Commentary: Entrepreneurship isn't just for smaller arts organizations

MSNBC's 'Morning Joe' broadcast, 5/17/11

From an interview with Reynold Levy, President of Lincoln Center for the Performing Arts: "There's a lot of entrepreneurship at Lincoln Center.  I taught for ten years at the Harvard Business School and there's a tendency to think of entrepreneurship in smaller organizations.  [But] there's an enormous amount of entrepreneurship at Lincoln Center....We decided to change the economic model of Lincoln Center.  So we wanted to create sources of earned income that were unrelated to ticket revenue and unrelated to contributed income.  And we've created those sources - Fashion Week is now at Lincoln Center.  A Channel 13 [television] studio is now at Lincoln Center.  We've significantly increased the revenue we receive from restaurants and from catering.  We've begun a consulting practice that was recently announced in the news.  All of these are new sources of revenue to help balance Lincoln Center's budget."   

Initiative seeks 1000 business advisors to increase nonprofit entrepreneurship

Palindrome Advisors website, 4/20/11

Palindrome announced today its commitment to the Startup America Partnership, the initiative launched at the White House on January 31st to celebrate and accelerate entrepreneurship in the U.S.  On March 30th, 100 top industry leaders made a public commitment to change the way they give back to the nonprofit sector. Under the "Palindrome Pledge", these Founding Advisors made a commitment not only to take more prominent roles in the board management and operations of nonprofits, but also to devise new models and technology to change the way nonprofits are run. The Pledge received attention nationally and internationally as the non-billionaires' version of The Bill and Melinda Gates "Giving Pledge."  Since the initial announcement, over 100 additional leaders wanting to become Advisors committed to the Pledge. The Startup America Partnership brings together an alliance of major corporations, funders, service providers, mentors and advisors working to dramatically increase the prevalence and success of high-growth enterprises in the U.S.   The Palindrome team has set an ambitious goal of 1000 Advisors matched with 1000 nonprofits and startups by the end of 2011.

Commentary: Nonprofits don't need entrepreneurial help, they need money

Kelly Kleiman, The Nonprofiteer blog, 4/21/11

The argument is always the same: nonprofits should just get with the capitalist program, identify lucrative markets and earn their keep like every other good red-blooded American. But for arts organizations and other charities which do the important work in our society, running a business is a dangerous distraction.  What if, instead of spending time telling nonprofits how they should operate differently, business people re-examined their own operating principles?  What if every business set aside 25% of its profits for investing not in the business itself but in the wider community?   Businesses receive all sorts of public services and protections.  Why shouldn't they be expected to contribute to the public good in return?  Most business people would say, "But our primary duty is to our shareholders, not to the public good".  Right: and the primary duty of charities is to their/our clients.  Anything that takes nonprofits away from that activity is improper.  To presume that the voluntary sector doesn't make a profit because it hasn't thought about how to do so is to fundamentally misconceive its role in the wider economy.   Besides, what nonprofits need isn't more advice: it's more money.

Commentary: Tax ramifications for the 'unrelated' profits of nonprofits

Emily Chan, Nonprofit Law Blog, 5/6/11

While there is no rule prohibiting a nonprofit from engaging in income-generating activities, this does not equate with a carte blanche approval by the IRS to engage in such activities. Earned income [can] trigger unrelated business income tax (UBIT). It important to emphasize that generating unrelated business income is okay (though remember, taxable) and sometimes can be extremely helpful for the nonprofit to supplement donations and help assure a more predictable revenue stream. The caveat is that unrelated business activities are permissible only up to certain limit. The IRS requires public charities to be operated primarily for exempt purposes. Monitoring the amount of unrelated business income is critical. The difficult part is in knowing how much is too much because there is no exact amount or percentage rule provided by the IRS. Generally, it may be reasonable to assume an organization would have a difficult case arguing a primary exempt purpose if the unrelated business activity produced 50% of the organization's total gross income, but that does not inform organizations what levels below 50% would be acceptable. Because there is no hard and fast rule and rules of thumb can vary among practitioners (though 20% is common), organizations should seek appropriate counsel if they are concerned about the amount of unrelated business activity. 

Commentary: Nonprofits should make profits -- and put them in reserve

Rick Moyers, Against The Grain blog, 5/6/11

This is the final in a series of four posts on the subject of nonprofit operating reserves. Earlier posts flagged reserves as a topic that deserves more attention, explained what reserves are and why they matter, and discussed how organizations build reserves.  This post addresses two additional roadblocks to building adequate reserves: the perception among executive directors and board members that nonprofit organizations cannot operate at a surplus (or "profit") simply because they are nonprofits and the impression that accumulating reserves will make the organization appear less deserving of funding.  In essence, the two ideas amount to the same thing: the perception that there's a penalty -- either legal or psychological -- for building operating reserves. Which is not true.  What happens to the "profits" (they can't be distributed to owners or shareholders) is what distinguishes nonprofits from businesses, not the ability to turn a profit.  Many executive directors and board members also mistakenly believe that funders and donors expect to see a perfectly balanced budget (or even a small deficit or gap between income and expenses) and that if their budget shows a surplus, they won't look needy enough to prospective contributors.  That's also a misconception, although organizations should use common sense in their budget presentation.  However inaccurate these misconceptions may be, they are firmly ingrained into the culture of the nonprofit sector. The result is that far too many organizations operate hand-to-mouth with no margin for error and no ability to cope with unpleasant financial surprises.