Nonprofits in Busine$$ - Learning From Practice

Published by WorkVentures 1997

This chapter draws together the main findings from the study: Nonprofits in business.

Learning from Practice - 12 Points Stand Out

There are 24 case studies in this report. Each can teach a great deal. When taken together there are 12 points that stand out. Many of them are also supported in the survey findings.

1. There is no agreed language for talking about community enterprises. About half the organisations in the survey with community enterprises talked about: community enterprise, community business, nonprofit enterprises, nonprofit business. The remaining half used other terms such as nonprofit organisation, charity run enterprise, enterprise initiative.

2. Many community enterprises are very successful in terms of meeting both their social and business goals.

3. There are risks. Visions do not always become realities. Some of the community enterprises that were operating in 1989 no longer exist.

4. There are some common paths in the development of community enterprises. Many community enterprises moved through similar phases and steps in their development.

5. Many and diverse difficulties are experienced along the way.

6. Community enterprises have particular competitive advantages. Often these competitive advantages are linked to the enterprise's social objectives or the support base of the parent organisation.

7. There are some ideological and philosophical debates that many community enterprises work through. For example, organisations starting with a focus on achieving social goals have a recurring debate about the extent to which the community organisation should be run as a professional business.

8. Some community enterprises may never be 100% self-sufficient, even though they may be very worthwhile enterprises.

9. Government policies affect the development of community enterprises and can make or break them.

10. Some community enterprises seem to have a more entrepreneurial spirit than others.

11. Community enterprise is partly a state of mind. The government funds many community organisations. It buys services from private businesses. Is there any real difference besides the way one thinks about it?

12. Plenty of good advice is available from people who have been there and done that.

1. No Agreed Language

Despite the wide prevalence of community enterprises the language that is used to describe them is not used consistently throughout the sector. In the mail surveys (See Appendices b and c) about half the organisations with community enterprises used the following terms: community enterprise, community business, nonprofit enterprises, nonprofit business. The remaining half used other terms such as nonprofit organisation, charity run enterprise, enterprise initiative.

The lack of a common language makes it difficult to talk about and write about community enterprises.

Many people in community enterprises do not identify with the language others are using.

In this study community enterprise is defined as an activity that:

• Recognises itself as enterprising
• Has social benefit as a primary purpose of the parent body
• Produces goods and/or service
• Generates revenue from this activity
• Does not distribute profits to shareholders.

All 24 case studies meet these criteria. However most do not call themselves community enterprises. In this publication several terms are used interchangeably including nonprofit businesses and community enterprises.

2. Business and Social Objectives

Many community enterprises are very successful at achieving both business and social objectives

There was an expectation at the beginning of the study that business and social objectives would often be in competition or difficult to harmonise. While there is some balancing required between these objectives, the case studies indicate that in many, if not most instances, the two objectives are not opposed.

The business objectives were often designed in such a way that they met the social objectives. For example:

The Catholic Adult Education Centre has adult education objectives; the enterprise venture Parish Ministry Publications publishes relevant books for adults that can be used in the adult education strategy

Recycling clothing by the Anglican Home Mission Society is done in such a way that it provides clothing to those in need at affordable prices

Armidale Community Radio provides an alternative radio service

The AQA Commercial - Data Processing enterprise provides employment for disabled people.

In the case studies there appear to be only three exceptions to this trend of business objectives being social objectives (to a substantial degree). They are:

H. W. Cottee Orchards bequeathed to the Wesley Central Mission

Team Tops purchased by AQA

Business Support Centre run by Hornsby Challenge.

These three enterprises began as money making ventures. In themselves they were not designed to meet the social goals of the organisations concerned.

It is interesting to note that both Team Tops and the Business Support Centre (2 out of 3) no longer exist.

In 21 of the 24 community enterprises in the case studies the business objectives are social goals. This appears to be a surprisingly positive finding. Put another way: Social goals can be met through community enterprises. (Only one of these 21 has ceased to exist.)

This is not to say that there are no tensions between running a professional business and meeting the social goals of the enterprise. Tensions arise because of competing use of resources, eg, should additional resources go to Parish Ministry Publications to publish more books, or should those resources go directly to adult education; should Sydney ITeC's Computer Training Unit run up-market courses to generate income or provide additional computer time for the unemployed?

