Crossover

The Social Entrepreneur

They LOOK, THINK, AND ACT like entrepreneurs. But they're going where entrepreneurs have never gone before

Melissa Bradley was only 23 years old when the consulting company she started just one year out of college booked its first $1-million year. But unlike many other young masters of the universe, when Bradley sold the business a few years later, in 1992, she didn't put the proceeds into a monochromatic condo or speculative stocks. Instead, she used the money to launch The Entrepreneurial Development Institute (TEDI), an organization in Washington, D.C., that teaches entrepreneurship to at-risk youths. "If I could do it, I figured they could, too," says Bradley, who, despite having grown up in a poor, single-parent household, graduated from Georgetown University and later earned an M.B.A.

"I envisioned starting TEDI as a for-pay service, but the kids I wanted to help couldn't afford it," says Bradley, now 29. So she rewrote her business plan and launched TEDI as a nonprofit--in spite of, she says, having "no clue" about how to run one. "I was thinking, 'What's a 501(c)(3)?" she recalls. "I couldn't understand why we didn't pay taxes. As a businessperson, I still think that's dumb," she says. Nor did she understand why some funding sources wanted her to start programs that didn't meet her clients' needs or why so many nonprofits seemed "bogged down in process." To learn basic tax-and-filing issues, Bradley went to nonprofit-related seminars. But when it came to other decisions, she decided to run TEDI like a regular business.

Melissa Bradley isn't the only one. Increasingly, entrepreneurially minded nonprofit leaders are bringing the tactics of the private sector to the task of solving social problems. And with good cause: they need the cash.

Federal and state funding for nonprofits dropped by 23% during the 1980s, and it continues to decline. Similarly, corporate and individual giving has decreased, while social needs are on the rise. "The nonprofit sector is under a lot of pressure," says Jerr Boschee, who directs the Minneapolis-based National Center for Social Entrepreneurs. "Costs are going up, resources are going down, and now we have people in need who weren't around in the 1970s and '80s: crack addicts, people with AIDS, the homeless, the spousally abused."

Consequently, all nonprofits are faced with trying to cure greater ills with even less money--or to find new ways to generate revenue and become less dependent on foundation and government grants. Some nonprofits are even starting and running small, profit-seeking companies, channeling their earnings back into social-services programs. Many others are adopting private-sector management techniques in an attempt to get more mileage out of whatever resources they have. Either way, the new "social entrepreneurs" are creating hybrid businesses that blur traditional sector lines and uncover startling uses for marketplace power.

Already, several networks have sprung up to study and replicate this relatively new phenomenon. Bill Shore, director of Share Our Strength--an antihunger organization based in Washington, D.C., best known for its successful "cause marketing" and partnership with American Express--has begun to convene leaders from what he calls "community wealth enterprises." In the meantime, Stanford University's Graduate School of Business hosted a conference this spring on social entrepreneurship and is planning to integrate its findings into an ongoing curriculum. The Roberts Foundation, in California, recently published a book of case studies called The New Social Entrepreneurs. And in Minneapolis, the National Center for Social Entrepreneurs has been working for more than 10 years with nonprofits that want to run profit-generating businesses and operate more entrepreneurially.

Adding velocity to all this change is another factor: more than ever, there seems to be little difference between the kind of new-generation founders of nonprofit organizations and the founders of ambitious growth companies. The same people who are fashioning the hybrid social enterprise might as likely have been for-profit entrepreneurs. Bradley, of course, actually was a traditional entrepreneur. Little wonder, then, that the once-impregnable barriers between businesses and charities are now a lot more porous.

"At least half the nonprofit executives in this country now understand that they have to do something different," says Boschee. "Probably the best 2% to 3% of them understand what needs to be done and have the guts to actually try it."

Exactly what are they trying? The managerial challenges posed by a traditional nonprofit are tough. How have these new socially conscious entrepreneurial managers worked to overcome them? What changes have resulted?

• New sources of revenue: For one thing, by seeking nontraditional ways of earning income--such as running a business or developing a corporate partnership--a nonprofit entity becomes less dependent on mercurial sources of funding, such as government grants or individual donations, and replaces them with a stream of income that has at least a chance of achieving self-sustaining momentum. San Francisco's Juma Ventures grosses $900,000 in annual sales, enough to run its social programs, including job training for high-risk youths.

  Borrowing a concept from the corporate sector, Bradley is planning to issue "community stock" in TEDI as a new way of raising money, capitalist-style. "We'll give people stock certificates, and their money will go into a pool that provides funding for a young entrepreneur. Shareholders will vote on how the money is spent, much as they would in a company," she says.

• Changing attitude toward profits: At the heart of the funding shift is a change in the way nonprofits have traditionally viewed money and the way they've valued their own assets. "Finally, people are realizing that we have to rethink not how to raise money but how to make use of the resources in our communities," says Jed Emerson, author of the Roberts Foundation's case-study book. "People are talking not about charitable contributions but about how to bring added economic value to the interaction between nonprofits and the communities in which they work."

  But such a shift in perspective doesn't come quickly or easily. Many nonprofit entrepreneurs speak of the culture clash between their own wish to make a profit (to provide more services) and the distrust of money typically felt at nonprofits. Listen to Gary Mulhair, who now runs Pioneer Human Services, in Seattle--a network of hotels, restaurants, and other businesses operating under the umbrella of a nonprofit that works with at-risk populations. "The single biggest issue for us is that not everyone finds working in the bottom-line atmosphere natural," Mulhair says. "Some people don't understand how to run a business profitably and, in any case, think that in the business of helping people, you shouldn't be influenced by the bottom line."

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