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RE: Scale

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  • Michael Whitehead-Bust
    The following are responses we have received to the recent question from Will Warshauer: I work at a large non-profit and have been heading up our efforts on
    Message 1 of 3 , Oct 2, 2007
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      The following are responses we have received to the recent question from
      Will Warshauer:

      "I work at a large non-profit and have been heading up our efforts on earned
      income. My colleague and I are wondering about examples of non-profits who
      have successfully one earned income at a large scale. By that, I guess I
      mean earned income ventures that generate at least $1 million per year in
      free cash.

      Our own investigations haven't turned up many that work at this scale, and
      I'm wondering if they don't exist or if we're just not finding them. I would
      exclude groups like hospitals and museums. I know they do earned income at
      scale, but think they are such different types of institutions, that their
      experiences are not relevant for us."

      1) From David H. Carleton <david@...>

      Not sure what you mean by "free cash" but FareStart generates revenues over
      $1.5 million through is food-service businesses. All businesses consistently
      turn a net profit towards the dual mission of training and feeding
      disadvantaged populations.


      2) From Deborah Hostetter <deborah@...>

      Project, Inc. is a social enterprise with revenues in excess of $1000000 per
      year. We will celebrate 50 years next April. Over 75% of our revenue is
      generated by our work. I would be pleased to discuss business issues with
      you any time.


      3) From Larry Goldberg <Larry_Goldberg@...>

      Take a look at public broadcasting's sales of DVDs and other ancillary
      materials - not for pledge, but at web sites like http://www.shop.PBS.org
      and http://www.shop.wgbh.org Don't know if they top $1million but it's
      possible.

      4) From Patrick Sciarratta <psglobal@...>

      This describes the income level of Friendship Ambassadors Foundation. We
      are a not for profit tax exempt 501c3 that brings in operational income each
      year related to client based programming for US groups worldwide. Our gross
      is about $2M per year. 95% of our income is earned. We are currently
      considering a for profit/nonprofit split that would create a social
      enterprise organization in the fp arena larger than our current programming
      and staff permits. http://www.faf.org
    • Michael Whitehead-Bust
      Here are a few additional responses we received to the question from Will Warshauer: I work at a large non-profit and have been heading up our efforts on
      Message 2 of 3 , Oct 4, 2007
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        Here are a few additional responses we received to the question from Will
        Warshauer:

        "I work at a large non-profit and have been heading up our efforts on earned
        income. My colleague and I are wondering about examples of non-profits who
        have successfully one earned income at a large scale. By that, I guess I
        mean earned income ventures that generate at least $1 million per year in
        free cash.

        Our own investigations haven't turned up many that work at this scale, and
        I'm wondering if they don't exist or if we're just not finding them. I would
        exclude groups like hospitals and museums. I know they do earned income at
        scale, but think they are such different types of institutions, that their
        experiences are not relevant for us."


        1) From Kate Bayer <kbayer@...>

        I like the way that this question was posed in reference to "free cash". The
        responses appear to have answered a question regarding percentage of funds
        "earned" through a venture and I agree that 75% - 95% earned is great but
        this isn't answering the fundamental question regarding "free cash". Our
        organization has an annual operating budget of close to $19million of which
        probably 99% is earned through program fees. Our greenhouse venture is
        generating a lot of revenue but also a lot of expenses, thus at this point
        isn't generating any "free cash". When I think "free cash" I think
        unrestricted funds that can be used by the parent organization for anything
        they want. It isn't plowed back into the enterprise for capital equipment or
        other needs of the venture. This is an important distinction and one we
        shouldn't lose sight of. An organization needs to be very clear from the
        start-up if they have as their prime goal the generation of "free cash" vs
        advancing their mission (yes there should be both). No nonprofit wants to
        find themselves in the position of sustaining a business venture that is
        losing money. I would have to ask the question "if you are generating 75% of
        the revenue needed to sustain your venture, where is the other 25% coming
        from?" And you certainly aren't generating any "free cash" for your
        organization.

        2) From Jim Fruchterman <jim@...>

        I think that defining SE at scale as throwing off $1 million a year in free
        cash makes the pool very small. We had a social enterprise that threw off
        $3 million annually in gross margin for several years, but we reinvested all
        but 1-2% of that margin in the mission. Since our social enterprise was a
        mission-focused enterprise, we always had great things to spend the money
        on. Then we sold it and got $5 million for the enterprise. So that year
        was pretty successful!

        One current example of a successful social enterprise is the Mozilla
        Foundation (maker of the Firefox web browser): I'm sure it has $5-10 million
        a year in free cash flow, but they're working hard to spend that on mission.

        My impression of most successful nonprofit social enterprises is that they
        are mission-connected and thus the idea of throwing off excess cash to
        equity and debt holders (the traditional definition of free cash flow)
        doesn't compute.
      • Michael Whitehead-Bust
        I have been watching this discussion of generating free cash from social enterprises with interest. Here is an example from the UK, from the British Heart
        Message 3 of 3 , Oct 8, 2007
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          I have been watching this discussion of generating free cash from social
          enterprises with interest.

          Here is an example from the UK, from the British Heart Foundation. The BHF
          is the major funder of heart research in the UK. About 10 or 12 years ago
          they invested in creating a chain of thrift stores. Surpluses from the
          stores repaid the start-up capital quickly, were partially used to expand
          the chain and the remaining free cash is donated to the BHF. £12.5 million
          is about $20m.

          Here is an extract from the latest Annual Report.
          http://www.bhf.org.uk/about_us/our_annual_reports.aspx

          "It was another great year for BHF Shops. In 2006, over 14 million customers
          bought more than 71,000 items a day from our 546 shops, raising over £12.5
          million for our vital work.

          This was almost a 31% increase in net income, and with our volunteer sales
          force now totalling over 11,000 for the first time, BHF Shops really have
          had a successful year. Our Furniture and Electrical chain is worth a special
          mention, with ten new shops giving us a total of 38, with doubled profits in
          2006. "

          A good example of getting to scale I think. This is only one of several
          such thrift store chains in the UK.


          Regards

          Simon Jones
          Director of Finance and Administration
          Tides Canada Foundation/Sage Centre

          simon@...
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