Andrew Nerger

MGMT 311
Case 4

The article “Should Nonprofits Seek Profits?” gives detailed insight into the theory of a
sustainable non-for-profit venture, earned income, and the history/modernization of non-for-
profits starting business ventures. The overall message of the article seems to be that non-for-
profits have a very hard time breaking even, sticking to their original mission, and cutting money
losing ventures. I feel though that the article does a poor job of explaining the disadvantages of
earned income ventures for nonprofits. As well the article fails to suggest alternatives for
underperforming non-profits. This essay will explain the advantages and disadvantages of profit
seeking social organizations as well as suggest ways that might help non-for-profits thrive in the
future.
First, the idea of a self sustaining nonprofit has been in the mind of many business people and
entrepreneurs for quite awhile. In the 1990’s nonprofits began to have feel an immense support
for earned revenue ventures including managers, board members and philanthropic foundations.
The idea was simple, to create a nonprofit that could sustain and even improve its effect on the
community by starting an earned income venture which would generate cash for the nonprofit. In
reality the idea of profiting nonprofits worked, the Chronicle of Philanthropy researched and
concluded that “Fees and charges accounted for nearly half of the growth in non-profit revenue
between 1977 and 1997- more than any other source.” Obviously for some non-profits earned
income provides a great way to provide cash for a social venture. Next, the article mentioned in a
side bar called The Pressure from Funders” a “non-profit job training agency” which raised
funds to create a commercial kitchen to sell services such as a café, catering operation, and seller
of whole sale food items. The article explained how this business venture was expensive, “…
costing more than 250,000 a year” and ineffective, “only ten students a year were being placed
into jobs…” So why did agency leaders keep it, “[that it was] the part of our story that most
excited donors about our operations”. The non-profit competed three objectives, it boosted
funding levels, it pursued its mission, and created a future of possible sustainability. The author
fails to mention how long the new venture had been running and assumes that there is no way
this non-profit could be more successful in the future. I believe that this venture could one day be
successful as more people come into contact with its benefits, but it must realize that it is
competing in a very saturated market where word of mouth plays a huge role. Another instance
where the article tries to spin an aspect of profit creating non-profits into a problem is on page
four, where it uses a study from CWV to explain that “a venture would take ten years to repay
the initial investment [for a for-profit venture]” It seems alarming, but really how does that
compare to the average commercial business? Optimistically it takes about three years to become
profitable, then depending on the industry ten years might be an average or even a great forecast
of when the initial investment will be paid off. The point is that a nonprofit that has a an increase
in sustainable funding from ten years ago is a successful non-for-profit when compared to
another one that simply doesn’t have those attributes, because it never invested into an earned
revenue venture. Another issue comes from the section titled “The disadvantages of Nonprofits”
in there it states that non-profit organizations may want a profit generating business that has
“conflicting priorities” of a business. It states that a non-for-profit might want to require living
wages for its workers, pricing that is affordable for the poor, or a healthier product than what is
offered (which would be more costly). I don’t see these as being disadvantageous issues, simply
if the earned income venture isn’t earning interest then it is not an earned income venture it is a
part of the non-for-profit itself. Also healthier products are not disadvantageous they are a
differentiator. Many commercial businesses make healthy products because that is a profitable
industry, because there is demand for it. Now that we have seen some benefits of these income
earned ventures let’s look at the disadvantages.
First, a business venture will have what the article calls a “lack of business perspective”. A non-
for-profot may get involved in an earned income venture and not realize that it is actually losing
money. The most shocking example of this is Midwestern Youth Services, or MYS salad
dressing who began to increase growth to its venture once it found out that it was already
breaking even. Unfortunately for the organization it missed calculated and instead of making a
thirty five cent sale on every bottle sold, it was actually losing about seven dollars for unrealized
costs. This example shows that a non-profit needs experienced business professional to run these
earned income ventures and more importantly a solid business plan that correctly estimates cost
and revenue so that managers know when the business should grow or be cut. Another issue is
the “reliance on indirect customers” many non-profits want to provide free services to their
customers and assume that indirect customers are willing to pay money for them. The example
given was a “human services non-profit” had created an internet based tool that would help users
find government financial benefits for utility use, but unable to get utility companies to pay for
the product because they could not calculate an exact benefit from adding it to their website. I
have a problem with the article explaining that businesses don’t pay for products that cannot be
calculated to the dime (see “rant” at the bottom of the essay that I realized didn’t fit in this
paragraph), but the true disadvantage I see came from the fact that this non-profit never asked the
company in the first place if it would buy the tool before investing heavily into it. From this
point of view it can be discerned that many non-for-profits lack basic insight into selling a
product which is key to success in any industry. The largest disadvantage I found with non-
profits starting a for-profit venture was titled “Philanthropic Capital and Escalation of
Commitment” basically non-profit owners see a failing business and instead of cutting loses;
they spend more money to revive their venture. I agree that this is a huge business issue, but if
they are trying to imply that it is unique to the non-profit industry I think that is a little
presumptuous. My thoughts are that all business owners deal with this problem and that for-
profit ventures fail probably just as often as non-for-profit ones. Again it goes back to the idea
that their needs to be outside expert opinion when evaluating any business opportunity from start
to finish. If you do not have the money to correctly research your business proposal then you
probably shouldn’t be investing money into a project that won’t work. So what are some ways a
non-profit can successfully compete in the business world?
As much as there is a push for non-for-profits to invest in earned income ventures there seems to
be an equal push from for-profits to be more socially active. Just yesterday I was in IHOP and
saw advertising for a free pancake day in which customers are asked to donate to a children’s
hospital in return for their meal. I believe that non-profits should partner with for-profits to gain
a strategic advantage. The social firm would gain business knowledge and resources from the
for-profit and the for-profit could gain such assets as a better brand image, customer loyalty, or
even stronger buying power. For example a non-profit organization trying to educate the public
on healthy eating could work with Campbell’s to make a health soup that would generate profits
for the social organization. Campbell’s could benefit by the greater buying power it would have
to get ingredients, as well it would gain knowledge as to whether customers would enjoy a more
organic products in the future. The non-for-profit would benefit from a huge distribution
network, industry knowledge of everything soup related, and a brand that customers easily
recognize.
Thus, while this article brings up some disadvantages of non-for-profits entering the earned
profit arena it fails to mention alternatives based on the questions it poses at the end of the
article. I feel that non-for-profits can be just as successful as commercial ventures and that
careful thought and planning need to be considered for anyone starting a for-profit business.

(Rant)
The article explains that businesses do not pay for products that cannot be calculated to the dime,
wrong, businesses do it all the time. Advertising made up 412 billion dollars in 2008 says Outsell
inc, now why would a business spend so much money on advertising when there is no way to
calculate how many people saw the ad and bought the service or product? Also there was a way
to calculate how many people used the tool, it’s called a “page counter” and almost all websites
use one. Every person who clicked on the link for the utility tool could have been counted and a
report explaining the increase in the usage of federal aid towards utilities could have been used to
verify the need for the product.