​LESSON 18

WHEN GRANT FUNDING NEEDS A BOOST, BUILD A BUSINESS! (HINT: IT CAN BE SMALL!)

OPENING REMARKS

One of the best memories I have from my time as a grant writer for the public schools in New York City is of a coffee (and tea and pastry and bagel) wagon that was run by teenagers with severe disabilities (with some help from their teachers). Because the small school these students attended shared a building with the special education administrative offices where I worked, the teachers decided to take advantage of an in-house, enthusiastic market for a small business idea that met their goal of providing job training opportunities for their students. The older teens in the school were the baristas, wheeling the coffee wagon—well, really a big TV table with shelves and wheels—knocking on office doors, politely taking and filling orders, making change, collecting tips. They prepared the coffee, outfitted the wagon, kept it well stocked, and were responsible for keeping it neat (and hygienic). Those of us who worked in the building loved it—not only because we didn’t have to run outside to get coffee or ​snacks but also because we got to really know and talk to the students for whom we were working. Meanwhile, they learned important work and social skills… and made money for supplies, trips, and other extras.—EK

LEADING QUESTIONS

I’m a Not-for-Profit Organization! I’m an Elementary School! Why Do I Need to Think About a Business?

First and foremost, of course, this is a grant-writing book, not a tome required for an MBA. But, as we noted in the introduction and in the opening roundtable on the funding environment, we believe that, for a variety of reasons, many state and local government grants that originate at the federal level may continue to see significant reductions or disappear altogether. Foundations are clear that they will not be able to fill the huge funding gap that is already developing. We don’t mean to make things sound too grim, but, to put it bluntly, you need to protect yourself as much as possible by reducing your dependence on government funding by expanding traditional fundraising methods, by finding business opportunities that fit your mission (even small ones like the coffee wagon run by the students described in the Opening Remarks), or by identifying areas in which participants or clients are able to pay fees for services. And, preferably, all of these approaches. As we’ve said before, even if government funding levels could remain constant, grantmakers at all levels would still expect to see that you are making every effort to diversify your funding.

In this lesson we’ll give you some examples of the kind of thinking we encourage you to do.

Some Organizations Are More Equipped to Run a Business, Right? Yes, but…

Before we discuss business approaches to supplement grant funding, we want to acknowledge that there are differences among ​grant-seeking organizations and that many already operate small or large businesses that we think can serve as inspiration to others.

First, there are large organizations (such as municipal and state government agencies and school districts) that have their own resources and would not be likely to run businesses. They may compete for discretionary federal or state grants, as well as funding from a full range of foundations, but taxes form the base of their budgets and may (at rare times) be adjusted to account for local needs and priorities. In addition, they often receive what is called entitlement funding, based on the number of individuals and families in categories specified under different federal laws (such as low-income families or children with disabilities). Some of this funding may be lost or reduced in coming years, and state and local governments will need to adjust to this loss.

The second relatively well-funded group comprises large nonprofits such as universities, major museums, national social service agencies, or large hospital centers. They may receive government and foundation funding through a proposal process (see Lesson 3) but also have significant private resources, often including endowments. Their board members and donors may be affluent, well-connected, and generous. The arts organizations usually are well known to—and well-respected by—a steady stream of residents and tourists who become members, pay entry fees, or make donations to take advantage of whatever is on offer. Medical centers with outstanding reputations attract patients, research grants, and medical students, as well as major donations and “naming opportunities.” These larger organizations often operate volunteer-run gift shops, thrift shops, or other businesses (think of the well-stocked gift shops in the Museum of Contemporary Art in Los Angeles or the Mutter Museum in Philadelphia, as well as the stores run by the Salvation Army and Goodwill Industries) and have fairly large development staffs dedicated to raising money. They will probably be able to weather budgetary storms—but if they rely heavily on government funding, they should review their programs and fundraising strategies to identify priorities or areas that need to be strengthened.

​The third type of organization is the one of greatest concern here. These are the small to mid-sized nonprofits (and many larger ones, too) that rely on federal, state, or local government grants and contracts won through a competitive grants process, and on grants awarded by state or local elected officials. Some (but not all) of these organizations may be very good at winning foundation grants and support from local corporations, but such support usually cannot sustain an organization over time. Some (but not all) also may receive support from their board members and other donors through events and annual appeals. But they often do not have affluent boards or communities or dedicated fundraising staff.

