Foundation Building Best Practice
Generating Earned Income
September 2000

This is an excerpt from the Foundation Building Sourcebook: A Practitioners Guide Based on Experience in Africa, Asia and Latin America.   Download printable PDF copy (86k) of this document, including source material on the foundations mentioned.   Order a complete 336 page Sourcebook The Sourcebook was written by A. Scott DuPree and David Winder with Cristina Parnetti, Chandni Prasad and Shari Turitz.

This section explores two approaches foundations have used to generate their own resources.

• Example 1: Products with a Message
  Child Relief And You (India)
• Example 2: An Investment Company
  Kagiso Trust (South Africa)

What Is the Role of Earned Income?

Summary Points A successful project does not need to start big. CRY began as a start-up effort of an individual and friends to sell greeting cards to raise money for children's programs. They rapidly built on their successes to raise funds for the organization and grow into a much larger size. Staff with business skills are a key to success but may be difficult to attract and keep. In the case of both CRY and Kagiso, recruiting and maintaining staff with top business skills was an issue. CRY has continually struggled to keep staff who are lured by higher salaries in the private sector. The business should have distinct objectives and management. By establishing a separate arm as a for-profit company, Kagiso was able to position itself to compete with other profit companies.

Not many foundations have yet taken advantage of market approaches to earning income that go beyond investing their endowment corpus. This may be related to the legal framework in some countries that discourages nonprofit organizations from entering into competition with businesses, the lack of access to good opportunities and business skills or a strategic decision on the part of the board. It is increasingly recognized, nonetheless, that earned income from the sale of products, services or intellectual property can be a source of funding and can help expand the base of funding for an organization. Because profits from business activities are not tied to particular programs or the wishes of donors, money can be used at the discretion of the foundation and therefore represents a very desirable stream of income.

On the other hand, making money is a gamble. It requires appropriate skills and talents and is a full-time job in itself. Even then, a foundation must identify an important niche in which it can be competitive. It must be prepared to excel in a business environment. It must invest capital, time and effort into its activities. Success is not guaranteed.

How Do Foundations Earn Income?

The foundations in this section capitalized on something they could do well. They drew on private sector expertise from their network -- board, staff and volunteers to launch or gain participation in money-making ventures. Some of the elements of their programs were:

• Capitalizing on staff expertise
• Capitalizing on a market niche or market inefficiency
• Providing a specific benefit or service to members or constituents

They have sought to earn income in ways that would also advance their social agenda. In some countries, a prerequisite for a tax reduction or exemption on money earned is demonstrating that this is true. In general, when the proposed activity is closer to the organizational mission, it means the foundation will have greater access to the talents, skills and resources it needs to make its venture profitable. It will also be able to better mobilize the support of its constituents if they believe the business will complement the foundation's nonprofit activities. A drawback, however, is that adopting profit-based approaches toward the foundation's mission can divert resources towards activities that are less effective solutions to social problems in order to mobilize new resources.

What Kinds of Earned-Income Activities Are Pursued by Foundations?

The kinds of activities a foundation could pursue are as diverse as the market and legal environment will allow. One obvious activity is a credit program. Some foundations, for example the Foundation for Higher Education in Colombia, see loans and credit as a logical complement to grants because they induce NGO partners to raise additional funds and return funding to be used by other NGOs.

Another obvious way to earn money is to produce and sell a product. Child Relief and You (CRY) produces and sells greeting cards that it believes, in addition to earning money, increase the awareness of the public about the needs of Indian children, its primary objective. The case of the Kagiso Trust is quite different. Kagiso was heavily reliant on a single source of funding, the European Union, which it lost as a donor when it achieved its primary social goal -- the abolition of Apartheid. It had, however, very good access to human capital that was already in high demand in South Africa. It built on its access to trained and educated black communities to create an investment company that would help create critical black management in the private sector, thereby, moving into a new stage in its work to promote an equitable South Africa.

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