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a small office behind Crenshaw High School, high school
student-owners at Food From The 'Hood busily take product
orders, finish quarterly financial statements, prepare
for an upcoming trade show, and work on a computer-based
SAT prep program. Their salad dressing company grossed
over $200,000 last year, and profits will underwrite
higher education for student owners.
Meanwhile, at a Macy's department store across town,
temporary employees from Chrysalis' Labor Connection
agency work on maintenance, inventory and clerical tasks.
These temps, many of whom were recently homeless and
chronically unemployed, have completed Chrysalis' job
readiness program, and are now part of a successful
$1,000,000 staffing agency.
At Pueblo Nuevo Development in the MacArthur Park Neighborhood,
Executive Director Philip Lance responds in under an
hour to a bid request to provide janitorial services
to a charter school in Pacific Palisades. Pueblo Nuevo
Enterprises, a worker-owned janitorial cooperative,
has grown to $325,000 in gross revenues. Many of the
owner-operators are graduates of the Pueblo Nuevo thrift
shop job training program, which employs ten people
year-round.
What do these innovative programs have in common? Like
dozens of other nonprofit organizations in Los Angeles,
they are part of a growing movement called social enterprise:
creating nonprofit businesses to provide economic empowerment
and expanded opportunity for disadvantaged individuals,
including the homeless, veterans, low-income high school
students, and drug abusers. Along with several other
nonprofit enterprises, they hope to soon join the "portfolio"
of organizations comprising the Los Angeles Social Enterprise
Fund.
Of course, nonprofits running businesses is not a new
idea. Organizations like Goodwill Industries and the
Salvation Army have met with great success in these
efforts. But as the field has grown, two important trends
have emerged. First, organizations like Food From The
‘Hood, Chrysalis and Pueblo Nuevo Development are
not just using their business ventures to raise revenue
to support their mission and programs; these social
enterprises are the mission of the organization, provide
real-world job training and skill development opportunities
that will lead to permanent employment at a living wage.
Dave McDonough, recently named Executive Director of
Chrysalis after developing and managing its staffing
businesses for seven years, is a strong believer in
this important concept. "Labor Connection began
and evolved as a natural outgrowth of Chrysalis' mission
to help the homeless and disadvantaged. For us, it is
not about making money to support out cause, but about
getting out in the marketplace and gaining access to
jobs for our participants. Also, it's about doing it
in a way that is self-sustaining and affords us the
opportunity to grow and serve more people in need."
The second key trend is the relationships that social
enterprises are forging with their funders. Groundbreaking
organizations like the Roberts Enterprise Development
Fund in San Francisco, Social Venture Partners in Puget
Sound, and the Robin Hood Foundation and the Andy Warhol
Foundation in New York City, are pursuing new approaches
to supporting nonprofit enterprise through investment
and stewardship of resources rather than through traditional
philanthropy.
The Roberts Enterprise Development Fund, for example,
makes investment decisions based not only on an evaluation
of social benefit goals, but also on the financial projections,
market position, and management capacity of its "portfolio"
of enterprises. When enterprises underperform in these
critical areas, the Roberts Fund intervenes with targeted
management assistance and capital.
In addition, investment decisions are made not
by the foundation but by an experienced Fund Manager
who brings to the portfolio a different set of entrepreneurial
and business management skills than would a typical
foundation program officer. This approach has nurtured
some of the most remarkable social enterprises in the
country, including Rubicon Enterprises, a network of
food service and landscaping businesses, and Asian Neighborhood
Design, a high-end furniture manufacturer.
In late 1997, the Roberts Foundation, the Rockefeller
Foundation, the J. P. Morgan Trust, and the Surdna Foundation
launched the Venture Fund Initiative—a planning
and strategic mapping process to assess local markets,
resources, and capacity for the creation of local venture
funds to support nonprofit businesses in six cities:
Ann Arbor, Atlanta, Chicago, Los Angeles, Milwaukee,
and New York.
