Nonprofits make strides in start-up arena

Facing hard-pressed donors who are increasingly more likely to pinch pennies than pitch in, some nonprofits are stepping out of character to try making a little money on their own.

Experts have coined businesses run by nonprofits as "social-purpose ventures." The ventures combine seemingly conflicting objectives: running a revenue-generating business while delivering on a nonprofit's social mission - whether it's saving the environment or serving the homeless.

Across the nation, such ventures are hiring ex-cons to drive moving trucks, teens to fix bicycles, or homeless people to prepare restaurant meals.

"This won't necessarily save nonprofits, but it certainly gives them a new revenue stream and a new opportunity to deliver on their mission," says Jaycee Pribulsky, program manager for Seedco, a New York-based nonprofit organization that helps small nonprofits construct and fund business ventures in more than a dozen states. "These programs are having a real impact [on the community] by giving many a second chance and keeping others off the streets."

Seedco has been supporting such programs since 1986, but only in the past two years have the numbers notably increased. The group saw inquiries grow from 20 nonprofits in 2000 to 150 last year.

In a survey commissioned by the Pew Charitable Trust, 42 percent of nonprofits say they are now operating a business venture, primarily in the cultural and health fields. Another 23 percent are planning ventures.

San Francisco's Delancey Street Foundation is one such program. The nonprofit has provided more than 10,000 ex-cons and the homeless with housing, food, and a job at one of the many businesses the foundation operates.

"The conventional rule of thumb is that 75 percent of individuals released from jail will go back. If they enter our program, that statistic drops to 25 percent," says Dr. Mimi Halper Silbert, Delancey Street's president. "So often convicts leave prison with no hope, no housing, and no job. Our program gives them that, but also gives them a way to succeed. Plus, we're giving them a real, marketable skill that they can take to their next job."

Running a small, community-based nonprofit business venture is no easier than running the neighborhood grocery store. And some nonprofits contend it's considerably harder. They face many of the same marketing and financial issues and are often ill-equipped to handle them.

"Ultimately nonprofits are looking for ways to shield themselves from economic uncertainty, but they have to understand that it's not always easy and it won't completely replace traditional fundraising," says William Grinker, Seedco's director. "There has to be an inherent way to merge the business with the mission. If you can't do that then a business venture won't be easy."

According to the Pew survey, business ventures often fail because of poor business planning and lack of capital. The survey also showed that only 35 percent of ventures make a profit; the rest either break even or are subsidized.

The Internal Revenue Service may also present roadblocks. In 1999, the agency rejected New York City's Recycle-a-Bicycle's bid for nonprofit status. The company says the IRS was reluctant to grant such status until the firm had a track record of the helping the community.

"That [IRS decision] certainly hurts our ability to raise funds, but it doesn't change our commitment to seeing to it that we keep children occupied with something good to do," says the organization's founder Karen Overton.

Recycle-a-Bicycle started with a tiny grant from Seedco to offer New York City youth an opportunity to get off the street and learn responsibility.

The program brings teens into a bicycle shop to learn the ins and outs of bicycle repairs and a retail operation.

"Every child that enters our program learns valuable skills they often aren't taught at home," says Ms. Overton. "The shop gives them that and our customers get the satisfaction of knowing that they're helping children."

Experts see nonprofits leaning on business ventures more in the years to come.

"Tough times have led many nonprofits to our doors and the popularity is only growing," says Seedco's Mr. Grinker.

"This isn't about replacing existing funding sources, but it is a way for [nonprofits] to diversify and lessen the impact of downturns," he adds.

Recycle-a-Bicycle's Overton jokes that the economic downturn has only caused her to add to the number of sidewalk sales rather than turn children away.

"The shop raised about $50,000 last year. It takes more than that to run the program, but it gets me that much closer to helping children," she says.