Risky Business

NESsT Learning Series

risky business The impacts of merging mission and market

Nonprofit Enterprise and Self-sustainability Team

NESsT Learning Series

risky business The impacts of merging mission and market Lee Davis, Nicole Etchart, María Cecilia Jara & Brian Milder Abstract risky business examines the experiences of 45 civil society organizations (CSOs) working for social change in 15 countries that are generating their own revenues through self-financing activities. The research both assesses the financial and qualitative impacts of these activities on the organizations and highlights the “multiple bottom-line” demands CSOs face when merging the philosophies and practices of mission and market. Drawing upon these findings, risky business identifies the key challenges that confront entrepreneurial CSOs, suggests strategies for addressing these challenges, and establishes a broader framework for measuring and managing the performance of revenue-generating activities so as to maximize positive impact on their parent organizations.

risky business: The impacts of merging mission and market Copyright © NESsT 2003

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Nonprofit Enterprise and Self-sustainability Team José Arrieta 89 Providencia, Santiago, CHILE Tel: +(56 2) 222-5190 Fax: +(56 2) 634-2599 Email: nesst@igc.org http://www.nesst.org

NESsT promotes the social, political, economic and religious rights of all people and does not discriminate on the basis of gender, race, national origin, mental or physical disability, sexual orientation, or political or religious opinion or affiliation.

The entire contents of this publication are copyright by NESsT except where copyright is attributed to other individual authors or organizations. All rights reserved.

No part of this publication may be sold in any form or reproduced for sale without prior written permission of the copyright holders.

Copyright © 2003 NESsT ISBN: 1-930363-04-4

This publication contains information prepared by sources outside NESsT, and opinions based on that information. NESsT strives to provide accurate information and well-founded opinions, but does not represent that the information and opinions in this publication are error-free.

This publication is for informational purposes, and NESsT is not engaged in providing legal, accounting or other professional advice. As professional advice must be tailored to the specific circumstances of each situation, the information and opinions provided herein should not be used as a substitute for the advice of a competent professional.

NESsT does not undertake to update this publication. risky business: The impacts of merging mission and market Copyright © NESsT 2003

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Table of Contents Acknowledgements .................................................................................4 Definitions ................................................................................................6 Chapter 1

Social Change Hybrids .............................................................................9 Chapter 2

Gathering the Data .................................................................................25 Chapter 3

Impact on Mission ..................................................................................43 Chapter 4

Financial Performance ...........................................................................63 Chapter 5

Impact on Operations, Institutional Culture and Orientation, and Stakeholder Relations .....................................................................87 Chapter 6

Impact on Resource Diversification, Asset-Building and Organizational Autonomy ............................................................129 Chapter 7

Toward Self-Financing Success ............................................................155 Appendix I

CSO Case Summaries ...........................................................................169 Appendix II

CSO Data ..............................................................................................261 Bibliography .........................................................................................275 About NESsT .........................................................................................280 NESsT Publications ...............................................................................282

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Acknowledgements

NESsT would like to thank the following individuals and institutions for their invaluable support in the preparation of risky business.

First and most importantly, we would like to express our gratitude to the directors and staff of the 45 CSOs that participated in this study.

Without their willingness to respond to the questionnaires and interviews and the many follow-up questions, this study would not have been possible. We greatly appreciate their commitment to sharing their experience of self-financing with the larger CSO community.

Second, we would like to thank the foundations that provided financial support for the study. We appreciate their generous contributions: The Aspen Institute Nonprofit Sector Research Fund The David and Lucile Packard Foundation The Tinker Foundation Third, we would like to recognize the following donors whose general support of our work in Central Europe and Latin America made this research possible: American Express Foundation Charles Stewart Mott Foundation Rockefeller Brothers Fund The Staples Trust Finally, we would like to thank all those who contributed their time, ideas and creativity to the research and production of risky business.

Research assistance Lisa Cannon- Assistance with the research and writing of the CASE case study.

Phil Collyer- Assistance with the update of the Greater DC Cares case study.

Allyson Hodgins- Assistance with the research and writing of the Shorebank Neighborhood Institute case study.

Sherry Hudson- Assistance with the research and writing of the Geneva Centre case study.

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Christine Jasper- NESsT Entrepreneur-in-Residence, assistance with the research of several cases.

Sara Olsen- Assistance with the research of the Shorebank Neighborhood Institute case study.

Research in Central Europe was conducted in collaboration with: Lotos o.p.s. (Czech Republic) Centre for Nonprofit Management (Slovenia) Civil Society Development Foundation (Hungary) Partners for Democratic Change (Slovakia) Production László Falvay: Design of the rabbit and turtle illustrations.

Janis Foster: Editing of the English version.

Carolina García: Overall design and layout of both the English and Spanish versions.

Piera Lombardi: Design and layout of both the English and Spanish versions.

Bernardo Martínez: Photo of rabbit and turtle.

José Neira: Design of both the English and Spanish versions.

Ana Victoria Soto: Translation and editing of the Spanish version.

Reuben Stern: Design of all the figures and several tables.

Duplimedia & Magnetic Media - Chile: CD cover printing and CD Rom recording.

Thank you all!

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Definitions

Civil society organization (CSO): Any of the formally registered non-

profit, non-state organizations or community-based associations and groups that fall outside the sphere of the government and business sectors.

Client-driven: A term referring to CSOs that take on new projects

based on the demand of paying clients and not necessarily because of the CSOs’ mission priorities.

Cost-recovery programs: Programs in which fees are charged for mission activities with the intent of recouping part or all of the costs of operating the activity (rather than with the goal of generating a profit).

Demand-driven: See client-driven.

Double bottom line: A term referring to businesses that pursue both financial and social goals (“triple bottom line” includes environmental objectives as well).

Fees for services: Income from a self-financing activity in which a

CSO contracts work for paying clients in the public or private sector (e.g., a CSO provides consultation services to businesses or local government).

Investment dividends: Income from a self-financing activity in which

a CSO earns income from investments either passively, through interest from savings accounts or mutual funds, or actively, by trading on the stock market or engaging in debt swaps.

Membership dues: Income from a self-financing activity in which a CSO collects dues from members or beneficiaries in exchange for some kind of product, service, or other benefit (e.g., a newsletter, magazine, or discounts on CSO products or services).

Mission drift: A term referring to CSOs that initiate self-financing activities and end up focusing attention on these activities at the expense of their social missions.

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Multiple bottom line: A term referring to businesses that pursue more than simply financial profit (usually social and/or environmental objectives).

Nonprofit enterprise: A for-profit business operated by a CSO and

managed either within the CSO’s legal structure or as a separate, subsidiary entity (i.e., there are no individual shareholders).

Nonprofit enterprise activities: See self-financing activities.

Organizational culture: The qualitative work dynamic that exists among the internal team (staff, board, and volunteers) of a CSO. Product sales: A self-financing activity in which CSOs sell the products of a project (e.g., books or publications), resell products (e.g., in-kind donated items) at a marked-up price, or produce and sell new products (e.g., T-shirts, handicrafts).

Self-financing activities: CSO revenue-generating strategies, including fees for services, product sales, use of hard assets, use of soft assets, membership dues, and investment dividends.

Social costs: The additional costs, above and beyond regular business costs, that are incurred in pursuing a social mission, including the extra time needed to supervise workers who may be unaccustomed to the workplace; added labor costs when employees are less productive than those in traditional for-profit business; and increased costs incurred when the organization holds itself to social and environmental standards that are more rigorous than those imposed by local law.

Social enterprise: The terms “social entrepreneur” and “social enterprise” have been used in a range of contexts and may refer to individuals or entities that pursue social change through earned income or business activities or simply to individuals or entities that use innovative methods to advance social change but that are not necessarily generating revenues.

Social-purpose business: A revenue-generating entity, often owned

and operated by a nonprofit organization, whose express purpose is to employ at-risk clients in the business venture.

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Stakeholders: Groups such as beneficiaries, members, peer organiza-

tions, and donors, which have a direct relationship to a CSO and a vested interest in its work.

Use of hard assets: A self-financing activity in which a CSO rents out

real estate, equipment, or other physical assets when these assets are not being used for mission-relaed activities.

Use of soft assets: A self-financing activity in which a CSO generates income from it’s intellectual property, e.g. patents through licensing agreements or by endorsing products with the organization’s name or reputation.

Venture philanthropy: A form of engaged philanthropy that aims to

build capacity and long-term organizational sustainability among nonprofits, often by transferring business practices to the nonprofit sector

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Nonprofits are evolving into hybrid organizations that merge the philosophies and practices of mission and market.

Chapter 1

Social Change Hybrids

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1.1 Introduction The past two decades have witnessed a blurring in the traditional lines between the for-profit and nonprofit sectors. For-profit firms are increasingly entering areas that have historically been identified more with nonprofit or governmental organizations, such as health, social services, and international development. Conversely, in a simultaneous effort to develop greater financial independence and advance their valuable social missions, many nonprofit civil society organizations (CSOs) from around the world and across various fields have grown more market savvy and are attempting to generate their own sources of income. Whether motivated by social goals, such as providing employment opportunities for their beneficiaries, or by the financial necessity to generate resources when donor support is lacking, nonprofits are evolving into hybrid organizations that merge the philosophies and practices of mission and market.

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Revenue-generating “self-financing” or “social enterprise” activities have produced notable successes, not only financially but also socially and organizationally, for many CSOs. Yet these activities have also raised both difficult ethical questions and additional practical challenges for organizations already operating under trying circumstances. The research presented in risky business provides an initial framework for assessing the various organizational impacts of CSO self-financing activities from several key perspectives. Specifically, risky business draws upon the experiences of 45 social-change CSOs conducting self-financing activities in 15 countries to examine the multiple trade-offs that nonprofit organizations confront when they attempt to generate their own sources of income.

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NESsT uses the term “civil society organization” (CSO) in this research to refer to the wide range of formally registered nonprofit, non-state organizations as well as community-based associations and groups that fall outside the spheres of the government and business sectors.

2 The terms “self-financing activities,” “social enterprise activities,” and simply “enterprise activities” are used to refer to various CSO revenue-generating strategies. Self-financing activities include fees for services, product sales, use of hard assets, use of soft assets, membership dues, and investment dividends and are used by CSOs to generate revenues to supplement external donor funding. The terms “social entrepreneur” and “social enterprise” have been used in a range of contexts and may refer to individuals or entities that pursue social change through earned income or business activities or simply to individuals or entities that use innovative methods to advance social change but that are not necessarily generating revenues. In its work, NESsT uses the first definition of social enterprise, but specifies that a social enterprise is a planned activity that has a high potential for advancing social change and generating untied revenues for the organization. This term is not used throughout the book, as the research focused more broadly on CSO self-financing activities, many of which are revenue-generating strategies rather than full-fledged, high-social-impact businesses.

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The book is intended to help CSO practitioners evaluate their selffinancing activities more “holistically” so that they can identify and maximize the benefits that might arise from them, on the one hand, and anticipate and preempt potential pitfalls on the other. It identifies various obstacles to self-financing success and cautions CSOs against pursuing revenue-generating strategies simply to earn income and without engaging in careful pre-planning. However, on the whole, it finds that self-financing activities have produced positive impacts for the majority of CSOs in the study. Drawing upon these findings, the book aims to inform the current flurry of debate on the issue of merging mission and market and to assist donors and policymakers in defining effective ways of promoting CSO enterprise activities successfully and responsibly—all in the wider effort of building greater financial sustainability among nonprofits and enhancing their valuable contributions to society.

1.2 Hybrid Organizations: Merging Mission and Market The expanding overlap between the traditional for-profit and nonprofit sectors has spawned an array of hybrid organizations that fall loosely into two categories. The first category includes businesses that employ socially and environmentally responsible practices, such as Ben & Jerry’s Homemade, The Body Shop, Newman’s Own, Patagonia, and Pura Vida Coffee. The second category includes CSOs that own and operate enterprise activities either within their nonprofit legal structure or as separate, subsidiary entities. Figure 1.1 demonstrates these two types of “mission-driven” hybrid organizations.

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The organizations that are detailed in this book fall within this second group. Although both hybrid institutional forms may be loosely classified as mission-driven organizations, there are two fundamental differences between socially responsible businesses and the entrepreneurial CSOs examined here.

3 It is important to note that these concepts are defined subjectively, as there are no generally accepted guidelines for determining social and environmental responsibility.

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FIGURE 1-1: MISSION-DRIVEN BUSINESSES The crossover between the traditional for-profit business and nonprofit CSO form creates two types of hybrid “mission-driven businesses.”

BUSINESSES

MISSIONDRIVEN BUSINESSES

CSOs

Type:

For-profit

Nonprofit

Priorities:

1) profit; 2) mission/values

1) mission/values; 2) profit

Destination of Income/ Profits:

Distributed to shareholders/ owners (perhaps a percentage is donated to charity depending on financial performance)

Reinvested in the missionrelated activities or administration/core activities of the nonprofit (required by either law or organizational policy)

Accountability:

Shareholders

Stakeholders

1) Priorities/accountability. Both types of institutions promote a “double bottom line” of mission and profit, but the difference in order of priority distinguishes the two. For-profit businesses ultimately make decisions on the basis of profitability or their accountability to profit-seeking shareholders. CSOs, on the other hand, while attentive to the profitability of their enterprise activities, must remain first and foremost true to their social mission and accountable to their stakeholders.

4

2) Destination of income. All income from social enterprise activities must be allocated to advance the organization’s mission-related work, while the profit from for-profit businesses is distributed to owners and shareholders.

4 Some for-profit businesses may voluntarily choose to set aside a portion of their income for social or environmental causes. For example, Ben & Jerry’s gives away 7.5% of its pre-tax income to nonprofit social causes, while Patagonia donates 10% to environmental projects.

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These fundamental differences emphasize that while for-profit businesses may choose to adopt socially responsible practices, such measures are not legally binding. If socially responsible practices are perceived as inhibiting the business’s financial bottom line, they can be modified. Thus, when tensions arise between the financial and social missions of these businesses, there are usually overwhelming pressures and incentives to give priority to financial performance at the expense of social values.

By contrast, nonprofit organizations that operate self-financing activities are confronted with much more complicated dilemmas.

Organizational mission must always remain paramount, but entrepreneurial CSOs do not have the luxury of giving only secondary consideration to the financial performance of their enterprise activities.

The reality is that in order to use self-financing strategies effectively, these CSOs must strike a balance between often conflicting priorities that may pull their limited time, resources, and expertise in different directions. Otherwise, they defeat the entire purpose of engaging in self-financing in the first place and jeopardize both their limited financial resources and, more fundamentally, the organization’s ability to pursue its social mission.

1.3 Old Idea, Growing Phenomenon While CSOs are increasingly turning to self-financing activities in an uncertain financial landscape, the use of such strategies in the nonprofit sector is nothing new. From ad hoc T-shirt and bake sales to more sophisticated business enterprises and investment funds, CSOs of all types have long been involved in revenue-generating activities of some kind. In the early 1980s, a great deal of attention was devoted to examining the issue of social enterprise (then called “nonprofit enterprise”) in the United States in response to federal spending cuts to the nonprofit sector during the Reagan administration. Similarly, in Western Europe, under the rubric of the “social economy,” the historical influence of the cooperative movement with worker- or member-controlled enterprises for the common good has had a marked impact on the economic, political, and social landscape.

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5 For more on the social economy, see http://www.inaise.org, the website for the International Association of Investors in the Social Economy. For an overview of the role of “social enterprises” in the European Union, see Community Economic Development and Social Enterprises: Experiences, Tools and Recommendations. Technologie-Netzwerk Berlin e.V. and European Network for Economic Self-Help and Local Government. Berlin, 1997.

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During the late 1980s and early 1990s, while the profile of social enterprise dropped in the United States, many organizations continued to successfully operate and expand their activities. In the booming economy of the late 1990s, social enterprise became a hot topic once again among donors, sparked by a debate regarding the merits of a more engaged form of philanthropy frequently referred to as “venture philanthropy.” Venture philanthropists aim to build capacity and long-term organizational sustainability among nonprofits, often by transferring business practices to the nonprofit sector. Some, like Ashoka, an international nonprofit organization, provide direct capacity-building support to individual social entrepreneurs, mainly practitioners that are pursuing social change in an innovative or “enterprising” fashion but not necessarily through enterprise activities. Others, such as the Boston-based New Profit, Inc., work with successful nonprofit organizations to “scale up” and replicate their model. Members of a third group, including the Roberts Enterprise Development Fund in California, Common Good Ventures in Maine, and NESsT in Central Europe and Latin America, specifically promote the enterprise activities of their CSO investees. The results of these efforts will influence whether Western funders continue to promote social enterprise or whether enterprising CSOs will be left to fend for themselves.

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The resurgence of enterprise activities among CSOs in “more developed” countries has been mirrored by the initiation of similar activities among nonprofits in “developing” regions. Yet ironically, whereas funders have pushed to promote social enterprise in “developed” 6 Community development corporations such as New Community Corporation, Bethel New Life, and The East Los Angeles Community Union have used enterprise activities effectively to rejuvenate formerly blighted areas in cities such as Newark, Chicago, and Los Angeles, respectively.

7 An article by Christine Letts in the Harvard Business Review sparked a debate regarding the similarities and differences between grantmakers and venture capitalists. See Christine W. Letts et al., “Virtuous Capital: What Foundations Can Learn from Venture Capitalists,” in Harvard Business Review (March-April 1997) and the response from Bruce Sievers, “If Pigs Had Wings…,” in Foundation News & Commentary (November-December 1997) pp. 44-46.

8 Christine Letts coined the term “venture philanthropy” in her 1997 Harvard Business Review article. The Morino Institute and its affiliate Venture Philanthropy Partners have been at the forefront of promoting this emerging field. NESsT convened the first International Venture Philanthropy Forum in Budapest, Hungary, in October 2001 to bring together individual and institutional donors that are pursuing philanthropy strategies to promote longer-term sustainability among CSOs. Recently, this approach has also become known as “engaged philanthropy.”

9 For an overview of more than 50 national and international organizations involved in venture philanthropy, see Venture Philanthropy 2002: Advancing Nonprofit Performance Through HighEngagement Grantmaking (prepared by Community Wealth Ventures and published for Venture Philanthropy Partners in January 2002; http://vppartners.org/learning/reports/report2002/report2002.html).

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countries, their withdrawal from “developing” countries has prompted local CSOs to adopt these practices themselves. Throughout the emerging democracies of Central and Eastern Europe and Latin America, a younger, growing generation of CSOs is increasingly engaging in revenue-generating activities in response to both waning international assistance and the inadequacies of local philanthropic giving. Many CSOs in the “developing nations” of Africa and Southeast Asia have also turned to the marketplace, motivated either by cultural or religious philosophies of self-help or by dire economic conditions and the lack of other financing options. These concurrent trends among CSOs operating in diverse regions of the world and confronting distinct realities reflect the vast potential for enterprise activities to strengthen the ability of CSOs to pursue their missions.

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Meanwhile, research in the nonprofit sector is only just beginning to catch up with developments in the field. Until recently, what little empirical research that had been done was largely descriptive in nature and typically focused on organizations in the United States, Western Europe, and other developed countries. In the late 1980s, a number of practical guides for social enterprise emerged, and several intermediary support organizations, such as the Grantsmanship Center, the Center for Community Change, the International Red Cross, and the International Fund Raising Group (now known as Resource Alliance), began publishing training and how-to materials that include references to social enterprise. However, when NESsT launched the research for risky business in 1999, there were few, if any, 12

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10 See, for example, Lee Davis and Nicole Etchart, Profits for Nonprofits: An Assessment of Challenges in NGO Self-Financing. NESsT. Budapest, 1999, for an in-depth analysis of nonprofit entrepreneurial activities in four Central European countries (Czech Republic, Hungary, Slovakia, and Slovenia).

11 See also Lee Davis, The NGO–Business Hybrid: Is the Private Sector the Answer? Program on Social Change and Development, Johns Hopkins University School of Advanced International Studies.

Washington, 1997, for an analysis of 16 CSOs in 13 countries and on four continents that have launched self-financing activities in response to changing trends in international development financing.

12 For example, see James C. Crimmins and Mary Keil, Enterprise in the Nonprofit Sector. Partners for Livable Places and Rockefeller Brothers Fund. New York, 1983. For a similarly descriptive but more recent study of social enterprise in Australia, see Paul Bullen et al., Nonprofits in Busine$$: Business Ventures Operated by Community Organizations in NSW and the ACT. WorkVentures. Surry Hills, 1997.

13 Edward Skloot’s work, particularly The Nonprofit Entrepreneur: Creating Ventures to Earn Income.

The Foundation Center. New York, 1988, provided insight into the planning and implementation of nonprofit enterprise activities in the United States. Similarly, Richard Steckel's work with the troubled Denver Children’s Museum provided useful practical guidance for U.S. nonprofits in implementing “public purpose partnerships” and earned income strategies. The Charities Advisory Trust in London has also produced some practical guides for “charity trading” in the United Kingdom, namely Hilary Blume’s The Charity Shops Handbook. Charities Advisory Trust. London, 1995, and some research on trends in charity trading among U.K. voluntary organizations.

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analytical studies of social enterprise activities, and fewer still that examined such practices in developing countries.

In the past couple of years, a flurry of books and articles has brought increasing prominence to the field, while also providing both more in-depth analysis of social enterprise and a fuller range of tools for “social entrepreneurs.” Two recent books by J. Gregory Dees, Jed Emerson, and Peter Economy, along with books and studies by Sutia Kim Alter, Jerr Boschee, Peter Brinckerhoff, Lee Davis and Nicole Etchart (NESsT), Rolfe Larson (Amherst H. Wilder Foundation), and Andy Robinson, have been at the forefront of this recent wave of publications. Nevertheless, the research that exists regarding revenue-generating strategies in the developing world and emerging democracies is still primarily limited to discussions of sustainability in the microcredit and small-business development fields. Little research exists as to the relevance or application of these approaches to local CSOs in developing countries working in the fields of community development, culture, education/training, the environment, health, and social service.

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1.4 How to Measure Performance The growth of self-financing activities among CSOs has sparked a discussion about how to measure the impact of social enterprises. The concept of a “double bottom line” evaluation that measures both See J. Gregory Dees, Jed Emerson, and Peter Economy, Enterprising Nonprofits: A Toolkit for Social Entrepreneurs. John Wiley & Sons. New York, 2001, and Strategic Tools for Social Entrepreneurs: Enhancing the Performance of Your Enterprising Nonprofit. John Wiley & Sons. New York, 2002.

See also Sutia Kim Alter, Managing the Double Bottom Line: A Business Planning Reference Guide for Social Enterprises. PACT Publications. Washington, 2000, and Social Enterprise: A Typology of the Field Contextualized in Latin America. Inter-American Development Bank. Washington, 2003; Jerr Boschee, The Social Enterprise Sourcebook. Northland Institute. Minneapolis, 2001; Peter C. Brinckerhoff, Social Entrepreneurship: The Art of Mission-Based Venture Development. John Wiley & Sons. New York, 2000; Andy Robinson, Selling Social Change (Without Selling Out): Earned Income Strategies for Nonprofits. Jossey-Bass. San Francisco, 2002; and Rolfe Larson, Venture Forth: The Essential Guide to Starting a Moneymaking Business in Your Nonprofit Organization. Amherst H. Wilder Foundation. St. Paul, 2002; Lee Davis and Nicole Etchart, Get Ready, Get Set: Starting Down the Road to Self-Financing. NESsT. Santiago, 2003.

15 The growth of the micro-credit field in the past decade has resulted in a body of literature from organizations such as the SEEP Network and ACCION regarding the sustainability of local microfinance institutions. The Inter-American Development Bank has also published a study of self-financing among business development centers in Latin America (Lara Goldmark, Business Development Services: A Framework for Analysis. Inter-American Development Bank. Washington, 1996).

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financial and social return has recently gained prominence in the area of socially responsible businesses and may also be applied with some modifications to entrepreneurial CSOs. A more ambitious measurement incorporates an environmental component to assess a “triple bottom line” that includes “people, planet, and profit.”

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One of the most notable recent contributions to the field of CSO enterprise evaluation has been from the Roberts Enterprise Development Fund (REDF) in San Francisco. The 1996 REDF report, The New Social Entrepreneurs, is the first of its kind to systematically evaluate the financial, legal, and management effects, as well as the costs and benefits, of “social-purpose enterprises” among a portfolio of REDF investee organizations, all of which are employment and job training organizations for homeless youth and adults in the San Francisco Bay Area. Particularly relevant is REDF’s pioneering work to calculate social return on investment (SROI) for the social-purpose enterprises in its portfolio. The approach attempts to demonstrate the value of social-purpose enterprises in terms of both their financial bottom line (i.e., economic value) and their public and socioeconomic values (i.e., savings to society and impact on the lives of their employees). More recently, REDF has developed a performance measurement framework known as OASIS that is designed to track results along the lines of SROI, but for entire nonprofit organizations rather than just their enterprises.

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See Boleslaw Rok, “Merging Mission and Market,” in NGO Venture Forum: Lessons in SelfFinancing from the International Gathering. NESsT. Santiago,1999, pp. 31-38. See also http://www.tbli.org, the website for the Amsterdam-based organization Brooklyn Bridge, which hosts an annual conference on sustainable investment and works with for-profit corporations to promote their triple bottom line returns.

17 The Roberts Enterprise Development Fund defines “social purpose enterprises” as “revenue-generating businesses that are owned and operated by nonprofit organizations with the express purpose of employing at-risk clients in the business venture”; Diane Flannery and Kriss Deiglmeier, “Leading the Social Purpose Enterprise: An Examination of Organizational Culture” in Social Purpose Enterprises and Venture Philanthropy in the New Millennium. Roberts Enterprise Development Fund. San Francisco, 1999. This book uses the same definition for the term “social purpose business,” as several of the CSOs in the study, particularly those working with physically and/or mentally disabled clients, developed such entities both to further their missions and as selffinancing strategies.

18 See Roberts Enterprise Development Fund, New Social Entrepreneurs (1996), Social Purpose Enterprises and Venture Philanthropy in the New Millennium (1999), and Social Return on Investment Collection (2000). All of REDF’s publications are available on its website (http://www.redf.org).

19 An Information OASIS. Roberts Enterprise Development Fund. San Francisco, 2002).

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Other innovative work in the area of social auditing has emerged from the New Economics Foundation (NEF) in London. NEF has led the way in defining processes with which for-profit firms and social enterprises alike can run annual social audits parallel to their publicly disclosed financial audits. Both REDF and NEF provide innovative models for measuring results (i.e., social impact) of CSO enterprises beyond purely financial performance.

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At the same time, innovations in performance measurement from the for-profit sector are increasingly being adapted to the nonprofit context. In developing the Balanced Scorecard approach in the early 1990s, Robert Kaplan and David Norton sought to replace traditional indices of measuring corporate performance, which they believe overemphasize short-term “lag” indicators, with a more comprehensive assessment of organizational health in which “lead” indicators enable corporations to strategize for the future. New Profit, Inc., mentioned earlier, has worked with Kaplan and Norton to adapt the approach to evaluate performance among its portfolio of nonprofit organizations. New Profit’s implementation of the Balanced Scorecard is focused on performance measurement at the organizational level, rather than on enterprise activities operated by its investees.

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Jed Emerson and his team at the William and Flora Hewlett Foundation have recently provided what is perhaps the most comprehensive mapping of the organizations and institutions that are “intentionally trying to create social, economic and/or environmental value—through either their management of investment capital (regardless of the type of returns sought) or the management of a particular firm (whether for-profit or nonprofit).” The Blended Value Map attempts to initially define what is taking place in what the authors call “four silos of related activity: 1—Corporate Social Responsibility; 2—Social Enterprise; 3—Social Investing; and 4— Engaged Philanthropy.” They specifically focus on key topics, organizations and resources, and important initiatives that are taking place 22

20 See Sara Murphy, “Measuring Impact: Methods for Social Auditing” in NGO Venture Forum: Lessons in Self-Financing from the International Gathering. NESsT. Santiago, 1999, pp. 39–46.

21 For the earliest publications on the Balanced Scorecard, see Robert Kaplan and David Norton, “The Balanced Scorecard—Measures That Drive Performance,” in Harvard Business Review (January-February 1992). For a more comprehensive explanation of the Balanced Scorecard, see Kaplan and Norton, “The Balanced Scorecard”. Harvard Business School Press. Boston, 1996.

22 Jed Emerson, Sheila Bonini, and Kim Brehm, The Blended Value Map: Tracking the Intersects and Opportunities of Economic, Social and Environmental Value Creation. The William and Flora Hewlett Foundation. Menlo Park, 2003.

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within each silo. The authors are keen to point that that this is an initial mapping that provides a framework with which to identify the many commonalities between the four silos. They call for more capacity building, more strategic management, and more funding.

In terms of performance measurement and metrics in the field of social enterprise, the study summarizes the difficulty in measuring the impact of these organizations: 23

There has been increasing focus in the sector on accountability and measuring outcomes that raise many issues for social enterprises—regardless of whether they are nonprofit or for-profit entities. The social and environmental impacts created by social enterprises cannot always be easily tracked and measured. In addition, there are no broadly embraced and effective approaches for measuring social and environmental value. There is also a risk of overemphasizing financial value and short-term results because they are more measurable. Many entrepreneurs feel that tracking and measuring outcomes is time consuming and costly and social enterprises often have difficulty raising funds to support such endeavors. Moreover, the push for accountability is felt to burden smaller enterprises unequally due to their lack of expertise and resources.

The study goes on to say that there is an urgent need to develop common standards, terms, and metrics; to create a practical datagathering methodology; to designate funding specifically for measuring performance; to include the participation of practitioners in defining the processes and standards that are set; and to establish a system that measures the full metrics—economic, social, and environmental—and does not emphasize one over the others.

However, and perhaps as important, there is a need to define a framework for monitoring the impacts that the process of developing and managing enterprise activities has on CSOs themselves. The findings from risky business point to the critical need to tie the development of self-financing to the overall health of the parent organizaThe study defines social enterprises as “an ever-increasing set of corporations, both nonprofit and for-profit.” Examples include: double bottom-line businesses, social purpose enterprises, non-profit business ventures and mission-based businesses. For the most part, while CSR [corporate social responsibility] is used in the context of large, multi-national or national firms, [s]ocial [e]nterprise is used to describe small to medium enterprises, usually with less than USD 50 million in annual revenues that are founded in order to generate both social and financial returns.

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tion. None of the current measurement systems within the field of social enterprise do this in a deliberate manner. And none examine this aspect within a developing-market or emerging-market environment. However, if the premise of social enterprise is to strengthen nonprofit organizations in order to advance social change, then it is imperative that the effect of these activities on the development and long-term sustainability of the organization be managed and measured. Such a framework will enable CSOs not only to measure these impacts after they have occurred, but, more importantly, to anticipate them ahead of time and design their enterprise activities accordingly in order to successfully merge the philosophies and practices of mission and market.

1.5 Research Methodology

“Self-financing strategies come in many brands and sizes.”

In 1990, NESsT set out to examine key aspects that would define this framework.

The resulting research, presented in risky business, is based upon a detailed examination of 45 case studies of social-change CSOs, from 15 countries, that are conducting self-financing initiatives. The case identification process relied heavily on NESsT’s work in Central Europe and Latin America and was supplemented with cases brought to NESsT’s attention from other parts of the world. NESsT did not set out to identify a group of self-financing “success stories.”

Rather, the cases were selected to represent a variety of characteristics, including geographic distribution, a mix of CSOs working both in rural and urban settings and at local and national levels, a range of types of CSOs (e.g., community development, culture, education/training, environment, health, and social services), and a variety of selffinancing methods used. Preference was given to smaller, local organizations, although some larger organizations were included to illustrate particularly innovative approaches to self-financing.

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TYYPPEESS O T OFF SSEELLFF--FFIINNAANNCCIINNGG AACCTTIIVVIITTIIEESS The terms “self-financing activities” and “enterprise activities” refer to various CSO revenue-generating strategies, including the following:

Fees for services: contracting work for paying clients in the public or private sector (e.g., providing consultation services to businesses or local government) Product sales: selling the products of a project (e.g., books or publications), reselling products (e.g., inkind donated items) at a marked-up price, or producing and selling new products (e.g., T-shirts, handicrafts) Use of “hard” assets: renting out real estate, equipment, or other physical resources when not in use for mission-related activities Use of “soft” assets: generating income from patents through licensing agreements or by endorsing products with the CSO name or reputation Membership dues: raising income by collecting dues from members or beneficiaries of the organization in exchange for some product, service, or other benefit (e.g., a newsletter, a magazine, or discounts on CSO products or services) Investment dividends: earning income from investments either passively, through interest from savings accounts or mutual funds, or actively, by trading on the stock market or engaging in debt swaps.

The 45 cases examined in this book were documented using a threestep process. First, through a series of investigations and recommendations from colleagues in the nonprofit field, NESsT identified close to 100 CSOs from around the world that are conducting innovative self-financing activities. Second, these organizations completed a short self-administered questionnaire designed to collect general organizational information. This information was used to screen potential cases and select 45 organizations that fit within the criteria established for the research. Third, on-site or telephone interviews with key CSO staff, board members, and/or beneficiaries were conducted, using a 30-page interview tool developed by NESsT to collect detailed information about each case in seven areas: 1) general organizational and financial information; 2) description of self-financing activities; 3) self-financing start-up experiences; 4) self-financing management; 5) legal and regulatory issues related to self-financing; 6) impacts of self-financing activities on key areas of the nonprofit organization; and 7) reflections and recommendations on self-financing.

While this methodology yielded rich and extensive data, some important caveats should be noted. First, although not all are “success stories,” the cases included in this study are all CSOs currently operating self-financing activities. They do not necessarily capture the valuable risky business: The impacts of merging mission and market Copyright © NESsT 2003

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lessons of those organizations that have attempted unsuccessfully to launch self-financing ventures or whose activities have since failed.

Nevertheless, among the 45 CSOs in the study, several are in debt or are losing money as a result of their self-financing activities, and the experiences of these organizations provide important insights.

Second, the data included in the study was provided by CSO case organizations themselves and may therefore contain their biases.

Only a great increase in time, baseline data, and stakeholder interviews would have allowed for a full and independent verification of this data. Third, the various accounting systems and procedures used by the case organizations make it difficult to calculate consistent and “true” costs and benefits, both financial and social, of the self-financing activities.

Fourth, the data for the case studies was originally collected in 1999.

Approximately a quarter of the cases were updated during 2000-2002, but the full set of data has not been systematically updated. Still, while some specific situations may be different, the study is not timesensitive, as the underlying themes and lessons learned remain fundamentally unchanged. Fifth, the research for the majority of CSOs was conducted by NESsT researchers in the respondents’ native language and then professionally translated into English, though several CSOs from Central and Eastern Europe chose to respond directly in English. Finally, the observations of NESsT researchers are not intended as broad observations of the case organizations but rather as specific assessments of the multiple impacts that self-financing activities had on the organizations.

1.6 Looking Ahead Although the discussion throughout this book draws heavily upon the 45 case studies conducted by NESsT researchers, the data and accompanying analysis are intended not simply to describe the experiences of the study CSOs but rather to illustrate broader themes and concepts related to CSO enterprise activities. Chapter Two prepares the reader for this discussion by providing summary data of the organizations in the study and presenting the key quantitative findings. More information on the CSOs studied and their self-financing activities is presented in Appendix I, CSO Case Summaries, and Appendix II, CSO Data.

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FIGURE 1-2: EFFECTS OF SELF-FINANCING ON EIGHT ORGANIZATIONAL AREAS Mission and Values: Is the venture having an impact on the mission, priorities, and/or core values of the organization?

Organizational Operations: How did the self-financing activity impact the operations of the organization? Did it help make the organization have more transparent and efficient systems?

3 2

Organizational Culture: Is the venture affecting the attitude and/or behavior within the organization? Has adoption of for-profit mentality and methods had an impact?

Resource Diversification: Is the venture helping the organ-ization to leverage a wider range of income sources?

Does the venture help the organization reduce financial risk from dependence on only a few sources?

4 CSO

1 8

5 6

Asset-Building: Did self-financing contribute to a steadier stream of income? Did self-financing contribute to more permanent assets for the organization? Did the organization increase its reserve funding?

7 Stakeholder Relations: Is the venture having an impact (either positive or negative) on the organization’s relations with its various stakeholders?

Financial Performance: Is the organization achieving its financial objectives for the venture?

Organizational Autonomy: Is the venture helping the organization to function more “independently” in its work and decision-making?

After presenting these data, the book launches into a deeper analysis of the impacts of self-financing on the organization in eight areas.

These eight areas, shown in Figure 1.2, were developed by NESsT as the key indicators for assessing the effects of self-financing on overall organizational sustainability.

The discussion of these eight issues has been carefully ordered to establish a larger framework for measuring and monitoring the performance of social enterprise: Chapter 3: Impact on Mission. What direct and indirect effects did the self-financing activities have on the missions of the organizations? Did these effects vary depending on the relation of the self-financing activities to organizational mission? Did the organizations’ institutional missions change as a result of their self-financing activities?

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Chapter 4: Financial Performance. Were the self-financing activities generating income for the organizations? Were they meeting the organizations’ pre-established financial goals? What challenges did the organizations confront in managing the finances of their enterprise activities? Did managing the financial health of the activities conflict with the organizations’ pursuit of their social missions?

Chapter 5: Impact on Operations, Organizational Culture and Orientation, and Stakeholder Relations. In what ways did self-financing affect the internal culture of the organizations, both philosophically and operationally? What effects did self-financing have on the CSOs’ internal teamwork and their ability to pursue their underlying social missions? What impacts did self-financing have on the organizations’ various stakeholders? In what ways did self-financing change the external image of the organizations?

Chapter 6: Impact on Resource Diversification, Asset-building and Organizational Autonomy. Did self-financing enable the organizations to diversify their sources of funding, build their assets, and create stable sources of income? Did self-financing activities generate untied revenues that allowed the CSOs greater independence from external funders and increased organizational autonomy?

Chapter 7: Toward Self-Financing Success. The final chapter draws upon the previous chapters to revisit the fundamental question of this study: How do entrepreneurial CSOs balance the various demands that arise when they merge the philosophies and practices of mission and market? This chapter reviews the key lessons presented throughout the book and provides suggestions for mitigating the obstacles and risks associated with CSO self-financing in order to facilitate the growth of social enterprise activities and increase their benefits both to their parent organizations and to society as a whole.

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The CSOs in the study were quite diverse but shared similar experiences when using self-financing.

Chapter 2

Gathering the Data

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2.1 Introduction This chapter summarizes key data from the 45 case study organizations in order to provide an overview of the types of CSOs that were included in the study and the common themes that emerged from the research. Specific examples from the case studies are interwoven into the text here and throughout the book to illustrate more general trends. For additional information on the organizations, see Appendix I, which contains more in-depth, two-page overviews of each case and Appendix II, with detailed data on each organization.

2.2 Organizational Overview The 45 CSO cases compiled by NESsT represent a variety of types of organizations.

• They are geographically diverse. The cases are geographically scattered across the world, in fifteen countries and four continents. The majority of the cases come from the two regions in which NESsT works—Central Europe (20) and Latin America (18)—though additional cases are drawn from North America (5), Eastern Europe (1), and Southern Africa (1). NESsT also made an effort to ensure a mix of organizations from capital cities and smaller cities or villages. More than half of the cases are from outside capital cities.

• They are officially registered as nonprofit organizations. All the CSO cases are officially registered under nonprofit-equivalent laws in their respective countries. Four of the 45 are also local grant-making foundations.

• They are local organizations. Forty-three of the cases are local CSOs, while the other two have formal connections to an international CSO (Partners for Democratic Change – Slovakia was originally founded as part of Partners for Democratic Change International; it is still a member of this international network but has been an independent organization since 1994. The Lipnice Summer School was originally founded in 1978 under the Socialist Youth Organization; it re-registered as an independent organization in 1989 and has been a member of Outward Bound International since 1991).

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• They operate in various fields. The CSOs operate in various fields of activity, with many working in more than one area. Of the 45 CSOs, 26 work in education and training, 14 in social service, 11 in health, 9 in employment creation, 9 in environment and sustainable resources, 8 in community development (both rural and urban), and 8 in culture. Nine organizations engage in other areas of activity that fall outside these categories, including small enterprise development, conflict resolution, labor rights, and volunteerism.

• They are young organizations. The CSO cases are relatively young organizations. Of the 45 cases, 19 have been established since 1990; 13 were started during the 1980s; 7 in the 1970s; and only 6 existed prior to 1970.

• Their operating budgets vary greatly. Annual operating budgets range from USD 6,000 for YHD in Slovenia to the USD 17.6 and 102.7 million budgets of Hogar de Cristo (Chile) and FES (Colombia), respectively. Excluding these two exceptionally large, unrepresentative budgets, the average budget size is USD 875,000. Eight organizations had budgets greater than USD 1 million, while 11 have annual budgets less than USD 100,000. The median budget size is USD 372,000.

• Their staff sizes vary greatly. Hogar de Cristo in Chile has the largest staff (752 full-time staff members), followed by FES in Colombia (636 full-time staff). KUD and YHD, both in Slovenia, have the two smallest staffs—60 and 4 part-time staff members, respectively.

Neither has full-time staff members. The average full-time staff size, excluding Hogar de Cristo and FES, is 28, while the median is 11.

Sixteen organizations have 5 or fewer full-time staff members, and only 5 CSOs have more than 100 full-time staff. The vast majority of the organizations (36) also employ part-time staff, with an overall average of 14 and a median of 4.

• They engage in self-financing activities. The organizations have been operating self-financing activities on average since 1989 (median, 1992) and are employing an average of 2.8 different types of selffinancing activities (median, 3). Forty-one organizations collect fees for services, 39 use product sales, 21 generate investment dividends, 15 use hard assets, 15 charge membership dues, and 5 use soft assets.

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2.3 Motivation and Goals for Self-Financing Although CSOs cite various reasons for initiating their self-financing strategies, generally their efforts were inspired by two distinct but interrelated motivations: 1) the need to reduce dependence on unpredictable and insufficient donor funding and 2) the desire to advance their social missions both practically and philosophically.

2.3.1 Greater financial independence Most CSOs feel that donor support alone cannot sustain them and they initiated self-financing in order to become more independent and improve their overall financial health. The Children’s Foundation perspective is indicative of this wider belief among the CSOs: “Our aim is to reduce our dependency on subsidies and gifts from other organizations. These sources of income are not steady or sufficient.” Along the same lines, MEXFAM reports, “Before [we initiated self-financing activities] we were living with the anguish that donors would leave the country and [we] would disappear.”

Pie chart 2.1 CSOs’ Self-Ratings of Their Financial Status How would you evaluate the current financial status of your organization?

Good 5 Good enough 28

Very good 3 Poor 3

Very poor 0

TOTAL

Unstable 9

488 4

In general, CSOs feel neither completely satisfied with their current financial situation nor in a state of crisis (Pie chart 2-1).

While more than two-thirds of the case organizations express a minimal level of satisfaction with their funding situations, the majority of these do not convey a sense of long-term financial security. Moreover, the CSOs have been motivated to use self-financing in large part because of the limited quality of existing funding, not simply the decreasing quantity. More specifically, CSOs have initiated their self-financing activities for the following reasons:

• Because of uncertainties in grant funding from both state and international sources. For the majority of CSOs in this study, the use of self-financing is intended primarily to diversify their sources of income and lessen their dependence on external funders. Of the 43 organizations responding to the question, 30 report that they have undertaken self-financing in order to replace or reduce some other source of funding, including international sources such as private

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foundations, foreign governments, and multilateral institutions (13); local state governments (10); or private local entities such as national private foundations (4)1. Of the 13 organizations responding that they are not trying to replace or reduce funding from another source, the majority report either that self-financing has always been a significant part of their organizational strategy or that they simply want to add self-financing as another funding source but have not felt compelled by their financial situation to do so.

Many of the Latin American CSOs report that they began to lose international funding in the early 1990s from foreign governments and foundations, particularly Western European ones. For example, CODEMU lost its only source of funding from an international NGO in just one year, forcing it to adopt self-financing in order to survive: “When we saw ourselves without Oxfam supFor many CSOs, particularly port, we became desperate. Many of the NGOs in those from Central Europe, a similar situations went home. We knew we had to lack of state funding or keep going. We couldn’t abandon our work and all of the people who depend on it.” The organization subsidies was a key motivation for initiating selflaunched its self-financing activity, a laundry busifinancing activities. ness, in response to this financial crisis.

For many CSOs, particularly those from Central Europe, a lack of state funding or subsidies was a key motivation for initiating selffinancing activities. MCH previously had government funding during the communist period but lost it under the current regime. Tyr Center believes that future state subsidies are uncertain, so the organization has resolved to generate its own sources of income.

• To finance types of program activities that do not fit donor priorities.

Twenty-eight CSOs attribute their difficulties in identifying financing to the fact that their needs do not fit the priorities or guidelines of donors. Fundamor in Colombia flatly states, “There is no government support for people with HIV/AIDS.” Seventeen of the organizations feel further limited by the fact that donor support is only for short-term projects. As SNI says, “Self-financing was seen as an opportunity to reduce reliance on foundation grants that were not guaranteed and required annual reapplication.” Six CSOs said that their work is not easily funded because it is “too controversial.”

1 While all CSOs were asked the same questions according to the research methodology established at the start of the project, not all organizations answered every question. For this reason, in several places throughout the book, data is presented based on the number of organizations that responded, which was not always 45.

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Several organizations specifically mention difficulties in attracting donor support for work in human rights and culture.

Not surprisingly, more than two-thirds (33) of the CSOs find it most difficult to raise resources for administrative and core activities, which have traditionally been less appealing to donors than program activities. A smaller number report having trouble identifying resources for a specific project (12) or indicate that lobbying and advocacy are particularly difficult to finance (9).

• To increase their organizational autonomy and long-term sustainability. For Green Line, not relying on state government for funding is critical for gaining an independent standing in the community in order to defend certain environmental interests. Other organizations have less political motivations for emphasizing financial self-reliance.

CISA says, Although we respect the importance of international assistance, we believe that it should be temporary and focused on institutional development. Generally, the period of life of organizations like ours corresponds to the beginning and end of a project. The organization enters a period of crisis and instability right after the project that has allowed it to survive ends. So we want to have better control during these periods of crisis. The organization could simply disappear otherwise.

Along the same lines, SODEM states, “We wanted to constitute SODEM as an institution that would be less dependent on outside donations.”

2.3.2 Advancement of organizational mission The vast majority of organizations initiated self-financing activities that are directly related to their social missions. This tendency is explained by both practical and philosophical objectives.

• Desire to strengthen mission activities. Thirteen of the 45 CSOs have some kind of job training or employment creation component to their work, often for mentally or physically disabled beneficiaries.

Providing clients with a livelihood, for both economic and psychological reasons, is an important part of their mission that they have been able to incorporate through their self-financing activities.

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These organizations include, among others, ESE Association, INFRA-BER, KÁLLFÓ, Nephrocentrum, SENT, and SNI. Other organizations have also been able to pursue their objectives more successfully because of self-financing initiatives. For example, Fundamor has expanded from working with HIV/AIDS patients to providing job training and employment to family members and friends of its patients, which, in addition to creating an economic benefit, enables them to spend more time near their loved ones during treatment. Fees generated from Fundación Cirena’s echograph testing services have enabled it to open a clinic in a previously underserved low-income community in Cali.

• Desire to “practice what we preach.” CIED felt that it needed to practice its own mission, to help small producers sustain themselves: “Our services should also be sustainable in the market. We should be visibly aware of the costs of our activities.” Similarly, as an organization dedicated to business development as a way to generate employment Fundaempresa feels strongly that it should run itself like a business and be sustainable.

Elim Písek’s Christian ethic contributes to its enterprising approach. The CSO’s manager cites the Bible: “Work and do not rely on others.” FEPP has a more political rationale for its selffinancing activity. The FEPP financial director states the organization’s belief that “financial resources should be generated by and returned to the same sector in ways that benefit the entire community and not only to a few, as is the case with traditional banks.”

• Aim to demonstrate the credibility of a new program or idea. CSOs also indicate that, many times, only through self-financing have they been able to illustrate their legitimacy to donors or to justify their work. Several CSOs have used self-financing to initiate activities that donors did not see as worthwhile. SONCEK, for example, used self-financing to start up one of its programs that the Slovenian government initially considered unimportant. After the organization proved the merit of its work, the state began providing support.

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2.4 Getting Started On average, CSOs initiated a self-financing activity within six years of their organizational establishment. Nine started some form of selffinancing in the same year the CSO was founded, ten within two years, and another nine within five years.

Interestingly, the older organizations were much slower to adopt entrepreneurial activities. Fundación Corona established its endowment in 1986, 22 years after its founding. The Geneva Centre for Autism, founded in 1974, did not begin selling services until 1991.

KUD began collecting symbolic membership dues when it was founded in 1919, but did not begin to sell tickets and products until the 1960s and 1970s. MEXFAM, founded in 1965, also collected membership dues early on, but did not begin its more deliberate self-financing strategies until 23 years later.

“Not all CSOs prepared carefully for self-financing.”

The finding that younger CSOs initiated self-financing activities more rapidly than their older peers is consistent with broader funding trends. Many of the CSOs that were established in the 1980s or 1990s in Central Europe and particularly in Latin America began to lose their external funding soon after and were forced to search for alternative funding mechanisms. By contrast, the older organizations, especially those in Central Europe, often received resources from the state and/or were restricted from revenue-generating activities during the Communist era. Not surprisingly, these organizations have recently turned to selffinancing activities as their traditional sources of support have waned.

The idea of using self-financing arose from various sources. Eighteen of the 45 cases indicate that their board of directors initiated the idea of self-financing. Thirteen others state that the idea originated with the executive director or managerial staff. Four say that it was part of a collective strategic planning decision and the entire organizational team was involved. Three report that the idea was prompted by external factors, including support from a donor or changes in legislation. risky business: The impacts of merging mission and market Copyright © NESsT 2003

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Three organizations say that self-financing has been a part of the organization’s philosophy since its founding. For example, KUD says, “Self-financing is a tradition in our organization since 1919.”

Nearly all CSOs started their self-financing alone, without either forprofit or nonprofit partners (only four report starting at least one of their activities with a partner), although many organizations have some form of collaboration with for-profit or public institutions.

Generally speaking, CSOs that initiated self-financing activities without partners or supporting institutions faced greater challenges in launching and managing their activities Nearly all CSOs started their than those that received external assistance. This self-financing alone, without theme is one of the central arguments of this book either for-profit or nonprofit and points to the need to develop a stronger support network for developing CSO self-financing initiatives. partners (only four report starting at least one of their activities with a partner), although many organizations 2.5 Choosing a Strategy have some form of collaboration with for-profit or public institutions.

Self-financing strategies that are being used among the CSOs include fees for services; product sales; use of hard assets; use of soft assets; membership dues; and investment income. Of the 45 CSOs, 37 are using more than one type of selffinancing strategy, and 23 are using more than two strategies. On average, the organizations are using three strategies, and most diversified their self-financing strategies not long after launching their first activity.

CSOs selected specific self-financing methods for various reasons.

Some organizations report that they chose the simplest, most natural way to generate revenues given existing organizational resources and the skills of their staff. For others, the chosen activity fits the profile of the organization and directly furthers its mission by creating employment and job training opportunities and/or by expanding and improving the services provided to beneficiaries. A handful of organizations simply saw a business opportunity and decided to take advantage of it. And a couple of organizations chose a particular selffinancing activity because they were not aware of other options.

The numbers of organizations engaging in each type of self-financing activity and a few representative examples follow.

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2.5.1 Fees for services Fees for services is the most commonly used self-financing method— 41 of the 45 CSOs offer some form of service for a fee. Some organizations simply began to charge a fee for an existing program or service; others began to offer their services to new paying clients (typically commercial companies) or developed completely new services, usually drawing upon their existing skills. In some cases, the services are provided on an individual or retail basis, while in others they are offered on a contractual basis, for either full or partial costs.

Fees for services has generally been the most lucrative self-financing strategy for CSOs. Twenty-one of the cases that use this strategy are generating more than 50% of their income from self-financing. CASE is 100% self-financed through the sale of research services. PEP sells discreet rehabilitative services to its clients that generate 88% of its revenues. Fundación Cirena generates 80% of its income from selling echographic services, while Fundación Ideal brings in 69% of its income from the sale of rehabilitative services.

2.5.2 Sale of products Thirty of the 45 CSOs use some type of product sale to generate income. Most sell products from their mission-related programs. For example, Business Law Center sells its publication Investor’s Guide to Georgian Business Law. Casa de la Paz, Chaloupky Center, Green Line, and LSS sell their environmental education training manuals.

CIED sells seeds, seedlings, agricultural products, and breeding animals to its members and to other small producers. MEXFAM sells contraceptives through its clinics. SNI sells promotional items decorated with custom-designed art by participants in its training programs.

Others resell donated goods. For example, Elim Písek sells religious books and secondhand clothing donated from abroad, and Fundamor has a shop where it sells donated and secondhand items.

Some CSOs, like CIEM and EkoCenter, have made agreements with local craftspeople to sell their products. Others, like ESE, Fundamor, and Tyr Center, have used the assembly or development of products for sale as a method of creating employment and generating a profit.

Finally, numerous organizations, including SONCEK, UMANOTERA, and YHD, sell the traditional CSO T-shirts, stickers, and other prodrisky business: The impacts of merging mission and market Copyright © NESsT 2003

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ucts more for promotional purposes than for significant revenue generation. Tyr Center’s confectionery produces baked goods in packaging with the organization’s name and logo. This has proven to be one of the center’s best promotional tools.

Many CSOs have subsidized the development and/or production of their products (especially publications) using donor grants. It is typical for a CSO to publish a book or report using donor funds and then attempt to sell the product either to recover costs or to make a small profit.

2.5.3 Use of hard assets Sixteen of the 45 CSOs use some kind of hard asset—typically real estate or equipment—to generate income. The most common use of hard assets is renting out space that is not being used for missionrelated events. Many organizations have either purchased property or received free or subsidized leases from local governments or individuals and are working to renovate these spaces for program use. These real estate investments provide useful sources of revenue for several CSOs, which often use them as places to sell their services and products as well as a source of rental income. For example, the Szeged Foundation uses its building for office space for itself and its nonprofit and for-profit affiliates, and also rents out rooms, halls, and restaurant space. Fundamor not only uses its center to house its clients and to offer outpatient therapeutic and counseling services, but also rents it out for conferences and other events.

Several CSOs also use office and other equipment to generate income. For example, EkoCenter uses its computer center (which it created in order to publish its ecological books) to offer graphic design services. CIED and Nephrocentrum both rent out their trucks, while Tyr Center rents out its delivery car. MCH leases its machines and transport equipment when they are not being used for its other work.

In most cases, use of hard assets represents a relatively passive but lucrative method to invest in long-term organizational security and generate income without the significant financial and human resources commitments required of other methods. However, renting out assets can result in some additional costs that need to be considered. For example, KUD and Stoka Theater, which both rent out space for special events and parties, have found that visitors to the risky business: The impacts of merging mission and market Copyright © NESsT 2003

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pubs that are also located in their buildings often disturb the cultural performances that are the focus of their missions and have even vandalized their physical property. Thus, while the use of hard assets may seem like a quick and easy way to generate sustainable sources of income, there may be drawbacks to this strategy, just as there are with any other.

2.5.4 Use of soft assets Use of soft assets—that is, selling a name, reputation, methodology, or idea—is the least commonly reported self-financing strategy among CSOs. Only five of the 45 CSOs report use of soft assets as an income source, although four others use this strategy but report it as a product sale. Many other CSOs have unrecognized soft-asset potential. In general, the use of soft assets is the most underutilized selffinancing method among the case CSOs. As CSOs receive more recognition for their work and ideas, there are increasing opportunities for them to utilize their soft assets to generate revenues.

CSOS THAT USE THEIR SOFT ASSETS AS A SELF-FINANCING STRATEGY

FFUUNNDDAACCIIÓÓNN A ALLTTEERRNNAATTIIVVAA:: Since 1993, the organization has sold the license to use its SIOS (Information System on Social Organizations) to other CSOs and institutions.

FFUUNNDDAAEEMMPPRREESSAA:: As one of the few Colombian organizations that has experience with business start-ups, Fundaempresa sells the license for its business development methodology to a wide variety of public and private clients.

HO H CRRIISSTTOO:: The organization holds several royalty contracts for the use of OG GA ARR D DEE C its name, including one with a large cemetery and another with a company that sells advanced funeral arrangements.

LLSSSS:: Realizing that the training methodology it uses in its outdoor training courses is unique in the Czech market, LSS has developed an agreement with a for-profit publishing house to publish a selection of games used by instructors in its courses.

WC W CA A:: The organization receives royalty payments from a variety of vendors for its group buying programs that offer products and services to its members at a discount.

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Use of soft assets generally requires the least investment of time and staff for CSOs. However, organizations need to be careful to develop contracts that are favorable, protect copyrights, and do not pose risks to the reputation or image of the organizations. Licensing the use of the organization’s name in exchange for royalty payments, for example, publicly associates the CSO with a particular company. This can be risky, either because the company may not share the organization’s values or simply because the public perception of the CSO is apt to change. For example, Hogar de Cristo has been mistakenly perceived to be the owner of a company that holds its name. As a result, the organization has been judged to be large and prosperous, which has hurt its fundraising potential. For this reason, Hogar de Cristo recently decided to move away from using this strategy.

2.5.5 Membership dues Fifteen of the 45 CSOs use membership dues as a means of generating income. On the whole, membership dues are the least lucrative of the various self-financing strategies, although they sometimes serve to incorporate members more actively into the programs of the organization. Generally speaking, CSOs with institutional members, such as Elim Písek, SONCEK, and WCA, appear better able to generate significant income from membership dues than those with individual members (with the exception of Hogar de Cristo, which has half a million individual members). Oftentimes, membership dues are voluntary, as CSOs are concerned that they will lose members if rates are too high. Some CSOs set membership dues according to the ability of members to pay.

Most CSOs also provide added benefits as an incentive to attract new members and to keep current members involved in and informed of the CSO’s activities. Green Line’s 50 members, for example, pay a relatively modest SKK 240 (about USD 7) per year; in return, they receive a free quarterly bulletin, reduced admission charges for events, free use of the CSO building space, invitations to an annual spring campfire and summer benefit, and opportunities to volunteer for Green Line weekend trips to work on its endangered wetlands project. LSS’s 200 members pay an annual membership fee of about USD 30 and receive discounts of up to 60% on LSS programs. WCA’s members have access to its Health Trust and receive discounts on publications and other services through the organization’s group buying programs.

