More on "Why Not Start up a Business"

OK, so we've asked that fearful and mostly mis-understood question: "Why not start up a business rather than a nonprofit?"

That's not an idle question; and the answer to it is often very revealing. It gets to the heart of the motive for wanting to start up a charity in the first place. Most people tell me right away that the only way they see the mission they want to accomplish can be supported is by using other peoples' money to do it.

So, number one, right off the bat, they're off to a bad start by placing themselves in a situation where 1) they haven't tested their mission concept within the community to see if there is a groundswell of heightened awareness within the community and the financial resources that people are willing to prioritize to make this mission happen over many years.; and 2) they are nevertheless intent on relying on public support to make this thing go and give it the support it will need to survive and thrive. This is a strategic contradiction, and, very frankly, a mistake.

In trying to push the would-be founders of this new nonprofit, I suggest that setting up and running a business is generally a lot easier than establishing a nonprofit organization. And they are often aghast that anything so crude might be suggested by a fundraising consultant. "how can you suggest that!?" goes the response. "Don't you know that we can't charge the families of these [illiterate kids, or poverty-stricken families, or whoever is the target audience]. They could never afford to pay!" And indeed that's probably so. But which is easier? Setting up a fee-for-service business, or asking the general public for money to help you give the service away free?

Either way, part of the answer is that we must take a serious and strategic look at what this will mean. We're going to have to delve into what the extent of the need is, what services we're going to provide, and how much it will cost over a 10-year period to provide service to whatever percentage of the market we think we can reasonably serve. Then we're going to have to cost out how much financial support the service we provide to each member of the target audience will take. Then we have to go to the marketplace – of either purchasers or donors – and determine what the extent of that population is and how much they might reasonably be expected to pay or give. And we will need a marketing plan that will continually motivate and compel either the buyers or the donors to continue their support for significant periods of time.

Strategically, the issues are the same for setting up a business as for setting up a charity. With one exception: governance. That's the big one. Because in a business the entrepreneur is his/her own governor, but in a public charity, the board of directors is supposed to govern. And one thing I have learned from working with many of these start-up founders is that they do not really want to be "governed" by anybody, especially if they are already coming from serving in a nonprofit situation and have grown "sick and tired," as they often say, of the intrusive way their past boards have nosed into operations and stayed away from true governance and strategic planning. "This time it's got to be different," they say. But, in reality, they are setting themselves up for serious trouble down the road, if not complete failure.

But we have still more to do on this little problem, later this afternoon…