Not For-Profit

Profile of a start-up not for-profit youth service corps.
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This is one nonprofit facing a very businessslike question: can it get beyond the novelty stage and find a way to take its concept national?

* * *

Of all the enterprises that INC. has examined in the Anatomy of a Start-up series, City Year Inc. is singular. Not only is it a nonprofit venture, but it has customers who don't pay, investors who don't measure their returns in cash, and employees who are intended to be the principal beneficiaries of the enterprise. Nonetheless, City Year founders Alan Khazei (rhymes with daisy) and Michael Brown insist they are fundamentally entrepreneurs, only of a different sort. "We're interested," says Brown, "in ways of making society work better."

Toward that end Brown and Khazei, while still Harvard undergraduates, began working on a concept for a national youth service corps for kids from all walks of life. The objective was enhanced citizenship. They reasoned that if you could show young people early in their lives that they could work together on societal problems, the experience would give them a heightened sense of citizenship, which they would be inclined to exercise for the rest of their lives. This was the underlying concept for City Year, launched in 1988 in Boston as a model for a youth service corps that would eventually expand to other cities nationwide. Since City Year was conceived neither as a jobs program nor solely for the poor, it was ineligible for federal funds. Khazei and Brown realized early on that they were going to have to finance it with money they raised on their own. So they had to turn their concept into a program they could organize, operate, and sell.

The elements of the City Year program are simple. It recruits a limited number of young people, ages 17 to 22, from varied educational, economic, and ethnic backgrounds; organizes them into teams of 8 to 12; and sends them out to perform physical and human service work in conjunction with schools, agencies, and other nonprofits across the city. The financing for the program comes entirely from private sources -- the local business community, foundations, and philanthropic institutions. The benefits -- in theory -- accrue not only to the kids but also to the sponsors and the community. In 1987 Khazei and Brown worked with two colleagues -- Neil Silverston, then a recent Harvard Business School graduate, and Jennifer Eplett, who would later enter that institution -- to write a plan that explained their concept, strategy, and objectives and contained a projected budget. They proposed to operate a nine-week summer pilot program in 1988 to prove the project's feasibility. Then the plan called for full-time operation with 50 kids in 1989-90. If that worked, the plan said, they'd look toward national expansion.

The 1988 summer pilot, like the first full-year program Khazei and Brown envisioned, would consist of five teams of 10 kids, with each team supervised by a salaried young adult. The teams, like the City Year corps overall, would contain a deliberately diversified group: about half male, half female; half city residents, half suburban; half white, half minority; half poor and working class, some middle class, and some upper class. They'd wear uniforms -- T-shirts with the sponsors' names on them -- and all 50 would work out together as a corps every morning before splitting up and heading off to team projects. Those would include park-cleaning and shelter-painting chores, but they would also get the kids involved with people -- homeless people, people with AIDS, students, the elderly in public housing projects, and so on. All Brown and Khazei needed to start was $200,000, 50 kids, a staff, and some projects.

Although federal tax dollars weren't available to City Year, private-sector funding also made sense philosophically for a couple of reasons. One was that Brown and Khazei saw themselves providing to the public sector what other entrepreneurs contributed to the private: innovation. "Without political pressures," Khazei says, "we've been able to design a program the way we think it should be. I have the feeling that we'll have a major impact on public-service-program design. After all, you can't reform the computer industry from within IBM. That's why we needed Apple." If the City Year concept works in the long run, Khazei and Brown expect that government money will come in -- just as corporations eventually buy into successful small-business innovations.

Another reason that private-sector funding fit Brown and Khazei's plan was their assumption that corporations, like individuals, have civic responsibilities. "In the 1990s," says Brown, "there's a growing perception that doing good is going to be part of doing well." City Year, he and Khazei reasoned, would give companies an opportunity to do good in a new way.

* * *

City Year's major donors, without exception, say the concept was what first attracted them to the program. "This was definitely entrepreneurial, the first time it had ever been done," says Kay Kilpatrick, contributions secretary at General Cinema Corp., in Chestnut Hill, Mass., whose $100,000 contribution to City Year in 1989 made it a team sponsor. "We bought into the excitement generated by Michael and Alan about the idea that you could get kids of different backgrounds to function together."

