Many nonprofits operate in a state of financial haze — simply because nonprofit leaders have more domain knowledge about creating impactful programs than they have about funding their organizations. In changing economic times, reliable philanthropists and donors can suddenly close their wallets, resulting in an unsteady stream of funding. When dollars are tight, many nonprofits enter crisis mode in hopes of making up for the lack of cash flow.
About the 3 Day Startup Sustainable Nonprofit Program
3 Day Startup (3DS) is a world-renowned entrepreneurship program where university students start companies through a learning-by-doing model. 71 programs at schools such as Harvard, MIT, and more have helped students start over 55 companies that have collectively raised $15 million in investment capital. The 3DS organization is an earned-income nonprofit and has developed similar entrepreneurship programs focused on social entrepreneurship, collaborative consumption, and edutech. 3DS brings this expertise to the nonprofit sector with the 3DS Sustainable Nonprofit Program — a rigorous, three day workshop designed to exercise skills in cross-disciplinary collaboration, brainstorming and ideation, and group productivity. The 3DS team and committed mentors from the community guided the work of the chosen nonprofit teams during the intensive program. The objective of the program is to teach nonprofit teams how to create revenue generating funding models to increase their social impact and move their organizations towards self-sustainability. The hands-on program culminated on day three as teams presented fully developed earned-income ideas to funders and fellow nonprofit leaders at the 2013 Rackspace Technology Summit.
How Most Nonprofits Raise Funds Today
Almost all of the the participating 3DS nonprofit teams indicated that more than 83 percent of their funds came from donations and grants. “We had a very successful gala last year, but we tried to mount a membership program and host smaller events that did not end up bringing in much funding. Some collaborations were very successful; others ended up draining more time than they were worth,” says Sheila Black, Executive Director Of Gemini Ink.
The problem with the current state of nonprofit fundraising is that it lends itself to instability. When money is tight, programs are slashed or never launched and this compromises the mission of the nonprofit to serve its beneficiaries. “We participated in 3DS to come up with more funding ideas to support new future programs,” says Patrick Currie, Executive Director of Boy with a Ball San Antonio.
Boy with a Ball San Antonio reaches young people and equips them to be leaders capable of transforming their own communities.
Apps for Apptitude develops educational mobile applications to fund the fight against illiteracy.
Gemini Ink nurtures writers and readers and builds community through literature and the related arts.
Vet TRIIP (Veterans Team Recovery Integrative Immersion Process) provides a short term multi-modality complementary integrative immersion program for veterans with Post Traumatic Stress symptoms and related symptoms.
USRTA (United States Road Tennis Association) teaches, promotes, and supports the nascent sport of RoTenGo by promoting fun, healthy living, and wellness among people of all ages, races, and income categories.
Customers Versus Beneficiaries
Running a nonprofit is generally more complicated than running a for-profit business. A for-profit business identifies a service or product of value to a customer. The customer pays for the value, generating a source of revenue. Many nonprofits on the other hand do not have customers, but instead serve only beneficiaries. For example, Boy with a Ball San Antonio identified a need to provide leadership skills to underserved youth, but this demographic served in this manner does not represent a sustainable source of revenue. The other participating nonprofits teams were at a similar stage and had not taken the separate step of identifying potential customers.
To help these five chosen nonprofits solve their funding woes, 3DS pushed the nonprofit participants to view their organizations as serving two audiences — one related to their program activities and the other related to generating funds. A bootcamp session prior to the program familiarized participants with basic business principles such as the difference between a customer value proposition and a beneficiary value proposition.
“3DS hand picked each of these nonprofits to participate in this program because we knew they were good at delivering their mission. We wanted to emphasize that the focus of our program would be centered around the funding initiatives of their organizations,” says Cam Houser, CEO of 3 Day Startup.
Earned-Income Model and Entrepreneurship Skills
During the program, participating nonprofit teams were immersed in 3 Day Startup’s learning-by-doing model. The program was developed using the 3DS organization’s expertise as an earned-income nonprofit and through the development of similar experiential programs focused on social entrepreneurship, collaborative consumption, and edutech. The framework for the 3 Day Startup Sustainable Nonprofit Program combines the traditional earned-income model with that of lean startup.
Why an earned-income model?
There are many frameworks for nonprofit funding, but 3DS incorporated the earned-income model into the program, as this model represents the ideal — 100 percent self-sustainability. Although many nonprofits will use a mixture of funding models and may never opt to become fully self-funded, the earned-income model pushes all participants to think outside their existing parameters of operation and into exploring and understanding the value proposition for paying customers. Though this process may seem foreign to many nonprofits, exposure to this model and gaining these skills are key to helping an organization make sense of the entire funding landscape and how it relates to sustainability.
In addition to stressing the earned-income model of funding, 3DS incorporates lean startup principles into the framework of the program to stress the importance of execution. If nonprofits are to invest their time into generating earned-income, the idea of reducing market risks through validated learning and sidestepping the need for large amounts of initial project funding applies just as well. The key components of this framework mimic the early stages of venture creation. Each of these activities also exercises team building, group decision making, and cross-organizational collaboration.
“During this program, we learned what we could do by working together in a comparatively short amount of time, to think entrepreneurially — like many nonprofits, we often hesitated to think hard about money, and the process from going from idea to actualization and how to get other people and potential partners on board. This hands-on process put together knowledge we already had in a new energized way. That part was inspiring to my entire staff — moving us from feeling often doubtful to a total ‘we can do it’ attitude,” says Sheila Black, Executive Director of Gemini Ink.