Think like an entrepreneur. Although the three types of organization differ in many ways, especially in the availability of resources, all need to think entrepreneurially to stay viable. For those heavily reliant on government funding, it is critical that they look at some of the business-oriented approaches taken by larger institutions and come up with creative ideas of their own (we’ll provide a few good examples in a later section). For some, a business solution will help keep them up and running. For others, it may sustain or supplement funding for existing programs within the organization’s mission rather than sustaining the organization itself.

We’re One of Those Organizations That Rely on Government Contracts and We Know We Should Do More—but What Can We Do?

We won’t dwell on traditional “non-business” fundraising methods here; there are excellent books and online guides available. We will, however, say that, if you don’t do so now, you must find ways to develop and use the following methods no matter how limited your resources are.

However, for most organizations these initiatives, though critical, are not enough to sustain them if grants and contracts dry up. That’s why we asked our government and foundation panelists for suggestions about creative ways to support your programs and your organizations. Their advice boiled down to something often easier said than done: “Think outside the box.”

Where Do I Start?

You are limited only by your organization’s mission, your creative thinking about your programs, and your determination to raise money that’s not dependent on grants and contracts.

First, be clear about your mission. If, for instance, your organization was established to serve young children, thinking outside the box by starting a bike-rental business wouldn’t be likely to fit your mission—unless you were renting out tricycles. But if your organization works with at-risk high school students to help them get into college or find and hold jobs, you might consider renting out bikes to make money. Such an initiative serves your mission while it brings in unrestricted funds: You can use this “small business” to teach teenagers how to run a business, how to plan, set prices, market the business, and provide good customer service.

Then think about what assets you have (people and places) and what can be developed. Every nonprofit and school has assets that are not always considered in the usual approach to service provision. If you have space that is not fully utilized, for example, there are lots of ways to maximize income from your nonprofit’s home. Can you rent out activity space or classrooms for meetings, parties, or community events? What are the skills of your participants and community members? They are potential volunteers who may be willing and able to set up and run business projects on your behalf. Maximize your assets!

​SOME SMALL AND EASY EXAMPLES YOU CAN TRY (OR ADAPT TO FIT YOUR ORGANIZATION)

Many schools and nonprofits of all types occasionally use business-oriented approaches for fundraising, even if they don’t bring in huge hauls—and even if they don’t think of them as businesses. Most are more limited than the ongoing business strategies we want to bring to your attention in this lesson, but every bit helps. And some of the limited activities can be expanded—and become ongoing. Here are some examples of widely used fundraising projects that we encourage you to consider.

And Don’t Just Stop There

If you currently are running any kind of business at all (no matter how small), you may—and you should—feel pleased that you are thinking creatively and bringing in much-needed supplementary money to your organization. But after talking to so many grantmakers and nonprofit leaders about the importance of diversifying funding, we want to suggest that you consider aiming a little higher, a little broader, with your approach to business. We’ve included a few examples of what we mean in the next section, but we expect that you will be able to come up with a lot more ideas that make sense for your organizations. Meanwhile, consider going bigger with what you’re doing now.

If, as we mentioned in one example, you’re a PTA that is doing very well selling baked goods at polling places on Election Day, why not do even better by selling not only pastries but handmade goods ​(jewelry, artwork), and selling them at other times—before and after school, in time for gift-giving holidays—and at other locations?

If your organization is already running a thrift shop or selling crafts, think about maximizing sales by advertising throughout the neighborhood and on social media. Also think about where else and what else you can sell—and about who else can donate and volunteer to help increase sales revenue.

If you work with the teens we mentioned earlier and are running a bike-rental business, consider adding a bike-repair component. Hire a trainer to teach the teens how to repair bikes, which is a good use of your resources. Develop a reciprocal arrangement with a shop that sells bikes: You’ll send customers who want to buy bikes to the shop, and the shop will refer rental customers, or those in need of repair, to you. Or, if there isn’t a bike shop in the area and your rental business suggests a likely market, grow into that business yourself!

Sometimes simple needs assessments (to find out what your customers and potential customers want to eat, drink, and purchase) and a little publicity in the neighborhood and beyond will lure more and more people to your business.

