SOCIAL ENTIRPRISE

What do you do when traditional sources of funding fall short}

ENTERPRISING
NONPROFITS
BY J. GREGORY DEES

AUGUST, tbe American MedLanAST
I ical Association backed out of exclusive deal with Sunbeam
Corporation, a manufacturer of sucb bealtb-related products as thermometers and blood pressure monitors. Tbe deal would bave allowed
Sunbeam to display an AMA seal of approval on some of its productsproducts tbat would tben be packaged witb AMA sponsored bealth information. In return. Sunbeam would pay a royalty to the AMA on sales of tbe endorsed products.
Tbe agreement sparked an outcry from tbe AMA's members and otber observers wbo feared tbat it would compromise tbe integrity of the 150ARTWORK BY CRAIG FRAZIER

year-old association. The reaction was so strong tbat tbe AMA's board of trustees was forced to rescind key terms of tbe deal just one week after announcing it. Tbe revised policy specified tbat the association would not endorse products, accept royalties, or enter into exclusive arrangements with corporate partners. Sunbeam would be asked only to distribute tbe AMA's bealth information witb its products and would pay tbe association only enough to cover tbe costs of producing tbe inserts. The AMA would not profit from the corporate use of its name.
Tbe AMA's experience bighligbts bow turbulent tbe new tide of com-

mercialization in tbe nonprofit world can be. Faced witb rising costs, more competition for fewer donations and grants, and increased rivalry from for-profit companies entering tbe social sector, nonprofits are turning to tbe for-profit world to leverage or replace tbeir traditional
/. Gregory Dees is an associate professor at the Harvard
Business
School in Boston, Massachusetts, where he specializes in social entrepreneurship. He is currently on leave working as a senior adviser to the Mountain Association for Community Economic Development in
Berea, Kentucky.
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5OCIAL ENTERPRISE

ENTERPRISING NONPROFITS

sources of funding. In addition, leaders of nonprofits look to commercial funding in the belief that marketbased revenues can be easier to grow and more resilient than philanthropic funding.
The drive to become more businesslike, however, holds many dangers for nonprofits. In the hest of circumstances, nonprofits face operational and cultural challenges in the pursuit of commercial funding.
In the worst, commercial operations can undercut an organization's social mission. To explore the new possibilities of commercialization and to avoid its perils, nonprofit leaders need to craft their strategies carefully. A framework - what I call the social enterprise spectrum-can help them understand and assess the options they face.

The Rising Tide of
Commercialization
Nonprofit organizations have traditionally operated in the so-called social sector to solve or ameliorate such problems as hunger, homelessness, environmental pollution, drug ahuse, and domestic violence. They bave also provided certain hasic social goods-such as education, the arts, and health care-that society helieves the marketplace by itself will not adequately supply. Nonprofits have supplemented government activities, contributed ideas for new programs and other innovations, and functioned as vehicles for private citizens to pursue their own visions of the good society independent of government policy. Although some nonprofits have relied heavily on fees-especially those in the fields of health care and education-government grants and private donations have also accounted for a considerable portion of the funding that many nonprofits receive.
Recently, however, an increasing number of nonprofits have been seeking additional revenues hy behaving more like for profit organizations. Some are raising funds through auxiliary commercial enterprises. For example. Save the Children, an international development agency, sells a line of men's neckwear. Such ventures are for the most
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part hold, creative extensions of the