The mail survey of community organisations highlights how common community enterprises are. While it is not possible to accurately generalise from the survey, conservative estimates suggest that:

At least 10% of government funded community "welfare" organisations run a community enterprise of some kind.

At least a further 5% have run a community enterprise at some time in the past but are no longer doing so.

The mail survey also highlights the enormous diversity of community enterprises that exist in the community.

3. There are Risks

There are risks in all businesses. Community enterprises are no different. A large proportion of small businesses fail. Some community enterprises did not survive from 1989 to 1996.

Team Tops run by AQA was an enterprise purchased for all the right reasons, trying to establish a strong income base for AQA so that AQA could become less reliant on government funds.

Team Tops was purchased in 1988. It was wound up in 1992. There were major consequences for AQA. It had to prune back service delivery because of the losses incurred. That experience totally changed AQA's attitudes to business enterprise. AQA would never again put a large chunk of its money up again for a non core business activity. (Case Study 8)

Hornsby Challenge's Business Support Centre was set up to contract work in its administrative area and try to offer that to small business. It provided office support, word processing, filing, faxing, etc for small businesses.

It didn't work at all. The staff didn't have the confidence to do it. They hadn't really sought their jobs to start up a small business. They were admin people. After it folded it had one customer who kept on coming back, and we all dived for cover when he did. It was a reminder of something you wanted to file away. (Case Study 3)

WorkVenture's ITeC Training Services was wound up in 1994. It had operated successfully for a number of years but it became more difficult to get business. (Case Study 5).

Some of the enterprises that have continued are struggling, eg, Armidale Community Radio Co-op and Garage Graphix.

The mail survey of community organisations identified many organisations that had run community enterprises in the past and no longer do. 123 organisations returned questionnaires for those without community enterprises. Of those, 28% had run a community enterprise in the past - about half of these were considered successful and about half not successful.

Some of the reasons given in the mail survey for why a community enterprise was no longer operating were:

Lack of funding

• No seed funding.
• The lack of funding resources to develop the enterprise further.

• Lack of funds.

Lack of support from participants

• Participants did not want to continue.
• Not as successful in terms of clients wanting to take it over and run it themselves.

Operations

• Premises were withdrawn.
• It became less successful when the Council moved our community market.Almost successful in terms of almost breaking even.
• Problems with timing, council approval, wait on delivery of necessary machinery, etc.
• Costs became too high.

Business skills

• The management and administration at that time was not sufficiently business oriented.

4. There are common paths for development

Beginnings

With two exceptions, all the community enterprises got started in one of two ways.

The first way was when a few people with 'a good idea' were brought together by social goals. They did something, and while what they did may have been very small to begin with, it grew and grew and developed into a business enterprise (usually over a number of years).

Examples of this type of beginning include:

The Boomalli Aboriginal Artists Co-op that has its beginnings in aboriginal artists discussing issues of concern to them over several years and then identifying what they could do about it.

Garage Graphix which began with artists coming together to talk about their concerns about community art.

The World Development Tea Co-op which began from a group in Action for World Development trying to do something about development education.

Armidale Community Radio which arose from local residents talking about their needs and what they wanted in Armidale.

The key point in these beginnings is that shared social goals brought people together and what they did was then successful. They did not initially set out to run a business. Sometimes the people were already part of an existing organisation (eg, World Development Tea Co-Op grew out of Action for World Development (AWD) and sometimes they were not (eg, Garage Graphix).

The second way of getting started was when a group of people set out to run an enterprise. Examples here include:

AQA Commercial - Data Processing business run by Australian Quadriplegic Association (AQA)

Sydney ITeC Repair Centre

The Shops run by the Wilderness Society

The Labour Co-op.

Nearly all the enterprises in this second category also have social goals (besides income generation to meet social goals). The only exception would appear to be the Business Support Centre set up by Hornsby Challenge (which folded). The key point though is that the organisation deliberately set out to run an enterprise by developing the enterprise from scratch. In all cases these people were part of an existing organisation at the time the enterprise was proposed.

Of the 24 case studies there were only two exceptions to these two ways of getting started above. They were:

H.W. Cottee Orchards which were bequeathed to the Wesley Central Mission and the Mission decided to keep running them as a money making venture to fund the Mission's services;

AQA bought a for profit company, Team Tops, as a business venture to fund its other services.

Developments

The organisations that began through a group of people coming together around a social goal usually developed in the following way:

The people initially brought together would spend time discussing their concerns - this could go on for one or two years or more before any action evolved.

