#130 Jul/Aug 2003

Bootstrap Philanthropy

Nonprofit organizations are increasingly turning entrepreneurial, not only to generate revenue to support their core mission activities but to obtain a measure of independence from unreliable public and private funding. […]

Nonprofit organizations are increasingly turning entrepreneurial, not only to generate revenue to support their core mission activities but to obtain a measure of independence from unreliable public and private funding. While developing for-profit industries sounds like a risk, many groups have met with great success and have achieved a large amount of freedom from funders in addition to creating a second bottom line.

Housing Works, the largest AIDS service organization in the United States, is a notable example of a nonprofit organization that has spun off several revenue-generating businesses. The New York-based organization grew out of one of the most successful direct action organizations of the 1980s, ACT UP – the AIDS Coalition to Unleash Power. In 1990, when there were fewer than 350 housing units to accommodate the estimated 30,000 HIV-positive homeless people living in New York City, Housing Works was formed to assist the growing population of homeless people with AIDS and HIV who have a history of chronic illness or chemical dependency.

Housing Works offers a variety of programs and services: legal services to address landlord-tenant disputes and entitlement problems, referral services, scatter-site apartments for the often-overlooked population of former female offenders who are HIV-positive, and case management and supportive services. Its Second Life Job Training Program is a rigorous nine-month course supported by self-generated revenue and small private grants. The training program guarantees jobs to all graduates in most of the Housing Works entrepreneurial ventures, providing full-time employment to an average of 30 people each year.

Community Advocacy and Advisory Services (CAAS), operating under the Housing Works umbrella, helps nonprofit organizations plan and develop social ventures, advocacy and lobbying campaigns; develops housing and service programs for high-needs populations; and offers reduced-fee and pro bono legal and community services. These services provide an obvious, low-risk way to bring in additional, reliable sources of funding for Housing Works. Believing that housing was an obvious market to get involved in, Housing Works launched Gotham Assets, which rehabilitates and renovates government and privately owned land it acquires. It then manages these residential properties as limited-income cooperatives, supportive housing, community-based organization-controlled affordable housing and market rate housing.

In addition to the public service programs and for-profit businesses, Housing Works is also a vocal political advocacy group – a role that has put its city funding at risk. During the Giuliani administration, the organization saw a large amount of city funding pulled because of its lawsuits and protests against a mayor hostile to its cause. Just recently, it started a postcard campaign to protest Mayor Michael Bloomberg’s plans to cut funding to AIDS services, and in April participated in a march across the Brooklyn Bridge along with other AIDS service providers.

Housing Works runs its for-profit businesses the same way a large corporation would, with an unforgiving eye on the bottom line. As a result, it has been able to provide housing for more than 2,500 people as well as one-time or ongoing services for 5,000 others. Eighty-five percent of the organization’s revenue is earned income, according to Charles King, founder and co-executive director of Housing Works. With AIDS funding constantly in danger of being reduced, Housing Works relies on its entrepreneurial ventures to make enough profit to support the primary services. Besides contributing more than $3.5 million to its social programs, the for-profit ventures provide employment options for clients and supply much-needed materials – meals from the food services to feed the residents of the Housing Works adult day health care facility and clothes from the thrift business for the homeless.

Housing Works Food Services, Inc.

Throughout the 1990s Housing Works service programs were housed in leased space. In 1997 it purchased property and built a facility to house the adult day health care center, along with 36 studio apartments, creating its own supportive housing unit. Up until that time Housing Works contracted out its food services operation, but when the new facility opened, it moved the program in-house. Once the organization had its own buildings to manage, “it seem[ed] to make a lot more sense to keep that money inside,” Betty Deepe, Food Services coordinator, said. The entrepreneurial Food Services venture, which began in October 1997, now provides breakfast and lunch 365 days per year to all of Housing Works’ adult day health care programs.

In June 1999, Food Services began the Works Catering Company, a commercial catering business that boasts the Ford Foundation and Condé Nast as two of its clients. It competes with many upscale caterers in New York City and has met with much success.

According to Deepe, the catering company was budgeted for $230,000 in revenue last year, and they brought in $276,000. “We are budgeted at $279,000 this year, and the expectation is that this grows into a million dollar operation in and of itself,” Deepe said.

In addition, the institutional accounts – the adult day health care programs – are expected to have $850,000 in revenue this year. For next year, the total revenue expectation for Food Services is about $1.125 million. Of that, 10 percent is expected to be profit, which Deepe says is very good for a catering company.

Until the company was successfully running for two years, it used the same staff for catering that it did for the adult day health care program. Food Services now has 15 full-time employees and uses temporary staff to cater during the summer when business picks up. The catering side of the business does not hire Second Life Job Training Program graduates because of the hours and the stress, but three job training graduates work for the institutional accounts. Deepe says she has employed up to five job training graduates at one time, but turnover is high because of drug relapse issues. The high turnover does not discourage her from wanting to hire as many graduates as possible. “Part of being a nonprofit is participating … and accepting graduates from the job training program,” Deepe says.

Food Services’ staff is very stable because of the generous pay and benefits. In addition to a starting salary of $20,000 per year for a dishwasher, all full-time employees receive full medical, dental and optical insurance, four weeks of paid vacation per year, paid sick days, holidays and personal days.

