Pacific Business News

April 22, 2005

How nonprofits can make social enterprises work

by Sally Little

Social enterprises or earned income ventures have recently received negative press.

William Foster and Jeffrey Bradach cast skepticism on the ability of social enterprises to generate a profit in their article, “Should Nonprofits Seek Profits,” in the February 2005 Harvard Business Review.

Most nonprofit managers recognize that earned income ventures will not solve all their funding challenges. However, when the social enterprise is compatible with the nonprofit’s mission and used to diversify sources of revenue, the earned income venture often increases the organization’s visibility and leads to other opportunities.

Recently I had coffee with Gregory Dunn, executive director of the Hawaii Nature Center, and he shared some strategies they used in developing Eco-Odyssey, a social enterprise. During this eco/edu tourism program, high school students or adults spend the night at Iao Lodge at Hawaii Nature Center’s Maui Education site. They learn about Hawaii’s unique environment and participate in service learning projects.

I have incorporated some of Dunn’s “lessons learned” into the following tips to help ensure your social enterprise meets your expectations.

* Clarify the importance of earned income ventures for your nonprofit. This means educating your board of directors on the value of a social enterprise and setting realistic expectations. Your project may not generate a substantial profit, but it may increase your visibility in the community. It also may reduce your dependency on government contracts, foundation grants or special events. A clear definition of success alleviates disappointment with future outcomes.

* Select an enterprise within your mission. Since 1981, the Hawaii Nature Center has been connecting kids with nature through its day programs. Eco-Odyssey expands the Hawaii Nature Center’s reach to high school students and adults and to overnight programs. However, within these new parameters the Hawaii Nature Center still is fostering an awareness, appreciation and understanding of Hawaii and its natural environment.

Unfortunately many nonprofits start social enterprises that are beyond their mission, most often in the restaurant or catering business. These types of businesses have low profit margins, and managers must learn an entirely new business while managing their nonprofit activities.

* Capitalize on underutilized resources. The Hawaii Nature Center has owned the Iao Lodge for a number of years, but the ten resident accommodations were used for storage and accommodating visiting executives. The availability of these rooms made an overnight in the Iao rainforest a viable part of Eco-Odyssey.

* Listen to your customers. The idea for this earned income project came from a number of Maui residents who spoke of fond memories they had staying at the Lodge a number of years ago. These casual comments became the basis for Eco-Odyssey.

Staff at the Hawaii Nature Center also discovered that if they provided additional guest services, then tourists were more likely to participate in Eco-Odyssey and stay a few more days at the Iao Lodge. These include booking other activities and having additional meals catered.

* Maximize community resources. Maui County’s Product Enrichment Program provided marketing research for the project. This information helped the staff carefully analyze the viability of Eco-Odyssey. P.E.P. also provided funding for a DVD to promote Eco-Odyssey and the Hawaii Nature Center.

* Test your program. Although Eco-Odyssey was designed to provide an experience in the rainforest, some of the guests found the accommoda tions a little too close to nature. The creepy crawlies had to stay outside! By testing the project wit h a group of eco-tourists, the Hawaii Nature Center was able to make the necessary corrections at the outset. Since then, they have had happy eco-tourists.

* Expect the unexpected. Sometimes a social enterprise represents insurmountable challenges, but for the Hawaii Nature Center this project presented an exciting opportunity. Originally, Eco-Odyssey’s target population was high school and college students. They found an unexpected market as a corporate retreat. These Corporate groups participated in Eco-Odyssey and completed additional service projects for the center. Corporate visitors may also donate to the Hawaii Nature Center or partner with them on future projects.

Even though a social enterprise may not generate a significant financial return for the nonprofit, it may generate a significant social return on investment for our communities. For example, a person who experiences an overnight in the Iao rainforest through Eco-Odyssey is more likely to have an appreciation for and protect our fragile environment. That is a benefit the Hawaii Nature Center may find difficult to measure in dollars and cents.

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