The following is a slightly edited version of a paper I presented in a workshop at the June 1998 Sustainable America Conference.

Scaling-Up New Technologies
by Creating Social Purpose Enterprises

Nonprofit organizations are increasingly flirting with creating commercial ventures for a steady source of revenue. J. Gregory Dees of Harvard Business School calls it a "new pro-business zeitgeist." But for organizations promoting new technologies, so-called appropriate and environmental technologies, there is more to look at in the commercial corporate model than the revenue stream. There are opportunities for new capital sources, manufacturing to bring technologies to scale, and creating franchising and distribution networks to get the product out; making the little engine that could the engine of social enterprise that has an impact.

When traditional sources of nonprofit funding dry up, the prescription today leads to "entrepreneurship." Hustling a product and making a buck while you're at it. Usually, a nonprofit starts-up a for-profit entity as a result of the IRS's unrelated income rules. Nonprofits forfeit tax-exempt status when revenue unrelated to their mission exceeds 50% of total revenue. Museums have museum shops. Save the Children sells ties to the rich and famous. PBS markets a purple dinosaur and makes millions. On the flip side you have commercial companies with nonprofit values. Paul Newman builds a business that gives all of its profit to charity. Stoneyfield Farms champions small New England farms and fights for chemical-free food. Equal Exchange buys and sells coffee without forsaking cooperatives and small coffee growers.

People advocating for environmental technologies would be wise to take a closer look at the Stoneyfield Farms and the Equal Exchanges of the world. If products such as the composting toilet, alternative energy systems, and environmentally-sound building materials are going to have a greater impact, the nonprofits that advocate for them must begin to use the tools of the commercial corporate sector without losing site of their public mission.

The social entrepreneur pushing environmental technologies has to generate demand, then be able to follow through to meet the demand for their products. This means developing financing opportunities for investors, using marketing to compliment education, and manufacturing and distributing your product. At the same time, social purpose entrepreneurs have to work with banks, foundations, and governments to build the market infrastructure that can handle the required capital to get sound environmental technologies off the drawing boards, out of the margins, and into the mainstream.

Nonprofit status, as designated by the Internal Revenue Service tax code, is a value-neutral tax classification. It does not put one kind of institution on higher moral ground than another. But the social purpose entrepreneur can nudge the new business hybrids -- nonprofits with for-profit subsidiaries -- up the moral hill.

Technology nonprofits that create for-profit subsidiaries or invest in social purpose for-profit companies have an opportunity to invent a new wheel in the march toward industrial development. Getting new technologies into the marketplace can spin-off employment opportunities, create markets for clean technologies, and build manufacturing operations and small businesses to outsource related components.

Fundamental challenges for any new company are to find the capital to build its business and generate the revenue necessary to keep those capital sources happy. In this world of nonprofit/for-profit hybrids, the rules have not changed, but the players have. As the number of social purpose enterprises grow, so will the opportunities for investors. Finding the social purpose investor is the next challenge. Think of it as the fuel for the of social enterprise engine.

If nonprofits can ignore the sirens of power and greed, they can create industries that foster the expression of cooperative values. Out of this can come a new kind of organization; one driven by production for the public good without predation, exploitation, or environmental devastation.

Laura Orlando

Related Readings

The Chronicle of Philanthropy. Entering Another World: More people are leaving charity work to start socially responsible companies. April 9, 1998.

New York Times. Nonprofit Work Gets Profitable. March 29, 1998.

J. Gregory Dees. "Enterprising Nonprofits." Harvard Business Review. January-February 1998.

Jed Emerson and Fay Twersky, co-editors. New Social Entrepreneurs: The Success, Challenge, and Lessons of Nonprofit Enterprise Creation. San Francisco, CA: Roberts Foundation, 1996.

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