The Los Angeles Venture Fund Initiative (VFI) was convened
and directed by the Southern California Center for Nonprofit
Management. The Los Angeles VFI focused on businesses
that create transitional and permanent employment for
low-income, disabled and disadvantaged individuals.
These social purpose business ventures offer the long-term
unemployed a way to learn or relearn vital employment
skills. Pueblo Nuevo's Philip Lance reports, "We
have hired six or seven young men who were involved
in the local clique of a large LA gang. They have become
some of our best employees. Now they have an incentive
to stay out of trouble."
A critical feature of these ventures is their potential
for becoming partially or wholly self-sustaining based
on their ability to generate revenues, which depends
on them having a strong market opportunity and excellent
management. Simply supporting a good cause
will not be enough to attract and keep customers.
Chrysalis' McDonough recognizes this challenge: "Ultimately,
our success is measured by our ability to satisfy both
our customers—the disadvantaged people who want
a job and the employers in need of good employees."
Philip Lance at Pueblo Nuevo also negotiates this dual
bottom line. "The culture of our organization is
very different from traditional nonprofits because of
the discipline that a market-oriented business imposes
on us. At the same time, our two solid businesses give
us a kind of self-sufficiency and an independence that
many agencies don't enjoy."
In addition to Food From The ‘Hood, Chrysalis,
and Pueblo Nuevo Development, the participants in the
Los Angeles Venture Fund Initiative included BreakAway
Technologies, ERAS Center, New Directions, Venice Community
Housing Corporation, and the Vet's Garden (see accompanying
sidebar). All eight organizations run enterprises
that focus on job training as a crucial component to
economic development. "We weren't content only
to offer housing, not when jobs are the key to social
survival in an era of welfare reform," says Steve
Clare, Executive Director of Venice Community Housing
Corporation. The housing corporations now runs a construction
job training program for gang-affiliated youth and has
launched Clayworks, which will train low-income high-risk
youth to create, fire and install decorative ceramic
tile. Clayworks has been selected by the City of Los
Angeles to help rehabilitate the Venice Ocean Front
Walk.
During the course of the Venture Fund Initiative, the
eight participating organizations expressed a common
desire and need for a capacity-building initiative to
help them achieve market-driven success and sustainability.
The needs they identified included appropriate technical
assistance, access to adequate capital and innovative
financing vehicles, an opportunity to work collaboratively
and collectively with other enterprises, education and
training, and improved access to the business community.
These needs are felt in a very immediate way by Los
Angeles social entrepreneurs. Andrew Parker, Development
Director at New Directions, comments on the higher overhead
costs for management required by the organization's
handyworker business relative to its competitors. "Unfortunately,
you usually need much greater supervision for handholding
and quality control than you would in the private sector.
It obviously relates to the sometimes competing objectives
of social work and efficiency."
Capital requirements are also urgent. At ERAS Center's
Farm Store, Executive Director Barbara Cull has tapped
out her retirement fund to develop and sustain the training
program for troubled youth. "One of the greatest
challenges has always been lack of adequate dollars
to invest in the business. But the Farm Store has become
a vehicle to change people's perceptions of our clients.
We can show that these kids are not people to be afraid
of, that they have something positive to give. That
concept is one of the most important reasons for the
business. With the right amount of capital, we could
be effective in preparing kids for the workforce and
allowing them to give of themselves and contribute to
the community."
To address these needs, the Center for Nonprofit Management
is seeking to develop a "Los Angeles Social Enterprise
Fund." Using a venture capital model, the
Los Angeles Social Enterprise Fund will invest in a
portfolio of eight to ten nonprofit business enterprises
that provide job training and employment opportunities
to economically disadvantaged people. The Fund
will expect each portfolio enterprise to grow to market-based
sustainability and to provide a "social return
on investment," both in the form of employable
workers, stronger families and communities, which are
difficult to price, and generation of sales and incomes
taxes and reduced costs in social services, which provide
a conservative measure of return.
The Fund expects to make significant, multi-year investments
in the portfolio of enterprises over a seven-year period.