Housing Works Thrift Shops

The Housing Works Thrift Shops venture started two years after Housing Works was formed. It is the oldest and most profitable business in the organization’s portfolio. While most thrift shops make a small profit selling inexpensive clothing, Housing Works carved out a niche for itself by targeting high-end clothing designers and furniture makers to initially stock its shelves.

The upscale thrift store thrived in New York City, so much so that in the first year a second store was opened, and the first store relocated to a space that was 15 times its original size. In 1996 a third store opened, and in 2000 the largest store in the chain opened, with 5,000 square feet of selling space. The Thrift Shops also opened a bookstore/café with 45,000 volumes of new and used books and records for sale, as well as sandwiches, coffee, teas, alcoholic beverages and desserts. It also hosts readings and live music performances and can be rented out for parties.

In eight years, the Thrift Shops has managed to build five stores, a remarkable accomplishment for any small business. The shops bring in $8 million in revenue every year according to William Gover, the director of the Housing Works Thrift Shops. Of that total about 34 percent, or $2.5 million, is profit. The Thrift Shops currently receive most donations from walk-in donors. Although 1,000 corporate donors contribute on a regular basis, it is the 110,000 private donors who receive a biennial solicitation in the mail who supply a majority of the merchandise.

Besides being a relatively easy, safe venture, the Thrift Shops also assists Housing Works’ programs by providing clothing to the homeless served by the parent organization and furniture to clients in its housing programs. What most separates the Thrift Shops from food services is the Thrift Shops’ visibility. “We also raise the awareness of the programs of Housing Works … because we are literally on the streets and we share the same name as them,” said Gover. The thrift shops have Housing Works information available at their store counters and promote the mission of the organization in their window displays.

Most importantly, the Thrift Shops provides jobs for the job training program graduates. According to Gover, there are currently eight to ten graduates on staff. They have had as many as 15 and as few as six on staff at one time. Similar to Food Services, turnover is high, but Gover said graduates will often last two to three years before they relapse, get sick or move on. Currently, Gover has one job training graduate who has been on staff for seven years.

The mantra behind many of these businesses is ‘why pay someone to do it, when you can do it yourself?’ In this tradition, Gover recently brought the Thrift Shops trucking service in-house. Previously, it outsourced furniture pickups to moving companies. The decision has saved money, and although the transition was not smooth (“I’ve basically had to fire the staff twice over,” said Gover), he just hired movers who worked for a company that handled Thrift Shops deliveries in the past.

Like the other businesses under Housing Works, expansion is a vital aspect of the Thrift Shops business plan. Expansion not only provides more money for Housing Works’ programs, it also provides more jobs to Housing Works’ clients. A plan to open a fifth thrift shop next year is currently in the works, as is a new online auction system that is set to begin in the fall. The auction, www.housingworksauction.com, will sell smaller, more expensive items that hopefully will provide more revenue for Housing Works’ services. The Web site will start out small, offering about six items every two weeks, and will only be promoted in displays at the thrift stores.

As in any business, there have been some failures. When one of Housing Works’ thrift stores opened, the organization decided to include a coffee bar run by Food Services. It was a bad idea, considering that the café that operates in the Housing Works bookstore was already losing $70,000 per year. The coffee bar did not succeed, but it serves as an example of the ruthless business model Housing Works has used to create its large profits. “If [a business] is not breaking even in six months, we’ll close it,” Deepe said. “For any business, it is normally hoped to break even after three years. Well, it doesn’t happen around here. We had six months, and … we closed it down.”

This brutal business model weeds out companies that flounder, companies on which Housing Works cannot afford to take a chance. In their place grow businesses like the catering company, a company that needed start-up money for two refrigerators, two ovens and a sink.

These companies don’t have an advertising budget or a large amount of capital invested over a period of time before they show a profit. According to Deepe, they are expected to show a profit from day one.

Housing Works proves that it is possible for nonprofit organizations to run successful businesses with an impressive second bottom line. It has succeeded and grown rapidly over the last ten years because the organization realizes that achieving large profits requires running each for-profit as a business first and a social organization second.

When Bill Gover brought the trucking services in-house, several trucking companies that relied on Housing Works for business closed. Though the loss of jobs is a tragedy, he realized that in business it’s inevitable. But Gover hired movers who worked for the other trucking companies because he knew they were good workers who needed jobs.

Keith Cylar, Housing Works’ chief executive officer, hires business people because he believes that the Thrift Shops and Food Services should be run like any corporation. There is no fear of weakening the Housing Works’ mission should the businesses suffer financially because, “if the businesses were to fail, we would just have to scale back operations and live within the business forecast,” just like a nonprofit that has to deal with funding cuts, Cylar said.

The services of Housing Works – the job training, the adult day health care and legal services – remain separate from the financial side as much as possible so that one will not have too much influence on the other. Although the managers of the for-profit businesses sympathize with the cause and believe that working to help people with AIDS is a noble profession, their primary job is to earn profits. And this separation is what keeps them successful. When discussing her job at Housing Works, Betty Deepe said, “I’m strictly mercenary, although I’ve always fought for the underdog.”


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