Nonprofit organizations are on the frontlines of tackling issues ranging from hunger to malaria to refugee displacement to autism awareness. Yet, the nonprofit field is increasingly fragmented, composed of lots of small organizations that never achieve financial sustainability or scale. In their recently published book Engine of Impact, Stanford lecturers Bill Meehan and Kim Starkey Jonker report that 40% of nonprofit directors were unable to meet fundraising goals and 29% said their organizations had experienced serious financial difficulties.
The stakes for failure in the nonprofit sector can feel dramatically high. These organizations are often providing critical services that sustain communities at the local and global levels. Yet, they’re operating in rapidly changing landscapes where donors suddenly have new demands and traditional sources of funding are drying up.
How can the best organizations adapt? Increasingly nonprofits are thinking about developing earned income streams or incubating social enterprise models to diversify their funding, cross-subsidize core programs and become less beholden on grants. All of this might sound advisable in practice, but trying to foster a culture of entrepreneurship and lean innovation to unlock business opportunities within nonprofits can be daunting. The challenges range from slow-moving bureaucracy to complicated markets where the end users have limited ability to pay for new goods or services. Many nonprofit employees also worry that pursuing profits might district from their core social mission. But this doesn’t have to be the case.
As Acumen has learned from more than 15 years of investing in social enterprises around the world, business models that effectively serve the poor and achieve meaningful social impact are certainly challenging--but not impossible-- to build and scale. We recently spoke with eight nonprofit leaders who are on the forefront of exploring and testing entrepreneurial approaches to create their own sustainable funding models or cultures of innovation. We’ve collected their key lessons and pieces of advice for other nonprofits who are looking to transition to social enterprise models or adopt business-savvy practices to advance their missions in 2018 and beyond.
Social Entrepreneur in Residence, AARP Foundation
Lesson 1: How to Cultivate a Culture of Innovation
Secure buy-in from your organization’s leadership to cultivate a culture of innovation. If you can, appoint a dedicated staff member to drive entrepreneurial initiatives.
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Senior Director of Programs and Strategic Initiatives, Feeding Matters
Lesson 2: Strategic Planning
Be strategic, but don’t obsess about creating a 15-page business plan. Test things quickly, rather than doing exhaustive planning.
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Sustainable Development Associate,Global Brigades
Lesson 3: Disrupting Traditional Value Chains
To find potential revenue streams, look for opportunities to create efficiencies or disrupt traditional value chains.
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Executive Director, FLYE
Lesson 4: Cultivating a Selling Mindset
Focus on sales early in your nonprofit’s entrepreneurial journey. Cultivate a selling mindset.
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Managing Director of WellDone
Lesson 5: Understanding Customers and their Struggles
Know your users. Understanding customers and their struggles is foundational to building successful solutions.
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Global Director, Humanitarian Partnerships & Cash Based Programming, World Vision International
Lesson 6: Leveraging Corporate Relationships
Figure out your unique strengths as a nonprofit and then leverage relationships with corporate partners to fill in the gaps. Don’t try to recreate what the private sector is already doing well.
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Advancing Kids Innovation Program Manager at Connecticut Children’s Hospital
Lesson 7: Risk-Taking to Find New Funding Streams
Don’t assume that a heart-warming social mission will come with guaranteed philanthropic funding. Instead, embrace risk-taking to find new funding streams.
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Director of Business and Commercial Development, Action for Children
Lesson 8: Diversifying Funding and Horizon Scanning
Diversify your funding sources before your funding gets cut. Conduct horizon scanning exercises to plan ahead.
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