Earning money is hardly a new concept for nonprofit organizations. In fact, the current economic environment may have you thinking about ways to turn your organization’s products or services into new sources of revenue.
Perhaps your organization prints a booklet on preventing substance abuse. Might people be willing to buy this? Perhaps your nature center has room in its lobby for a retail store. Would visitors like to buy gift items, books, and apparel from you?
Fieldstone Alliance encourages nonprofits to evaluate opportunities for earned income. If these activities are related to the nonprofit’s mission, the venture generally can be engaged in without limitations and without incurring tax liability. These types of mission-related earned income activities are often called “social enterprise.”
If your activity is not mission-related you may have to pay unrelated business income tax. But in many cases, paying the tax is worth it if your net revenues are high enough. Be careful though to not have too much of your income from non-mission-related activities.
There are other caveats about earned income. Rolfe Larson, author of Venture Forth! The Essential Guide to Starting a Moneymaking Business in Your Nonprofit Organization, urges caution in evaluating what may sound like a “pot of gold.”
That said, let’s look at potential revenue resources that can be implemented fairly quickly, and then examine the steps for evaluating a more long-term business venture.
Making money from what your nonprofit already does
Quick profits are a rarity in private business, and they are just as rare in the nonprofit sector. Tom Triplett, a principal consultant at Fieldstone Alliance, says it normally takes at least six months for a nonprofit to identify a good funding source and get it started. But, two things can be done quickly to “monetize” what you’re already doing:
First, expand your market to other clientele. Target customers who do not have access yet to your product or services. You may be able to charge this new pool of customers for what you are already providing at no charge to your existing customers. (If you’re currently providing your substance abuse prevention booklet free to your current clients, could you begin to sell it to nonprofits for use by their clients?)
Second, offer your consulting knowledge to groups who need your expertise. In the nonprofit sector, one of the most valuable things we have is the knowledge generated from years of working with clients. Think of others who want to learn to provide similar services in other market areas and who would be willing to pay for that knowledge. Many buyers of your knowledge are open to some kind of payment structure – in addition to paying your travel expenses. (If you’ve learned how to successfully run a gift shop in your nature center, could you sell that knowledge to other centers that want to do the same thing?)
A deliberate, more long-term process for pursuing ventures
Beyond these quick approaches to finding new revenue sources, you can also begin a more deliberate process of pursuing a venture development. In Venture Forth!, Rolfe Larson recommends a seven-step process:
- Get organized
- Conduct a venture audit
- Brainstorm and screen venture ideas
- Perform quick market tests
- Do feasibility market research
- Prepare feasibility financial analysis
- Write a business plan
Step 1: Get organized
Your organization needs to select a project leader and a venture team to assess how certain ventures will fit with your strategic plan, specify the purpose and overall objectives of ventures for the nonprofit, and secure support from your leadership.
Expect this first step to take two to four weeks (or eight to sixteen hours).
Step 2: Conduct a venture audit
Now it’s time to assess the strengths and weaknesses of your organization for venture development. The venture team will also look for potential customers among current constituents and determine what your organization does best. The best venture opportunities usually build on current constituents and core competencies. This analysis will help determine what kinds of business skills your staff and board of directors possess. During this step, it’s important to evaluate possible customers, products, and services.
Expect this second step to take three to six weeks (or thirty-two to sixty-four hours).
Step 3: Brainstorm and screen venture ideas
Now the fun starts. First you decide if outside consulting is needed, then an entrepreneurial committee is selected. The committee looks over the venture audit, then it’s time to brainstorm ideas. Begin your brainstorming by looking at the potential customers you know best: your current constituents or others you work with on a regular basis. What unmet needs do they have that match up with your core competencies? Next, identify what additional customers and markets you could sell your products or services to. Finally, narrow your list to the three most promising ideas.
Expect this step to take four to eight weeks (or sixteen to thirty-two hours).
Step 4: Perform quick market tests
The venture team will then take the three best ideas and put them through a quick market test. From written materials and interviews, the team will gather enough data to enable it to make a quick judgment on each venture. If the results are promising the team will select one idea to put through more thorough feasibility research.
This step can take from four to eight weeks (or forty to eighty hours).
Step 5: Do feasibility market research
Here is where the heavy lifting begins. Feasibility market research takes the most analysis, time, and hard work. Often, when ventures fail, the problem can be traced back to inadequate feasibility work. Your venture idea must be tested against the marketplace by gathering in-depth information on customers, markets, and competitors. This information needs to be placed up against your organization’s unique strengths and weaknesses. This analysis can help you decide if your venture idea truly can be turned into a business.
This step can take from five to ten weeks (or 50 to 100 hours).
Step 6: Prepare feasibility financial analysis
At this point the team translates its research into a budget and financial projection. You also need to identify remaining uncertainties facing the venture. With this phase of analysis completed, you should have enough information to decide if the venture should be launched.
Expect this step to take three to six weeks (or twenty to forty hours).
Step 7: Write a business plan
Now you are ready to convert the analytical work of the feasibility study (steps five and six) into a practical implementation plan – or, in other words, a business plan.
The business plan involves making key decisions about staffing, location, and equipment. You will need specific plans for operations, marketing, and financing. In practice, this step takes less time than the feasibility study, but in some ways it is more difficult, because you will need to make tough decisions that impact what happens when the venture starts up.
This step can take from four to eight weeks (or thirty to sixty hours).
Move from an inside view to an outside view
As you move through the venture development process, you may start with an impressionistic, internal perspective based on what you already know. As you consider various venture possibilities, you will move to an external, market-based perspective. Research and analysis will sharpen your focus into one idea. You will get to know the idea in great detail – as you should, for it will most likely become your new venture.
This article first appeared in the November 2008 edition of Fieldstone‘s Tools You Can Use e-newsletter, and is reprinted with permission.