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Some CSOs have also found that their members are ready customers for other CSO products and services. For example, SONCEK’s large membership of 4,500 serves as its primary market for its trainings and products. Through the catalog that is included in the organization’s membership fee, members can order SONCEK products by mail.

2.5.6 Investment dividends Twenty-one of 45 cases report earning income through investment dividends. Many other organizations generate only small amounts of investment income and do not report it. In some cases, the organizations are using a very passive approach to investment, earning interest through their savings accounts on advance deposits of donor grants. In other cases, CSOs have begun to use the accumulated earnings from these deposits and from other savings to invest more aggressively and earn higher yields. Still other organizations have developed investment fund or endowment-building strategies in which they invest in longer-term instruments and then often reinvest the yield rather than using it for short-term needs. For some organizations using the latter approach, investment income has become a key—in a couple of cases, the only—source of operational income.

2.6 Management and Governance of Selffinancing Activities CSOs have used several approaches to structure the management of their self-financing activities.

• Using existing staff. Forty of the 43 cases responding to this question rely heavily on existing staff for their self-financing activities.

Within this group, five are also using staff hired specifically for this purpose and five are using outside experts or consultants. These organizations have hired new staff or consultants to run certain aspects of the self-financing activities or to maintain some separation from other activities. Only two CSOs indicate that they have hired staff specifically to work for their subsidiary enterprises.

• Using existing boards of directors. The vast majority of the organiza-

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tions (37) have chosen to use their existing boards of directors in order to retain control of their activities. Two organizations (KÁLLFÓ and Greater DC Cares) have created separate boards to oversee their enterprise activities.2 • Establishing separate subsidiaries. Seventeen of the CSOs have established one or more subsidiaries through which they conduct some or all of their self-financing activities. An additional three organizations were in the process of establishing subsidiaries at the time of the research. These subsidiaries are intended to serve one or more of three purposes: 1. To preserve the “culture” of the nonprofit parent organization. For example, Lipnice Summer School initially considered the possibility of offering commercial services under the name of the nonprofit, as this was allowed under the existing legislation.

However, the organization subsequently decided to establish strict divisions between its for-profit and nonprofit sides so as to minimize friction between the two entities, which are guided by different rules and work cultures.

2. To separate accounting for legal reasons or to achieve a more favorable tax status. For example, according to the recent Law on Foundations in the Czech Republic, Children’s Foundation is not allowed to be involved in profit-making activities. For this reason, the organization’s management decided to start a limited-liability company (of which the Foundation is the sole owner) to conduct its commercial activities.

3. To pursue a new business opportunity or contract. Fundamor has entered into contracts with several subsidiaries that it owns or partially owns as a way to best carry out specific activities.

The question of governance is a critical one for CSOs creating forprofit subsidiaries. In most instances, the nonprofit maintains 100% ownership of the subsidiary, and usually the subsidiary is overseen by the board of the parent organization. There are several examples of subsidiaries that have separate boards, but even in these cases, there is some overlap in board presence. Many CSOs indicate the importance of this type of relationship in order to maintain cohesion 2 Greater DC Cares has established a separate board to oversee its for-profit subsidiary, Cares@Law, but manages its other self-financing activity, Business Shares, under its existing board.

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between the two entities, as well as to ensure that the CSO’s mission is preserved in all business decision-making. However, as discussed at greater length in Chapter Five, strong board involvement in the selffinancing activities also brings some difficulties.

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2.7 CONCLUSION The organizations in this study are fairly representative of smaller, socialchange CSOs in general (as opposed to larger institutional CSOs such as universities and hospitals). They come from different regions of the world, with distinct histories, cultures, and patterns of development. They are diverse in size and levels of funding. They work in all fields and are utilizing various types of self-financing strategies.

Yet they also share motives for starting self-financing and have had similar experiences in starting up and managing these activities. The common experiences of this diverse group of CSOs reflect the underlying challenges that confront nonprofit, social-change entities when they attempt to generate their own sources of income through self-financing activities. The following chapters will examine the experiences of CSOs operating selffinancing activities, focusing specifically upon the impacts that these activities have had on their missions, their financial performance, their organizational operations and culture, their relations with external stakeholders, and their overall financial sustainability.

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Many CSOs discovered that although there were trade-offs, on the whole self-financing strengthened their ability to carry out their mission.

Chapter 3

Impact on Mission

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3.1 Introduction CSOs exist in order to pursue a social mission. It follows that any selffinancing activities should complement rather than inhibit this pursuit. Yet often this is easier said than done. Most CSOs have little business expertise and limited access to capital. Even for those CSOs that are able to acquire the necessary human and financial resources, unexpected challenges arise. CSOs that enter the marketplace may be pulled in conflicting directions and end up focusing attention on their enterprise activities at the expense of their social missions. Such a shift in priorities away from its underlying values can produce an undesirable outcome for a CSO that is subsequently referred to in this book as “mission drift.”

However, although this scenario is certainly possible—in fact, it occurred in a few instances among the CSOs in this study—the findings from this research indicate that mission drift is by no means implicit in the self-financing model. Thus, while many organizations struggle to balance the various challenges that arise in relation to their self-financing activities, most ultimately find that these activities strengthen and expand their missions in a number of ways both measurable and not.

This chapter presents the challenges and benefits referred to above in assessing the overall impact of self-financing on the missions and programs of the CSO cases. The first part of the chapter examines the impact of self-financing on organizational mission as it correlates to the mission-relatedness of the revenue-generating activity. This analysis reveals the main challenges posed by self-financing to CSO missions. The second part of the chapter draws upon data gathered directly from the organizations on this subject to examine how the CSOs themselves view the impact of self-financing on their missions.

The chapter thus presents a conceptual overview of how various selffinancing strategies affect organizational mission and then depicts the experiences and perspectives of individual CSOs in specific areas.

3.2 Mission Impact and Mission-Relatedness NESsT began the research for risky business with the broad hypothesis that the relationship between a CSO’s organizational mission and its

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self-financing activity has an important impact on whether and how the activity influences the mission. Specifically, the hypothesis speculates that self-financing activities that are related to a CSO’s organizational mission will pose fewer risks to this mission (i.e., less potential for mission drift) than activities not related to the mission. This hypothesis is expressed in Figure 3-1.

FFIIG GU UR RE E 3 3-1 1:: L LE EV VE EL L O OF F R RIIS SK K B BY Y P PR RO OX XIIM MIIT TY Y T TO O M MIIS SS SIIO ON N

Existing Constituency Existing Product/Service Low mission risk

New Constituency Existing Product/Service Moderate mission risk

Existing Constituency New Product/Service Moderate mission risk

New Constituency New Product/Service High mission risk

Increasing risk

Increasing risk

CSO MISSION Services specified in the CSO charter, bylaws, mission

UNRELATED TO CSO MISSION

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The following subsections examine the validity of this hypothesis.

3.2.1 Existing products or services to existing constituencies Many CSOs initiated their self-financing activities in order to cover part or all of their program costs—or even generate revenues—by charging their existing beneficiaries a fee for products or services offered. Self-financing activities in this category are most related to organizational mission.

Sometimes third-party contracts are available in these cases to partially or completely cover the fees introduced by CSOs. For example, the Colombian Institute for Family Well-being covers a significant portion of the fees that Fundación Ideal charges youth for its health services.

Similarly, the Chilean Ministry of Education provides funding for each student in SODEM’s school. When such contracts are unavailable, often it is not very lucrative to charge fees to existing clients, since they may not be able to pay the full costs for these programs. In these cases, CSOs must partially subsidize the product themselves, turn to other clients who can afford to pay, or combine both strategies in a form of cross-subsidy, which will be explained at greater length in Chapter Four.

For example, MEXFAM continued to offer family planning services after it lost some of its donor funding for this program, but it began charging its clients for these services. Since the organization’s clients are mostly low-income women and youths who cannot afford to pay the full cost of the service, MEXFAM only charges part of the actual cost. In order to cover the rest of the costs of serving its low-income clients, MEXFAM has recently begun to offer services to higherincome clients who can afford to pay higher fees. MEXFAM reports, “By offering more sophisticated services, we have taken on a new type of client with greater ability to pay without abandoning those from before, who in turn now have access to better quality services.”

For organizations that begin charging fees for activities already provided to an existing group of clients, the main issues that influence mission are the introduction of a fee, at a philosophical level, and the actual price, at a more practical level. These issues are mitigated in cases where, as in the Fundación Ideal and SODEM examples above, a third party such as the government is paying the fee in lieu of the beneficiaries paying directly. Managing the self-financing activity tends to be relatively easy, since the organization is working within its risky business: The impacts of merging mission and market Copyright © NESsT 2003

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existing core competency. Nevertheless, depending on the scale of the activity, administrative and financial management can be challenging no matter how related the activity is to the organization’s mission.

3.2.2 New products and services to existing constituencies In many cases, CSOs have developed new products and services for their existing beneficiaries. The motivations for these programs vary.

In some instances, organizations wanted to offer their beneficiaries a new program and they have also been able to generate revenues. For example, CISA wanted to offer more extensive services to its institutional members and has developed a series of software tools and information systems that both meet the members’ needs and generate additional revenues. In other cases, CSOs intended to generate revenues and have found a new product or service that is of interest to their beneficiaries. For example, MEXFAM began to sell contraceptives to clients that come to its clinics, which is directly related both to the organization’s family planning mission and to the needs of its existing beneficiaries, and also generates new revenues.

The Geneva Centre for Autism initially struggled to balance its mission while generating revenues from a new product. The organization’s mission is to provide training and educational services to parents and other caregivers of children with autism. Following a 1991 innovation in the medical community’s treatment of autism, Geneva Centre began offering workshops in this technique. Despite the compatibility with its mission, the decision to charge for caregiver workshops was not easy. The organization moved timidly at first, charging family members of autistic children just USD 3. It found that turnout was initially poor, but that it improved as the Centre progressively increased the rate to USD 13. Worried about fairness to the families of autistic children, the Geneva Centre analyzed how much it had to invest to produce a workshop. Once the workshops were priced at market rates, clients began to recognize the value of the sessions and their popularity grew. While it took the organization’s clients some time to realize the value of the new workshops, they did not object to paying, and the Geneva Centre has been able to extend its mission and generate significant revenues through this mission-related selffinancing activity.

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raised in the cost recovery category discussed above. They are, namely, the dilemma of charging beneficiaries—whether to charge and how much—and the challenge of managing the activity without distracting the organization from its mission. There is, however, the additional risk that organizations charging their existing beneficiaries for new products or services will provide an unwanted product. The organization may believe that the new product is excellent and that existing beneficiaries should pay for it, but if clients do not agree, then the organization may be expending valuable resources and drifting away from its mission. This is not to say that organizations cannot evolve over time and adopt new constituencies when it is appropriate, but that the quest to generate revenues may distract CSOs from their underlying objectives. Organizations should be conscious of this possibility in order to prevent it.

The issues can be more complex for CSOs that undertake self-financing activities as a means of creating employment for their clients.

These activities also fall under the category of providing new products for an existing constituency, because even though the products vary and are often unrelated to the organizations’ missions, the activities are compatible with the organizations’ goal of employing their traditional clients. The challenge here is for the CSO to balance the needs of its beneficiaries with the goal of generating revenues or, at the very minimum, staying financially afloat. This can be difficult, particularly for an organization that has little experience in running a business.

Organizations that employ their client groups often incur social costs that most businesses need not even consider. For example, Nephrocentrum's employees, the majority of whom Organizations running social- have physical disabilities, work from their homes to make a variety of polyethylene products that the orgapurpose businesses may also nization sells. While this arrangement is not the most confront a dilemma if their mission goal of providing job economically efficient, it enables Nephrocentrum to provide jobs to individuals who can rarely find training and employment employment in the “mainstream” job market. comes into competition with Organizations running social-purpose businesses may their financial goal of also confront a dilemma if their mission goal of progenerating revenues. viding job training and employment comes into competition with their financial goal of generating revenues. SNI, which runs the social-purpose business Studio Air in order to provide youth with training in the arts and entrepreneurship, describes this difficult balance:

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“It has taken time—and is still being learned—[to determine] the right proportion of time to be spent on the social mission (teaching kids) and the profit mission (making sales). A funder may be willing to supply computers for a new type of product development. While this would facilitate teen skill development in a new area, the additional time and investment in training may take away from the efforts to sell existing products.”

3.2.3 Existing products and services for new constituencies There are many interesting and creative examples among the case studies of CSOs that have taken what they have or what they do well and begun offering these products or services to a new client base. In some cases, such as the example of Fundaempresa, described below, CSOs have been approached by a new constituency requesting an existing product or service. In other cases, CSOs have sought out new constituencies because they offer an opportunity to extend organizational mission, to generate new revenues, or both. This occurred with Casa de la Paz, which saw an opportunity to advance its environmental mission and generate new sources of income by providing environmental consulting services to for-profit businesses.

Many of the CSOs in this category rent their underutilized assets to customers who can pay for them. This is an existing product held by the organization that it is offering to a new client base. For example, Fundación Ideal rents some of its space to a private medical practice and a cafeteria service. Hogar de Cristo rents funeral cars and space to its own funeral home and rents buildings to a supermarket chain.

Fundamor has renovated several of its offices into apartments, which it rents out to the public. Organizations must be careful not to rent to groups that do not respect the property (as was the case for KUD and Stoka Theater, mentioned in Chapter Two) or whose values conflict with their own. Nevertheless, while renting property can sometimes entail significant management responsibilities, generally speaking, it poses relatively few challenges to organizational mission.

In other cases, the relationship with the new constituency is much more active. Fundaempresa offers business development support and training to low-income professionals and nonprofessionals. A few years ago, a for-profit company that was downsizing approached Fundaempresa to see whether the organization could assist its laid-off employees with the transition, through both emotional support and risky business: The impacts of merging mission and market Copyright © NESsT 2003

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training in business development. Initially, Fundaempresa had reservations, because it did not want to be associated with corporate downsizing and the resulting unemployment. Ultimately, however, it decided that helping these laid-off workers is compatible with its mission to provide training and support to unemployed professionals and that it can offer something concrete and useful to this new constituency.

Fundaempresa is now offering these services to corporations as part of its “labor adjustment program” and has helped hundreds of laidoff employees receive training in new business development skills.

Impact on mission in relation to a self-financing strategy that is using an existing product or service with a new constituency is, in many ways, related to definition and expansion of mission. Before adding a new constituency to its work, an organization usually analyzes first whether the new constituency is compatible with its existing mission and second whether it should adapt its mission to include the new constituency. Even when the organizational mission is not threatened, the need to work with a totally new constituency may require a different set of skills that can impose additional demands on the organization. Thus, rather than expanding its mission, the organization may decide to clearly delineate the new constituency as part of its profit-making strategy, totally apart from its mission programs.

3.2.4 New products or services for new constituencies The last category of self-financing in relation to mission proximity includes those CSOs that develop a new product or service to offer to a new constituency. The expectation, according to our hypothesis, was that this category would pose the highest risk to mission because these organizations are working in new and often unknown territory.

This was sometimes, but not always, the case.

Generally, there are two types of activities that fall within this category. The first is the sale of products to groups as a way to “sell them a part of the mission.” For example, Fundamor runs a greeting program in which buyers pay a fee to send special-occasion greetings to friends and relatives in the name of the organization. Fundamor also sells cookies to the general public as a way to promote awareness of HIV/AIDS and, at the same time, generate revenues. Hogar de Cristo sells a similar greeting program, as well as Christmas cards, to the public as a way to gain support for its work and generate revenues.

This type of activity is fairly nonthreatening and in many ways bor-

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ders on being a donation-type program. The buyer receives something in return for supporting the mission of the organization.

Usually, it is a “win-win” situation that poses few threats to organizational mission.

The second type of activity in this category is the operation of enterprises that are totally separate from the CSOs’ missions. For example, CODEMU, which is dedicated to the labor rights of women, operates a self-service laundry; SODEM, working for sustainable community development, runs a private school; Greater DC Cares, working to promote volunteerism in Greater Washington, D.C., places temporary attorneys with corporate clients. At first glance, it appears that this type of self-financing would cause the highest risk to organizational mission. Since these activities are outside the CSOs’ area of work and traditional demographics, organizations may not possess the skills and experience needed to conduct them. Moral dilemmas may arise if the activity is somehow deemed incompatible with the organization’s mission. Or perhaps the organization will be required to dedicate time and resources to the activity The cases in the study reveal at the expense of pursuing its mission. While this is an that negative impacts on important issue with any self-financing activity, it is a mission are not inherent to greater cause for concern when the activity has no these non–mission-related relationship with the CSO’s traditional programs or activities. Rather, the impact target demographic group. on mission has a lot to do with the way the initiative is Yet the cases in the study reveal that negative impacts structured and managed. on mission are not inherent to these non–missionrelated activities. Rather, the impact on mission has a lot to do with the way the initiative is structured and managed.

Separating the legal structure, the governance, and the day-to-day management of the activity from the organization itself can prevent the activity from having a negative impact. For example, Greater DC Cares’ enterprise, Cares@Law, is organized as a distinct for-profit subsidiary with a totally separate staff and a board that is legally distinct but has a couple of the same members as the nonprofit board. Any surplus revenues generated by the company go to Greater DC Cares.

Because there is no overlap between the mission objectives or administration of the organization and its enterprise, conflicts between the organization’s pursuit of its mission and the enterprise’s quest for profit do not arise. In this case, the separation of the enterprise from the organization’s mission ensures minimal impact.

The cases of CODEMU and SODEM are different, since these organi-

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zations have legally organized their for-profit ventures separately but are using existing staff and board members to operate them. Both organizations have dedicated a great deal of staff time to learning about their ventures and, as discussed at greater length in Chapter Four, neither is currently generating a profit. Interestingly, however, both organizations believe that their self-financing activities have produced very positive learning experiences and both are optimistic that they will soon be profitable.

The experiences of groups offering a new product or service to a new constituency suggest that this type of activity can be, but is not necessarily, more risky than offering new products or services to an existing constituency or offering existing products or services to a new constituency. One could make the argument that the latter categories pose even more risks: since the activities are not totally separated from organizational mission, CSOs can begin to move away from their original mission or constituency without realizThe relationship between a ing it if they are not careful. Thus, the findings indiCSO’s mission and its selfcate that when it comes to preventing mission drift, financing activities is less the relationship between a CSO’s mission and its selfimportant than how the financing activities is less important than how the organization balances comorganization balances competing pressures if and peting pressures if and when when they arise. they arise.

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3.2.5 Avoiding mission drift The discussion above demonstrates that the relationship shown in Figure 3-1 can be useful, but the reality is much more complicated. Nevertheless, a few key issues cut across the various categories and provide a good indication of the factors CSOs should monitor in order to avoid mission drift.

• Charging beneficiaries a fee can pose problems for a CSO if beneficiaries cannot afford the fee and are therefore denied access to the product or service. Specifically, this may 1) cause external backlash from the clients themselves or other stakeholders; 2) cause internal rifts among staff, board, or volunteers; or 3) cause the organization to focus its efforts on paying clients to the detriment of its nonpaying clients. Even if beneficiaries can afford the fee, the symbolic shift may cause either external backlash or internal dissent.

• At times, generating revenues may not be compatible with an organization’s values. Fundaempresa confronted this dilemma when it was approached by businesses looking to downsize, and Casa de la Paz faces similar issues in its work with large corporations, such as Shell Oil. Similarly, ethical issues may arise when an organization invests in certain types of businesses or enters into a product endorsement or licensing agreement with a company.

• CSO staff may not have the capacity to operate the self-financing activity.

This can potentially have the following harmful impacts on organizational mission: 1) staff may need to spend time acquiring the skills to run the activity—time that would otherwise be spent implementing the organization’s mission; 2) when staff members are performing legal or financial functions outside their expertise, they may put the larger financial health or reputation of the organization at risk; 3) staff may be completely qualified to operate a financially successful activity, but their devotion of time to this endeavor may pull them away from running the programs that advance the organization’s mission.

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3.3 Organizations’ Views on Mission Impact The impact of self-financing on organizational mission for CSOs in this study has been, for the most part, very positive. Of the 45 cases studied, 40 report that self-financing has had a positive effect on the mission of the organization, while four state that self-financing has had no effect and one says that it has had a negative effect. This last organization, Fundación Cirena, identifies two external factors—a strained relationship with a partner institution and a shift in government policy—as responsible for the negative effect of self-financing on its mission, and it also cites several ways in which self-financing has positively affected its mission.

Organizations generally give four reasons in explaining their positive responses: • Self-financing has directly enabled them to expand and strengthen their mission. Fundamor reports, “We have more programs and services contributing to improving the quality of life of HIV/AIDS patients.”

Similarly, Chaloupky Center says, “Self-financing has enabled us to extend the range of our ecological education programs.” This has also been the case for the thirteen organizations that offer job training and employment opportunities to their clients. For example, KÁLLFÓ employs 140 people, most of whom are physically or mentally disabled, in an underdeveloped region of Hungary.

Similarly, Nephrocentrum’s various enterprises employ 110 people, the majority of whom are recovering from kidney disease or have other physical disabilities that make it difficult for them to find employment in the mainstream workforce. Through its for-profit subsidiary Studio Air, SNI pursues its mission of community development in Chicago’s South Side by providing training in artistic design to at-risk youth, who “find it attractive to be involved in a real business that is creative and fun.” The training services Fundaempresa sells to companies that are laying off workers enable the organization to provide support to individuals when they are in an extremely vulnerable situations, both personally and financially.

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CAASSAA DDEE LLAA PPAAZZ:: WIDENING THE MISSION C When it was founded in 1988, Casa de la Paz offered workshops and publications in environmental education to CSOs and teachers. Since launching its self-financing activities in 1990, the organization has slowly expanded its mission to include clients from other sectors, and it currently offers these same services to governments and corporations. When asked if having corporate clients, including petroleum companies such as Shell, has posed mission-related problems for the organization, the executive director responds, “Shell is a client but knows that it cannot influence Casa de la Paz. If they began to set unreasonable demands, we would no longer work with them. The companies that come to us come with the right attitude. Those that knock on our door know that their mission is compatible.” Casa de la Paz has formally modified its mission to include this new constituency. Under its new mission, the organization works “to make each person aware of the environment in order to reconcile environmental protection with economic production and social equity.”

• Self-financing has indirectly supported their mission by generating muchneeded funding. As FEPP notes, “Self-financing allows us to continue implementing activities that improve the life of the poor and therefore allows us to accomplish our mission.” Fundación Corona states, “It has allowed us to meet our institutional mission by paying for personnel and program costs.” EkoCenter reports, “Self-financing enables us to keep running long-term, nonprofit projects for a certain period of time, even in the case when we are waiting for a grant.” WCA says, “Resources from self-financing have given us the breathing room not to worry about day-to-day expenses while we develop new programs and new funding partners for these programs.”

• Self-financing has given them a sense of independence, pride, and staff empowerment. According to the Business Law Center, “We are more independent and more capable of carrying out our mission.” CISA says, “Self-financing has given the organization a new personality and image. We now implement our mission with greater pride.”

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destiny. It isn’t so completely dependent on the whims of others.

This is an extremely important concept because it allows us to take charge of our future and shape our programs accordingly.”

CI C IE EM M: : STAYING CLOSE TO MISSION

CIEM is a community development organization in the Aconcagua region just north of Santiago, Chile, that supports the preservation of the environment and promotion of local culture and the arts through capacity-building and education. It generates significant income from contracts with the government to provide technical assistance to local entrepreneurs and training courses to youth in the arts and trades. While some of these courses are partially subsidized by government grants, CIEM also charges fees to generate additional income.

In 1997, CIEM began to sell wooden and wrought iron furniture on a custommade basis. The organization attracted a number of clients who valued its workmanship and reputation. However, within months it found that it was barely able to meet production costs. CIEM assessed the activity and realized that in expanding from capacity-building to product-making it had moved away from its mission and expertise as a training center. Many of the participants in its courses are apprentices who do not yet have the skills needed to make the kind of high-quality product expected by purchasers of custom-made goods. Based on this evaluation, CIEM decided to phase out the activity.

By contrast, when the organization examined the numbers for its mission-related workshops, it found that it was in a much better position to cover its costs and even generate a surplus. It then evaluated each of its self-financing activities and found that this logic held true across the board. The café was not generating revenues, in large part because the staff that managed it knew little about the restaurant business. The organization decided it could make money by selling the café to a restaurateur and charging her rent for the space. The cinema and art gallery, on the other hand, required little in the way of maintenance, were covering costs, and were delivering a service that is part of the organization’s mission and expertise. CIEM therefore decided to continue operating these activities.

Given its limited human and financial resources, CIEM has learned that it is better off, both financially and otherwise, keeping its self-financing close to its mission. In 2000, it launched a new round of capacity-building courses for local residents in the arts and trades that have been lucrative and have also widened the scope and impact of its work.

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• Self-financing has been a helpful learning experience. CIEM reports that self-financing “initiated a tremendous internal dialogue which has moved us closer to our mission.” CODEMU says, “We haven’t reached our financial goal yet, but our learning experience has been very positive.” SODEM states, “Internally, there is no doubt that the learning that has taken place has permitted professional and institutional development.” For Acceso, this positive learning experience has both internal and external benefits: “We have our first experience in searching for financial sustainability, which is something we can share with our organizational clients.” These perspectives point to the multiple benefits of self-financing, which extend well beyond simply generating revenues.

3.4 Self-Financing’s Impact on Programs CSOs in the study report that their self-financing activities have had a range of impacts on their programs and their constituencies.

3.4.1 Impact on number, size, and scope of mission-related programs • An increase in the number and size of programs. Of the 43 respondents, 31 report that self-financing has allowed them to increase the number and/or size of existing programs and activities. For many of the organizations, the self-financing activities are directly tied to their programs. As these activities have grown in size and scope, so has the size and scope of their mission impact. For example, the mission-related workshops in autistic therapy offered by the Geneva Centre have increased from twelve to over 130 per year as the demand for this training has grown. Similarly, since UMANOTERA launched its consulting services in sustainable development to local governments in 1996, this mission-related activity has steadily increased and brought in significant revenues as well.

• Creation of new programs. Of the 43 respondents, 22 indicate that selffinancing has allowed them to introduce new types of activities and programs. Again, this has been either because the self-financing activity is itself a new program or because the revenues generated by the self-financing activity have funded the creation of a new program. The social-purpose businesses through which CSOs employ risky business: The impacts of merging mission and market Copyright © NESsT 2003

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their own clients fall into the first category. In the second category, Hogar de Cristo generates 86% of its USD 17.6 million annual budget and is constantly creating new programs using these resources.

PROCOSI reports that its investment dividends have allowed it to initiate an institutional strengthening program directed at the members of its network.

• Ability to maintain existing programs. Some organizations say that selffinancing has allowed them to maintain the scale and type of activities and programs already being offered. For organizations such as Fundamor, FES, PEP, and WCA, self-financing is a built-in component of their mission programs. For other organizations, such as Acceso, Casa de la Paz, and Tyr Center, self-financing has become a viable strategy for maintaining their mission programs in operation as donor support is withdrawn. As Acceso says, “The sale of services has permitted us to continue creating and offering services associated with our mission despite the absence of sufficient funds from the international community.” The funding generated from selffinancing activities covers the costs of mission programs when donor support is insufficient. As FEPP sums up, self-financing “allows us to finance our work. We would have to do a lot less or eliminate activities otherwise.”

• Elimination of programs. On the other hand, six of the organizations state that self-financing has resulted in the elimination of some of their existing programs and activities. While these responses are notable, they may be slightly misleading. For example, Tyr Center was forced to close one of its social-purpose businesses, a bakery shop, not because of issues related to the center’s other self-financing activities but because there was not sufficient local demand for its products. The organization still provides baked goods on an order basis, but it has scaled back the number of staff and regularity of the activity. Similarly, Fundación Cirena temporarily stopped offering its echographic services, a mission-related self-financing activity, because of a strained relationship with a key institutional partner. The organization has since reinitiated the activity in another location, albeit at lower levels. MCH reports important reductions in expenditures— “The activities which do not bring profit stopped being performed, mainly due to a lack of time”— but specifically cites organizational development and renovation of its buildings, two nonprogram areas, as the areas in which it has reduced spending. Two other organizations, Green Line and SENT, do not indicate which of their programs have been eliminated or why. risky business: The impacts of merging mission and market Copyright © NESsT 2003

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The sixth organization in this group, SNI, presents its reduction in programs as a positive by-product of self-financing: “We are more focused because the definition and execution of a business plan has focused all players on the same objectives. As programming became more focused, certain programs had to be eliminated.” The organization now gives greater emphasis to training youth in the arts, and it believes that this focus has enabled it to improve the quality of its mission-related, self-financing activity: “Self-financing has solved a numbers issue. That is, external funding is often based on the number of clients served. Self-financing has reduced this focus and increased the focus on better serving a smaller number of clients and reducing client turnover.”

3.4.2 Impact on quality of programs A majority of the CSOs (28 of the 41 responding) also say that selffinancing has improved the quality of their programs and activities.

Reasons given fall within three categories: • Self-financing has given the organization more resources to work with. As Hogar de Cristo states, “With more resources, both financial and human, we can provide better quality programs.” Similarly, Fundación Corona comments, “More resources, both financial and human, improved the quality and richness of the programs.”

• Engaging in self-financing activities has made the organization more attuned to clients’ needs and demands. According to MEXFAM, “in order to attract more clients, we need to offer better quality services.” FEPP states that “two people within the organization have had to specialize in this type of [self-financing] activity and we have been able to offer better quality service in this area.” Fundaempresa asserts, “We have improved our programs methodologically, pedagogically, and technologically.”

• Engaging in self-financing activities has made the organization feel more in control of its programs and their quality. According to CISA, “Since the products we are selling have been made by our organization, we have a great deal of confidence in what we are offering.” WCA says, “We realized with group-buying programs that our members were customers and that they could take us or leave us whenever they wanted. So we felt that we had to hold everything we do to the highest standard.” And Casa de la Paz states, “We have become more demanding toward all aspects of our work.” risky business: The impacts of merging mission and market Copyright © NESsT 2003

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Of the remaining thirteen organizations responding, eleven state that self-financing has had no impact on the quality of their programs and two report that the quality of their mission programs has dropped, in large part because of their self-financing activities. For both of these latter organizations, Children’s Foundation and Green Line, it appears that the time demands of their self-financing activities have pulled them away from their mission programs.

Green Line, in particular, can only cover part of its program costs by charging fees and is frustrated that its time investment does not yield better financial results: “The energy we exert is still ‘underrated.’ If we were to try to charge our clients the full cost of the services we provide, they would not be able to afford them.” Children’s Foundation qualifies its negative response by also citing a positive effect of self-financing on its mission: “Thanks to self-financing, the prices of therapeutic holidays for the children dropped, and therefore a greater number of clients could afford them.”

3.4.3 Impact on number of beneficiaries The majority of the organizations (35 of the 42 responding) report that they have increased the number of beneficiaries reached because of self-financing. In most cases, the self-financing activity itself has grown over time, which has meant that the number of beneficiaries served has also grown. MEXFAM states, “Due to the very nature of the self-financing activity, we now have a lot more clinical services and more clients.” According to WCA, “There is no doubt that a number of members have joined because of one group-buying program or another. The most popular program is our health trust, and just over half of our members participate in this [self-financing] program.” According to Fundamor, the number of HIV/AIDS carriers assisted by the organization increased from 2044 in 1996 to 3181 in 1998, and this increase was directly correlated to parallel growth in many of its fee-for-service programs.

Of the remaining seven organizations responding, six report that there has been no apparent impact on the number of beneficiaries and one indicates a decrease. This last organization, CISA, presents the decrease in beneficiaries as a positive by-product of its self-financing activity: “We have identified our clientele with more precision and we are emphasizing the idea that quality supersedes quantity.”

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3.5 Mission Orientation Slightly more than half (24) of the organizations believe that they have become more mission-oriented as a result of their self-financing activities and most (17) of the rest maintain that self-financing has had no impact. Two organizations (Stoka Theater and CASE) report that they are less mission-oriented as a result of their self-financing activity. Self-financing has allowed many organizations to fulfill their missions, to carry out their programs, and, in some cases, to widen both. Because the mission is closely tied to their self-financing activities, because self-financing has generated the needed resources to carry out their programs, or both, they believe that they are more mission-oriented. As Tyr Center says, “For us, using self-financing is the best way to fulfill our mission.”

Those organizations that report that self-financing has not had an impact on their mission are responding from the need to make clear that their business activities have not caused them to deviate from their mission. For example, the Business Law Center states, “Our selffinancing mission is related and therefore has not had a negative impact in any way.” CISA explains, “Our institutional mission was already defined when we initiated our self-financing activities. Until now we have not seen the need to revisit the mission.” These responses, however, do not signify that self-financing has not allowed them to fulfill their mission.

Two CSOs did say that self-financing has taken them away from their mission. CASE’s former executive director explains how self-financing adversely affected the organization’s mission: “Chasing money means you may take on work that barely fits your mission.” CASE’s decision to move away from 100% self-financing and begin to search for some grant support was based on the perception that it was becoming “demand-driven” and not focusing on research that it felt was critical.

In the case of Stoka Theater, the high level of involvement required for actors to set up and run the pub and the fact that they are currently deeply in debt have taken them away from their mission.

Again, the unrelatedness of the business, together with a lack of qualified staff, has had an overall negative impact on the organization’s mission.

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3.6 CONCLUSION One of the key findings of this study is that despite many challenges, most CSOs seem to feel very positively about their self-financing activities overall and particularly about the impact of these activities on their organizational mission and programs. Self-financing activities have enabled CSOs to generate revenues, allowing them to fund their existing programs and, in some cases, create new ones. They have made the organizations more attuned to the needs of their clients and given them a sense of independence and empowerment. They have also precipitated valuable internal learning experiences that have, in turn, strengthened the ability of the CSOs to provide high-quality products and services.

These benefits have also, with few exceptions among the CSOs studied, come with some costs and trade-offs. Many CSOs have felt their missions threatened as they began charging for their products, allying with new beneficiaries, overtaxing staff, and sometimes diverting staff away from mission-related work. These challenges arise frequently when CSOs attempt to integrate self-financing activities into their work, and the data shows that even organizations that are vigilant in monitoring the effects of their self-financing activities may confront mission drift. Nevertheless, mission drift is not an inevitable consequence of self-financing. Rather, CSOs learn to balance the various demands on their time, expertise, and resources in order to minimize potentially negative impacts on their missions. Thus, while several organizations identified new challenges to their missions that are associated with their self-financing activities, the majority indicated that, on the whole, their self-financing activities have strengthened and expanded their mission-related programs and their social impact.

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The pursuit of profit proved to be more challenging for CSOs than originally anticipated.

Chapter 4

Financial Performance

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4.1 Introduction The organizations in this study utilize enterprise activities to achieve not only financial but also social and, in many cases, environmental goals as well—the double or triple bottom line described in Chapter One. For example, some CSOs did not originally set out to generate a profit per se, but rather intended to recover part or all of the costs for a particular program. Many organizations are interested in providing job training and employment opportunities for their clients and did not necessarily expect to make a profit either. Others intend to generate profits, but do not consider their activities successful unless they produce social and/or environmental benefits as well.

Thus, for the CSOs examined in this study, the “profitability” of their self-financing activities is not the sole or even, in some cases, the most important indicator of financial performance.

This chapter evaluates the income goals established by the CSOs prior to launching their activities, the degree to which they have met these goals, and the various factors that have influenced their financial performance. Unlike Chapters Three, Five, and Six, Chapter Four does not focus on the impacts of self-financing on a particular organizational area, but instead directly analyzes the financial performance of the activities themselves and the experiences of CSOs in starting up and managing them. The first part of the chapter reviews the CSOs’ general, qualitative financial goals in order to establish their baseline expectations for self-financing activities. Then it compares each organization’s quantitative goal with its actual financial performance, both in terms of the percentage of the CSO’s annual budget that is covered by revenue from self-financing activities and in terms of the profitability of these activities.

The second part of the chapter analyzes the pre-planning, start-up, and management aspects of the self-financing activities to determine what, if any, correlations exist between these various factors and actual financial performance. Finally, the chapter examines factors specifically related to business activities, such as pricing and marketing, to determine whether these factors have had an impact on financial performance. Throughout, the chapter attempts to identify common experiences and trends among the CSOs to explain why some selffinancing activities have performed better than others.

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4.2 Financial Goals and Outcomes 4.2.1 Qualitative goals In order to assess the general financial goals for their enterprise activities, the CSOs were asked, “What is your organization trying to achieve through self-financing?” Of the six options provided, three are more financially oriented, whereas the other three are more mission-oriented (Pie chart 4-1).

More than two thirds of the organizations (33) cite the non-financial goals of furthering their mission and becoming more sustainable among their self-financing objectives. Interestingly, the same number of organizations cite the financial goal of generating net income, while a significant number also indicate that they hope to cover administrative and program costs. This balance between motivations that are more mission-related and those that are more financially related is apparent throughout the Pie chart 4-1 Self-Financing Goals study, both in the CSOs’ objectives prior to launch- What is your organization ing their activities and in their assessments of the trying to achieve through benefits produced by them. self-financing?

4.2.2 Quantitative goals

To become more sustainable as an organization 33

The CSOs studied are quite ambitious in their projected goals for self-financing income overall. Of the further 43 organizations responding, 27 originally intended To our mission to generate more than half of their annual income 33 from self-financing sources; of these 27, twenty intended to generate three quarters or more. Only To increase awareness of five of the organizations aimed to achieve 10% or work 16 less of their income from self-financing, and all of these CSOs have surpassed their goal by far. Table 4-2 compares the CSOs’ income goals as a percentage of their annual budgets with their actual incomes.

Of the 27 organizations that intended to generate more than 50% of their annual budget in self-financing revenues, only fourteen actually met or surpassed this goal. This suggests that many organizations had unrealistic financial expectations. This is reinforced by the fact that of the fifteen organizations that had less ambitious goals of 5%-50%, all have met or surpassed them.

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Other 3 To cover program costs 21 To cover administrative/ office expenses 25 To generate profit/ net income 33

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TABLE 4-2: INCOME GOALS Income goal Actual income (as % of (as % of annual budget) annual budget)

Case 1.

2.

3.

4.

5.

Year

No. of percentage point by which goal was surpassed (+) or not met (-)

Acceso Business Law Center Casa de la Paz1 CASE Chaloupky Center

26 - 50 76 - 100 76 - 100 76 - 100 51 - 75

63 15 29 100 76

1998 1998 1998 1998 1998

+ 13 - 61 - 47 — + 1

6. Children’s Foundation 7. CIED 8. CIEM 9. CISA 10. CODEMU

26 - 50 11 - 25 26 - 50 76 - 100 76 - 100

17 15 27 27 7

1998 1998 1998 1998 1998

- 9 — — - 49 - 72

11.

12.

13.

14.

15.

EkoCenter Elim Písek ESE Association FEPP FES

51 - 75 76 - 100 51 - 75 26 - 50 76 - 100

78 79 30 41 76

1998 1998 1998 1998 1998

+ 3 — - 21 — —

16.

17.

18.

19.

20.

Fundación Alternativa Fundación Cirena Fundación Corona Fundación Ideal Funda-empresa

26 - 50 51 - 75 76 - 100 76 - 100 76 - 100

83 89 67 98 79

1998 1998 1998 1998 1998

+ 33 + 14 - 9 — —

21.

22.

23.

24.

25.

Fundamor Geneva Centre Greater DC Cares Green Line Hogar de Cristo

76 - 100 0 51 - 75 51 - 75 26 - 50

61 33 9 78 86

1998 1998 1998 1998 1998

- 15 N/A - 42 + 3 + 36

26.

27.

28.

29.

30.

INFRA-BER KÁLLFÓ KUD LSS MCH

76 - 100 76 - 100 6 - 10 76 - 100 76 - 100

90 60 45 91 90

1998 1998 1998 1998 1998

— - 16 + 35 — —

31.

32.

33.

34.

35.

MEXFAM Nephro-centrum PDCS PEP PROCOSI

51 - 75 11 - 25 26 - 50 76 - 100 76 - 100

40 21 40 88 40

1998 1998 1998 1998 1998

- 11 — — — - 36

36.

37.

38.

39.

SENT SNI SODEM SONCEK

6 - 10 0 26 - 50 6 - 10

30 13 52 40

1998 1998 1998 1998

+ 20 N/A + 2 + 30

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Case 40.

41.

42.

43.

44.

45.

Stoka Theater Szeged Foundation Tyr Center UMANOTERA WCA YHD

Income goal Actual income (as % of (as % of annual budget) annual budget) 76 - 100 11 - 25 76 - 100 6 - 10 76 - 100 1-5

19 50 49 28 89 9

Year

No. of percentage point by which goal was surpassed (+) or not met (-)

1998 1998 1998 1998 1998 1998

Some of the organizations that have yet to reach their income goals have only recently launched their self-financing activities, and it may be too soon to judge their performance. Other organizations are experiencing overwhelming start-up difficulties and it appears that it will take several years for them to overcome these challenges.

However, each of these CSOs affirms that it is committed to selffinancing and intends to continue its activities and eventually make them profitable.

4.2.3 Financial profitability Perhaps more important than the percentage of each organization’s budget that is currently being self-financed is the degree to which CSO self-financing activities are generating a profit. Chart 4-3 shows profitability over time.

In terms of initial profitability, eleven of the 42 organizations that responded were profitable within the first twelve months, three were breaking even, and 28 were losing money. Within three years, these proportions had shifted significantly, with sixteen CSOs generating a profit, eigthteen breaking even, and only ten losing money.2 These breakdowns are consistent with those of start-up businesses in general—a significant proportion fail within a few years and even for those that eventually do become successful, it often takes a couple of years 1 One organization, Casa de la Paz, considers itself to be at a higher level of self-financing than is classified in this study. The organization treats all grant agreements as fees for services rendered and therefore as self-financing income. However, for purposes of consistency for this study, these amounts were categorized as grant sources, bringing Casa de la Paz’s level of self-financing to 28%. Using this measurement, the organization falls well short of its goal of generating 76%100% of its annual income from self-financing activities.

2 Of the 42 organizations responding, 38 had been operating their activities for more than 12 months, and 34 for more than 24 months.

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+ +

57 25 27 18 — + 4

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CHART 4-3: FINANCIAL PROFITABILITY OVER TIME 1-12 months

13-24 months

25-36 months

Current status

30

No. with costs exceeding income No. with costs equal to income No. with costs less than income

28 25

20

18 15

16

16 13

10

11

11 11

11

10 8

5

3 0

to break even or begin generating a surplus.3 Considering that CSOs are mission-driven organizations with little if any experience in business, these outcomes are fairly positive. Still, it is important to remember that for a CSO, the effects of not generating a profit may be much more costly than for a for-profit business, since the organization’s reputation and its ability to pursue its social mission may be jeopardized.

In terms of current profitability status, eighteen of the 42 CSOs responding are generating a profit, eleven are breaking even, and thirteen are losing money. However, there does not seem to be any single factor at work in determining financial success. No discernible pattern emerges when the financial performance of CSO enterprises is compared according to the number of different self-financing methods employed, the relatedness of these activities to organizational mission, years in operation, amount of business experience, or degree of preparation. It is important to note that some groups are experiencing overall profitability but not yet breaking even for certain activities and vice versa. In order to simplify the data, the study asked CSOs to report their overall profitability rather than to break down profitability for each of their activities.

3

For statistics related to small business performance in the United States, see http://www.sba.gov.

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Various factors explain why thirteen CSOs are still losing money.

First, it is important to keep in mind that some of the organizations are not necessarily trying to yield a profit, but simply want to recover some or all of the costs of their programs (SNI, CIEM, Fundación Ideal). Along these lines, it is interesting to note that of the thirteen CSOs losing money, five (CIEM, FEPP, FES, Fundación Ideal, and MCH) are meeting their goals for self-financing income as a percentage of total income and two (KUD, SODEM) are exceeding their goals. In several cases (Greater DC Cares, CISA, FEPP, CODEMU), self-financing activities are relatively new and have not had a sufficient chance to mature. In other cases (MCH, CIEM, KUD), the organizations cannot cover their costs and are losing money simply because there is not sufficient market demand for their products or services. In two more serious situations (SODEM, Pie chart 4-4 Future Outlook Stoka Theater), the organizations are not able to cover their current operating costs and are also What do you think would be the indebted. Finally, a couple of organizations that were future profitability of your selfpreviously operating very successful enterprise activi- financing activity? ties (Fundación Ideal and FES) are currently experiNext six months encing downturns in their sales largely stemming Decrease 4 Don’t know 4 from economic recession in their host country (Colombia).

Increase 17

4.3 Future Expectations On the whole, the CSOs are optimistic in terms of the future profitability of their enterprises (Pie chart 4-4). Seventeen believe that their revenues will continue to increase over the next six months and eighteen believe they will stay the same, while the corresponding figures for the next twelve months are 23 and twelve, respectively. Four believe that their revenues will decrease for the next twelve months and three simply do not know. In the long run, optimism continues to rise. Of the 43 organizations responding, 28 believe that their revenues will increase in the next three years and five believe they will stay relatively the same; only one organization (PROCOSI) predicts that profits will continue to drop over a threeyear period.

Stay the same 18 Next year Decrease 4

Increase 23 Stay the same 12 Next three years Decrease 4

Copyright © NESsT 2003

Don’t know 9

Increase 28 Stay the same 5

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There is significant, though somewhat inexplicable, optimism even among the thirteen CSOs that are currently experiencing losses (Table 4-5). Nine believe that the financial performance of their activities will change for the better and that revenues will increase within twelve months to three years. Three are not sure, one believes it will stay the same, and none believes it will decrease.

Yet few of the organizations can concretely explain their optimism. In some cases, the CSOs have specific plans to shift their emphasis to activities with higher profit margins. For example, SNI reports that it will move away from contracts for custom orders that yield a 35% profit margin toward retail products that yield a 200% profit margin.

CIEM cites a similar strategic decision to phase out custom-made products with high labor costs and instead focus on training and education courses in the trades and arts where it has greater experience and can more easily make a profit. Yet most of the organizations do not have business plans or clear financial projections and base their optimism more on past trends and experience gained than on concrete plans for the future.

TABLE 4-5: EXPECTATIONS OF CSOs CURRENTLY LOSING MONEY

CSSO C O CIIEEM C M CIISSAA C

CO C ODDEEM MUU FFEEPPPP FFEESS

FFu unnddaacciióónn IIddeeaall

Geenneevvaa CCeennttrree G

Grreeaatteerr DDCC CCaarreess G KUUDD K

MCCHH M

SSO ODDEEM M

SStto okkaa TThheeaatteerr SSN NII

YYeeaarr sseellff-ffiinnaanncciinngg iinniittiiaatteedd

SSttaattuuss ffiirrsstt tthhrreeee yyeeaarrss

EExxppeecctteedd iinnccoom mee iin n ssiixx mo m on ntth hss

EExxppeecctteedd iinnccoom mee iin n ttw weellvvee m mo on ntth hss

EExxppeecctteedd iinnccoom mee iin n tthhrreeee yyeeaarrss

1998

Losing

Same

Same

1997

Losing

Don’t know

Don’t know

Don’t know

1997

Losing

Same

Increase

Increase

Increase

1997

Losing

Increase

Increase

Increase

1977

Making profit

Don’t know

Don’t know

Don’t know

1978

Making profit

Decrease

Decrease

Don’t know

1991

Losing

Same

Increase

Increase

1998

Losing

Same

Same

Increase

1960

Losing

Decrease

Decrease

Same

1992

Losing

Increase

Increase

Increase

1995

Losing

Same

Same

Increase

1996

Losing

Same

Increase

Increase

1996

Losing

Increase

Increase

Increase

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4.4 Conditions for Self-Financing Start-Up This section examines the conditions under which CSOs have undertaken their self-financing activities in order to determine whether the organizations 1) had sufficient start-up capital, 2) formulated business plans before launching their activities, 3) had prior business expertise, and 4) are able to manage their self-financing activities successfully.

4.4.1 Start-up funding In general, the CSOs studied did not have sufficient levels of start-up capital. Most were forced to piece together small bits of financing from various sources. Twenty-seven of the 45 CSOs used internal resources to start up their ventures. Twenty-one used a grant specifically designated for that purpose and eight for another project. An example in this second category is CIEM, which originally received a grant to purchase equipment for its cinema program. It then turned the cinema program into a self-financing activity by charging entrance fees to film screenings. Quite a number (13) of the organizations also received in-kind support, ranging from legal and accounting assistance to volunteer aid in installing electric wiring. A smaller group used donations from friends, members, and volunteers (8), from local resources (7), and from staff and board members (6).

Internal resources usually entailed a combination of staff time and financial savings from other projects. In most cases, these were small amounts of cash and significant amounts of staff and volunteer time.

Organizations did not always have exact calculations for these investments. Donors and board members did provide some initial funding, but in most cases these levels of start-up support tended to be small.

In general, staff, beneficiaries, members, and volunteers gave much more time than financial resources.

Resources for start-up from traditional financial institutions were scarce. Although eleven CSOs used some kind of loan for start-up (three from the state, seven from private sources and one from friends/staff) many were not eligible for loans from banks due to their legal status, lack of collateral, or perceived level of financial risk. Two CSOs (SODEM and Stoka Theater) incurred large debts that they are now paying back with the revenues generated from their self-financing ventures. Greater DC Cares came up with an interesting loan scheme to establish Cares@Law. The executive direcrisky business: The impacts of merging mission and market Copyright Š NESsT 2003

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Amount Used (USD)

1. Acceso

Int er n Pr al re oje so u c Do t fun rces no ds r Bo gra nt ar d/ Be staf ne f f M iciar em ies b Lo ers/ f ca l b rien d Go usi ne s ve s r s Pr nme iva nt te l Sm loa oan n all In- Me kin diu m d E co Ot nt nter he r i bu pris r e tio ns Fun d

TABLE 4-6: START-UP CAPITAL

100,000

2. Business Law Center

4

3. Casa de la Paz 4. CASE 5. Chaloupky Center 6. Children’s Foundation 7. CIED

X

X

X

0

X

2,500

X

0

X

6,500

X

X

60,000

X

X

29,000

X

X

3,289

X

X

22,000

X

X

X X X X

X

X

X

N/A

8. CIEM Aconcagua 9. CISA 10. CODEMU 11. EkoCenter

0

12. Elim Písek

694

13. ESE Association

N/A

14. FEPP

190,000

15. FES

X

X

X X

X

X

N/A

16. Fundación Alternativa

320,000

17. Fundación Cirena

60,960

X

18. Fundación Corona

2,000

X

19. Fundación Ideal

N/A

20. Fundaempresa 21. Fundamor

X

X

8,431

5

22. Geneva Centre for Autism 23. Greater DC Cares

X

X

X

X

X

X X

144,657

X

30,000

X

350,000

X

X

24. Green Line

290

X

25. Hogar de Cristo

N/A

X

26. INFRA-BER

N/A

X

X

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X X X

Financial Performance risky business

Amount Used (USD) 27. KÁLLFÓ

Int er n Pr al re oje so u c Do t fun rces no ds r Bo gra nt ar d Be /staf ne f f M iciar em ies b Lo ers/ f ca l b rien d Go usi ne s ve s r s Pr nme iva nt te l Sm loa oan n all In- Me kin diu m d E co Ot nt nter he r p i b r ut rise ion Fu s nd

73

55,000

28. KUD

N/A

X

29. LSS

3,333

X

30. MCH

3,000

X

31. MEXFAM 32. Nephrocentrum 33. PDCS

10 million

X

N/A

X

5,882

X X

35. PROCOSI

10,000

X

36. SENT

41,000 100,000

X

38. SODEM

170,000

X

39. SONCEK

40. Stoka Theater 41. Szeged Foundation

454

X

X

X

X

X X

X X

X X

X

X

X X

X

X

31,140

43. UMANOTERA

17,647

X

44. WCA

80,000

X

45. YHD

1,765

X

X

X

X

X X

X

X

X

X

27 8

21 6

4

1

8

2

3

7

Business Law Center used its existing office, equipment, and staff and was unable to calculate its start-up funding.

5 Fundamor’s start-up amount was for the initial investment for its workshops, its farm, and the construction of its center. All other activities required internal funds, but there is no specific information on what amount was used. Also, much was done with volunteers and no capital.

6 MEXFAM received this large sum from USAID as the donor’s exit grant to fund the construction of fifteen health clinics throughout Mexico.

7 SONCEK received some start-up funding from the national lottery.

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X

X

42. Tyr Center

TTO OTTAALL

X

X

N/A 57,071

X

X

X

37. SNI

7

X X

6

180,000

34. PEP

X

1

13 2

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tor asked ten friends and colleagues to lend the organization USD 25,000 each at 12% interest with a 36-month repayment period.

Ultimately, the organization was able to secure USD 150,000窶馬ot enough to meet its original goal, but enough for the organization to start up its activity without having to appeal to traditional lending institutions.

As Table 4-6 indicates, the range of funds needed varied depending on the CSO and its method of self-financing. Some CSOs required little or no start-up capital. EkoCenter, for example, already had the equipment and internal expertise to start offering its design services to outside clients. The Business Law Center also had the internal resources necessary to offer its consulting services to paying customers. By contrast, other CSOs invested greater amounts to make initial investments in space, renovations, equipment, and, to a lesser degree, training and marketing. Fundaciﾃｳn Cirena, MEXFAM, and SODEM required capital to purchase new buildings, while Stoka Theater and Fundamor needed funds to renovate their existing space. Acceso needed funding to test the methodologies that it planned to sell.

Cobbling together various sources of start-up capital On the whole, the CSO cases encountered difficulties was common, as CSOs usually finding the start-up capital necessary to launch their lacked both the resources to self-financing activities. Cobbling together various finance their activities sources of start-up capital was common, as CSOs usuthemselves and the credit to ally lacked both the resources to finance their activiobtain loans from traditional ties themselves and the credit to obtain loans from banks. traditional banks.

4.4.2 Pre-planning and research Few of the CSOs did any formal pre-planning prior to launching their self-financing activities. Of the 45 organizations, only five indicate that they started out with a business plan. Twenty-one say that they did some kind of feasibility research, ranging from conducting a full feasibility study to consulting with professionals and making some calculations.

While these findings suggest a general lack of pre-planning, it should be noted that many organizations simply began charging fees for a pre-existing program. Although a market analysis to determine competition and pricing before initiating such an activity is still prudent, there are fewer complexities in these situations than in the case of organizations launching an entirely new enterprise. risky business: The impacts of merging mission and market Copyright ﾂｩ NESsT 2003

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4.4.3 Other obstacles in start-up In addition to insufficient start-up capital and limited pre-planning, the CSOs cite a number of other obstacles to launching their selffinancing activities that have had a subsequent impact on financial performance. These tend to fall into the following categories: 1. Lack of funding for marketing 2. Staff resistance to the idea of charging a fee 3. Lack of business planning experience 4. Unstable external environment (legally, politically, economically) 5. Client resistance to paying fees 6. Market competition (particularly with other CSOs whose products/services are subsidized) 7. Lack of experienced advisors 8. Inability to manage the activity 9. High labor costs With the exception of staff and client resistance to charging or paying a fee, the majority of these start-up problems are common among regular for-profit businesses. Thus, it is not surprising that the same problems surfaced for mission-driven CSOs with low levels of business planning and in-house expertise and with the added social concerns related to their programs and underlying values. Nevertheless, these issues entail important organizational challenges that many CSOs are not prepared to handle and that can jeopardize both their selffinancing activities and their larger missions and programs.

4.5 Self-Financing Management 4.5.1 Business experience Of the 42 CSOs responding, 29 report having some kind of business experience among members of their staff or board. The nature of this experience varies. Some organizations have a staff or board member who has run one or more businesses. Others have a person with a specific technical skill, such as accounting, sales, or public relations. In a third set of cases, the very mission of the CSO leads it to have staff or board members with business experience, either in small enterprise or in finance. In a fourth set of cases, some organizations have consciously attracted people with business experience to their boards in order to assist with their fundraising efforts in general and their self-financing activities specifically.

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The organizations have also utilized outside experts to launch their self-financing activities. Most of this external consulting has been provided in kind or subsidized by grants.

As will be discussed at greater length in Chapter Five, the organizations have also utilized outside experts to launch their self-financing activities. Most of this external consulting has been provided in kind or subsidized by grants.

Lack of business experience has posed an array of challenges for many CSOs. Numerous organizations have entered industries completely unrelated to their core mission in order to create jobs for their beneficiaries (e.g., INFRA-BER’s and KALLFO’s contracts with commercial companies, Nephrocentrum’s office supply services, PEP’s ice cream and other retail businesses, Tyr Center’s dressmaking and launderette businesses, and SENT’s landscaping business). Learning these new trades and dealing with client needs poses challenges to staff members and to the larger organizations. As discussed in Chapter Three, despite these The organizations report challenges, many report that the internal learning having clearer and more process has been extremely useful and has brought a transparent accounting series of tangible benefits. The organizations report systems, a better understanhaving clearer and more transparent accounting sysding of their costs, and tems, a better understanding of their costs, and greater responsiveness to the greater responsiveness to the interests of their clients. interests of their clients.

4.5.2 Business planning Although most of the organizations did not have business plans from the outset, 26, or slightly more than half, have them currently. In developing these plans, many of the groups have had assistance from board members or outside advisors. These studies range from detailed plans with in-depth financial analysis to what would more accurately be described as strategic plans.

The following examples illustrate how these plans vary. At one extreme, Fundación Corona has a five-year financial plan for building its endowment. This plan was developed by a committee composed of board members, the organization’s executive and financial directors, and an outside consultant. It includes investment targets for each of the five years and specific strategies for attaining them. At another extreme, CIEM has a very basic plan with some cash flow targets, which the organization does not always meet. In the middle of this planning spectrum, Casa de la Paz has a strategic plan, a marketing study, and a series of short-term plans. Still, like any good entrepreneur, Casa de la Paz reports, “What seems to work best is to be risky business: The impacts of merging mission and market Copyright © NESsT 2003

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opportunistic and ready to respond to the market.” As these examples illustrate, organizations draw upon the human resources they can access while also improvising as they go in response to their surrounding environment.

