While nonprofits can effectively fill the void between the for-profit and public sectors, there are those moments when the for-profit sector also sees a demand and views positioning itself like a nonprofit the best strategy to success. For example: the "bins" that serve as depositories for unwanted used items. Most folks recognize that Goodwill and Salvation Army created this industry and have made this revenue-generating strategy a core part of their sustainability strategy. And, at least according to the research, folks are satisfied if not excited to participate in the "give" and the outcome.

But, some entrepreneurs see the public's good will as an opportunity to replicate the model under false pretenses. While creating what looks like this must be charitable, it turns out that the only charity is the owner. But in Philadelphia, action is being taken. And one implication, maybe the nonprofits should consider banning together to conduct some marketing communications to offer the message that there are some "approved or certified" giving opportunities. This would benefit the public and themselves and possibly limit the harm caused by those with just profit intentions.

Here's the Philadelphia Inquirer article on this subject.

City cracking down on rogue clothing bins

City crews removed and demolished unauthorized clothes-recycling bins across the city Tuesday. The bins themselves will be recycled.

Tricia L. Nadolny, STAFF WRITER
LAST UPDATED: Wednesday, February 24, 2016, 1:08 AM
POSTED: Tuesday, February 23, 2016, 4:09 PM
image: http://media.philly.com/designimages/partnerIcon-Inquirer-2014.jpg

On a vacant lot beneath Route 1 on Tuesday, a bulldozer lifted its blade high above a bubble-gum-pink clothing donation bin and then brought it down like a hammer.

It jabbed, denting the bin's top. It pulled, flipping the bin on its front. And it smashed, pummeling the bin flat.

"No more clothing bins," one man yelled, as a crowd of spectators around him cheered.

That's a lot of hate for a hunk of metal.

But city officials say donation bins like the one pulverized in Nicetown on Tuesday - and up to 70 others the city will remove by the end of the week - disturb the quality of life for those who live near them, attracting graffiti, illegal dumping, and drug activity. The bins have long been a problem, but seemed to multiply last year, in part when a for-profit donation company facing criticism for code violations in New York dropped scores of blue and pink bins here, seemingly overnight.
"Nobody requests these bins. No one's looking for them," said City Councilwoman Cindy Bass, who represents some of the most affected communities and who sponsored legislation last year to regulate donation bins. "They're an eyesore."

Clothing discarded in donation bins - part of the nearly billion-dollar worldwide textile recycling industry - is often resold in bulk overseas, where used wares are at a premium because many consumers can't afford new items. The rest is recycled into wiping rags, carpet padding, even car-door insulation.

While many consumers assume all bins are operated by nonprofits, that's not the case. Some companies partner with a nonprofit, cutting them a flat check and keeping any profit over that amount. Others operate largely under the radar, making it difficult to know where the donations go and whom they benefit.

City officials on Tuesday recommended that those looking to donate used clothes use a reputable, well-known nonprofit like the Salvation Army or Goodwill.

There also are donation bin companies operating legally in Philadelphia. Those bins can't be on the public right-of-way or within 500 feet of any residential property. And they must have the name and contact information of the owner on the front or side.

While the city has targeted 70 bins for removal, city officials say there are likely more on private properties that are also illegal and will need to be addressed. Department of Licenses and Inspections Commissioner David Perri said Planet Aid, a national textile recycling nonprofit, owns about 40 percent of the 70 targeted for pickup.

Andrew Rice, a Planet Aid spokesman, said its crews removed all of those bins after receiving notice from the city. Perri said many bin owners were not responsive to warnings that their bins would be removed.

"We did our best to try to notify the bin owners," Perri said. "And at this point, we're just going to take them."

As for the removed bins, Perri said, the city will break down the wooden ones and will sell the metal ones to a scrap yard.

Of course, if any owners want their bins back, Perri said, they can pay the fines and processing fees.

"We'll be happy to sell them back," he said, "if they so please."

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Read more at http://www.philly.com/philly/news/politics/20160224_City_cracking_down_on_rogue_clothing_bins.html#TzTS1VR4celPhTlV.99

Ruth McCambridge has written the following consciousness-raising piece on nonprofit business modeling and what can go wrong. Lessons aplenty.