To merit investment, portfolio enterprises must have
a rigorous business plan outlining a growth strategy
based on a market opportunity that promotes self-sustainability.
While primarily supported through donations, the Fund
will also generate income through loan generation fees,
interest on loans, cost-sharing fees for consulting
services, and interest income on cash balances.
As the notion of nonprofit enterprise "equity"
continues to develop, the Fund also plans to offer equity-based
financing opportunities, which may provide additional
financial return to the Fund.
To accomplish its ambitious goal, the Los Angeles Social
Enterprise Fund is actively seeking capital. The
goal for launching the Fund is $1,000,000, with the
expectation of additional rounds of capitalization in
the second, third, and fourth years. The Fund
plans to invest close to $5,000,000 in its portfolio,
with expected social returns exceeding $20,000,000.
Available capital at this scale is critical to the
success of organizations like Chrysalis. "Like
any small business, our ability to serve more people
in need depends on access to capital so we can grow,
attract and nurture talented staff, and tap into technical
expertise to continuously evaluate and improve our performance,"
notes McDonough. "The Los Angeles Social
Enterprise Fund, with its venture capital approach,
offers us an incredible way to build our enterprise."
While certainly not the answer for every nonprofit
seeking a new source of revenue, running a nonprofit
business continues to generate excitement among entrepreneurial
nonprofit managers. "Social enterprise development
is probably the hardest, riskiest, and most expensive
kind of nonprofit work," acknowledges Philip Lance.
"But it is also the most promising."
Sidebar: A Los Angeles Social Enterprise Sampler
The Los Angeles Venture Fund Initiative research discovered
a very active social enterprise sector. "When
we started the VFI process, we discovered over thirty
nonprofit business ventures in various stages of development
in Los Angeles County," observes Bruce Rosen, Project
Director of the Los Angeles Venture Fund Initiative.
"We chose to work with eight of those ventures
who showed strong growth potential and serious interest
in working together to develop a program to support
all their ventures." The eight VFI participating
businesses included:
Break Away Technologies arose out of the ashes
of the April 1992 unrest in South Central Los Angeles.
Its mission is to promote excellence and improve the
quality of life for urban children, youth, and families
through values-based, character-building education.
Break Away focuses on increasing the level of computer
literacy and availability in the community.
Break Away generates almost 40 percent of its revenue
from fees for services it provides to the community.
It has amassed an impressive array of technology and
equipment that it uses and makes available through its
diverse program offerings. The organization offers
multimedia software and video production facilities,
a video-conferencing center, print and graphic arts
area, an Internet radio station, and a digital 3-D animation
design studio. Break Away also earns fees for
equipment and facilities rentals, classroom instruction,
Web-page design, and as a computer network Internet
access provider. Break Away maintains 100 Pentium
computers that can service 1,500 students weekly.
Break Away's goal is to train students as technical
support personnel with professional certifications from
Cisco, A+, and Microsoft. These certified students
will then be able to provide training, installation,
and maintenance services for computer networks located
at various sites throughout the city. The knowledge
and work experience gained in receiving certification
will enable Break Away students to pursue high-quality,
high-paying jobs in an industry that promises exceptional
growth over the next decade.
Breakaway's annual enterprise revenues are $192,000.
Chrysalis was founded in 1984 by a 22-year-old
volunteer who used his own money to open the agency.
Originally started as a food and clothing distribution
center for downtown's homeless population, the agency
refocused its efforts and began identifying employment
opportunities for its clients in 1986. Chrysalis
specializes in job development programs for the homeless
and chronically unemployed. Through a variety
of innovative job-training and placement services, Chrysalis
offers disadvantaged individuals the tools they need
to become self-sufficient.
Labor Connection is Chrysalis' highly successful full-service
staffing agency. Labor Connection contracts with
local businesses that need temporary and permanent employees
and hires economically disadvantaged people to fill
these positions—primarily entry-level jobs in maintenance,
janitorial, light-industry, clerical and data entry.
Temporary jobs serve as an ideal transition into the
private-sector job market, providing income, work experience,
job references, and an opportunity for new workers to
socially readjust to a work environment.
