Social Change, Inc.

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For New York’s nonprofit organizations, this year’s federal and local budgets bring reams of bad news. President Bush plans to cut $216 billion from the nation’s social services sector in the next five years. Governor Pataki intends to slash $150 million from New York City’s in the coming fiscal year. The cuts and their impact are still uncertain, since the budgets haven’t been finalized. But one thing is clear to Burton Weisbrod, a professor at Northwestern University’s Institute for Policy Research. “If those budget proposals are enacted, either the nonprofit organizations have to cut back their mission-related activities or they’ve got to get money from some other sources,” he says. “It leads to a growing pressure to find some business-type commercial activities or find something they can sell profitably.”

In an environment with fewer government resources and an increasing number of competitors for funding, more and more organizations have been turning to market activities to keep their programs strong. Social Enterprise Alliance, an organization that helps nonprofits start for-profit businesses, saw its membership jump to 500 last year, more than three times its level in 2002.

Making money isn’t the only skill nonprofits are looking to pick up from the business world. The IRS and other federal agencies are increasing their demands for financial accountability. Major philanthropists, meanwhile, expect their donations to be spent efficiently and effectively. It all adds up to intense need among nonprofits for organizational and financial planning and management.

These are exactly the skills that graduates of business schools provide. MBAs are already fixtures on nonprofit boards; eight in 10 Harvard MBAs, for example, are involved in some way. But increasingly, MBAs are also taking on leadership roles at nonprofits and related ventures.

At the same time, the business schools that train them have started paying more attention to the nonprofit sector and its causes. Corporate social responsibility is a hot topic. And people trained for the business world are showing unprecedented interest in working for nonprofits. “In the last couple of years, there’s been at least a 20 to 30 percent increase in people transferring from the business sector into the nonprofit sector,” says Gayle Brandel of Professionals for NonProfits, an executive search firm. “It’s been pretty substantial.”

Business schools have been both a catalyst and a follower of this trend. In the 1990s, MBA programs started to establish social enterprise concentrations and courses to address demand for people with management skills and a desire to do more than produce a profit. These are now fixtures at all major business schools in the U.S.

“It is evident that the boundaries between the business, nonprofit and government sectors are becoming blurred. There is a growing overlap and interdependence,” says James Austin, director of the Social Enterprise Initiative of Harvard, one of the earliest such programs. “It will become increasingly common for the MBAs to cross over from one sector to another during their careers.”

The mix worries Weisbrod, who has been outspoken in urging that the nonprofit and for-profit sectors remain as separate as church and state. “When you enter the realm of the private sector, you’ll find yourself under a growing pressure to act like a private firm, which is in the business to make money,” says Weisbrod. “It becomes impossible to completely separate the money-raising activities from the mission-related activities that really constitute the rationale for the organization’s existence.”

Others argue that nonprofits’ missions are even more severely compromised by the endless chase for grants and donations–a treadmill that business ventures and strong management can help them get off. “We’ve seen many organizations generating enough operating dollars through their earned income efforts and getting more freedom to advocate for their missions,” says Beth Bubis, president of the Social Enterprise Alliance. “Their destinies are in their hands versus the hands of fickle funders or government.”

Bubis, it turns out, has a master’s degree in social work. “It was the way to do it 25 years ago when I was in college,” she says. “But now MBAs are recognized as having a real value.”

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Ben Thomases
Columbia MBA 2003
First Source Staffing

Nonprofits in need of new revenue have increasingly been turning to so-called social ventures–for-profit business enterprises. But many such businesses end up failing soon after they are born. Among the reasons: The businesses don’t fit with the nonprofits’ social mission and therefore don’t get sufficent organizational attention. Many nonprofits also lack the business skills needed to make the ventures succeed. This was the conclusion of a report published in January by Seedco, an organization that has been assisting nonprofits in business planning since 2000.

“A bakery is a bakery. You need a market for your muffins whether you are for-profit or not-for-profit,” says Diane Baillargeon, president of Seedco. “It is more complex for a nonprofit because they have this double bottom line, which is both to contribute to their mission as well as generate a profit.”

To some MBAs who have been taught about social entrepreneurship, the challenge of balancing the dual demands is a prime attraction of the nonprofit sector. “There was a question in my mind whether it’s possible to run a successful social purpose business,” says Ben Thomases, who enrolled in Columbia University’s business school in 2001 after spending three years as a community organizer with the criminal-justice-reform group CASES. “Look at all the energy we spend worrying where the money would come from to support our social programs. If our social programs can support themselves, we don’t have to worry about that.”

