The Leaky Bucket Nonprofit Blog

Nonprofit Fundraising: Donors Are Your Investors

Posted by Ellen Bristol on Tue, Apr 10, 2012 @ 10:06 AM

The Charitable InvestmentLet’s talk about entrepreneurship for a minute.  Nonprofits are a lot like those new-business ventures that get money from investors.  Your fundraising practices have to attract the right charitable investors (donors), just like some entrepreneurs have to find the right investors.  In both cases, the "investors" should understand what you're trying to accomplish, and that your "solutions" are going to have a positive impact in the market.  The for-profit ventures have to answer to their investors, just like your nonprofit has to answer to its donors.  Neither type of business can thrive unless it has the right financial backing, but with it, both will do a better job delivering on their promise.  And in both case the “investors” want to see the business in question make a difference.

So let me tell you about a workshop I just did for a group of aspiring women entrepreneurs.  Jennifer has a plan to make scones and flavored butters to sell to coffee shops and bakeries.  Dolores wants to start a drug-testing company.  Claudia intends to open a paralegal temp agency.   And Arlene is developing a program to care for older people in their homes, which could thrive as either a for-profit or a nonprofit venture.  I’ve presented to other groups of women entrepreneurs before, but there was something special about these women.

They’re in prison.

Rarely have I worked with entrepreneurs who were so eager to learn, so open to criticism, and so excited to get real-world feedback.  I’ll give you a link to LEAP, the wonderful program that sponsors these workshops, at the end of this blog.  Now I’d like to share what I learned from my aspiring entrepreneurs, and how their experience highlights the challenges faced by virtually every nonprofit at some point or another.

Tip #1:  What are you trying to accomplish?  If Jennifer sells her scones to a few restaurants or bakeries, her start-up expenses won’t be that great, so she can control her risks. She also won’t make a lot of money.  If she wants to supply big chains like Panera Bread, she’ll need lots more start-up cash to pay for raw materials, cooking equipment, transportation, staff, marketing and quality control.   She and her investors need to understand the difference.

The Nonprofit Message:  Make sure your “investors” understand what you currently accomplish for your clients and what you intend to accomplish for them in the future.  Engage investors with your mission and expectations, not your need.

Tip #2:  Is there competition?  Law firms rely on paralegals to handle professional tasks that don’t justify lawyers’ rates.   Claudia will be entering an established market, and competing with other paralegal contracting services.   In fact, that’s one reason she came up with her business plan. 

The Nonprofit Message:  Competition is a good thing; it proves there’s a market that someone is willing to “throw money at.” Investors are already supporting missions, programs and services like yours.  Your challenge is to develop a competitive edge that makes you just as attractive as the established players, if not more.

Tip #3:  Does it have an impact?  Arlene wants to help elders stay in their homes longer, cutting costs to individuals, their families and even the state.  It will be a while before she can show outcomes, so she’ll  have to rely on third-party data for a while.  Fortunately, there is good information that proves her hypothesis.  

The Nonprofit Message:   No investor wants to risk money on a scheme that sounds good but doesn’t offer any proof, so keep track of your outcomes.  Scientific data is desirable, but sometimes all it takes is a few testimonials photos and videos on your website. 

Tip #4:  Is it a “program” or a “business”?  Dolores is excited about a drug-testing method that doesn’t require urine samples, just cheek swabs.  If she starts a drug-testing lab, she’ll have to find the money to pay for the facility, equipment, and trained staff, and then acquire the contracts, referral sources, and individual clients that will sustain the business financially.  But maybe she could start by selling that new drug-testing product as an independent sales contractor.  Very few start-up costs, and low risk – plus Dolores would get to do what she’s really interested in.

The Nonprofit Message:  Does your nonprofit have enough merit to go it alone?  Leaders of grassroots organizations should assess whether their nonprofits have the scope of services, capacity and potential to attract enough investors to go it alone.  It might just be worth considering whether merging with a larger, more established outfit is the right idea.

Four great lessons, out of many, many more – in just three hours!  As so often happens, I probably learned as much from this experience as my LEAPers did.  Best of all, these aspiring entrepreneurs were eager to hear and accept challenges, even criticisms, as we reviewed their business concepts and plans.  I wish more of us established entrepreneurs, for-profit and nonprofit alike, could be as open to our advisors as these women. 

If you would like to learn more about LEAP, Ladies Empowerment and Action Program, please visit their website at www.leapforladies.org.  Their mission and programs deserve all the attention and support they can get.


Ellen Bristol

Written by Ellen Bristol

Topics: donor, Fundraising fundraisers, nonprofit entrepreneursfundraising practices, charitable investment

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