Since its inception in 1991, Labor Connection has provided
meaningful work experience for over 1,300 economically
disadvantaged workers. During this time, Labor
Connection has billed over 500,000 hours of work and
has paid its workforce over $3 million in wages.
Current annual enterprise revenues for Labor Connection
are $1,100,000.
ERAS Center was established in 1980 to serve
"at-risk" youth from throughout Los Angeles
County. ERAS is a model educational resource,
service, and training center dedicated to ensuring that
disadvantaged children, youth, and families have access
to the resources they require to lead healthy and productive
lives. ERAS provides personalized support to children
and young adults that are challenged by poverty, abuse,
and emotional, developmental, learning, or chronic medical
disabilities. ERAS offers these youth the education,
training, experiences, and opportunities needed to achieve
their personal potential and maximize their capabilities.
The Farm Store is a restaurant, market and catering
business owned and operated by the ERAS Center.
It was established in 1991 to provide essential vocational
training and employment opportunities for ERAS' "at-risk"
population in an actual public work environment.
The Farm Store provides vocational training for 30 post-secondary
students each week.
It is the Farm Store's goal to ensure that each student
learn a special skill, in order to have the confidence
and tools to find work in the community. The enterprise
also provides the vocational education, training, and
health and environmental curriculum for 140 students
each week in grades 7 through 12. The Farm Store
enables the ERAS Center to provide the real life experience
and teach the work related skills that are essential
to their clients achieving independence.
The ERAS Center Farm Store is currently generating
almost $150,000 per year in annual revenues.
Food From The 'Hood is a student-owned business
located at Crenshaw High School in South Central Los
Angeles. Founded in 1992 in the aftermath
of the L.A. riots, this program was established
to promote a science-based curriculum through the creation
of an on-campus, quarter-acre garden. The program
led to the sale of produce at local farmers' markets
and in 1994 to the formation of a student-owned natural
food products company marketing two varieties of salad
dressing.
The mission of Food From The 'Hood is to create jobs
and job-training opportunities for youth. The
organization is committed to using company profits to
provide college scholarships for its "student-owners."
At the end of each academic year, the profits are allocated
to the students according to their respective participation
in the enterprise. To date, 61 program participants
have completed high school, and all are pursuing post-secondary
education funded at least in part by Food From The 'Hood.
This achievement is a striking contrast to the rest
of Crenshaw High School graduates, only half of whom
continue their education.
Food From The 'Hood products are currently available
in over 2,000 supermarkets and natural food stores in
23 states. In 1997, this business generated $205,000
in gross sales.
New Directions is a nonprofit organization that
provides free comprehensive, rehabilitative services
to homeless veterans including food, clothing, long-term
transitional housing, a structured substance abuse program,
life skills training, vocational training, employment
opportunities, and permanent housing placement.
New Directions operates three residential facilities,
two small homes for women, and a large, 156-bed regional
center for men.
New Directions manages two businesses that provide
on-the-job training. The first business, established
in 1995, provides handy-worker, carpentry, and construction
services to homeowners, local businesses, and property
management companies. New Directions offers its
client-employees courses on-site conducted by LAUSD
and L.A. Trade-Tech in computer skills, plumbing, and
other handy-worker tasks. This focus on skill
development has enabled New Directions clients to gain
higher-paying, more stable jobs when they return to
the private work force.
New Directions also recently established a culinary
training program that offers contract food/meal preparation
to local food businesses and non-profit organizations.
The enterprise's first significant contract is with
the local Meals On Wheels Program and involves daily
production of ready-to-eat meals that are distributed
to the elderly and AIDS patient shut-ins throughout
the County.
Projected annual enterprise revenues for New Directions
are $374,000.
Pueblo Nuevo Development (PND), founded
in 1992, is a family of organizations dedicated to reducing
poverty and improving the quality of life for families
in the MacArthur Park neighborhood of Los Angeles.