4.5.3 Business management and development In addition to limited business experience and business planning, the CSOs have faced a number of challenges in the management and development of their self-financing activities that have had a marked impact on financial performance. Typical challenges include: 1. Limited resources for marketing and market research 2. Lack of staff time to dedicate to the business activities 3. Taxes on revenues generated from self-financing 4. Competition from for-profit businesses and from nonprofits whose costs are subsidized by grants 5. Inability to charge market-rate prices to clients or client resistance to paying for services 6. Inability to access a large share of the market 7. External environment (economic recession, political transition, unclear or changing legal regulations) 8. Lack of working capital As this list indicates, a lack of funding for required investments, an unstable local environment, and the added “social costs” of running their businesses with a mission focus pose the greatest threats to the financial outcomes of CSO enterprise activities.8

4.5.4 Marketing Prior to launching their self-financing activities, most CSOs relied heavily on their nonprofit marketing tools—primarily printed materials such as publications, newsletters, and flyers. However, since entering the marketplace, many have found that new marketing techniques are required to reach potential clients and customers and to 8 In "Quantifying Social Costs: A Case Example from Rubicon’s Buildings & Grounds Business," Kim Starkey defines social costs as "the additional costs, above and beyond regular business costs, that are incurred in pursuing a social mission" (in Social Purpose Enterprise and Venture Philanthropy in the New Millennium, REDF: 1999). These additional costs may include extra time needed to supervise workers who may be unaccustomed to the workplace, added labor costs because employees are often less productive than those in traditional for-profit business, or increased costs incurred because of social and environmental standards that are more rigorous than those imposed by local law.

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keep up with competitors. Unfortunately, most CSOs do not have the funds needed for marketing and must rely on word-of-mouth referrals, limited and very strategic advertising, and in-perUnfortunately, most CSOs do son presentations. As Children’s Foundation says, “In the beginning, it was very hard to make people, not have the funds needed clients, and organizations aware of our activities. Now for marketing and must rely everyone is satisfied with our services and clients are on word-of-mouth referrals, themselves looking for them.” Thus, many CSOs have limited and very strategic found that by offering a high-quality product, they advertising, and in-person can attract a growing clientele without doing costly presentations. marketing. On the other hand, this passive marketing strategy often translates into poor financial performance in the early stages of operating the activity.

4.5.5 Tax situation While this study does not allow for an in-depth investigation of the legal and tax situations of fifteen countries, the research does show that in most cases, the tax burden for CSO self-financing income is the same as that paid by for-profit entities. This tax treatment is very different from the regulations in the United States, where CSOs recognized as 501(c)(3) nonprofit organizations are exempt from tax on all income that is generated from mission-related activities. Although the blanket approach to taxing nonprofit and for-profit enterprises eliminates the potential risk of unfair competition, it does not adequately recognize the added social benefits and the public savings that CSO self-financing activities generate for the society at large. These benefits are both direct—training and employment of sectors of the population that are usually not hired by traditional employers—and indirect—generation of revenues to support the organizations’ valuable social missions. Furthermore, when CSOs produce these social benefits, they save the public from paying for them through higher taxes and increased government spending. Yet for many organizations in the study, tax regulations deter rather than promote self-financing activities. In Slovakia, income and sales tax burdens of 15% to as high as 40% are significant costs to CSO enterprises, which, unlike their for-profit peers, cannot easily pass them on to their often low-income clients.

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4.5.6 Competition Of 41 CSOs responding, 29 state that they face competition in both price and quality. In many cases, their competitors, particularly forprofit entities, have far more resources to invest in staff development, salaries, technology, and advertising. Nor does the fact that CSOs advance a social mission usually give them a comparative advantage in and of itself. As LSS says, “A CSO will not be successful if it does not have a high-quality product.” Thus, although many organizations use their missions to promote their products, as discussed at greater length in Chapter Five, most have found that the added benefits they bring to society, both as organizations and through their enterprise activities, are not enough to make their products and services more attractive to prospective consumers or clients. Rather, they must overcome their disadvantages and compete directly in the market.

One group of CSOs that is particularly burdened with competition is the group that sells capacity-building or training services. For one thing, there are many organizations, both for-profit and nonprofit, that offer training services. For another, many nonprofit groups are able to subsidize their training workshops through grant funding and can therefore offer them at a lower cost or for free. Thus, many organizations have had experiences similar to those of Fundaempresa, which maintains that the greatest start-up challenge was “the time it took to position ourselves in the market and to confront competition offering similar services with much greater subsidies since they did not have self-financing as an institutional goal.”

For some of the CSOs, however, competition has not been a factor, in that they offer services that other businesses are not interested in offering because they do not yield a significant profit. This was the case with some employment generation models such as Nephrocentrum and Tyr Center.

“CSO products and services must compete equally in the market place.”

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TYR CENTER: USING OUR COMPARATIVE ADVANTAGE Tyr Center’s dressmaker shop has almost no competition because it provides services mostly for the socially disadvantaged. In addition to the sale of ready-made textile products, Tyr offers minor services that are not profitable for other dressmaker shops. The organization stresses the following motto: “Our business is a social business.” The production line strives to “sew what is not sewn by others” (i.e., home textiles, special types of working clothes, small repairs). “We offer to socially disadvantaged local people various minor services which are totally unprofitable,” says the director, “and this is the main difference between us and a profit-making business.

The local tailor’s shop, our competitor, is definitely not going to sew buttons on the clothes of a widower for SK 36 (approximately USD 1) or adjust or repair them. For a commercial shop, it is not worth it.”

The center makes up for these non-profitable orders by producing things that are more financially lucrative, such as anti-allergic blankets (which take about the same time to make as sewing on a zipper and generate a significant profit). All of Tyr Center’s employees are previously unemployed young people with mental or physical disabilities. Still, while Tyr Center strongly emphasizes the social purposes of its self-financing activities, the organization has also adopted a more professional approach over time: “We started the project as human beings who wanted to help people. It is possible that we had to become more mature and come to the realization that a certain conception and strategic plan are needed for our work.” In this sense, Tyr Center has maintained its commitment to its social mission while also adopting strategies that will make its self-financing activities more financially viable.

4.5.7 Pricing and subsidies Pricing of products and services is also a constant challenge for CSOs. As discussed in Chapter Three, many of the CSOs face the dilemma of charging for services that clients are accustomed to receiving for free. By introducing fees or increasing their prices, many CSOs fear that they will alienate beneficiaries who are either unable or unwilling to pay. Beyond the philosophical obstacles, several CSOs have found that the fees they can charge do not cover their actual costs. This is perhaps one of the largest obstacles for missiondriven businesses, which often incur added social costs. Acceso

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explains the difficulties of pricing related to the organization’s Strategic Communications services: “It’s difficult to explain the high cost of the service we offer and the difference in quality of services in the market. We invest a lot of time in By introducing fees or educating clients about a variety of concepts related increasing their prices, many to the Internet, in order to be able to explain the dif- CSOs fear that they will ferences in quality and pricing.” alienate beneficiaries who are either unable or Many of the organizations continue to use donor unwilling to pay. funds to subsidize their products and services and to keep prices reasonable for their beneficiaries. Acceso uses donor funds to develop new capacity-building methodologies and materials, but it also uses them to offer “scholarships” to those beneficiaries who cannot afford to pay for its services. Elim Písek charges a small daily fee for clients in its rehabilitation center, but this represents only 15% of the total expense (the organization uses income from its bookstores to subsidize the difference). Similarly, the Children’s Foundation uses donor funds to subsidize the fees charged to children and their families for its therapeutic holidays. Fundación Ideal holds contracts with the Municipality of Cali and with the Colombian Institute for Family Well-Being that subsidize the costs of its services to disabled children, youth, and adults.

Another form of subsidy, known as a cross-subsidy, charges higherincome clients a high fee for one type of product or service in order to be able to partially or completely subsidize the costs of either the same or a different product or service for lower-income clients. In its fifteen clinics throughout Mexico, MEXFAM employs this strategy by offering a wide range of services to higher-income clients that offset the costs for its more basic services to lower-income clients, who are its main constituency. Similarly, Fundaempresa has developed a series of courses and consultations on enterprise development that it sells to both institutions and individuals on a fee structure. Fees charged to institutions cover the organization’s costs and generate a small profit that it then uses to subsidize more tailored consultations for individuals. Among these individuals, professionals wanting to start a business are charged more than nonprofessionals and low-income wage earners.

An overlapping but slightly different strategy is price scaling. Under a price-scaling model, an organization charges different rates for the same product to different groups of clients. For example, Acceso charges fees at a rate higher than the actual cost for those organiza-

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tions that can afford to pay and at a rate lower than the actual cost for those that cannot. While price scaling can serve as a cross-subsidy, as in the case of Acceso described above, it does not necessarily imply a subsidy. For example, Casa de la Paz charges a 5% overhead rate to teachers and other CSOs, a 10% overhead rate to public institutions, and a 20% overhead rate to private corporations. Thus, it generates a profit from each client group, but it makes more money from private corporations than from public institutions and, in turn, more from public institutions than from teachers and other CSOs.

4.5.8 Market share The small size of most CSO self-financing activities and the lack of capital for large-scale investment are impediments to many organizations seeking to gain a profitable share of the market. As Greater DC Cares explains, one challenge is “finding the right market entry point and competing with others who have a “The largest obstacle is the much greater business orientation and advantage.” small amount of resources Generally speaking, CSOs have little funding for market available to conduct wider research. Fundaempresa states, “The largest obstacle is marketing studies and the development of well-rounded the small amount of resources available to conduct wider marketing studies and the development of wellproducts.” rounded products.” Furthermore, CSOs face the added dilemma of whether to reinvest earnings into the growth of their enterprises or into their missions and programs.

Organizations that have order contracts for their services and products seem to do better than those that sell on a retail basis. Contracts are particularly common among CSOs with activities in the area of health care. For example, Fundación Cirena and Fundación Ideal hold contracts with health care providers who hire them to provide services to their clients. Fundación Ideal also holds contracts with the Colombian Police and Air Force to provide their employees rehabilitative services. All of PEP’s rehabilitation services are paid on a contract basis with the state of Maryland in the United States. WCA holds the contract to manage the Health Insurance Trust that it established for its members. Outside the health care sector, Fundamor has established an alliance with Fundación Competir, a nonprofit organization, to market and sell its uniforms on a pre-ordered basis. SNI produces most of its custom-designed promotional products on a preordered basis (although the organization has discovered that returns on retail products are, on average, six times higher).

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Still, contracts are not problem-free. Fundación Cirena has experienced significant problems getting paid on a timely basis by the health care providers who use its services, a problem that has been exacerbated by Colombia’s economic crisis. PEP’s dependence on a single contract for all of its fees renders it particularly susceptible to unforeseen circumstances. Since this contract is with a state government, even slight changes in legislation or Several organizations have public policy could jeopardize the contract. attempted to make their products more widely In addition to limited resources for marketing that available by partnering with would enable them to reach more potential cusfor-profit distributors. tomers, CSOs have found that problems with distribution are an obstacle to expanding product sales. Several organizations have attempted to make their products more widely available by partnering with for-profit distributors. Fundamor partners with a forprofit entity to distribute its cookies around Cali. LSS worked with a for-profit publisher to produce and distribute its training methodology book. In contrast, Tyr Center had to close its confectionery shop when it became clear that the town where it is located did not have a large enough market to support the everyday operations of a shop (although the order business has continued).

4.5.9 Market vulnerability CSOs are also more vulnerable to changes in the market than their for-profit peers. As will be discussed in greater detail in Chapter Six, most of the CSOs in this study have little in the way of financial reserves to help cushion the effects of market downturns. In fact, three of the organizations that are experiencing losses, Fundación Ideal, FES, and CODEMU, are doing so at least partly because of economic recessions in Colombia and Chile, respectively.

In addition, CSOs can rarely afford to pay for new technologies or access additional investment capital. The Children’s Foundation, for example, cannot keep up with the fast development of computer engineering. And even when funds are available, other obstacles lie in the way. According to SNI, “a funder may be willing to supply computers for a new type of product development and while this might facilitate skill development in a new area, the additional time and investment might take away from efforts to sell existing products.”

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4.5.10 Additional capital The need for capital has continued to be a problem for many of the CSOs in the study. Several cite a lack of working capital (capital to cover cash flow shortages) and capital to make further investments in their ventures as key constraints to their self-financing efforts. For example, Greater DC Cares needs working capital to cover cash flow shortages. The organization pays its attorneys up front and then must wait months for corporate clients to reimburse them. Fundaci贸n Cirena is currently owed thousands of dollars by one of its main clients and is experiencing cash flow difficulties while it awaits this payment. SODEM needs capital to invest in expansion and maintenance of its school, and CODEMU needs to purchase a vehicle for its laundry delivery service. And, as already mentioned, most if not all of the organizations also need capital to expand their entrepreneurial activities, to hire staff, and to pay for marketing and market research.

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4.6 CONCLUSION Most CSOs in the study are meeting their income targets and breaking even or generating a profit. Despite their low levels of business planning, in-house business expertise, and start-up and working capital, and the added challenges and social costs posed by being mission-driven, the majority of the CSO cases are fulfilling their financial goals, including the funding of administrative and new program costs. Beyond funding their immediate needs, some are even investing in their long-term sustainability, as will be discussed at greater length in Chapter Six. On the other hand, a significant number—almost a third—still are losing money from their self-financing activities. While some of these organizations are only trying to recover part of the costs for their mission programs, others are running non-mission-related activities with the explicit goal of generating untied net income. For these and other CSOs operating mission-related activities but also intending to generate profits, financial performance is currently lagging.. Although most CSOs that are losing money from their self-financing activities expect to be breaking even or generating profits in the near future, only a couple of these organizations have specific plans for how to do so.

In terms of trade-offs, most of the CSOs are dealing with challenges that regular businesses do not encounter—dilemmas related to their underlying values, the social costs associated with employing workers who require additional supervision, and the need to maintain positive relationships with their beneficiaries, peer CSOs, and donors. Having to place mission before profits is a constant challenge, one that puts a strain on financial performance but one that most of the organizations are learning to manage.

There is no obvious explanation for why some organizations are faring better than others, since there is no discernible correlation between performance and years in operation, levels of funding, improved access to capital, self-financing diversification, relatedness to mission, levels of business experience, amount of business planning, or stakeholder involvement.

There is, however, a strong indication that with higher levels of all of the above, the organizations would be in a better position to overcome the mission- and market-related challenges that they confront.

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Despite some challenges, CSOs often strengthened their culture and operations through self-financing.

Chapter 5

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5.1 Introduction This chapter assesses the impact that self-financing has had on the operations, organizational culture, and stakeholder relations of the study organizations. The first part of the chapter examines how selffinancing has affected the CSOs in two key areas of operations: financial management and human resource management. The second part analyzes how self-financing activities have affected relationships among staff, board members, and volunteers. The third part reviews the impact of self-financing on cultural dimensions of the organizations, including the CSOs’ orientation toward 1) business; 2) profit; 3) competition; 4) bureaucracy; 5) entrepreneurship; 6) decisionmaking; and 7) ethics. The chapter explores how CSOs’ attitudes toward each of these areas have changed in relation to their selffinancing activities and highlights strategies adopted by the CSOs to ensure that self-financing has a positive overall effect on their culture and operations.

The fourth part of the chapter examines the impact that self-financing has had on the CSOs’ various “external” stakeholder groups (board, donors, peer CSOs, and local businesses). In assessing stakeholder impact, each section considers the organizations’ initial relationship with the particular stakeholder group, whether the selffinancing activities have brought about any changes in stakeholder involvement, and to what degree these changes have been positive or negative. It is important to keep in mind that these findings are based primarily on responses from the CSOs themselves and may not accurately reflect how the stakeholders feel about the organizations’ self-financing activities.

5.2 Impact on Operations For many CSOs, the adoption of self-financing activities has been directly related to broader changes in financial and human resources management at the organizational level. In some cases, CSOs have consciously modified their management structures in order to promote their self-financing activities, while in other cases the operational demands associated with the self-financing activities necessitated more fundamental managerial changes. Regardless of the impetus for these changes, almost all of the CSOs report that self-financing has had positive impacts in both areas of organizational operations. risky business: The impacts of merging mission and market Copyright © NESsT 2003

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5.2.1 Financial management At an organizational level, one of the most consistent impacts of selffinancing on the CSOs in the study has been an increased awareness of their finances and an improved capacity to manage them.

Although not all organizations keep separate financial statements for their self-financing activities or develop At an organizational level, income statements to reflect ongoing business perforone of the most consistent mance, it is clear that most now have a firmer grasp of impacts of self-financing on where their money comes from and how it is being the CSOs in the study has spent than they did prior to initiating their self-financbeen an increased awareness ing activities. These findings are strongly reinforced of their finances and an by the self-assessments of the organizations: 36 of the improved capacity to manage 44 CSOs responding report that their financial manthem. agement has improved during the course of their selffinancing activities, while eight state that no change has taken place. None of the organizations indicates that its financial management has been negatively affected.

CSOs cite various reasons for this improvement. Casa de la Paz believes that program staff members have assumed greater ownership of the organization’s financial management because they are now responsible for attracting clients and for meeting the costs of their programs. For Chaloupky Center, the need to improve internal administration and accounting systems has meant additional work, but the organization now feels more in control of its financial management. Similarly, for CODEMU, the need to maintain clear financial records for its laundry has carried over into an increased awareness of and attention to the organization’s broader financial situation. This, in turn, has led the organization to monitor its cash flow more closely and to identify financial issues before they become serious problems.

CASE’s self-financing strategy has produced a significant shift in the organization’s management of both finances and human resources.

Like the vast majority of organizations studied, CASE has experienced improvements in its financial management, but in contrast to most CSOs it has also undergone difficulties in human resources management that have yielded mixed results in both its internal culture and its mission orientation. Although the organization represents one extreme, the trade-offs that CASE has dealt with are emblematic of the issues that confront all of the CSOs in this study and that are discussed throughout this chapter.

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CAASSEE:: TOO MUCH OF A GOOD THING C Dating back to its founding in 1985, CASE accepted a mix of grants and contracts to conduct research on issues of race, poverty, and inequality in its home country of South Africa. With the accession of a new executive director in the mid-1990s, the organization began to modify its operational model. The executive director was frustrated with the notion that services provided by nonprofit organizations are inferior to those provided by the private or public sectors and should therefore be given out for free. Under his leadership, the organization adopted a fee-for-service model in a conscious effort to become 100% self-financed. In addition to developing financial self-sufficiency, CASE believed that this approach would have the further benefit of improving its relationships with clients, since paying for services would empower them to demand excellent work.

The organization implemented tight controls over revenues, including several administrative measures designed to track staff time and resource expenditures. Staff members were also required to draft their own budgets and were charged with attracting additional paid projects. These changes were made internally, without using outside consultants, as the organization believed that including staff in the reforms would increase their ownership of and commitment to the self-financing process.

To a large extent, the organization succeeded, moving from 50% to 85% self-financing within two years and then becoming 100% self-financed within another two years. Yet the transition also brought some drawbacks.

Previously, the organization had made decisions by staff consensus, as was typical of radical South African nonprofits during this period. However, with the implementation of the fee-for-service model, decision-making was consolidated in senior management. Although staff members received long-overdue raises, many resisted the changes in organizational culture and the orientation to a market-driven model that responded entirely to its clients’ priorities. Over time, the organization realized that these new research contracts rarely focused on the more marginalized groups that had previously been a centerpiece of the organization’s work. Since CASE was not receiving bids for research projects in these areas, under its feefor-service model it was no longer conducting this work.

Based on this realization and in response to staff complaints, within a year of becoming 100% self-financed, CASE decided to begin accepting grant funding once again. These grants could be used to cover the expenses of research projects that were not being solicited on a contract basis without

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reverting the organization to being dependent on grant funding. In reflecting upon the organization’s journey to reaching an optimum balance in its self-financing, CASE’s former executive director muses, “A tension lies between earning as much as we can, while making sure that our services are available to poorer communities. We will seek to raise funds to expand our capacity and impact and allow us to work for these communities without continually worrying about profit margin, and to undertake research that meets longer-term as well as immediate needs.”

5.2.2 Human resources management Of the 40 CSOs responding, 26 report that their human resources management has improved with self-financing, thirteen state that no change has occurred, and one says it has worsened. It is somewhat surprising that the majority of the organizations experienced positive results related to staff management, given that in many cases staff are working more hours and are being asked to balance the dual challenges of implementing mission programs and self-financing activities. Yet for many CSOs, the increased demands on staff time have paradoxically produced greater internal efficiency, cohesion, and ownership of the organizations’ activities. EkoCenter reports, “Our workers’ time is spent more effectively.” CISA states, “There is a healthy sharing of responsibility and no tendency to divide the ‘dirty work’ of raising revenues from the ‘pure work’ of delivering programs.” FEPP says, “The most important thing is that everyone in the institution takes on the activity as their own project.”

One unexpected finding is that 32 of the 40 organizations responding report that the amount of staff time devoted to mission activities has increased since the initiation of self-financing, whereas five state that no change has occurred and three say that staff time for mission activities has decreased. Some organizations indicate that the increased financial resources from self-financing activities have enabled them to hire more staff or increase staff hours from parttime to full-time, which in turn has had a positive effect on staff attention to mission programs. On the other hand, many organizations conducting mission-related self-financing activities report that the added complications of managing the financial aspects have meant that staff must devote more time to planning, evaluation, and making changes.

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resource management. For example, LSS, whose sale of wilderness survival and team-building workshops to businesses is organized through its for-profit subsidiary, Czech Way Ltd., reports a transfer of order and professionalism from the for-profit work style to the nonprofit environment. At the same time, the nonprofit culture has infused the for-profit entity with its characteristic creativity, teamwork, and enthusiasm. This exchange has been facilitated naturally because even though the activities are legally distinct, some of the same individuals work on both sides of the organization. As a result, staff members feel a strong sense of loyalty to the organization as a whole and not simply to one side or the other.

Still, LSS has not arrived at a perfect equilibrium in its human resource management. Staff members who offer courses in environmental education to youth work on a voluntary basis because of the organization’s limited budget. Many of the same staff also work for Czech Way Ltd.—and get paid for it. While most staff members feel a strong ideological commitment to LSS’s mission-related work, this compensation scheme causes staff to focus more of their time on the for-profit activity.

Similarly, other organizations report that the added burden of managing self-financing activities has pulled staff members in conflicting directions. Acceso identifies problems originating from staff’s sharing the responsibilities of selling services and managing projects: “The combination of projects financed by donors and the sale of services requires distinct styles of work and timelines.”

“The combination of Currently, the organization does not have the finanprojects financed by donors cial resources to hire additional staff to ease this burand the sale of services den. It holds itself to exceedingly high standards and requires distinct styles of believes that the double demand on staff time is work and timelines.” affecting the quality of its work in both areas. Stoka Theater reports similar challenges: “Thanks to the fact that we have to devote our energy to running the pub, there is little time left for the theater.”

Even organizations that separate their revenue-generating and nonprofit activities both legally and administratively find that human resource issues arise simply because of differences in work culture. As PDCS, which employs such a model, relates with reference to the nonprofit and for-profit sides of the organization: “There are two different worlds and it is getting harder and harder to unite them. A natural tension exists, but there is an effort to restrict the tension to the missions only and not allow it among the people.” risky business: The impacts of merging mission and market Copyright © NESsT 2003

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Organizations address the challenges of managing multiple agendas in various ways. Some work within their existing structure and utilize creative human resource management strategies to prevent internal discord. For example, when it moved to selling workshops, the Geneva Centre for Autism was confronted with the challenge of managing its growing workforce without allowing it to split into separate constituencies—the “glamorous” workshop presenters on the one hand, who enjoyed the real or perceived benefits of on-the-job travel, and the stay-at-home staff on the other. The organization addressed the problem through an evenhanded style of administration. For those participating in the new workshop ventures, senior management led by example, showing what had to be done on the road by going out and doing it alongside staff. For those who remained behind, senior management invested in high-quality professional development from outside instructors. The Geneva Centre found that this strategy of emphasizing equal professional opportunities for all staff was effective both in integrating new members into the team and in downplaying the division in roles among staff.

Other issues also arose in relation to human resource management.

1) In some organizations, one leader runs the self-financing venture without integrating other members of the staff or institutionalizing the activities within the overall organization. For example, INFRABER reports that the success of its enterprise activities depends largely on its manager’s charisma and his The challenge of building a personal networks in the regional business communi- cohesive team can be ty. In cases like this, loss of the key staff member could complicated by the addition jeopardize the organization’s self-financing activities. of individuals with a financial 2) Some CSOs have trouble attracting and keeping background. qualified staff. MCH, which is located in a small town in Slovakia, reports that it is hard to find qualified managers because “the more efficient people have moved to the city.” Other organizations lack the financial resources to pay competitive salaries for qualified financial managers. 3) The challenge of building a cohesive team can be complicated by the addition of individuals with a financial background. Some organizations that have succeeded in pulling together the resources to hire a qualified financial manager have found that tensions arise with program staff, who often possess comparable qualifications but in areas that are traditionally less well compensated. 4) When raising salaries is not an option, organizations must find ways to increase nonfinancial incentives. The experience of the Geneva Centre provides one example of how to address such issues.

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Still, while these various issues posed difficult challenges to organizations in the study, the prevailing view among the CSOs was that their human resource management improved in relation to their selffinancing activities. Casa de la Paz is one example.

CAASSAA DDEE LLAA PPAAZZ:: A NEW CULTURE C In adopting self-financing activities, Casa de la Paz has also initiated fundamental changes in both its organizational mission and its internal culture that have enabled it to work more effectively and efficiently. As the organization lost international grant funding in the early 1990s, it began to explore the idea of selling its environmental training and publications. The executive director and board came to the conclusion that to fulfill its mission the organization would have to enter the marketplace. This decision did not sit well with some members of the staff, who were ideologically opposed to engaging in what they saw as capitalism. Several staff members did not accept this new approach and left the organization. However, those who stayed and those who have joined the organization since accept the idea that to fulfill its mission Casa de la Paz must work with paying clients and recoup its costs.

In entering the market, Casa de la Paz has learned that it must adapt to client needs, interests, and styles. When the organization first implemented its self-financing strategy, the executive director tried to sell a “basket of goods.” When no one bought them, the organization realized that it needed to listen to its clients. Because Casa de la Paz works with government, corporate, and nonprofit clients, it must be prepared to respond to different sets of needs. This demands a very intense style of working, one that is markedly different from the organization’s previous style— when it relied on grants it became, in its own words, a bit “lazy” in how it used these funds. Casa de la Paz feels that the overall impact of these changes on the organization has been positive. Staff and consultants report feeling closer to their work and their clients. Casa de la Paz avoids becoming “client driven” by continuing to seek grant funding for programs that it believes are important.

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5.3 Changes in Organizational Culture Self-financing has often produced significant changes in organizational culture among staff, board members, and volunteers.

5.3.1 Impact on staff From the beginning, staff tended to support the use of self-financing: 28 of the 39 organizations responding report that all staff supported the self-financing venture from the outset, while eleven state that some supported it. The fact that staff were originally supportive should not be surprising, given the organizations’ motivations for using self-financing in the first place: to improve the financial situation of the organization, to achieve greater independence, to carry out mission-related activities, and to be able to deliver more and higher-quality programs. Organizations that did not experience full staff support cite one or more of three principal reasons: fear of being asked to learn a new set of skills; discomfort with the idea of selling services; opposition to the added workload. These initial concerns also coincide with some of the issues that arose later in implementing and managing the self-financing activities.

In addition, in all but one of the cases studied, paid staff members have been responsible for overseeing self-financing activities. Of the 43 organizations responding, 40 report that they are using existing staff to manage and run their self-financing activities. Of these 40, five are also using staff hired specifically for this purpose and five are using outside experts or consultants. Of the three CSOs not using existing staff, one is using a person hired specifically to manage the self-financing activity and the other two are using outside consultants.

There are three primary reasons for using existing staff in the operation of self-financing activities: 1) The organization feels that its staff has the skills and commitment necessary to run the self-financing and no new staff is needed. 2) The organization does not want to relinquish control over self-financing to outside consultants. 3) Using existing staff is both cost-effective and time-efficient.

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and partly due to a lack of business experience among existing staff.

In terms of volume of work, of 41 organizations responding, 32 report that staff time has increased as a result of self-financing activities; two indicate that it has decreased, and seven state that they have experienced no change. According to Fundaempresa, “New programs have allowed a greater generation of resources but also mean a considerable increase in hours worked.” FEPP states, Many of the organizations “Hours worked have gone up because we now need state that self-financing has more time to plan, evaluate, and make necessary increased staff involvement changes.” and empowered them in relation to their work.

On a more positive note, many of the organizations state that self-financing has increased staff involvement and empowered them in relation to their work. Of 39 organizations responding, 28 report that self-financing has increased staff involvement, ten state that there has been no change, and one says staff involvement has decreased. SODEM notes, “Staff members are committed to self-financing as a way to maintain program activities.”

Green Line says, “More tasks means more involvement,” and FEPP states, “Staff has assumed more roles.” CISA says of its staff, “Their self-esteem has grown.”

Among those organizations reporting no change in levels of staff involvement, Acceso states, “The sale of services has been difficult to manage but we don’t believe it has influenced the level of involvement.” INFRA-BER, the one organization that reports a decrease in staff involvement, reduced staff size when it changed from an operational organization to a grantmaking one. However, it continues to employ its clients in producing surgical instruments for its German contract.

Stoka Theater is an example of a CSO that has struggled to find qualified staff to operate its self-financing activity, which, in turn, has had significant effects on the larger organization.

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SST TO OKKAA TTHHEEAATTEERR:: WAITING TABLES When Stoka Theater decided to open a pub to finance its mission activities, the idea appealed to the actors, who said, “In every theater, there should be a place to sit.” However, none of them had any previous experience in business.

After spending significant time and their own personal resources in remodeling the theater to accommodate the pub, they could not find qualified managerial staff to run it.

As a result, the president of the association and his colleagues manage the pub, seven working full-time and one part-time, but this is not an ideal situation. As the president says, “We are mere amateurs in business.”

It has also been difficult to find competent and honest waiters. Only after being robbed several times does the theater now have four waiters who are hardworking and trustworthy. Stoka has also experienced damage to the pub from disrespectful clients. The pub is currently generating enough revenues to pay back loans but not enough to cover the costs of running the theater and paying the actors. Furthermore, operating the pub diverts staff time and energy from the theater. Nevertheless, staff members feel that they are in control of the organization and do not see other options, given the lack of state funding for their work. While the start-up and management of the pub have produced a significant drain on staff time and resources, staff members remain committed to its success.

Of the 39 organizations responding, 29 report that their image has improved among staff as a result of self-financing. This is consistent with the finding that staff members feel more involved and empowered. Eight say that they have experienced no change and two indicate that their image has worsened. Among the organizations in the latter group, PEP reports that many of On the whole, the impact on staff has been significant and its staff members “have a ’70s protest mentality and positive. Self-financing has are opposed to the idea of profit.” brought staff closer to their constituencies and has given The transition to self-financing has not been easy for them more control over their CSO staff. Staff members have assumed additional programs and funding. tasks associated with self-financing, usually without eliminating others. They have also had to deal with the added pressures and dilemmas brought about by self-financing, many of which have no simple solution. Yet on the whole, the impact on staff has been significant and positive. Self-financing has brought staff closer to their constituencies and has given them more control over their programs and funding. risky business: The impacts of merging mission and market Copyright © NESsT 2003

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5.3.2 Impact on boards of directors Boards of directors have had a very direct role in the use of selffinancing among the CSOs studied. Of the 39 CSOs responding, 37 report that their boards of directors have full responsibility for decision-making with regard to the self-financing activity, while only two (Greater DC Cares and KÁLLFÓ) state that they have a separate board for their self-financing activities.

Of the 42 organizations responding, 37 report that they had the full support of the board of directors for the idea of using self-financing.

The remaining five say that some of the board members supported the idea. Organizations that did not have full board support faced resistance to the idea of charging beneficiaries or the idea of undertaking a venture that could divert the organization’s energy away from pursuing its mission.

For many organizations, the board of directors has played a key role in the start-up phase of the selffinancing activity. Of the 44 organizations responding, twenty indicate that it was the idea of board members to initiate self-financing. Board members in many of these CSOs have been motivated by a strong desire to lessen dependence on donors and to increase the sustainability of their organizations. SODEM notes that its founding board members “always considered that the institution should be organized as an enterprise, thus requiring it to invest in building its entrepreneurial capacity, not only in terms of projects and mission, but also in terms of financial sustainability.” Similarly, guided by the business mentality of its founder, who is also a board member, the Children’s Foundation has incorporated revenue generation into its mission from the outset.

Board members in many of these CSOs have been motivated by a strong desire to lessen dependence on donors and to increase the sustainability of their organizations.

Board members have played a central role not only in developing initial self-financing ideas, but also in turning these ideas into reality.

Six organizations received financial start-up support from their board members. Greater DC Cares started Cares@Law using USD 150,000 that was lent to the organization by its founding members, many of whom sit on the board. Seventy percent of the USD 10,000 used by PROCOSI to start its investment fund was financed through donations and office support provided by its board members.

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founded by prominent members of Colombia’s business community, and from the very beginning the organization has pursued its commitment to self-financing by drawing upon its board members’ expertise. INFRA-BER’s founders and board members are businesspeople who helped the organization establish its relationship with the German company whose surgical instruments the organization now distributes throughout Central and Eastern Europe.

Of 41 CSOs responding, 24 said that their board members have been more involved in the organization since the initiation of self-financing activities, while the remaining seventeen said that there has been no change. Board members are more involved because, as noted above, they bring their own ideas, finances, experience, and skills to these activities. Fundamor states, “Start-up tasks were distributed among board members.” MEXFAM says that its board “participates more because there are more decisions to be made.”

Of the 41 organizations responding, 29 say that the board’s image of the organization has improved as a result of self-financing, eleven say there has been no change, and one reports that the image has worsened. Among those citing a positive change, the key reasons seem to be a heightened level of involvement and recognition of the positive effects that self-financing is having on the organization.

However, self-financing has also produced some problems in relation to the board. One problematic area for several organizations is defining how the board should be involved. What is a “governing” decision that should be made by the board and what is a “management” decision that should be delegated to the organization’s director and senior staff? Business ventures often require quick and timely decisions, which board processes do not always permit.

Another area of difficulty has arisen when board members have resisted changes brought about by self-financing. For example, one foundation’s founder, who is president of the board is opposed to having the organization terminate a client relationship that is currently producing significant financial losses. Another organization hired a business manager to run its self-financing venture, but decision-making power still resided in the board. The manager became so frustrated by her inability to make decisions necessary to the dayto-day running of the venture that she finally left.

Obtaining initial support from the board is crucial for the success of self-financing, as it enables organizations to tap into the contacts and

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expertise of their board members. At the same time, it is important to define the lines of responsibility in managing self-financing activities and to provide senior management staff with some flexibility in the operation of the enterprise.

5.3.3 Impact on volunteers Most of the CSOs in the study have received support and involvement from volunteers in their self-financing efforts. Twenty-two of 37 organizations report that all of their volunteers supported the idea of selffinancing, and ten indicate that some supported it. The remaining five state that volunteers either have not been affected by the selffinancing activity or did not express any relevant opinion. Among those organizations that did not receive the full support of volunteers, concerns were similar to those mentioned for board members in the section above: volunteers were worried about the learning process involved in undertaking an enterprise activity or feared the impact it could have on their organization’s constituencies and programs.

For many of these organizations, volunteers played a particularly important role in the start-up phase. With little funding available for planning and implementation, many CSOs relied on volunteers, including friends and families of staff and board members, for this initial support. For example, CODEMU started its self-service laundry strictly with volunteer support.

Volunteers came to wire the laundry, others gave out flyers to announce its opening, and others came to clean and paint the space. University students helped write the funding proposals for the laundry and the organization tapped into outside volunteer assistance to learn how to run and maintain the machines.

With little funding available for planning and implementation, many CSOs relied on volunteers, including friends and families of staff and board members, for this initial support.

Many organizations also drew upon outside experts in the start-up phase of their self-financing activities to provide legal, accounting, marketing, financial, and other types of technical advice. Although these experts were usually not regular volunteers with the organizations, many of them provided much-needed assistance for free.

Twenty of 30 organizations responding reported that the expertise provided in these technical areas was offered on a volunteer basis.

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teen say that volunteer involvement has remained the same, and one states that it has decreased. The evidence suggests that the increase in volunteer involvement for the majority of CSOs responding is directly related to an increase in the amount and diversity of tasks brought about by self-financing. According to Fundamor, with increased activities “there are more possibilities.” In certain cases, organizations are tapping volunteers to help them expand their self-financing efforts. Acceso is currently The evidence suggests that using two full-time volunteers to develop its strategic the increase in volunteer communication program and initiate an evaluation of involvement for the majority the impact of the Internet on CSOs. SNI uses MBA of CSOs responding is directly students from local universities “because we need related to an increase in the their skill set and their interest in social entrepreneuramount and diversity of tasks ship.” brought about by selffinancing.

Overall, the impact of self-financing on volunteers has been positive, both quantitatively and qualitatively, and volunteers have made significant contributions to the CSOs’ selffinancing activities. Negative consequences have not been evident, perhaps due to the fact that volunteers usually are given responsibilities that are commensurate with their skills and availability.

5.4 Impact on Organizational Orientation Self-financing has had a significant impact on organizational orientation in several key areas.

5.4.1 Business orientation It is not surprising that most CSOs in the study (38) feel that they have become more business-oriented, while two say that they are less so and three reply that self-financing has had no impact on their business orientation. For many of the organizations, key decisions are now being made from a business perspective. In a narrow sense, this is defined by a growing concern for cutting costs and increasing sales and revenues. As Acceso says, “We are working with greater controls on costs, with the goal that each program is sustainable and at a minimum has its sources of funding identified.” PEP adds, “We have enhanced our accountability, efficiency, and effectiveness.” Yet in a broader sense, this increased business orientation is defined by a larger shift in the organization’s approach to its work. For example, risky business: The impacts of merging mission and market Copyright © NESsT 2003

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Chaloupky Center reports, “Previously money was in second place; now it is together with our activities in first place on the ladder.” In the most sweeping statement made by a CSO on this issue, Fundación Cirena says, “We think more like a private firm.”

On the whole, organizations see this shift in orientation as positive.

Being business-like is equated with professionalism and quality. As Green Line states, “Self-financing requires a higher-quality approach to work.” Similarly, MCH reports, “It was necessary to Organizations draw a become more professional and to improve the quality distinction between adopting of the provided services.” Yet organizations draw a discertain practices traditionally tinction between adopting certain practices traditionassociated with businesses ally associated with businesses and transforming themand transforming themselves selves into businesses. As Fundaempresa says, “Being into businesses. business-like does not mean being a business. It just means not operating with a spirit of losing money.”

CSOs in the study stress that self-financing has induced them to adopt certain business approaches and mentalities that have strengthened their organizations overall without undermining their fundamental commitment to their social missions.

5.4.2 Profit orientation Related to business orientation is the need to take on a “profit orientation.” As discussed in Chapter Four, some organizations are trying to recover part or all of the costs for existing programs, while others are interested in generating surplus revenues to pay for administration or new programs. In response to a question asking whether they feel that they have become more “profit oriented,” 28 CSOs reply affirmatively and thirteen negatively. CODEMU, which is running a non-mission-related business, is “worried about profits all the time.”

FES, whose investment funds are designed to generate annual windfalls for its organizational clients, states, “Profits are central to the matching permanent funds.” Similarly, Fundamor says, “We need profits to strengthen and build our endowment.”

The issue of profit orientation is complex for CSOs. Although clearly CSOs that have chosen self-financing have done so to generate revenues, there is a fear that an emphasis on making profits will threaten their mission focus and their nonprofit status. There is also a fear that they will begin to pursue profit for profit’s sake. This fear explains why many of the groups are reluctant to state that they are more “profit oriented” without qualifying this response. For example, risky business: The impacts of merging mission and market Copyright © NESsT 2003

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Chaloupky Center is quick to point out, “We make business for our mission and not for greater profit.” For Acceso, the organizational tension—both real and perceived—between mission and profit orientation has been a significant issue in the development of its selffinancing activities.

ACCCCEESSO A O:: A STRESSFUL SITUATION For years, Acceso offered services in institutional strengthening and strategic communication to CSOs and community-based organizations in its home country of Costa Rica and throughout Central America. In 1996, Acceso was faced with declining international funding to Central American CSOs. With support from the Ford Foundation, and based on its understanding of client needs developed through several years of experience, the organization repackaged these services and began to sell them for a fee.

Acceso is still serving many of its original clients, but it is currently unable to offer its services to those who cannot afford to pay. Many organizations that cannot afford to pay directly for its services have obtained grant funding for this purpose. However, the fact that many CSOs can neither afford Acceso’s services directly nor find alternative sources of funding to cover the costs is problematic for the organization’s mission, and many staff members are displeased with this development. In response, Acceso has begun to create a “Robin Hood Fund” that will allow it to subsidize the costs of those clients that cannot afford to pay its fees. In the meantime, Acceso articulates a very pragmatic view: “In the medium to long term, we want to be able to subsidize those clients that are not able to pay the full cost, but first we have to stabilize ourselves financially by offering services to those who are able to pay.”

In assessing the organization’s transition to a fee-for-service model, the executive director reflects, “It was difficult to manage the shift from giving away services to selling services.

Our staff members felt as if they were salespeople. . . . For some of our client population, the shift was also difficult. Some believe that we are no longer an CSO but a consulting firm. One organization said, ‘Negotiating a price with Acceso adds a bit of tension to our relationship.’ ”She continues, “It is healthy to think about obtaining profits that allow us to consolidate and make the organization grow in terms of people covered and services provided. Nevertheless, it can be confusing and stressful for the staff and the organization as a whole.”

In spite of these challenges, Acceso is continuing to charge fees for its services. With more experience in self-financing, it now feels better prepared to confront and overcome challenges that arise, rather than allow them to fester and divide the organization internally or distance it from its target population.

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5.4.3 Competitive orientation Intertwined with the orientation toward business and profit is an orientation toward competition. Thirty of 38 CSOs responding feel that they have become more competitive as a result of self-financing, seven reply that there has been no impact, and one responds that it is less competitive. For many of these groups, this has been a “healthy” competition geared toward producing better-quality products. According to Fundaempresa, “The effort to do a very good job is highly valued. This forces us to constantly review our processes in terms of quality, price, and time.” Fundamor also believes that its more competitive orientation has increased its social impact. As with profit, however, many organizations are quick to add that they are more competitive only in their business activities and not in their programs.

Other organizations express concerns related to their competitors.

Hogar de Cristo cites increased competition with other CSOs in selling Christmas cards. This activity has become extremely popular among the nonprofit sector in Chile and the organization’s current profit margins are quite slim. WCA’s group-buying programs must also be competitive: “We have to look for services that will compete with others out there to be successful. We realize that this causes us to be more competitive and we are not willing to There seems to be a divide share ‘trade secrets’ as much.” And, as discussed in between those groups that Chapter Four, competition is also a factor when CSOs have become more are competing with other CSOs that are able to offer enterprising and have similar services at lower subsidized prices or for free. trimmed inefficient bureaucracy and those that have adopted new 5.4.4 Bureaucratic orientation procedures stemming from Self-financing has resulted in higher levels of bureauthe need to oversee their cracy for some CSOs in the study, but not as many as self-financing activities and might be expected: thirteen of 41 CSOs responding manage their costs. report becoming more bureaucratically oriented, whereas nineteen state that there has been no impact in this area and nine reply that they are less so. There seems to be a divide between those groups that have become more enterprising and have trimmed inefficient bureaucracy and those that have adopted new procedures stemming from the need to oversee their self-financing activities and manage their costs.

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ed to bureaucracy. MEXFAM believes that its “bureaucracy has diminished due to a greater emphasis on producing results.” Other organizations have become more bureaucratic and are not pleased with this development. For PROCOSI, self-financing has meant “more bureaucratic controls for evaluation and use of resources.”

Self-financing has CODEMU states, “There is more paperwork associated with the laundry. Reporting takes up time.” Green precipitated positive changes in streamlining for efficiency Line expresses frustration because “more time is among some organizations devoted to work in the office and less time to contact and resulted in increased with clients in the field.” paperwork and management for others.

These mixed results indicate that unlike other areas discussed in this section, there is no clear correlation between self-financing and bureaucracy. Self-financing has precipitated positive changes in streamlining for efficiency among some organizations and resulted in increased paperwork and management for others. The impact of self-financing on bureaucracy has a lot to do with the type of self-financing activity that is being used and the way that it is being managed.

5.4.5 Entrepreneurial orientation Self-financing has led to high levels of innovation and entrepreneurship among the CSOs in the study. Of 41 CSOs responding, 34 report that their entrepreneurial orientation has increased with self-financing, while the remaining seven state that it has not changed. These results are not surprising, given the significant efforts that many groups have made in launching their self-financing activities, in expanding them to other products and constituencies, and in creating new types of alliances and relationships. As the Geneva Centre for Autism states, “We have continued to innovate—two days a year are devoted to business brainstorming.” At a more conceptual level, Fundaempresa says, “Self-financing demands creativity and generates entrepreneurial capacity.”

An interesting pattern has been the willingness of organizational leadership to try new things. Many CSOs are thinking laterally, expanding from one activity to another and building upon what works. Fundación Cirena has expanded from offering echographic services at its newly established clinic to providing photocopy services to the public. Elim Písek states, “We keep thinking about new possibilities in order to never be at a loss.” WCA has replicated its groupbuying program to offer a wide variety of services to its members. risky business: The impacts of merging mission and market Copyright © NESsT 2003

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Many organizations have also built a stronger sense of confidence and an increased willingness to take risks. Fundación Cirena bought a clinic. MEXFAM built 15 clinics. SODEM decided to turn its training center into a private school, despite the fact that the organization knew little about private education. Stoka Theater took a risk in founding its pub. Even the act of selling a service, a strategy used by 41 organizations in the study, entails significant risk.

Self-financing inherently requires a certain level of entrepreneurship, as organizations adopt not only new approaches but often new mentalities as well. The degree of entrepreneurship often depends on the personality of an individual leader within the CSO and his or her ability to engage the rest of the organization in thinking and acting creatively and cohesively. However, although entrepreneurship often springs from a charismatic leader, to be successful in the long run it is critical that these creative processes become integrated into the broader institution.

5.4.6 Team decision-making Twenty-six of 43 organizations responding report that self-financing has resulted in an improved team approach to decision-making.

Fifteen state that self-financing has had no impact on decision-making, and two indicate that it has had a negative impact. In some cases, the mere fact that organizations involved in self-financing activities are dealing with more decisions has led them to adopt a more teamoriented approach. According to FEPP, “The entire staff is part of the decision-making process.” Fundaempresa adds, “The In some cases, the mere fact development and execution of all programs is done in that organizations involved in a participatory manner and decisions are made by the self-financing activities are team.” dealing with more decisions has led them to adopt a more Other organizations explain that self-financing has led team-oriented approach. to the decentralization of management and hence of decision-making as well. This seems to coincide with the fact that selffinancing has brought increased levels of responsibility among staff.

As Green Line explains, “There is an increase in knowledge among the staff, leading to greater ability to make decisions.”

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5.4.7 Ethical orientation A key area of concern for many CSOs is whether self-financing might lead or be perceived to lead to less ethical behavior. Of the 41 CSOs responding in this area, twenty state that they are more ethically oriented, twenty maintain that their ethical orientation has not changed, and one replies that it is less so. The divide in this question is similar to the one described in 3.5. Respondents seem to be concerned that “more ethically oriented” might mean that they have allowed their self-financing to affect their ethics, and so many are quick to point out that self-financing has had “no impact.”

Organizations indicating a greater ethical orientation explain that ethical issues have arisen as a result of self-financing activities and that they have had to be addressed sensitively. According to CIEM, “We are very careful with this, going back to our original beneficiaries, trying to be fair regarding prices, and asking perOrganizations indicating a sonnel to pay for all products consumed.” Several greater ethical orientation organizations specifically mention the need for transparency. Hogar de Cristo generates millions of dollars explain that ethical issues through self-financing and publishes an annual report have arisen as a result of selfdetailing where these funds come from and how they financing activities and that they have had to be are spent. The organization is especially sensitive to addressed sensitively. being open in order to dispel accusations of being “too big and too much like a business” that have arisen in the past. CISA states, “We are working in a more transparent atmosphere. This context quickly reveals any shift away from professional ethics.” Thus, in part because the organization feels that it is being more carefully scrutinized externally, it is particularly diligent in demonstrating its ethical behavior.

Several of the organizations have tried to deal with ethical issues by developing their own sets of guiding principles in this regard.

Fundamor and Fundaempresa both report that their programs are offered under certain ethical principles. Fundaempresa carefully examined the pros and cons, especially with respect to ethics, before deciding to adopt the “labor adjustment program” mentioned in Chapter Three. The organization initially resisted requests by corporations that it help laid-off employees re-enter the workforce because it felt that this type of work would mean allying itself with corporate behavior that it did not condone. Later, Fundaempresa realized that it would be consistent with its ethics to help unemployed workers.

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CODEMU’s code of ethics has been put to the test repeatedly since it launched its laundry business, and its experiences demonstrate that many times there are no easy answers to the ethical dilemmas that arise from self-financing.

CO C OD DE EM MU U: : PRACTICING WHAT WE PREACH

CODEMU’s laundry is a non-mission-related business intended to generate revenues to replace waning international funding. The laundry was incorporated as a private small business, which entailed many start-up licenses and fees. The organization repeatedly received external advice to do as other small businesses in Chile do and not pay these fees. However, CODEMU’s staff rejected this advice, fearing that nonpayment would tarnish the organization’s reputation. As an organization dedicated to worker’s rights, CODEMU is committed to respecting the national legal labor codes.

More recently, as earnings from the laundry fell, the organization was forced to make a difficult decision: cut the laundry attendant’s salary or continue losing money on a monthly basis. CODEMU struggled with this ethical issue because to cut the attendant’s salary would undermine the very essence of its organizational mission: to promote decent wages for workers. Ultimately, CODEMU decided to cut the attendant’s salary, with the hope that in the long run, it will be able to both increase wages and generate greater revenues for the organization’s mission. While this decision was necessary from a pragmatic perspective, the organization is uncomfortable making such ethical sacrifices, even if they are required to maintain the viability of its self-financing activity.

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5.5 Relations with External Stakeholders FIGURE 5-1: IMPACT ON EXTERNAL STAKEHOLDERS Self-financing affected the CSOs’ relationships with external stakeholders in many ways. These stakeholders all supported the organizations, some more actively than others.

Beneficiaries

Members

Government

SELFSELFFINANCING FINANCING IMPACT IMPACT

Local businesses

Donors

Peer CSOs

5.5.1 Beneficiaries More than half (20) of the 39 organizations responding report that all of their beneficiaries supported the idea of self-financing prior to start-up. Ten say that some of their beneficiaries supported the idea, five say the question does not apply to them, and four say they do not know. None of the organizations indicate that none of their beneficiaries supported their self-financing ideas. These responses are consistent with the four general types of relationships that organizations have with their beneficiary groups, each of which involves beneficiaries in self-financing to a different degree.

In the first set of cases, CSO beneficiaries are neither aware of the organization’s self-financing activities nor affected by them. For example, Hogar de Cristo works primarily with low-income individuals and families, and most of the time these beneficiaries are not charged for services. Although the organization asks for voluntary user fees, these are very small in comparison to Hogar de Cristo’s main self-financing activities, which involve members and customers of programs specifically designed to generate revenues (membership, risky business: The impacts of merging mission and market Copyright © NESsT 2003

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greeting programs, Christmas cards, royalties, and rent). Because of the separation between the supporters of their self-financing activities and the beneficiaries of their mission programs, these organizations generally do not face major issues associated with their beneficiaries.

A second group consists of those organizations whose beneficiaries are aware of the self-financing activities but are not necessarily involved in or affected by them. CODEMU’s beneficiaries are the women textile workers who participate in its capacity-building programs. They are aware that CODEMU has a laundry—in fact, they must walk through the laundry in order to get to the organization’s dining hall and offices. They are also aware that the laundry is intended to generate revenues for the organization’s operational expenses. However, most of them do not use the laundry and are not directly affected by it in any way.

The beneficiaries of CSOs in a third group are affected by the organizations’ self-financing activities but are not necessarily involved at the decision-making level. This is the case for most of the organizations, since their beneficiaries pay for the products and services offered by the organization or, in some cases, are involved in producing these products and services. Some examples are the Business Law Center, which charges businesspeople for its legal services; Chaloupky Center, which in some cases, charges teachers for its environmental education programs; and Nephrocentrum, which employs its constituency to make polyethylene products that the organization then sells.

Beneficiaries of organizations whose self-financing activities fall into this category are most likely to be affected by their operation.

Finally, beneficiaries of a fourth group of CSOs are not only affected by the organizations’ self-financing activities but are also directly involved at the decisionmaking level. This is the case for organizations such as FEPP, whose beneficiaries are members who decided to undertake self-financing and whose own products are being sold by the organization. For organizations in this group, the decision to undertake self-financing was strongly related to a desire to become less dependent on donor funding and to be in control of their income sources. Since the beneficiaries of these CSOs not only proposed the self-financing activities but also have been instrumental in the design and operation of the activities, there have not been significant tensions between these CSOs and their beneficiaries.

Beneficiaries of a fourth group of CSOs are not only affected by the organizations’ self-financing activities but are also directly involved at the decision-making level.

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The overall impact of self-financing on beneficiaries was deemed positive among the CSOs studied, in that self-financing allowed the CSOs to offer more and better-quality services and programs (see Chapter Three). Furthermore, the organizations have been able to expand their outreach, adding new beneficiary groups to their work. When asked if the involvement of beneficiaries has changed in any way due to self-financing, 28 of 38 organizations responding say that they are more involved, nine maintain that there has been no change, and one reports that beneficiaries are less involved.

There are three reasons given by the CSOs for changes in beneficiary orientation and involvement. First is the ability to serve more beneficiaries. Hogar de Cristo reports that because of its self-financing activities, “more people are being assisted.” PROCOSI says that selffinancing has created “greater possibilities to reach more people. . . .

We have been able to care for patients that we would otherwise not have been able to assist.”

Impact on beneficiaries has A second and interrelated reason is the ability to offer not always been positive. In more and better-quality programs. Fundaempresa says, some cases, beneficiary “There is greater orientation toward the beneficiaries groups have had to begin in that we achieved greater coverage and improved paying for services that were our services.” Acceso maintains, “Selling a service, as once free. opposed to giving it away, gives a client more power to demand a better-quality service.” CASE reports, “We are more focused and beneficiaries feel better attended.”

The third reason is the greater level of commitment and participation.

Fundaempresa states, “The level of commitment increased due to the degree of direct contact.” FEPP says that its beneficiaries “now feel a part of the program.” SNI reports that because of Studio Air’s work with youth, “teenagers [feel] central to the operations of our organization.”

Impact on beneficiaries has not always been positive. In some cases, beneficiary groups have had to begin paying for services that were once free. This is not necessarily negative in and of itself—in fact, several organizations report improved relations with beneficiaries following the introduction of fees, as many begin to value services more when there is a fee, even a small, symbolic one, associated with them (see the Geneva Centre example in 3.2.2). Nevertheless, it has often meant a significant change in the relationship between an organization and its beneficiaries. In a few cases, this change has meant mov-

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ing away from serving beneficiaries who could no longer afford a service, though some organizations have continued to subsidize services, at least in part, to these lower-income groups.

Other issues have also indirectly affected constituency groups, although they are more difficult to measure. Some CSOs that employ their beneficiaries have needed to lay off workers or decrease wages (see the CODEMU example in 5.4.7).

For the most part, organizations have been able Others lack the resources to hire additional staff and have ended up diverting staff attention from original to identify these issues and constituencies. For the most part, organizations have have been successful in been able to identify these issues and have been sucpreventing them from cessful in preventing them from becoming more seribecoming more serious ous problems. Still, many problems have no easy soluproblems. tion, and CSOs are often forced to make difficult choices between their philosophical goals and the practical demands of self-financing activities.

5.5.2 Members The impact of self-financing on members is strongly related to the original relationship that existed between the organization and its members. Of the 37 organizations responding, twenty report that all of their members supported the idea of self-financing, twelve reply that some of their members supported it, and five say that the question was not applicable.

As discussed in Chapter Two, although many of the CSOs have members, only fifteen have membership programs that collect dues. Five of these (Chaloupky Center, Elim Písek, Fundamor, Hogar de Cristo, and Geneva Centre) collect dues from members who are supporters of their programs, rather than beneficiaries of them. Those who choose to become members are aware from the outset that they will be paying dues to support the work of the organization; thus, there is no resentment among members related to this type of self-financing activity.

The remaining ten organizations that collect dues collect them from members who are their beneficiaries, but they differ in the degree to which they are serving only this group versus others. For example, CISA, SONCEK, and WCA are “association” or “umbrella” groups that exist primarily to provide support to their members, although their services are available to nonmembers. Members, in turn, benefit risky business: The impacts of merging mission and market Copyright © NESsT 2003

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directly from the organizations’ self-financing activities, including the collection of dues, since they enable the organizations to provide services in greater quantity and at a higher quality. According to WCA, the level of satisfaction with its self-financing programs among its members influences their decision to renew their membership: “We realized with the group-buying programs that the members were customers and could take us or leave us, so we felt that we had to hold everything we do to the highest standard.” SONCEK’s 4,000 members are the primary market for its products and services, while CISA not only sells services to its members, but also markets and sells products for its members.

By contrast, in the cases of CODEMU, Green Line, KUD, LSS, MCH, SENT, and SODEM, only a very small proportion of their beneficiaries are also members. Those who do become members are offered certain benefits, but these organizations are by no means membership-driven. Still, although they do not According to WCA, the level of satisfaction with its selfdepend on their membership dues, some were afraid financing programs among its to sell products or services to their members for fear members influences their of alienating them. This was the case for MCH and decision to renew their Chaloupky Center, but both organizations have dismembership. covered since launching their self-financing activities that members do not object to paying for their services.

Of the 30 organizations responding to the question about impact of self-financing on members, seventeen say that self-financing has increased member involvement, nine say that there has been no apparent change, and four indicate that members are less involved.