Brainstorming and Ideation
On day one of the program, teams used the 3DS model to brainstorm several income generating ideas with guidance from 3DS facilitators and mentors. At this stage of the process, there is no such thing as a dumb idea. This session is designed to maximize creativity and possibility. Some of the ideas generated by participants ranged from cause marketing initiatives to professional writing classes for a different segment of their audience.
A successful startup team has individuals from diverse backgrounds and through our work helping student startups, we know first hand the detriment of the silo effect, or when specialized teams do not cross-collaborate with other individuals from different backgrounds.
A key driver to innovation is bringing outsiders into the equation. Participants from different nonprofits were arranged in diversified groups to intermingle and provide feedback to each other.
In a particular cross pollination session, the group makeup ranged from a high school student to a massage therapist. Each participant offered unique value to the conversation as their organizations and backgrounds were different enough from each other that the perspectives shared were often surprisingly insightful. For instance, a participant from Vet TRIIP had a hard time discovering who the potential customer was for an online product extension. By discussing this with other participants, those with business backgrounds were able to lend a helping hand and suggest several recommendations. This type of insight would not have been uncovered without cross pollination.
At a standard 3DS, voting takes place on day one to provide a mechanism for feedback to decide which startup ideas will go forward. The nonprofit teams in this program were already formed, so this process was altered to “sentiment voting.”
In this new process, teams presented their four or five earned-income ideas that they brainstormed earlier, and the crowd provided appropriate feedback and voted on the ideas they thought were most viable.
Sentiment voting in valuable as pre-existing teams contain pre-existing leadership structures with hierarchies and biases. A big component of sentiment voting is anonymous voting — all participants are asked to vote with their heads down. This provides an unfiltered lens for teams to compare different ideas.
Customer Discovery and Market Validation
On day two, the nonprofits generated a general hypothesis of the value proposition that their earned-income idea offered to their customer. The next step was for the nonprofit teams to go out and validate their markets by speaking with potential customers.
For example, Boy with a Ball San Antonio refocused their earned-income idea on employee retention rather than corporate team building after speaking with a grocery store executive. The executive helped them understand that many minimum wage type workers quit their jobs for the same reasons that high schoolers drop out, and that the organization could use their expertise as a competitive advantage. By validating their market early on, the team was able to reduce the market risks of potentially pouring resources into an earned-income idea that no one wants to purchase.
As teams reached a stage where their value propositions were validated, participants moved to building viable funding models. This exercise was perhaps the most difficult for many of the participating nonprofits, as many have relied solely on donations for most of their entire existence.
In a handful of teams, some members burrowed back into their comfort zones and started building new program offerings instead of focusing on their earned-income funding models. This backtracking was a sign of just how deeply embedded participants were in providing quality services for their beneficiaries and how far removed they were from the funding initiatives of their organizations.
But with tough love and the guidance from the 3DS team, participating teams were carefully steered on the right path and ambiguous ideas turned into strong funding models. For example, Gemini Ink came up with the idea to turn their centrally located space into a cafe. While the cafe would ideally generate income, its deeper purpose was to publicize other income-generating services, such as writing workshops and theater performances.
To leverage the importance of domain knowledge, mentors were brought in on day two to provide feedback and advice for nonprofit teams. Figures from the for-profit and nonprofit communities such as Jack Downey, Judy Gates, and Ken Allen helped teams interpret customer feedback and move their projects forward.
“Mentors helped us to develop a focused pitch to win people over with one idea — we tended to generate ideas without stopping, causing us to suffer on the follow-through,” says Sheila Black, Executive Director of Gemini Ink
Armed with feedback, nonprofit teams worked into the night to finalize the pitch for their earned-income ideas.
Pitches and the 3DS Global Network
Pitching is typically associated with for-profit organizations, but is a skill just as equally valuable to nonprofits.To exercise these skills, the three day program culminated in a presentation at the Rackspace Technology Summit. Nonprofit teams pitched their finalized earned-income ideas to a crowd of 250 nonprofit leaders and funders. In many 3DS programs, final presentations delivered to a larger audience help a team discover new partners and supporters — in this case, pitching to the larger nonprofit community allowed the Apps for Aptitude team to connect with a fiscal agent who agreed to sponsor their 501(c)(3) status.
“I think what was incredibly valuable was being forced to develop a pitch in a short amount of time. I am not sure we are going to entirely follow through with the exact earned-income idea we had, but we are already implementing pieces of it,” says Sheila Black, Executive Director of Gemini Ink.
The Future of Nonprofit Funding
The current economic climate provides much financial uncertainty for nonprofit leaders, so it is more important than ever for leaders to examine their funding strategy closely. Philanthropists are expressing increased discipline regarding their nonprofit investing. A growing number of foundations, such as the 80/20 Foundation, are investing in grantees that have effectively evaluated measurable impact through both great programs and clear funding models.
“Philanthropy is going through a huge amount of disruption right now. The nonprofit organizations that will survive are the ones that can embrace the concept of the “double bottom line” and running like a startup company,” says Lorenzo Gomez, Executive Director of the 80/20 Foundation.
Funding paths for nonprofits will vary, but the 3 Day Startup Sustainable Nonprofit Program pushes nonprofits to explore autonomy and self-sustainability in an extreme hands-on format. Nonprofit teams will experience variable levels of success in the real-world implementation of the earned-income aspects of their ventures they created at 3DS — but all participants will benefit from a better understanding of these funding initiatives based on learning-by-doing.
“We were pushed in a direction we felt very uncomfortable with, but the fact that we went there was incredibly transformative. We now have a better understanding of how we can generate more income for our programs,” says Bob Deschner, Cofounder & President of Vet TRIIP.