The FEGS Autopsy: Bad Nonprofit Business in a Tough Operating Environment

By RUTH MCCAMBRIDGE | 22 hours ago

When the New York social services mega-agency FEGS (Federation Employment & Guidance Service) suddenly declared its closure at the end of 2014, onlookers were shocked and more than a little confused. How could the failure of the largest social service agency in New York occur overnight? Within a few months, we heard the Human Services Council was to do a forensic report on the causes of the failure of the $250M/year, largely government funded agency, and at least some of us have been waiting for its analysis with some curiosity.

At the time, this was the promise of that commission:

This Commission will examine the recent closure of several nonprofit human services organizations in an effort to understand the contributing factors from management and oversight to challenging fiscal environments. Lessons learned will be extrapolated and used to inform the development of several sets of recommendations aimed at various audiences, including nonprofit human services managers, nonprofit human services boards, government funders, philanthropy, and auditors.

That report, “New York Nonprofits in the Aftermath of FEGS: A Call to Action,” was released on Wednesday. To some extent, I agree with Josh Nathan-Kazis of the Forward, who has written some of the best coverage on FEGS’ failure, when he writes of the report that the authors dumped nearly all responsibility on government. In fact, the report appears in some ways to externalize much of the responsibility for FEGS’ failure.

But what HSC is really saying is that the operating environment makes viability extraordinarily difficult for the state’s nonprofit providers. The states do not pay full costs, and their payment schedules are erratic, which can cause any number of problems having to do with lack of liquidity, unreasonable fundraising burdens, and underpaid staff.

But this is not the reason why FEGS went under.

Government contracts also carry with them a plethora of regulatory requirements and duplicative auditing and transactional procedures that could be streamlined by the various government contracting bodies, as the report also acknowledges. These limitations inherent to government contracts are a big part of what you might call the “operating environment” of a service provider, but they, too, do not appear to be the reason why FEGS went under.

When Growth Is the Risk Factor

Instead, let’s for a moment take just the “they do not pay full costs” statement. What that means is that organizational growth carries with it an ever-higher burden of fundraising and transactional costs, and a higher level of risk that needs a cushion. In other words, the more they grow, the harder it is to fill the gap and serve the contracts. If they are not building reserves with that growth, they become more and more unstable and unable to take any kind of hit.

It’s a business model thing. Every time you sell an additional unit of service, it creates additional liability. A look at the organization’s revenue and expenses since 1998 shows little in significant surpluses from year to year even as the organization grew. This spells danger in the basic construct of the organization, and this finally somehow produced a massive $20 million deficit in 2014.

The 2014 Form 990 shows it as a $20 million increase in expenses with no accompanying increase in revenue and a $20 million deficit. The year before, the deficit was $1 million.

The HSC report does address both the systemic lack of financial margins among the state’s providers as well as what they call a “lack of adequate risk assessment in the sector,” saying, “Providers must accept responsibility for aggressively identifying, assessing, and addressing risks to their fiscal health and put in place the checks and balances needed.” HSC also rightly found that the lack of full cost coverage resulted in a lack of appropriate administrative infrastructure.

But in FEGS’ case, on top of this basic business plan problem, the organization had invested heavily (to the tune of a reported $70 million) in a much-touted social enterprisethat reportedly never made a profit but continued over time to eat up additional “seed” money. This social enterprise—a back-office service, ironically—is blamed for providing inadequate financial information to FEGS’ own decision-makers. On top of that, high-level administrators were getting healthy raises even as it became clear that the organization was in financial trouble, and it was in possession of multiple facilities that were not in use.

So, yes, the state bears responsibility for not treating their nonprofit providers fairly, but let’s be honest about the role the FEGS board and administrators played in this disaster scenario. Presumably they understood the operating environment and the business model, and they would understand the need for carefully considered growth and the need not to take a flyer on yet another risky endeavor in AllSector on top of their first in the growth of that organization to become the largest among New York providers.

But despite FEGS’ own deadly mistakes in an unforgiving environment, HSC has, justifiably, taken the opportunity to ring a loud alarm bell regarding the all-too-common problems that the state of New York hands its providers with every contract they award.

It is right to ring that bell, and nonprofits need to advocate for that operating environment to be fixed as part of their own business models. But individual nonprofits must understand that operating within that environment takes tight management and governance, and that was not something that FEGS appeared to be very good at. The report admonished providers on this, advising them to “just say no” to contracts that take them into a danger zone. That’s a good start—and, by the way, basic to this business model right now.