Pueblo Nuevo is a mission of the Episcopal Diocese of
Los Angeles. PND seeks out projects that offer
local residents an ownership stake in the economic revitalization
of their neighborhood. PND believes that financial
independence enables people to contribute to their community
rather than dependent on it. PND believes that
individuals and communities function best when they
are actively engaged in self-development.
Motivated by a self-help philosophy of community development,
PND has been instrumental in helping local, low-income
residents establish two businesses that provide them
with employment opportunities: a nonprofit thrift store
and a janitorial workers' cooperative. The Pueblo Nuevo
thrift shop currently generates approximately $15,000
per month in gross revenues. This enterprise has
created jobs for ten employees who receive market-based
wages plus health benefits. An expansion strategy
is currently being implemented that projects increasing
revenues to $20,000 to $25,000 per month over the next
twelve months with a corresponding increase in employment
opportunities.
Pueblo Nuevo Enterprises, the janitorial business,
has 26 employees, 15 of whom are owner-operators.
This venture gives the janitors the opportunity to participate
in the ownership and management of the company.
Unlike most of its competitors, Pueblo Nuevo's janitorial
venture has a very low employee turnover rate because
of the company's unique ownership structure. Many
of these employees are "graduates" of the
Pueblo Nuevo thrift shop, which serves as a training
program for people underdeveloped work skills. Pueblo
Nuevo Enterprises has two significant corporate accounts
that generate about $200,000 a year in gross billings,
out of a total revenue base of $325,000 per year.
The business is effectively growing revenues in excess
of 50 percent per year. In just three years, this
janitorial cooperative has achieved significant success
and represents an excellent opportunity for continued
growth.
Venice Community Housing (VCHC) is a
nonprofit housing organization founded in 1988.
VCHC is committed to developing and maintaining permanently
affordable housing for disadvantaged and low-income
people. VCHC builds new, multi-family housing
and purchases and rehabilitates older housing throughout
the Venice and Mar Vista communities of Los Angeles.
VCHC has established 100 units of affordable housing
in low-income communities, including a transitional
housing facility for homeless women and their children.
In 1994, in response to demands for local youth employment
and training opportunities, VCHC established a construction
job-training program for "at-risk" youth.
The program includes vocational education, academic
classroom instruction, life skills, and leadership training
designed to mobilize "at-risk" young men and
women to construct affordable housing in their own community.
The program involves placing trainees on VCHC low-income
housing construction sites so that they can gain the
skills needed to secure stable employment in a competitive
labor market.
In 1997, VCHC established Venice Clay Works as a means
of further expanding the opportunities available to
its low-income housing clients and local "at-risk"
youth. This program includes job creation, job
training, and arts education. Venice Clay Works
is a clay products manufacturing facility that produces,
designs, and installs ceramic tile murals. Venice
Clay Works was founded to be a self-sustaining business
venture with the social purpose moving "at-risk"
youth from dependence to long-term employment and self-sufficiency.
Venice Clay Works is currently generating $60,000 in
annual enterprise revenues.
The Vets' Garden, founded in 1986, is
a 15-acre commercial farm that grows fruits, vegetables,
herbs and flowers for sale directly to local restaurants
and florists and to the general public through a farm
stand. The garden sells landscaping materials,
houseplants, and seasonal, dried-flower products and
gift items, including wreaths, swags, topiaries and
bouquets. The Vets' Garden also operates a landscaping
business that contracts with the Veterans Administration
Medical Center and with businesses and individuals throughout
the community.
The philosophy of this program is to help rehabilitate
veterans through hands-on work experience. Emphasis
is placed on the development of specialized training
employment opportunities in the horticulture industry,
such as nursery work, sales, agriculture, and landscape
maintenance.
The Vets' Garden is part of Veterans Industries, a
national Department of Veteran Affairs program designed
to put veterans in the workforce. Veterans Industries
is a vocational rehabilitation program that offers manufacturing,
clerical, horticultural, janitorial, small parts assembly,
packaging and support services to the business, government
and nonprofit communities.
In 1997, the Vets' Garden earned over $128,000 in gross
revenues.
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