The differences between “earned income strategies” and “social purpose business ventures”

Many non-profit Board members and executives are daunted by the prospect of social entrepreneurship because they think it means starting a business venture, something few know how to do. But creating a business isn’t the only way to be successful as a social entrepreneur.

In fact the most fertile ground for the vast majority of non-profits is something called “earned income strategies”, and they have nothing to do with starting a business venture. The two approaches differ substantially in terms of purposes, expectations and structure:

• Earned income strategies: Every non-profit has opportunities for earned income lying fallow within its existing programs. The opportunities may be tiny, but exploiting them can have a significant cumulative impact. By aggressively turning inward and searching for pockets of existing opportunities, non-profits have been able to register impressive gains, often raising their percentage of total revenue from earned income by as much as 15 percent within one or two years.

• Business ventures: Once a non-profit has successfully carried out a variety of earned income strategies, it may want to consider launching a formal business venture – but the goals would be much more ambitious and the strategy completely different. The only reason for a non-profit to start a business venture is to exploit a specific opportunity for significant growth and profitability – a substantial difference from earned income strategies, which are designed primarily to cover more of a program’s costs, without any real expectation of making a profit or even reaching a break-even point. The pioneers in the field have also discovered that the chances for success with a business venture increase dramatically if the organisation creates a “skunkworks”, a completely separate entity insulated as much as possible from the day-to-day operations of the organisation. That means having a separate staff, separate compensation policies and even a separate Board of Directors if necessary to achieve as much independence as possible.