Indeed, the diversity principle is a key premise of City Year. It differentiates it from other youth service programs and is a major selling point in Khazei and Brown's pitch to potential sponsors.

"We bought into Alan and Michael's vision of what City Year could be," says Susan Flaherty, former director of corporate contributions at New England Telephone, which also came in with $10,000 for the pilot program and $50,000 for the spring semester to be a team sponsor.

Khazei and Brown's vision got the sponsors' attention, but what swung the decision in most cases was the impression that City Year's management could actually pull it off. "They came to us with a very detailed proposal," says Kilpatrick, "that discussed how they would recruit, the hours that would be worked, the amount of the kids' stipends, and so on."

"They had a long-term vision of where things could go," says William W. Bain Jr., chairman and founder of management-consulting firm Bain & Co., "and practical ideas of how to get there. They understood that even lofty goals require planning and work." Also, Bain says, he quickly grew confident that Brown and Khazei would attract other major contributors -- that he wouldn't be alone.

There was nothing soft or mushy about their sell, says Jim Ansara, president of Shawmut Design & Construction Co., a Boston contractor and City Year contributor. "They looked at problems from a business perspective." From the beginning, Ansara says, City Year paid a lot of attention to budget and numbers. "With other nonprofit organizations, that's usually the last thing they worry about."

In their pitch to potential corporate donors, Brown, Khazei, and vice-president of development Lonni Tanner don't hesitate to mention self-interest -- the publicity, for instance, that comes from having 10 kids doing good works around the city with their sponsors' names on the back of their T-shirts. "Self-interest and the common good -- you can't separate them," says Brown.

For the 1988 summer pilot Khazei and Brown raised a little more than the $200,000 they needed, most of it from four corporate team sponsors: Bank of Boston, The Equit-able, General Cinema, and Bain & Co. Most of the nearly $1 million they needed during the 1989 - 90 year also came from sponsors. All four original sponsors returned, along with Reebok International, General Atlantic Partners, and New England Telephone. The $1.5 million budgeted for the current year was, by late summer, mostly pledged or in hand.

Tanner filled the balance of City Year's needs with cash donations from two group sponsors, one a collection of Boston-area law firms and another of contractors and developers; from a fund-raising event for the general public called City Year for a Day; and from smaller cash donations from companies and money from foundations.

She also received a variety of in-kind contributions: computers from Apple, muffins from Bethany's, a local sandwich place. Even City Year's 8,600-square-foot South Boston offices are a donation from The Boston Wharf Co.

* * *

Apart from raising money to finance their program, Khazei and Brown had another constituency to convince. They had to design and run City Year so that it would appeal to the mix of kids they wanted to attract.

The pair hired a recruiter, Kristen Atwood, who systematically covered the city and suburban schools as well as other places that kids hang out. Within the limits of honesty, Atwood tailored her pitch to each "market." In city schools, she says, the idea of service wasn't well understood. "But if I talked about a jobs program and how the experience can help them, that they understood." On the other hand, she found that suburban kids felt sheltered, unexposed to real issues. "To them," she says, "the idea of service appealed." To all of them, though, she stressed the idea that kids from different backgrounds have a lot to learn from one another. "If you're not comfortable with that," she told them, "then you probably don't belong here." City Year accepted about one out of every three applicants for the first year's program, and the single most important criterion after diversity, Atwood says, was commitment.

"It was a radical-looking group," says Kenny Lopez, 22, a corps member last year. Lopez lives in a poor section of Boston and says he has had 15 jobs in the three years since he left high school. City Year promised to pay him $100 a week with a $5,000 scholarship at the end of the year. Atwood's offer, Lopez says, sounded as good to him as any other until the first day the corps convened. When he saw who showed up, he says, "I'm thinking, This is not going to work."

