William Foster and Jeffrey L. Bradach

This article appeared in the February 2005 edition of the Harvard Business Review.

Earned-income initiatives are becoming accepted – even expected – throughout the nonprofit world. In a Bridgespan survey of U.S. nonprofit executives in 2003, half of the respondents said they believed earned income would play an important or extremely important role in bolstering their organizations’ revenue in the future.

While the case for earned income may seem persuasive at first glance, a closer look reveals reason for skepticism. Bridgespan research shows that earned income accounts for only a small share of funding in most nonprofit domains. Few of the ventures that have been launched actually make money. Moreover, when we examined how nonprofits evaluate potential ventures, we discovered a pattern of unwarranted optimism. The stakes are high: commercial ventures can distract nonprofits’ managers from their core social missions and, in some cases, even subvert those missions.

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