’s customers, and even its competitors and the community-at-large.

Excellent communications can further both the business and the program goals. The enterprise’s brand holds the capacity to change public perception of its clients, who are also its workers. The challenge lies in finding the narrative that accentuates the nonprofit’s clients’ potential without minimizing their need for philanthropic support.

GMA Foundations helps donors define and reach their philanthropic goals with expert advice and comprehensive services. Consider your own approach to investing in nonprofit social enterprise; contact Amy Segal Shorey, ashorey@gmafoundations.com.

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