From the other end of the socioeconomic spectrum, Atwood recruited Jen Murray, 19, from a posh town in bosky New Hampshire. She was just finishing four expensive years at a New England prep school and had no plans. "City Year appealed because 900 million people hadn't done it before, my parents knew nothing about it, and it was my choice."

During the 1989-90 year, City Year teams, among other things, did the following: renovated a rock and rose garden in a long-neglected city park and got nearby residents to become patrons of specific benches or bushes to help ensure their future maintenance; designed and operated an after-school program at a low-income housing project; and cleaned years of accumulated filth out of an elderly-housing project in a tough section of the city and helped residents organize themselves for shopping forays.

"I think they took away [in benefits] as much as they gave," says John Van De Carr, coordinator of volunteers for the Pine Street Inn, a homeless shelter in Boston's South End. In the summer of 1988 team members cleaned, painted, and fixed the shelter -- jobs that Van De Carr says would otherwise not have been done. "But in the process," he says, "they learned what it's like to be homeless, mentally ill, alcoholic."

"Whenever we get ready to thank them," says Mel Reicher, former director of the Boston Living Center, a drop-in residence for people with AIDS, "they thanked us. 'I never had an opportunity to work with people with AIDS,' they said, 'and now I know I can handle it.' "

Lopez says he learned over the nine months that life isn't all about money. "It's about what you can do for yourself and others." He's decided to go to college, he says, and later work in child care. Murray says that for her, City Year "was all about being yourself and finding out what you like, not what others tell you you should like."

Of the 57 kids that Atwood recruited in 1989 (7 were added at midyear), 44 finished out the year. In June 1990, when they graduated from the program and talked about their experiences to an audience of politicians (Massachusetts senator Ted Kennedy, Boston mayor Ray Flynn), corporate executives, the media, parents, and peers, there couldn't have been an unaffected heart in the place.

One Hispanic boy spoke for his team. "I've always been on the outside," he told the several hundred people there. In the fall he'd confided to the kids on his team that he was gay. The reaction at first wasn't pretty. Kids that age aren't tolerant of differences. But in the end he was the one the others picked to represent them at graduation, their biggest day, a measure of their acquired esteem. "I learned this year," he said, beaming, "that without me this wouldn't be a team."

* * *

Without exception, City Year sponsors of the first September-to-June program already say they think they got what they paid for. "Some nonprofits don't deliver what they promise," says General Cinema's Kilpatrick, "but City Year did. At the basic level, they delivered a team of kids that did some things that made a difference in some people's lives."

Brown says that the City Year staff has already begun to quantify in dollars some of the returns on supporters' contributions. They can, for instance, put a dollar figure on the value of the labor provided to nonprofit agencies -- money that they would otherwise have had to spend on the projects City Year kids did for them. New England Telephone's Flaherty says that this ripple effect, as she calls it, appeals to her. "We give a little money to City Year," she says, "and they give priceless support to other institutions that we're interested in -- the Pine Street Inn, for instance, and the Boston Food Bank."

Still at issue, however, are two things: continued corporate support for a program that in a few years will no longer be new and Brown and Khazei's plans for City Year's long-term expansion.

Some current City Year sponsors say their principal interest is start-up funding, not maintenance. Others say they're in it for the long haul. If there's a majority view, it is the same one that Khazei and Brown hold, that some government funding in a private-public partnership eventually will be required.

Legislation sponsored by Senator Kennedy to allow federal funding of programs that, like City Year, aren't need-based was passed by the Senate earlier this year. That could be a blessing or a curse. Khazei and Brown hope the money comes in a form that does not crimp their creative style. Keeping themselves off the federal dole has given them license to do some things with City Year that otherwise they never could have done. It's made administrative life easier, for instance. They've had to create internal accounting and management systems, to be sure, but they've not had to comply with the horrendous paperwork requirements that plague federally funded programs.

Although the Senate passed Kennedy's measure, the House, according to a Senate aide, is more inclined to approve funds that could be spent only on the disadvantaged. Should that happen, City Year would have a difficult choice to make regarding its most important tenet -- diversity.

