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For social entrepreneurs, fundraising isn’t the only means to money

Jong kiam Soon/Getty Images/iStockphoto

When you think of revenue on a non-profit ledger, you probably think of fundraising, and you are probably not thrilled at the prospect. Fundraising ranks with taxpaying as just about everyone's least favorite financial activity.

So, don't do it. Or don't, if you can possibly avoid it.

Fundraising should be your last resort when you need money, as you surely will. Non-profit does not mean non-revenue. You are fully entitled to make money, and lots of it. You just aren't allowed to keep it for yourself or distribute it to shareholders. It is only to be spent in pursuit of your mission, not on inflated salaries for your employees. So for revenue, made money works just as well as raised money.

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If you're smart, you'll have been thinking of potential revenue streams from the get-go, and not turning your attention to them only after you've become the manager of a going concern. In fact, the chances are good that your beloved non-profit would not be a going concern if you hadn't been thinking this way.

The most obvious strategy for generating revenue is to charge something, heavily discounted, for the service you provide. If you are running a food program, you might charge a small sum for a meal – not enough to pay for it, but enough to recognize its value.

Beyond that, take the revenue not as cash but as in-kind donations. For your food program, you could go around to caterers and restaurateurs to collect any food they have left over at the end of the night.

Or wholesalers for that matter, on the same basis. Such food isn't money, but it might as well be, considering the benefits to the bottom line.

Not long ago, we received a proposal from a man trying to create a community of young people. We would not have been interested except for the beauty of its financing, which was based on a membership model.

Every member had to pay a modest amount for the privilege of joining this community. The finances had been worked out such that the organization would be self-sufficient if it reached 3,000 members.

All too many of these start-ups want money right away, more money later, and more money after that. Well, this guy's approach was heaven: The philanthropic investor can get out with a clear conscience as soon as success emerges.

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Most of the social entrepreneurs we discuss in this book were fairly comfortable with the notion of riding on capitalistic incentives to deliver social benefits. It is why they were so successful.

One is Jordan Kassalow. After he had that moment of revelation when he outfitted a nearly blind boy with glasses that brought him his first vision of the world, Mr. Kassalow spent another 15 years working out the mechanics of getting more glasses on people's faces without his having to literally put them there.

It took him that long to figure out the money. Would foundations pay for the glasses, he wondered, or would the individuals themselves? And if it were the individuals, how could Mr. Kassalow get the glasses to them?

While he continued to work as an optometrist, he also studied the fundamentals of delivering product – how to source it, price it, and sell it – to the developing world. And, along with taking many trips to Latin America and India, he investigated international development and foreign policy so that he could operate more smoothly in poor countries where the need was most acute.

Through it all, he continued to ponder the notion that he'd had from the very beginning, which was to use the basic precepts of capitalism to encourage local people in poor countries around the world to sell glasses to their neighbours. That proved to be the founding vision, as it were, of VisionSpring, which Mr. Kassalow created in 2002.

"To make a go of it, I knew I needed three things – a good idea, people, and money," he says. The idea was a go after his trips to Latin America. There, he examined about 2,000 people with serious vision difficulties every week, of whom 70 per cent needed glasses only; the remainder required medicine or surgery.

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Of that 70 per cent, half could get by with glasses of the type people in the United States would find in a drugstore. That was his market, for those glasses could make the difference between self-sufficiency and dire poverty.

As he says, "There was a huge economic drain throughout the developing world because of something that was so fixable with a product I could source in China for under a dollar."

That is when he had the final epiphany: to rely on capitalism to power this non-profit.

The profit motive would release a legion of eyeglasses salespeople, mostly women, throughout the developing world. They would bring with them what he terms a "business in a bag''– a store of eyeglasses to sell to people in need.

When he tested the concept on 18 saleswomen in India, a third broke even, a third lost money, and a third made money.

It wasn't an overwhelmingly positive response, but it was enough. "It was enough to say, hey, we should keep giving it a go and find out, and that, very much the tenet of social enterprise, is to look for bright spots and start to understand why they work, and then ask a bunch more questions. And then eight things that you try don't work, but two will."

That's how start-ups are. Most fail, and most of their ideas fail. So you need to grab on to the ones that succeed, because that is all you will ever have.

Mr. Kassalow depended on the sales force. There simply weren't enough of what he called "philanthropical dollars" to accomplish the mission.

"There are about a half billion people who need these glasses," he says. "Even if we raise tens of millions of dollars, we weren't going to make a dent in the problem."

For that, he would need to harness the power of the market. "Then we can really scale it," he says.

Excerpted with permission from the publisher, Wiley, from The Art of Doing Good: Where Passion Meets Action, by Charles Bronfman and Jeff Solomon. Copyright © 2012.

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