Social Enterprises Profit From Doing Good
When Marty Schwartz started selling used cars in 1999, he wasn’t in it to make money – at first.
He launched the Halethorpe nonprofit Vehicles For Change
to help low-income families reach better-paying jobs by having reliable transportation. Strapped for cash in 2006, he launched for-profit Freedom Wheels to sell cars for $3,000 to $6,000 to young buyers who can’t afford to shop at Carmax. The for-profit business bankrolls the nonprofit, which sells about 50 cars a month for about $700 to $800 apiece, Schwartz says.
The results are profound: Families that made less than $18,000 a year typically saw a $7,000 salary increase as the cars helped them get new, better-paying work. That puts another $2.6 million into the Maryland economy, says Schwartz, who estimates a $3 million drop in welfare costs if just 50 percent of his recipient families leave the state rolls.
Schwartz says his attention to the bottom line -- not his social agenda of helping the poor – is what attracted early investors.
“They didn’t care what a social entrepreneur was,” Schwartz says. “What they knew was that they didn’t want to start an organization that was going to bleed money and go out of business.”
Schwartz was one of a dozen experts on social enterprises – nonprofit or for-profit organizations working for positive social change – speaking at the Mid-Atlantic conference of the Social Enterprise Alliance
. Social enterprises must learn to think like a business, the 900-member network of do-gooders in the alliance told conference-goers at the University of Baltimore
. They must realize that showing measurable success is what attracts capital investment. Organizations must learn to find creative ways to make money to bankroll their philanthropic endeavors.
More than $160 billion in investment money is available to social enterprises, conference organizer Jim Kucher says.
"The problem is that people doing the work in social benefit programs don't know how to access it," says Jim Kucher.
The founding executive director of UB’s Entrepreneurial Opportunity Center
, Kucher set up the conference to get social benefit organizations talking more about providing measurable outcomes and not just how to be good at what they do.
"They aren't familiar with how to speak the language to attract impact investors," he says.
Investors today want organizations to show a measurable change in society, says Bill Pinakiewicz, vice president of the Nonprofit Finance Fund, a lender to nonprofits. What used to mean doubling enrollment in an anti-obesity program now means showing a drop in the obesity rate.
“Your ability to show outcomes will determine your access to that capital," Pinakiewicz says.
Today’s funding environment is even tougher than when John C. Weiss began teaching a University of Baltimore course about social enterprises in 2004. Costs have climbed, while grants have shrunk. And passionate people trained in social work, not business, run many nonprofits.
“They don’t know a debit from a credit,” Weiss says. “They don’t know what competition is. They don’t know market share.”
Some social enterprises drum up cash through innovative sales tactics. Zoos, for example, cut waste removal costs by marketing animal dung as “Zoo Doo,” a kind of compost that gardeners buy. Organizations selling goods shouldn’t lead with their social agenda when trying to attract investors, Weiss says. Instead, think like Newman’s Own or restaurant supplier Taharka Brothers Ice Cream in Mount Washington and start by making a great product.
Another moneymaker could come from leveraging reputation or expertise. A consulting business avoids the costs of materials, equipment and storage – as long as it fits with the organization’s mission.
Although nonprofits might fear jeopardizing their 501c3 status, Weiss says he’s never seen it revoked. The Girl Scouts sell cookies, and the YMCA operates gyms – with the distinct goal of making money.
“Profit is not a dirty word,” Weiss says.
It’s a singular pursuit of profit that led Vehicles For Change recently to start training auto mechanics and detailers. It saves the enterprise the cost of hiring outsiders. Plus, it fits with the mission of helping low-income families get better-paying jobs. And the entire operation is so successful that Schwartz pays bonuses to everyone from top executives down to the people who clean the cars. Vehicles For Change also doubled its office space, to 33,000 square feet, when it moved to Halethorpe in August.
Says Schwartz, “I can’t do any good if I go out of business.”
Will Morton is a freelance reporter who has written for the Baltimore Sun, the Baltimore Business Journal, Urbanite, Baltimore magazine and Style. He has also written for the Wall Street Journal and was an editor at Dow Jones Newswires in New York. He started as a teen reporter for the student-run Cavalier Daily at the University of Virginia.