In response to a related question, fifteen of 25 CSOs state that the image of the organization among its members has improved with the adoption of self-financing activities, eight say that it has stayed the same, and two report that it has worsened.

For those groups whose members are supporters and not their main constituency, self-financing does not seem to have had a direct impact. Indeed, the reason why these members decided to join the organization in the first place was to provide it with financial support.

For those organizations whose members are their main constituency group, the impact has been similar to that witnessed with constituencies. In most cases, the members have benefited directly from selffinancing, due to the greater quantity and higher quality of the organization’s programs. Overall, self-financing seems to have had a posi-

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tive effect on members, often increasing their level of support and involvement in the organization. Members of membership-driven CSOs have particularly benefited, which is not surprising given that the organizations’ self-financing programs are directly targeted to them.

5.5.3 Donors Even with the income CSOs generate from their self-financing activities, donors still play a major role in the overall financial situations of most organizations in the study. Thus, donors’ opinions of their grantees’ self-financing activities are quite important, as their perspective may influence their decision to increase, decrease, or maintain funding. Twenty-two of the 39 CSOs responding report that all of their donors supported the idea of their using self-financing, while thirteen note that only some donors supported the idea. The remaining four say either that the question is not applicable or that they do not know.

Twenty-two of the 39 CSOs responding report that all of their donors supported the idea of their using selffinancing, while thirteen note that only some donors supported the idea.

The overall supportiveness of donors coincides with donors’ interest in having grantees reduce their dependence on grant funding by developing other sources of revenues that can better guarantee their long-term sustainability. Not only were donors generally supportive, but many also played a key role in the start-up phases of their grantees’ self-financing activities. As illustrated in Table 4-6 (Chapter Four), twenty organizations used donor grants that were specifically designated for self-financing start-up and eight others used project grants that were somehow related to self-financing. Among organizations receiving targeted support for self-financing, Acceso received a grant from the Ford Foundation to develop and pilot methodologies related to its Strategic Communication Program and to build several websites. As mentioned earlier, PROCOSI and MEXFAM received support from the U.S. Agency for International Development (USAID) to start up their self-financing activities. Nevertheless, while this financial support was helpful, it was not always sufficient. As MEXFAM says, “We would have been better able to make use of [financial] resources if we had had timely and adequate technical assistance.”

Organizations in the second category received project grants that they have been able to apply creatively as initial self-financing investments. For example, CIEM received a grant from the FONDART in

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Chile that it used to equip its cinema as part of a cinema appreciation and capacity-building program. The cinema is now up and running and generates ongoing revenue for the organization.

A third type of support from funders was in the form of in-kind donations. Fundamor received the building that houses its Center through a free five-year lease provided by the foundation that owns the building. Fundación Cirena received the echograph machine with which it began its fee-for-services activity as a donation. Each artist exhibiting in CIEM’s art gallery donates one painting to the organization. These paintings have now become part of the organization’s endowment.

The socially responsible business Ben and Jerry’s Homemade, Inc., waived its standard franchise fee when PEP opened its local shop in Baltimore because PEP planned to employ some of its mentally disabled clients in the shop.

While donor support has been critical to the success of many CSOs’ self-financing activities, it is important to recall that a majority of organizations (30 of 43, as discussed in 2.3) initiated their self-financing activities in order to replace or reduce their dependence on donor funding. As Fundación Corona says, self-financing builds “[our] capacity to count on resources without depending on the circumstances of others.” PDCS prefers self-financing to fundraising because it empowers the organization: “As for fundraising, we still feel like we are beggars, because those who can afford to donate are more powerful than the applicants.” For this reason, PDCS says it would prefer to do without foundation grants.

In some cases, donors themselves encouraged and even provided start-up support for self-financing as an “exit strategy” before withdrawing their funding. For example, before completely withdrawing its longtime financial support of MEXFAM, USAID gave the organization some funding to start up its self-financing activities. PDCS reports a similar scenario: “In fact, we were forced by the Americans to undertake this struggle for self-financing. The final decision was, nonetheless, the result of discussions and strategic planning in our organization.”

Of the 32 organizations responding, nineteen state that their donors have been more involved since the inception of their self-financing activity, eight maintain that there has been no change, and five report less donor involvement. In the latter group, several organizations report that the very success of their self-financing activities has risky business: The impacts of merging mission and market Copyright © NESsT 2003

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deterred funders from continuing to support them, which has, ironically, increased the need for these sources of self-financing income.

As PDCS states, “An image of a successful organization led some foundations to view us as an organization which does not need grants.” Similarly, Elim Písek says, “People In the latter group, several organizations report that the think that if we own a bookstore, we must be rich and therefore there is no point in supporting us.” very success of their selfAccording to Hogar de Cristo, “There are some indifinancing activities has viduals who no longer support us because they think deterred funders from we are too big and have enough funding, but our continuing to support them, response to this criticism is that there is a lot to do.” which has, ironically, increased the need for these Those organizations whose donors are more involved sources of self-financing cite three types of participation: 1) donors have a income. direct relationship to the self-financing activity because they provided start-up funding; 2) many continue to provide support to help subsidize these activities or to fund new activities; and 3) additional donors have been drawn to the organization by the publicity associated with their self-financing activity. For example, Acceso continues to receive donations that help it develop new programs and subsidize existing services for its clients. MEXFAM says, “Since [our other donors] saw us abandoned by USAID, they are now more interested in supporting us.” For Fundación Alternativa, “The pursuit of self-financing has sent a positive signal to our donors and partners,” to the point that funders that did not originally support the self-financing activity are now donating money specifically for this area. Greater DC Cares has begun to receive corporate sponsorships for its events as a result of the publicity generated by its Business Shares program, which sells volunteer programs to area corporations.

At a more general level, SNI says of its subsidiary Studio Air, “Its visibility as a market player is good promotion for the parent organization SNI because it shows how the employment creation mission of SNI is being fulfilled. This enhances SNI’s ability to get funding.”

Some of the CSOs say that although they are no longer receiving a great deal of donor funding, donors seem committed to them and provide them with other kinds of support. Fundaempresa says of its donors, “Even though their monetary support has decreased, their commitment to the organization has not.” SNI says, “Donors with social entrepreneurship experience frequently share their knowledge.”

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A final type of support, perhaps less tangible, is the respect and credibility gained by the CSOs as a result of self-financing. CODEMU reports that its donors are “impressed by the laundry.” Fundamor says, “The results attained through self-financing give us greater credibility.” When asked if the image of the organization held by donors has changed in any way, 30 of the 41 organizations responding maintain that their image has improved; seven believe that it has stayed the same, and four think that it has worsened. In the latter group, Acceso reports that while some donors continue to support its selffinancing activities directly, others do not approve of the organization’s selling its services. WCA’s donors believe the Fundaempresa says of its organization should not charge fees to its members, donors, “Even though their and PEP does not feel comfortable asking for donor funds now that it has begun to charge fees. EkoCenter monetary support has decreased, their commitment does not specify why its image with donors has worsto the organization has not.” ened.

Despite the initial support provided by many donors for self-financing activities, it seems that financial support is not as readily available for the development and expansion periods of these activities. CSOs repeatedly cite the lack of capital to invest in new equipment, hire more staff, train staff, cover cash flow deficits, pay back loans, conduct marketing, expand production, and increase sales as the key factor inhibiting the growth of their enterprises.

Overall, the impact of self-financing on donors has been positive. For the most part, donors are satisfied with CSOs’ use of the marketplace, and they have provided start-up and, in many cases, ongoing support for self-financing activities. The financial independence resulting from these activities will enable CSOs to pursue their missions more autonomously, which will strengthen the organizations and their impact on society; but to make this possible, additional types of funding and different ways for donors to support CSOs in the planning, start-up, and operation of their self-financing activities should be explored and developed.

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Pie chart 5-2

5.5.4 Peer CSOs

How many of their peers support the idea of self-financing activity?

The relationship of peer CSOs to self-financing, though certainly not insignificant, has been less important than that of other stakeholders.

Thirteen of the 35 CSOs responding to this question report that all of their peers supported the idea of self-financing activity and another 15 say that some of their peers supported it. The remaining respondents say that their peers had no opinion (4), that they don’t know (2), or that there was no support (1).

(Of a number of 35 CSOs) Some of their peers supported the idea 15

All of their peers supported the idea 13

No support 1 Don’t know 2

No opinion 4

Peer CSOs have typically responded in one of four ways to the use of self-financing among organizations in the study.

1. Some peers have emulated the self-financing activity and have even become competitors. Initially, Hogar de Cristo was the only CSO selling Christmas cards in all of Chile. Today, the competition is very high, as many local CSOs have adopted this program. Hogar de Cristo maintains that it “welcomes this competition because there is much to be done.”

2. Some peers have helped organizations get their self-financing ventures off the ground. This has been particularly true in Colombia. For example, Fundaempresa received significant support from several Colombian CSOs, which not only helped found the organization but also helped develop its fee-for-service strategy. Fundación Corona, one of the CSOs in this study, has played an important role in helping other Colombian CSOs build their endowments.

Members of the organization’s management staff sit on the boards of many other foundations and provide guidance in developing their investment strategies. Similarly, FES’s permanent matching funds program works with other CSOs—including four of the other five Colombian CSOs in this study—to build endowments that return investment dividends to the organizations.

3. Some peers have resisted or opposed the use of self-financing and then have slowly come around to supporting it. EkoCenter experienced resistance from peer CSOs who thought it was “selling out” when it began to sell graphic design services, but now the same organizations have begun to use EkoCenter’s services. PDCS faced tremendous opposition from peer CSOs when it began to sell its capacity-building services: “At the beginning voices could be heard saying that the risky business: The impacts of merging mission and market Copyright © NESsT 2003

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Center’s services were too expensive. Today, it seems that many CSOs have accepted this model. Now they themselves are charging for their services.”

4. Some peers have resisted self-financing from the start and continue to be wary of these activities and the CSOs’ motivations for engaging in them.

This has been the case for Acceso, which has had strained relationships with some of its CSO peers and clients since it began to charge a fee for its services (see 5.4.2).

Fundación Cirena found that after it initiated its self-financing activity, its relationship with a partner (not a peer CSO but a for-profit hospital) transformed from one of close partnership to one of open competition.

FFU UNNDDAACCIIÓ ÓN N CCIIRREENNAA:: DRIVEN IN A NEW DIRECTION Fundación Cirena was founded in Cali, Colombia, in 1974 with the mission of fostering the health and well-being of newborn babies in low-income families. The organization has traditionally offered a range of support services to parents and their newborns out of a local hospital and has funded its work through a combination of grants and interest dividends. In 1986, Fundación Cirena received an echograph machine as a donation and began offering exams on a fee-for-service basis to hospital patients. Over time, the organization obtained additional equipment and expanded this activity. For ten years, the sale of echographic services was the primary source of income for the organization.

However, in 1997 the hospital where Fundación Cirena based its work determined that it could generate its own revenues by offering the same echographic services to hospital patients. It purchased its own equipment and hospital staff stopped referring patients to Fundación Cirena’s offices within the hospital and instead began sending them to their own services. As a result, Fundación Cirena not only lost all of its hospital patients but it also developed a strained relationship with the hospital.

Responding to this financial crisis and the breakdown in institutional trust with a key stakeholder, Fundación Cirena established an outpatient clinic in a nearby low-income area and began offering echographic exams there, using the same fee-for-service model. In addition to restoring its much-needed source of income, the move into the community has, in a roundabout way, enabled Fundación Cirena to extend its programs to an underserved population. The organization continues to offer services in the hospital, but at reduced levels.

Despite the positive outcome of moving to the community, the case serves as a warning to CSOs conducting self-financing activities to be aware of competition, which may arise even within a group of peers or partners.

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When asked if they have confronted competition from peer CSOs or for-profit businesses, 29 of 41 organizations respond affirmatively.

Several specifically cite competition from other CSOs. Green Line identifies its competitors as “other CSOs in environmental training.”

PEP cites “other community providers.” Fundamor refers to “other CSOs that work with HIV/AIDS.” When asked if they compete directly with other CSOs for clients, seventeen of 23 say yes.

In terms of peer CSO involvement, 21 of 37 organizations report that their peer CSOs became more involved in their activities after the initiation of self-financing; fourteen believe that no change has occurred and two say that their peers have become less involved.

Again, many CSOs have found that their peers have tried to emulate them or that they have at least cooperated with them at some level.

Most of those who say there has been no change explain that they are unique in their area or that other CSOs are not interested or are too small to collaborate.

Twenty-nine of 41 organizations report that their image among their peers has improved since they launched their self-financing activities.

The fact that they have succeeded at self-financing has enhanced the image of many organizations and given other CSOs the confidence to undertake similar activities. Of the remaining twelve organizations, nine cite no change and three say that self-financing has worsened their image. For the latter group, the For some CSOs, the fact that fact that they are now charging fees for their services they are now charging fees for their services has been met has been met with criticism from some of their CSO clients and colleagues. PEP, which reports no change with criticism from some of in its image overall, nevertheless indicates that some their CSO clients and peer CSOs were distrustful when the organization colleagues. opened its Ben & Jerry’s ice cream shop. Acceso reports that tension with CSO peers has had negative effects on its staff: “The sale of services has left a bad taste in the mouth of several members of the team, since many CSOs do not have a positive view of self-financing.” On the other hand, Acceso suggests that selffinancing can potentially have a positive effect on its relations with peer CSOs: “We have firsthand experience pursuing financial self-sustainability, which we will be able to offer to our target organizations.”

In some cases, peer CSOs are directly affected by an organization’s use of self-financing through their use of the organization’s services or through direct competition. In other cases, they are indirectly involved through observation or emulation. However, the overall effect of self-financing on peer CSOs seems to be positive.

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5.5.5 Government Government plays a very important role in the existence of CSOs, both directly, by establishing regulations that oversee the sector and often by providing funding for their mission activities, and indirectly, by shaping the broader social, political, and economic context in which the organizations operate. The CSOs in this study work in diverse regions with vastly different political traditions and current landscapes, making it difficult to generalize about the relationship of government to CSO self-financing. Nevertheless, two trends emerge.

1. Some organizations received support from government to start up their selffinancing activities, and many operate their activities using funds from government contracts. Three organizations—MCH, Nephrocentrum, and PEP—used government loans to start up their activities. A fourth, PROCOSI, was given a USAID grant to purchase part of the Bolivian government’s debt in local currency. The Bolivian government rewarded PROCOSI by giving it an extra amount in local currency that it did not need to purchase. A larger number of organizations operate their self-financing activities with income from government contracts. CASE is a fascinating example of such an organization. When the organization was founded in South Africa in 1985, its investigative work was intended to directly undermine the apartheid government. After the African National Congress assumed control of the government in 1994, CASE began accepting government contracts as part of its self-financing activities. Now its numerous government contracts reflect its improved relationship with the state. Other organizations have had less tumultuous relationships with government. A large share (88%) of PEP’s USD 4.7 million annual income is generated through its fee-for-service contract with the state of Maryland. Corporación CIEM and Casa de la Paz generate 16.5% and 19%, respectively, of their annual budgets from fees for services, the majority of which are from contracts with the Chilean government.

2. Some organizations were motivated to initiate self-financing activities to reduce dependence on government funding. Thirty of 43 CSOs responding report that they initiated self-financing in order to reduce their dependence on external funding. After foundations, government is the second most commonly identified source of funding that CSOs sought to replace. This is particularly true among the Central European CSOs. For example, Tyr Center, Chaloupky Center, KÁLLFÓ, and Stoka Theater all express strong opinions about being independent from government funding. For many risky business: The impacts of merging mission and market Copyright © NESsT 2003

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organizations, relying on government support is problematic because it may limit their freedom to do advocacy work that criticizes the government. This is particularly the case for CSOs promoting alternative agendas in the areas of environment (Green Line, UMANOTERA), culture (KUD, Stoka Theater), and politics (CASE under the South African apartheid regime), and even in controversial health issues such as HIV/AIDS (Fundamor), where their very mission is often at odds with government policies.

For the most part, relations between CSOs and governments have improved since the organizations initiated their self-financing activities. Of the 33 CSOs responding, nine report that government grants for their mission activities have increased, 21 report no change, and three report that grants have decreased. Government grants provide a stable source of funding for the mission activities of many organizations, particularly those working in health-related fields. For example, 74% of Nephrocentrum’s income comes from government grants, as does 58% of Geneva Centre’s, 50% of SONCEK’s, and 40% of SENT’s. Among the CSOs that report a decrease, Chaloupky Center characterizes the impact of this change as positive. Fundación Ideal, a Colombian CSO, cites that country’s economic crisis, not its initiation of self-financing activities, as the cause of decreases in government funds. PEP, the third organization reporting a decrease in government grants, experienced a proportional increase in government contracts for its services (in 1996 PEP received 55% of its income from government grants and 43% from government contracts; in 1998 it received 10% from government grants and 88% from government contracts).

On the other hand, some organizations are currently losing money from their self-financing activities precisely because of the role of government. For example, Fundación Cirena is struggling to maintain the profitability of its echographic exams because the government health insurance program no longer covers these services. Another Colombian CSO, FES, has seen its main self-financing activity eliminated with the decision of the government to nationalize its USD 30 million endowment because the organization could not raise the capital necessary to guarantee its outstanding obligations as required by the Colombian Banking Authority. In both cases, however, these changes are directly related to the economic crisis in Colombia. They do not reflect any tensions between the organizations and the government or any singling out of CSOs.

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Other organizations find that their state governments do not know how to regulate their self-financing activities. These problems are particularly prevalent in Central Europe, where fundamental political and economic changes occurred in the early 1990s. For example, Elim PĂ­sek has encountered unclear accounting rules and tax measures since the very beginning of its self-financing activities. At the time, workers from the bureau of employment security did not know how to deal with a nonprofit organization running an enterprise.

The organization received conflicting advice from government clerks and was then penalized for following it. Experiences like this are not uncommon for many Central European CSOs, as entire legal systems have been completely redesigned in the past decade and adjusting for new types of hybrid organizations Finally, several organizations has taken time. complain of a lack of supporting legislation for Finally, several organizations complain of a lack of their self-financing activities. supporting legislation for their self-financing activities. Again, this is more the case in Central Europe than in the other regions examined in the study. Two Czech organizations identify the tax regime in the Czech Republic as the principal limitation on their self-financing activities. The Business Law Center in Georgia cites government restrictions not on the generation of income but on how that income can be used (income is taxed differently depending on how it is spent). The Slovakian CSOs (Green Line, MCH, PDCS, Stoka Theater, and Tyr Center) express frustration with their government in general, and one specifically complains that there is no supporting legislation for self-financing activities.

CSOs’ relations with government are mixed, but in general they have improved or at least have not changed since the organizations launched their self-financing activities. Thus, several CSOs report that their grants from government have increased since they initiated selffinancing, while only a few report decreases. On the other hand, some organizations launched their self-financing activities specifically in order to reduce dependence on government support, and many organizations express frustration with the regulatory environment in their host countries.

5.5.6 Local businesses CSOs report that reactions from local business in relation to their use of self-financing have been varied. Only 6 of the 37 organizations responding believe that they have general support from local busirisky business: The impacts of merging mission and market Copyright Š NESsT 2003

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nesses for their self-financing activities; eleven say they have some support; seven believe they have no support; ten state that this is not applicable to them; and four reply that they do not know. When asked if local business involvement in their organizations has changed as a result of self-financing, thirteen of 35 CSOs responding say yes, and the remaining 22 say no.

The reaction and involvement of local businesses has a great deal to do with the type of relationship they have with the CSOs and their activities. Organizations that have no relationship with local businesses, as client, competitor, or collaborator, generally respond that they have no support or that the issue does not apply to them and that no change has occurred as a result of their undertaking self-financing.

Other organizations did not have a relationship with local business prior to launching their self-financing activities, but have since cultivated these relationships in developing their activities.

Organizations that have direct contact with local businesses as clients of their self-financing activities, including Casa de la Paz, CASE, CIEM, Fundación Ideal, Fundación Cirena, Fundaempresa, Greater DC Cares, and Hogar de Cristo, report that relations are generally good. In general, organizations that engage in product or service endorsements with businesses handle these relationships with caution to avoid being identified too closely with any one business.

When asked if they face competition from for-profit businesses providing the same services as those of their self-financing activities, 29 of the 32 organizations responding say yes, and sixteen of the 24 responding identify this competition as coming from local businesses.

The Children’s Foundation competes with commercial transport companies; MCH, which sells tickets for its historic forest railway, competes with institutions from the travel industry; SODEM, with private schools; Fundación Ideal, with orthopedists, shoe stores, and private doctors; Fundamor, with producers of uniforms and household cleaning products. A few CSOs say they are not in direct competition with local businesses—Tyr Center, for example, fills a niche in the tailor business because its clients do very simple sewing tasks that other tailor shops in Bratislava are not interested in—but the great majority say yes, and most identify both quality and quantity as areas of competition.

When asked if they use their mission as a way to market their product or service, 34 of 45 organizations responding say yes. KUD, WCA, and MEXFAM, for example, say that their reputation helps to sell their services. Yet the majority of the CSOs say that they still have to comrisky business: The impacts of merging mission and market Copyright © NESsT 2003

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pete on an even playing field with for-profit and nonprofit entities alike. CSOs such as CASE, Hogar de Cristo, FEPP, FES, and PROCOSI report that their organizational credibility is a central but supporting element in the promotion of their products and services.

Despite the fact that they are mission-related organizations, these CSOs emphasize that they must produce a very highThe majority of the CSOs say quality product or service. that they still have to compete on an even playing Some of the organizations specifically state that they do not use their mission to promote their products or field with for-profit and nonprofit entities alike. services. For these organizations, especially those utilizing employment generation models, using their clientele as a selling point can be more detrimental than helpful, as customers might perceive that the products or services are not of high quality. Others are sensitive to “exploiting” their clients in this way. As PEP explains, “We did not advertise that our clients were serving at the Ben & Jerry’s shop. We did have a PEP placard at the store, however.” SONCEK says, “We promote the quality of the products and not the way they were made.”

In terms of so-called “unfair competition”, many CSOs pay the same tax rates for income derived from self-financing activities as for-profit entities and therefore do not hold an “unfair” advantage over them.

Thirty-three CSOs responded to the question about how much of their income is taxed: eight said all self-financing income is taxed,6 said income above a given level is taxed, and 19 said all income generated from activities not related to the organization’s mission is taxed. Twenty-one of 30 said that income from their self-financing activities is taxed at the same rate as the income of for-profit entities.

When asked if any local businesses have complained of unfair competition due to favorable tax treatment, an overwhelming majority, twenty of 23, say no; one says yes, and two say that this does not apply.

Many of the organizations explain that they hold no tax advantage over local businesses, that there is sufficient demand in the market for many entities to offer similar products, or that as mission-related organizations they assume additional costs that do not affect most forprofit entities.

There are also some very interesting examples of cooperation between the CSO cases and local businesses. Several of the organizations provide advertising space to local businesses. MCH did this as a way to leverage support and at the same time to write off expenses.

Hogar de Cristo sells advertising space to local companies in its mag-

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azine Socios. WCA has a close relationship as a vendor with several businesses that offer special services and rates to WCA members.

Realizing that it could not afford the expensive equipment and training needed to produce websites, Acceso established a strategic alliance with a technology business, Internexo, that has enabled it to offer website services to its clients. Acceso works with Among CSOs engaging in clients to conceptualize, organize, and write the webcontractual arrangements sites, and Internexo is responsible for the graphic with for-profit entities, client design and programming. In addition, the two organirelationships are generally zations share office space and equipment. good but often require an approach tailored to the In sum, for several organizations, local businesses do needs of for-profits. not hold a key stakeholder position and have not been affected by the CSOs’ use of self-financing.

However, other organizations do have a direct or indirect relationship with local businesses. Among CSOs engaging in contractual arrangements with for-profit entities, client relationships are generally good but often require an approach tailored to the needs of forprofits. Competition is for the most part healthy, and there are several examples of direct collaboration between local businesses and CSOs that have proven to be mutually beneficial.

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5.6 CONCLUSION The findings presented in this chapter indicate that through self-financing most CSOs have enhanced their internal operations in the areas of both financial and human resource management. Specifically, they tend to have greater awareness and control of their finances, and most report that internal staff cohesiveness and efficiency has improved as well. Despite some concerns about overtaxing staff, the majority of the CSOs feel that their selffinancing activities have helped to strengthen their internal work culture by involving not only staff members but board members and volunteers to a greater degree. The latter two groups have played important roles in many organizations, particularly in providing technical expertise—and many times financial support and/or physical labor as well—to help CSOs start up their self-financing activities.

In planning for, starting up, and operating their self-financing activities, the CSOs have adopted some characteristics more traditionally associated with for-profit businesses. Thus, the majority of CSOs report increased organizational orientation toward business and entrepreneurship and, to a slightly lesser degree, profit-making and competition. Most organizations emphasize that these shifts have occurred within the larger context of their underlying missions and that they have not sacrificed their values in order to become more financially savvy. Along these lines, most report improvements in team decision-making and improvements or no change in ethical orientation. Self-financing has produced undesirable impacts in the form of increased bureaucracy for a significant portion of the CSOs, but a larger number of organizations report that their self-financing activities have had no impact on their internal bureaucracies.

Through self-financing, CSOs have, on the whole, strengthened their relationships with various stakeholder groups. Specifically, relations with beneficiaries and members have tended to improve since the CSOs initiated their self-financing activities, often because CSOs are offering more extensive and higher-quality programs that directly benefit these beneficiary groups. Relations with donors have also improved for the majority of CSOs, as donors now tend to view the CSOs with more respect in their efforts to become more financially independent and sustainable. The CSOs risky business: The impacts of merging mission and market Copyright © NESsT 2003

“Good relations with external stakeholders are key to self-financing success.”

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cite however, that there is still a lack of funding for self-financing and that donors need to also support them in these efforts.

One key self-financing strategy has been charging fees for services, which are often covered by government contracts. For this reason many CSOs report improved relations with their governments. On the other hand, a large number of CSOs complain about regulations in their countries that discourage self-financing by imposing high taxes on income even when it is derived from mission-related activities. Relations with peer CSOs were more mixed, as many peers initially distrusted the CSOs’ motives for selffinancing. In the longer term, these relations tended to improve, although in some cases tensions still linger. The stakeholder group that seems to have the least positive reaction to CSOs’ self-financing activities is local businesses, but in many cases this is simply because these businesses have never played any role in the organizations’ activities.

The use of self-financing seems to cause a ripple effect: With more activities comes more people, more interaction, and more decisions—both internally and externally—all of which lead to increased work and responsibility on the one hand and greater impact and recognition on the other.

As discussed in this chapter and earlier ones, the use of self-financing requires new approaches and strategies that most organizations develop over time. While learning is an essential element in this process, CSOs must proceed carefully, as missteps may cause problems in internal operations, work culture, and stakeholder relations that may undermine the organizations’ ability to pursue their underlying missions.

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CSOs that did not build permanent assets found that the use of self-financing did not always result in greater financial sustainability.

Chapter 6

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6.1 Introduction This chapter examines the impact of self-financing on the long-term financial sustainability of the CSOs in the study. As discussed in Chapter Two, the majority of the organizations were originally motivated to launch their self-financing activities in order to reduce their dependence on external funders, whose changing priorities and stipulations often provide little long-term financial security. The organizations saw self-financing as a vehicle for obtaining more control over their income, which in turn would enable them to be more independent of external funders and generally to exercise greater organizational autonomy in pursuing their missions.

Resource diversification is a critical aspect of financial independence and sustainability because it minimizes the risk of crisis in the case that one source of funding is cut off. The first section of the chapter therefore examines the degree to which the CSOs have diversified both their funding sources in general and their self-financing activities in particular. Because reducing dependence on donor funding by generating self-financing income does not necessarily guarantee longer-term financial stability, the second section focuses on the organizations’ ability to grow their assets and achieve greater sustainability in their self-financing income. The third section builds upon the findings presented and discussed in the first two sections to draw conclusions regarding the degree of organizational independence and autonomy produced by self-financing. Just as Chapter Five examined the medium- to long-term impacts of self-financing on organizational culture and stakeholder relations, this chapter assesses the deeper effects of self-financing on the longer-term financial health of the organizations and on their ability to carry out their missions.

6.2 Resource Diversification 6.2.1 Current levels of diversification “The use of one self-financing strategy often lead to many more.”

In general, the CSOs studied have achieved some level of resource diversification. Of the 45 cases, only one, CASE, is dependent on a single funding type—self-financing—and the organization has already begun looking for donor funds to avoid becoming too

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“client driven.”1 All of the remaining 44 cases have three or more types of funding in the form of grants, donations, and self-financing income.

Most of the organizations receive support from at least two of the following types of sources: 1) international grants; 2) government grants; 3) individual donations; 4) foundation grants; 5) corporate grants; 6) self-financing; and 7) other (in-kind donations loans, interest on prepayments, etc.). Of the 43 organizations responding, the majority (29) receive support from three or four types of sources, while seven receive support from one or two types and seven from five or six types. There does seem to be a relationship between the adoption of self-financing and a change in the number of funding sources, though this is difficult to assess without data going back to the inception of the self-financing activities.

In slightly less than half of the cases studied (21), organizations decreased their relative dependence on external sources of funding and increased the proportion of their income coming from selffinancing over the past three years. Among these organizations, increases in the proportion of income coming from self-financing ranged from five to 45 percentage points, with an average increase of fifteen percentage points. In fifteen of these cases, the percentage breakdowns between income derived from self-financing and income originating from grants or donations remained steady, changing by no more than four percentage points. In a few of these cases, the percentage of income from self-financing activities increased during the second year but went down again during the latest year, making it difficult to discern a larger pattern. Three organizations (INFRA-BER, SODEM, and Szeged Foundation) provide information on self-financing income for only one year, so changes in these cases cannot be determined (Table 6-1).

Six organizations experienced a fall in the percentage of income coming from self-financing versus grants or donations. Self-financing income as a percentage of total income decreased by ten percentage points or less for MCH, SENT, and SONCEK, while the decrease was twelve percentage points for Elim Písek, 26 percentage points for Fundación Corona, and 40 percentage points for Fundación 1 Although CASE is 100% self-financed—and is therefore considered to be its only funding source for the purposes of this study—it generates income from its for fees-for-services work through a mix of government and foundation contracts. Thus, while it has not diversified in terms of income type, it does have diversification in terms of income source.

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TABLE 6-1: CHANGES IN CSO SELF-FINANCING INCOME % OF INCOME FROM SELF-FINANCING Latest year Previous year Earliest year

Case 1.

2.

3.

4.

5.

Percentage point change

Acceso Business Law Center Casa de la Paz CASE Chaloupky Center

50* 15 30* 100 76

63 15 29 88 58

46 — 24 85 32

None None + 6 + 15 + 44

6. Children’s Foundation 7. CIED 8. CIEM Aconcagua 9. CISA 10. CODEMU

17 15 27 27 22*

17 15 50 7 7

15 18 21 2 10

None None + 6 + 25 + 12

11.

12.

13.

14.

15.

Eco Center Elim Písek ESE Association FEPP FES

78 79 30 41 76

75 76 20 41 77

70 91 — 41 —

+ 8 - 12 + 10 None None

16.

17.

18.

19.

20.

Fundación Alternativa Fundación Cirena Fundación Corona Fundación Ideal Fundaempresa

60* 89 41* 98* 78*

83 74 67 98 79

100 84 — 96 75

- 40 + 5 - 26 None None

21.

22.

23.

24.

25.

Fundamor Geneva Centre Greater DC Cares Green Link Hogar de Cristo

61 33 9 78* 82

42 29 12 77 71

56 — 9 79 —

+ 5 None None None + 11

26.

27.

28.

29.

30.

INFRA-BER KÁLLFÓ KUD LSS MCH

90 60 45 91 90

— 55 55 78 98

— — 47 52 98

— + 5 None + 39 - 8

31.

32.

33.

34.

35.

MEXFAM Nephrocentrum PDCS PEP PROCOSI

40 21 40 88 40

34 19 35 83 30

— 20 30 43 20

+ 6 None + 10 + 45 + 20

36.

37.

38.

39.

40.

SENT SNI SODEM SONCEK Stoka Theater

30 13 53 30 19

40 — 52 40 18

40 — 47 40 —

- 10 — + 6 - 10 None

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Case 41.

42.

43.

44.

45.

Szeged Foundation TYR Center UMANOTERA WCA YHD

% OF INCOME FROM SELF-FINANCING Latest year Previous year Earliest year 50 49 28 89 9

— 46 33 93 0

— 44 2 91 0

*Projected

Alternativa. Fundación Alternativa moved from being fully selffinanced to being 60% self-financed as the organization consciously began seeking grant sources of funding. CASE will undergo a similar process in the coming years, though it will most likely continue to maintain a higher proportion of self-financing income.

6.2.2 Diversification of self-financing strategies Another type of resource diversification is the diversification of selffinancing activities. As discussed in Chapter Two, 37 of the 45 organizations are using more than one type of self-financing strategy and 23 are using more than two. On average, the CSOs were established in the late eighties (median year 1989), launched their first self-financing activities in the early nineties (median year 1992), and have already diversified and are using at least two strategies.

For many of the organizations, success with one type of strategy has generated the motivation and opportunities to use others. Although older organizations such as MEXFAM and KUD started self-financing early in their history at small levels, they then intensified these efforts in the nineties and added new self-financing strategies almost every year. Fundamor has proliferated its strategies in a very short period of time and the organization has at least two distinct activities within several different types of self-financing strategy. Table 6-2 illustrates the gradual adoption of new types of self-financing strategies among four cases in the study.

Many of the CSOs not only initiated different types of self-financing strategies, but, like Fundamor, also diversified within a certain type.

Many organizations are selling an existing product or service to a new constituency or selling a new product or service to an existing constituency (see 3.2). Twenty-seven of the 45 cases began with one product or service and then expanded to new constituencies and/or new risky business: The impacts of merging mission and market Copyright © NESsT 2003

Percentage point change — + 5 + 26 None + 9

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TABLE 6-2: DIVERSIFYING WITHIN SELF-FINANCING FUNDAMOR

1993 • Product sales (secondhand items)

1994 • Fees for services (counseling) • Product sales (cleaning products)

1995 • Fees for service (conference center) • Product sales (greetings) • Investment dividends (Permanent Matching Fund)

1997 • Membership dues (“Plan Padrinos” to adopt a child) • Product sales (health food)

1998 • Investment dividends (special program area funds)

1999 • Hard assets (rental of auditorium and apartments)

GREEN LINK

1990 • Membership dues

1994 • Fees for services (environmental outings)

1995 • Fees for services (summer camps) • Product sales (Tshirts and stickers)

1996 • Product sales (educational materials)

1997 • Fees for services (environmental education seminars) • Hard assets (rental of building as recreational center)

LSS

1990 • Membership dues • Fees for services (summer course)

1993 • Fees for services (outdoor training for businesses and schools, sold by the for-profit subsidiary Czech Way Ltd.)

1994 • Product sales (educational materials) • Hard assets (rental of outdoor equipment)

1997 • Soft assets (licenses for games and training methodology)

WCA

1979 • Membership dues • Fees for services (vendor services such as health insurance to members)

1992 • Product sales (publications)

1999 • Soft assets (royalties on endorsements) • Investment dividends (interest on reserve account)

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products or services. Even those organizations that are using only one type of self-financing strategy are often using it in various forms. Of the eight organizations that fall into this category, four have diversified the use of their strategy by expanding to new products, services, or constituencies.

• ESE Association began by selling the carpets it produces at its carpet-weaving factory and now sells secondhand items on consignment at its social shop.

• Greater DC Cares began by charging fees for its Business Shares Program and now also sells temporary placement services to law firms through its firm Cares@Law. • INFRA-BER began by distributing surgical instruments for a German company; now it also conducts research for the company and employs its disabled clients to perform one step in the assembly of the instrument.

• PDCS began by selling its training and consulting services to nonprofit clients; now, through its subsidiary ARK, Ltd., it is selling them to for-profit clients as well.

Of the four organizations that have not diversified within their selffinancing strategy, three (FES, Fundación Corona, and PROCOSI) are using dividends from income that is generated through their endowments. Although dependent on only one type of strategy, the organizations have diversified their investment portfolios and are using mechanisms to ensure some protection from market vulnerability.2 The last of the four, KÁLLFÓ, is highly dependent on its product sale strategy and has not diversified within that strategy. KÁLLFÓ’s clients produce ski-boot inserts for the company NORDICA. Although the organization holds no other contracts, to date this contract has been reliable, enabling the organization not only to generate 60% of its annual income but also to employ 140 people in a rural, underdeveloped region of Hungary.

2 As outlined in the case summary for FES, the organization’s financial company was nationalized by the Colombian Government, and it has therefore temporarily lost its self-financing income.

However, the key reason for this was not a lack of diversification.

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FFUUNNDDAAM MO OR R:: BUILDING SUSTAINABILITY THROUGH DIVERSIFICATION Fundamor was founded in 1992 to provide integrated services to people with HIV/AIDS, both carriers and terminal patients. Well aware that there is little available grant funding for HIV/AIDS in Colombia, the founder and executive director developed the organization on the premise that each of its activities will become self-sustainable. Through its holistic approach to combating and treating HIV/AIDS, the organization coordinates programs in direct care, prevention, employment, and overall education. Each of these areas has, in turn, spawned one or more self-financing activities, enabling Fundamor to develop significant diversification in its sources of funding.

In the area of direct care and prevention, Fundamor offers residential services at no cost to its low-income clients (both children and adults), but its outpatient care and counseling services generate fees. The organization has creatively used its residence, a large farm outside Cali that it received from a Colombian foundation as a donation, to grow organic products both for its residents and for sale to other HIV/AIDS residences and clinics. Fundamor also rents the use of its auditorium and several apartments on the premises. In the area of employment, the organization runs two production workshops (household cleaning products and school uniforms) where it employs friends and family members of its residents. Through a series of enterprising contracts with distributors, the organization is able to sell these products, as well as its organic food, without incurring the high costs of marketing and distribution.

In the area of education, Fundamor coordinates conferences for health care workers and others on HIV/AIDS prevention and treatment. It charges fees for these events and for bonos por la vida, greetings sent to family members and friends in recognition of an occasion. Fundamor also owns a company that sells cookies, which are placed in dispensers throughout Cali, in an effort to raise awareness of HIV/AIDS. On a more passive level, but again tied to building awareness and support, the organization provides Colombians with opportunities to become "Padrinos" (godparents) and help pay for the care of a child with HIV/AIDs. It also has contracts with an investment company that pays Fundamor part of its commission.

Fundamor currently manages 11 different self-financing activities, which are generating slightly more than 60% of its revenues. Most of these build directly onto its programs, hence taking advantage of its existing competencies and assets. From its primary nucleus, the farm and its residents, activities flow toward a secondary group of users (other patients and care facilities) and finally toward a tertiary group (health care workers and the general public). By focusing on its mission and capitalizing on its strengths, the organization has achieved greater diversification and sustainability of its funding base.

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6.3 Building Sustainable Sources of Income As discussed in Chapter Four, the majority of the organizations in the study have either made a profit since launching their self-financing ventures or have begun to generate increasing revenues. Of the 37 CSOs responding, 32 report that self-financing has contributed to the long-term sustainability of their organization, while 5 reply that it has not, or at least not yet. Those that say yes highlight both financial and programmatic reasons. On the financial side, Chaloupky Center says that self-financing is the “main part of financial stability.” The Children’s Foundation reports, “Nowadays, we are able to secure our income.” Green Link says that self-financing “provided us with a way of securing our finances by means of our services during the year.”

But, of course, financial and programmatic reasons are inseparable, as financial stability enables the organizations to focus on their programmatic work. SNI says, “Self-financing provided an opportunity to focus on arts development and training, an area that is traditionally underfunded.” Fundaempresa says, “It has allowed us to generate a surplus and has therefore contributed to the financial sustainability of the organization, generating a better cash flow and surplus to be used for building our endowment and running our programs.” For MCH, self-financing is critical: “Without self-financing, our program—operation of the railway—would not exist.” PDCS says that self-financing “enables us to sustain valuable workers long-term; not only for the period of a grant.”

A strategy of building assets and using them to earn new income and to reinvest for future security is key to attaining financial sustainability. Self-financing has allowed some of the organizations to purchase and build assets, particularly land and property, and others to earn income directly or indirectly from the use of these assets. In some cases, buildings have been made into centers where organizations charge fees for services rendered. In other cases, organizations are earning rental income for underutilized assets. Still, only a few have developed deliberate investment strategies or policies to use part of their self-financing income for these purposes.

6.3.1 Owning and investing in assets Owning assets is an underutilized strategy among CSOs, in large part because traditional funding is usually not available for capital purrisky business: The impacts of merging mission and market Copyright © NESsT 2003

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chases or endowment-building. This is unfortunate, since physical and financial assets can often be low-risk investments that are relatively easy to maintain and that appreciate in value to provide a source of long-term financial sustainability. In addition to their financial value, physical assets such as buildings and equipment can be used by CSOs to operate their mission programs.

Most organizations in the study own some kind of assets. Twenty of the 45 CSOs own office space, while 32 of 45 are fully equipped with some combination of typewriters, personal computers, printers, modems, fax machines, and photocopy machines. Thirteen of these 32 also own additional assets such as cars, trucks, PowerPoint projectors, and technical equipment (e.g., medical, packing, and laundry equipment).

The ownership of assets has, in some cases, been brought about by or expanded through income derived from a self-financing activity. For some CSOs, owning their own building is a key component of their efforts to self-finance. Real estate offers a double financial return in that it can be rented out in the present and its value usually appreciates over time, translating into increased value in the future. CSOs that rent their buildings include the following: • Chaloupky Center: In 1994, the association bought an old country estate to use as an environmental center. Chaloupky raised funds from national and international sources to purchase the site. By purchasing the space, Chaloupky assumed the added responsibility of renovating and maintaining the building. The organization is currently saving some of its self-financing income to renovate the Center.

• CIEM: In 1991, CIEM was given the use of a convent and former orphanage that was owned by the Catholic Archdiocese of San Felipe to be restored and used as a Center for the Arts and Trades.

The building had recently burned in a fire, but the archdiocese helped CIEM acquire initial funding for restoration, and since then CIEM has continued to use donations as well as part of its revenues from self-financing to further renovate and equip the Center. CIEM currently rents out its Center for local events, such as seminars and courses, as well as for private events sponsored by other organizations.

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• Green Link: In 1995, Green Link received the free rent of its building together with the surrounding park. Working with volunteers, the organization is using part of its self-financing income to renovate and adapt it as an “eco-center.” When Green Link is not using its building for ecological education, it rents it out to the public as a recreational center or to youth groups for meetings and accommodations.

• Lipnice Summer School: In 1997, LSS purchased a building and property for use as an education center and for organizing its Outward Bound courses in the Czech countryside. More than 50% of the income generated from self- financing was invested in the renovations.

• MCH: MCH received ownership of the mountain railway from the state for a symbolic price of 1 SKK (about USD 0.03). Significant financing is needed for the reconstruction of the railway station and railway track (USD 29,000 for each of the 17 kilometers). All earnings from self-financing activities are directed to renovations, allowing MCH to repair about 500 meters of the railway annually.

• MEXFAM: With financial support from USAID, MEXFAM built fifteen clinics throughout Mexico to provide family planning services to marginal populations. Since the clinics are well equipped and can offer sophisticated services, they attract users with higher financial means than the organization’s principal target population. Fees for these users offset the costs of services to lower-income clients, who in turn have access to better services than they would otherwise.

The growing values of the land, buildings, and equip- Although use of hard assets ment provide these groups with a certain level of secu- provides a modest source of rity and also a source of income for the future. funding for most of the organizations, the strategy is 6.3.2 Earning income from assets relatively easy to implement In addition to using income from self-financing to in that it requires little purchase and upgrade assets, many of the organizainvestment of staff time or tions are also using assets as a self-financing strategy. resources.

As discussed in Chapter Two, sixteen of the 45 organizations are utilizing their hard assets as a way to earn income. In most cases, the organizations use these assets to run their own program activities and rent them out when they are not being used for these purposes. Although use of hard assets provides a modest source of risky business: The impacts of merging mission and market Copyright © NESsT 2003

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funding for most of the organizations, the strategy is relatively easy to implement in that it requires little investment of staff time or resources. Some of the organizations indicate that maintaining assets for rental purposes has necessitated extra maintenance and repair costs. However, in most cases, the revenues generated outweigh the costs, especially because they also cover the repairs and maintenance that are necessary for regular programmatic use anyway.

Some examples of organizations using their assets to generate income are as follows: • The Children’s Foundation purchased a bus for its therapeutic holidays that it rents out to travel agencies and other organizations when not in use for its programs.

• CIED rents its small trucks and office spaces to other nonprofit institutions.

• When not using the computers for its eco-publishing activities, Eco Center uses the equipment originally purchased with donor funds to offer its graphic design and advertising services to paying clients.

• Fundación Alternativa rents out its PowerPoint projector to other nonprofit institutions.

• Fundación Ideal rents out part of its space as a fully equipped outpatient office both to a private orthodontic practice and to a private individual who runs a cafeteria on the premises.

• Hogar de Cristo is part owner of buildings that house three grocery stores and it receives rental income based on sales volume. The organization is also 99% owner of a funeral home that pays Hogar de Cristo rent to use its building and funeral cars.

• When not in use for its own programs, KUD occasionally rents its facilities to other organizations for roundtable discussions, press conferences, or other events.

• When not in use for its contract work, Nephrocentrum rents out its trucks and drivers to paying clients.

• Szeged Foundation established a separate foundation to maintain and support the occupants of its building, a former military officers’ club.

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6.3.3 Funds and endowments Earnings from investment dividends are another source of sustainable income for 21 of the 45 organizations. In some cases, the organizations are using a very passive approach to investing, earning savings account interest on advance deposits of donor grants. In others, they have begun to use the accumulated earnings from these deposits and other savings to invest more aggressively and earn higher yields. In still other cases, the organizations have a deliberate investment fund or endowment building strategy, investing in longer-term instruments and often reinvesting the yield rather than using it. For some of the organizations using the latter approach, investment income has become a key source if not the only source of operational income.

To some extent, these deliberate investment strategies are more common among larger, well-established organizations. Thus, of the ten CSOs with an annual budget greater than USD 1 million, seven have some sort of fund. On the other hand, investment strategies are also highly correlated to the availability of technical advice from financial experts. In this respect, the experiences of the Colombian CSOs are particularly revealing. Fundaci贸n Corona has been active in working with other Colombian CSOs to develop their investment strategies and FES has offered its Permanent Matching Fund program as a way to assist its peers in building their endowments. With this assistance, smaller organizations such as Fundaci贸n Cirena (annual budget USD 323,000) and Fundamor (annual budget USD 280,000) have begun building their endowments. Moreover, in the case of Fundamor, as will be discussed at greater length below, the organization has built upon the external support from FES and is now developing its own investment strategies. Therefore, while CSOs often do not begin thinking about longer-term investment strategies until they are large organizations, this occurs more because smaller CSOs do not have access to financial expertise than because they are not "ready" to initiate such strategies.

Among the 21 organizations earning investment dividends, there are five general types of investment funds. They fall along a spectrum from those that are more short-term and oriented toward generating operational income to those that are more long-term and oriented toward generating capital for future investments. The degree of financial sustainability provided by these various funds increases in relation to the length of the term, with the longer-term strategies providing more stable yields.

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1. Reserve funds: Nine of 21 organizations currently have reserve funds. These funds are smaller in nature and yield interest on savings. In most cases they are used for operational expenses or to respond to cash flow problems. The capital on these funds is sometimes used by the organizations to meet program gaps in funding or to invest in needed equipment and training.

2. Emergency or contingency funds: Two of the 21 cases report having a fund designated for emergencies. Casa de la Paz uses some of the interest earned from this fund and on occasion has tapped into the fund’s capital. The organization is intent on maintaining six months of operational expenses as a reserve and always replaces the money that it borrows from the fund. In the case of Hogar de Cristo, the fund was started with an estate donation and has never been used. The organization sees this fund strictly as a resource to be reinvested and would use the capital only in the case of a critical emergency, such as for earthquake reconstruction.

3. Credit funds: Three organizations own credit funds that they make available to their constituencies. The goals of these funds are twofold: on the one hand, they are programmatic in nature and are intended to give beneficiaries access to credit for their own productive purposes; on the other hand, they are intended to yield operational and programmatic income for the organization. For example, CIED manages a credit fund and earns income on loans to small producers.

4. Investment funds: These funds are one step away from being full endowments in that they are larger, invested in longer-term instruments, and provide a key source of revenues for the organization.

Their income, however, is expressly intended to support the operational expenses of the organization and is therefore not always reinvested to build-up capital. PROCOSI’s investment fund is also, on occasion, used for program purposes.

5. Endowment funds: Seven organizations reported having endowment funds, the most long-term of the six types of funds. Four of these seven held Permanent Matching Funds, an endowment building strategy offered by Fundación FES to many Colombian CSOs. Fundación Corona and FES are the only two organizations that have deliberate, albeit very different, endowment-building strategies. WCA recently decided that it would begin to build an endowment from its reserve funds. risky business: The impacts of merging mission and market Copyright © NESsT 2003

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TABLE 6-3: TYPES OF FUNDS

Caassee C Acceso

RReesseerrvvee ffuunndd

CCoonnttiinnggeennccyy oorr eem meerrggeennccyy ffuunndd

CCrreeddiitt ffuunndd

IInnvveessttm meenntt ffuunndd

EEnnddoow wm meenntt ffuunndd

X

Casa de la Paz

X

CASE

X

Chaloupky Center

X

CIED

X

CIEM

X

X

FEPP

X

FES

X

Fundación Alternativa

X

X

Fundación Cirena

X

Fundación Corona

X

Fundación Ideal

X

Fundaempresa*

X

Fundamor

X

Hogar de Cristo KUD

X X

LSS MEXFAM Nephrocentrum

X X

PROCOSI

X

Szeged Foundation

X

WCA

X

TTO OTTAALLSS

9 9

X

2 2

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2 2

8 8

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FE F ES S: : PERMANENT FUNDS AND PERMANENT MATCHING FUNDS In 1977, Fundación FES created a unique mechanism that would allow it simultaneously to build its own endowment and to help other Colombian CSOs generate income for their operations. FES accepts donations from CSOs to create either permanent funds (PFs) or permanent matching funds (PMFs). The PFs are dedicated to one of FES’s five program areas. The donations are deposited and invested by FES through its own commercial finance company. In the case of PMFs, the donation is matched 50% by FES and then deposited and invested. FES provides the CSOs 70% of the interest earned by the fund and reinvests the remaining 30% back into the fund. The CSOs then use the income from this interest to offset operational expenses for their programs. The capital becomes part of FES’s own endowment. The attraction for the CSOs is a guaranteed rate of return that equals the Consumer Price Index plus 4% and the 50% initial match. These PMFs and PFs operated for more than 20 years and provided many Colombian CSOs with an important source of income. A few years ago, the funds became too difficult to maintain at such a high rate of return, and over time FES has increased the minimum donation to start a fund from USD 30 to USD 70,000—an extremely high amount for most CSOs—eliminating the possibility for many to initiate a fund.

Four of the remaining five Colombian CSOs in this study currently hold PMFs with FES that, until recently, were yielding varying amounts of operational income for these groups (see cases for more details). It is important to point out, however, that the capital portion of the funds belongs to FES’s endowment and not to the organizations themselves.

As Colombia spun further and further into financial crisis, the Banking Authority’s requirement that financial institutions must be able to guarantee their outstanding obligations became increasingly difficult to meet. When FES could not raise the USD 50 million in capital that it needed to fulfill this regulation, the government seized control of its USD 30 million endowment and an additional USD 7 million in grants and contracts. While FES’s future is being decided by a governmentappointed commission, CSOs that had invested their money in PMFs are waiting to learn whether their capital will be returned.

Most of the cases fall into the more malleable reserve fund category and fewer fall under the more permanent investment or endowment fund categories. Only a few of the CSOs in this study that have begun to accumulate savings are using these savings to build an investment or endowment fund. Most have put their money in short-term passive investments and do not have any kind of investment policy or straterisky business: The impacts of merging mission and market Copyright © NESsT 2003

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gy. This is because, as stated before, there have traditionally been very few opportunities for organizations to build endowments. Many do not know at what point they should establish an endowment and lack the experience to start or manage more sophisticated investment strategies. Furthermore, the strategy itself is not problem-free. As both the FES and Fundación Corona cases demonstrate, organizations with endowments must rely on a pool of resources, usually donations, that are difficult to obtain. They must also have the internal capacity to manage investment of these funds. Finally, they must be aware of volatility in the market and in interest rates, which can derail even the most conservative financial plan.

FFUUNNDDAACCIIÓ ÓN N CCO ORRO ONNAA:: BUILDING AN ENDOWMENT Fundación Corona has also used donations to build its endowment.

Unlike FES, which has depended on donations from mostly small CSOs, these donations come from the Corona Organization, a conglomerate of companies that originally established Fundación Corona. With changes in the legal, economic, and institutional situation in Colombia, Fundación Corona’s board of directors expanded the foundation’s mission from assistance to company employees and their families to providing grants and technical assistance to low-income sectors for social development. With this change, the foundation decided to make building its endowment a top priority. It adopted a policy of using the non-cash donations from the Corona Organization to build its endowment, while leaving cash donations for program and grant-making purposes.

A conservative investment approach, guided by a finance committee composed of board members, staff, and one outside expert, all with financial expertise, has allowed Fundación Corona to slowly build its sizable endowment.

Although the foundation has not reached its goal of becoming 100% financed through endowment yields, it maintains this steady approach and has committed itself to continue reinvesting yields and to decrease its operational expenses.

Recently, Fundación Corona decided to outsource the fixed portion of its portfolio to an investment company in order to trim internal administrative costs. Fundación Corona has also made it a practice to help other Colombian CSOs with their endowment-building efforts by providing advice and technical assistance.

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Perhaps the most interesting strategy is one adopted by Fundamor. In an effort to build its endowment and to generate a cushion for its programs, the organization has established “special project funds” for each of its program areas. The organization deposits some donations and program savings into these funds and invests them in both longand short-term instruments with the assistance of an outside investment expert. In seven years, the organization has built seven project funds that are currently worth USD 391,000.

6.3.4 Managing risk Another strategy related to financial sustainability is developing mechanisms for managing risk. Entrepreneurship inherently brings a degree of risk, which is often even higher for CSOs, given the stakes involved. Therefore, a key component of financial sustainability is being able to mitigate risks in ways that decrease threats to organizational mission and programs.

CSOs in this study confronted different types of risks in launching and managing their self-financing activities. Chapter Three discussed risks related to the organization’s mission and programs and Chapter Five examined risks related to the organization’s internal operational management and culture and its external reputation. CSOs also encountered risks in two key areas specifically related to financial sustainability: 1. Financial risks. At a basic level, organizations took financial risks in initiating their self-financing activities. Some took out loans to start their ventures, while others used internal organizational funds or donations. Each of these funding mechanisms entails a degree of risk, although some more than others. SODEM and Stoka Theater are both indebted as a result of their self-financing start-up and are still using their self-financing income to pay back these debts.

In addition to risks related to start-up funding, other CSOs incurred financial risks in managing their ventures, having to meet commitments that were often difficult to fulfill. CIEM lost money from its wrought iron and wood furniture products because its low prices did not adequately compensate for its clients’ costly demands. FES could not keep up with the match and return that it guaranteed for its Permanent Matching Funds. Eventually, it was

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forced to change the criteria for establishing the PMFs, making it difficult for small CSOs to establish funds.

2. External environment risks. External variables, including economic, political, and social factors, can pose significant risks to CSOs that are beyond their control and challenging to manage. Most of the Colombian CSOs in this study have faired badly in recent years, given the very difficult political and economic situation in Colombia. On a more localized but similarly far-reaching level, PEP had no control over its landlord’s decision not to renew the lease for its Ben & Jerry’s ice cream parlor. Thus, even though the ice cream parlor was making a profit, the organization was forced to close it down. Fundación Cirena could not prevent the hospital from offering the same services that it was already providing, which prompted the organization not only to shift its self-financing focus but to relocate a significant part of its mission programs as well.

Anticipating potential risks and developing a plan for managing them is a key component of business planning and is particularly important for mission-driven CSOs. Although no amount of planning can completely eliminate risk, having a risk management process in place enables organizations to respond rapidly when issues arise. A first step in this process While most organizations is being able to identify potential risks and possibly generally seem aware of the risks they have undertaken prevent them from becoming problems. A second step in risk management is recognizing when prob- and are learning to deal with them in practice, few have lem are occurring. Recognizing problems in their early stages allows organizations to keep them from integrated risk management getting out of control. A third step is having a good components into their stratestrategic response for dealing with problems. While gic plans. most organizations generally seem aware of the risks they have undertaken and are learning to deal with them in practice, few have integrated risk management components into their strategic plans.

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FFUUNNDDAAEEM MP PR RE ESSA A:: MANAGING PROGRAM AND SELF-FINANCING RISK Fundaempresa has adopted a unique way of dealing with the risks involved in undertaking new programs, which are all designed to be self-financed. According to the executive director, existing staff members do not automatically become involved in new programs.

Instead, the executive director herself takes on the project with the assistance of outside experts. Permanent staff members are aware of the project but are not involved in its day-to-day activity. This start-up phase requires a huge investment of time and resources, neither of which are drawn from existing programs.

Once the new project is under way and the executive director has a good understanding of the staffing needs involved, she works with the consultants and permanent staff to slowly phase in the project, hiring new people as needed. This strategy not only prevents staff from having to deviate from their current work, it also is less disruptive to program participants and allows the appropriate processes to be developed before they are implemented. Mechanisms are in place, however, for staff to develop ownership of the new projects by participating in project meetings and decision-making. According to the executive director, this strategy works very well, though it is costly and requires funding to hire outside consultants who are often more expensive then permanent staff.

