For-profit ventures help nonprofits shore up the funding they need to maintain and expand their programs

By Abny Santicola

A Different Route: FareStart

For Seattle-based FareStart, the path to its current existence as a nonprofit with revenue-generating programs was slightly more organic. It originally was started in 1988 with the moniker Common Meals by local chef and entrepreneur David Lee as a for-profit business with a mission of serving meals to Seattle’s homeless shelters and disadvantaged populations. Around 1992, Lee saw the opportunity to train the homeless population he was serving, so he transformed FareStart into a 501(c)(3) job training program for the homeless and disadvantaged, but the former business never lost touch with its for-profit roots.

The organization produces and delivers meals to local shelters serving homeless men and women for about $1 a meal, and breakfast and lunch to childcare facilities and daycare programs in the area for about $2 a meal. It also operates a public restaurant in downtown Seattle that's open for lunch on weekdays, special catering events in the evenings and dinner on Thursday nights, when it holds its Guest Chef Night, where chefs from restaurants in the Seattle community volunteer their time and expertise to work with FareStart trainees to create a three-course gourmet meal for clientele. All meals served at the restaurant are sold at market rates.

Dan Johnson, FareStart's development director, says all of those programs combined generate about 50 percent of the organization's $5 million operating revenue every year. The rest of the funds are raised from federal grants and private fundraising. Johnson says that even in a good year there's only about a 5 percent profit margin from the organization's profit-generators. That's some huge overhead compared to the expense, say, of the organization writing a $50,000 grant to a foundation.

Johnson says that while the restaurant is an essential training ground for FareStart students, 80 percent of whom are employed in the food industry within 90 days of graduation, it also is an amazing introduction for people in the community to the organization's mission.

"Even if they don't support us in the kind of traditional nonprofit way by making a $100 donation, the people who come in and buy a $12 lunch feel, and rightly so, that they're supporting our mission," Johnson says. "And all along the way they're getting a nice lunch out of it, and it's kind of this amazing way to connect with our mission and support our mission."

Johnson sees the restaurant as a community opportunity to demystify the idea of what a homeless person is. Eating a flatiron steak cooked by someone who was recently homeless or someone who four months ago was behind bars finishing out a prison sentence breaks down those barriers, he says. "It humanizes, as it obviously should, the folks who are in the training program, taking advantage of this opportunity to improve their lives, and FareStart and the food service training and all of that is simply the vehicle for them to transform their lives," Johnson adds.

All about mission
While generating additional revenue is a main motivation for starting an earned-income venture, almost equally important is the mission benefit.

A venture connected to mission allows organizations to offer a wider range of services to new groups, as well as their normal target populations. For example, though Freedom Wheels turns a profit on the cars it sells, the vehicles still only cost $3,000 to $5,000 and are affordable enough for some low-income families. By offering two levels of service, so to speak, Vehicles for Change can assist low-income families as they work up and out of poverty.

“A lot of our families who received a car from the Vehicles for Change program come back three years later and buy a car from the used-car lot,” Schwartz says. “I think that that’s important.”

Atlanta-based Open Hand, an organization that provides home-delivered meals and nutrition education to low-income people with chronic diseases, began a for-profit subsidiary called Good Measure Meals in 2005 in response to requests by nurses and referral physicians for nutritious meals for people who could afford to pay for them.

“We had no real way to do that because we weren’t set up for that,” says Stephen Woods, executive director of Open Hand. “There were so many requests, we thought that there was a market out there for this to support the mission.”

Good Measure Meals provides gourmet-quality meals to fitness-conscious people, diabetics and others with special dietary requirements — and even just busy professionals who don’t have time to shop for food and cook. It’s a win-win in that it benefits the community by providing healthy food for the paying public, and 100 percent of its net proceeds support the organization.

Though it wasn’t a fundraising solution immediately, Woods says that in 2008 Good Measure Meals’ net contribution to Open Hand was $430,000.