Notwithstanding speculation on that score, the founders' own plans for the expansion of City Year have changed. Originally Brown anticipated that after the summer pilot and a successful first year, he and Khazei would immediately begin spreading City Year franchises -- cookie-cutter programs run by people with Boston City Year experience -- to other cities. After discussions with sponsors and others, Brown and Khazei believe the better strategy is to help City Year grow in Boston before attempting to expand it. The idea is that taking advantage of economies of scale and increasing the program's influence on a local level will make it easier to expand in the long run.

"With 200 to 300 kids in the corps," says Brown, "you could have a tremendous impact here. Now there are only 400 young people in gangs in Boston, but we know the impact that's having on the agenda of the city. With a City Year corps of 300, we'd be mobilizing at the same level but for good."


EXECUTIVE SUMMARY

The Company: City Year Inc., Boston

Concept: Develop a "franchisable" model for a privately funded, nonprofit youth service corps that creates real value for its sponsors, its employees, and the community at large

Projections: A 250-member Boston corps (up from 75 kids this year) requiring a budget of $5 million and generating 480,000 person-hours of community service by 1993; then expansion to other cities

Hurdles: Attracting continued private-sector funding and introducing some federal government financing without compromising the program's aims

THE COFOUNDERS

Michael Brown and Alan Khazei
Ages
: Both 29

Family: Both single

Source of idea: Contemplating, while still in college, the practical application of the idea of national service

Personal funds invested: None

Equity held: Not applicable

Salary: $25,000 each (up from $20,000 previous year)

Education: Brown -- B.A., social studies, Harvard, 1984; J.D., Harvard Law School, 1988. Khazei -- B.A., government, Harvard, 1983; J.D., Harvard Law School, 1987

Other companies started: None

Last job held: Brown -- clerk, First Circuit Court of Appeals; Khazei -- student

FINANCIALS

City Year Inc. Projected Operating Statement

(in $ thousands)

Fiscal 1989 Fiscal 1990 Fiscal 1991

(actual)* (estimated) (projected)

Support and revenue
Corporations and $719 $886 $1,200

foundations

Individuals and events 16 100 300

Interest income 10 20 23

In-kind support 196 116 65

Total support $941 $1,122 $1,588

and revenue

Expenses

Field operations $50 $396 $601

Training 10 15 19

Education 13 54 62

Recruiting/youth -- 30 91

development

Evaluation -- 13 14

Project development -- 22 31

Scholarships -- 197 387

Fund-raising 34 59 82

Management/general 119 144 207

administrative

In-kind expenses 101 85 60

Total expenses $327 $1,015 $1,554

Support and revenue 614 107 34

less expenses

Fund balance, 29 643 750

beginning of period

Fund balance, 643 750 784

end of period

*A development year spent raising funds, with no program in operation.


WHAT THE EXPERTS SAY

Competitor

Robert Burkhardt

Director, San Francisco Conservation Corps, San Francisco, a multicultural youth leadership work program that was the first of its kind in the United States

City Year has already succeeded in that even if it stopped tomorrow, it has produced some new ideas that have great value in youth service.

One critical issue is City Year's ability to make the transition to more stable funding. It's one thing to attract corporate support with this fire-in-the-belly idea and another thing to expect the same support three or four years from now, when City Year is a more institutionalized program.

I wonder about its expansion plans. When I look around the United States, I don't know how many cities, never mind suburban areas, could support such a program.

The salaries City Year pays its professional staff -- $20,000 to $25,000 a year -- are also worrisome. No one can raise a family on that. Youthful idealism is good for a couple of years, but eventually you've got to buy a house or even put a new set of tires on the car.

I applaud Khazei and Brown's wisdom in realizing that they have to grow in Boston before they try the McYear approach, but I doubt that they'll have the opportunity to expand before other folks in other cities beat them to it. That's OK. The capital they are accumulating at City Year is social capital, which you can share, not financial capital, which people tend to hoard.

Observer

Robert Reich

Professor, John F. Kennedy School of Government, Harvard University, Cambridge, Mass.; has written extensively on national economic policy and public-private partnerships

Not-for-profit enterprises, especially innovative ones such as City Year, defy the normal measures of success. You can't look to the normal for-profit standards. For City Year, success would be creating a precedent, a model for the country. It would mean changing the way that people think about solving public problems.