6.4 Organizational Autonomy CSOs in the study report that they have a great deal of freedom in terms of how they can use the revenues generated through their selffinancing activities. This ability to use their self-financing income as they choose enables a degree of organizational autonomy that many previously lacked when they were fully dependent on external sources of funding. In response to the question “How can you use your self-financing income?” 27 CSOs report that the current income earned from self-financing can be used for any expense of the organization. Four indicate that the surplus income must be used for a specific expense, while 6 say it can be used to pay back loans, 12 say it can be used to pay a program or core cost designated by the board of directors or trustees, and 6 say it can be used for investment in the organization’s endowment. While several organizations give more than one response, these results indicate that most CSOs have a wide degree of flexibility in terms of how they use their self-financing income. risky business: The impacts of merging mission and market Copyright © NESsT 2003

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When asked to explain, many of the organizations reply that they have “complete freedom” in how they choose to spend the funds.

Others qualify this by stating that either for legal reasons or because of decisions made by their board, they have complete freedom “as long as the income is reinvested in the mission.” It is safe to say that, although not every organization states this explicitly, they all are required to use their self-financing income either for mission-related purposes or to reinvest in their self-financing activities. This is actually an important distinction, since many of the organizations do not have a clear policy on when they can or should reinvest in their businesses versus their programs. This is a dilemma that for-profit businesses do not encounter in the same way, but one that significantly affects the amount of resources available for immediate use and hence the degree of organizational autonomy gained through selffinancing in the short term (though, in many cases, reinvesting in self-financing activities might generate greater resources in the future and thus more long-term organizational autonomy).

Another subset of organizations explains that funds from self-financing activities can be spent in any way as long as these expenditures meet the plans approved by members or the board of directors.

Fundamor explains, “The board decides on the use of the profit and the dividends based on the organization’s financial statements and balance. Part of these can be appropriated to the endowment.” MEXFAM says, “The executive director has the liberty to use the resources according to the work plan and the budget adopted by the membership.” WCA says, “The board knows and approves the use of all resources and regularly considers how best to apply them.”

One significant finding is that even organizations that have not had financial success with self-financing or that have only recently launched their activities believe that self-financing has had a positive impact on organizational sustainability and autonomy. For example, FEPP maintains, “Self-financing permits us to continue implementing activities that improve the quality of life for poor people.” But it also reports that because it has only recently launched its self-financing activities, “We are still not able to analyze the effects of the selffinancing initiative that we are executing.” In the same vein, SODEM claims that it has “complete freedom” in how it spends its self-financing income, but then acknowledges that “we have a loan which we must pay on a monthly basis.” Stoka Theater, the organization that has confronted the most serious challenges in its self-financing activities and that is also currently paying off its debt, nevertheless mainrisky business: The impacts of merging mission and market Copyright © NESsT 2003

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tains that self-financing has enabled a degree of organizational autonomy. CODEMU identifies the principal benefit of self-financing as “the independence that it gives us—that we can do what we want and not just what the agencies want.” Still, despite the organization’s positive self-assessment, it is important to keep in mind that CODEMU is currently losing money and has never generated a profit from its selffinancing activity. These self-assessments of increased independence are important at the level of organizaThese self-assessments of tional self-confidence, but they should not be conincreased independence are fused with increased financial autonomy brought important at the level of about by the creation of new, untied sources of fundorganizational selfing. On the other hand, one important finding is that confidence, but they should almost all of the CSOs in the study, even those curnot be confused with rently in debt or losing funding, not only reaffirm the increased organizational value of self-financing as a learning experience but autonomy brought about by also specifically identify their self-financing income as the creation of new, untied enabling greater organizational empowerment and sources of funding. autonomy.

6.4.1 New funding Despite the fact that, as discussed in Chapter Four and again above, fifteen of the organizations are not generating the levels of income that they had planned and 14 are losing money, most of the CSOs believe that they have gained new funding from self-financing, which in turn has given them greater freedom in their spending. Thirty-five of 45 report that income from self-financing has allowed them to finance an activity for which they previously had been unable to identify adequate resources. Almost half say that these Pie chart 6-4 financial resources are for administrative costs, What activities are you able to organizational development, and planning and fund due to self financing? project activities. These various expenditures are (Number of affirmative responses) rarely included in donor grants, but are an imporFundraising 12 tant component of the true costs that CSOs must Program/project cover in order to function. In addition, CSOs are activities 19 Endowment 12 using their self-financing income for longer, more Organizational sustainable purposes, such as endowment-building development/ Investments planning 19 in the orga- and organizational investment. However, contrary nization to what might have been expected, not many of 6 Core/ the organizations are using these funds for policy administrative Other 6 or advocacy purposes; only seven indicate this to costs 20 Policy and be the case. advocacy activities 7

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6.4.2 Independence and freedom As discussed throughout this study, CSOs feel that they have gained a certain level of independence as a result of their self-financing activities that has widened their decision-making range both in their specific programs and in the organization as a whole. Nineteen of the groups use the terms “independence” and “freedom” when asked to name the greatest benefit of self-financing over other funding strategies. Elim Písek reports, “Self-financing made independence possible for us; otherwise we would not be able to work on our projects.”

PDCS states, “With self-financing, it is not necessary to conform to the preferences of donors and their programs. Incomes are not tied to a specific purpose and we can use them according to our real needs. With fundraising, we have a constant feeling of begging from those who can offer a financial gift.” UMANOTERA identifies the principal benefits of self-financing as “independence and autonomy throughout the process.” The Business Law Center adds, “We can use the income from self-financing more freely. It’s not for a project nor a program.” Chaloupky Center states, “It enabled us to acquire indispensable money which is not tied to the conditions of the state and donors. Self-financing enables greater self-sufficiency.” Fundación Corona sees the most positive aspect of self-financing as “the capacity to depend on resources that are not tied to the circumstances of others.” Fundamor adds, “It has allowed us to minimize our dependence on any one source and to deal effectively with the changes in donor funds that is reflected in the organization’s endowment-building growth.” KUD sums it up succinctly: “We can decide where to put the money from our self-financing activities—autonomy.”

6.4.3 Planning The organizations believe that increased autonomy has enhanced their planning capacity as well. When asked if any changes have occurred in their strategic planning due to self-financing, 25 report that it has improved. The remaining eighteen responding indicate that no change has occurred; none of the organizations say that it has worsened. The fact that organizations have more untied, flexible income and, to a certain extent, this income is usually more steady than cyclical project grants allows them to plan better. As Fundación Cirena states, “Self-financing gives you a clear indication of what you have and you can plan and project more clearly.” PDCS affirms, “Selffinancing offers a sense of freedom and the possibility of independent financial planning.” WCA says, “Fundraising in this local comrisky business: The impacts of merging mission and market Copyright © NESsT 2003

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munity is based on the whim of the funder. The self-financing activities are much more predictable and easier to plan and plan for.�

As discussed in Chapter Four, although most of CSOs did not have a business plan to begin with, many do now. Several groups state that they currently have some kind of strategic plan or business plan that includes their self-financing activities. The fact that these were generated during the implementation of their business activities seems to indicate that selffinancing has indeed allowed organizations to plan more and better. Many of the groups cite their newly laid out plans for their self-financing and program activities. CIEM mentions its plan to develop more capacity building courses as a way to generate income. Acceso recounts how it plans to gradually increase the amount of subsidies that it can provide its low-income clients. Fundaempresa plans to use accumulated, untied earnings as its own working capital in order to carry out the organization’s social objectives. WCA says that because of its self-financing program, it now has the confidence and the funding to launch an effective advocacy program for its members. Finally, as discussed earlier in the chapter, a number of the organizations are implementing plans to build up their reserve funds and endowments with new, untied income generated through self-financing.

The fact that organizations have more untied, flexible income and, to a certain extent, this income is usually more steady than cyclical project grants allows them to plan better.

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6.5 Conclusion Many of the CSOs have diversified their sources of funding through selffinancing, thus rendering them less susceptible to external fluctuations beyond their control. Moreover, as depicted in Table 6-1, self-financing income is growing as a proportion of overall income for close to half of the organizations (and remaining steady for most of the rest), even as most CSOs report that donor support for their mission programs has remained steady or increased. This indicates that self-financing income is contributing to overall organizational growth, which in turn is expanding mission programs and strengthening their impact, as discussed in Chapter Three.

At the same time, it is important to point out that these benefits of selffinancing are not without their drawbacks. Managing self-financing activities entails high levels of responsibility that may pose challenges to organizational operations. Furthermore, a handful of organizations in the study are now indebted as a result of their self-financing activities and are therefore more encumbered by their financial situation than they were prior to initiating these activities. Even among those organizations that are not in debt, many have taken on higher levels of financial risk—by hiring additional staff, buying property, investing in the market, and engaging in new partnerships and contracts—which signify possible limitations to their autonomy. Finally, while most organizations are generating new, untied income that can be used flexibly where needs arise, the majority have yet to establish deliberate investment and asset-building strategies that will enable them to develop longer-term financial sustainability. Nevertheless, for most of the organizations in the study, the financial independence and organizational autonomy gained from being less reliant on grants outweigh the additional limitations or responsibilities brought about by selffinancing. These advancements are the first steps toward building longerterm financial sustainability.

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Sharing the lessons learned from the study.

Chapter 7

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7.1 Key Findings This book has examined the self-financing activities of 45 CSOs working in various fields and distinct regions of the world. More than simply examining these activities, the book has analyzed how they have affected the institutions that are operating them in three different areas: social, financial, and organizational.

For the most part, the CSOs themselves view their self-financing activities very positively, although, some of these benefits are more perceived then real. As discussed earlier in the book, some CSOs seem to have inflated perceptions of the benefits produced by their selffinancing activities, especially in the areas of financial independence and organizational autonomy, and may not be accounting sufficiently for their costs—particularly in qualitative areas such as mission drift, organizational culture and operations, and stakeholder relations.

This may be partly because organizations want to portray their selffinancing activities positively to affirm their value both to their critics and to themselves. However, it appears that three more fundamental factors are at play: 1) the CSOs feel more financially independent and more autonomous in the pursuit of their missions because through self-financing they have, in fact, reduced their reliance on external donors (this was the case without exception in proportional terms, as a percentage of their overall income, and often in absolute terms as well); 2) the organizations are more aware of and therefore have greater control over their finances, as self-financing has compelled them to develop accounting systems that are more accurate and transparent; and 3) most of the organizations have not developed more sophisticated performance measurement systems that are capable of accounting for qualitative costs such as the investment of staff time, shifts in mission orientation, changes in internal culture or in relations with external stakeholders, and the various other “hidden” costs associated with self-financing. For these reasons, the CSOs tend to emphasize the comparative benefits of self-financing—many of which are undoubtedly real—without accounting for their true costs.

This is not to say that the positive impacts of self-financing were not real. In fact, the findings presented below on social, financial, and organizational impacts show that, despite some drawbacks and tradeoffs, the process of operating self-financing activities has been a positive experience for almost all of the CSOs. However, the findings

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from this study also clearly point to the need to develop better tools for measuring and managing performance that can allow CSOs to more accurately assess—and, in turn, respond to and improve upon—the various costs and benefits associated with self-financing.

7.1.1 Social impacts For the majority of the CSOs in the study, self-financing activities have strengthened mission impact, both directly and indirectly. CSOs operating social-purpose businesses, such as ESE Association, INFRABER, and KÁLLFÓ, have been able to create training and employment opportunities for marginalized groups. Some CSOs, such as FEPP, Fundación Cirena, and SENT, have developed mission-related activities in order to provide new products and services to their existing beneficiaries. Others, including Business Law Center, Casa de la Paz, and Chaloupky Center, have extended their mission-related products and services to new beneficiaries through self-financing.

Charging fees for services has enabled still another group of CSOs, including Children’s Foundation, PEP, and SONCEK, to continue offering mission programs when donor funding was insufficient or unavailable. Finally, in a less direct but equally significant way, selffinancing activities have generated net income that has allowed many CSOs, such as EkoCenter, Fundación Alternativa, and Hogar de Cristo, to fund their other mission programs or to cover administrative costs that are essential for organizational survival and development.

Yet despite the various mission benefits that CSO self-financing activities have produced, they have also precipitated significant challenges to the organizations’ abilities to fulfill their social objectives. For Green Line, operating self-financing activities has meant that it has less time to dedicate to its core mission programs. For Stoka Theater, staff inexperience in the self-financing area has created inefficiencies and debt that are not only a distraction to the organization’s pursuit of its mission, but also a threat to its very existence. The tension between core organizational values and the need to generate revenues has forced CODEMU to make some uncomfortable compromises. Furthermore, although these three organizations represent the extremes, most CSOs in the study, whether they identify this as a problem or not, have confronted at least one of these challenges to their organizational missions. For example, MCH’s focus on revenuegenerating activities has left it less time for organizational development; SNI’s inexperience in commercial art design has led it to focus risky business: The impacts of merging mission and market Copyright © NESsT 2003

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on less lucrative custom orders (rather than more profitable retail sales), requiring SNI to devote more time to fundraising for this mission-related enterprise; and Fundaempresa had to wrestle with its underlying values before deciding to offer training to workers who were being laid off.

Although several organizations have experienced some degree of mission drift as a result of their self-financing activities, these sacrifices have often been necessitated by external funding situations that are beyond their control. Rather than disintegrate as funding support was withdrawn, the organizations have regrouped by developing selffinancing strategies that are permitting them to adapt to the changing funding landscape and to continue pursuing their missions irrespective of external forces. While the challenges that arise from selffinancing do not simply disappear over time, CSOs learn to address them and balance the various demands on their time, expertise, and values in order not only to prevent the mission drift that might arise from their self-financing activities, but more often to advance their missions directly through these very self-financing activities. Thus, on the whole, whether entered into out of choice or necessity, selffinancing activities have enabled the vast majority of CSOs to improve their relations with beneficiaries and members and to strengthen their social missions and programs.

7.1.2 Financial impacts CSOs engaging in self-financing activities have achieved greater financial independence by diversifying their sources of income, generating new revenues, and, in some cases, building their investments and assets. For organizations such as Elim Písek, Fundación Ideal, and Fundamor, self-financing is an integral component of their missionrelated activities that enables them to pursue their social objectives without depending on external sources of funding. Some organizations, such as FES, Fundación Corona, and PROCOSI, are generating significant portions of their income from investment funds. Others, including CIED, Nephrocentrum, and Szeged Foundation, rent out their physical assets to generate revenues that can be used flexibly to meet institutional needs. Overall, approximately two-thirds of the organizations in the study are meeting their income goals, while almost half are generating net profits. These financial successes have had immediate effects on the CSOs’ abilities to carry out their mission programs and maintain operational stability and have had longer-term impacts on financial sustainability and overall organizational autonomy for many CSOs. risky business: The impacts of merging mission and market Copyright © NESsT 2003

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It is interesting to note that several CSOs report having greater financial independence even when their self-financing activities are not generating net income. This is a complicated issue, particularly in the area of mission-related activities, as there are no standardized accounting systems that enable organizations to assess the full range of costs and benefits of their self-financing activities. Some organizations, including MEXFAM and PDCS, started charging fees for mission programs after external funding was reduced or withdrawn. In many cases, these fees cover only part of the program costs and foundation or government grants cover the rest. In this sense, the programs are not “profitable,” since a portion of the costs is still being subsidized. On the other hand, organizations that fall into this category are generating income that they were not previously receiving, while also continuing to offer their mission programs. Thus, these organizations rightly feel that through self-financing they have gained greater financial independence, since they no longer rely so heavily upon external sources of funding to pursue their missions.

The evaluation for non-mission-related self-financing activities is simpler. These activities can be justified only if the financial profits they generate supersede the time and costs required to operate them. A few of the CSOs studied—CODEMU, SODEM, and Greater DC Cares (in the case of Cares@Law)—perceive themselves as having greater financial independence even though they are operating non–missionrelated self-financing activities that are not generating a profit. These organizations feel more in control of their situations generally and, specifically, have greater confidence in managing their finances.

However, it is necessary to differentiate between these important areas of institutional growth and actual financial independence.

Financial independence is brought about by generating new revenues that enable an organizations to fund its social mission more autonomously, irrespective of external conditions. According to this definition, approximately two-thirds of the organizations have increased their financial independence through self-financing.

7.1.3 Organizational impacts The social and financial impacts discussed in the sections above undoubtedly have far-reaching effects that reverberate at various organizational levels. In addition, most CSOs have experienced equally profound, though often less tangible, changes in their organizational culture, operations, and management. These changes establish new dynamics among staff, new patterns of work, and new risky business: The impacts of merging mission and market Copyright © NESsT 2003

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processes of management that, subtly and not, shift the ways in which organizations perceive themselves, project themselves, and, ultimately, how they pursue their social missions. For example, several CSOs, including Tyr Center, UMANOTERA, and WCA, have improved their internal planning both for their self-financing activities as well as for their mission programs and strategic operations. Some organizations, such as Geneva Centre and LSS, have experienced positive effects of self-financing in the form of greater internal staff cohesion. For others, such as CIEM and CISA, self-financing has produced more underlying changes by strengthening their self-image and building their confidence to meet challenges head on. The vast majority of organizations also report feeling more in control of their management, both overall and specifically in relation to their finances.

On the other hand, self-financing has also brought about some negative changes at the organizational level for many CSOs. For CASE, the same operational changes that have enabled financial profitability have also created internal rifts. Similarly, Acceso has experienced a drop in team morale, as many staff members have been frustrated with the organization’s decision to focus in the short-term on clients that are able to pay in order to meet the long-term goal of having the financial stability to work with clients that cannot afford to pay. Still, while these organizations are confronting difficult internal challenges, neither is shying away from addressing them; on the contrary, both have developed specific strategies to overcome them. This period of struggle and adaptation is common among organizations that initiate self-financing. Overall, the findings indicate that there is a learning curve for CSOs that adopt self-financing strategies and that often organizations must pass through difficult stages in order to develop the internal processes and mechanisms to balance their various social, financial, and organizational needs over the long term.

Sometimes this means taking a step backward in one area in order to move forward in another, but over time most organizations learn to strike a balance and begin to move forward on all fronts.

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7.2 The Opportunity Costs of Self-Financing Although some funding mechanisms may not always be available to CSOs, limited human and financial resources demand that CSOs choose the most viable and beneficial funding strategies available to them at any given time. Thus, in addition to analyzing the impacts of self-financing activities on CSOs at various institutional levels, it is critical to examine the relative merits and drawbacks of these strategies in comparison with other funding mechanisms (i.e., donations from individuals, foundations, corporations, governments, and multilateral institutions, as well as loans from banks). In short, are selffinancing activities worth the effort, both in absolute terms and relative to other funding mechanisms?

Given the diversity of self-financing experiences among CSOs in the study, the lack of a common performance measurement system, and the corresponding range of methods of accounting for and reporting their self-financing activities, it is difficult to come to any clear conclusions regarding the opportunity costs for these strategies. This task is further complicated because a similar heterogeneity applies to other funding mechanisms, such as grants from governments and foundations or donations from individuals and corporations. These obstacles aside, the evidence suggests that, at least in the short-term, self-financing often entails greater costs per dollar and more staff time for operations and management than do the other funding strategies. Thus, while fundraising can be very time-consuming, it usually demands no more time, requires less financial investment, and poses less financial risk than starting up and operating a new self-financing activity. Exceptions to this generalization occur in the case of certain self-financing activities, such as rental of a hard asset or licensing of a soft asset, that require little financial investment or management oversight, and in the case of fundraising strategies that necessitate full-time staff whose energy might otherwise be dedicated to revenue-generating activities. It is also important to consider selffinancing activities that were formerly mission programs, where the only change is the introduction of a fee. Such mission-related selffinancing activities may require less additional time and resource investment than raising the funds for the mission program externally and writing the corresponding donor reports.

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financing activity, while others continue to struggle with one or both areas several years later. The short-term benefits of fundraising can be just as unpredictable. It is not uncommon for CSOs to write grant applications to the same foundation for several consecutive years only to finally receive funding after the third year or perhaps never at all.

In some cases, the cumulative human and financial resources devoted to this fundraising activity could have been spent developing a self-financing activity that would generate more sustainable income.

In the longer term, the relative merits of self-financing activities tend to improve, while those of other funding mechanisms remain constant or decline. Generally speaking, self-financing places fewer limitations on expenditures than do other types of funding mechanisms.

In addition, it is often possible to sustain the revenues generated from self-financing for a longer period of time than those derived from other funding mechanisms. Furthermore, because most grant funds are tied to specific projects, do not usually cover administrative costs, are not guaranteed for the long term, and often steer groups to design projects geared to donor interests, they may entail levels of tension with organizational mission similar to those associated with self-financing activities. Figure 7.1 shows the general tendencies in the costs and benefits of these two strategies in relation to one another.

FIGURE 7-1: TENDENCIES OF COSTS OF SELF-FINANCING VS. FUNDRAISING While self-financing brings higher costs in some areas in the short-term…

SHORT-TERM

…several other costs are greater for fundraising over the long run…

LONG RUN

• Cost Per Dollar • Personnel Time • Management Requirements

• Restriction on Expenditures • Duration of Funds • Competition with other CSOs

Selffinancing Fundraising

Self-financing

Higher cost

Higher cost

Fundraising Selffinancing

…and tension with mission is about the same for both.

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While self-financing strategies generally have some advantages over other funding mechanisms in the long run, it is important to put these benefits in a larger context. In short, self-financing strategies usually complement other, more traditional forms of CSO funding.

Thus, of the 45 organizations in the study, only one, CASE, was 100% self-financed when the research was conducted. After working toward its goal of being fully self-financed for several years, CASE decided to begin accepting donor funding soon after. Because of the nature of its fee-for-service self-financing income, being 100% self-financed limited the organization’s freedom to pursue certain projects related to its mission. Ironically, only by accepting some donor funding could the organization take on these projects that are so integral to its mission. Therefore, while self-financing activities can have innumerable benefits at the social, financial, and organizational levels, CSOs must find the balance between self-financing and donor income that enables them to pursue their particular needs most effectively.

7.3 Building Organizational Sustainability Through a Healthy Balance When CSOs merge mission and market, there is an expectation that they will be forced to make difficult decisions that imply trade-offs between their core values and financial profits. Yet the findings from this study demonstrate that this is not necessarily the case. While selffinancing activities often precipitate a new set of challenges at multiple levels, CSOs work towards reaching equilibrium between the social, financial, and organizational impacts.

The eight organizational areas assessed by the study were strongly linked with one another, but there was no consistently negative or positive relationship between them. In some cases, the relationship between two areas was positive and mutually reinforcing, and in other cases the relationship was negative and encompassed trade-offs.

For example, for some of the organizations, financial performance had a negative impact on organizational culture, whereas for others it did not. In some cases, the organization made institutional changes and adapted its culture so that the relationship changed from a negative to a positive one during the implementation process. Figure 7.2 shows the dynamic relationship of these eight areas.

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al tion nizaure a g Or Cult – +

Org a Openizatio rati nal ons + –

+

–

+

– –

Org a Aut nizatio ono nal my

+

R Dive esour rsifi ce cati on

Sta k Relaeholde tion r s

l ncia e Fina rmanc fo Per

The eight areas assessed in the study were all linked, but did not consistently have a negative or positive affect on one another.

NON-FINANCIAL GOALS

sion Mis Values and

FIGURE 7-2: BALANCING THE MULTIPLE ASPECTS OF SELF-FINANCING

etAss ding l i u B

FINANCIAL GOALS

The study also shows that some of the common beliefs regarding CSO self-financing do not accurately characterize the dynamics that actually arise and that mould broader organizational sustainability.

• Social-change impact versus financial performance: The myth of mission drift. The perception among many CSOs and donors that selffinancing activities produce inherent and unique problems to organizational mission is oversimplified and misleading. The study demonstrates that while self-financing activities may produce tensions with organizational mission, these tensions are not inherent to self-financing, nor are others sources of funding exempt from them. More often than not, the challenges posed by self-financing activities precipitate changes in CSO operations that produce positive benefits at multiple organizational levels, including internal culture, financial management, and stakeholder relations. This points to the second key finding of the study.

• Self-financing performance versus institutional development: The unexpected benefits. The study found, unexpectedly, that self-financing is often the impetus for important changes in institutional development. Despite the widely held belief that self-financing can be detrimental to an organization’s internal culture, the research indicates that many CSOs have found creative ways to transform what risky business: The impacts of merging mission and market Copyright © NESsT 2003

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were originally tensions within staff, or between staff and clients, into more accountable and transparent relationships. On the whole, CSOs engaging in self-financing have become more responsive to client needs now that they are charging for their services and have developed financial systems that allow them to better account for their income and expenses. Similarly, they have generally improved their relationships with other external stakeholders, such as members, peer CSOs, and even donors. Thus, in responding to the challenges that emerge from self-financing, CSOs tend to examine and often modify both their internal operations and their external relationships. In doing so, they integrate new modes of operation that strengthen their systems, clarify their mission and financial goals, and enable them to take greater control of their institutional development. • Self-financing performance versus asset-building and long-term financial sustainability: The other side of the coin. In contrast to the positive findings presented above, the study also revealed a common fallacy regarding the assumed benefits of CSO self-financing activities: that, when profitable, they necessarily lead to greater organizational sustainability. Self-financing has enabled CSOs to maintain existing programs when external funding has been withdrawn and to create new programs for which funding is not available. In this sense, these CSOs generally rely less on external sources of funding to carry out their missions than they did prior to initiating selffinancing activities. Yet most of the CSOs have focused their efforts on fees for services and product sales, activities whose revenues often fluctuate from year to year, while few have built steadier, long-term investments and assets. Thus, while the majority of the CSOs in the study have creatively used self-financing activities to achieve positive results in many important areas, few have effectively developed long-term financial sustainability. Translating strong self-financing performance into long-term financial sustainability requires greater investment in permanent assets that can generate a steady flow of untied income for the organization and protect it against unforeseen crises. Yet most CSOs lack the tools necessary to develop these longer-term instruments that form the foundations for organizational sustainability.

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7.4 Managing Self-Financing to Ensure Organizational Sustainability The findings of the study strongly suggest that CSOs themselves can do a lot to improve their chances of self-financing success while integrating self-financing as a strategy to build organizational sustainability. More fundamental to the success of self-financing activities than whether or not they are mission-related are the ways in which CSOs plan, launch, and manage their self-financing activities and the degree to which they take advantage of their existing human and physical resources. Good planning, access to sufficient start-up capital, expertise in operating and managing the activity, and a stable and enabling regulatory environment all contribute to minimizing risk and improving the possibilities for self-financing success.

Still, entering into self-financing deliberately and with some technical expertise does not guarantee a positive outcome. The actual operation and management of the self-financing “Managing the impacts of selfactivity are as important as proper preparation. financing can lead us to organizational In this area, CSOs must have clear benchmarks sustainability.” for measuring and managing their social-enterprise performance and contingency plans for responding when they do not meet their objectives.

Figure 7.3 introduces a framework for assessing the relationship between the performance of the self-financing activity and the eight areas that were analyzed in the study. These areas are grouped in the figure under three key impact areas—social change, institutional development, and financial sustainability—and self-financing performance is the driver for these three interrelated areas. Even when organizations are not developing their self-financing ventures under the best of circumstances, self-financing can lead to higher social impact, greater institutional development, and more financial sustainability. Ideally, with the right capacity-building and financial support and with the guidance of a clearly articulated performance management system, all three areas should move toward organizational sustainability. risky business: The impacts of merging mission and market Copyright © NESsT 2003

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ORGANIZATIONAL SUSTAINABILITY

Institutional Development • Operations • Culture • Stakeholder relations

Financial Sustainability

Self-financing or social enterprise performance

• Resource diversification • Asset-building • Organizational autonomy

Social Change • Mission and values

ORGANIZATIONAL SUSTAINABILITY

As stated in Chapter One, performance measurement systems must tie self-financing or social enterprise development to the overall development of the parent organization. CSOs need to manage their enterprises in relation to internal and external realities. The emphasis of the framework shown in Figure 7.3, however, is on managing, rather than measuring, the performance of the self-financing activity.

The framework allows a CSO to shape and maximize the impact of the self-financing enterprise—the driver—on the three areas that are key to the organization’s sustainability and, ultimately, its ability to advance social change.

In planning their self-financing activities, CSOs should identify their goals for self-financing performance as well as goals in each of these three key areas and should establish indicators for measuring whether they are meeting them. They should also identify specific strategies for mitigating possible risks and building on positive outcomes. This process both forces CSOs to consider the possible effects of their self-financing activities prior to launching them and enables them to measure effects once the activities are operating. Regular monitoring not only of the financial performance of self-financing risky business: The impacts of merging mission and market Copyright © NESsT 2003

ORGANIZATIONAL SUSTAINABILITY

FIGURE 7-3: SOCIAL ENTERPRISE PERFORMANCE MANAGEMENT FRAMEWORK

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activities but also of the impact of these activities at various institutional levels will enable CSOs to manage them more effectively. The monitoring system should be simple and not overburdened with too many indicators. The basic premise is that well-identified indicators will enable organizations to manage problem areas more easily and measure progress on an ongoing basis. The indicators identified should vary from organization to organization.

In addition to increasing the likelihood of organizational sustainability, performance management promotes greater transparency and accountability within the sector, as beneficiaries, donors, and the CSOs themselves are better able to evaluate the self-financing activities. Taken together, a favorable regulatory environment, support mechanisms that include both technical expertise and access to capital, and a system for measuring and monitoring the impacts of selffinancing activities would enable CSOs to plan, develop, and manage these activities to maximize the benefits not only to themselves and their beneficiaries, but to the broader society as well.

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Appendix I: CSO Case Summaries

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Case 1:

Acceso

MAIN ACTIVITIES

LOCATION San Jose, Costa Rica

FIELDS Community Development Culture 3 Education/Training Environment Health Social Services Other

Acceso coordinates three major program activities. The Planning, Monitoring, and Evaluation Program applies close collaboration with staff and several outside consultants to offer capacity-building practice and technical assistance in the development of strategic plans. The Governance Program fosters dialogue about the role of Boards of Directors and other governing entities in civil society organizations, and the program strengthens their capacities. The Strategic Communication Program improves the use of new forms of information and communication technology, especially the Internet,

by CSOs. The use of the Internet offers CSOs alternatives to work collaboratively with other organizations as well as mechanisms to remain up-to-date on their action agenda and to disseminate the results of their work. Acceso has elaborated methods of work that reflect the needs of CSOs in Central America.

MISSION Acceso was founded in 1992 to improve the effectiveness of civil society organizations that work for equitable, participatory, and sustainable development primarily in Central America.

This is achieved through services that strengthen organizational leadership, management, policy advocacy, and their ability to adapt to their changing environment.

FINANCIAL INFORMATION INCOME: In 1998, Acceso’s 1998 operating budget was CRC 58.5 mil-

lion (USD 216,000), of which 63% was generated through its selffinancing activities. This percentage is expected to shift somewhat in 1999, with self-financing generating 50% and donations making up the other 50%.

SOURCES OF INCOME (% of total) International Sources - foreign/international grants Self-Financing - fees for services - dividends from investments In-kind donations

TOTAL

1999*

1998

1997

45

32

33

45 5

59 4

38 8

5

5

21

100%

100%

100%

* Projected

EXPENSES: Acceso spent 20% of its 1998 expenditure on administrative costs and 3% on financial costs. The remaining 77% was allocated to programs and activities. These same percentages were projected for 1999.

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SELF-FINANCING METHODS USED

SELF-FINANCING ACTIVITIES In the early 1990s, as international donor funds to Central America decreased, Acceso began to look for ways to sell services that would be compatible with its mission. These services currently generate important organizational and programmatic income for the organization.

METHODS OF SELF-FINANCING

Fees for Services

Acceso charges fees for services offered by its three programs. The institution always charged fees 7%Monitoring, and Evaluation (PME) 60.6% for its Planning, Program. In 1997, with the support of the Ford Foundation, the organization consolidated its existing services of the Program on Strategic Communication (SCP), created others, and began to charge fees for these services. In the case of the SCP, the organization with 9% formed a strategic alliance 63% Internexo, an organization specializing in the creation of web pages, in order to offer this service to its client population. Acceso works with the client on content and organization of the page, and Internexo takes over in design and programming. The two organizations also 13.1% share office space and other resources, 67% which has allowed Acceso to reduce operational costs considerably. Acceso is also working with two international volunteers on mechanisms to better market its services.

Currently Acceso uses the majority of its donations to create new services and then sells them. However, 14.5% 76% Acceso understands that many CSOs do not have the funds to pay for the types of development services the organization offers. Therefore, Acceso is working to develop an “assistance fund” that would provide funds to subsidize those clients that are not able to pay.

Investment The organization earns interest income on funds 15% 79.3% Dividends from donors while they are not being used. The earnings are reinvested and yields are used to cover operational expenses.

27%

86%

28%

88%

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3 Fees for Services

Membership fees

Product Sales Use of Hard Assets Use of Soft Assets 3 Investment Dividends

ANNUAL OPERATING BUDGET (1998) USD 216,000

100%

PERCENT OF SELF-FINANCING (1998)

= 63%

52%

FOR MORE INFORMATION Fundación Acceso 83% Apartado Postal 288-2050 San José, COSTA RICA Tel: +(506) 224-6076 Fax: +(506) 283-2748 Email: info@acceso.or.cr Website: http://www.acceso.or.cr

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Case 2: LOCATION

Business Law Center

MAIN ACTIVITIES

Tbilisi, Georgia

FIELDS Community Development Culture 3 Education/Training Environment Health Social Services Other

MISSION The Business Law Center, founded in 1996 by Georgia’s International Center for Economic Reforms and Development, aims to create the legal basis for the development of freemarket relations.

The Business Law Center works to improve business and nonprofit legislation and has created and maintains a legal information system, including a business law library and a computer database. The center consults with businesses and NGOs on legislative matters; publishes and disseminates bulletins, brochures, books, and scientific papers dedicated to business law; and arranges conferences, seminars, and symposia on legislative issues. Some of the center’s most notable projects include its ongoing Training Program on the Theory of Economics, Law and Basis of Management for Leaders of Local Self-Governing Authorities; Georgia’s Law on Grants; Georgia’s Law on Products and Money Taxation; and training in economics for journalists. Currently, the organization coordinates two long-term projects: the Law Information System and the perfection of Business and Nonprofit Laws. The NGO also cooperates closely with the Parliamentary Committee on Economic Policy and Reforms, and the Center’s experts participate in parliamentary discussions on draft laws.

FINANCIAL INFORMATION INCOME: In 1998, the annual budget of the Center was lidri 37,500

(USD 28,000). Of this income, 85% came from foreign grants, and the remaining 15% came from self-financing activities.

SOURCES OF INCOME (% of total)

1998

1997

International Sources - foreign/international grants

85

85

Self-Financing - fees for service(s) - product sales

14 1

15

TOTAL

100%

100%

EXPENSES: In 1997 and 1998, the organization spent 65% of its income on programs and activities and 35% on administrative and core costs. The Business Center maintains a full-time staff of five and rents office space.

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7%

60.6% 173

9% SELF-FINANCING ACTIVITIES The Business Law Center has initiated several self-financing activities to cover operational costs and to subsidize its work with NGOs. METHODS OF SELF-FINANCING

Fees for Services

Product Sales

63% SELF-FINANCING METHODS USED

13.1%

The main source of self-financing income is from fees for services. The Business Law Center provides consulting services to business people on legal issues (i.e. taxation and legislation). The fees charged for this program are used to offset office expenses that cannot be included in project proposals to donors. The fees 14.5% also enable the center to provide free consultations to NGOs, which is part of the organization’s mission.

The center’s other source of self financing income comes from the sale of its publication “Investor’s Guide to Georgian Business Law.” The production of 15% the book was funded through a donor grant, so all revenues can be used to cover operational expenses.

3 Fees for Services 3 Product Sales

Membership fees

Use of Hard Assets67% Use of Soft Assets Investment Dividends

ANNUAL OPERATING BUDGET (1998) USD 28,000

76%

PERCENT OF SELF-FINANCING (1998)

= 15%

79.3%

FOR MORE INFORMATION

27%

28%

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Business Law Center #2 Square of 26th of 86% May IV Floor, room 419 Tbilisi, GEORGIA Tel: +(995-32) 941-605 Email: blc@access.sanet.ge

88%

33%

89%

40%

90%

41.5%

98%

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Case 3:

Casa de la Paz

MAIN ACTIVITIES

LOCATION Santiago, Chile

FIELDS Community Development Culture Education/Training 3 Environment Health Social Services Other

MISSION Casa de la Paz was founded in 1988 to build the capacity of individuals and organizations to improve the quality of life through the care of the environment and the promotion of democracy.

Casa de la Paz promotes its activities in education, citizen participation, and conflict resolution through a series of workshops and publications that it offers to teachers, NGOs, government officials, private sector representatives, and community-based organizations.

Since 1995, it has published a monthly bulletin called MOSAICO, which covers key environmental issues (2,000 distribution), and an informational report called Acuerdos, which addresses environmental conflict resolution (1,500 distribution). The organization also coordinates debates, consultations, and projects on these issues. Casa de la Paz is the coordinator and acts as the Secretariat for Acción por el Medio Ambiente, a network of more than 60 environmental NGOs that exchange information and organize to protect the environment.

FINANCIAL INFORMATION INCOME: In 1998, the organization’s budget was CLP 206.592.875 (USD 437,000), of which 29% was generated through self financing strategies. In 1999, this percentage was projected to remain relatively the same, although fees for services were expected to come mostly from government contracts and less from NGO workshops.

SOURCES OF INCOME (% of total)

1998

1997

33

38

41

Public Sources - government grants

23

18

22

Private Sources - corporate grants

14

15

13

Self-Financing - fees for service(s) - product sales - dividends from investments

19 8 3

17 8 4

4 16 4

100%

100%

100%

International Sources - foreign/international grants

TOTAL

1999*

* Projected

EXPENSES: The organization spent 75% of its 1998 budget on programs and other activities. The remaining 25% was spent on core expenses, including administrative and fundraising expenses. These amounts were practically the same in 1997 but were projected to shift somewhat in 1999, with 68% going toward programs and activities and 32% to be spent on core expenses. Casa de la Paz maintains a core staff of seven and assembles teams of consultants for each of the ten-twelve projects it manages at any one time.

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13.1%

67% 175

14.5% SELF-FINANCING ACTIVITIES As international donor funding began to decrease in Chile in the early 1990s, Casa de la Paz made a transition to self-financing and began to sell its products and services. Although the organization still receives 60 to 70% of its income in the form of grants, 15%the “grants” are actually organized as fee for services contracts with specific product and service delivery requirements.

76% SELF-FINANCING METHODS USED

3 Fees for Services 3 Product Sales

Membership fees

Use of Hard Assets79.3% Use of Soft Assets 3 Investment Dividends

METHODS OF SELF-FINANCING

Fees for Services

Product Sales

Casa de la Paz sells environmental workshops and seminars to public and private entities. Some27% of the workshops are for specific client contracts while others are designed by the organization and offered to various audiences. The organization charges an overhead rate of 0-20%, depending on the client, to help offset its operational costs of USD 10,000 per month.

As part of its mission, Casa de la Paz produces and 28% sells publications on environmental education issues.

The organization produces these publications with grant revenues for specific projects and then sells them through its own for-profit publishing company, Puerta Abierta (Open Door). Most of the revenues come back to the company but are used by Casa de la 33% Paz as start-up costs for other publications.

Investment The founder of Casa de la Paz established Puerta Dividends Abierta Publishing after she left a successful public relations business. Puerta Abierta published books sold to large, mostly public institutions as institutional gifts, and the profits from the sale of the books were 40% used to establish an investment fund. Casa de la Paz now uses the interest generated by the fund to cover operational expenses. The fund itself is worth about USD 60,000 and is strictly an emergency fund to be used 41.5% in case of cash flow problems or, as stated by the founder, “to have a very decent funeral should we ever go out of business.”

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ANNUAL OPERATING BUDGET (1998) USD 437,000

86%

PERCENT OF SELF-FINANCING (1998)

= 29%

88%

FOR MORE INFORMATION Casa de la Paz Antonia López de Bello 89% 80, Recoleta, Santiago CHILE Tel: (56-2) 737-4280 Fax: (56-2) 777-5065 Email: casapaz@netup.cl Website: http://www. 90% casapaz.cl

98%

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Case 4:

CASE

MAIN ACTIVITIES

LOCATION Braamfontein, South Africa

FIELDS

3 Education/Training Culture

Environment Health Social Services Community Development 3 Research

MISSION The Community Agency for Social Enquiry (CASE) was created in 1985 to provide the antiappartheid movement with high-level policy research and analysis, especially statistical analysis. Start-up funds were provided

by Dutch, Swiss, and other donors.

The Community Agency for Social Enquiry (CASE) originally provided two distinct services: policy research and computer training. Over time, a large number of competitors entered the computer training market, so in 1993 CASE decided to concentrate solely on policy research. CASE now carries out primarily large-scale research projects that focus on poverty, justice and racial issues. Research priorities are determined by clients, who include NGOs, community-based organizations, international agencies, government, and businesses.

However, CASE’s work over the past ten years has fallen into the following main areas: civil society and the state, development/poverty alleviation, education, environment, gender, health/disability, human rights, labor and the economy, media, and youth.

FINANCIAL INFORMATION INCOME: CASE’s budget for 1999 was 8.7 million ZAR (USD 1.4 million). In 1997, CASE reached its stated goal of generating 100% of its income from self-financing activities. This fell a significant shift from just four years earlier, when the organization was 50% self-financed, and even two years earlier, when it was 85% self-financed. Although CASE plans to continue generating a majority of its revenues from fees for services contracts, it has consciously decided to reduce the proportion of its self-financing in order to accept grants that fund projects working with marginalized populations.

SOURCES OF INCOME (% of total) International Sources - international grants Self-Financing - fees for service(s) - dividends from investments

TOTAL

1997

1996

1995

–

12

45

95 5

84 4

50 5

100%

100%

100%

EXPENSES: CASE spends approximately 65% of its income on programs and activities and 35% on administrative/office expenses. The organization has made considerable investments in new staff offices and infrastructure in recent years. CASE has also had to increase salaries to retain qualified staff who might otherwise have left for jobs in the government or private sector. All of this has entailed significant expense; however, these investments are expected to help the organization bring in additional business in the future.

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SELF-FINANCING METHODS USED

SELF-FINANCING ACTIVITIES By 1990, CASE’s donors informed the organization that donations for research activities in South Africa would decline because of changes in South Africa and in Eastern Europe. The organization nevertheless continued to enjoy support from donors, but gradually adopted a strategy of self-financing to make the organization more self-reliant.

CASE developed a definition of financial sustainability that had two phases: 1) setting and reaching a goal of being 100% self-funded, and; 2) building a reserve fund to help cover future expenses and as a hedge against inflation.

3 Fees for Services

Membership fees

Product Sales Use of Hard Assets Use of Soft Assets 3 Investment Dividends

ANNUAL OPERATING BUDGET (1999) USD 1.414.000 million

METHODS OF SELF-FINANCING

Fees for Services

7%

9%

13.1%

Investment 14.5% dividends

C A S E had always charged fees for its research services and used donor funds to cover core operational costs.

When the organization decided to move toward full self-financing, it60.6% established its own fieldwork unit to 100% generate and “keep” profits in-house rather than hiring large commercial companies. This required doubling and then tripling the staff to be able to meet client demand. However, even with the increased expenditure, the income generated continued to exceed the organization’s expenses by a sufficient 63% 52% margin to avoid going into debt.

CASE has built up a varied client base that includes government agencies, international organizations, NGOs and donors. The organization actively seeks out about two-thirds of its contracts, while the remaining third solicit its services.

67% 83% Once CASE became fully self-financed, the organization began searching for donor funds that would enable it to pursue research that was not client driven but that instead responded to the organization’s mission of assisting the progressive movement.

Since 1991 the 76% organization has built up a reserve fund by keeping expenses lower than earnings. These revenues have been reinvested and in 1997 the returns provided 5% of the organization’s income.

15%

79.3%

27%

86%

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PERCENT OF SELF-FINANCING (1998)

= 100%

FOR MORE INFORMATION CASE P. O. Box 32882 Johannes burge SOUTH AFRICA Tel: (27 011) 646 5922 Fax: (27 011) 646 5919 Email: director@case. wn.apc.org Website: http://www. case.org.za

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Case 5:

Chaloupky Center

MAIN ACTIVITIES

LOCATION Knezice, Czech Republic

FIELDS Community Development Culture 3 Education/Training 3 Environment Health Social Services Other

The Chaloupky Enviromental Education Center fulfills its mission through field programs for children and youth; publishing activities; and training and educational courses for educators, parents, and of NGOs. The staff has more than twenty years of practical experience in eco-education. The curriculum focuses on “hands on learning” (i.e., measurements, observation, and monitoring). Students come from all over the country for programs as a part of their official school curriculum.

In 1994, the association bought land and an old estate called “Chaloupky” (from which the name of the center is derived) in the woods outside the village of Knezice. The organization hopes to develop the property into an environmental education center where it can continue to expand its activities.

FINANCIAL INFORMATION INCOME: In 1998, the annual operating budget of Chaloupky was

MISSION The Chaloupky Environmental Education Center was established in 1973 to provide educational opportunities to increase understanding of the natural world and to strengthen people’s consideration of and responsibility toward the natural environment and one another.

approximately CZK 2.2 million (approximately USD 73,000). More than three-quarters of the center’s income was derived from its selffinancing activities.

SOURCES OF INCOME (% of total)

1998

1997

1996

–

–

24

15

38

24

– 9

– 2

– 19

9 59 5 3

7 46 4 1

2 28 2 –

Other

–

2

1

TOTAL

100%

100%

100%

International Sources - international grants Public Sources - government grants Private Sources - individual donations - foundation grants Self-Financing - membership dues - fees for service(s) - product sales - dividends from investments

EXPENSES: The largest portion of the center’s expenses (60%) is for maintaining its projects, followed by administration and office expenses (10%); fundraising (5%); and maintenance of the center building (25%).

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7%

60.6% SELF-FINANCING METHODS USED

SELF-FINANCING ACTIVITIES Chaloupky is attempting to reduce dependence on state and foundation grants. In a strategic plan created in 1996, the center aimed to increase self-financing that it 9% income to 70% annually, a goal 63% achieved in 1998 METHODS OF SELF-FINANCING

Member Dues

Fees for Services

Product Sales

The center has fewer than twenty members who pay a symbolic membership fee. “Contributing members” contribute between CK 100 and 1000 (USD 3-30). In 13.1% 67% return for their contribution, members receive a news bulletin and the annual report of the center.

The main source of self-financing income comes from fees for the center’s educational and practical field studies programs for children and primary and secondary school teachers. The center offers: 1) one-day programs “in the field” linked to school teaching; 2) 14.5% 76% multiple-day residential stay programs for teachers and students; 3) nursery school-level nature and folk tales programs; 4) expert seminars for teachers through the continued education program of the Ministry of Education; and 5) week-long teacher stays during the school holidays consisting of lectures, a practical pro15% 79.3% gram, and excursions with an expert guide.

Chaloupky sells classroom manuals and other publications for teachers. Manuals focus on ecological education and environmental awareness. Two to three new titles are published annually.

Investment The center works to maximize the return on its liquid Dividends assets by27% taking advantage of rates for short,86% fixedterm deposit accounts.

28%

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100%

Chaloupky is renovating an old estate into an environmental education center where it will be able to continue to expand its activities

88%

89%

3 Membership Dues 3 Fees for Services 3 Product Sales

52%

Use of Hard Assets Use of Soft Assets 3 Investment Dividends

ANNUAL OPERATING BUDGET (1998)

83%

USD 73,000

PERCENT OF SELF-FINANCING (1998)

= 76%

FOR MORE INFORMATION Chaloupky Center Kneznice 109 Okrisky 675 21 CZECH REPUBLIC Tel: +(420) 618-870-434 Fax: +(420) 618-870-359 Email: chaloupky@ecn.cz Sitio Web: http://www.chaloupky.cz

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Case 6: LOCATION

Children’s Foundation MAIN ACTIVITIES

Plzen, Czech Republic

FIELDS Community Development 3 Culture 3 Education Environment 3 Health Social Services Other

The Children’s Foundation was established in 1992 by the owner of a local travel agency to offer affordable, therapeutic “climatic” holidays for children with allergies and respiratory disorders (and their parents)to locations more beneficial for their health (e.g., in Slovakia, Croatia, and Spain). The foundation also organizes cultural exchanges between theaters in the Czech Republic and Austria, and it supports the School of Performing Arts in Plzen for children aged six to ten. The foundation supports the school’s publicity costs and numerous musical events. The foundation also periodically helps raise funds for emergency situations (e.g., for flood victims in Moravia).

MISSION The mission of the Children’s Foundation is to help adults and children suffering from allergic and respiratory disorders to participate in activities of everyday life, to improve their health and to decrease the recurrence of these illnesses. The foundation also supports regional cultural cooperation among neighboring countries, promoting musical arts and educational opportunities among young people.

FINANCIAL INFORMATION INCOME: In 1998, the annual operating budget of the Children’s

Foundation was CKZ 3.5 million (USD 116,000). 16.5% of the foundation’s income in 1998 was derived from its self-financing activities.

SOURCES OF INCOME (% of total) International Sources - international grants

1998

1997

1996

20

17

14

Public Sources - government grants

2

–

–

Private Sources - individual donations - corporate grants

14 47

16 50

23 48

Self-Financing - Fees for services

TOTAL

17

17

100%

100%

15

100%

EXPENSES: The largest portion of the foundation’s expenses (75%)

are for its program activities; other expenses were administration and office expenses (20%) and fundraising (5%).

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7%

60.6%

CSO Case Summaries risky business

181

9% SELF-FINANCING METHODS USED

SELF-FINANCING ACTIVITIES The Children’s Foundation began its self-financing efforts for two reasons: 1) to reduce its dependency on unstable and insufficient donations; and 2) to make the prices of holidays for its young ben13.1% eficiaries more affordable. Originally, the foundation arranged the transportation of its therapeutic holidays through commercial transport companies. However, high prices were too expensive for foundation beneficiaries. In response, in 1996 the foundation purchased a “Karosa” coach. By operating the bus transportation services itself, the foundation was able to reduce prices for its therapeutic holidays by up to CZK 15,000 (USD 498) per person per hol14.5% iday.

METHODS OF SELF-FINANCING

Fees for Services

Use of Hard Assets

The Children’s Foundation charges fees for the therapeutic holidays it organizes for children with respiratory diseases (and their families). The group is able to offer some of the trips at a reduced price 15% thanks to donor support from the Sasakawa Asthma Fund.

The Children’s Foundation’s therapeutic holidays are not profitable themselves. However, when the bus owned by the foundation is not needed for foundation programs, the group rents it out for commercial use to travel agencies and to other organizations (e.g., med27% ical rehabilitation centers and children’s homes). The foundation limits the amount of commercial use of the coach so as not to interfere with its own programs.

28%

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63%

3 Fees for Services

Membership Dues

3 Use of Hard Assets Product Sales

67%

Use of Soft Assets Investment Dividends

ANNUAL OPERATING BUDGET (1998) USD 116,000

76%

PERCENT OF SELF-FINANCING (1998)

= 17%

79.3% FOR MORE INFORMATION Children’s Foundation Denisovo naboeni 4 Plzen 301 00 CZECH REPUBLIC Telephone: +(420) 19-221-365 Fax: +(420) 19-221-365 Email: sochor@hotmail.com

86%

88%

33%

89%

40%

90%

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Case 7: LOCATION

CIED

MAIN ACTIVITIES

Lima, Peru

3 Community

FIELDS

Development Culture Education/Training 3 Environment Health Social Services Other

MISSION The Centro de Investigación, Educación y Desarrollo (CIED) was established in 1973 as a national membership organization dedicated to achieving food security and sustainable rural development in Peru based on agroecological experiences and management of river basin areas.

The Centro de Investigación, Educación y Desarrollo’s (CIED) 51 full-time and 48 part-time employees coordinate three program areas: • promotion of alternative agro-ecological production, credit, and leadership formation in four river basins in Peru; • consensus-building among rural organizations, NGOs, economic agents and local governments in order to develop and implement local rural development plans that are sustainable; and • evaluation of experiences in rural and local development in order to advance policies and programs at the regional and national levels.

FINANCIAL INFORMATION INCOME: CIED’s 1998 operating budget was PEN 2.7 million (USD

856,000), of which 15% came from self-financing activities. The proportion from self-financing was similar for 1997 and 1996.

SOURCES OF INCOME (% of total) International Sources - foreign/international grants

1998

1997

1996

83

83

79

Public Sources - government grants

1

2

1

Private Sources - individual donations

1

0

1

Self-Financing - fees for service(s) - product sales - use of hard assets - use of soft assets - dividends from investments

1 5 1 3 5

2 7 0 3 3

1 6 0 3 8

IIn n-k kiin nd d D Do on na at tiio on ns s

–

–

1

100%

100%

100%

TOTAL

EXPENSES: In 1998, CIED spent 10% of its budget on administrative costs, 18% on fundraising and the remaining 72% on programs and activities. The proportions for 1997 and 1996 were somewhat different with 43% and 41%, respectively, spent on administration and fundraising and 57 and 59%, respectively, on programs and activities.

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7%

60.6% 183

9% SELF-FINANCING ACTIVITIES CIED generates income through a diverse range of self-financing operations.

METHODS OF SELF-FINANCING

Fees for Services

13.1%

CIED charges fees for its consulting and capacitybuilding services including: technology assistance; credit management; packing services; thermotherapy services; photocopying services; specialized databases; and project management for other organizations (“terceros”).

14.5%

Product Sales

Since 1990, CIED has sold products to its members and others including seeds, seedlings, agricultural products, and reproductive animals. The organization also produces publications on mission-related topics and sells them throughout the country.

Use of Hard Assets

Since 1995, the organization has rented its small trucks and office spaces to NGOs and other small institutions.

Use of Soft Assets

Since 1997, CIED has made its technological and management experience available for studies and local development planning and has participated 27%in national and international consultancies, both by itself and in partnership with specialized firms.

15%

Investment CIED earns investment and interest income in two Dividends forms: • CIED has accumulated income from deposits of grant money and uses interest from these funds; 28% • The organization manages a credit fund and earns interest from loans to other organizations.

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63% SELF-FINANCING METHODS USED

3 Fees for Services 3 Product Sales 3 Use of Hard Assets67% 3 Use of Soft Assets 3 Investment Membership fees

Dividends

ANNUAL OPERATING BUDGET (1998) USD 856,000

76%

PERCENT OF SELF-FINANCING (1998)

= 15%

79.3%

FOR MORE INFORMATION CIED Av. Buen Retiro No. 23186% Urb. Monterrico Chico, Surco Lima, PERU Tel: +(51-1) 342-019 Fax: +(51-1) 378-327 Email: juan@cied.org.pe 88% Website: http://www.cied.org.pe

33%

89%

40%

90%

41.5%

98%

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Case 8:

CIEM

MAIN ACTIVITIES

LOCATION

Corporaci贸n Centro de Iniciativa Empresarial (CIEM) Aconcagua works in several areas. Its office in downtown San Felipe provides capacity building and technical assistance to entrepreneurs in production and supports the management and marketing of products.

It also promotes environmental education activities for entrepreneurs, schools, and the surrounding community in the Aconcagua Valley.

San Felipe, Chile

3 Community

FIELDS

3 Culture 3 Education/Training 3 Environment Development

Health Social Services Other

MISSION CIEM Aconcagua is a community development organization that supports of micro-enterprise, the preservation and promotion of local culture and the arts in general, and the capacity building of young people and artisans in the arts and traditional trades.

CIEM also operates the Center for the Arts and Trades, where the organization runs a series of capacity-building workshops and courses in traditional trades such as iron-working, woodworking and jewelry-making particularly for unemployed and troubled youth. In addition, the organization coordinates events and courses at the center and throughout the community to promote appreciation for local culture and art in general, including painting, cinema, theater, pottery, and sculpture. Finally, the organization offers the center as a tourist attraction for visitors to learn about the region and its attributes and to purchase products made by local artisans.

FINANCIAL INFORMATION INCOME: In 1998 CIEM Aconcagua had a total budget of CLP 110.507.000 (USD 234,000), of which 27% came from self-financing activities.

SOURCES OF INCOME (% of total)

1998

1997

1996

International Sources - foreign/international grants

32

42

61

Public Sources - government grants

41

6

16

Self-Financing - fees for service(s) - product sales - rental of space and equipment - dividends from investments

16 8 1 2

40 6 1 3

21

2

2

100%

100%

100%

Other

TOTAL

-

EXPENSES: In 1998, the organization spent 85%of its income on pro-

grams and activities, 9% on administrative costs, and 6% on institutional development. Spending breakdowns for 1997 were similar. In 1996, the organization spent over 25% on administration and institutional development and 74.4% on programs and activities.

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CSO Case Summaries risky business

9%

63% 185

13.1% SELF-FINANCING ACTIVITIES CIEM has discovered that those self-financing activities that more adequately support the organization’s mission and skills are the most financially sustainable as well.

METHODS OF SELF-FINANCING

67% SELF-FINANCING METHODS USED

14.5%

3 Fees for Services 3 Product Sales 3 Use of Hard Assets76% Membership fees

3 Investment

Use of Soft Assets

Fees for Services

Product Sales

From its downtown office, CIEM charges fees for its environmental education workshops to firms and other institutions and for consulting services provided to medium-size firms in the region. At the arts center, the organization charges fees for some of the capacity 15% building workshops in the trades, as well as entrance fees for events and its small cinema.

CIEM operates a Center for the Arts and Trades, which is used both for capacity building and to promote and develop art for tourists and the local community. The center houses a small shop where CIEM 27% sells products from local artisans and a small café where it sells coffee and homemade snacks. At its art gallery, CIEM earns a percentage from the sale of paintings. In addition, in the past few years, the organization has begun to emphasize the sale of products made at their capacity building workshops for arti28% sans. These are primarily high-end wood furniture and iron products that are commissioned by outside clients. Although demand for these products is high, CIEM is not able to recover the time and costs associated with their production and is beginning to deemphasize and redesign this activity.

33%

Use of Hard Assets

Dividends

ANNUAL OPERATING BUDGET (1998) USD 234,000

79.3%

PERCENT OF SELF-FINANCING (1998)

= 27%

86% FOR MORE INFORMATION CIEM Aconcagua Prat 171 San Felipe, CHILE Tel: +(56-34) 516-733 Fax: +(56-34) 516-733 Email: ciem@interaccess.cl

88%

89%

CIEM rents the well-equipped art center facility for local events such as seminars and courses, as well as for private events held by other organizations and firms.

Investment CIEM invests the money it receives Dividends as grants and earns interest on these investments to help the organization pay for its operational expenses.

