The questions you're asking.

Sometimes a lot of question topics I receive start to repeat themselves, so to cover more of them for more readers, here is a round-up from the last few weeks.

Q. How can I get a stable income for my nonprofit administrative expenses?

A. The only way to have a reasonably secure source of nontaxable income is to have a product or service that you sell that aligns with your mission. For instance, healthcare related organizations generally contract with a government agency to provide services paid by Medicare, Medicaid or a state or city department of health. Community organizations might have a thrift shop. After-school government-funded programs may utilize nonprofits as paid caregivers. In some cases, and assuming a large enough base, you might try a membership model with the dues being allocated to general support (must elect this when applying for IRS determination).

Alternatively, if you are in a position to pay the upfront costs, some larger NPO's rely on one or two large fundraisers each year.

Q. I want to start a nonprofit, but I hate fundraising. Can't I just apply for grants?

A. Even grants are a form of fundraising, but in the practical sense, if you hate fundraising then you need to recruit people for your board or as volunteers that love it. Nonprofits spend a lot of time (as much as 40 to 60% in the early years) securing funding, and grants are a small percentage of the total. Grant income during your first two to five years is likely to be very small, and it's nonexistent during the first year. Nationwide, grants only comprise about 12-14% of all nonprofit income. That makes ongoing fundraising a necessity.

Q.  I keep applying for grants but I either never hear back or they reject me. What am I doing wrong?

A.  Grant applications are usually not funded for one of three reasons. One, your organization goals are not closely related to those of the grantor. Two, you are not in their geographic focus area. Three, your proposal doesn't show why you would be the best choice for success of the grantor' s mission. Of the three, it is the last that usually gets a " thanks but no thanks" response. Very new or very small organizations often aim for very large grants, but are not prepared or able to deliver the level of results the grantor expects. And of course sometimes they just run out of money before they get to your needs. If allowed, I would definitely try to contact the organizations and get feedback on your application.

Q. It seems like every foundation doesn't accept applications. Why are they in business if they don't want to make grants?

A. To a large extent, this is the result of oversupply in the nonprofit market. Simply put, there are too few foundations trying to fund far too many nonprofits. Sometimes it is due to adverse economic conditions, and they are putting their grant-making on hold until their funding catches up. Other times they have simply become comfortable with the grantees they already know, or the staff is overwhelmed with the sheer volume of responses to an open application period.

Q. I applied for a business start-up loan from my bank, but they told me my financial projections (in my business plan) are unrealistic. They're projections!  To me that means my best guess. What now?

A. Without seeing the plan, I can't comment specifically. However, typically I would expect that they were either based on insufficient real data (market research, competitive stresses) or you were too optimistic regarding your growth. I would ask if you can meet with the bank's development officer or loan manager and ask for clarification. If that isn't possible, then you need to have the plan reviewed by a knowledgeable third party. If you are projecting growth rates in the first two or three years outside the norm of 10-30% a year, and can justify that, it could even work for you instead of against you.

Have a question?  Drop me a line at rightwords@ida.net, I'll answer it and maybe even use it as a topic for a future post (without using your name, of course!).

Managing your Mission

Recently I was listening to a nonprofit founder explain that the person's  organization was set up to serve 100 clients onsite at any given time, but was now serving 300-400 onsite. The reason given was that the town had no other resources to handle all the clients who needed help.

The person was taking questions, and two things bothered me.  One of them is the scenario above, and the other was a question from the audience asking how the person could set up a nonprofit doing the same thing, but by taking some of the overflow that was outside the original nonprofit's mission.

The question didn't bother me.  What bothered me is that the speaker completely dismissed it, saying that if the person wanted to help they should just support the existing group.

This is a very well-publicized charity, one whose name you would probably recognize immediately. The speaker had just said that they were over-loaded and that financing this operation was a constant struggle, even before the addition of the extra client load.

This is a glaring example of mission creep destroying an otherwise fine organization.

Without going into too much more background, this charity is offering a service that people are taking advantage of inappropriately and knowingly.

The mission, once closely defined, has now been expanded to serve a population that was never initially part of the plan.

Knowing a bit about the history of this group, I seriously doubt that there is enough money out there to keep the place going unless they take charge of their mission again.

I totally understand how that happens.  It happens when you care too much, and when you won't or can't say "no".

This whole thing is wrong on many levels.

 

In the first place, people who have been supporting the organization have been sending money to support the core mission, once tightly focused on one target population. If they are donating because of a connection to that target population, they may feel that it is being shortchanged to accommodate a totally different group. That can impact funding.

Second, instead of doing a stellar job with that target population, the charity is now barely servicing any of the clients. The outcomes they desire not only aren't happening, they can't happen.

Third, when someone offered to try to help by setting up a nonprofit working in the same field, the founder blew them off, and even sounded insulted that anyone would even offer to provide another resource.

I sort of understand the response.  It takes a long time to build an effective nonprofit, the organization's need for more funding is immediate and a new organization might compete for already scarce funds. But by being so openly derisive, the founder probably turned the would-be helper into a non-supporter.

A far better choice would have been to say that they would welcome the person as a volunteer, show them the ropes, and then if that resulted in a new organization in the future, turn over some of the clients to them.

The upshot of all of this is that I sort of lost interest in the organization.  If you need help, you're begging for help, but you don't want to fix what's wrong and won't accept help when it is offered, I'm probably not going to feel that supporting you is the best long-term use of my funds.

In short, you have to manage your mission for maximum effectiveness. As hard as it is, no organization can help everyone, all the time.

