July 4, 2015

Nonprofits are a Tricky Business

by nathanwebster in Social Entrepreneur

From having over 20 years in nonprofit experience, I am now convinced nonprofits are a much harder business than a for-profit organization. My conclusion of declaring nonprofits are a tricky business is that no one knows the right formula or an official blueprint for success. To be clear, I’m not saying organizations or individuals don’t know how to run a successful charitable venture. The problem is the most successful nonprofits do not share the tips and tricks of best practices because that information could compromise their infrastructure.

Nonprofits are a tricky business because the foundation begins with the founder. The founder has the vision. Her vision is the honey to attract the bees. In this case, the vision is vital because by law the founder must find at least three individuals (depending on the state) to be on the board of governance. Finding individuals to believe in your vision and mission may or may not be difficult depending on the individual, but the point in this matter is this isn’t an element for-profit businesses have to legally implement. Again, depending on the individual and organization, this process can be very cumbersome that could potentially stall and even discourage the official launch of the business.

The beginning of the founder’s journey has only began. If she has the fortitude to make it this far, she now needs to raise at least $850 for the IRS; $30-$50 for local licenses; $200 for a possible state license. These costs vary for each organization, but the IRS being the main one isn’t a guarantee it will be approved. A for-profit business will (most likely) always be approved. They don’t need a governance—although it wouldn’t hurt to have a trusted group of people to help advise your decision making especially at the beginning—but the process to begin their venture can be immediate.

Our founder will also have a hard time learning how to build her beehive because the market doesn’t cater to a nonprofit entity in comparison to a for-profit. The nonprofit industry is overwhelmingly saturated with all different types of charitable causes. From elected governments to government groups (i.e. – post offices, transportation, and communication), private foundations, fraternity clubs, public and charter schools, agriculture, and so many more.

To make this example a little bit more clear, a bookstore will have diverse section in the business section of different industries but rarely any books on nonprofits. There are good reasons why this is the case, but doesn’t make our founder’s job any easier when she needs to build a solid foundation to make her impact by helping solve a societal need. Where can she go? Who can she speak with to receive unbiased, clear and helpful instructions? The answer will vary on the founder and organization.

If the founder’s mission was to create a healthy beehive, the measurable outcome for the organization is to measure the number of communities (and individuals) enjoying an organic jar of honey. Her end result can be very simple, but not if this has never been done before. Everything requires a plan. Her plan will need to be thought out, approved by her board, carried out through her and volunteers, and distributed to the communities all for a low cost or for free. As a business, this model is strategically designed to be sold for a profit and fulfilling the dreams of the for-profit’s founder. The proof in concept of one sale will validate the for-profit, but the nonprofit will need to quantify the number of people that enjoyed their free jar of honey. Even though everyone enjoyed the organic jar of honey, the business models were completely different. Hence, why nonprofits are a tricky business.

The most important element of this comes back to the founder. Again, every founder and organization is different. Therefore, the output of having different outcomes can be different too. We all live in different economic landscapes that shape our own experiences, which is why I believe it’s paramount to be different.

I write this because my business is personal because this service is for the advancement of all humanity. My failures and successes are for your gain. No strings attached.

Nathan A. Webster, MBA