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40%

90%

41.5%

98%

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Case 9: CISA LOCATION

MAIN ACTIVITIES

Arequipa, Peru

3 Community

FIELDS

Development Culture 3 Education/Training Environment Health Social Services Other

MISSION CISA, established in 1989, contributes to sustainable development of the Andean camelids (producers of alpacas, llamas and vicunas). The goal is to develop a competitive and efficient local economy for this sector by promoting and supporting the rational use of resources.

The Coordinadora Inter-institucional del Sector Camélidos Andinos (CISA) develops and implements tools to make the members more efficient in their work. The products include information systems, computer software, and publications. The group also builds capacity by coordinating and evaluating, and by disseminating information among the organization’s members.

CISA employs one part-time and three full-time employees.

FINANCIAL INFORMATION INCOME: CISA 1998 operating budget was PEN 442.283 (USD 140,000), of which 27% was generated from self-financing activities.

In the two preceding years, the group relied much more heavily on international grants and its budget was much larger.

SOURCES OF INCOME (% of total)

1998

1997

1996

International Sources - foreign/international grants

73

93

98

Self-Financing

27

7

2

100%

100%

100%

TOTAL

EXPENSES: In 1998, CISA spent 75% of its resources on administrative costs and 25% on program activities. This allocation was a significant shift from previous years that was caused by a drop in available resources and the resulting cutbacks in programs. (In 1997, for example, administrative expenses accounted for only 15% of the organization’s total expenditure.)

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9%

63% 187

13.1%

67% SELF-FINANCING METHODS USED

14.5%

15%

3 Membership fees 3 Fees for Services 3 Product Sales

Use of Hard Assets76% Use of Soft Assets Investment Dividends

ANNUAL OPERATING BUDGET (1998) USD 140,000

79.3%

PERCENT OF SELF-FINANCING (1998)

SELF-FINANCING ACTIVITIES

27%

CISA initiated its self-financing activities in 1997 when it lost its international donor support. It has slowly launched several initiatives that now generate almost 30% of the organization’s budget.

METHODS OF SELF-FINANCING

28%

Member Dues

In 1997, the organization began to charge dues to its members and raised approximately USD 300 in 1998 from this source.

Fees for Services

The organization offers services in capacity building, project monitoring, impact evaluation, and project 33% coordination.

Product Sales

CISA sells a series of products to its members that it has developed since 1997. These include software for the management of centers that raise camelids; information systems; executive reports; and publications.

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= 27%

86%

FOR MORE INFORMATION CISA 88% Ampatalocha 305 Yanahuara Arequipa, PERU Tel: +(51-54) 270-356 Fax: +(51-54) 289-733 Email: CISAPERU@ interplace.com.pe

89%

40%

90%

41.5%

98%

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188

Case 10: CODEMU MAIN ACTIVITIES

LOCATION Santiago, Chile

FIELDS Community Development Culture Education/Training Environment Health 3 Labor Rights and Occupational Health Social Services

Corporación Comedor Acogedor de la Mujer Trabajadora (CODEMU) provides textile workers with information and training on labor rights and occupational health and workplace safety. The group coordinates workshops on these topics and distributes information on labor rights legislation.

Since its inception, the organization has provided a gathering space for women textile workers in Patronato, many of whom work under poor labor conditions. The “comedor” (dining room) serves as a place for the women to gather to eat their lunch, to share information, and to gain skills in labor rights advocacy and organizing. In addition to its core activities, CODEMU also organizes workshops on personal and professional development, provides legal and social advice; and plays an important role in helping to empower its members to take on leadership roles within the Sindicato Interempresa, a union representing many of the textile workers in Patronato.

FINANCIAL INFORMATION

MISSION CODEMU (Corporación Comedor Acogedor de la Mujer Trabajadora) is a nonprofit organization that was founded in 1994 to strengthen the organizing capacity of textile workers, mostly women, in the Patronato district, to better protect their labor rights, and to improve their working conditions. The organization was founded through an initiative of the Women’s Department of CONTEXTIL (Textile Confederation) with financial support from Oxfam-UK, an international assistance NGO.

INCOME: In 1998, CODEMU had a budget of CLP 33,721,200 (USD

71,000). The group generated 7% of this income from its self-financing activities.

SOURCES OF INCOME (% of total)

1999*

1998

1997

International Sources - foreign/international grants

22

23

90

Public Sources - government grants

56

49

–

Self-Financing - membership dues - fees for service(s)

6 16

1 6

10 –

In-kind Donations

–

21

–

100%

100%

100%

TOTAL * Projected

EXPENSES: In 1997 and 1998 the organization spent 40% of its expenses on administrative and operational costs and 60% for its programs and activities. The same distribution was projected for 1999, althoug income was expected to decreased by two-thirds with the withdrawal of international funding.

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189

SELF-FINANCING METHODS USED

SELF-FINANCING ACTIVITIES From several years after its founding, CODEMU received most of its funding from Oxfam-UK, an international assistance NGO that supported the organization’s operational and program expenses.

In early 1997, Oxfam began closing its Chile program, so CODEMU was forced to search for alternative funding. In 1998, the organization still received some transitional funding from Oxfam and was granted a one-year project grant from Fondo de las Américas.

That is when the organization launched its self-financing activity.

Fees for Services

The organization has always charged a membership fee to the women who come to the “comedor” for lunch, to meetings, and to workshops. Most of the women pay the fee, especially since the organization lost its support from its foreign funder.

In early 1998, CODEMU decided to establish7% a selfservice laundry for members of CODEMU and the general community. With the help of several graduate students from the University of Chile, the organization prepared a proposal seeking support from several Western European embassy funds. The Swiss 9% the embassy responded with a grant that supported purchase of the laundry equipment. The German embassy provided general support for items needed by the “comedor” itself. The laundry facility is located downstairs from CODEMU’s dining hall and offices.

CODEMU’s original projection was that after six months of operation the facility 13.1% would generate approximately USD 600 a month, the amount needed by CODEMU to cover its operational expenses (excluding core personnel costs). By October 1998, the laundry was generating 14.5% only about half that amount, due both to the economic downturn in Chile and to the facility’s poor location. CODEMU is now covering approximately 50% of its operational expenses with project funds.

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Product Sales Use of Hard Assets Use of Soft Assets Investment Dividends

ANNUAL OPERATING BUDGET (1998)

METHODS OF SELF-FINANCING

Member Dues

3 Membership fees 3 Fees for Services

USD 71,000

PERCENT OF SELF-FINANCING (1998)

= 7%

60.6%

FOR MORE INFORMATION CODEMU 63% Asunción 235 Recoleta, Santiago CHILE Tel: +(56-2) 777-5872 Fax: +(56-2) 777-5872 Email: codemu@ia.cl

67%

76%

15%

79.3%

27%

86%

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Case 11:

EkoCenter

MAIN ACTIVITIES The center’s primary activities focus on publishing and disseminating environmental information and publications.

• Publishing and distribution of ecological literature. The center publishes up to three books a year (nearly all by Czech authors). Most deal with subjects of nature, ecology, and healthy lifestyles.

LOCATION Brno, Czech Republic

FIELDS Community Development Culture 3 Education/Training 3 Environment Health Social Services Other

MISSION The EkoCenter Brno is an environmental information center and publishing house for ecological literature. The mission of the center is to provide the public with information about nature, ecology, healthy lifestyles, and the nonprofit sector.

The center’s programs aim to motivate people to live in a positive relationship with the environment.

• Ecotheque – Ecological Library, Access Center, and Public Information Service. The center maintains a collection of ecological resources gathered from universities and former libraries of the Socialist Youth Union, videotapes, and a register of books, all accessible to the public.

• The Flower Club. The center organizes visual art and ecological education programs for children and youth, including study trips, ecological games, drama education, etc.

FINANCIAL INFORMATION INCOME: In 1998, the annual operating budget of the center was

approximately CZK 2.7 million (USD 90,000), and 78% of the center’s income derived from its self-financing activities.

SOURCES OF INCOME (% of total)

1998

1997

1996

International Sources - international grants

12

5

5

Public Sources - government grants

10

14

8

–

–

1

72 6

69 6

60 10

–

6

16

100%

100%

100%

Private Sources - foundation grants Self-Financing - fees for service(s) - product sales Other - transferred resources from single- to double-entry bookkeeping

TOTAL

EXPENSES: The largest portion of the center’s 1998 expenses (67%) was for its publishing activities, followed by administrative and office expenses (14%); fundraising (4.0%); and other programs and activities (15%).

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191

7%

60.6% SELF-FINANCING METHODS USED

SELF-FINANCING ACTIVITIES With the arrival of a new director in 1995, Ekocenter reevaluated its funding and decided to strive for a more balanced mix of resources from state, 9% foundation and self-financing sources.63% Since then the center has made a conscious effort to increase its own revenue-generating potential.

METHODS OF SELF-FINANCING

Fees for Services

Product Sales

Use of Hard Assets

• Library late fees: The center charges a small fee for the late return of borrowed books from its “Eco67% theque” 13.1% library.

• Graphic design services: The center started doing graphic design work for its own ecological and educational materials and was later approached by others requesting design services. The group has since attracted several NGO and corporate clients.

• Books sales: sells its books in its own shop located 14.5% 76% outside its second-floor office in Brno. The center also sells books to other publishing houses and bookshops throughout the Czech Republic.

• Wooden toys: The center signed a contract with a local businessman to sell his small wooden toys (made from recycled wood) in the bookshop.

15% 79.3% Although it is not a direct rental of equipment, the center uses its computers, originally purchased with donor funds, to offer graphic design and advertising services to paying clients.

27%

28%

33% risky business: The impacts of merging mission and market Copyright © NESsT 2003

100%

86%

EkoCenter sells its books in its own bookshop located outside its office.

88%

89%

3 Fees for Services 3 Product Sales 3 Use of Hard Assets Membership Dues

52%

Use of Soft Assets Investment Dividends

ANNUAL OPERATING BUDGET (1998) USD 90,000

PERCENT OF SELF-FINANCING (1998)

= 78%

FOR MORE INFORMATION EkoCenter Brno Ponávka 2, 4.p.

Brno 602 00 CZECH REPUBLIC Telephone/Fax: +(420) 542-219-334 Email: ekocentrum. brno@telecom.cz Website: http://web. telecom.cz/ekocentrum

83%

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Case 12: Elim Písek LOCATION

MAIN ACTIVITIES

Pisek, Czech Republic

FIELDS Community Development Culture Education/Training Environment Health 3 Social Services 3 Religion

Christian Association for Evangelic and Social Work (Elim Písek) has three primary programs.

• Rehabilitation Center: In 1992, Elim bought an old farm and renovated it into a rehabilitation center for individuals aged 15 to 35 who have alcohol or drug addictions. The center can accommodate up to 10 people.

• Drug prevention and youth programs: Elim runs anti-drug programs for street children and offers optional activities for youth (i.e., sports, music programs, discussions and debate clubs, and summer camps). The group also organizes seminars for youth on racial tolerance and discrimination.

MISSION Elim Písek (Christian Association for Evangelic and Social Work) was established in 1990 to spread “Christian ethics” and to provide assistance to “socially weak” groups of the population. The founders wanted to create an “oasis” from modern society. The name is derived from a biblical story: The Israelis, led

by Moses, left Egypt, crossed the Red Sea, and came to the desert. After three days of wandering, they reached an oasis, which they named “Elim.”

• Orphanage: Elim operates an orphanage to provide a “substitute family” for Roma children.

FINANCIAL INFORMATION INCOME: In 1998, the annual operating budget of Elim was approxi-

mately CZK 15.3 million (USD 508,000). Approximately 79% of Elim’s income was derived from its self-financing activities.

SOURCES OF INCOME (% of total)

1998

1997

1996

Public Sources - government grants

7

9

3

Private Sources - individual donations - corporate grants

13 1

13 2

5 1

Self-Financing - membership dues - product sales - dividends from investments

3 74 2

4 71 1

4 86 1

100%

100%

TOTAL

EXPENSES: The largest portion of Elim’s 1998 expenses (72%) was for the purchase of books and other materials; followed by administrative and office expenses, particularly rent (7.0%); fundraising (1.0%); programs and activities (20%).

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100%

7%

60.6%

100%

CSO Case Summaries risky business

193

9%

63% SELF-FINANCING METHODS USED

SELF-FINANCING ACTIVITIES The manager of Elim Písek, an economics graduate, encouraged the idea of self-financing from the start for both practical and religious reasons. First, colleagues 13.1% in a peer organization in Switzerland 67% recommended that Elim not rely on the uncertainty of private and government support. Second, the Christian ethic that “man must work with his own hands and share everything with those who have nothing,” encouraged Elim leaders to be more self-sufficient.

METHODS OF SELF-FINANCING

Member Dues

Fees for Services

Product Sales

14.5% has more than 200 members.

76% The association Membership dues are voluntary. Members contribute according to their means: dues are set at 4% of a member organization’s annual budget.

• Client fees: In 1994, Elim began to charge a fee of CZK 90 (USD 3) per day for clients of the rehabilitation center. This fee covers about 15% of total expens15% 79.3% es and is subsidized by the income from the bookstores.

• Printing house: Elim operated a commercial printing house. After two years of profitable operation, the printer in charge left. Elim could not offer competitive salaries and was forced to close the business.

86% • Book 27% sales and bookshops: Initially, Elim members donated several thousand Christian literature books that were then sold in a space donated by the municipal government. The earnings were used to cover expenses for a trip to Vienna to obtain more books. Elim now purchases directly from publishers and publishes many of its own books and sells them in three bookstores it 28% 88% owns and operates.

• Secondhand clothing shops: Elim opened a second-hand clothing shop in 1990 with donations from abroad. By 1994, more than 20 competing shops opened in Pisek, making Elim’s shop less profitable. As a result, the association closed the shop in 1994. However, from the initial shop profits, Elim was able to buy and renovate the 33% 89% orphanage and support the Rehabilitation Center project.

Elim also strives for self-sufficiency by producing many of its own products (e.g., grain, diary products and vegetables) on the rehabilitation center farm.

Members volunteer, and clients in the rehabilitation center work in the fields, barn, workshops, etc.

40%

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52%

90%

3 Membership Dues 3 Fees for Services 3 Product Sales Use of Hard Assets Use of Soft Assets Investment Dividends

ANNUAL OPERATING BUDGET (1998) USD 508,000

PERCENT OF SELF-FINANCING (1998)

= 79%

FOR MORE INFORMATION Elim Písek Janakova 47 Písek 39701 CZECH REPUBLIC Telephone/Fax: +(420) 362-270-047 Email: hojka@post.cz

83%

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Case 13: LOCATION

ESE Association

MAIN ACTIVITIES

Pecel, Hungary

FIELDS Community Development Culture Education/Training Environment Health 3 Social Services Other

MISSION • ESE Association: Founded in 1989, the Association aims to help needy people and rural communities, to increase cooperation among existing charities, and to promote the establishment of new groups.

• UW-ESE Foundation: The foundation, established in 1995 as part of the Hungarian network of the United Way, supports social service organizations and projects.

• Vedese KHT: Established in 1997, Vedese is a limited public benefit company that manages the employment component of the holding’s activities.

ESE Association is actually a “holding” composed of three legal entities held together by the association’s manager and founders: • ESE (Helping Each Other) Association: The ESE Association organizes programs to help reduce unemployment, to support socially disadvantaged and large families, to provide social and health care to the elderly, and to assist humanitarian social organizations and new organizations. Specifically, the association oversees a boarding health-care center and provides meals and other crisis help for the elderly. It also manages community improvement projects, exhibitions, club and community programs, and training for local nonprofits.

• UW-ESE Foundation: The activities of the UW-ESE Foundation include supporting the work of the ESE Association, collecting and distributing donations among other organizations, and establishing a civil alliance for the protection of interests.

• Vedese KHT: The Vedese KHT operates enterprises which provide employment and rehabilitation opportunities.

FINANCIAL INFORMATION INCOME: In 1997, the annual operating budget of the ESE Associa-

tion was approximately HUF 40 million (USD 196,000).* Approximately 30% of the association’s income derived from its selffinancing activities.

SOURCES OF INCOME (% of total)

1997

1996

International Sources

30

35

Public Sources

25

20

Private Sources

15

25

Self-Financing - product sales

30

20

100%

100%

TOTAL

EXPENSES: In 1997, the association’s expenses included programs and activities (50%); fundraising expenses (6.0%); administrative/office expenses (15%); and other miscellaneous expenses.

* Total annual operating budget of the ESE Association and the UW-ESE Foundation combined was HUF 47.7 million, of which 7.7 was for the foundation. Percentage breakdown figures are for the ESE Association only.

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14.5%

76%

CSO Case Summaries risky business

195

15% SELF-FINANCING METHODS USED

SELF-FINANCING ACTIVITIES The ESE Association and Foundation launched the activity together to reduce dependence on grant support. The start-up did not require a large investment because ESE already had the infrastruc27% ture (i.e., the buildings). An another important motivation was to provide employment for the socially disadvantaged.

METHODS OF SELF-FINANCING

Product Sales

• Carpet-weaving factory: ESE operates a carpet-weaving factory that uses skilled, locally developed technology to make handmade carpets out of rags. This28% technology and the materials are environmentally friendly (recycled) and also do not cause allergies. The products have won prizes at several national and international competitions. Already 35 people work in the factory. The enterprise began in 1989 with volunteers processing textiles and manufacturing doormats.

After the group acquired looms and an 33% industrial artist joined the initiative, the factory began producing carpets from the leftover materials. Since 1995 it has a subsidized employment agreement with the state that offers possibilities to hire the socially disadvantaged with partial salary support provided by the state employment office.

40% • Social Shop: ESE has recently opened a “social shop,” where the group sells goods on consignment, particularly clothing and medical products. The clothing is donated from abroad; the products are obtained from the Red Cross at a reduced price.

41.5%

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79.3%

Membership Dues Fees for Services 3 Product Sales Use of Hard Assets Use of Soft Assets Investment Dividends

ANNUAL OPERATING BUDGET (1997)* USD 196,000

86%

88%

PERCENT OF SELF-FINANCING (1998)

= 30%

89% FOR MORE INFORMATION ESE Association Piheno u.2 H-2119 Pecel HUNGARY Telephone: +(36-28) 454-076 Fax: +(36-28) 454-077

90%

98%

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Case 14: LOCATION

FEPP

MAIN ACTIVITIES

Quito, Ecuador

3 Community

FIELDS

Development Culture 3 Education/Training Environment Health Social Services Other

MISSION The Fondo Ecuatoriano Populorum Progressio (FEPP) was founded in 1970 to support indigenous, AfroEcuadoran and mestizo peoples, as well as marginalized urban sectors. The goal is to promote organization, education, access to jobs and business opportunities, environmental conservation, and gender equity; and to foster hope, justice, and peace among rural and urban sectors of Ecuador.

Fondo Ecuatoriano Populorum Progressio (FEPP) works in three key program areas to provide: • credit for agricultural production and housing and to improve the structure of the financial market in rural Ecuador.

• professional capacity-building and educational scholarships and credit to marginalized rural and urban sectors.

• several programs in integrated rural development.

FINANCIAL INFORMATION INCOME: FEPP’s 1998 operating budget was 31.64 billion ECS (USD 4,667,000 million), of which 41% was generated from self-financing strategies.

SOURCES OF INCOME (% of total)

1999*

1998

1997

55

55

55

Public Sources - government grants

3

3

4

Private Sources - individual donations

1

1

0.5

0.5 0.5 40

0.5 0.5 40

0.5 40

100%

100%

100%

International Sources - foreign/international grants

Self-Financing - fees for services - product sales - dividends from investments

TOTAL * Projected

EXPENSES: In 1998, the organization spent 53% of its budget on administrative costs, 1% on fundraising costs, and the remaining 46% on programs and activities. In 1997, administrative costs made up 59% of total expenditure, and in 1996 they accounted for 47%. The organization has a staff of 200 full-time employees and a volunteer corps of twelve.

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CSO Case Summaries risky business

27%

86% 197

28%

88% SELF-FINANCING METHODS USED

SELF-FINANCING ACTIVITIES In the past two years, FEPP initiated several self-financing activities in order to generate its own sources of revenues and to expand both financial and nonfinancial services available to rural and urban communities.

33%

METHODS OF SELF-FINANCING

Fees for Services

The organization sells professional formation and capacity-building services to marginalized rural and urban sectors.

Product Sales

40% FEPP markes and sells products(e.g. cheeses and vegetables) produced by other organizations associated with FEPP.

Investment FEPP recently purchased a savings and credit cooperDividends ative from a private entity that ran it as a for-profit organization. FEPP restructured the cooperative with 41.5% a view toward using the interest earned to fund projects that benefit small producers in community works and activities that will improve the quality of life of these groups.

3 Fees for Services 3 Product Sales

Membership fees

Use of Hard Assets89% Use of Soft Assets 3 Investment Dividends

ANNUAL OPERATING BUDGET (1998) USD 4,667,000

PERCENT OF SELF-FINANCING (1998)

= 41%

98% FOR MORE INFORMATION Fondo Ecuatoriano Populorum Progressio Mallorca 427 y coruna Quito, Ecuador Telephone: +(593-2) 520-408 Fax: +(593-2) 504-978 Email: fepp@uio.satnet.net

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90%

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Case 15:

FES

1

MAIN ACTIVITIES

LOCATION Cali, Colombia

3 Community

FIELDS

Development 3 Culture 3 Education/Training 3 Environment 3 Health 3 Social Services Other

MISSION Since its founding in 1964, the Fundación para la Educacion Superior (FES) has become the preeminent private community foundation in Colombia. The FES mission is to support Colombia’s social development by providing support to activities and programs that are educational and scientific in nature and that contribute to improving the lives of all Colombians, especially the most vulnerable populations. Those who most benefit from FES’ work are teachers, female heads of households, children, black communities, and the poor.

Fundación para la Educación Superior(FES) works in five key activities: institutional strengthening; research; promotion, management, and funding of projects; communication and dissemination; and evaluation. The activities are carried out in several program areas, including environment and natural resources; education; health and nutrition; social and economic development; childhood; and institutional strengthening. In 1975, the foundation officially became a “commercial finance company” (Compania de Financiamiento Comercial, or CFC) without losing its status as a foundation. The revenues generated through its services and investments became a major source of income. Between 1975 and 1999, the foundation gave a total of USD 100 million in donations, more than half of which came from resources generated through the CFC. FINANCIAL INFORMATION INCOME: In 1997, 76% of FES’ COP 133.016 billion budget (USD 102,68 milion) was generated through the CFC in the form of interest, fees, dividends, and rent income from its financial services and investments (including investment of PFs and PMFs). Another 23% of its income came in the form of donations, including 11% from organizations to establish PFs and PMFs (see self-financing section at right).

SOURCES OF INCOME (% of total)

1997

1996

International and National Sources - donations from foundations and government agencies

12

12

Private Sources - donations from PFs and PMFs

11

10

Self-Financing - investment Dividends

76

77

Monetary Adjustments

TOTAL

1

100%

Expenses: In 1997, FES’ main expenditure was its financial services (65% for financial expenses and 2% for financial losses). The organization spent 18% of its budget on administrative costs, and it incurred monetary adjustments that amounted to 10% of the budget.

The levels and breakdown for 1996 were similar.

1 This case focuses on the Foundation’s Permanent Funds (PFs) and Permanent Matching Funds (PMFs), a self-financing strategy used by FES to build its endowment while at the same time generating revenues for its social programs. The case does not include other self-financing revenues generated by the Foundation’s Commercial Finance Company through its financial services and investments.

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1

100%

CSO Case Summaries risky business

199

7%

60.6%

SELF-FINANCING ACTIVITIES FES derives more than 75% of its income through market-based strategies, including financial services and investments of the CFC. A key source of revenues for CFC investments is the organization’s PFs and PMFs. 9% 63% METHODS OF SELF-FINANCING

Investment Permanent Funds (PFs and PMFs) are endowments Dividends set up with specific donations from NGOs, private enterprises, other institutions and individuals. The beneficiary of13.1% a PF or PMF must be a nonprofit 67% organization (or an individual in the case of scholarships).

To initiate a PF or a PMF, a minimum amount of money must be donated (originally USD 30, but currently USD 70,000). This money is then deposited as part of the FES endowment and invested by the finance department. by 14.5%FES accepts a financial risk 76% guaranteeing a return to each PF and PMF equivalent to the Consumer Price Index (CPI) plus 4%.

FES maintains two types of Permanent Funds: • PMFs are donations made and deposited into the endowment with a 50% match from FES. There are currently 409 15% PMFs. Of these, eight are for FES79.3% programs and the remainder are for other CSOs. • PFs are donations made and deposited into the endowment with no match from FES. There are currently 30 PFs, of which eight support FES. PFs and PMFs can take two forms:

27%

86%

• Donations made for projects administered by FES: In these cases, 70% of the investment dividends are used by the foundation for its administrative costs, and 30% is reinvested in the foundation’s endowment.

• Donations made by an organization for its own work: In these cases, 70% of the investment dividends are 28% 88% returned to the donating organization. The remaining 30% is reinvested into the FES endowment.

Note: During the country’s recent financial crisis, FES was unable to raise the USD 50 million needed to financially guarantee its activities, and in mid-1999 the CFC was nationalized by the Government of Colombia. At the time this case study was written, a commission had been formed to decide whether the government would return the organization’s endowment and outstanding grants to the foundation. The foundation plans to return the initial investments and accumulated capital to the organizations that had a PF or PMF and to use outstanding grants for its social programs.

33%

89%

40%

90%

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100% SELF-FINANCING METHODS USED Membership fees Fees for Services Product Sales Use of Hard Assets52% Use of Soft Assets 3 Investment Dividends

ANNUAL OPERATING BUDGET (1997) USD 102.68 million

PERCENT OF SELF-FINANCING (1997)

= 76%

FOR MORE INFORMATION Fundación FES Calle 64 No. 5B-146, Centroempresa Cali, COLOMBIA Tel: +(57-2) 666-1700 Fax: +(57-2) 665-4300 Email: dhurtado@fes.org Website: http://www.fes.org

83%

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Case 16:

Fundación Alternativa MAIN ACTIVITIES

Fundación Alternativa oversees five program areas: • Banco Solidario, a bank started and coordinated by the organization to provide financial services to micro-entrepreneurs; LOCATION Quito, Ecuador

FIELDS Community Development Culture 3 Education/Training Environment Health Social Services 3 Small-Enterprise Development

MISSION Fundación Alternativa was founded in 1991 to help social development organizations obtain, mobilize, and efficiently administer resources in order to improve the quality of life for marginalized and at-risk sectors of the population.

• Enlace Mas, a center created in 1997 to build capacity and share technology among NGOs, cooperatives, and banks interested in micro-finance; • Information System on Social Organizations (SIOS), a computerized communication initiative that documents the activities of national and international development organizations working in Ecuador; • Evaluation and Impact, an initiative linked to Banco Solidario that monitors the quality and impact of microenterprise development and the quality of life of the bank’s microentrepreneur clients; • Non-financial services for the development of microentreprise. Fundación Alternativa is developing strategic alliances with other NGOs and institutions in order to offer a network of nonfinancial services (e.g., health-related services, education and capacity building) to micro-entrepreneur clients of Banco Solidario. This plan is pending implementation.

FINANCIAL INFORMATION INCOME: In 1998, Fundación Alternativa’s income was ECS 4.389 billion (USD 638,000), of which 83%derived from its self-financing activities. The breakdown was expected to change in 1999, with the percentage from grants rising to 40%.

SOURCES OF INCOME (% of total) International Sources - international grants Private Sources - individual donations Self-Financing - fees for services

TOTAL * Projected

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1999*

1998

37

16

3

1

60

83

100%

100%

1997

100

100%

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SELF-FINANCING METHODS USED

SELF-FINANCING ACTIVITIES Fundación Alternativa manages several self-financing strategies that are closely tied with its program activities and consistent with its mission to assist small entrepreneurs.

7%

METHODS OF SELF-FINANCING60.6%

Fee for Services

9%

Product Sales

100%

Through its capacity-building center, Enlace Mas, Fundación Alternativa sells educational services to the staff of Banco Solidario and to other firms. The training focuses on developing and expanding financial services for low-income producers.

63%

52%

Fundación Alternativa sells its SIOS directory, which includes a database of information on civil society organizations working in a wide variety of fields in Ecuador. The organization also sells reports generated from the database.

Use of 13.1% Hard Assets

In 1998, the organization began to rent out its83% data67% show to other NGOs and public institutions.

Use of Soft Assets

Since 1993, the organization has sold the license to use the SIOS database to other NGOs and institutions.

14.5% Investment Dividends

76%

Fundación Alternativa owns shares of Banco Solidario and has earned investment dividends from these shares since 1996.

15%

79.3%

27%

86%

28%

88%

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3 Fees for Services 3 Product Sales 3 Use of Hard Assets 3 Use of Soft Assets 3 Investment Membership fees

Dividends

ANNUAL OPERATING BUDGET (1998) USD 638,000 PERCENT OF SELF-FINANCING (1998)

= 83%

FOR MORE INFORMATION Fundación Alternativa Amazonas 3887 y Korea Quito, Ecuador Tel: +(593-2) 260-260 Fax: +(593-2) 252-536 Email: enmas@enlace.fin.ec Website: http://www. solidario.com.ec

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Case 17:

Fundación Cirena

MAIN ACTIVITIES The three key program areas of Fundación Cirena are: • providing logistical and administrative support to the newborn services wing of the Universitario del Valle Hospital; Cali, Colombia

• providing services to the hospital and community in medical imaging and charting, including echocardiography and echography to low income users; and

FIELDS

• fostering and supporting research in the area of neonatal care.

Community Development Culture Education/Training Environment 3 Health Social Services Other

The organization is also dedicated to increasing awareness among parents on the care and treatment of their newborn babies. Most recently, Fundación Cirena initiated a program to prevent the neglect and maltreatment of premature newborns among lowincome parents and a program to monitor high-risk premature newborns. The organization also is working nationally and internationally to educate health-care workers on the importance of neonatal renewal to the health and well-being of newborns. The organization works with a staff of eleven full-time employees.

LOCATION

MISSION Fundación Cirena was founded 25 years ago as a nonprofit organization dedicated to fostering the wellbeing of low-income newborn babies, mostly critically premature, and their families in the city of Santiago de Cali and southwest Colombia.

Today, the organization has expanded its mission to offer research, education, and capacity-building services in the area of neonatal care throughout Colombia and to offer cardiological and echographical diagnostic services to the most vulnerable population in southwest Colombia.

FINANCIAL INFORMATION INCOME: In 1998, Fundación Cirena had a budget of COP 500 mil-

lion (USD 323,000), 89% of which was generated from self-financing activities. The other 11% came from donations, mostly from large corporations. In 1997 and 1996, the organization received a higher proportion from donations and less from self-financing.

SOURCES OF INCOME (% of total)

1998

1997

1996

Private Sources - corporate grants - individual donations

10 1

25 1

15 1

Self-Financing - fees for service(s) - product sales - dividends from investments

80 2 7

65 2 7

78 1 5

100%

100%

100%

TOTAL

EXPENSES: In 1998, the organization’s funds were split equally between administration costs and the cost of programs and activities.

The proportion of the budget spent on administrative costs had been lower in previous years, but it went up significantly in 1998 because the organization established an outpatient clinic separate from its hospital location.

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14.5%

76% 203

15%

79.3%

SELF-FINANCING ACTIVITIES When the director of Fundación Cirena began in 1986, the organization was dependent mostly on a few donations and interest yields from several investments. At that point, the organization sought to expand and diversify 27%its funding base.

86% METHODS OF SELF-FINANCING

Fees for Services

Product Sales

In 1986, Fundación Cirena received an echograph machine as an in-kind donation for its newborn unit at the hospital. The director saw an opportunity to generate revenues 28% and began to offer echograph 88% exams (i.e., sonograms and echocardiograms/ectrocardiograms and Holter tests) as a fee-for-service arrangement to hospital patients. The group later acquired additional echographic equipment, and these services have generated most of the organization’s income for the past 10 years. In 1997, the hos33% 89% pital installed its own machines. As a result, the organization decided to establish an outpatient clinic in a nearby area. The group transferred its machines and began offering the same services for a fee to lowincome residents.

The organization 40%earns a small amount of income 90% from the sale of products at a small snack bar it runs in the Hospital del Valle.

Investment The organization has a Permanent Matching Fund Dividends with the Fundación FES (see case 15). In 1978, Fundación Cirena started a fund with COP 3.86 million Colombian pesos (approximately USD 2,500) 98% that 41.5% was matched 50% by FES. The capital was used by FES as part of its endowment and invested. Now, 70% of the yields are given back to Fundación Cirena in monthly payments to help pay general operating costs. The organization also has some other investments that yield dividends.

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SELF-FINANCING METHODS USED

3 Fees for Services 3 Product Sales

Membership fees

Use of Hard Assets Use of Soft Assets 3 Investment Dividends

ANNUAL OPERATING BUDGET (1998) USD 323,000

PERCENT OF SELF-FINANCING (1998)

= 89%

FOR MORE INFORMATION Fundación Cirena Calle 5 N. 36-08 Piso 5 Hospital Universitario del Valle Cali, Colombia Tel: +(57-2) 557-5412 Fax: +(57-2) 557-5412 Email: fundacirena@ colnet.com.co

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Case 18:

Fundación Corona

MAIN ACTIVITIES LOCATION

Fundación Corona supports programs and projects in four key areas:

Bogotá, Colombia

• Health: to improve the management of hospitals and widen access of the poor to health care;

FIELDS

3 Community

• Education: to improve the quality of primary education and promote education and training for employment;

Development Culture 3 Education/Training Environment 3 Health Social Services Other

• Local and Community Management: to strengthen the capacity of communities and local governments to manage the development process;

MISSION Fundación Corona is a corporate, grant-making foundation established in 1964 by the Corona Organization, a large conglomerate of Colombian companies. The Echavarría family created the foundation to provide assistance to employees of their company and their families.

Due to changes in the country, the foundation expanded its focus and provides support through donations and technical assistance. Its mission is to contribute to the country’s social development by improving management of social processes through programs dedicated to giving the poor access to the benefits derived from development.

• Business Development: to create and strengthen institutions and programs that support micro, small, and medium-sized enterprises.

The foundation also supports NGOs, research institutes, and universities in public policy projects that directly or indirectly benefit the poor.

FINANCIAL INFORMATION INCOME: The foundation’s budget in 1998 was COP 4.56 billion (USD 2,942,000). Of that total, 67% was dividends from the foundation’s endowment, which in 1998 totaled COP 38.89 billion (USD 25,090,323). Another 18% of the budget was donated by the companies that are members of the Corona Organization. In 1999, the makeup of the foundation’s financing mix is projected to shift substantially.

The foundation has decided to reinvest the dividends from its endowment so it can eventually completely finance the foundation’s activities. To compensate, the foundation plans to increase corporate donations from the Corona Organization.

SOURCES OF INCOME (% of total)

1999*

1998

International Sources - foreign/international grants

11

9

Private Sources - corporate grants

42

18

Self-Financing - dividends from investments

41

67

6

6

100%

100%

In-kind Donations

TOTAL * Projected

EXPENSES: In 1998, 34% of the Foundation’s expenses were for administrative and operational costs and 66% for programs and grants. These amounts were projected to be similar in 1999. The Foundation plans to reduce administrative costs to approximately 20% of expenses in the next few years.

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SELF-FINANCING METHODS USED

7%

SELF-FINANCING ACTIVITIES 9%

60.6%

63%

Over time the Corona Foundation hopes to become 100% selffinanced. Through a conservative investment strategy and continued donations from its corporate founders, the organization is on its way to meeting this goal.

METHODS OF SELF-FINANCING 13.1%

67%

Investment The Corona Foundation established its endowment Dividends in 1986 with initial donations from the Echavarria family. It was in 1989, however, when the economic, legal, and fiscal situation in Colombia changed and the foundation widened its grantmaking scope, that 14.5% became a central concern.

76% building the endowment At that point, the Corona Organization had already begun to donate (or to sell at a very low price) some of its assets to the foundation. These assets included soft assets such as shares, bonds, and other forms of investment instruments, as well as hard assets such as 79.3% property and 15% equipment.

In 1989, the leaders of the foundation established a policy to actively work these assets. Hard assets would either be sold immediately or rented until their value increased and it was an appropriate time to sell. Soft assets would also be sold and reinvested or they would be maintained27% in their current form until their value 86% increased and it made sense to sell.

In addition to asset donations, the companies agreed to provide cash donations to the foundation on an annual basis. These annual donations would be used by the foundation for its own grantmaking activities and other assets would be used to build the founda28% 88% tion’s endowment. As a result, the endowment has steadily grown over the past decade from USD 5.67 million in 1990 to USD 25.38 million in 1999.

33%

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89%

Membership fees Fees for Services Product Sales Use of Hard Assets100% Use of Soft Assets 3 Investment Dividends

ANNUAL OPERATING BUDGET (1998) USD 2,942,000

52%

PERCENT OF SELF-FINANCING (1998)

= 67%

83%

FOR MORE INFO Fundación Corona Calle 100 No. 8A-55, Piso 9, Torre C Santa Fe de Bogotá, COLOMBIA Tel: +(57-1) 610-5555 Fax: +(57-1) 610-7620 Email: gcarvajal@ corona.com.co Website: http://www. fundacioncorona.org.co

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Case 19:

Fundación Ideal

MAIN ACTIVITIES Fundación Ideal para la Rehabilitación Integral “Julio H. Calonje” has three key programs and activities: • Special education: Through a series of programs, young people with disabilities are rehabilitated for their integration into school, family, and social life.

LOCATION Cali, Colombia

FIELDS Community Development Culture Education/Training Environment 3 Health Social Services Other

MISSION Fundación Ideal para la Rehabilitación was founded in 1965 to improve of the quality of life of people with special needs and to promote and support their physical, mental, intellectual, and social development in a holistic manner.

• Professional rehabilitation: A serie of activities is designed to prepare disabled people for employment.

• External consulting and production workshops: Special medical services are offered to people with disabilities. The organization also sells orthesis, prosthesises, and orthopedic shoes.

FINANCIAL INFORMATION INCOME: In 1998, Fundacion Ideal had a budget of COP 693.96 mil-

lion (USD 448,000), 98% of which was generated through selffinancing activities. In 1997, the share from self-financing was 96%.

SOURCES OF INCOME (% OF TOTAL) Private Sources - individual donations Self-Financing - fees for service(s) - product sales - rental of hard assets - dividends from investments In-kind donations

TOTAL

1998

1997

1

1

2

69 27 1 1

72 24 1 1

67 28

1

1

2

100%

100%

100%

1

* Projected

EXPENSES: In 1998, Fundacion Ideal spent 22% of its budget on administration and the remaining 78% on program and activities. In 1997, administration costs were 28%, and programs and activities were 72%.

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1999*

CSO Case Summaries risky business

27%

86% 207

28%

88% SELF-FINANCING METHODS USED

SELF-FINANCING ACTIVITIES Fundación Ideal is almost completely self-financed. However, Colombia’s economic crisis has directly affected the sale of products and services and has recently caused financial difficulties for the organization.

3 Fees for Services 3 Product Sales 3 Use of Hard Assets

METHODS OF SELF-FINANCING

3 Investment

33%

Fees for Services

89%

• Outpatient practice: The foundation sells specialized rehabilitation services based on fee-for-service contracts. It currently has an arrangement with health care organizations 40%and with risk insurance companies 90% to provide rehabilitative services to their clients upon referrals. It also holds fee-for-service contracts with the Police and the Air Force for employee referrals for specialized doctors and therapists.

• Services for disabled children and youth: With co-financing from the Colombian Institute for Family Well41.5% 98% being (Instituto Colombiano para el Bienestar Familiar) the foundation provides services to poor children and youth. In addition, the organization serves private individuals on a direct payment basis.

Fundación Ideal has a staff of doctors and therapists who attend to these clients.

Product Sales

Fundación Ideal sells orthesis, prosthesis and orthopedic shoes. The workshops are staffed by personnel skilled in making products according to medical prescriptions. Fundación Ideal markets these products to individuals and institutions directly from its headquarters. Some of this work is done on a contract basis.

Use of Hard Assets

Fundación Ideal receives rent income from two tenants: 1) it rents a fully equipped outpatient office to a private orthodontic practice; and 2) it rents space and equipment to a private person who runs a cafeteria service on the organization’s premises.

Investment The organization has a Permanent Matching Fund Dividends with the Fundación FES (see case 15). In 1978, the organization made an initial donation that was matched 50% by FES. The monthly dividend payments are used by Fundación Ideal to offset general operating costs.

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Membership fees

Use of Soft Assets Dividends

ANNUAL OPERATING BUDGET (1998) USD 448,000

PERCENT OF SELF-FINANCING (1998)

= 98%

FOR MORE INFORMATION Fundación Ideal Calle 50 No. 10 A-08 Cali, COLOMBIA Tel: +(57-2) 441-5062 Fax: +(57-2) 441-6961 Email: ideal@cali.cetcol.net.co

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Case 20:

Fundaempresa

MAIN ACTIVITIES The organization has three primary activities: • programs to support organizations and individuals in the creation of private enterprises by assisting them with the development of business plans and by providing them with capacity-building and consulting in this area; LOCATION Cali, Colombia

FIELDS Community Development Culture 3 Education/Training Environment Health Social Services 3 Business Development

MISSION Fundaempresa was founded in 1985 as a nonprofit organization dedicated to helping low-income residents solve their own income generation needs by creating and developing enterprises. Fundaempresa Cali has a sister organization in Bogota. Both organizations were founded with support from Fundación FES as well as other prominent foundations in Colombia.

• programs to foster entrepreneurial spirit and incentives; • programs to promote financial diversification by identifying economic alternatives that can be developed through new business ventures.

The organization provides training and technical assistance, including access to other needed services and access to credit through contracts made with financial institutions.

FINANCIAL INFORMATION INCOME: Fundaempresa’s operating budget for 1998 was COP 947.57 million (USD 611,000). The organization generated 79% of this income from its self-financing activities. This proportion was not projected to differ significantly in 1999, although total income was expected to rise to COP 1.06 billion (USD 684,000).

SOURCES OF INCOME (% of total)

1998

1997

Private Sources - corporate grants - individual donations

16 6

14 7

14 11

Self-Financing - fees for service(s) - use of soft assets - dividends from investments

62 3 13

66 3 10

51 6 18

100%

100%

100%

TOTAL * Projected

EXPENSES: In 1998, 52% of Fundaempresa’s expenditure was for pro-

gram activities; 34% for administrative costs; and the remaining 14% for financial costs, mostly for loan repayments for the purchase of the organization’s office building. Spending proportions were not expected to shift significantly in 1999.

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1999*

7%

CSO Case Summaries risky business

60.6%

100% 209

9%

63%

SELF-FINANCING ACTIVITIES Based on its own mission to develop businesses, Fundaempresa believes strongly that it, too, should use business strategies and skills to become self-sufficient.

13.1%

METHODS OF SELF-FINANCING

Fees for Services

Use of Soft Assets

67%

Fundaempresa has developed a series of courses and consultations on enterprise development that it sells to institutions and individuals. Fees charged to institutions cover the organization’s costs and generate a small profit that is then used to subsidize courses76% and 14.5% consultations for low-income individuals. Among individuals that solicit the organization`s services, professionals wanting to start a business are charged more than non-professionals and low-income wage earners.

Institutional clients include national and local government agencies, private companies, and NGOs. Many 15% 79.3% private companies, as part of their downsizing programs, hire Fundaempresa to help the company’s displaced employees start new businesses. This program initially caused concern among the staff of Fundaempresa, but the organization decided it is consistent with its training mission.

27%

86%

As the only organization in Colombia and one of the few in the region that has knowledge and experience in business start-ups, Fundaempresa has found a market for its methodology, which it sells to a wide variety of public and private clients. Again, the fee for the license varies 28% according to the size and budget of the 88% client and whether subsidies are available from other sources.

Investment Fundaempresa generates about 10% of its budget Dividends from interest from two funds. The Fundación Antonio Restrepo Barco provided Fundaempresa with a loan for an earlier project. Today, 12% of the 33% 89% interest paid by Fundaempresa on the loan is given back to Fundaempresa as a way to help the organization. Fundaempresa also receives income from FES Permanent Matching Fund (see case 15).

Fundaempresa uses its monthly returns from this investment to40% cover operational expenses.

90%

41.5%

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52% SELF-FINANCING METHODS USED

98%

3 Fees for Services

Membership fees

Product Sales Use of Hard Assets83% 3 Use of Soft Assets 3 Investment Dividends

ANNUAL OPERATING BUDGET (1998) USD 611,000

PERCENT OF SELF-FINANCING (1998)

= 79%

FOR MORE INFORMATION Fundaempresa Avenida Roosevelt Número 30-60 Cali, COLOMBIA Tel: +(57-2) 556-5996 Fax: +(57-2) 556-5996 Email: fundaempresa@ colombianet.net

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Case 21:

Fundamor

MAIN ACTIVITIES

LOCATION Cali, Colombia

FIELDS Community Development Culture 3 Education/Training Environment 3 Health 3 Social Services Other

MISSION Fundaci贸n Dar Amor (Fundamor) was founded in 1992 to provide integrated services to people with HIV/AIDS, both carriers and terminal patients who have few resources or who are rejected by society. The organization also works to create awareness among the general public on the risks of the disease, its causes, and its effects; and to support the personal growth of Fundamor staff through love and service.

Fundamor has seven key programs: 1) Casa Hogar, an integrated residential care facility for adults and children who are symptomatic, terminal or nonsymptomatic of HIV/AIDS; 2) Ambulatory, medical, psychological, orthodontic and nutritional care for HIV/AIDS patients, both at the center and through outpatient services; 3) Occupational therapy for carriers of HIV/AIDS; 4) Production workshops for family and friends of HIV/AIDS patients; 5) An organic farm that produces food for residents and for sale to other HIV/AIDS centers; 6) A secondhand store that sells items donated to the organization; and 7) A national campaign on HIV/AIDS prevention and sex education.

FINANCIAL INFORMATION INCOME: In 1998, Fundamor had a budget of COP 434.2 million

(USD 280,000). The group received 39% from donations and the remaining 61% from its various self-financing activities.

SOURCES OF INCOME (% of total)

1998

1997

1996

International Sources - foreign/international grants

8

13

7

Public Sources - government grants

1

2

5

3 13

1 7 13

6 3

13 10

19 5

19

32

Private Sources - individual donations - foundation grants - corporate grants Self-Financing - membership dues - fees for service(s) - product sales - use of hard assets - dividends from investments

1 17 27 1 15

Other - events - in-kind donations

4 10

2 20

7 16

100%

100%

100%

TOTAL

EXPENSES: The organization spent 22% of its 1998 budget on administrative costs, 16% on fundraising and 62% on programs and activities.

In 1997, administrative costs were a much larger percentage (41%). In 1996, they were 30% of expenses.

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SELF-FINANCING METHODS USED

SELF-FINANCING ACTIVITIES In 1996, Fundamor received and renovated a building outside of Cali for its offices, and its programs and services for residents and outpatients. The building also enabled the organization to develop a number of other revenue-generating activities.

3 Membership fees 3 Fees for Services 3 Product Sales 3 Use of Hard Assets

METHODS OF SELF-FINANCING

3 Investment

Use of Soft Assets Dividends

Member Dues

Fundamor asks its founders to pay annual dues. It also has “Plan Padrinos,” whereby people “adopt” a child with HIV/AIDS and help pay for the child’s care.

Fees for Services

Fundamor runs a series of consulting services for HIV/AIDS carriers and patients, and the organization organizes conferences for health care workers and others on HIV/AIDS prevention and treatment. It also sells “bonos por la vida,” special greetings made to family members and friends in recognition of an occasion (e.g.,7% wedding, death, etc.). Finally, the 60.6% organization has an arrangement with an investment company that pays Fundamor part of its commission.

USD 280,000

• Secondhand stores: Fundamor manages a secondhand store in the neighborhood where it was originally based.

• Organic produce: The group recently began produc9% 63% ing organic fruits and vegetables that are used to feed residents and sold to other HIV/AIDS Centers.

• Cookies: Fundamor established a small for-profit company that produces cookies that are placed in dispensers and sold throughout Cali.

• Other products: Fundamor established two produc13.1% 67% tion workshops, one that makes household cleaning products and one that makes school and work uniforms. Fundamor is also 50% owner of Competir, the organization responsible for marketing and selling the uniforms.

FOR MORE INFORMATION

Product Sales

Use of Hard Assets

The organization rents its auditorium and studio 14.5% 76% apartment for conferences and seminars. It also renovated its former headquarters office into several rental apartments.

Investment Like many other organizations in Colombia, Fundamor Dividends has a Permanent Matching Fund with the Fundación FES (see case 15% 15). Fundamor also established special 79.3% funds for each of its program areas with program savings or specific donations. Eventually these funds will become Fundamor’s endowment.

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86%

ANNUAL OPERATING BUDGET (1998)

PERCENT OF SELF-FINANCING (1998)

= 61%

100%

Fundación Dar Amor 52% (Fundamor) Calle 19 y 20 con Kras 148 y 154 la Viga Pance Cali, COLOMBIA Tel: +(57-2) 555-1384 Fax: +(57-2) 555-1613 83% Email: oscar_velez@yahoo.com

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Case 22:

Geneva Centre for Autism MAIN ACTIVITIES The Geneva Centre for Autism`s primary area of activity is education and training. Activities and programs encompass three broad areas including: • skill building for parents of children with autism and the children themselves; • training and consultation to other service providers; and • information and public education.

LOCATION Toronto, Canada

FIELDS Community Development Culture 3 Education/Training Environment Health 3 Social Services Other

A significant amount of the organization’s resources are focused on working with the parents of autistic children and individuals with autism, helping them cope with the day-to-day challenges associated with the disease. Staff members also dedicate time to supporting teachers and other service providers who work with clients with autism.

FINANCIAL INFORMATION INCOME: The Geneva Centre’s operating budget for 1998 was CAD

1.48 million (USD 964,000), of which 33% was generated through self-financing activities. This proportion was slightly more than in the two preceding years.

MISSION

SOURCES OF INCOME (% of total)

The Geneva Centre for Autism was incorporated in 1974 as a nonprofit, nongovernmental charity. The Centre’s mission is to enable individuals with autism to fully participate in their communities.

1998

1997

Public Sources - government grants

58

60

Private Sources - individual donations - corporate grants

7 2

5 2

33

29

–

4

100%

100%

Self-Financing In-kind Donations

TOTAL

EXPENSES: The organization’s expenditure is heavily focused on the delivery of programs and services, with 86%directly allocated to these activities. Fundraising expenses account for 2% of the budget, and 12% was used for administrative and office expenses. These proportions have remained relatively constant for the past three years.

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14.5%

76% 213

15% SELF-FINANCING ACTIVITIES In the early 1990s, government funding programs began to shrink and the Geneva Centre found it increasingly difficult to secure resources for programs it deemed necessary for its client base. At the same time, a new method for working with clients with27% autism emerged within the industry. This created the basis for the development of the organization’s self-financing activities.

79.3% SELF-FINANCING METHODS USED

3 Membership fees 3 Fees for Services 3 Product Sales

Use of Hard Assets86% Use of Soft Assets Investment Dividends

METHODS OF SELF-FINANCING

Member Dues

In 1996, the Geneva Centre launched a membership plan for those interested in supporting its work.

The 28% dues help offset operational costs.

Fees for

The organization offers fee-based workshops to autism caregivers. The field of autism is relatively young,- so new information is highly valued by parents and practitioners. The decision to charge for 33% caregiver workshops was not easy because charging a fee seemed to conflict with the organizational mission to support people with autism. At first, the Centre charged family members of children with autism a nominal workshop fee of CAD 5 (USD 3.25). However, the drain on the organization’s owns 40% resources proved significant. This, plus the fact that the Centre routinely brought expert speakers from outside to present new material, suggested that charging more significant fees was defensible.

Surprisingly, once the workshops were priced at market rates, clients began to value the sessions more 41.5% and their popularity grew. By 1996, the Centre was delivering more than 100 workshops a year and attracting attention from across the country. The organization has since added a summer training program for teachers, professionals and parents; and a certificate-training program for practitioners.

Services

Products Sales

In 1992, the organization began to charge for educational materials related to autism.

risky business: The impacts of merging mission and market Copyright © NESsT 2003

ANNUAL OPERATING BUDGET (1998) USD 964,000

88%

PERCENT OF SELF-FINANCING (1998)

= 33%

89% FOR MORE INFORMATION Geneva Centre for 90% Autism 250 Davisville Ave. Toronto M4S 142 CANADA Tel: +(1-416) 322-7877 Fax: +(1-416) 322-5894 Email: info@autism.net 98% Website: http://www.autism.net

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Case 23:

Greater DC Cares

MAIN ACTIVITIES The primary activities of Greater DC Cares include: • organizing and managing volunteer activities for individuals and corporations; • managing volunteer programs for families; and • operating the largest day for community volunteers, with over 4,000 participants.

LOCATION

The organization recently began to promote philanthropy among corporations, most notably through a major Business Philanthropy Summit for area corporations, sponsored annually.

Washington, D.C., U.S.A.

FINANCIAL INFORMATION FIELDS Community Development Culture Education/Training Environment Health Social Services 3 Volunteerism

INCOME: The 1998 operating budget for Greater DC Cares was USD 950,000, of which 9% was generated through self-financing activities.

This proportion was similar in 1997 and 1996.

SOURCES OF INCOME (% of total) Private Sources - individual donations - foundation grants - corporate grants Self-Financing - fees for service(s)

1998

1997

1996

16 24 51

17 27 44

17 24 50

9

12

9

100%

100%

100%

MISSION Greater DC Cares was founded in 1989 to improve life in the greater Washington, D.C., area by providing creative ways to volunteer and serve effectively. To achieve this, the organization promotes and organizes volunteerism among the area’s residents.

TOTAL

EXPENSES: In 1998, 72% of the organization’s expenditure was for administrative costs; 15% for fundraising; and 13% for programs and activities. Administrative costs include staff salaries for both programs and organizational administration.

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SELF-FINANCING METHODS USED

SELF-FINANCING ACTIVITIES In the mid-1990s, Greater DC Cares launched two self-financing programs; one mission-related and one unrelated. The organization’s goal is to become at least 50% self-financed.

METHODS OF SELF-FINANCING

Fees for Services

• Business Shares: In 1994, the organization launched the Business Shares program, in which Greater DC Cares organizes corporate employee volunteer programs in exchange for a fee. The price of these ser7% vices ranges from USD 5,000 to 12,000. The organization currently has twenty clients, and hopes to attract more with its recently launched Business Philanthropy Summit for corporations. The program is managed by one employee and currently brings in nearly 10% of the Greater DC Cares budget. a sep• Cares@Law: In 1998, Greater DC Cares created 9% arate, wholly owned, for-profit subsidiary, Cares@Law. The company offers temporary placement of attorneys to corporations, a field Greater DC Cares has identified as a strong growth industry. Cares@Law shares office space and administrative personnel with Greater DC Cares, but the two organizations are sep13.1% arate and are overseen by different boards of directors. Cares@Law is not yet profitable; so, no dividends have been generated for Greater DC Cares.

14.5%

risky business: The impacts of merging mission and market Copyright © NESsT 2003

3 Fees for Services

Membership fees Product Sales Use of Hard Assets Use of Soft Assets Investment Dividends

ANNUAL OPERATING BUDGET (1998) USD 950,000

60.6%

PERCENT OF SELF-FINANCING (1998)

= 9%

63%

FOR MORE INFORMATION Greater DC Cares 1201 New York Ave. 67% NW Washington, D.C. 20815 U.S.A. Tel: +(1-202) 289-7378 Fax: +(1-202) 289-4108 Email: 76% pcollyer@dc-cares.org Website: http://www.dc-cares.org

15%

79.3%

27%

86%

28%

88%

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Case 24:

Green Line

MAIN ACTIVITIES The activities of Green Line fall within its three key programs: LOCATION Puchov, Slovakia

FIELDS Community Development Culture 3 Education 3 Environment Health Social Services Other

MISSION Green Line (Zelena Linka) was founded in 1992 “to attain the widest possible involvement of the inhabitants of the Central Vah River Basin Area in ecological and educational programs that lead to positive changes in the state of the region’s natural environment.”

• ecological education programs for primary schools to help teachers raise the ecological awareness of their pupils; • outings intended to give school children and young people the chance to get to know and experience the natural and man-made treasures of Slovakia; • programs to help build the confidence of young people aged sixteen-twenty so they can use their potential to benefit the countryside in which they live.

FINANCIAL INFORMATION INCOME: In 1998, the projected annual operating budget of Green Line was approximately SKK 2 million (USD 54,000). Approximately 78% of Green Line’s income was expected to come from its selffinancing activities.

SOURCES OF INCOME (% of total) International sources - international grants Public sources - state subsidy

1998*

1997

1996

9

0.5

–

1

4

13

Private sources - grants from foundations - gifts from firms

10 1

15 3

4 2

Self-financing - membership dues - fees for services - sale of products

1 77 –

1 76 –

1 76 2

Other (returned prepayments for electricity & transport; interest received)

TOTAL

1

100%

0.5

100%

2

100%

* Projected

EXPENSES: Green Line’s 1998 budget expenditures were expected to

be for programs and activities (80%) and administrative/office expenses (20%). Green Line estimates that 50% of its program/activities time and expenses are dedicated to self-financing activities, but group leaders see this as an integral part of the mission and not as a fundraising expense.

risky business: The impacts of merging mission and market Copyright © NESsT 2003

7%

60.6%

100%

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9%

63% SELF-FINANCING METHODS USED

SELF-FINANCING ACTIVITIES In May 1995 Green Line was granted free use of an old monastery building dating from the second half of the 19th century, together with the surrounding13.1% park. Green Line has since been working 67% both to preserve these cultural artifacts and to adapt them for use as an “eco-center.” This objective, along with a decision in 1994 to become more financially independent, has led Green Line to set a goal of becoming 75% self-financed. Green Line pursues only those self-financing activities that are in related to its mission.

14.5%

METHODS OF SELF-FINANCING

76%

Member Dues

More than 50 members pay annual contributions of SKK 240 (USD 6,50). Members receive a free quarterly information bulletin, reduced prices on various activities, and free use of the Green Line building space.