And one final thought: For-profit businesses, always focused on adding to their bottom line, routinely try to diversify funding by thinking entrepreneurially. Remember when Amazon.com sold only books? Even the smallest neighborhood shops are coming up with entrepreneurial plans to supplement incomes. One hair salon we know of, next door to a hotel that doesn’t have room for suitcases, stores luggage at an hourly rate for hotel guests who have checked out but aren’t leaving the city until later. The hotel refers departing guests to the salon. (Sometimes the luggage-storing customers decide to get a haircut or a manicure while they’re there.) Small restaurants and bars close to the public for private parties that bring in far more revenue than the typical dinner, lunch, or drinks crowd would. Large corporate conference centers are rented to smaller businesses that need space for annual meetings. You can think of many more examples of how even the smallest businesses aim a little higher.

​Nonprofits and schools aren’t restaurants or conference centers, of course. Still, businesses can provide a model for thinking outside the box. The point is to be creative about new and expanded ways to raise money. But heed the warnings we’ll give below. Plan carefully, work flexibly within your mission, go slowly and deliberately, know your market, and make sure you’ve thought about any risks—but be prepared to take some of those risks. It will be worth it.

OUTSIDE-THE-BOX EXAMPLES THAT CAN START YOU THINKING

Most of the examples of business-oriented fundraising in the last section require little more than someone to coordinate volunteers’ training (when needed) and scheduling, organize outreach and publicity, and troubleshoot the operations. But entrepreneurial organizations will explore the process of building a full-scale business that can contribute significantly, not only to the mission but also to the sustainability of a program or the organization itself. This can take a lot of planning and a commitment to finding and maintaining long-term support for a business until it gets off the ground. Like the examples in the last section, some approaches can be small and be implemented in a relatively short time, but in most of the following examples the process took years for the business to become successful. And there are pitfalls, which we’ll discuss a bit later.

An Art Gallery for the Ages (Really!)

In New York City, a network of senior centers operates a successful art gallery that is widely known and well respected for the high caliber of the curated artwork on display. Here’s the catch—the artists whose work is exhibited must be at least 60 years old! There is a good reason for this. In spite of their talent, reputation, and bulging portfolios, older artists are generally considered, to put it bluntly, over the hill by many in the art world—and they rarely get the opportunity to have their work shown (and purchased). The gallery ​started small, in an unused space in one of the senior centers, and very soon moved to a location in what was just becoming a trendy area for galleries. The director of the gallery, an artist and former gallery owner, has been instrumental in placing articles about the gallery and interviews with the artists in numerous national arts and general-interest publications. The gallery hosts a well-publicized, well-attended grand opening every month, with new exhibits and, of course, wine and cheese for the guests. The artists and the senior center network share the profits from sales (which are considerable) and, as a bonus, the gallery rents out its space—which is always filled with paintings, photographs, and art installations—for events such as weddings to bring in extra money for the senior centers. Can you think of any problems in your community that can be successfully addressed by starting even a small business?

How an Alzheimer’s Center Survived

A social adult day care center for people with Alzheimer’s and other dementias provided—“for free”—a secure environment, caring staff, daily transportation, stimulating activities, and new friends who shared their experience of memory loss and understood one another’s concerns. It also provided no-cost respite for family members responsible for the participants. The center lost government and foundation funding because, given the intensive, costly nature of such programs, it would never be able to “scale up”—serve more people—as the funders had hoped. It looked as if the center would have to close. But instead of giving up, the nonprofit that ran it identified a foundation whose mission was to help programs that might become self-sustaining. A solid business plan (we’ll talk about this a bit later) persuaded the foundation that this adult day care program had a chance to do just that. Some families with resources were asked to pay a daily rate that covered costs (and a tiny bit more) for each participant. A creative executive reached out to managed-care companies that coordinated health care for elderly and disabled individuals, and developed contracts to provide services for their ​eligible clients with memory loss. The managed-care companies realized this would represent a lower cost than placement in a nursing home’s memory unit. It was a slow process (over three years), and the organization sometimes still needs to find small amounts of supplemental funding, but the program survives. What services can you sell (based on what you now provide for free) to keep your nonprofit afloat in bad times… and in good times too?

Business Cooperatives—the Wave of the Future?