Thomases went straight from school to the kind of job that all MBAs dream of–president of the company. FirstSource Staffing is a for-profit temp agency owned by the Fifth Avenue Committee, a nonprofit organization that helps poor people in Brooklyn get housing and jobs. He makes money by finding office work for graduates of the Fifth Avenue Committee’s job training program and other hard-to-employ people living in Brooklyn.

Before Thomases applied for the job, FirstSource Staffing had burned through three managers in just four years. “When we evaluated Ben, we were excited about both sides of the equation that he brought to the table. That was the nonprofit experience and commitment to our mission as well as his MBA toolbox of skills,” says Aaron Shiffman, director of the Fifth Avenue Committee–spawned organization Brooklyn Workforce Innovations.

Thomases’ firm does all the things any staffing company does, from interviewing job seekers carefully to make sure they are qualified to hitting up fellow Columbia alumni for job openings. He has to bring in enough money to pay his three staff members. But unlike the for-profit staffing companies, when employers complain about his job seekers, Thomases doesn’t fire them–he personally sits down with them to improve their conduct.

Marketing materials sent to potential employers make clear that the company is an affiliate to a nonprofit and the profit will be used on social services. But there is no word about where its job seekers come from. “There is certainly stigma attached to people who come through community-based programs, which is why we handle the matter delicately,” says Thomases.

The delicate touch works well. Clients say they’re highly satisfied with the service. “They’ve been terrific. They seemed to pick up very quickly. They seemed to have very good office skills,” says Sean Delany, executive director of Lawyers Alliance for New York, a legal services organization that has used FirstSource Staffing seven times since November. “If they didn’t, we wouldn’t go back.” In Thomases’ 18 months in the job, the revenue of FirstSource Staffing has increased 30 percent. (He declines to disclose precise revenue figures, or his salary.) He expects to boost revenue growth even more in the next 18 months and aims to begin providing revenue to the nonprofit in three to five years.

Thomases’ vocation would be foreign to Thomases’ mother, a veteran in the nonprofit sector, and his father, a business consultant. “Straddling the line between the nonprofit and for profit sector is harder than just planting yourself firmly in either one,” says Thomases. “That’s why I jumped into this opportunity.”

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Brian Gallagher
Emory MBA 1992

Michael Schreiber
Duke MBA 1995
United Way

Talk to some of the top managers at United Way and it sometimes feels like you’re conversing with a bunch of executives from General Electric or IBM. The business jargon flows freely. The emphasis is on brand building, pay for performance, entrepreneurship, effective management controls.

Since CEO Brian Gallagher, an MBA from Emory University, took over in 2002, United Way has welcomed many MBAs and business consultants into its ranks. At the top echelons there are now two MBAs in charge of enterprise services (both of whom previously worked for the accounting and consulting firm Deloitte), and a former partner from McKinsey & Company, the business consultants to Fortune 500 companies.

They see nothing strange about leading an organization fixated beyond the bottom line. “The reason I was willing to engage with this organization is the subculture, the specific focus on the business as a business,” says Brian Leamy, a Wharton graduate who joined United Way in 2004 as a vice president of enterprise services.

This is not the first time United Way has brought MBAs in at a critical moment. Thirteen years ago, Elaine Chao, a Harvard MBA who now serves as Labor Secretary for the Bush administration, was named CEO when her predecessor, William Harmony, resigned amid allegations of theft. (Harmony was later convicted of stealing $600,000 from the organization.) Chao helped United Way rebuild trust and rescued the organization from financial woes.

The situation Gallagher and his team face is no less daunting. Other entities have arisen that do the same thing United Way does–collect donations through corporate partners and channel them into charitable projects. The rise of internet fundraising has also been a formidable challenge to United Way’s dominance as a fundraiser and distributor to member nonprofits. And if that weren’t enough, the institution is still recovering from a financial scandal, in which several local United Ways were caught using a controversial accounting method to exaggerate donations. Gallagher had to oust the management team of the Washington D.C.–area United Way eight months after he took the helm.

These incidents sparked a series of dramatic reforms now underway, intended to rebuild trust among donors and redefine the institution’s role. The objective: change its identity from a fund distributor for its members to an investor focusing on key social issues and working with local nonprofits to solve them. The results are measured by tangible indicators, such as local high school drop-out rates.

