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May 24, 2017

Good Planning Comes From Adequate Capital

Pelotonia has launched a social enterprise.  The reasons why it did and why it was able to do so successfully provide several valuable lessons for the leadership in Central Ohio.

  • Even the most well-supported nonprofits need to develop earned income in order to grow and keep pace with their missions.
  • Having a reliable and adequate commitment of capital allows better planning.
  • Better planning can improve execution and reduce the amount of capital ultimately used.
  • High multiples of new revenue over capital expended are achievable in the nonprofit sector.

Many may be envious of Pelotonia that its entire operating budget is supported by contributions.  The flip side to that positive is that only its operating budget is supported so that capital to grow new avenues for funding cancer research was not available.  In 2015 Pelotonia attracted a new set of investor/donors to create its own pool of revolving investment capital, called the Momentum Fund. This $1.5 million fund is to be invested in projects aimed at generating additional fundraising revenue or to create social enterprises that may ultimately make Pelotonia a self-sustaining organization.

For its first project Pelotonia targeted growing its merchandise business, which was limited yet was often sold out.  In early 2016 it began development of a careful business plan that suggested profitability if capital could be devoted to technology enhancements, inventory, building a retail store and pop-up shopping experience, moving order fulfillment to a third party, marketing costs, and a cash reserve to absorb operating losses in the first year of the business..  That analysis suggested $200,000 was necessary to execute the plan.

The existence of the Fund and the allocation of the entire amount of capital called for in the plan allowed Pelotonia to avoid cutting corners and to focus on effective implementation of the plan.  This lack of worry over adequate capital allowed Pelotonia to launch effectively so that it could ramp up operations and marketing fast enough to reach breakeven in a surprising two months.  Merchandise revenues grew 50 percent in the first six months after launch and growth should reach $300,000 before the end of 2017.

Pelotonia was fortunate that events unfolded according to plan.  If it had incurred any difficulties it had enough capital that it could stick to its plan.  The confidence and focus provided by not having to worry about capital allowed it to actually spend only $85,000 in order to increase its revenues by $300,000.  In other words, this 3.5X return on investment was empowered by having a good deal of capital headroom.  Pelotonia’s success is an excellent example of the value of capital to empower good planning and good implementation.  The lack of sufficient capital to plan for and absorb surprises is often what gets new social enterprise start-ups into trouble.

Pelotonia has the prestige and track record to enable it to attract its own pool of investment capital.  Most nonprofits and new social enterprises are not so fortunate.  Instead they must grow without outside investment, forcing them to cut corners that increase their vulnerability to surprises and slow their growth to financial profitability.

While $1.5 million is a heady number for one organization to raise for its own investment purposes, it should not be a heady number for a community to raise to support growth of start-up social enterprises in Central Ohio.  With such a pool of capital, our community could have many examples of success like Pelotonia and the social impact in our community would be multiplied many times over.

Want some ideas on social enterprises you could start?  Go look at the social impact profiles in our social enterprise directory.  Want to attend some more events featuring entrepreneurship in Central Ohio?  Check in regularly with our event listing.  Want to learn more about social enterprise and how it uses business to create positive change in our community?  Follow our blogtweetsFacebook, and webpage.

Allen Proctor, President & CEO

Center for Social Enterprise Development