8 things you should do before starting a new venture

Notice that the title says venture. It doesn't matter whether it is a for-profit or nonprofit, these 8 tips will make your start-up life easier.

1. Define your reason for starting something new.

It doesn't matter whether it’s a charitable cause or a retail business, if no one needs what you are going to invest a lot of your time and energy in, or there are a million others doing the same thing,  it has a greater-than-average chance of failure.

2. Define your strengths and weaknesses.

No, not the strengths and weaknesses of your business or nonprofit idea. Your strengths and weaknesses. Maybe you are an antisocial recluse, but you make beautiful handbags. It doesn't matter what your personal pros and cons are, only that you recognize them honestly.

3. Recruit supporters that complement your weaknesses, not your strengths.

In the example above, you would look for people that love social interaction and marketing to pitch your beautiful handbags to the world.

4.  Set attainable goals.

Sure, you have a vision of what your venture will look like when it is a mature business or nonprofit, but give yourself a break. Start with smaller but attainable goals. Nothing breeds success like success, so set yourself up to win.

5. Don't let an occasional failure defeat you.

If you are trying, then you are going to fail in something at some point. Use it as a learning experience and move on. If you are failing constantly, see #6.

6. Be flexible.

It doesn't do any good to build a better mousetrap if there are no mice to catch. Don't get stuck on a mental one-way street. If there are no mice, and mice eat cockroaches, there might now be too many cockroaches, so build a better cockroach trap. Adapt to survive.

7. Accept that you can't do everything.

Rigid things break more easily than flexible things. Some things are worth doing yourself, but insisting on doing everything yourself will eventually lead to nothing being done quite right. Learn when and how to ask for help and accept it graciously.

8. Don't ignore proven methods just because you think they are old school.

The reason some methods hang around for decades or even centuries is because they work. It's fine to innovate, but if the innovation doesn't produce a better quality result or produce it faster or more economically, then it's a waste of money, time, energy or all three.

You may have noticed that all of these hints are about you.

There are a jillion tools out there for you to use in building your new venture, but in the end, it will all boil down to you.

I write all sorts of B2B, B2C and nonprofit verbiage. Grants, brochures, marketing copy, web copy, blog posts, press releases, you name it and I've probably done it for someone.

The things I write are tools. The online courses you see advertised are tools. Formal education is a tool. The shiny new computers and smart phones are tools.

The thing about tools is they need someone to pick them up, learn about them, and then use them, and that's you.

If master these eight things, you are going to be head and shoulders above most of your start-up peers.

Have questions? Feel free to contact me at rightwords@ida.net. Let's talk!

Taking the scary out of start-up

One of the most overwhelming aspects of starting a new business, whether it is a nonprofit or a for-profit, is feeling like you're lost in a maze. Once the initial excitement wears off, it can feel like trying to navigate Africa without GPS or even a map.

The solution for that feeling lies in gaining knowledge and experience, but trying to do that completely on your own can be time-consuming, expensive  and just plain scary.

There are tons of resources for would-be entrepreneurs, from the local SCORE office to a myriad of books, podcasts and videos to one-on-one consultants like me.

   

So why do so many startup owners seem to flounder for so long? Why do 70% of all start-ups fail within five years?

I think part of it is because people who start businesses tend to be highly independent folks.

It takes a certain type of person to say "I don't want to exist within the corporate world."  They are quite willing to give up the perks of the corner office to make an impact on their own. They tend to be driven to achieve a goal, sometimes to the point of disregarding anything but the vision of that goal already attained. They are dedicated, but not patient.

As a consultant, one of the first things I do is ask about the basics. Does the enterprise have the structure needed to survive and grow?

Often I find that in the entrepreneurial mind, following rules, i.e. having structure, equates to being suffocated by bureaucracy. I explored that in my previous post "Structure Without Stricture".

Some rules of business exist almost as laws of nature. If you are a for-profit, you have to sell things for more than they cost to produce in order to survive. If you are a non-profit, you have to be able to show a real positive change in a circumstance or condition that provides benefits over the long term to prove your value to donors.

None of that precludes innovation or imagination. You can approach problems with new methods or define a successful outcome with new metrics.

I recently had a client who started his email with "People tell me I am doing everything right. I'm  active on social media, I attend local events, I contribute to local charities and all that stuff. My service is far better than my competitors. But I'm still going broke. Can you help me?"

This person was doing all the soft-skill stuff well. But he missed an important point. The service he was selling cost more to produce than he was selling it for, which he attributed to needing to be competitive.

When I pointed out that being competitive meant staying in the race, he simply didn't understand what I was saying. He had a business strategy problem. He thought that by being the cheapest supplier he was going to get enough market share to become profitable.

To set the stage a little on this, this gentleman had been an employee of a firm providing a service to homeowners. When the business abruptly closed, he started a business doing the same thing.

He knew that his former employer had been charging a certain price that was pretty closely in line with the competition, but he felt that if he sold the same services for just a little more than he had been being paid as a wage by his former employer, he could get more customers and undercut the competition.

That part worked. He rapidly had more business than he could handle, but he still couldn't pay his bills.

The problem was that he had never taken the time or wanted to spend the money to find out how much he truly needed to charge to stay in business. Things like having to pay the employer's share of taxes, or carry liability insurance or the cost of advertising were never considered when he set his rates. When those costs suddenly had to be paid, it took what little profit he was making and then some, forcing him into using his savings to stay in business.

There is a reason why consultants insist on boring exercises like constructing business plans and cash flow projections or developing a marketing strategy.

Just because you are an entrepreneur doesn't mean you should ignore the basics. If you plan well and use the tools developed by others before you, you can take a lot of the scary out of being a start-up.