Internally, management can feel the heat. Stricter accounting rules adopted in 2003 require local United Ways to report their financial data to the national office for a third-party review. Recently, the organization hired Noel Tichy, a business school professor at the University of Michigan, to train its senior staff in management skills. Tichy, who helped GE go through the same process two years ago, is now helping Gallagher set up a standard that will tie the pay of executives to their performance, a method common in the corporate world.

“United Way is becoming much more performance focused every month,” says Brooke Manville, who joined United Way from McKinsey in 2003 and is the executive vice president overseeing the new community impact strategy.

The new business culture made it possible for Michael Schreiber, executive vice president of enterprise services, to launch United eWay. The venture provides online platforms to companies and organizations, matching volunteers and tracking the impact of donating online. The goal is to make it easy for donors to contribute right from the workplace. What’s more, it generates its own income, by charging the corporations that sign up a fee for each donation made by their employees.

United eWay was established in 2002 through two acquisitions: an electronic pledging system originally set up by some local United Way groups for their exclusive use, and an online volunteer matching system invented by a group of Massachusetts Institute of Technology students. It launched with $5 million in start-up capital borrowed from banks–the first commercial loan for operating purposes in United Way’s history. “That’s not something anybody would have been comfortable doing before,” says Schreiber, an MBA from Duke University who previously worked for Deloitte.

United eWay now serves 100 local United Ways and has more than 800 nonprofit and corporate clients. Its revenue was $400 million last year, and it has recorded a 20 percent annual growth rate since its inception; it is expected to be profitable next fall. United eWay is setting the pace for the rest of the organization. The centralized technology center makes it highly efficient–it has a 1.5 percent overhead expense, compared with 10 percent for United Way as a whole. Schreiber is now working to launch a slew of central services, including data management and customer support, for local offices.

Local United Ways are also being encouraged to retool themselves for efficiency and results. In 2003, United Way of New York City set out to target its resources to five areas of urgent need–homelessness, affordable housing, workforce development, the nonprofit sector and education. It collects performance data on its projects and makes it available to donors. The organization hired McKinsey to develop a marketing plan, and Larry Mandell, CEO of United Way of New York City, says he is considering inviting Tichy or experts from McKinsey to train his management team. “It’s important for nonprofits generally to make sure they are managed in a businesslike way,” says Mandell. “Because really these are businesses.”

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Laura Goodman
Columbia MBA 2003
KaBOOM!

When Laura Goodman enrolled in Columbia University’s business school in 2001, her dream was similar to those held by many students seeking an MBA–she wanted to be a consultant to corporate America. But that was then. “The social enterprise program changed me,” says Goodman four years later, sitting in her office in KaBOOM!, a nonprofit that builds playgrounds.

Through classes offered by Columbia’s Social Enterprise Program and a summer internship at Blue Ridge Foundation New York, an organization that provides assistance to start-up nonprofits, Goodman found there were many innovative models in the nonprofit sector that were “extremely intellectually stimulating.” She discovered, too, that her business skills were keenly desired and respected. Nonprofits presented, Goodman says, “the opportunity of making an impact right away with what I just learned, and the opportunity to have a larger responsibility and to be part of a team at a more senior level.”

KaBOOM! offered all these to Goodman. Established in 1995, the organization is known for its unusual ability to attract corporations not as mere check-writers but as strategic partners. Under the sponsorship of Home Depot, Stride Rite, Computer Associates and others, KaBOOM! has built 750 playgrounds in “child-rich and playground-poor” cities across the country, including New York. The sponsors, for their part, get favorable media coverage and build employee morale. As sponsorship manager for the $12 million organization, Goodman puts her understanding of the MBA mindset to work. “Knowing how to communicate to business executives in the language they understand is extremely important,” says Goodman. “At the end of the day, my job is to make a case to show our corporate partners why they can support KaBOOM! and meet their business objectives.”

Darell Hammond, executive director of KaBOOM!, believes that nonprofits are going to want more people like Goodman to convince corporations to donate. “Corporations are looking for higher performance. It requires nonprofits to be able to measure the impact of the dollars, which either allows the company to invest more resources, or they’d make a judgment and say, ‘We didn’t get enough out of what we invested in the first place,'” says Hammond. “The MBAs going to nonprofit organizations act as change agents and help the organization understand business processes.”

