YakShaving

The first panel after the keynote that I checked out at the Net Impact conference was the "Implications of Earned Income for Non-profits".

Speakers: Debra Natenshon, CEO, The Center for what works;  Barbara M FLom, Principal, Barbara M Flom, P.C.;  Alfred Wise, President, Community Wealth Ventures

The intent of this panel was to discuss strategies that non-profit leaders could use to sustain their organizations financially. (As donor funding has been decreasing, non profits have had to find clever ways to sustain themselves).

This topic was especially interesting because we see more for-profit companies committed to the social good playing in the same space that non-profits traditionally were in. Its interesting– as an entrepreneur, a person typically wants to make meaning… Create some sort of social benefit or good; the value associated with that benefit then becomes revenue for the entrepreneur’s business.   But what happens when a non profit organization, with a mission to create the same social good, offers the same value to the market?  (e.g.  Bakes pies for a bake sale and then donates parts of the proceeds to its charitable purposes)   The non-profit has the added advantage that its operations are tax exempt!  Nuh-uh, not fair, says the business owner.

The panel on earned income tried to address these and other closely related issues.

Some key take-a-ways:

• An earned income strategy should never be pursued if it takes management away from the core mission of the non profit.
•  The process of creating a business plan for the strategy is vital, even though the strategy is not a self standing money making enterprise.
• Kirk Cramer:  "Capital markets in non profit sector are broken"
• A lot of non profit work happens based on partnerships
• There are 1.2 M nonprofit startups in 501C3 category a year.  2/3 of these are <$75K a year in operating budget:  people need to ask themselves if there is a UNIQUE/distinct need out there to start a new non profit before going out and creating another — There is so much waste and overlap in creating a new C3 organization. The cost of maintaining C3 infrastructures is so high, and overinvestment in infrastructure means less $ dedicated to the mission.  If you truly want to make a difference, plug in to another organization that is already 90% aligned.
• Many non profits languish without government grants (which are decreasing).  With a donor relationship, many non profits suffer from a push/pull relationship where the donor drives the mission (not the leader of the non profit).   An earned income strategy would potentially change this model.
• Many non profits trudge along without failing for a long time because there are less market constraints or "competition" in the traditional sense.  Just because they don’t fail outright, doesn’t mean they aren’t haplessly ineffective!
• UBTI = unrelated business tax income
• Congress doesn’t want a tax exempt business to compete with a non tax exempt business.. but this can easily happen if we’re not careful… e.g NYU law school, owned largest macaroni company in country:  25 years of no competition.
• Earned income– once a year charity event:  This is okay!  More than once a year, watch out!
• If your C3’s scope of mission is narrow, you will be limited in what you can do.  If it is broad, your earned income strategy can be broader.
• SEPERATE leadership, SEPARATE P&L, SEPARATE staff AS MUCH as POSSIBLE!   SHARE only services/facilities/overhead.
• "Non profit"-> State law concept.. Not all non profits are "tax exempt" (federal law concept)
• In the coming years, look for lots of M&A action in nonprofit ventures