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How To Treat Your Nonprofit Like a Venture Backed Startup

Though it is important to be sensitive during this time, not selling during the COVID-19 pandemic could mean the end of your business. Across the globe, individuals and business owners are already digging in deep to reimagine their “new normal”. Changing course on legacy endeavors and breathing life into new ideas and concepts that can help them to remain seen in a world where businesses are now viewed as essential and non-essential.

As a nonprofit, your priority may not necessarily be to sell a product or service but you do have a problem that you’re trying to solve and you shouldn’t give up on solving it. This is a mindset that is well received and imparted upon decision-makers in the startup culture.

Jason William Johnson of the Chicago Urban League best describes what it’s like to treat your non-profit business like a startup--leveraging market research, testing, and pitching as a way to remain nimble and innovative:

Nonprofits should treat their organization like a startup. First, NPOs should conduct research to understand their clients' problems. Second, they should develop an MVP, and test and iterate it until they find product-market fit. Once they achieve product-market fit, NPOs should then pitch their programming to foundations and corporations interested in the problem they are solving. - Jason William Johnson, Chicago Urban League

Hone in On Your Pain Point

You may not be a “for profit” business but you are still working to solve a problem. What is it that your nonprofit was created to do? Are you helping at risk youth in the community, supporting single mothers, providing grooming services to the homeless? Hone in on the pain point that your organization was created to combat and highlight why this is a huge problem and what resources (money or otherwise) that you need to continue the fight. Some simply don't have because they don't ask.

Audit Your Cash Flow Reserve

There are mixed views on whether nonprofits should build a reserve. It is a myth that nonprofits are penalized for building a reserve. For some reason, executive directors and board members hold on to this false belief that nonprofits cannot operate at a surplus or it will appear less deserving of funding. I’ve always had a problem with the notion that because an entity is a nonprofit, it should be struggling to some extent. Cash flow issues are not a right of passage. Being a nonprofit organization simply means that you were not created primarily to make a profit. You were created to make an impact which you cannot do if funding dries up.

It’s recommended that your reserve should be 3 months of your annual operating expense budget. However, this is just a recommendation and should be based on the needs of your organization. Once you are clear on how much and what the rationale is, you can begin to build up your reserve.

Treat Fundraising Like Venture Rounds

Most nonprofits fall into two buckets. They are either in a continuous cycle of fundraising or not fundraising enough. If you spend more time fundraising and trying to meet new donors, you most likely aren't spending enough time on running the actual organization. Nonprofits can benefit from treating fundraising like venture rounds which consists of a set amount of time that you are raising money. When you are in a continuous cycle of fundraising, you often don't jump off the hamster wheel long enough to assess your efforts, adjust, and then try again.

So how do you treat fundraising like a venture round? Here are a few ideas:

  • Establish clear goals and objectives: Have a clear idea of what the funds will be used for prior to fundraising. Being able to articulate why you need these funds will help funders with knowing what their money is used for and the impact it will have on your mission/initiative.

  • Understand your budget and overhead: Having a clear understanding of your overhead and the functions that support the organization are crucial to obtaining enough funding. It's often argued that funders restrict their donations to directly supporting the programs. By understanding your budget and overhead needs, you can articulate these items and their significance to running the programs to potential funders.

  • Have a clear deadline - The key to a funding round is that it has a clear start and end date. Nonprofits can benefit from taking this approach so that their efforts can be optimized. By having a clear deadline, the organization can review their efforts and also create a sense of urgency among donors/funders.

Measure Your Impact

How do you know if you are achieving your mission? Have you outlined what success looks like to you? This is key to being able to quantify the impact of your organization. You can do so by setting mission based goals and using data gathered to assess how the organization has performed. Focusing on outcomes is how you measure impact. While metrics and dollars raised are also important, how your organization makes an impact speaks to whether or not it is living up to its mission.

The National Council of Nonprofits and its state association network encourage nonprofits to embrace a culture that supports evaluating the difference your nonprofit is making. This requires first identifying "what does success look like?" Then making a plan that will get you there, and collecting information along the way to evaluate whether your nonprofit's progress is actually getting you closer to success. Finally, it's important also to communicate what you are discovering, and use those lessons to continuously improve performance. All of this is referred to variously as, "outcomes measurement," or "performance management," or simply, "evaluation."

While there are clear differences between nonprofits and venture backed startups, one significant similarity is the need to raise funds in order to achieve their missions. While the mission is the heart of the organization, it has to be supported so that there is a reason to give/invest. By getting laser focused on not only the pain point you solve but also the level of impact and its necessity to exist, you open your organization up to more options related to giving.


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