The one thing you need to know before launching a nonprofit

I was on a phone call today with a number of young people who are interested in working in the social enterprise space, and the question arose, “What advice would you give to someone who is interesting in launching a social venture?”

The answer is: figure out how you’re going to fund this thing.  Without that, you’ve got nothing.

Does the intervention/program/enterprise and its impact matter?  Yes.  And having the right people to tackle the problem? Absolutely.  And great, smart advisors who understand your space and who are willing to help?  Definitely.  But cash is king.

I’m not saying that people with great social venture/nonprofit ideas don’t know this on some level.  But I have seen too many people launch a nonprofit venture and then say, six months or a year in, “I wasn’t planning to spend so much time fundraising.”

Really?  I cannot think of another sector where figuring out the revenue model is anywhere but at the top of the list.  Try going up to any successful small business owner and saying, “I’m going to start a new restaurant (bakery/gift shop/coffee shop/bed and breakfast).  Only problem is I’m not completely sure how it’s going to make money.”  This would be a very short conversation.

Sure, there are a few network-oriented businesses where winning the market share game first might make sense (Facebook and Twitter today, but there was a time when this applied to Amazon and Ebay too).  But in almost all cases this doesn’t apply to nonprofits.   In fact, you’d think that since, by definition, nonprofits work to fill gaps that the markets alone don’t address we’d care more, not less, about getting revenues right.

Personally, I’m pretty agnostic about whether the funding stream you have in mind is large donations from individuals; government contracts; lots of $25 donations; or some sort of earned income.  What matters is creating a substantial, reliable revenue stream so that you can keep the lights on, pay people, make longer-term strategic decisions, and, of course, do whatever it is you want to do to make the world a better place.  And you want to do things on a large scale, which probably requires double the cash you think you need.

The good news is that you can right-size your cost base today ways that used to be impossible.  Networks of volunteers, low-cost website tools, technology enabling people to work remotely around the globe, free international phone calls on Skype….there is a way to take your nonprofit’s business plan and cut the costs in half.

But if you’ve got a fabulous idea with everything right except for how you’ll raise the first $100,000 and after that the first $1 million…it’s time to redirect your attention to what really matters.

(And if you need a pep talk, here it is.)

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2 thoughts on “The one thing you need to know before launching a nonprofit

  1. Fantastic post. “Income model” cannot be a taboo phrase for a nonprofit. It is absolutely vital that groups understand how they will fund their work — and that, just like any business, they are realistic about their revenue, expense, and growth projections.

    I’d offer one more angle to this post, though. Often, I think the question shouldn’t be “How do I start an NPO?” but rather “Is starting another NPO really the best way for me to make an impact?” There are now literally hundreds of thousands of non-profit organizations in America alone. While you may feel that your passion, mission, cause-focus, and target are unique, there is a high likelihood that a good organization already exists that does exactly what you want to do.

    Why duplicate the overhead, administrative, start-up, learning, transaction, and operational costs by starting a new organization? Find an organization that does what you want to do — or something close to what you want to do — and support them instead. Often, the best way to make an impact is NOT to start a nonprofit.

    Love the blog. Thanks for the many fantastic posts.


  2. Excellent post! Having helped organize more than a dozen non-profits through the years, I can testify none of them had given more than a passing thought as to how they were going to fund it. All of them seemed to think the nobility of their cause and the depth of their sacrifice would somehow generate funds. It is axiomatic that one cannot do anything until one has supporters and supporters generally won’t support you until you have done something.

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