From nonprofit to social enterprise: how one organisation pivoted after a crisis

 

Belinda Li

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2020’s racial and health crises have forced organisations across the social sector to think more creatively about their programming, funding, and strategy, but nonprofits are no stranger to major challenges. In the aftermath of the biggest foreclosure crisis in U.S. history, our team at CiTTA Partnership helped an affordable housing nonprofit client of ours (“Client”) pivot and scale. Below, we’ve detailed some of the market-driven changes our Client made to its processes and provided some takeaways that you can apply to your organisation.

When we began our work with that Client, a U.S. national nonprofit, it boasted a 40-year history and worked with a $250 million budget to support over 200 community development affiliate organisations throughout the country with grants, technical assistance, organisational assessment, and training. Together, these affiliates sought to create opportunities for people to live in affordable homes, improve their lives, and strengthen their communities. Yet their progress remained hindered due to volatile funding from the government and foundations and was upended by the significant housing market disruption caused by the 2008 housing and financial crisis.

Rather than deter our Client’s work, the crisis encouraged them to look for a path to scale their impact sustainably and help more people in the communities prevent and withstand crisis. We joined a network of consultants and coaches in the second phase of a pilot effort consisting of 25 affiliate nonprofits. We provided a distinct role in building, testing, and refining social enterprise business models and accompanying tools and systems to help those affiliate nonprofits achieve greater scale and financial self-sufficiency with their homeownership services. In particular, we developed earned revenue models across four service lines: homebuyer education, homebuyer counselling, lending, and realty. The goal was not just to help these nonprofits generate earned income but also to create 10 times the impact, such as serving 10 times more families than before.

While some internal stakeholders initially resisted the idea of charging for services, our social enterprise models proved that affiliate nonprofits were indeed able to increase their impact through a fee-based business model. One way our models did so was by expanding those nonprofits’ customer segments to include families making up to 120 per cent of the area median income (AMI) rather than focusing only on those under 80 per cent of AMI, as they had traditionally done. This expansion met both a market and mission need as traditional brokers were less willing to service families with incomes between 100 per cent and 120 per cent of AMI given that the lower home prices targeted would bring lower commission earnings. This left a competitive gap that the affiliate nonprofits could fill, helping those families find homes while generating earned commissions in the process.

At the same time, the affiliate nonprofits moved from providing hands-on, multi-session counselling to all potential customers to introducing a triaging process through which prospects not yet ready to buy a home would receive web-based guidance first. This led to significant cost savings and allowed those nonprofits to expand their geographical footprint all while allocating their more intensive resources to clients prepared to purchase.

Similarly, under the original donation-funded model, an affiliate organisation would offer free first-time homebuyer education classes and pizza for attendees, but among the 60-100 attendees, perhaps only one would complete the process and successfully purchase a home. When the organisation began charging $99 for the classes, attendance dropped to a dozen participants, but several of those attendees would go on to buy a home. The new process catered to attendees ready for homeownership, and as a result, the affiliate nonprofits saw a significant increase in their success rate.

We also worked with those nonprofits to expand their strategic partnerships. With a focus on how to best reach potential homeowners in need of assistance, they moved from partnering almost singularly with board members and funding agencies to also partnering with employer-assisted housing programs and commercial financial institutions as well. As a result, they became more entrepreneurial, cultivating more referral resources and expanding to new locations. They also used our extended financial projection model to forecast and monitor service lines’ sales and expenses, which helped them develop financial acumen, including the ability to assess feasibility of any new ideas and better understand how the service lines performed.

These examples highlight just a few of the many ways our social enterprise models have helped affiliate nonprofits to scale their impact and become financially sustainable. After this pilot concluded, the effort was further expanded to a cohort consisting of 40 affiliate nonprofits, with a goal of eventual nationwide rollout of those models.

Rather than detract from your mission, charging for some of your services, as we’ve shown, might allow more of the right clients to use them. Consider how you can identify clients who are most ready upfront and reallocate resources accordingly. Identify new partnerships beyond your board’s network to reach more clients that need your services. Bring in stakeholders that will push you to become more creative and innovative without losing sight of your mission. And finally, know your metrics: how your services perform financially, what you can expect from them in the future, and what kind of ROI they can generate. While adopting a fee-based model will not work for every nonprofit, it can provide a powerful path to a sustainable future, serving as an opportunity to expand your reach to new locations and maybe even opening your services to a whole new population that needs them. And ultimately, it can equip your organisation and the individuals you serve with a better ability to weather any crisis that may come.

Belinda Li is the Founder, CEO & Chief Consultant of CiTTA Partnership, a consulting firm where social impact meets business strategy.


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