A community-based organization providing a wide range of family services in a low-income, largely immigrant community focuses heavily on preparing adults for work and placing them in jobs. The organization realized that there are workers who struggle to get jobs in traditional placements and that developing their own small businesses could be a solution. Over more than two years, with the help of the nonprofit’s staff, a group of participants developed a home-cleaning business that has been so successful that other worker-owned co-ops have been created since, including child-care services, pet-care services, and nonmedical care for frail elderly. The workers—most of whom had limited education and English language skills—learned to do extensive market research to figure out how to price services competitively and where and how to promote the business. They identified and obtained needed training to learn not only the best but also the safest methods of cleaning. They incorporated, with the owner-workers serving as the board. They decided that 95 percent of income should go to the workers, the rest to various overhead costs including back-office and customer-service operations contracted on an hourly basis with the nonprofit parent. They’ve been so successful that they are now providing cleaning services to commercial as well as residential customers—and discussing setting up a retirement plan. Our panel of funders suggests that this model is very appealing to many foundations that want to see nonprofits prepare clients for jobs and financial independence. Can worker-owned businesses be an option for your organization?

​Selling Skills to Businesses

An organization in a low-income inner-city area started with a program teaching young people to build and repair old, broken computers, and quickly developed formal courses and curricula on a wide range of information technology skills, from the basics to advanced practices. Students also received training in workplace skills such as customer service, teamwork, and communications. Staff were hired to market the program to businesses in a major metropolitan area; graduates were placed in these businesses, in positions ranging from entry-level help desk to software and network development. As the program expanded over several years, a creative leader began to work with businesses to identify skills they needed, and staff designed courses and curricula for specific business needs. This work has resulted in contracts with small and large corporations to provide workers with skills tailored to the needs of the specific employers. The organization still seeks grants for new initiatives but is close to self-sustaining—and has expanded its business to other cities. Why beg corporations for job placements when you can sell them on talent and skills designed to meet their own needs?

Food Service—Serve Your Mission as Well as the Public

Talk about long term! One example of what we have in mind is an organization in the Southwest. The organization started with volunteers assisting older area residents—running errands, shopping, and providing for other needs. Over many years the number of volunteers grew dramatically, and so did grant-supported and fee-for-service programs for seniors and families, including home care, skilled nursing, and memory care. No one is turned away for lack of ability to pay, but participant fees make up more than half of the organization’s budget. Grants and private donations represent a significant portion of the budget, but an innovative business model provides another sizable chunk. With professional and volunteer help, and over several years, the organization started and promoted a restaurant open ​to the public; the restaurant eventually was able to stand alone and began offering catering services. And it started a bookstore on the premises, which helps draw customers to the food-service component. Well within the nonprofit’s mission, the restaurant offers free and discounted meals to seniors, including free meals on holidays. Can a café or restaurant—or a bookstore—serve your mission while it fattens your budget?

CHALLENGES TO THINKING OUTSIDE THE BOX

We don’t want to make it sound as if starting a business—any business—is a snap. Even the small and (relatively) easy business ideas discussed earlier are filled with potential obstacles—and some businesses, like restaurants, operate on slim profit margins. When thinking about adding a business component, it is a good idea to look at your organization and ask, “What could we add that would benefit the people we serve, the community, and our nonprofit’s bank account?” Before you even begin developing a business or fee-for-service approach, think about what it will take to ensure that your staff will commit to it. You may need many meetings and perhaps help from an outside consultant. Some creative programs of all shapes and sizes did not make it, for a variety of reasons. We’ll give you just a few warnings here.

Inadequate Planning

One of our grantmakers described an organization that wanted to create a self-sustaining business that would provide mainstream jobs for ex-convicts. They planned to train individuals to recycle ink cartridges and sell them to corporations. What they did not plan for was the intensive personal support the workers needed (basic job skills, help with personal problems that interfered with performance, etc.); the number of staff it would take to meet these needs; and the number of diverse skills that were required for performing the many aspects of this work. They had too many goals and objectives, and could not make the program work successfully. It is critical to ​consider everything that could go wrong and plan to address each possibility in a practical way before you try to implement any such project. This is one reason we urge you to create a business plan.