Hammond harbors a bigger dream for the new generation of MBAs–to make more corporations behave like nonprofits, at least to their own employees. “In many instances nonprofit organizations wouldn’t have to be started if businesses closed the loop on what they were responsible for, from the employee’s standpoint, like providing child care or health insurance,” says Hammond. “Business students are being educated more than ever about business responsibilities. They play a pivotal tipping point in this perfect storm.” •

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SIDEBAR: Business Goes Pro Bono

MBAs who settle into nonprofits right after graduation are the exception. Despite the rapidly increasing number of students selecting social enterprise classes, the financial burden left by high tuition limits the proportion of MBAs from major business schools who join nonprofits to less than 5 percent. However, social-minded MBAs also help in other ways. Increasingly, like their peers in the legal profession, they’re turning to pro bono consulting.

“More organizations offering similar services are springing up,” says Anastasia Thatcher, a student at Stern School of Business at New York University, who leads a consulting group for nonprofits at the school. “We have more competition to attract volunteers.” Thatcher’s group is a local chapter of Net Impact, a national network that focuses on using business skills for social good.

Founded in 1993 by a few MBA students who were interested in social issues but felt isolated, Net Impact now has more than 10,000 MBA students and professionals in 100 chapters around the country, and it’s expanding overseas. In addition to the fellowship and internship programs, in 2002 the organization launched Service Corps, a program that matches MBA teams to nonprofit organizations to help on specific projects, such as marketing or strategic planning. More than 50 nonprofits are involved in 16 cities.

Pro bono MBAs were what made it possible for the Child Abuse Prevention Program, a small New York organization with a staff of seven, to launch a fee-for-service training program for other organizations in need of their expertise, says Executive Director Marion White. First, MBA NYC, a pro bono consulting group established after September 11 to help lower Manhattan businesses, worked with the Child Abuse Prevention Program to rework the pages of informal notes used by its trainers into a standardized three-week curriculum. Then Net Impact’s Service Corps took it from there, working with White and her colleagues to identify potential customers and develop a marketing strategy. White now has a concrete plan: Develop one organizational customer this year, then build to four in three years–a level of business that will make the program profitable. “If you are interested in feeding hungry people or providing housing for the homeless, it usually comes from a wish to do good,” says White, who is currently scouting for customers. “To pair your good intentions with people who have a strong business mind really makes a difference.”

The following institutions provide business consulting services free of charge to nonprofit organizations:

Net Impact New York Chapter
www.netimpact.org

MBA students and professionals take on a variety of projects–for example, defining and developing metrics of organizational success or strengthening marketing plans. Length of service depends on need. Net Impact New York currently serves seven organizations, including Chinatown Manpower Project and Interfaith Hospitality Network for the Homeless.
To apply: Visit website; applications for fall open this summer.

MBA Corps
www.mbacorps.org

These MBA professionals assist nonprofit social ventures–nonprofit-run for-profit entities. They provide, free of charge, three months of intensive work plus 18 months of advice. Clients include the West Harlem Art Fund and Uniformed Fire Officers Association.
To apply: Contact Joe De Bono, 917-579-6612 or info@mbacorps.org

Stern Consulting Corps
www.stern.nyu.edu

Students from New York University’s Stern School of Business undertake 10-week projects, including strategic and financial analysis, marketing and entrepreneurship. Past clients include Carnegie Hall and Robin Hood Foundation.
To apply: Email initiatives@stern.nyu.edu

The Small Business Consulting Program
http://www.gsb.columbia.edu/students/organizations/sbcp/

Students from the Columbia University Business School devote a semester to a particular nonprofit or for-profit organization. Client names and details are kept confidential.
To apply: Email KKordestani04@gsb.columbia.edu or mz2104@columbia.edu

Columbia University courses
http://www.gsb.columbia.edu/socialenterprise/academics/courses/

Several courses provided by the Social Enterprise Program at the Business School of Columbia University incorporate nonprofit consulting projects for course credit. Nonprofits typically apply directly to professors of these courses at the beginning of each semester. These include:

Social Entrepreneurship:
Spring semester, Professor Cathy Clark.
Contact: cathy@cathyhc.com

Board and Executive Management of Nonprofits:
Fall semester, Professor Ed Henry.
Contact: eph36@columbia.edu

Marketing art, culture and education:
Spring semester,Professor Robert Shulman.
Contact: shulman@markitecture.com

–XR