NGO Financial Sustainability
We are oftentimes asked about the compatibility of non-profit organizations and their desired for-profit ventures which they want to launch. Looking into this particular case, we found find that the business seemed profitable only because the non-profit staff was working at the for-profit ventures, resulting in very little overhead for the business.
A European family Foundation had been supporting a medium-seized NGO in Latin America. The main activity of this NGO has been and still is to extend material and psychological assistance to the most destitute populations in the country. In addition to its assistance programs, the NGO, in order to generate additional income, created several so called “social businesses”. On paper at least, all those businesses had indeed generated substantial additional revenue for the organization.
The foundation mandated us to look deeper into the grantee’s operations, as it had been supporting the social businesses and it is oftentimes difficult to evaluate such things from afar. In particular, they wanted to know how their support could be used most efficiently.
We spent time on the ground in Latin America to understand the underlying mechanics of the businesses and analyzed the various business plans. In the course of myriad interviews as well as extensive financial analysis, we found that some of the businesses were profitable only on paper and that some of them were in fact generating a loss. When we spoke with the management of the NGO, they were not pleased with the findings to say the least. Indeed, it was a difficult process and, at times, confrontational engagement with the grantee was almost unavoidable. However, over time we were able to identify several areas that needed improvement and to co-develop with the grantee a plan of action to remedy the managerial and organizational shortcomings. Based on our work on site, we were then in a position to give honest feedback to the foundation, which was thus able to better target its support by supporting specific activities that aimed at strengthening the underlying business model of the social businesses.
Contrary to what we expected, this unveiling of the “fault-lines” led to a relationship of much deeper trust with the grantee, and helped them to focus on those ventures that created the most “bang for the buck” with the donations that they received.