Fees for Services

• Environmental 15% outings: Green Line organizes outings 79.3% for young people to acquaint them with the natural and cultural heritage of Slovakia.

• Educational seminars: Schools and educational authorities have contracted Green Line to organize environmental education seminars for primary school teachers.

• Field education programs: Green Line organizes programs for schools consisting of practical ecological edu27% 86% cation in the countryside around Puchov.

• Summer camps: Green Line operates an ecological education summer camp for children.

Product Sales

• Educational materials: Green Line produces and sells ecological education manuals for teachers. The manuals contain activities, games and stories for 28%and are paid for by teachers or schools.

88% young people To distribute the books, Green Line works with other NGOs, which share a portion of the profits.

• T-shirts/stickers: Green Line occasionally sells its Tshirts and stickers with ecological slogans and images.

Use of Hard Assets

• Leasing of space: When the Green Line building is not being used for ecological education, it is 33% 89% offered as a recreational center or rented out to youth groups for meetings and accommodation.

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52%

90%

3 Membership Dues 3 Fees for Services 3 Product Sales 3 Use of Hard Assets Use of Soft Assets Investment Dividends

ANNUAL OPERATING BUDGET (1998) USD 54,000

PERCENT OF SELF-FINANCING (1998)

= 78%

FOR MORE INFORMATION Green Line M. R. Stefanika 817 Puchov 020 01 SLOVAKIA Telephone: +(421) 825-41-207 Email: zelenalinka@ changenet.sk Website: http://www.fns.uniba.sk /zp/linka/eng/index.html

83%

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Case 25:

Hogar de Cristo

MAIN ACTIVITIES

LOCATION Santiago, Chile

FIELDS Community Development Culture Education/Training Environment Health 3 Social Services Other

MISSION Hogar de Cristo was founded in Chile in 1944 by a Jesuit priest, Father Alberto Hurtado, with the mission to serve the poorest of the poor and to be a “bridge” of solidarity with Chilean society. The organization, now the largest operating foundation in Chile, provides assistance to the marginal poor, particularly the elderly, the homeless, terminally ill patients, abandoned children, and youth. An important part of the Hogar de Cristo mission is to address the causes of poverty through policy change and awareness raising in Chile.

Hogar de Cristo has projects in eight key areas: 1) Children and Families; 2) Community Work; 3) the Elderly; 4) Hospices; 5) Health; 6) Social Risks; 7) Disabled; and 8) Housing. Hogar de Cristo runs shelters, hospices, and homes for children and the elderly; provides funeral services to the poor who cannot afford them; gives scholarships to children and youth to attend schools, provides credit to unemployed people to start businesses, and provides housing support.

The organization is both an operating and grantmaking foundation.

One-third of its projects are financed directly and managed through the various program areas of the foundation. The remaining projects are developed and managed by approximately 80 different community-based organizations, mostly parishes, and financially supported by the foundation through annual grants.

FINANCIAL INFORMATION INCOME: In 1998, 86% of Hogar de Cristo’s budget of CLP 8.33 billion (USD 17,611,000) was funded by the organization’s self-financing activities. The proportion of income from self-financing grew significantly from 1997, when it was 71.5%. This increase was primarily due to a 10% increase in revenues from membership dues.

SOURCES OF INCOME (% of total)

1998

1997

1

0

Private Sources - individual donations - corporate donations

11 2

27 2

Self-Financing - membership dues - fees for service(s) - product sales - use of hard assets - use of soft assets

55 18 4 6 3

44 17 3 7

100%

100%

International Sources - foreign/international grants

TOTAL

EXPENSES: In 1998, the organization spent 17% of its budget on

administrative and fundraising costs, and the remaining 83% in programs and activities. This changed significantly from 1997 when the organization’s allocations for administration and fundraising was 28%, leaving 72% for programs and activities.

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9%

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63%

52% 219

13.1%

67%

SELF-FINANCING ACTIVITIES Hogar de Cristo has used its entrepreneurial spirit and experience to develop a series of market-based strategies that provide Chileans the opportunity to support the organization.

14.5%

METHODS OF SELF-FINANCING

Member Dues

Fees for Services

76%

Hogar de Cristo’s main self-financing activity is its membership program. The organization has almost half a million members. It runs a door-to-door program in which representatives go to neighborhoods to visit with members card 15% and to collect dues; a credit79.3% program using telemarketing to solicit members; a corporate program where employers match their employees’ member dues; and a children’s program promoted in 20 public schools in the Santiago area.

Through the greetings program, Hogar de Cristo asks 27%family members and friends a86% for a fee to send card and special greeting at a weekly mass in recognition of different occasions (death, weddings, etc.). Hogar de Cristo also holds several contracts with the national government that partially offset the costs of its programs with youth and the elderly. The organization also looks toward by 28%its clientele to offset some costs 88% asking them to contribute 70% of their pensions or by paying a small voluntary user fee for its outpatient services.

Product Sales

Hogar de Cristo operates 20 small shops that solicit memberships, accept donations, and distribute Padre Hurtado commemorative items made by the Padre 33% Hogar de Cristo also sells custom89% Hurtado Foundation. made Christmas cards to companies. More generic Christmas cards are sold at the small shops and through street vendors who sell them for a commission.

Use of Hard Assets

Hogar is part owner of three shopping centers and receives rental income based on sales volume. The organization is40% also 99% owner of a funeral home90% that pays Hogar rent to use the building and funeral cars.

Use of The organization holds several royalty contracts for Soft Assets the use of its name. The largest is with a private cemetery, Los Parques, which pays a royalty for Hogar’s endorsement. Prever, a company that sells funeral 41.5% 98% arrangements in advance, and the above-mentioned funeral home also pay to use the Hogar name.

risky business: The impacts of merging mission and market Copyright © NESsT 2003

83% SELF-FINANCING METHODS USED

3 Membership fees 3 Fees for Services 3 Product Sales 3 Use of Hard Assets 3 Use of Soft Assets Investment Dividends

ANNUAL OPERATING BUDGET (1998) USD 17,611,000

PERCENT OF SELF-FINANCING (1998)

= 86%

FOR MORE INFORMATION Fundación Hogar de Cristo Padre Alberto Hurtado 3812, Casilla 112-2 Santiago, CHILE Tel: +(56-2) 776-0505 Fax: +(56-2) 779-3191

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Case 26: LOCATION

INFRA-BER

MAIN ACTIVITIES

Ajka, Hungary

FIELDS Community Development Culture Education Environment 3 Health 3 Social Services Other

MISSION The mission of the INFRA-BER Foundation is to work for public welfare, primarily to provide help for the progress of the socially and physically disabled young people in Ajka. The target group of the foundation is the highly disadvantaged, primarily children, living in and around the city.

INFRA-BER fills both a service provision and a grant-making function in the medical and social spheres. The work of the foundation includes organizing recreational events for students and young people, offering rehabilitation programs for ill children, and supporting environmental protection in Ajka. Specific programs include the International Exhibition and Fair, swimming lessons for physically challenged children, and other activities and events in Ajka that serve the welfare of the foundation’s target groups.

FINANCIAL INFORMATION INCOME: In 1998, the annual operating budget of the foundation was

approximately HUF 3 million (USD 14,000). Approximately 90% of the foundation’s income was derived from its own self-financing activities.

SOURCES OF INCOME (% of total) Public Sources - government grants Self-Financing - fees for services

TOTAL

1997

1996

10

–

–

90

–

–

100%

n.a.

n.a.

EXPENSES: The largest portion of INFRA-BER’s 1998 expenses (70%) was for providing in-kind and financial assistance to the foundation’s beneficiaries. The remainder (30%) was used for programs and activities. The foundation spends none of its resources on wages or administrative expenses.

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1998

15%

79.3% CSO Case Summaries risky business

221

27%

86%

SELF-FINANCING ACTIVITIES

SELF-FINANCING METHODS USED

Since the foundation was established in 1991, its leaders have tried to be independent of governmental support. The three founders of INFRA-BER had private business experience and had an entre28% 88% preneurial influence on the financing strategy of the foundation.

The foundation’s aim in self-financing is to cover the expenses of ongoing programs and to make its work better known, while also providing employment for its members.

3 Fees for Services

METHODS OF SELF-FINANCING

ANNUAL OPERATING BUDGET (1998)

Fees for Services

• Product33% distribution: In 1991, the manager 89% of the foundation was visited by the German company Amed Thech Kft, which produced and distributed surgical instruments. The company had worked exclusively in the West European market before and planned to expand eastward. The foundation signed a contract to distribute the company’s surgical instrument, 90% designed40% to relax nerves and muscles. The foundation receives at least USD 5 for each piece sold. If the instrument is sold through a business sales executive, the seller receives USD 10 and the foundation receives USD 5; if the foundation finds customers for large quantities, it receives a commission of 10% of the sales price.

98% • Product41.5% assembly: In addition to the distribution of the products, the foundation signed a contract with the company for one phase of assembling the instruments. The foundation’s disabled beneficiaries are hired for the assembly work. Payment is shared between the foundation and the workers.

• Market research: There is also a new agreement in operation with Amed to do market research for the company to identify new markets for the distribution of its instruments.

risky business: The impacts of merging mission and market Copyright © NESsT 2003

Membership Dues Product Sales Use of Hard Assets Use of Soft Assets Investment Dividends

USD 14,000

PERCENT OF SELF-FINANCING (1998)

= 90%

FOR MORE INFORMATION INFRA-BER Deak Ferenc u. 6 Ajka 8400 HUNGARY Tel: +(36-88) 214-213

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Case 27: LOCATION

KÁLLFÓ

MAIN ACTIVITIES

Nagykallo, Hungary

FIELDS Community Development Culture Education Environment Health 3 Social Services Other

MISSION The KÁLLFÓ Welfare Service Foundation has been operating in Nagykallo and the surrounding area since 1992. The mission of the foundation is to help the disadvantaged through social employment. The foundation works to help primarily mentally or physically disabled people as well as the poor.

The main activities of the KÁLLFÓ Welfare Service Foundation are: 1) finding employment and participating in economic activities that create employment; 2) rehabilitation activities (home-care and counseling services for the elderly and those in need): 3) training for skilled labor, i.e., helping unemployed and needy individuals and running vocational training and re-training courses for adults changing professions.

FINANCIAL INFORMATION INCOME: In 1998, the annual operating budget of the KÁLLFÓ Foundation was expected to be approximately HUF 88 million (USD 408,000). Approximately 60% of the foundation’s income was anticipated from its self-financing activities.

SOURCES OF INCOME (% of total) Public Sources - government grants Private Sources - individual donations, foundation grants and corporate grants Self-Financing - fees for service(s)

TOTAL

1997

1996

37

33

–

3

12

–

60

55

–

100%

100%

n/a

EXPENSES: Based on figures for 1997, 67% of KÁLLFÓ’s expenses consisted of salaries and benefits, 9% for administrative expenses, 10%for materials and supplies, 8% for repairs and maintenance, and 6% for external contracting.

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1998

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SELF-FINANCING METHODS USED

SELF-FINANCING ACTIVITIES The enterprise activities of the foundation serve a dual purpose.

First, they contribute to efforts in the area to curb the dramatic trends in unemployment while providing employment opportunities for the foundation’s primary beneficiaries. Second, they provide a more secure financial footing for the foundation to provide social services to its beneficiaries.

3 Fees for Services

Membership Dues Product Sales Use of Hard Assets Use of Soft Assets Investment Dividends

METHODS OF SELF-FINANCING

Fees for Services

• Product assembly: In 1990, a state-operated shoe factory in Nagykallo shut down, leaving the large, welltrained local work force unemployed. The leadership of the social employment agency began courting Nordica, an Italian company that manufactures ski-boot inserts, sewing textiles and weaving. Nordica was looking for a partner in Hungary to make inserts for its ski-boots, and the company signed an agree7%the foundation to provide this service.

60.6% ment with The local government contributed free real estate for the factory. Because the enterprise targets rehabilitation, KÁLLFÓ was granted a state license that allows it to receive certain state benefits, so long as the disabled employees constitute at least 60% of the work force.

9%

63%

13.1%

67%

14.5%

76%

15%

79.3%

risky business: The impacts of merging mission and market Copyright © NESsT 2003

ANNUAL OPERATING BUDGET (1998) (projected)

USD 408,000

PERCENT OF SELF-FINANCING (1998)

= 60%

100%

FOR MORE INFORMATION KÁLLFÓ Welfare Service Foundation Batori u.92 Nagykallo 4320 HUNGARY Tel: +(36 42) 263 390

52%

83%

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Case 28:

KUD

MAIN ACTIVITIES

LOCATION Ljubljana, Slovenia

FIELDS Community Development 3 Culture Education Environment Health Social Services Other

MISSION KUD Cultural and Arts Center was established in 1919. Since 1987, KUD has focused on supporting “alternative” cultural events with special attention to underprivileged groups, the elderly, women, exiles, and young people.

KUD’s primary activities include performances and events for both children and adults (music, puppet theater, dance, improvisations, poetry, etc.) and exhibitions of photography, graphic arts, computer graphics, painting, and multimedia projects — especially new trends and innovations by the younger generation of artists. KUD also publishes books and produces CDs of “cult titles by cult authors” and works of young artists.

FINANCIAL INFORMATION INCOME: In 1998, KUD`s annual operating budget was approximately

SIT 60 million (USD 372,000). Approximately 45% of KUD’s income comes from its self-financing activities.

SOURCES OF INCOME (% of total) International Sources - international grants Public Sources - government grants

1997

1996

8

10

12

12

31

32

Private Sources - corporate sponsorship

35

4

9

Self-Financing

45

55

47

100%

100%

100%

TOTAL

EXPENSES: In 1998, the largest portion of KUD expenses was for programs and activities (68%), followed by administrative/office expenses (22%), and fundraising expenses (10%).

KUD produces and sells a variety of products, including books, T-shirts, CDs, etc.

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1998

27%

86%

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225

28%

88% SELF-FINANCING METHODS USED

SELF-FINANCING ACTIVITIES Since 1919, KUD has worked to use self-financing strategies, particularly ticket sales and a café, to cover core administrative costs and the costs of all projects within the organization, especially 33% those for which it is difficult to raise funds.

3 Membership Dues 3 Fees for Services 3 Product Sales 3 Use of Hard Assets

METHODS OF SELF-FINANCING

3 Investment

Use of Soft Assets

Member Dues

KUD has collected small, symbolic membership fees since 1919.

Fees for Services

• Ticket sales: Since 1960, KUD’s main self-financing 40%culincome has come from selling tickets for different tural performances and events. The primary customers are students and young people (under 30 years old).

• Café: Since 1970, KUD has operated a café, to serve coffee and other drinks as an additional service to the people who visit the center. The café also has an exhibition space.

Dividends

ANNUAL OPERATING BUDGET (1998) USD 372,000

Product Sales

KUD produces and sells a variety of products, including books, T-shirts, CDs, etc. Most relate to the young artists exhibiting or performing at the center.

Use of Hard Assets

• Space rental: When not in use for its own programs, KUD occasionally rents its facilities to other organizations for roundtable discussions, press conferences, or similar events.

Investment KUD generates some income from a one-time investDividends ment it made in 1992.

Since 1960, KUD’s main self-financing income has come from selling tickets for different cultural performances and events.

Copyright © NESsT 2003

90%

PERCENT OF SELF-FINANCING (1998)

= 45%

41.5%

risky business: The impacts of merging mission and market

89%

98% FOR MORE INFORMATION KUD Center Karunova 14 1000 Ljubljana SLOVENIA Tel: +(386) 61-332-288 Fax: +(386) 61-331-128 Email: kud@kud-fp.si Website: http://www. ljudmila.org/kud/

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Case 29: LOCATION

LSS

MAIN ACTIVITIES

Prague, Czech Republic

FIELDS Community Development Culture 3 Education 3 Environment Health Social Services Other

Lipnice Summer School (LSS) offers its educational courses to the general public, schools, and NGOs. In 1993, LSS founded Czech Way Ltd., a for-profit firm that provides training in areas of teamwork, communication, creative problem-solving, and team leadership to commercial companies. In 1997, LSS purchased a building to be used as an educational center and as a base for organizing LSS Outward Bound courses.

FINANCIAL INFORMATION INCOME: In 1998, the annual operating budget of LSS was approxi-

MISSION The Lipnice Summer School (LSS) is a civil association established to further the development of education methods utilizing experiential techniques in nature.

Since 1991, LSS has been a member of Outward Bound, the international educational organization that offers intensive experiences in close contact with nature.

mately CZK 2.6 million (USD 86,000). Approximately 91% of LSS’s income was derived from its self-financing activities.

SOURCES OF INCOME (% of total)

1998

1997

1996

Public Sources - government

5

6

26

Private Sources - donations from individuals - grants from foundations - gifts from companies

2 0.5 1

3 5 7

3 16 2

3 58 2 8 5 2

2 44 1 – 3 2

1

1

100%

100%

Self-Financing - member fees - fees for services - sale of products - soft assets - hard assets - investment dividends In-Kind Donations

TOTAL

2 81 3 – 3 2 0.5

100%

EXPENSES: The largest portion of LSS’s 1998 expenses (59%) was for investments in the building purchased the previous year to create an outdoor education center. Other expenses included administrative and office expenses (3.5%), fundraising (1.5%), and programs and activities (36%).

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15%

79.3% CSO Case Summaries risky business

227

27%

86%

SELF-FINANCING ACTIVITIES Because of the irregularity of state and foundation grants for their work, the LSS team began to consider the potential marketability of its services to paying clients. LSS has an ambitious plan to earn 80 28% 88% to 100% of the resources needed to maintain its operations from selling its services — while simultaneously increasing public awareness of its activities.

SELF-FINANCING METHODS USED

3 Membership Dues 3 Fees for Services 3 Product Sales 3 Use of Hard Assets 3 Use of Soft Assets 3 Investment Dividends

METHODS OF SELF-FINANCING

Member Dues

LSS has collected membership dues since 1990.

There are more than 200 members. Active members 33% 89% receive a discount of 60% on LSS services.

Fees for Services

LSS started charging fees for its summer courses in 1990; however, most of the total expense of a course is covered by state and other grants rather than by participants. LSS aims to increase the share covered by participants.

40% 90% In 1993, LSS established a subsidiary, Czech Way Ltd., to provide training to commercial companies, schools, and school administrators. LSS is the sole owner of the company, and profits are invested in the development of LSS programs.

Product Sales

Income from the sale of publications is an occasional financial41.5% source. For example, LSS published and 98% now sells the “Guide for Instructors,” a text for those interested in becoming LSS instructors.

Use of Hard Assets

Since 1994, LSS has rented out its outdoor training equipment, generating between 2 and 5% of its income.

Use of Soft Assets

A second book, which contains a selection of games used by LSS instructors as part of their courses, was published and distributed under an agreement with Portal publishing house, a for-profit company.

Investment LSS generates approximately 2% of its income Dividends from investment dividends.

LSS’ expertise in developing outdoor leadership training programs gives its for-profit subsidiary, Czech Way Ltd., an advantage over competing companies.

risky business: The impacts of merging mission and market Copyright © NESsT 2003

ANNUAL OPERATING BUDGET (1998) USD 86,000

PERCENT OF SELF-FINANCING (1998)

= 91%

FOR MORE INFORMATION Lipnice Summer School Senovane namisti 24 Prague 1, 116 47 CZECH REPUBLIC Tel: +(420) 224-102-552 Fax: +(420) 224-012-233 Email: psl@ecn.cz Website: http://www.ecn.cz/ prazdninovka

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Case 30:

MCH

MAIN ACTIVITIES

LOCATION Cierny Balog, Slovakia

3 Community

A central part of the Micro-Region Cierny Hron (MCH) mission is the preservation and maintenance of the historic forest railway of the Ciernohronska Railway Center (CHZ). The CHZ was established to preserve and publicize the forest railway and to develop the local tourist industry. MCH strives to create opportunities for local inhabitants to find work locally. The organization also ensures that the development of the tourist industry is in accordance with the appropriate development plan of the municipality and is environmentally appropriate.

FIELDS

Development 3 Culture Education Environment Health Social Services Other

FINANCIAL INFORMATION INCOME: In 1998, the projected annual operating budget of MCH was approximately SKK 5 million (USD 136,000). Approximately 82%of MCH’s income derived from its self-financing activities.

SOURCES OF INCOME (% of total)

1998

1997

1996

Public Sources - government grants

13

16

16

Private Sources - individual donations - corporate grants

3 1

1 1

1 1

1 80 1 1

2 80 – 1

1 80 – 1

100%

100%

100%

MISSION The Micro-Region Cierny Hron (MCH) is a nongovernmental, nonprofit organization whose mission is to support the development of local democracy, economic development, and cultural preservation in partnership with municipalities and other local entities.

Self-Financing - membership dues - fees for service - product sales - hard assets

TOTAL

EXPENSES: In 1998, the largest portion of the MCH expenses was for

programs and activities (80%), followed by administrative/ office expenses (10%) and fundraising expenses (10%).

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15%

79.3% CSO Case Summaries risky business

229

27%

86% SELF-FINANCING METHODS USED

SELF-FINANCING ACTIVITIES MCH strives to cover up to 100% of its annual budget through selffinancing. The long-term objective is complete renovation of the railways and all buildings that belong to the organization in order to 28% 88% enable the group to expand its programs and self-financing activities. When the railway was opened to the public in 1992, MCH found that in addition to operating trains it was necessary to provide visitors with other services. The organization’s customers consist of visitors to Cierny Balog, travel agencies, school excursion groups, work groups, and local residents.

33%

METHODS OF SELF-FINANCING

89%

Member Dues

• Membership: Villages contribute annual membership fees (originally calculated in accordance with the number of village inhabitants).

Fees for Services

• Ticket sales: One of the largest and most important parts of the MCH income is the money received from 40% 90% the sale of railway tickets.

• Food services: The operation of a station restaurant is another important self-financing activity. MCH also manages two dining cars and caters outdoor picnics for travel agencies and other private companies.

• Advertising: For a fee, companies can place their advertising boards in the MCH railway area. Their 41.5% 98% names and logos are also published in annual MCH advertising materials.

• Other services: MCH currently has 14 trade licenses in areas such as haulage, car repairs, locksmith services and accountancy. Similar to the hard assets mentioned below, these activities are generally services needed by MCH itself but which, when not in use, are offered to other customers.

Product Sales

MCH occasionally receives in-kind donations that cannot be used and are usually sold.

Use of Hard Assets

MCH often leases its machines and transport equipment when not used for program purposes.

risky business: The impacts of merging mission and market Copyright © NESsT 2003

3 Membership Dues 3 Fees for Services 3 Product Sales 3 Use of Hard Assets Use of Soft Assets Investment Dividends

ANNUAL OPERATING BUDGET (1998) USD 136,000

PERCENT OF SELF-FINANCING (1998)

= 90%

FOR MORE INFORMATION Micro-Region Cierny Hron Hlavná 56 Cierny Balog 976 52 SLOVAKIA Tel: +(421) 048-6190153 Fax: +(421) 048-6191537 E-mail: vydra@isternet.sk Website: http://www.vydra.sk

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Case 31: MEXFAM MAIN ACTIVITIES

LOCATION Tlalpán, Mexico

FIELDS Community Development Culture 3 Education/Training Environment 3 Health Social Services Other

Fundación Mexicana para la Planeación Familiar (MEXFAM) has its main offices in Mexico City and branch offices in 25 states in the Republic of Mexico. MEXFAM works in three key areas: • Sexual health for youth: a program that provides medical services, information, and education on sexual health to young people living in marginal urban and rural areas; • Clinics and medical offices in sexual and reproductive health for marginal urban and rural populations; • Community health: a program that offers community health services through community extension providers that are trained, equipped, and supervised by MEXFAM. MEXFAM has a staff of 185 full-time and fifteen part-time employees and works with a volunteer corps of approximately 3,000 people.

FINANCIAL INFORMATION

MISSION The Fundación Mexicana Para la Planeación Familiar (MEXFAM) was established in 1965 to offer quality and innovative services in family planning, health, and sex education to the most vulnerable population of Mexico: the poor and youth.

INCOME: MEXFAM’s 1998 operating budget was 54.51 million MXN (USD 5,510,000), of which 40% was generated through self-financing activities. The proportions were similar the prior year, with 34% of the budget coming from self-financing.

SOURCES OF INCOME (% of total) International Sources - foreign/international grants Private Sources - individual donations Self-Financing - fees for service(s) - product sales - dividends from investments In-kind donations

TOTAL

1998

1997

48

62

3

1

32 6 2

24 7 3

9

3

100%

100%

EXPENSES: In 1998, 86% of MEXFAM’s expenditure went to support programs and activities, and the remaining 14% was for administration. This breakdown was nearly the same in 1997: 85% for programs and 15% for administration.

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CSO Case Summaries risky business

15%

79.3% 231

27% SELF-FINANCING ACTIVITIES Until 1992, MEXFAM depended almost totally on outside funding and only charged nominal fees for its medical services and educational materials. With the support of these donors, the organization is slowly in transition to generate a substantial amount of its 28% resources from self-financing.

METHODS OF SELF-FINANCING

Fees for Services

Product

In 1992, was encouraged by its donors (the U.S. Agency for International Development and the International Planned Parenthood Federation) 33%to begin recovering its costs for medical services offered in its newly established health clinics. Slowly implemented the fees and now charges for all services offered in its fifteen clinics. These services include gynecology, pediatrics, general medicine, medicine for adolescents, ultrasound, X-rays, childbirth, and 40% surgery. Users of these services are mostly poor women and young people. Fees are modest and only cover the operational costs of the clinics and some community services in the surrounding areas. The Foundation subsidizes these through donation support. All users pay the same level of fees for each service provided.

41.5% MEXFAM also charges for its capacity-building program, which includes education, training, and technical assistance in sexual health.

In 1988, began to generate income through the sale of educational materials it distributes to its client population. This does not produce a great amount of income for the organization, but it follows the belief that people will value products more if they are asked to pay for them. In 1996, began to ask for “cost-recovery fees” for contraceptives, principally birth-control pills and prophylactics. The contraceptives are a key component of its sex education and health program.

Again, they are sold for a modest price and generate only minimal profit.

Investment Earns a substantial amount of new income from its Dividends investment dividends. The organization reinvests interest earned on advance deposits of program grants and payments. Through this process it has created a substantial pool of funds that it invests as optimally as possible.

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86% SELF-FINANCING METHODS USED

3 Fees for Services 3 Product Sales

Membership fees

Use of Hard Assets88% Use of Soft Assets 3 Investment Dividends

ANNUAL OPERATING BUDGET (1998) USD 5,510,000

89%

PERCENT OF SELF-FINANCING (1998)

= 40%

90% FOR MORE INFORMATION MEXFAM Juárez 208 Tlalpán D.F., MEXICO Tel: +(52-55) 737-100 Fax: +(52-55) 732-318 Email: director@ mexfam.org.mx

98%

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Case 32: Nephrocentrum MAIN ACTIVITIES

LOCATION Budapest, Hungary

Nephrocentrum provides a variety of services, including screening of kidney disease patients; care and out-patient professional service; operation of an artificial kidney station; home treatments; health education and information; employment for partially disabled people; and other social assistance. The foundation has taken over several rehabilitation functions of social security from the National Health Care Office. The foundation also runs a factory in Oroszlány, which it hopes will become a rehabilitative employment model.

FIELDS Community Development Culture Education Environment 3 Health 3 Social Services Other

FINANCIAL INFORMATION INCOME: In 1998, Nephrocentrum’s annual operating budget was expected to be approximately HUF 204 million. Since 1996, the largest amount of the foundation’s income (more than 70%) has come from a combination of government grants and contracts.

Approximately 21% of the foundation’s income was derived from its own self-financing activities.

SOURCES OF INCOME (% of total)

1998

1997

1996

Public Sources - government grants

74

77

76

Private Sources - individual donations - foundation grants

1 1

MISSION The Nephrocentrum Foundation was established in 1989 to improve the quality of life for people with kidney disease and “to achieve their integration into the society” through the provision of therapy, rehabilitation, and health-care services.

Nephocentrum’s activities focus primarily on the Ujpest area of northern Budapest and its surroundings.

Self-Financing - membership fees - product sales - dividends from investments - interest In-Kind Donations

TOTAL

1 16 1 1

1 1 – 17 2 1

3

3

2

100%

100%

100%

EXPENSES: In 1998, Nephrocentrum split its annual budget among the following: programs and activities (36%); fundraising expenses (36%); and administrative/office expenses (28%).

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– 18 2 1

0.5 0.5

7%

60.6%

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233

9% SELF-FINANCING METHODS USED

SELF-FINANCING ACTIVITIES Nephrocentrum began its enterprise activities primarily to provide employment and rehabilitation opportunities for its beneficiaries.

It was only a secondary aim to use the enterprises as an income13.1% generating source.

METHODS OF SELF-FINANCING

Product Sales

Use of Hard Assets

63%

• Polyethylene (PVC) products: Nephrocentrum produces a variety of PVC products, including driver’s license holders, plastic folders, and other office supplies. The 14.5% business started with internal orders for publishing educational books for the foundation. Numerous similar jobs have since been completed, mainly in the health-care field. For example, the foundation produces plastic folders for the Semmelweis Medical School. Today, both semi-skilled and skilled workers are employed. The enterprise is a “home industry,” i.e., 15%but all employees work from their homes. Everything the printing can be performed locally.

• Paper clip factory: Nephrocentrum leased local real estate and established a factory to produce materials for a local businessman (a producer of paper clips) who took an interest in the foundation. Nephrocentrum is making plans to extend the activities of the 27% factory to other industries (e.g., basket weaving).

The foundation employs 110 people in its enterprises, 72 of whom are “rehabilitated” workers (most with kidney disease; others are blind or physically disabled).

• Transport service: Because the foundation does contract work, it has acquired a few transport vehicles and seven drivers. When not in use, Nephrocentrum 28%uses the trucks to carry out paid transports for other clients.

Membership Dues Fees for Services 3 Product Sales 3 Use of Hard Assets Use of Soft Assets 3 Investment Dividends

ANNUAL OPERATING BUDGET (1998) USD 945,000

67%

76%

PERCENT OF SELF-FINANCING (1998)

= 21%

79.3%

FOR MORE INFORMATION Nephrocentrum Foundation Perenyi Zs. u. 64 H-1047 Budapest HUNGARY Tel: +(36-1) 370-0715 Fax:+(36-1) 390-3500 Email: nephro@elender.hu

86%

88%

Investment The foundation has small revenues from investments Dividends and interest income.

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33%

89%

40%

90%

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Case 33:

PDCS

MAIN ACTIVITIES

LOCATION Bratislava, Slovakia

FIELDS Community Development Culture 3 Education Environment Health Social Services 3 Conflict Resolution

Partners for Democratic Change-Slovakia (PDCS) provides training for representatives of nongovernmental organizations, local self-government and public services. The seminars teach cooperative planning and group decisionmaking, effective negotiating, problem solving, and mediation. PDCS also provides preventive assistance in conflict resolution. Upon request, PDCS enters into conflict resolution as a third-party, independent mediator. The main activities of PDCS include: • support for the development of nonprofit organizations and local civic activities through training and consulting services; • support of inter-sector cooperation and effective functioning of public service through joint seminars for the representatives of NGOs, government, and businesses across Slovakia; • support of alternative conflict solving/mediation in the commercial sector; • training for other potential mediators and judges;

MISSION Partners for Democratic ChangeSlovakia (PDCS) is an independent, nonpartisan, nongovernmental consulting and educational institution. The mission of PDCS is to cultivate democratic approaches for conflict prevention and resolution in society and to institutionalize these principles within Slovakia.

• a peer mediation project to train secondary school students to help solve conflicts among their peers.

FINANCIAL INFORMATION INCOME: In 1998, the projected combined annual operating budget of PDCS and its for-profit subsidiary, ARK Ltd., was approximately SKK 8.5 million (USD 231,000). Approximately 40% of the organization’s income derived from its self-financing activities.

SOURCES OF INCOME (% of total)

1998*

1997

1996

International Sources - public/private grants

60

65

70

Self-Financing - fees for services (PDCS) - fees for services (ARK Ltd.)

25 15

20 15

30 –

TOTAL

100%

100%

100%

* Projected Note: The data also include the income of the affiliated for-profit company ARK Ltd.

EXPENSES: In 1998, the largest portion of PDCS expenses was for pro-

grams and activities (85%), followed by administrative/office expenses (10%), fundraising expenses (1%); and other miscellaneous costs (4%).

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15%

79.3%

CSO Case Summaries risky business

235

27%

86% SELF-FINANCING METHODS USED

SELF-FINANCING ACTIVITIES In 1996, PDCS went through a process of strategic planning which called for a plan to secure the funding of office operation expenses and to raise resources for other projects through self-financing 28%the activities. Furthermore, the need to replace or at least reduce support from abroad became more pressing when the international organization that helped found PDCS announced a plan to phase out support over a period of years.

3 Fees for Services

METHODS OF SELF-FINANCING

ANNUAL OPERATING BUDGET (1998)

Fees for Services

33% Self-financing is managed in two ways: directly by the nonprofit organization and separately by ARK Ltd., a for-profit company formed by the board of PDCS. While PDCS deals mainly with consultation and training for NGOs, ARK focuses on commercial clients.

Both charge fees for their services. In the case of PDCS, a considerable part of the expense is subsi40% dized through grant funding.

Membership Dues Product Sales Use of Hard Assets Use of Soft Assets Investment Dividends

PDCS and ARK Ltd. combined

88%

89%

USD 231,000

PERCENT OF SELF-FINANCING (1998)

= 40%

90%

FOR MORE INFORMATION

41.5%

PDCS raises funds by offering its seminars on decisionmaking, negotiating, problem solving and conflict mediation to paying clients.

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Partners for Democratic Change-Slovakia Stúrova 13 811 02 Bratislava SLOVAKIA Tel: +(421-7) 531-8073 Fax: +(421-7) 531-4130 Email: pdcs@pdcs.sk website: www.pdcs.sk

98%

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Case 34: PEP LOCATION

MAIN ACTIVITIES

Baltimore, U.S.A.

FIELDS Community Development Culture Education/Training Environment 3 Health 3 Social Services Other

People Encouraging People works in the Baltimore community to assist people with serious persistent mental illness or other disabilities. The group also assists with welfare-to-work families. Virtually all of the organization’s clients live below the poverty level. PEP’s staff of 66 full-time employees, 42 part-time employees, and 10 unpaid volunteers operates three specific programs: • psychiatric rehabilitation services through counseling and other types of assistance; • employment services through employment training and placement; and • supported housing services.

MISSION The mission of People Encouraging People (PEP) is to provide rehabilitation and support services to individuals with psychiatric and other disabling conditions. PEP offers services that are highly individualized, community-based, and designed to foster a healthy level of interdependence between those individuals and their community.

FINANCIAL INFORMATION INCOME: PEP’s 1998 operating budget was USD 4.7 million , of which 88%was generated through self-financing activities. This represents a vast change from two years before, when the group was heavily dependent on grants and only generated 43% of its own income.

SOURCES OF INCOME (% of total)

1998

1997

1996

Public Sources - government grants

10

15

55

Private Sources - individual donations - foundation grants

1 1

1 1

1 1

88

83

43

100%

100%

100%

Self-Financing - fees for service(s)

TOTAL

EXPENSES: PEP spends 18% of its budget on administration, 1% on fund-raising, and the remaining 81% on programs and activities.

These proportions have been relatively constant for the past several years.

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CSO Case Summaries risky business

13.1%

67%

83% 237

14.5%

76% SELF-FINANCING METHODS USED

SELF-FINANCING ACTIVITIES PEP has always charged fees for some of its services. Between 1980 and 1995, the group even ran several small businesses designed to generate employment for its clients. The organization’s transition to fees for services came with a change in the funding mechanisms 15% 79.3% for psychiatric health in the state of Maryland.

METHODS OF SELF-FINANCING

Fees for Services

Product Sales

In 1997, PEP began to charge fees for discreet medically related rehabilitative services. Until then, the organization had relied greatly on state-level grants to 27% 86% underwrite its services. When the state of Maryland changed to a contract fee-for-service mechanism, PEP began to compete for contracts that were based on fees for number of clients served and type of service provided. The organization currently generates 88% of its funding28% through these contracts.

88% PEP does not currently sell any products; however, the group owned and managed several retail businesses during a period of 15 years. These businesses were intended to generate employment for the organization’s clients while creating revenues for the organization. The most33% notable operation was a Ben and Jerry’s 89% ice cream parlor franchise that PEP operated for almost three years. Ben and Jerry’s waived the franchise fee, and PEP borrowed the remaining capital investment. Although the store was making a profit, PEP was forced to close it because the owner of the building decided PEP 40%not to renew the lease and90% could not afford the cost of moving to a new location.

41.5%

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98%

3 Fees for Services 3 Product Sales

Membership fees

Use of Hard Assets Use of Soft Assets Investment Dividends

ANNUAL OPERATING BUDGET (1998) USD 4.7 million

PERCENT OF SELF-FINANCING (1998)

= 88%

FOR MORE INFORMATION People Encouraging People 4201 Primrose Ave. Baltimore, MD 21215 U.S.A. Tel: +(1-410) 764-8560 Fax: +(1-410) 764-9114 Email: dalemeyer@erols.com

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Case 35: PROCOSI MAIN ACTIVITIES PROCOSI has three primary activities: • It develops and obtains funding to monitor and evaluate health programs and projects on infant mortality, reproductive health, integral health, and nutrition.

LOCATION La Paz, Bolivia

FIELDS Community Development Culture 3 Education/Training Environment 3 Health Social Services Other

MISSION PROCOSI (Programa de Coordinación en Salud Integral) is a national network of more than 25 nonprofit organizations that develop and implement programs in health and development throughout Bolivia, especially in rural areas. Founded in 1988, the network aims to improve the health of the marginalized population, particularly poor women and children. It does this by coordinating intra-institutional activities, strengthening its member organizations and promoting health policies to benefit its client population.

• It coordinates the exchange of experiences, methodologies, strategies, educational materials and lessons learned in the area of health and development among its member organizations and other external actors.

• It strengthens its member organizations by providing personnel training and technical assistance, and by disseminating information to help optimize the use of resources.

FINANCIAL INFORMATION INCOME: PROCOSI’s dependence on outside funding has decreased

significantly in the past three years. In 1996, the organization received 80% of its budget from international donations. By 1998, foreign donations amounted to only 60% of the BOB 20 million (USD 3,540,000) budget. The remaining 40% came from interest generated from the organization’s investment fund.

SOURCES OF INCOME (% OF TOTAL)

1998

International Sources - foreign/international grants

60%

70%

80%

Self-Financing - dividends from investments

40%

30%

20%

100%

100%

100%

TOTAL

1996

EXPENSES: In 1998, PROCOSI spent 78% of its budget on organizational programs and activities; 11% on core operational costs, 10% on administrative costs and 1% on fundraising. These percentages were exactly the same for the two prior years.

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1997

CSO Case Summaries risky business

15%

79.3% 239

27% SELF-FINANCING ACTIVITIES PROCOSI took an external opportunity and created an investment fund that it hopes will generate its operational income for the next 10 years.

METHODS OF SELF-FINANCING

28%

Investment PROCOSI’s only self-financing activity is an Dividends Investment Fund created in 1995 through a debt for development swap program that was offered by the Bolivian Government. At that time, the government offered to sell its external debt: for each U.S.33% dollar received the Government offered to provide the equivalence of USD 11 in foreign currency. PROCOSI received a donation of USD 5 million from the U.S. Agency for International Development to purchase this foreign currency. In addition, the organization received a “bonus” of USD 2.5 million in local cur40% rency which it used to do the same. The organization used these funds to establish an Investment Fund that would provide income for operational expenses of its executive secretariat and its programs. PROCOSI hired a U.S.-based nonprofit organization to provide consulting services in the establishment of the fund and to oversee negotiations on the purchase41.5% of the debt from 10 private banks. PROCOSI currently has a Finance Commission comprised of NGO member representatives who oversee the investment funds and who have guided its growth over the past few years.

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86% SELF-FINANCING METHODS USED Membership fees Fees for Services Product Sales Use of Hard Assets88% Use of Soft Assets 3 Investment Dividends

ANNUAL OPERATING BUDGET (1998) USD 3,540,000

89%

PERCENT OF SELF-FINANCING (1998)

= 40%

90% FOR MORE INFORMATION PROCOSI Av. 20 de Octubre 98% 2164 La Paz, BOLIVIA Tel: +(591-2) 392-481 Fax: +(591-2) 314-188 Email: si-rec@ bol.healthnet.org

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Case 36:

SENT

MAIN ACTIVITIES

LOCATION Ljubljana, Slovenia

FIELDS Community Development Culture Education Environment Health 3 Social Services Other

The main programs of Slovene Association for Mental Health (SENT) are in the areas of employment, education and social welfare activities, including home groups, daycare centers, and social groups. SENT offers social rehabilitation and counseling services, home/residential groups for people with mental illnesses, a newsletter for users of mental health services, a day center/social club, and workshops on self-help. SENT also organizes advocacy initiatives to protect the human and legal rights of the disabled.

FINANCIAL INFORMATION INCOME: In 1998, the annual operating budget of SENT was approximately SIT 25 million (USD 155,000). Approximately 40% of SENT’s income came from its self-financing activities.

SOURCES OF INCOME (% of total)

1998

1997

1996

International Sources - international grants

25

20

10

Public Sources - government grants

MISSION SENT (Slovene Association for Mental Health) was established in 1992 to get active and retired mental health professionals involved in the planning and functioning of mental health services. The group also works with beneficiaries to inspect and widen the services in the field of mental health in Slovenia.

40

35

40

Private Sources

4

4

7

Self-Financing

30

40

40

In-Kind Donations

TOTAL

1

3

100%

100%

EXPENSES: In 1998, the largest portion of SENT expenses was for programs and activities (75%), followed by administrative/office expenses (15%) and fundraising expenses (10%).

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1

100%

13.1%

67%

CSO Case Summaries risky business

241

14.5%

76% SELF-FINANCING METHODS USED

SELF-FINANCING ACTIVITIES The main motivation for SENT‘s self-financing activities is the fact that counseling and other support is not enough to help people with mental health problems — they also need employment. The 15% goal of SENT’s enterprise activities was to increase awareness of their work, to further the mission, and to cover administrative expenses and the costs of one or more specific projects.

3 Membership Dues 3 Fees for Services 3 Product Sales

79.3%

Use of Hard Assets Use of Soft Assets Investment Dividends

METHODS OF SELF-FINANCING

Member Dues

Since 1993, SENT has collected a membership fee 27% from all members.

Fees for Services

• Seminars: Since 1996, SENT has offered educational seminars, workshops, and rehabilitation programs for a fee to participants (both beneficiaries and the public at large).

• Dobrovita d.o.o.: SENT owns and operates Dobrovita, a subsidiary company that provides employment 28% training and education for the mentally disabled.

Dobrovita distributes machines for hot and cold drinks, offers cleaning and housekeeping services for residential customers and businesses, and provides parks and lawn maintenance services.

Product Sales

SENT also sells its newsletter and various publications.

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33%

ANNUAL OPERATING BUDGET (1998) USD 155,000

86%

PERCENT OF SELF-FINANCING (1998)

= 30%

88%

FOR MORE INFORMATION SENT Viharjeva Cesta 22 1000 Ljubljana SLOVENIA Tel: +(386) 61-131-9408 Fax: +(386) 61-131-94-18 Email: sent@siol.net

89%

40%

90%

41.5%

98%

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Case 37: LOCATION

SNI

MAIN ACTIVITIES

Chicago, U.S.A

3 Community

FIELDS

Development Culture 3 Education/Training Environment Health Social Services Other

MISSION Shorebank Neighborhood Institute (SNI) is a nonprofit affiliate of Shorebank, the oldest and largest community development bank in the United States.

SNI’s mission is to facilitate communitywide development efforts to enhance safe, supportive, healthy, and economically competitive communities and to increase the capacity of local residents to achieve self-sufficiency. The target population for SNI’s programs are low-income individuals, primarily African-American, living on the south and west sides of Chicago.

Shorebank Neighborhood Institute (SNI) operates three main programs that are designed to promote community and economic development in the South Shore and Austin neighborhoods of Chicago: • Individual Development Accounts (IDAs) is a financial training and savings program for working people and recipients of public assistance who are struggling to meet their financial needs. IDA offers classes on money management to clients who are overlooked by traditional savings programs. Clients then begin regular savings deposits that are matched through a variety of institutional sources.

• Austin Growth Fund is a revolving small business loan fund that assists qualified local businesses that are unable to secure financing to meet all of their needs from banking institutions or other loan funds.

• The Runners' Club assists qualified African American entrepreneurs increase their capacities to contribute to the local and national economy. Participants take classes designed to accelerate their companies' success through instruction and coaching by seasoned business leaders.

FINANCIAL INFORMATION INCOME: SNI generated 13% of its 1998 budget of USD 2,000,000 from its self-financing activities. Income from its fees for services and its product sales is projected to increase slightly in 1999.

SOURCES OF INCOME (% of total)

1998

Public Sources

37

Private Sources

50

Self-Financing - fees for services

10

- product sales

TOTAL

3

100%

EXPENSES: 72% of SNI’s 1998 budget was devoted to program expens-

es, while the remaining 28% was spent on administrative and management costs.

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243

SELF-FINANCING METHODS USED

SELF-FINANCING ACTIVITIES The concept of self-financing was initiated by SNI management, who developed Studio Air as a for-profit subsidiary that provides youth with training and experience in a real business setting and an opportunity to promote the arts as a community development 7% tool. More recently, SNI has launched Shore Staffing Works to meet the needs of unemployed adults, particularly those transitioning from welfare to work.

3 Fees for Services 3 Product Sales

METHODS OF SELF-FINANCING

ANNUAL OPERATING BUDGET (1998)

Fees for Services

Product Sales

SNI operates Shore Staffing Works, a comprehensive 9% employment initiative that works with the unemployed, displaced workers, and welfare-to-work clients on basic job and life skills, job search training, and coaching. Clients with barriers to entering the job market participate in a curriculum that provides them with skills and confidence for career advancement 13.1% and development. Shore Staffing Works provides both temporary and permanent job placement, primarily in clerical, light industrial, and data entry/information technology sectors.

In 1996, SNI established Studio Air, a for-profit subsidiary of SNI that trains teenagers to create 14.5% unique designs for printed promotional items. With the assistance of an art director, teenage participants ("art associates") are trained through an art curriculum to produce unique designs for clothing items, bags, mugs, cards, and other printed goods. The art associates also participate in a business curriculum15% where they learn basic marketing and sales skills that they later apply in the day-to-day operations of the design business.

Studio Air sells custom designed art for promotional items that are made by the art associates. In the first 27% three years of its operations, Studio Air provided more than 230 teenagers with the equivalent of USD 175,000 in training and the teens contributed to over USD 100,000 in sales revenue.

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Membership fees

Use of Hard Assets 60.6% Use of Soft Assets Investment Dividends

USD 2,000,000

63%

PERCENT OF SELF-FINANCING (1998)

= 13%

FOR MORE INFORMATION

67%

76%

Shorebank Neighborhood Institute 1817 E. 71st Street Chicago, IL, 60649 E.E.U.U. Tel: +(1-773) 363 7007 Fax: +(1-773) 363 7042 79.3% E-mail: info@studioair.com Website: http://www.shorebankne ighborhoodinstitute.org

86%

28%

88%

33%

89%

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Case 38:

SODEM

MAIN ACTIVITIES Corporación Solidaridad y Desarrollo (SODEM) coordinates seven key programs: • a rural development program that supports local agro-ecology efforts and community work with national and local government;

LOCATION Maipu, Chile

3 Community

FIELDS

Development Culture Education/Training Environment Health Social Services 3 Small-Enterprise Development

MISSION SODEM (Corporación Solidaridad y Desarrollo ) designs and executes grassroots community development programs in Chile that contribute to improving the quality of life and to preserving and defending the environment. It supports these communities by providing technological and production assistance and capacity building.

• a service to support local management by promoting capacity in organizational development, participation, and self-management among poor communities; • a program that fosters and supports small enterprise development in both urban and rural areas through credit, consulting, and capacity-building; • a youth program that offers job training to young people and supports local projects in youth development and leadership; • an environmental protection program that designs and executes projects in environmental education, conservation, and recovery of the environment; • a program to improve basic rural education; and • a research project that supports studies and the design of plans and projects related to private and public entities.

FINANCIAL INFORMATION INCOME: In 1998, SODEM’s income was CLP 296,517,411 (USD

627,000). This decreased significantly from two years before, when annual income was CLP 506,740,475, mostly because of a drop in international funding. In 1998, 47% of the organization’s income came from international and national donor funds, and the remaining 53% came from self-financing activities.

SOURCES OF INCOME (% of total) International Sources - foreign/international grants

1998

1997

1996

40

41

50

Public Sources - government grants

7

7

3

Self-Financing - membership dues - fees for service(s)

1 52

1 51

1 46

100%

100%

100%

TOTAL

EXPENSES: In 1998, 4%of the organization’s expenses was for administration, 5% for financial costs, and the remaining 91% was for programs and activities. This did not differ greatly from breakdowns in 1997 and 1996.

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SELF-FINANCING METHODS USED

SELF-FINANCING ACTIVITIES In the 1970s and 1980s, during Chile’s military dictatorship, SODEM relied mostly on international donor funds to sustain its activities. As these resources began to decrease in Chile, the organization decided to diversify its funding base and look for alternative and more independent sources of income.

METHODS OF SELF-FINANCING

7%

Member Dues

SODEM raises a small portion of its income from dues paid by members.

Fees for Services

In the early 1990s, SODEM began to seek out govern60.6% 100% ment contracts that would help offset the costs of its programs with local communities, micro-enterprise producers, and youth. However, believing strongly that it should retain its independence from the government and that it should sustain its own operations, the organization decided to purchase a building in 52% which it could 63% house its offices and offer capacitybuilding workshops to its clientele, particularly through its youth programs. Government subsidies for this effort were not enough, so the organization converted the building into a private school that promotes a more just and environmentally sustainable 67% is one of several alternative 83% society. The school schools in Santiago, and students come mostly from the surrounding community of Maipu. The school is not yet sustainable, and SODEM is still paying off a loan that it obtained to purchase the land and construct and later renovate the school.

9%

13.1%

14.5%

76%

15%

79.3%

27%

86%

88% and market 28%risky business: The impacts of merging mission Copyright Š NESsT 2003

3 Membership fees 3 Fees for Services Product Sales Use of Hard Assets Use of Soft Assets Investment Dividends

ANNUAL OPERATING BUDGET (1998) USD 627,000

PERCENT OF SELF-FINANCING (1998)

= 52%

FOR MORE INFORMATION SODEM Avenida Chile 575 Maipu, Chile Tel: +(56-2) 531-4160 Fax: +(56-2) 531-4992 Email: sodem@entelchile.net

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Case 39:

SONCEK

MAIN ACTIVITIES

LOCATION Ljubljana, Slovenia

Union of Associations for Cerebral Palsy (SONCEK) operates educational programs in schools and health and therapy camps for children with cerebral palsy. The group also organizes rehabilitation services for adults with cerebral palsy, including a center for independent living, counseling services, and information and publishing services. SONCEK also owns and operates two companies that train and employ people with cerebral palsy.

FINANCIAL INFORMATION

FIELDS Community Development Culture 3 Education Environment Health 3 Social Services Other

INCOME: In 1998, the annual operating budget of SONCEK was approximately SIT 285 million. Approximately 40% of SONCEK’s income derived from its self-financing activities.

SOURCES OF INCOME (% of total)

1998

1997

1996

Public Sources - government grants

50

50

50

Self-Financing

30

40

40

MISSION

In-Kind Donations (voluntary services)

20

10

10

Established in 1983, SONCEK (Union of Associations for Cerebral Palsy) works to unite regional associations for cerebral palsy in an effort to better address common needs, particularly to ensure legal rights, share ideas, and help each other.

Members of regional associations are people with cerebral palsy and other disabled people, their relatives and professionals.

TOTAL

100%

100%

100%

EXPENSES: In 1998, the largest portion of SONCEK‘s expenses was program and activities (50%). Another 40% was spent on investments in real estate and sport and health care and recreation centers for people with cerebral palsy. Other expenditures were administrative/office expenses (5%) and fundraising expenses (5%).

risky business: The impacts of merging mission and market Copyright © NESsT 2003

13.1%

67%

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14.5%

76% SELF-FINANCING METHODS USED

SELF-FINANCING ACTIVITIES SONCEK’s enterprise activities are intended primarily to provide training and employment opportunities for people with cerebral palsy. However, SONCEK also seeks to increase the credibility and 15% autonomy of the organization and to interest other donors, particularly the state, in the group’s work. SONCEK also tries to develop products and services that customers will buy for their good quality and not simply because they were made by disabled employees.

METHODS OF SELF-FINANCING

3 Membership Dues 3 Fees for Services 3 Product Sales

ANNUAL OPERATING BUDGET (1998)

Member Dues

SONCEK collects membership fees from the27% associations that join the union.

USD 1,765,000

Fees for Services

SONCEK offers a variety of services (e.g., printing and photocopying) and organizes training seminars and health-and therapy-orientated camps for fees.

PERCENT OF SELF-FINANCING (1998)

Product Sales

Since 1990, SONCEK has designed, produced, and sold a series of products (T–shirts, greeting cards, 28% business gifts, hand-painted silk, handmade and painted gifts from paper). The group also publishes and sells professional literature on cerebral palsy.

33%

40%

41.5%

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79.3%

Use of Hard Assets Use of Soft Assets Investment Dividends

= 30%

86%

88%

FOR MORE INFORMATION SONCEK Rozanska 2 1000 Ljubljana SLOVENIA Tel: +(386) (15) 342 643 Fax: +(386) (15) 686 075 E-mail: zveza@soncek.org Sitio Web: http://www.zvezasoncek.si

89%

90%

98%

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Case 40: LOCATION

Stoka Theater

MAIN ACTIVITIES

Bratislava, Slovakia

FIELDS Community Develoment 3 Culture Education Environment Health Social Services Other

Stoka provides a creative platform for alternative culture by organizing art and photographic exhibitions; lectures; and performances by amateur and professional musical, theatrical and dance groups.

FINANCIAL INFORMATION INCOME: In 1998, the annual operating budget of Stoka was approximately SKK 3 million (USD 81,000). Approximately 19% of Stoka’s income derived from its self-financing activities.

SOURCES OF INCOME (% of total)

MISSION The mission of the Stoka (“The Drain”) Theater is to provide a live venue for the expression of a wide range of opinions on political and other topical contemporary issues.

1998

1997

1996

International Sources - international grants

81

82

–

Self-Financing - fees for service - rental of facilities

16 3

14 4

– –

TOTAL

100%

n.a.

EXPENSES: In 1998, the largest portion of Stoka expenses was payment for the debts incurred in renovating its pub and theater space.

The largest ongoing expenses are actors’ fees and costs of repeated performances.

Ticket sales for its theater productions generate about 17% of Stoka’s annual budget, but sales do not come close to covering the costs of performances.

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100%

7%

60.6%

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9%

63% SELF-FINANCING METHODS USED

SELF-FINANCING ACTIVITIES Because the theater tends to promote alternative cultural events that are often “anti-government” in nature, state support has been continuously reduced and cut. In 1995, Stoka requested 13.1% the lease of an old building in Bratislava owned by the city. Stoka received a five-year free lease with the understanding that Stoka would raise the funds to reconstruct the building. Because the theater had no state support and only minimal financial support from international donors, the leaders decided to engage in commercial activities to generate funds to reconstruct the building, to pay actors, and to sponsor cultural events.

14.5%

3 Fees for Services

Membership Dues

3 Use of Hard Assets Product Sales

67%

Use of Soft Assets Investment Dividends

ANNUAL OPERATING BUDGET (1998)

76%

USD 81,000

METHODS OF SELF-FINANCING

Fees for Services

• Ticket sales: Ticket sales generate about 17% of the annual budget. Even if all 70 seats in the theater are filled at SK 50 (USD 1.35) each, sales do not come close to covering the costs of performances (actors’ 15%and fees, staff time, technicians, ticket salespeople ushers, etc.).

• Café/pub: The idea to open a café/pub came from a visit to a German theater that was financed by running a pub/restaurant. This appealed to the Stoka staff and actors, who believed that “in every theater there should be a place to sit.” In October 1996, Stoka 27% founded a limited company to provide food and drinks in a pub and it renovated an old building. The bar now sells drinks and, funds permitting, will eventually offer food. Stoka also occasionally organizes disco parties for young people. The goal is for the pub to generate 80 to 100% of the organization’s annual budget.

28%

Use of Hard Assets

PERCENT OF SELF-FINANCING (1998)

= 19%

79.3%

FOR MORE INFORMATION Stoka Theater Pribinova 1 810 00 Bratislava SLOVAKIA Tel: +(421-7) 324-463 Fax: +(421-7) 324-470 Email: stoka@changenet.sk Website: http://www. kultura.gratex.sk/stoka

86%

88%

• Rental of space: Stoka rents out space in the theater to interested parties when it is not in use for performances. This generates about 3%of the ann-ual budget.

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33%

89%

40%

90%

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Case 41: LOCATION

Szeged Foundation

MAIN ACTIVITIES

Szeged, Hungary

3 Culture 3 Education

FIELDS

Environment Health Social Services Community Development Other

MISSION The Szeged Foundation was established in 1989 by the Municipality of Szeged and by several leading companies in the city. The foundation’s mission is to enrich scientific, cultural, social, and artistic life in the city of Szeged. The fund was also established to preserve the city’s important cultural traditions and values.

The Szeged Foundation’s activities include awarding prizes; awarding grants through competition (e.g., scholarships, long-term and shortterm financing, financing of study exchange programs, etc.); establishing occasional working committees (currently one is working to research the city’s potential for development); organizing yearly prizegiving galas; and providing general information and specific advice to local NGOs on organizational management and development.

FINANCIAL INFORMATION INCOME: In 1998, the annual operating budget of the foundation was approximately HUF 18 million (USD 83,000). Approximately 50% of the foundation’s income derived from its self-financing activities.

SOURCES OF INCOME (% of total)

1998

1997

1996

Public Sources - government grants

17

–

–

Private Sources - individual and corporate donations

33

–

–

Self-Financing

50

–

–

100%

n.a.