Inadequate Resources

As one grantmaker commented, nonprofit organizations often are so risk averse that they refuse to spend money on initiatives that can bring in more support in the long run—say, a development director or a marketing specialist, let alone a business. But if they do decide to take the plunge in starting a new business, they may overlook the need to raise the sometimes frightening amount of money that will put the business on its feet. The business plan must show where start-up resources will come from and project the length of time outside resources will be needed to keep it going.

Lack of Professional Staff

There’s a reason successful businesses have well-prepared managers. According to one grantmaker, some business-oriented programs have failed because the organizations did not recognize the need for management skills, marketing experience, or other high-level professional skills. You may be able to start a small pilot program with a few enthusiastic staff members or volunteers (and it’s often helpful to start this way), but, if you want to grow a business that has a chance of success over time, you will need skilled assistance. Although we are very enthusiastic about the use of volunteers, you must be sure you do have the right person for the job. If you don’t have exactly the right volunteer, you need to budget for a paid manager. And even if you have a dedicated and skilled crew of volunteers, you still may need a part- or full-time volunteer coordinator. Part of the success of the worker-owned cleaning business was that members were able to draw on the parent organization’s professional staff for help with bookkeeping, customer service, and other back-office skills. And a significant part of the art gallery’s success was its experienced manager, a former gallery owner.

​Relying on the Same Volunteers Over and Over… Until They Get Burned Out

One small nonprofit could not afford to hire extra staff to run fundraising events and activities and had to keep calling on the same people time after time. Eventually these people said, “Enough—leave me alone. I love the organization but I can’t do it anymore.” When considering diversifying your fundraising—and certainly when you’re going to try even a small business approach—think about who will do what. And, if you plan to use volunteers, how you will recruit (and thank) them; it had better not be the same old good guys.

Skipping Steps, Getting Too Big Too Fast

The program we mentioned before—training ex-convicts—tried to do too much at once, according to the grantmaker we spoke to about it. If they had started, say, by providing some basic technical skills and placing workers in appropriate work environments, they might have built a self-sustaining program in stages, adding needed social services and additional skills training that led to the desired business success.

A small nonprofit theater organization had been very successful in building a reputation and an audience in a space that seated fewer than 100 people. It was given the opportunity—an offer they couldn’t refuse—to move from this space to a rent-free, professionally designed auditorium seating many times that number. The opportunity was irresistible, but, for a number of unanticipated reasons, the theater was unable to draw an audience that could fill the larger space, and ultimately had to close.

Failing to Plan for a Major Change in Your Organization’s Culture If You Decide to Charge Fees or Build a Business

Most nonprofit service organizations always have operated on the assumption that their target population needed free services, and in ​many communities this was and still is true. But even in the poorest communities, some service providers—and funders—believe it contributes to the participants’ sense of ownership of a program if they make at least a small contribution to obtain needed services. Organizations often make such contributions voluntary or create a sliding scale that accounts for family income, but staff may resist any efforts to change the status quo. They will argue that charging fees would prevent some current participants from gaining access to services. You may need to focus on ways to change the existing culture and encourage the staff to recognize the need for fees. It may take many discussions and possibly the help of a skilled consultant.

Here’s a good example of what can go wrong: A very high-quality college preparation program drew participants from a wide urban area where many families could and would have sent their children to a for-profit college prep program, but of course were happy to have the free service. The organization decided to charge a small fee to offset the cost of the program, with the potential for a sliding scale or scholarships if students could not pay. Many participants did pay, but staff resistance continued to such an extent that government funding was sought and won, and fees were dropped. For now, this outstanding program is fine, but, because staff members were unwilling to think outside the box, it is vulnerable if the grant is not renewed.

IF YOU CAN WRITE A GOOD GRANT PROPOSAL, YOU CAN WRITE A GOOD BUSINESS PLAN

For grantmakers who are interested in projects that can become self-sustaining, a business plan is often required—and one should be created even if the funders don’t demand it. This is not a mysterious activity. Even the smallest businesses should have a business plan to make sure all bases are covered. The focus may be a little different from a standard ​proposal, and you will need some additional information, but if you can write a good proposal, you can write a good business plan.

The business plan will address the same issues as a proposal does—need, goals and objectives, program plan, evaluation, and so forth. In both cases the purpose is to show that you know why it’s necessary and that you are fully prepared to run the program. The business plan also must show that you have considered all possible contingencies on the way to making the program self-sufficient. We’ll discuss a few of these contingencies here; a sample business plan from the Small Business Administration is provided in Appendix 4, and you will find a wealth of information online.