Some kind of voluntary organisation would then be established, eg, Reverse Garbage Co-op, Boomalli Aboriginal Artists Co-op, World Development Tea Co-op.

After some time, a staff person would be employed.

After some more growth, a structure would be formalised (incorporation, etc); social goals would usually be uppermost until this time.

The organisation would then become more business oriented in order to survive - staff had to be paid, etc. People interviewed made comments like - we have to run it like a business otherwise we would fold up.

Sometimes after running more as a business there would either be a sense of loss from the earlier 'voluntary' times or ongoing discussion about the relative weights of the social and business objectives.

For groups that deliberately began to set up a business, the usual process (in varying degrees of formality) was:

Discussing ideas; reflection on existing elements of their organisation, etc

Doing market research

Creating the structure for the new business

Running some trials - often subsidised to begin with

Experiencing slow growth

Becoming profitable or not.

The first process is more exploratory; the second process is more deliberative. Examples of the second process include: AQA's Data Processing Business, Hornsby Challenge's Business Support Centre, LEDI's New Business Centre and Revolve.

5. There are many difficulties

In the process of developing these enterprises a wide variety of problems were encountered. They included eg:

The Anglican Home Mission Clothing Recycling's perceptions of unfair competition when private clothing bins appear to be labelled as charities.

The difficulties of breaking into new markets where the organisation has not had previous contacts, eg, the Clipper cleaning services run by Hornsby Challenge.

The lack of professional management at various times in the organisation's history, eg, Armidale Community Radio, the Paddington Eastside Bazaar.

Difficulties with finding appropriate accommodation at reasonable rents, eg, the Shops run by the Wilderness Society and the World Development Tea Co-op.

Tensions over ownership and control, eg, A Trifle Different run by Wollongong SkillShare, Paddington Bazaar, and Revolve.

Although the organisations tended to be moving through similar processes in their development, as noted above, they did not all encounter the same series of problems. One suggested reason for this is that the effective resolution of potential problems is very dependent on the skills of Boards and staff and other available resources. The organisations had a widely diverse level and range of skills in the Boards and staff, which meant the potential problems encountered tended to be resolved more easily in some organisations than others.

Access to finance

At the initial phases of the study there was an expectation that community enterprises would have difficulty finding access to finance.

The case studies do not show this to be an important factor. For the enterprises that were established from within the structure of a parent organisation, the parent organisation often provided finance. Eg:

The Church provided a low interest loan to the Paddington Eastside Bazaar

The Catholic Adult Education Centre provided all necessary finance for Parish Ministry Publications.

In other cases the organisations were essentially self-sufficient, eg, the Anglican Home Mission Clothing Recycling.

In several cases loans to the organisation were guaranteed by members of the organisation.

What appeared to be a more significant limiting factor to finance than the actual availability of finance was an organisation's ability to take the risk and borrow. There appeared to be a reluctance to borrow.

Other difficulties

The difficulties encountered by organisations which responded to the mail survey included:

The economic environment

• The recession - downturn in economic activity
• The drought

Business planning /development and growth

• Business acumen
• Business planning
• Strategic planning
• Marketing - learning how to
• Dealing with normal growing pains
• Getting new contracts
• Establishing an enterprise without capital

Networking

• Support from other similar organisations

Members/Board

• Support from the Board
• Maintaining cohesion amongst co-operative members
• Restructuring Board and membership

Structures

• Running an enterprise within the structure of a community organisation - new accounting styles, profile, etc.
• Separating the community perception of the enterprise from the parent organisation. (People tend to believe that as we use unemployed people the catering operation will be cheaper).

Personnel

• Keeping staff
• Staff education
• Unions requirements
• Suitable staff
• Staff with adequate skills, motivation
• Volunteers getting tired/bored
• Keeping our present number of volunteers
• Board-staff tension

Policies and systems

• Developing written policies
• Setting up effective and efficient systems
• Understanding from the auditors

Conflict

• Conflict resolution
• Conflict within the organisation - should we be doing this?