TOTAL

EXPENSES: In 1998, the foundation’s expenses included programs

and activities (70%); fundraising expenses (15%), and administrative/office expenses (15%).

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n.a.

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SELF-FINANCING ACTIVITIES

SELF-FINANCING METHODS USED

The Szeged Foundation’s aim in starting its self-financing activities was not to eliminate funding from other sources but rather to “introduce a new method on which a safer financial foundation could be built.”

3 Fees for Services 3 Product Sales 3 Use of Hard Assets

METHODS OF SELF-FINANCING

3 Investment

Fees for Services

• Language school: The Szeged Foundation’s primary venture, a language school, was established in 1992.

The school operates as a limited company and was originally owned in equal share by the Foundation and the ILL Language School of Budapest. ILL later declared bankruptcy, and the foundation now wholly owns the school. The school has become the town`s most prosperous language teaching company, offering teaching for private students and companies alike.

Since 1998, the school has also functioned as an international language examination center. The school 50% has always been profitable because from its start the Central Labor Office ordered language courses.

Product Sales

• Sale of artwork: The foundation regularly sells works of art, primarily paintings, that are donated.

Use of Hard Assets

• Real estate rental: The foundation’s real estate is worth approximately USD 1 million. It was originally owned 49% by the army and used as an officers’ club. In 1996, the Szeged brigade dissolved, at which time the foundation established a separate foundation (Foundation for the Culture of the Szeged Armed Forces) that took over the building’s maintenance and now supports the clubs and friendship societies located in the building. The new foundation’s main sources of income are donations from the army and the rental of rooms, halls, and the restaurant downstairs. The building also serves as the seat of the language school and the Szeged Foundation.

Investment • Interest: The foundation receives some annual Dividends interest income from capital reserves.

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Membership Dues

Use of Soft Assets Dividends

ANNUAL OPERATING BUDGET (1998) USD 83,000

PERCENT OF SELF-FINANCING (1998)

= 50%

FOR MORE INFORMATION Szeged Foundation Victor Hugo u. 6 H-6720 Szeged HUNGARY Telephone/Fax: +(36-62) 422-303

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Case 42:

TYR Center

MAIN ACTIVITIES TYR offers work rehabilitation for the socially disadvantaged and for unemployed young people with disabilities; social and legal counseling for the unemployed, pensioners, etc.; services for the socially vulnerable; and study visits and practical education for students of social work, psychology, and special education.

FINANCIAL INFORMATION LOCATION Nizna, Slovakia

FIELDS Culture 3 Education Environment Health 3 Social Services Community Development Other

MISSION The mission of the TYR Center is to cultivate job opportunities for socially disadvantaged and unemployed young people with disabilities.

INCOME: In 1998, the annual operating budget of TYR Center was

approximately SKK 1.8 million (USD 49,000). Approximately 49%of TYR’s income derived from its self-financing activities.

SOURCES OF INCOME (% of total)

1998

1997

1996

International Sources - international grants

29

31

14

Public Sources - government grants

20

19

42

2

4

–

26 17 6

25 16 5

25 14 5

Private Sources - corporate grants Self-Financing - fees for services - product sales - other business ventures

TOTAL

100%

100%

EXPENSES: In 1998, the largest portion of TYR expenses was programs

and activities (58%), followed by administrative/office expenses (27%), and other expenses (15%).

The TYR Center employs six mentally disabled girls in its confectionery enterprise — one way the organization helps beneficiaries while generating revenue.

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100%

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SELF-FINANCING ACTIVITIES The main objective of TYR’s enterprise activities is to further the center’s mission of creating work for unemployed and disabled young people. Furthermore, the center hopes to generate income from its enterprises sufficient to cover up to 100% of its annual budget.

METHODS OF SELF-FINANCING

Fees for Services

Product Sales

Use of Hard Assets

• Launderette: In 1993, TYR learned about an old launderette that was out of operation in a residence hall.

The town approved the operation of the launderette 50% and offered a free lease for three years. TYR now owns several washing machines and employs four female workers in the launderette.

• Confectionery products: In 1993, TYR started the production of baked goods and opened a small confectionery shop. It soon became clear, however, that the town of Nizna did not have a sufficient market to49% support the everyday operations of a shop. As a result, the store closed, but the production has continued. The organization obtained the free use of a small kitchen from the local authority. The operation produces goods mainly to order, for example for weddings or christenings. The enterprise employs six mentally disabled girls as part of their work-therapy. Products are packed, labeled, and sold under TYR`s name.

• Dressmaking: In February 1995, the association opened a handicraft workshop to make wooden toys for nurseries. TYR has since transformed the shop into a dressmaker’s shop employing disabled workers.

• Car leasing: A car purchased by TYR for use by each of its shops is leased to others when not in use. This covers at least part of the car’s running costs.

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SELF-FINANCING METHODS USED

3 Fees for Services 3 Product Sales 3 Use of Hard Assets Membership Dues

Use of Soft Assets Investment Dividends

ANNUAL OPERATING BUDGET (1998) USD 49,000

PERCENT OF SELF-FINANCING (1998)

= 49%

FOR MORE INFORMATION TYR Center Nova doba – MS Nizna 027 43 SLOVAKIA Telephone/Fax: +(421) 847-382-157 Email: tyrcentr@bb.telecom.sk

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Case 43: UMANOTERA LOCATION

MAIN ACTIVITIES

Ljubljana, Slovenia

FIELDS Community Development Culture 3 Education 3 Environment Health Social Services Other

MISSION UMANOTERA, the Slovene Foundation for Sustainable Development, was founded in 1994. Its main objectives are to bring the principles of sustainable development into practice, to create a balance between human society and the environment, to preserve natural sources and biological diversity, and to promote ethical treatment of the environment and nature.

Slovene Foundation for Sustainable Development (UMANOTERA) provides educational seminars to environmental organizations in local communities, organizes an NGO Forum and World Environmental Day events, and cooperates in joint research and policy projects with other Central European environmental NGOs. The foundation also publishes numerous publications dealing with Agenda 21 issues in Slovenia and a Slovene “Green Pages 1998” that contains information about environmental organizations and responsible contact persons. The organization also publishes the UMANOTERA newsletter.

FINANCIAL INFORMATION INCOME: In 1998, the annual operating budget of UMANOTERA was approximately SIT 22 million (USD 136,000). Approximately 28% of UMANOTERA’s income derived from its self-financing activities.

SOURCES OF INCOME (% of total)

1998

1997

1996

54

40

63

Public Sources - government grants

7

11

19

Private Sources - individual donations - foundation grants

5 0.5

1 5

– 16

International Sources - international grants

Self-Financing - fees for services/product sales - interest dividends Other (loan) (refund)

TOTAL

28 – 5 0.5

100%

32 1

1.5 0.5

6 4

– –

100%

100%

EXPENSES: Exact figures for 1998 were not available. However, the largest portion of UMANOTERA’s expenses was for staff time and office operations and for rental of space to conduct the organization`s workshops and events.

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13.1%

67%

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14.5%

76% SELF-FINANCING METHODS USED

SELF-FINANCING ACTIVITIES UMANOTERA started its self-financing activities in 1996 as foreign support for its programs began to decrease. The aim of its selffinancing activities is to further the mission of the organization, to 15% cover the administrative costs and costs of all projects within the organization, and to increase awareness of the group’s work.

UMANOTERA’s primary customers are environmental NGOs, local governments, state administration, and the general public (individuals interested in sustainable development and environmental issues). All UMANOTERA self-financing projects are closely connected with primary mission activities.

27%

3 Fees for Services 3 Product Sales

Membership Dues

79.3%

Use of Hard Assets Use of Soft Assets Investment Dividends

ANNUAL OPERATING BUDGET (1998) USD 136,000

86%

METHODS OF SELF-FINANCING

Fees for Services

Product Sales

The predominant method of self-financing is charging for services: • Consulting services: In 1996, UMANOTERA began to charge local governments for consulting services on 28% sustainable development for local Agenda 21 implementation.

• Workshops/seminars: UMANOTERA organizes workshops with national and international experts on different environmental topics and charges participation fees.

• Books/publications: UMANOTERA has published and 33% sells five books on environment and sustainable development issues: Agenda 21 for Slovenia: An NGO Contribution, Agenda for Change (translations of key Agenda 21 documents), Agenda 21 Multimedia (CDROM), and Green Pages 1998.

• UMANOTERA Newsletter: UMANOTERA circulates a quarterly news publication with information on sus40% tainable development issues in Slovenia and internationally, and on activities of UMANOTERA. • T-shirt sales

41.5%

In addition to books and Tshirts, UMANOTERA sells its quarterly newsletter.

risky business: The impacts of merging mission and market Copyright © NESsT 2003

PERCENT OF SELF-FINANCING (1998)

= 28%

88%

FOR MORE INFORMATION UMANOTERA Metelkova 6 1000 Ljubljana SLOVENIA Tel: +(386) 61-132-2354 Fax: +(386) 61-133-7029 Email: vida@eunet.si Website: http://www.ljudmila.org/ retina/eungo

89%

90%

98%

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Case 44:

WCA

MAIN ACTIVITIES Washington Council of Agencies (WCA) is a membership organization founded in 1978. It works in three key program areas.

• Education: WCA provides vital information to nonprofits, especially small ones, through a quarterly newsletter, workshops, and an annual Award for Excellence in Nonprofit Management.

LOCATION Washington, D.C., U.S.A.

FIELDS Community Development Culture 3 Education/Training Environment Health Social Services 3 Advocacy

MISSION The mission of the Washington Council of Agencies (WCA) is to strengthen, promote and represent nonprofit organizations based in metropolitan Washington, D.C.

• Advocacy and community building: WCA works to build strong coalitions between organizations with similar goals and to get nonprofits involved when policy, particularly local policy, is set.

• Group-buying programs: WCA “brokers” several programs for its members that save them money or provide them a benefit or service they might not otherwise be able to obtain. Programs include health, dental, and life insurance; property, casualty, and liability insurance; a retirement program; an office supply discount; an unemployment trust for pooling unemployment dollars; an oil heat discount program; and a mail service discount.

FINANCIAL INFORMATION INCOME: WCA’s 1998 operating budget was USD 630,000, of which 89%was generated through self-financing activities. The proportion was similar in 1997 and 1996.

SOURCES OF INCOME (% of total)

1998

1997

1996

Private Sources - individual donations - foundation grants

1 10

1 6

1 8

Self-Financing - membership dues - fees for service(s) - product sales - use of soft assets - dividends from investments

35 45 0.5 8 0.5

38 48 0.5 6 0.5

34 48

100%

100%

100%

TOTAL

8 1

EXPENSES: In 1998, the organization spent 88% of its budget on programs and activities. Other expenditures were administration (6%) and fund-raising (6%). These proportions were basically the same during the two preceding years.

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CSO Case Summaries risky business

14.5%

76% 257

15%

79.3%

SELF-FINANCING ACTIVITIES From its founding in 1978, WCA recognized that there was very limited grant funding available for the type of work the organization does; therefore, the group focused on generating its own revenues through a series of programs 27% that members needed. 86% METHODS OF SELF-FINANCING

Member Dues

Fees for Services

WCA membership dues are set on a sliding scale depending on a member organization’s budget.

Certain programs and services are available only to members. The28% organization currently has more 88% than 780 members.

WCA’s main fee for service is a health insurance group-buying program. The organization assembles multiple health insurance subcontractors into a unified program for WCA members. WCA collects all insurance premiums the 33% and sends one invoice to89% members. WCA was appointed as the plan administrator, and for this it receives a fee to cover the direct costs of administering the program. In 1998, the fee comprised 40% of income earned. WCA also charges fees for its workshops on nonprofit management and sells advertising space in its newsletter. In 1998,90% this 40% generated 5% of its income.

Product Sales

WCA has four publications it that sells to members (at a discounted price) and to the general public.

Use of Soft Assets

WCA established group buying programs early in its history, but these previous programs forced WCA to 41.5% 98% assume too much risk. Under the current program, WCA writes an exclusive contract with a vendor — e.g., a liability insurance broker, an office supply firm, an oil heat supplier, a retirement broker/company, an unemployment pool, a web site production company, etc. The vendor provides a special service to members and provides a royalty to WCA depending on the nature of the business. In return, WCA markets the vendor’s product or service through its newsletter and its endorsement. The contracts are signed on an annual basis.

Investment The organization also earns simple interest on its Dividends reserve fund, which is valued a USD 100,000. The board recently decided to invest part of the reserve and manintain the rest for contingency purposes.

risky business: The impacts of merging mission and market Copyright © NESsT 2003

SELF-FINANCING METHODS USED

3 Membership fees 3 Fees for Services 3 Product Sales 3 Use of Soft Assets 3 Investment

Use of Hard Assets

Dividends

ANNUAL OPERATING BUDGET (1998) USD 630,000

PERCENT OF SELF-FINANCING (1998)

= 89%

FOR MORE INFORMATION Washington Council of Agencies 1001 Connecticut Ave. N.W., Suite 925 Washington, D.C. 20036 U.S.A. Tel: +(1-202) 457-0540 Fax: +(1-202) 457-0549 Email: betsyj@ wcanonprofits.org Website: http://www.wcanonprofits.org

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Case 45: LOCATION

YHD

MAIN ACTIVITIES

Ljubljana, Slovenia

FIELDS Community Development 3 Culture 3 Education Environment Health 3 Social Services Other

YHD offers the “independent living for handicapped persons” program to enable disabled individuals to live a life outside of traditional institutions. Through the “public works” program of the National Employment Office, YHD helps employ personal assistants to the physically disabled. YHD has a club (SOT 24) in its office in an old Yugoslav military barracks that operates three nights a week. The association also publishes a magazine that includes theoretical articles about disabilities and related themes. Finally, YHD organizes various cultural activities, including lectures and social events.

FINANCIAL INFORMATION

MISSION Established in 1993 and registered as an association in 1996, YHD (Association for the Theory and Culture of the Handicapped) is a movement to create a network of young disabled persons. YHD encourages and supports various cultural, informational and social activities to fight for equal opportunities.

INCOME: In 1998, the annual operating budget of YHD was SIT 1 million (USD 6,000). Approximately 9% of YHD’s income derived from its self-financing activities.

SOURCES OF INCOME (% of total)

1998

1997

1996

International Sources - international grants

60

50

–

Public Sources - government grants

31

50

100

9

–

–

100%

100%

100%

Self-Financing - fees for services/product sales

TOTAL

EXPENSES: In 1998, the largest portion of YHD expenses was for pro-

grams and activities (60%), followed by administrative/office expenses (30%), and fundraising expenses (10%).

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SELF-FINANCING METHODS USED

SELF-FINANCING ACTIVITIES In 1996, YHD was completely dependent on state support, but in 1997-98 the organization was able to attract additional support from abroad. YHD started its self-financing activities in an effort to promote its activities more widely and to generate additional income for programs for which it was difficult to attract donor funding, particularly the AWOL magazine.

3 Fees for Services 3 Product Sales

Membership Dues

Use of Hard Assets Use of Soft Assets Investment Dividends

METHODS OF SELF-FINANCING

Fees for Services

• Ticket sales: YHD organizes concerts, recitals, exhi7% bitions, celebrations, lectures, thematic evenings, etc., and charges entrance fees.

Product Sales

• T-shirt sales: YHD designed T–shirts intended for volunteers and members but later realized it could sell them to the public. The T–shirts carry a clear message to people to think about their stereotypes and their own handicaps.

9% • Comic book: “Handyburger,” a collection of comics, explains different forms of disability. When it was published, YHD also organized an exhibition of comics.

• Magazine: AWOL magazine for social studies includes articles from well-known professionals in the area of sociology and social work. The articles are timely and relate to current social themes. 13.1%

ANNUAL OPERATING BUDGET (1998)

60.6%

USD 6,000

PERCENT OF SELF-FINANCING (1998)

= 9%

63%

FOR MORE INFORMATION YHD Neubergerjeva 7 1000 Ljubljana SLOVENIA Tel: +(386) (14) 301 760 Fax: +(386) (51) 441 182 E-mail: yhd@mail.ljudmila.org

67%

14.5%

76%

15%

79.3%

From Handyburger No. 18 (1998); Illustration by Sasa Mihajlovic; publisher: Forum Ljubljana

Not only is YHD’s comic book, “Handyburger,” a way to generate income; it also provides young disabled beneficiaries an outlet for expressing their feelings and creativity.

27% risky business: The impacts of merging mission and market Copyright © NESsT 2003

86%

risky business CSO Case Summaries

260

risky business: The impacts of merging mission and market Copyright Š NESsT 2003

Copyright Š NESsT 2003

risky business: The impacts of merging mission and market

Appendix II: CSO Data

risky business

262

1,414,000

437,000

28,000

216,000

AAnnnnuuaall Buuddggeett UUSSDD B ((11999988))

46 - 0

7 - 10

5-0

5-3

SSttaaffff ((FFTT-- PPTT))

Copyright Š NESsT 2003

risky business: The impacts of merging mission and market

CCAASSEE ((CCoom mm muunniittyy AAggeennccyy ffoorr SSoocciiaall EEnnqquuiirryy)) SOUTH AFRICA Education, research

CCaassaa ddee llaa PPaazz ((HHoouussee ooff PPeeaaccee)) CHILE Environment

BBuussiinneessss LLaaw wC Ceenntteerr GEORGIA Education

AAcccceessoo ((AAcccceessss)) COSTA RICA Education

CCoouunnttrryy FFiieelldd ooff AAccttiivviittyy

Caassee C

1985 / 1985

1988 / 1990

1996 / 1997

1992 / 1996

Yeeaarr EEssttaabblliisshheedd// Y YYeeaarr SSttaarrtteedd SSeellff--FFiinnaanncciinngg

100%

29%

15%

63%

SSeellff--FFiin naanncciinngg ooff AAnnnnuuaall IInnccoom mee ((1 19 99 98 8))

Conduct research and policy analysis on poverty, justice, and race

Help strengthen civil society through environmental education, with the goal of making each person aware of the environment to reconcile environmental protection with economic production and social equity

Create the legal basis for the development of free market relations

Build capacity among Central American CSOs to enable them to improve services to their beneficiaries

Orrggaanniizzaattiioonnaall M O Miissssiioonn

An overview of the 45 case organizations, including brief descriptions of their missions and self-financing activities.

risky business CSO Data

Fees for services (research services for community-based organizations, international NGOs, government agencies, and private-sector clients); investment dividends

Fees for services and product sales (workshops, consultations, and publications for teachers, NGOs, governments, and businesses); investment dividends

Fees for services (consultations on legal issues for businesspeople); product sales (publications on legal issues)

Fees for services (provides capacitybuilding in strategic communications to CSOs); investment dividends

SSeellff--FFiin naanncciinngg AAccttiivviittyy

234,000

856,000

116,000

73,000

AAnnnnuuaall Buuddggeett UUSSDD B ((11999988))

18 - 6

51 - 48

2 - 85

5-4

SSttaaffff ((FFTT-- PPTT))

Copyright © NESsT 2003

risky business: The impacts of merging mission and market

CCIIEEM M AAccoonnccaagguuaa ((CCeenntteerr ffoorr BBuussiinneessss IInniittiiaattiivvee))

CCIIEEDD ((CCeenntteerr ffoorr IInnvveessttiiggaattiioonn,, EEdduuccaattiioonn,, aanndd DDeevveellooppm meen ntt)) PERU Community development, environment

CChhiillddrreenn’’ss FFoouunnddaattiioonn SLOVAKIA Culture, education, health

CChhaalloouuppkkyy CCeenntteerr CZECH REPUBLIC Education, environment

CCoouunnttrryy FFiieelldd ooff AAccttiivviittyy

Caassee C

1995 / 1998

1973 / 1988

1992 / 1995

1991 / 1993

Yeeaarr EEssttaabblliisshheedd// Y YYeeaarr SSttaarrtteedd SSeellff--FFiinnaanncciinngg

27%

15%

17%

76%

SSeellff--FFiin naanncciinngg ooff AAnnnnuuaall IInnccoom mee ((1 19 99 98 8))

Support micro-enterprises, preservation and promotion of culture and the arts, and capacity-building in arts

Contribute to food security and sustainable rural development in Peru

Help adults and children with allergic and respiratory disorders to participate in activities, to improve their health, and to decrease recurrence of disease

Provide environmental education to increase people’s understanding of the natural world and their sense of responsibility toward it

Orrggaanniizzaattiioonnaall M O Miissssiioonn

Fees for services (capacity-building services in the arts and trades; cinema and café services); product sales

Fees for services (consulting and capacity-building services for individual and institutional members to assist with sustainable development); product sales (agricultural products and publications on sustainable rural development); use of hard assets (rents trucks and office space to CSOs); use of soft assets (sells technological experience); investment dividends

Fees for services (therapeutic holidays for children with respiratory disease and their families); use of hard assets (rents bus to private tour company when not in use)

Fees for services (educational and practical field studies programs for children and primary and secondary school teachers); product sales (manuals and other publications for teachers); membership dues; investment dividends

SSeellff--FFiin naanncciinngg AAccttiivviittyy

CSO Data risky business

263

264

90,000

71,000

140,000

AAnnnnuuaall Buuddggeett UUSSDD B ((11999988))

4-4

3-0

3-1

SSttaaffff ((FFTT-- PPTT))

Copyright Š NESsT 2003

risky business: The impacts of merging mission and market

EEkkooCCeenntteerr SLOVAKIA Education, environment

CCO ODDEEM MUU ((W Woom meenn''ss DDiinniinngg HHaavveenn CCoorrppoorraattiioonn)) CHILE Labor rights

CCIISSAA ((IInntteerr--iinnssttiittuuttiioonnaall CCoooorrddiinnaattoorr ffoorr tthhee AAnnddeeaann CCaam meelliid d SSeeccttoorr)) PERU Community development, education

CHILE Community development, culture, education, environment

CCoouunnttrryy FFiieelldd ooff AAccttiivviittyy

Caassee C

risky business CSO Data

1990 / 1995

1994 / 1997

1989 / 1997

Yeeaarr EEssttaabblliisshheedd// Y YYeeaarr SSttaarrtteedd SSeellff--FFiinnaanncciinngg

78%

7%

27%

SSeellff--FFiin naanncciinngg ooff AAnnnnuuaall IInnccoom mee ((1 19 99 98 8))

Provide information about nature, ecology, healthy lifestyles, and the nonprofit sector to motivate people to live in a positive relationship with the environment

Help textile workers (most of whom are women) to protect their labor rights and improve working conditions

Promote sustainable development of Andean camelid production

and traditional trades

Orrggaanniizzaattiioonnaall M O Miissssiioonn

Fees for services (graphic design and advertising services); product sales (environmental publications, wooden toys)

Fees for services (operates a selfservice laundry); membership dues

Fees for services (capacity-building services for camelid producers); membership dues

(products made by artisans); use of hard assets (rents space); investment dividends

SSeellff--FFiin naanncciinngg AAccttiivviittyy

4,667,000

196,000

508,000

AAnnnnuuaall Buuddggeett UUSSDD B ((11999988))

636 - 0

200 - 1

5-4

25 - 0

SSttaaffff ((FFTT-- PPTT))

Copyright © NESsT 2003

risky business: The impacts of merging mission and market

102,676,000 FFEESS ((FFoouunnddaattiioonn ffoorr HHiigghheerr EEdduuccaattiioonn)) COLOMBIA Community development, culture, education, environment, health, social service

FFEEPPPP ((EEccuuaattoorriiaann FFuunndd ffoorr PPooppuullaarr PPrrooggrreessss)) ECUADOR Community development, education

EESSEE ((HHeellppiinngg EEaacchh Otth O heerr A Assssoocciiaattiioonn)) HUNGARY Social service, employment creation

EElliim m PPíísseekk ((CChhrriissttiiaann AAssssoocciiaattiioonn ffoorr EEvvaannggeelliicc aanndd SSoocciiaall Wo W orrkk)) CZECH REPUBLIC Social service, religion

CCoouunnttrryy FFiieelldd ooff AAccttiivviittyy

Caassee C

1964 / 1977

1970 / 1997

1989 / 1989

1989 / 1989

Yeeaarr EEssttaabblliisshheedd// Y YYeeaarr SSttaarrtteedd SSeellff--FFiinnaanncciinngg

76%

41%

30%

79%

SSeellff--FFiin naanncciinngg ooff AAnnnnuuaall IInnccoom mee ((1 19 99 98 8))

Promote social development by supporting educational and scientific programs that improve the quality of life for all Colombians

Provide Afro-Ecuadorians, mestizos, and the urban poor to integrated rural services including credit for housing and agricultural production, professional capacity building and education scholarships, access to jobs, and business opportunities

Assist disadvantaged and rural communities with employment, social and health care services

Spread Christian ethics and provide assistance to socially weak groups

Orrggaanniizzaattiioonnaall M O Miissssiioonn

Investment dividends

Fees for services (personal development and capacity-building services for marginalized peoples); sale of products made by clients; investment dividends planned for the future

Sells carpets manufactured at its factory by socially disadvantaged people

Fees for services (charges fees to clients of the Rehabilitation Center and produces many of the food products consumed by clients); product sales (Christian literature); membership dues

SSeellff--FFiin naanncciinngg AAccttiivviittyy

CSO Data risky business

265

266

448,000

2,942,000

323,000

534,000

AAnnnnuuaall Buuddggeett UUSSDD B ((11999988))

34 -19

18 - 0

8-0

26 - 3

SSttaaffff ((FFTT-- PPTT))

Copyright © NESsT 2003

risky business: The impacts of merging mission and market

FFuunnddaacciióónn IIddeeaall ((FFoouunnddaattiioonn IIddeeaall ffoorr IInntteeggrraall RReehhaabbiilliittaattiioonn ""JJuulliioo HH.. CCaalloonnjjee"")) COLOMBIA Health

FFuunnddaacciióónn CCoorroonnaa COLOMBIA Community development, education, health

FFuunnddaacciióónn CCiirreennaa COLOMBIA Health

FFuunnddaacciióónn AAlltteerrnnaattiivvaa ECUADOR Education, enterprise development

CCoouunnttrryy FFiieelldd ooff AAccttiivviittyy

Caassee C

risky business CSO Data

1965 / 1978

1964 / 1986

1974 / 1980

1991 / 1993

Yeeaarr EEssttaabblliisshheedd// Y YYeeaarr SSttaarrtteedd SSeellff--FFiinnaanncciinngg

98%

67%

89%

83%

SSeellff--FFiin naanncciinngg ooff AAnnnnuuaall IInnccoom mee ((1 19 99 98 8))

Improve the quality of life of people with special needs and promote their physical, mental, intellectual, and social development

Contribute to social development by improving the management of social processes and supporting programs to help the poor

Foster the well-being of poor newborns and their families; offer research and education on neonatal care

Help social development organizations obtain, mobilize, and administer resources to improve the quality of life for marginalized and at-risk groups

Orrggaanniizzaattiioonnaall M O Miissssiioonn

Fees for services (rehabilitation services sold through contracts and directly at its offices); product sales (orthotics, prostheses, and orthopedic shoes); use of hard assets (rents space); investment dividends

Investment dividends

Fees for services (echographic services for low-income residents); product sales (snack bar); investment dividends

Fees for services (training of Banco Solidario staff on developing and expanding financial services for low-income producers); product sales (Information System on Social Organizations database directory and reports derived from this database); use of hard assets (rents datashow to CSOs); use of soft assets (licensing fees for SIOS database); investment dividends

SSeellff--FFiin naanncciinngg AAccttiivviittyy

950,000

964,000

280,000

611,000

AAnnnnuuaall Buuddggeett UUSSDD B ((11999988))

11 - 1

20 - 8

17 - 14

17 - 14

SSttaaffff ((FFTT-- PPTT))

Copyright Š NESsT 2003

risky business: The impacts of merging mission and market

Grreeaatteerr D G DCC CCaarreess UNITED STATES Volunteerism

Geen G neevvaa CCeennttrree ffoorr AAuuttiissm m CANADA Education, social service

FFuunnddaam moorr ((FFoouunnddaattiioonn Giivvee LLo G ovvee)) COLOMBIA Educations, health, social service

FFuunnddaaeem mpprreessaa ((BBuussiinneessss FFoouunnddaattiioonn)) COLOMBIA Education, enterprise development

CCoouunnttrryy FFiieelldd ooff AAccttiivviittyy

Caassee C

1989 / 1994

1974 / 1991

1992 / 1992

1985 / 1985

Yeeaarr EEssttaabblliisshheedd// Y YYeeaarr SSttaarrtteedd SSeellff--FFiinnaanncciinngg

9%

33%

61%

79%

SSeellff--FFiin naanncciinngg ooff AAnnnnuuaall IInnccoom mee ((1 19 99 98 8))

Improve life in the greater Washington, DC, area by promoting and organizing volunteerism

Enable individuals with autism to participate fully in their communities

Provide integrated services to people with HIV/AIDS who have few resources or who are rejected by society; raise awareness of HIV/AIDS, its causes, and its effects

Help low-income residents create and develop profitable enterprises

Orrggaanniizzaattiioonnaall M O Miissssiioonn

Fees for services (sells corporate employee volunteer programs; owns a for-profit subsidiary that places temporary attorneys with corporations)

Fees for services (workshops for caregivers on methods of working with autistic clients); product sales (educational materials on autism); membership dues

Fees for services (therapeutic services to HIV/AIDS carriers); product sales (organic produce; uniforms and household cleaning products made by friends and families of HIV/AIDS carriers; cookies and secondhand items); use of hard assets (rents conference space and apartments); investment dividends; membership dues

Fees for services (offers courses and consultations on business development to individuals and institutions); use of soft assets (receives royalties from use of its methodology); investment dividends

SSeellff--FFiin naanncciinngg AAccttiivviittyy

CSO Data risky business

267

268

14,000

17,611,000

54,000

AAnnnnuuaall Buuddggeett UUSSDD B ((11999988))

2-7

752 - 50

2 - 20

SSttaaffff ((FFTT-- PPTT))

Copyright Š NESsT 2003

risky business: The impacts of merging mission and market

IINNFFRRAA--BBEERR FFoouunnddaattiioonn HUNGARY Health, social service, employment creation

HHooggaarr ddee CCrriissttoo ((HHoom mee ooff CChhrriisstt)) CHILE Social service

Grreeeen G n LLiin nee SLOVAKIA Education, environment

CCoouunnttrryy FFiieelldd ooff AAccttiivviittyy

Caassee C

risky business CSO Data

1991 / 1991

1944 / 1950

1992 / 1994

Yeeaarr EEssttaabblliisshheedd// Y YYeeaarr SSttaarrtteedd SSeellff--FFiinnaanncciinngg

90%

86%

78%

SSeellff--FFiin naanncciinngg ooff AAnnnnuuaall IInnccoom mee ((1 19 99 98 8))

Assist socially and physically handicapped young people in Ajka

Provide assistance to the poor, particularly the elderly, the homeless, the terminally ill, and abandoned children; address the causes of poverty through policy change and awareness raising

Involve inhabitants of the Central Vah River Basin area in ecological and educational programs that lead to positive changes in the region’s natural environment

Orrggaanniizzaattiioonnaall M O Miissssiioonn

Fees for services (provides a forprofit company with market research, partial assembly of a surgical instrument, and distribution of the surgical instrument)

Fees for services (greeting programs for special occasions; charges clients voluntary user fees and pension contributions); product sales (commemorative items and Christmas cards); use of hard assets (rents buildings and funeral cars); use of soft assets (receives royalties for name endorsement); membership dues

Fees for services (environmental outings, seminars, educational programs, and summer camps); product sales (ecological education manuals for teachers; t-shirts and stickers with ecological slogans and images); use of hard assets (rents space for recreational use); membership dues

SSeellff--FFiin naanncciinngg AAccttiivviittyy

136,000

86,000

372,000

408,000

AAnnnnuuaall Buuddggeett UUSSDD B ((11999988))

10 - 15

2 - 20

0 - 60

140 - 0

SSttaaffff ((FFTT-- PPTT))

Copyright © NESsT 2003

risky business: The impacts of merging mission and market

MC M CHH ((M Miiccrroorreeggiioonn CCiieerrnnyy HHrroonn)) SLOVAKIA Community development, culture, employment creation

LLSSSS ((LLiippnniiccee SSuum mm meerr SScchhooooll)) CZECH Republic Education, environment

KKUUDD ((CCuullttuurraall aanndd AArrttss CCeenntteerr)) SLOVENIA Culture

KKÁÁLLLLFFÓ ÓW Weellffaarree SSeerrvviiccee FFoouunnddaattiioonn HUNGARY Social service, employment creation

CCoouunnttrryy FFiieelldd ooff AAccttiivviittyy

Caassee C

1992 / 1992

1978 / 1990

1919 / 1919

1985 / 1992

Yeeaarr EEssttaabblliisshheedd// Y YYeeaarr SSttaarrtteedd SSeellff--FFiinnaanncciinngg

82%

91%

45%

60%

SSeellff--FFiin naanncciinngg ooff AAnnnnuuaall IInnccoom mee ((1 19 99 98 8))

Promote local democracy, economic development, and cultural preservation in partnership with municipalities and other local entities

Further the development of educational methods utilizing experiential techniques in nature

Support "alternative" cultural events, with special attention to underprivileged groups, the elderly, women, exiles, and young people

Create employment for the mentally and physically disabled and the poor

Orrggaanniizzaattiioonnaall M O Miissssiioonn

Fees for services (operates a railway, offers food services and advertising in connection with the railway; sells use of trade licenses when not in use); product sales (donated items); use of hard assets (leases its machines and transport equipment); membership dues

Fees for services (environmental summer courses and training for for-profit companies and schools); product sales (publications); use of soft assets (sells licenses for LSS-created games); membership dues; investment dividends

Fees for services (sells tickets to cultural events); product sales (operates a café; sells products related to artists exhibiting or performing); use of hard assets (rents out space); membership dues

Fees for services (foundation clients manufacture ski-boot inserts made for a for-profit company)

SSeellff--FFiin naanncciinngg AAccttiivviittyy

CSO Data risky business

269

270

SSttaaffff ((FFTT-- PPTT))

3,540,000

4,700,000

231,000

945,000

21 - 1

66 - 42

11 - 5

22 - 89

5,510,000 200 - 15

AAnnnnuuaall Buuddggeett UUSSDD B ((11999988))

Copyright Š NESsT 2003

risky business: The impacts of merging mission and market

PPRRO OCCO OSSII ((PPrrooggrraam m ffoorr CCoooorrddiinnaattiioonn iinn IInntteeggrraatteedd HHeeaalltthh)) BOLIVIA Education, health

PPEEPP ((PPeeooppllee EEnnccoouurraaggiinngg PPeeooppllee,, IInncc..))

UNITED STATES Health, social service

PPDDCCSS ((PPaarrttnneerrss ffoorr DDeem mooccrraattiicc CChhaannggee SSlloovvaakkiiaa)) SLOVAKIA Education, conflict resolution

NNeepphhrroocceennttrruum m FFoouunnddaattiioonn HUNGARY Health, social service, employment creation

MEEX M XFFAAM M ((M Meexxiiccaann FFoouunnddaattiioonn ffoorr FFaam miillyy PPllaannnniinngg)) MEXICO Education, health

CCoouunnttrryy FFiieelldd ooff AAccttiivviittyy

Caassee C

risky business CSO Data

1988 / 1995

1979 / 1997

1991 / 1994

1989 / 1989

1965 / 1965

Yeeaarr EEssttaabblliisshheedd// Y YYeeaarr SSttaarrtteedd SSeellff--FFiinnaanncciinngg

40%

88%

40%

20%

40%

SSeellff--FFiin naanncciinngg ooff AAnnnnuuaall IInnccoom mee ((1 19 99 98 8))

Improve the health of marginalized populations by coordinating intrainstitutional activities, strengthening member organizations, and promoting health policies

Provide rehabilitation services to individuals with psychiatric and other disabling conditions

Cultivate and institutionalize democratic approaches to conflict prevention and resolution in Slovakian society

Provide therapy, rehabilitation, and health care services to people with kidney diseases

Offer high-quality, innovative services in family planning, health, and sex education to the poor

Orrggaanniizzaattiioonnaall M O Miissssiioonn

Investment dividends (generates dividends through an investment fund created by a "debt for development swap" with the Boivian Government

Fees for services (has government contracts to provide discreet, medically related rehabilitative services to clients)

Fees for services (training and consultation services for its nonprofit clients)

Product sales (polyethylene products and paper clips produced by foundation clients); use of hard assets (leases out trucks when not in use); investment dividends

Fees for services (family planning and medical services at 15 clinics); product sales (educational materials and contraceptives); investment dividends

SSeellff--FFiin naanncciinngg AAccttiivviittyy

13 - 8

16 - 4

25 - 5

SSttaaffff ((FFTT-- PPTT))

1,765,000 113 - 50

627,000

2,000,000

154,000

AAnnnnuuaall Buuddggeett UUSSDD B ((11999988))

Copyright © NESsT 2003

risky business: The impacts of merging mission and market

SSO ONNCCEEKK ((UUnniioonn ooff AAssssoocciiaattiioonnss ffoorr CCeerreebbrraall PPaallssyy)) SLOVENIA Education, social service

SSO ODDEEM M ((SSoolliiddaarriittyy aanndd DDeevveellooppm meenntt CCoorrppoorraattiioonn)) CHILE Community development, education, enterprise development

SSNNII ((SShhoorreebbaannkk NNeeiigghhbboorrhhoooodd IInnssttiittuuttee)) UNITED STATES Education, employment creation

SSEENNTT ((SSlloovveennee AAssssoocciiaattiioonn ffoorr M Meennttaall HHeeaalltthh)) SLOVENIA Social service, employment creation

CCoouunnttrryy FFiieelldd ooff AAccttiivviittyy

Caassee C

1983 / 1992

1984 / 1995

1978 / 1996

1992 / 1993

Yeeaarr EEssttaabblliisshheedd// Y YYeeaarr SSttaarrtteedd SSeellff--FFiinnaanncciinngg

30%

52%

13%

30%

SSeellff--FFiin naanncciinngg ooff AAnnnnuuaall IInnccoom mee ((1 19 99 98 8))

Work to unite regional associations for cerebral palsy to better address common needs, ensure legal rights, and share ideas

Provide technological, production, and capacity-building assistance to communities to improve the quality of life and preserve the environment

Provide an entrepreneurial environment in which African-American youths can exercise their creativity and learn business skills

Involve active and retired mental health professionals in the planning and functioning of mental health services

Orrggaanniizzaattiioonnaall M O Miissssiioonn

Fees for services (training seminars and health/therapeutic camps; printing and photocopying services); product sales (t-shirts, greeting cards, gifts; and publications on cerebral palsy); membership dues

Fees for services (owns a private school that charges tuition); membership dues

Product sales (promotional items decorated with Custom-designed art by youths participating in SNI’s training program)

Fees for services (seminars, workshops, and rehabilitation programs; housekeeping and maintenance services provided by Dobrovita, a for-profit subsidiary that employs SENT clients); product sales (newsletter and publications); membership dues

SSeellff--FFiin naanncciinngg AAccttiivviittyy

CSO Data risky business

271

272

136,000

49,000

83,000

81,000

AAnnnnuuaall Buuddggeett UUSSDD B ((11999988))

1-1

10 - 8

2-0

3-1

SSttaaffff ((FFTT-- PPTT))

Copyright © NESsT 2003

risky business: The impacts of merging mission and market

UUM MAANNO OTTEERRAA ((TThhee SSlloovveenniiaann FFoouunnddaattiioonn ffoorr SSuussttaaiinnaabbllee DDeevveellooppm meen ntt)) SLOVENIA Education, environment

TTyyrr CCeenntteerr SLOVAKIA Education, social service, employment creation

SSzzeeggeedd FFoouunnddaattiioonn HUNGARY Community development, culture

SSttookkaa TThheeaatteerr ((TThhee DDrraaiinn)) SLOVAKIA Culture

CCoouunnttrryy FFiieelldd ooff AAccttiivviittyy

Caassee C

risky business CSO Data

1994 / 1996

1993 / 1993

1989 / 1992

1995 / 1996

Yeeaarr EEssttaabblliisshheedd// Y YYeeaarr SSttaarrtteedd SSeellff--FFiinnaanncciinngg

28%

49%

50%

19%

SSeellff--FFiin naanncciinngg ooff AAnnnnuuaall IInnccoom mee ((1 19 99 98 8))

Encourage the practice of sustainable development to create a balance between human society and the environment, preserve natural resources and biological diversity, and promote ethical treatment of the environment

Cultivate job opportunities for socially disadvantaged and unemployed young people with disabilities

Preserve the important cultural traditions and values of the city of Szeged

Provide a creative platform for alternative culture

Orrggaanniizzaattiioonnaall M O Miissssiioonn

Fees for services (consulting services and training on sustainable development); product sales (books on sustainable development; newsletter; t-shirts)

Fees for services (laundry services); product sales (confectionary products); use of hard assets (leases car to others when not in use)

Fees for services (operates a language school); product sales (donated artwork); investment dividends; Hard assets

Fees for services (operates a theater and café/pub); use of hard assets (rents theater space when not in use)

SSeellff--FFiin naanncciinngg AAccttiivviittyy

Copyright Š NESsT 2003

1993 / 1997

1978 / 1979

Yeeaarr EEssttaabblliisshheedd// Y YYeeaarr SSttaarrtteedd SSeellff--FFiinnaanncciinngg

FFTT:: Average: Average 28* 1982/1989 Median 14 Median: PPTT:: 1989/1992 Average 11* Median 4

0-4

8-1

SSttaaffff ((FFTT-- PPTT))

Median: 50%

Average: 51%

9%

89%

SSeellff--FFiin naanncciinngg ooff AAnnnnuuaall IInnccoom mee ((1 19 99 98 8))

Orrggaanniizzaattiioonnaall M O Miissssiioonn

Create a network of young disabled persons; support the fight for equal opportunities and the right to be different

Strengthen, promote, and represent nonprofit organizations based in metropolitan Washington, DC

*Does not include numbers for FES or Hogar de Cristo, wich would distort averages.

Median: 372,000

Average: 875,000*

6,000

630,000

AAnnnnuuaall Buuddggeett UUSSDD B ((11999988))

risky business: The impacts of merging mission and market

YYHHDD ((AAssssoocciiaattiioonn ffoorr tthhee TThheeoorryy aanndd CCuullttuurree ooff HHaannddiiccaapp)) SLOVENIA Culture, education, social service

WC W CAA ((TThhee W Waasshhiinnggttoonn CCoouunncciill ooff AAggeenncciieess)) UNITED STATES Education, Nonprofit Sector development and support

CCoouunnttrryy FFiieelldd ooff AAccttiivviittyy

Caassee C

Fees for services (sells tickets to concerts, exhibitions, and other events); product sales (t-shirts, comic books, magazines)

Fees for services (administers a health insurance group buying program; offers workshops on nonprofit management; sells advertising space in newsletter); product sales (publications); use of soft assets (receives royalties from vendors that offer member services); investment dividends, membership dues

SSeellff--FFiin naanncciinngg AAccttiivviittyy

CSO Data risky business

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274

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Bibliography

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Bochee, Jerr, and Jim McClurg. Toward a Better Understanding of Social Entrepreneurship: Some Important Distinctions. Social Enterprise Alliance, San Francisco, 2003.

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Brinckerhoff, Peter C. Social Entrepreneurship: The Art of Mission-based Venture Development. Wiley Nonprofit Series. John Wiley & Sons, New York, 2000.

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Davis, Lee, and Nicole Etchart. The NGO Venture Forum: Lessons in Selffinancing from the International Gathering. NESsT, Budapest, 1999.

Davis, Lee, and Nicole Etchart. Profits for Nonprofits: An assessment of the Challenges in NGO Self-Financing. NESsT, Budapest, 1999.

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Davis, Lee, and Nicole Etchart. Unique and Universal: Lessons from the Emerging Field of Social Enterprise in the Emerging Market Countries.

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Davis, Lee, and Nicole Etchart. “Venture Philanthropy: Panacea or Snake Oil?” MicroEnterprise Americas. Autumn 2002, 59–61.

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About NESsT (www.nesst.org)

The Nonprofit Enterprise and Self-sustainability Team (NESsT) works to strengthen the financial independence of civil society organizations (CSOs) devoted to systemic social change. NESsT believes that through self-financing and social enterprise some CSOs can increase their long-term sustainability by generating their own, untied resources to supplement support from private and public donors.

NESsT was founded in the United States in 1997 with the goal of promoting CSO self-financing initiatives internationally through three distinct but interrelated lines of work. NESsT University promotes innovation, accountability, and leadership in the field of social enterprise through several programs: (1) Social Enterprise Ethics Initiative (SEE INIT); (2) NESsT Entrepreneur-in-Residence (NESsTER) program; (3) Social Enterprise Workshop (SEW) series; (4) International Venture Philanthropy Forum; (5) NESsT International Social Enterprise Exchange (ISEE) program; (6) NESsT Social Enterprise Curriculum; (7) NESsT publications series; and (8) the International Venture Philanthropist Award.

The NESsT Venture Fund (NVF) is the only philanthropic investment fund focused on emerging democracies. Launched in 2000, the Fund provides multi-year, tailored financial and technical support to social enterprises in Central Europe and Latin America. The NVF supports a portfolio of social enterprises at various stages of enterprise development, from start-up to expansion. The NVF does this by providing rigorous enterprise development support, direct financial and capacity-building assistance, and leveraging of other community resources to help “incubate” and mentor the social enterprises. The NVF currently maintains two portfolios of social enterprises. It has supported over 50 CSOs in social enterprise development and introduced over 500 to the process.

NESsT Consulting provides professional services in social enterprise and venture philanthropy development, including workshops, oneon-one consulting, research and assessment, and other expert services adapted to the needs of its wide array of clients, among them CSOs, international organizations, foundations, and government agencies. To date NESsT Consulting has completed 30 consultancies.

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NESsT works in countries that have recently undergone political and economic transition, where support for civil society is limited and CSOs often face particularly daunting financial challenges. NESsT currently operates out of its two regional offices in Santiago, Chile, and Budapest, Hungary.

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NESsT Publications

Publications designed for donors, nonprofit leaders, philanthropists and researchers worldwide to help foster the effective and responsible use of enterprise activities in the nonprofit sector.

NESsT www.nesst.org Home of innovative approaches to financing civil society risky business: The impacts of merging mission and market Copyright Š NESsT 2003

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“Profit” is often considered an inappropriate or unattainable concept in the “nonprofit” world. Business activities are said to take the attention and resources of nonprofits away from their core mission. However, some nonprofit, civil society organizations (CSOs) can actually further their mission and increase their long-term viability, efficiency and independence through “self-financing.”

Self-financing (i.e., social enterprise) refers to a number of entrepreneurial approaches to generating income. These methods include membership dues, fees for services, product sales, use of “hard” or “soft” assets, ancillary business ventures, and savings or other investment dividends. Self-financing strategies are currently used by many CSOs around the world. However, few resources and tools exist to help nonprofit practitioners use self-financing strategies more effectively and responsibly. Nor has there been sufficient critical examination of the impact and implications of such entrepreneurial activities on nonprofit organizations specifically or the nonprofit sector generally.

The NESsT Publications Series was designed to further the theory and practice of nonprofit self-financing by providing useful analyses and tools to donors, practitioners, researchers and students. The publications document experiences from around the world and examine the recurring challenges organizations face when attempting to use self-financing strategies. They also provide CSO practitioners the necessary tools to determine how or whether to implement self-financing strategies.

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NESsT is an international, nonprofit organization working to support social enterprise in the emerging democracies of Central Europe and Latin America.

NESsT’s mission is to help strengthen the financial sustainability of CSOs working for systemic social change.

Revenue from the sale of NESsT publications is used to support our work with nonprofits around the world.

NESsT Email: nesst@igc.apc.org http://www.nesst.org

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NESST LEARNING SERIES Risky Business: The Impacts of Merging Mission and Market

Not Only for Profit: Innovative Mechanisms for Philanthropic Investment

Risky Business: The Impacts of Merging Mission and Market, examines the impact - both financial and nonfinancial - of entrepreneurial activities on small social change organizations. An important contribution to the growing debate (2003; 291 pages) on “social return on Price: US $30 plus investment,” Risky shipping and handling E-BOOK ONLY Business uses analyses of (PDF format) 45 social enterprise ISBN 1-930363-04-4 cases from 15 countres to examine impact in terms of financial performance, mission/values, organizational culture, relations with stakeholders, etc. Risky Busienss challenges many of the assumptions made about performance “measurement” and “metrics”, pointing out the unique challenges of quantifying and qualifying the financial and social impacts of social enterprise. Risky Business is published in both English and Spanish.

Not Only for Profit documents the work of 11 pioneering “philanthropic investment” organizations in Europe, North and South Americas who are developing innovative mechanisms for using investment capital to achieve philanthropic or charitable (2001; 250 pages; goals. Through inten176 mm x 250 mm) sive interviews of fund Price: US $35 plus managers, investors shipping and handling. and investees, NESsT ISBN 1-930363-05-2 examines the wide range of financial tools (e.g. debt, equity and grants) used by each organization, their approach to capitalization, risk management, portfolio selection, management, capacitybuilding, performance evaluation and exit strategy. NESsT uses these cases, along with information on some 40 other “venture philanthropists,” to establish a framework for donors and investors to understand the array of creative investment tools that can be applied to achieve philanthropic objectives. Not Only for Profit is the first book of its kind to offer a broad and deep analysis of the emerging “nonprofit capital market.”

Also in SPANISH ISBN 1-930363-06-0

Coming Soon!

Also in SPANISH ISBN 1-930363-07-9

The International Venture Philanthropy Forum was the first event FFR RE EE E!! of its kind to bring together corporate leaders, foundations and philanthropists to share practical lessons from the field of venture philanthropy and to bring greater international attention to the shortcomings of the current “nonprofit capital market.” To view transcripts and presentations from the event visit the Forum website: www.nesst.hu

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NESST LEARNING SERIES Profits for Nonprofits: An Assessment of the Challenges in NGO Self-Financing

The NGO Venture Forum: Lessons in Self-Financing from the International Gathering

Enterprise activities are not The NGO Venture Forum is a for all nongovernmental handy “primer” for anyone organizations (NGOs), nor seeking to better underare they easy for those stand the fundamental NGOs that do venture issues of enterprise activiinto the marketplace. ties in the nonprofit sector.

Profits for Nonprofits examIn 1999, NESsT convened ines the practical chala worldwide group of 75 lenges and obstacles in leading thinkers and implementing selfpractitioners to examine (1999; 92 pages; financing. The 20 (1999; 192 pages; strategies for supporting 176 mm x 250 mm).

Central European NGO 176 mm x 250 mm). the enterprise activities Price: US $20 plus enterprises documentPrice: US $30 plus of NGOs. Developed shipping and handling. ed in Profits for shipping/handling. from the official NGO ISBN 1-930363-00-1 Nonprofits have not sucISBN 1-930363-01-X Venture Forum proceeded without significeedings, the book contains chapters on: cant effort, risk and sacrifice. The cases illus• how self-financing contributes to NGO trate that management, access sustainability; “. . . should be essential to credit, conflicts between for• the unique ethical challenges of reading for donors and profit and nonprofit mission, introducing profit motives into practitioners alike throughlegal, tax and regulatory issues, mission-driven NGOs; out the world . . . a highly potential fallout and competi• “social auditing” as a method for readable contribution to tion with for-profit small-busimeasuring the impact of nonprofit the expanding debate nesses, public accountability, enterprise; about a nonprofit capital ethics and potential abuses are • assessing NGO capacity for selfmarket . . .” all recurring issues that the financing; -- Malcolm Hayday NGOs face in using self-financ• models of business planning for The Charity Bank (London) ing strategies. However, Profits nonprofit enterprise; for Nonprofits illustrates that, • capitalizing NGO enterprises. while not the panacea, selfSPECIAL OFFER!!!

Order Profits for Nonprofits financing can generate The NGO Venture Forum is an together with NGO Venture income and further the misexcellent introduction to the emergForum and save US$5. Also sion of nonprofit parent orgaing field. means savings on shipping! nizations.

The NGO-Business Hybrid

(1997; 138 pages; 215 mm x 279 mm).

Price: US $20 plus shipping/handling.

This seminal study examines 15 cases of nonprofit organizations in 13 countries and their attempts to generate income through for-profit business activities. The first publication of its kind to examine selffinancing among nonprofits in the “developing world.”

From NESsT and the Program on Social Change and Development at the School of Advanced International Studies (SAIS) at the Johns Hopkins University, Washington, DC

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NGO-BTHE U INES S HYBRSID : IS THE PRIVATE S THE A ECTOR NSWER ?

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NESST CASE STUDY SERIES The NESsT Case Study Series provides in-depth, practical accounts of nonprofit enterprise and venture philanthropy activities. Starting with general background information on the mission and programs and the financial situation of each organization, the cases walk readers through the steps taken by organizations to start up, manage and develop enterprise and/or venture philanthropy activities. NESsT cases are excellent real-life teaching, training and research tools.

NEW!

Case Nos. 1-3: “Enterprising Foundations” Case Set: How can local grantmaking, community foundations use enterprise activities to build their endowment and sustain their activities? This is the question addressed by the first set of cases produced by NESsT in cooperation with the Synergos Institute. The cases focus on three Latin American foundations that use innovative enterprise activities to raise funds for their grantmaking activities and programs.

Case No. 1: The Corona Foundation, a private, corporate foundation dedicated to social development in Colombia, uses a conservative investment strategy to invest all hard assets donated by its corporate founders for its endowment, using only cash donations for grant-making purposes.

All NESsT case studies are approximately 20-30 pages in length (210 mm x 297 mm).

Individual case price: US$8 (plus shipping and handling).

Case No. 2: Hogar de Cristo, the largest operating foundation in Chile, raises 82 percent of its revenues through five types of self-financing. The myriad of enterprises range from membership fees, to sale of products and services, to royalties and real estate rental income.

Case No. 3: The FES Foundation, formerly one of the largest community foundations in Colombia, established Permanent Matching Funds as a way to build its endowment.

Special offer !!!

Save US$4 by purchasing any 3 case studies together for only US$20 (plus shipping and handling).

All case studies also available in SPANISH

Case No. 4: Casa de la Paz (Chile) generates income for its activities in citizen participation, environment and conflict resolution through consulting contracts.

Case No. 5: CIEM Aconcagua (Chile) generates income for its community development work by offering workshops and trainings and selling artisanal goods.

Case No. 6: CODEMU (Chile), a labor rights group for women textile workers, generates income through its trainings and a for-profit laundromat in Santiago.

Case No. 7: Mexfam (Mexico) generates 40% of its income through the sale of educational materials and products for family planning, health and sex education.

Case No. 8: Fundamor (Colombia) generates more than 60% of its income from numerous enterprises in support of its services to children living with HIV/AIDS. Case No. 9: Fundaempresa (Colombia) generates nearly 80% of its income from trainings and consultations on business planning and enterprise development.

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NESST CASE STUDY SERIES Get Ready, Get Set: Starting Down the Road to Self-Financing

Coming Soon!

Commitment to Integrity: Guiding Principles for Nonprofits in the Marketplace

The first document of Get Ready, Get Set is designed its kind, Commitment to Integrity to help the staff and board of is a “code of ethics” for the a nonprofit organization self-financing or enterconsider their options for prise activities of nonself-financing. Get Ready, Get profit organizations.

Set is a beginner-level handThe principles, develbook that helps you (2000; FREE! oped by NESsT in coopdecide whether (and 2 pages, (2002; eration with colleagues how) starting up or 210 mm x 297 mm) Includes workbook binder around the world, expanding a social enterPrice: One copy free with 75 worksheets, address the ethical prise can help your orgawith each purchase of 40-page case book dimensions of CSO com- other NESsT publications. nization reach its finan& 50-page guide book; mercial activities in four cial and mission goals. Get ISBN 1-930363-02-8 176 mm x 250 mm) key areas: Ready, Get Set will help you Price: US$30 plus assess your readiness for shipping and handling.

• commitment to mission and values; social enterprise; identify ISBN 1-930363-03-6 • commitment to transparency; enterprise opportunities • commitment to fairness; that match your core values, mission, competen• commitment to accountability. cies and goals; and assess the feasibility of The principles are intended to help enterprise ideas and your capacity to nonprofit leaders recognize and better undertake them. Get Ready, Get Set prepare for these ethical dimensions of guides you through these “pre-planentrepreneurial activity. Commitment to ning” stages of enterprise developIntegrity is a practical tool to help you ment using: 1) a guide book outlining ensure that ethical and responsible each step in the process; 2) a workstandards are upheld at every stage of book of practical exercises; and 3) a your enterprise planning and developcase study with six vignettes that proment. vide a real-life example of how a nonAlso in SPANISH profit applied each step of the process. Get Ready, Get Set is a perfect Also in SPANISH Also available in Adobe Acrobat. roadmap for those considering a jourPDF format in English and Spanish.

ISBN 1-930363-08-7 ney down the road to self-financing.

NESsT LEGAL SERIES NEW! The NESsT Legal Series consists of country-specific guides to help CSOs understand the legal/regulatory framework for social enterprise in their country: how such activities will affect their nonprofit status, how such income should be reported or how it is taxed. With extensive input from lawyers, accountants, nonprofit practitioners, tax specialists and others, the guides provide an assessment of: 1) what the current law states about CSO commercial activities; 2) how the current law is/has been interpreted; 3) effects of the law on the nonprofit sector; and 4) recommendations for improving the law. The first two guides in the legal series (for Chile and Colombia) are now available in English and Spanish.

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NESsT Legal Guides are approximately 25-35 pages in length.

Price: US$12 per guide (plus shipping and handling).

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NESST PUBLICATIONS ORDER FORM

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By bank/wire transfer: Please add US$15.00 to your order for each transfer. Please send this order form to: NESsT, Jose Arrieta 89, Providencia, Santiago, CHILE. Transfer funds to Bank of America, Baltimore, MD, U.S.A; account name: Nonprofit Enterprises; account no.: 0039-3398-8131; SWIFT code: BOFAU53N; routing no.: 0260-0959-3. Publications will be mailed upon bank acknowledgement of receipt of funds.

NESsT Quiz

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Purchase any NESsT publication and receive a free copy of the NESsT Quiz: ”Are YOU ready for selffinancing?” Fill it out to learn more about whether you have: sufficient support within your organization for self-financing; sufficient organizational capacity to undertake self-financing; sufficient financial capacity and resources for self-financing.

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