Know Your Market

Most grant proposals focus on the portion of the population that needs the service proposed. You already know your community very well (or should). You probably could write a needs statement in your sleep. In addition, though, a business plan must identify the portion of the population that could or would pay for it. The theater company mentioned earlier learned this the hard way. When it moved to a much larger space than it had been using, it assumed its populous suburban community would fill the seats. It had not sufficiently studied its market or its competition: Residents had many theatergoing opportunities in a nearby city.

On the other hand, the art gallery described earlier knew its market very well and picked a location in Chelsea, the heart of the art gallery section of Manhattan, which is one of the major reasons it has succeeded. The school coffee wagon we told you about in the Opening Remarks also knew its market. There were no nearby coffee shops or bakeries… and besides, who wants (or has the time) to walk outside and wait on long lines to get a muffin or a cup of tea when a door-to-door delivery service is available?

If you are planning an ambitious fee-for-service program or a potentially self-sustaining business, you will use the same data sources ​as for a standard needs assessment, but this part of the business plan requires you to become a super data analyst. Go back to all the data you have about the demographics of the community and your service population, its strengths and weaknesses, and dig deeper.

Think through all of your current programs and seriously consider how you might structure fees or request contributions. Think about what it would take to expand the number served, how you would advertise and market a service, and what it would mean to your community and organization if you were able to raise money in this way.

Know the Competition

In addition to showing that you know the market for your services (most importantly, that there is a market), you will have to demonstrate that you know what other organizations or businesses, if any, already are addressing the need—your “business competition.” Who else provides the proposed service, and why are they not sufficient to meet the need? How is your project different or better? Instead of the business strategy proposed, would a merger or collaborative initiative make more sense? Why not?

​Learn Marketing

Many government and private funders ask you how you will recruit participants if you win a grant. The same question applies here, but your answer must be much more sophisticated than, say, making presentations at PTA meetings or sending out fliers about your senior center art classes. Marketing is critical to the success of a business or fee-for-service program. You need to understand specific ways to reach your target population, whether through print advertising, social media, a word-of-mouth campaign, public service or paid ads in media outlets that are popular with your community, and more. You may need to consider the cost of a media specialist in your business plan or show how you will obtain pro bono services from professionals. You certainly need to consider other costs of marketing in your budget, including promotional materials and the cost of advertising.

Know Your Path to Success

In a standard grant proposal, you are required to include a program description and indicators of success. How many teenagers will apply to college? How many will be accepted? How many will graduate? But if you want to create a self-sustaining college prep program, you also need to describe all the steps you will take to make it self-sustaining. How many paying students will you need to cover all the program’s costs, cover less affluent students, and perhaps make a small profit? How and where will you recruit them? Will you start by adding a small number of paying students to the existing program and build this number over the years? Will you ask current participants to contribute to the cost of the program? Or will you start a completely new fee-for-service program in addition to the current one? How does your program differ from existing for-profit college prep programs, in format as well as in cost? (You can boast a little here about outcomes from your current “free” program.) How will you cover students who cannot pay? If all answers are satisfactory, how long will it take to reach the desired outcome of a self-sustaining program?

​You also need to know how a program or business that becomes self-sustaining will benefit the parent organization. For example, if you successfully create a fully functioning bike-repair shop to train youth in your community to run a business, will your organization pay the ongoing business costs, including salaries and overhead, and keep any profits, or will the new business itself handle all costs, distribute profits to the participants, and perhaps include a contribution or payment to the parent organization in its budget?

IN CONCLUSION

Okay, we get it: starting a business or charging fees is not for everybody. You may not see your way to doing anything like this right now. But we must urge you to think seriously about what you will do if that city or county grant for senior services comes to an end; what you will do if state funds for after-school programs are phased out; what you will do if your ESL programs lose their government support. Of course we hope none of this will happen, but we think that at least some of our fears may come true. We wrote this chapter to encourage you to incorporate some of the ideas here into your planning process, or jump off from them to create your own plans for sustainable support. (And this kind of thinking will look great in your next proposal!)

POP QUIZ

True or False?

Essay Questions