Dealing with bureaucracy

• Dealing with changing government policies and the bureaucracy
• Conforming to a transitional plan
• Dealing with the Department of Housing
• National training reform agenda
• Dealing with governments and other stakeholders to whom a community enterprise is not a familiar animal.
• Changes in the requirements for records etc to be kept to meet future funding requirements

Funding

• Accessing funding
• Raising money to fill gaps between income and expenditure
• Lack of government funding
• Not enough funding

Specific service issues, eg,

• Helping residents to live happily together
• Finding a suitable property
• Renovations of premises
• Storage display and refrigeration
• Time for lobbying and research duties
• Clients unable to raise finance to start new businesses due to recession

These difficulties cover just about every aspect of organising and operating an enterprise. Some are very similar to problems faced by other small business operators.

6. Competitive advantages

Successful community enterprises are made possible for a variety of reasons including the specific competitive advantages of the enterprise. Competitive advantages include:

Exclusive or special access to materials (eg, Revolve) or sources of materials (eg, Anglican Home Mission Clothing Recycling)

Exclusive or special access to customer groups (eg, Parish Ministry Publications run by the Catholic Adult Education Centre, World Development Tea Co-op)

Being a good cause (and at least equal in other ways to competitors) (eg, Wilderness Society, Anglican Home Mission Society's Op Shops and Clothing Recycling and AQA's Data Processing)

Linking separate business/social objectives so that their implementation is mutually supportive (eg, World Development Tea Co-op with tea sales and development education; Sydney ITeC with computer training and electronics repair and maintenance; Wollongong SkillShare's multi-cultural catering and catering training; Catholic Adult Education's objectives and Parish Ministry Publications)

Offering better quality or better priced products or services (eg, data processing by AQA, tea sales by World Development Tea Co-op).

7. Philosophical/ ideological debates

Two debates were very common to many of these community enterprises. They included:

The extent to which the community enterprise should be run like a professional business.

This debate often took place in those organisations that had developed originally from a group trying to achieve social goals that subsequently grew into a business.

This debate did not usually take place in those enterprises that had been set up deliberately as enterprises.

The tension between social objectives and business objectives:

In community enterprises that had arisen out of social goals this debate often began as the previous debate.

In organisations that had deliberately set out to set up an enterprise, it appears there was no doubt that the enterprise should be run as a professional business. Rather, the issue was how to balance competing social and business objectives at the times when they came into conflict.

Other debates that were less common include:

Ownership and control debates - should the business be a community enterprise or should it be privately owned? Should the enterprise be part of the parent organisation or run as a totally separate organisation? (eg, Revolve and Redfern Legal Centre Publishing);

Are the management structures consistent with the ideology and social objectives, eg, should the organisation be set up as a collective or with a hierarchical structure? (eg, Wilderness Society Shops, Redfern Legal Centre Publishing, Garage Graphix).

8. Some enterprises may never be 100% self-sufficient

Some enterprises will never be 100% self-sufficient. Nonetheless, they may be great and worthwhile enterprises.

Hornsby Challenge's Clipper Property Services is a cleaning business that started off as an employment option. It employs people with an intellectual disability. The employees need more training and support than employees of the enterprise's competitors. If this training and support was not subsidised by the parent organisation and/or government the business enterprise would fold.

Redfern Legal Centre Publishing has a turnover of about $600,000 per year. Grants are typically $60,000 per year. The $60,000 makes the difference between RLCP being an ongoing concern and its demise.

The Centre for Community Welfare Training generates a large proportion of its income. However it operates in the community sector, an environment where training is subsidised, so within that environment, the fees people are prepared to pay for training, will not cover all the costs.

9. Government policies

Government policies can help or hinder the development of community enterprises.

Data Processing run by AQA Commercial has to meet all the service standards for the new Disability Services legislation. The staff employed in the enterprise see themselves as employees, not clients. However, the Department sees the staff as clients and makes the enterprise comply with all the disability service standards. This creates an administrative nightmare and a big increase in workload.

Waverley Woollahra Arts Centre pays a nominal rent to the local council. The council was trying to make all its properties return commercial rents. If the Arts Centre had to pay a commercial rent it could tip the balance and lead to the demise of the enterprise.

Wesley Film Productions was established to produce Christian videos and to take advantage of the tax deductions offered for film production in the late 1980s. Since the changes to the tax deductibility of film production, it has not made any new films.

The Wilderness Society Shop was able to obtain a subsidised business consultant through the Office of Small Business. The Shop was in need of developing a good business plan to meet a changing retail environment. Professional business planning has been a key to the future growth of the enterprise.

