Fundraising like a start-up

I recently met someone who works at a nonprofit that was founded four years ago. She described their vision, mission and programs, many of which have a fee-for-service component. “We’re just over two years away from sustainability,” she said, describing their financial situation.

Later in our conversation, she used another term I generally associate with start-up businesses, which got me thinking about the parrallels between a young nonprofit’s ability to build a sustainable income stream and a start-up business’s.

For-profit businesses, like most of their nonprofit counterparts, tend to get started on a wing and prayer, often with people going to heroic lengths to bring to life an idea that others may not believe will work. Founders work doggedly to establish their products, services, and programs, and demonstrate their value. 

A start-up founder with a good idea, just like a nonprofit founder, must inspire others to invest in her vision. For-profit entrepreneurs can seek seed funding, angel investing, or give away equity to get their project launched. Nonprofit entrepreneurs often enlist volunteers, get foundation support, or engage donors (often, ones they know personally) to underwrite the work.

At some point, though, both businesses need to survive without the help of insiders. In a for-profit business, that means generating enough income to surpass expenses, hopefully with a healthy profit margin. The business stops leaning on the kindness of family and friends and begins to lean on its own products and services to survive and grow.

But do nonprofits also develop the same independent self-reliance as they move beyond their founder? Over the years, I’ve seen a few that do, and many that continue under unstable financial conditions year after year. Often, organizations shift their reliance from the founder’s connections over to a new funding source that may be less personal, but may not be wholly stable, such as foundation grants.

Nonprofits who become independent or grow rapidly benefit from diversifying their revenue streams just like you, as an investor, have less risk when you invest your money personally in diverse ways. 

A diversified income portfolio at a nonprofit might have events-based income, receive grants from foundations and/or the government, and have a pool of major donors. Or maybe it has some earned income programs and a robust annual program and supporting donor pipeline.

Got tips for leaders at younger nonprofits? Disagree? I’m all ears.