When I wanted to make money and solve a social problem at the same time, I found that my primary motivation was split. I ended up establishing a non-profit instead, so here’s what you need to know if you find yourself in the same boat.
This is the fourth of four articles on starting a non-profit enterprise. Read Part one here and part two here.
Here are some more issues and topics that will come into play when you begin a non-profit organization. Again, much of this advice would be useful in a for-profit startup, as well.
Document Your Program
You should document everything you do. For the first ten years, put half your money into programs and the other half into research and development. Explain to funders that you are looking for breakthrough ideas that will greatly expand and facilitate your mission. Always keep your research budget separate from your program budget; if they are combined, it will skew your cost-per-change unit. Try to have one set of funders to finance your research and another group fund the programs.
There is nothing you can do to help your mission more than getting widespread media attention. Get the story right by demonstrating positive change in individuals involved in your program (as Jan Legnitto, formerly of 60 Minutes told me once). Developing a story based on improved conditions or behavior (depending on your mission) due to your program will be the key to attracting media notice. It is usually worth it to hire a public relations expert.
Tell the Truth
Do not exaggerate your program results. If you tell the truth, you will have nothing to be ashamed of. People will admire you for it.
Develop an Earned-Revenue Strategy
It is a good idea to have a product or service that you can sell directly to the public, rather then rely wholly on donations and grants. However, this scenario should not be developed for several years, until you are fully established as a non-profit. For one thing, it can derail you and your team from your primary mission. Also, if you are successful in raising revenue through a product or service, people will wonder why you became a non-profit in the first place, and be reluctant to donate money.
Growth Can Kill
Uncontrolled growth can destroy your organization. Don’t think that because your program has suddenly taken off and is expanding you can just let it go without careful supervision. If you’re not careful there will be a decline in the quality of the delivery of benefits to your target audience. My experience is that growth over 25% is unmanageable in a non-profit venture.
Establish a Reserve Fund
From day one, put a modest percentage of each dollar you raise into a reserve fund. It will keep you afloat if your top donors withdraw their funding (as they almost certainly will, eventually). If supporters question your development of a reserve fund, and try to prevent you from achieving financial independence, they are not your friends. Do not forget that you are dependent on your donors’ wealth. Becoming financially independent may not be one of their goals for you. But it should be your goal for yourself and your organization.
Hire the Best People
Hire the best people you can get. Compensate them as well as you can, and give them incentives to make bonuses. Even in non-profit environments, money matters - people have families to support and their personal aspirations. Be clear about what your employees have to achieve to earn bonuses and raises.
Open Book Management
Jack Stack’s Open Book Management is a must-read. In it he argues that letting people see the financials of an organization is absolutely critical for success. At NFTE, every aspect of our financial circumstances except salaries is open for inspection.
Continue Strategic Research
Hire a top researcher from a college or university that specializes in the area you are working on. Often, a professor will find a graduate student to do a Ph.D. thesis on your program. Develop a research design based on your unit of change. Whenever possible use the “random assignment” method in comparative studies, rather than just a control group.
A local problem is usually a global one as well. Food, shelter, health, education, environment - make a breakthrough locally and it will help people everywhere.
I originally founded NFTE as a for-profit. I wanted to make money and solve a social problem at the same time. My primary motivation was split. I wanted to do both, but since the audience I wanted to reach — low-income youths and their parents — could not afford the products and services I wanted to develop, I established a non-profit instead. I realized that if NFTE were successful I would never be able to sell the company, and thus make a financial return on my investment, but I thought I would be paid in the personal satisfaction of having made a difference in the lives of many deserving individuals. And I was right.