One of City Year's strengths is that its concept is simple and direct; it's unassailable. One can't take issue with its goals or its means.

One problem, though, is that there are likely to be a few glitches. City Year works with a large number of young people, and eventually something will go wrong. Corporate sponsors hate the thought of their names being associated with scandal or embarrassment. So the real test of long-term corporate support will come after there have been a couple of bloopers. To survive that, the program needs a reservoir of credibility and trust, and that takes several years to build.

I don't see a role for the federal government here. Local programs don't work well under the aegis of federal control. But I can see City Year being adopted by a city-suburban partnership. Lots of towns adopt sister towns in foreign countries. Why can't they adopt an inner-city district five miles away?

Potential Sponsor

Eugene Wilson

President, The ARCO Foundation, Los Angeles, an organization within ARCO charged with the strategic investment of a percentage (1.25%, pretax, in 1989) of the company's earnings in philanthropic causes

Different companies would react differently to City Year depending on how sharply focused they are in their grant-making priorities. For ARCO, City Year would be a good fit. Because it operates in the West and Southwest, ARCO looks very carefully at things like multicultural diversity and interaction, which are two of City Year's main precepts.

Besides being a strategic fit with our goals, I would agree that Khazei and Brown have a hardheaded business plan coupled with a good awareness of what kids need to understand these days.

One of my concerns is that so many of these things depend on the unique energy of the creators. You might want to replicate City Year in Dubuque or Atlanta or somewhere, but the risk is in trying to identify people with the same passion to run it. Quality control may not be the same.

I also have some concerns about the kinds of service the kids would provide. I don't know if City Year has spent enough time choosing the kinds of services that encourage kids to recognize their own leadership capacities, so that there's a lasting societal effect.

City Year's founders have gotten big money from a handful of corporate investors. Whether they'll be able to get government support is not as big an issue as whether they can expect a handful of companies to continue to come in with six figures. City Year needs to figure out what it can do to broaden its base of support -- maybe accept smaller donations -- so it will be an easier investment for corporations to swallow over a longer period of time.

The founders need to begin to articulate what is the real value they are giving to their underwriters. It ought to be more than just PR. How is this thing going to have a long-term effect at the point where corporate and community needs converge? If that can be identified, then they'll have a stronger case to make to their sponsors than just having kids wear T-shirts. I don't think that will last long enough for them to be viable over the long haul.

Observer

Robert Friedman

Chairman, Corporation for Enterprise Development, San Francisco, a nonprofit consulting organization that facilitates public-sector entrepreneurship

For a nonprofit, the growth of City Year has been meteoric, and it has also developed a remarkably diverse funding base. Had I been asked to assess its chances out of the gate, I would have been hard pressed to predict such success. It's impressive.

City Year's major hurdle, however, is that donors, corporate or otherwise, have a short attention span. The nonprofit marketplace is much more predisposed to funding new projects than to growing existing ones. So I don't think you can count on your old customers. It also seems that $100,000 is a relatively high buy-in.

The diffuse nature of City Year's goals makes it difficult for underwriters to pin down who is benefiting and therefore why they should continue to support it. Right now it's a housing program and a social-service program and a social-fabric-building program and whatever else. Either City Year succeeds in selling itself on its own unconventional terms by getting lots of folks to start thinking in new ways, or it has to start characterizing itself in more traditional funding terms and pitching itself at traditional funding sources. Either way, it depends on being able to show more precisely what the benefits are versus the costs and on being able to move from a start-up strategy to a maintenance or growth strategy -- the classic entrepreneurial problem.

City Year's attempt to quantify its value-added is important for feedback on performance and especially as a key to getting continued support. But I'm worried that it doesn't charge a fee for its services. As public and foundation budgets get tighter, there's the tendency [for potential sponsors] to say, If this is such a good service, why isn't someone paying for it?

Last updated: Nov 1, 1990




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