The responses to the mail survey also identify areas of government policy that have either supported or hindered community enterprises. In the mail survey 56% of community enterprises were aware of government policies which have encouraged community organisations to become more commercial in focus generally. Examples given include:

• DEET SkillShare enterprise funding.
• The new Co-operatives Act (to some extent)
• New Enterprise Incentive Scheme
• Tendering for labour market programs
• CAP
• Disability Services Act (1986)
• White Paper on Employment (pluses)
• Competitive tendering for community services.

In the mail survey 58% of community enterprises were aware of Government policies that have been particularly supportive of the development of community enterprises. Examples given include:

• Community Cultural Development Board Policies
• Australia Council Visual Arts Crafts Board which supports a range of nonprofit companies.
• DEET SkillShare enterprise funding
• Community Housing Program
• BARD Program
• JobTrain
• DEET Labour Market Programs
• CAP
• Business Enterprise Centres
• Disability Services Act (1986)

34% of enterprises in the mail survey were aware of Government policies which are hindering the development of community enterprises. Examples include:

• Over-regulation of aged care
• Not so much policy, but funding - the approach from the bureaucracy is to fund the organisation but not to assist income earning measures- such as funds for membership drives
• Unnecessary regulatory controls under the new Co-operatives Act
• Department of Housing purchase procedures
• Taxation - Payroll and FBT
• Government working on only annual budgets
• Social Security/CES requirements
• Project funding to replace core funding
• Little recognition of the value of part-time work
• White paper on employment (minuses)
• Government funding is for specific projects only
• Industry Commission enquiry into Charitable Organisations.

10. Entrepreneurial culture

Community enterprises have varying degrees of entrepreneurial culture.

Indicators of entrepreneurial culture include:

• Being willing to explore new business ventures
• Identifying the organisational activity as a business
• Deliberately starting new ventures
• Collaborating with the private sector
• Positively looking for new opportunities.

Organisations with a high degree of entrepreneurial culture include WorkVentures/Sydney ITeC, Canberra Enterprise and Employment Development Association and Hornsby Challenge.

Some organisations seemed to have a low level of entrepreneurial culture. It was as if they were running a business and didn't know it; they had stumbled on to something successful and weren't sure of its potential or how to realise its potential.

Most of the case studies were highly successful ventures and one can only wonder what would happen if they were all taken seriously as businesses.

While it is not possible to identify the reasons for the various levels of entrepreneurial culture with any degree of certainty, some influences may be:

Many of the community enterprises in the case studies are brought together by people wanting to achieve social goals; these people often do not have business experience and would not think about the venture in the way a business person might think about it.

There is a large gulf in our society between the private sector and the community sector - while this gulf may be illusory to some extent, the two sectors have developed their own cultures, values, etc. Entrepreneurial culture is, to some extent, frowned on in the community sector - though this is changing.

The surplus from the enterprise is channelled into the enterprise or other social goals rather than going to the managers, owners, etc. and therefore there is not the same motivation to make the business venture take off as there is in a privately owned business.

11. A community enterprise is partly a state of mind

A community enterprise is partly a state of mind. People typically talk about the government funding community organisations. They typically talk about the government buying services from private businesses. People do not typically talk about the government funding private business, though private businesses are directly and indirectly subsidised, eg, with special tax treatments, or subsidies such as the diesel rebate.

Is there any real difference between funding and purchasing besides the way one thinks about it?

12. Good advice from others

Some of the good advice from others:

Be clear about what you are doing. Believe in what you are doing. Get your motivation right and your effort right and everything will flow from there. (Wilderness Society Shop).

Talk to people who have done it. Your best chance of success is not to have to rediscover the wheel of the mistakes that other people have made. If you can't find someone to talk to who is working in the area that you are interested in, look at similar areas. (World Development Tea Co-op).

Its hard work and there is lots of it. It has to be done professionally, and that means being run by a professional business person and not by an amateur (Paddington Bazaar).

You must have the expertise to be able to do what you want to do, eg, I'd like to set up a desk top publishing business tomorrow. I know I don't have the expertise available to me within the organisation to set it up. (AQA Data Processing).

Stay away from government funding, well away. The arts (and other areas) have to learn that they have an audience, its got a business. (Waverley Woollahra Arts Centre Co-op).

Making money does have to be a priority. It is essential just to keep operating. The surprise for me has been the importance of cash flow. You have to be able to maintain cash flow. (Redfern Legal Centre Publishing).