It isn’t often that the owner of a corporation decides they want to start a nonprofit organization, so if this sounds like your story then congratulations! It’s not easy to start a nonprofit and file every form and application needed to obtain 501(c)(3) tax-exempt status with the Internal Revenue Service.
I’m going to teach you how to use the lean startup method to start your nonprofit organization so that you don’t waste time and money. The method was first introduced by an author named Eric Reis, who went on to explain it further in his 2011 book, The Lean Startup Method.
Before I start explaining the lean startup method, I’m going to teach you about the traditional startup method and why it doesn’t work.
The traditional flawed business startup process
The steps of the traditional startup method usually look similar to this:
- Identify a passion or skill set you can use to start a business.
- Write a nonprofit business plan.
- Fund your business.
- Choose a location for your business.
- Choose a structure for your business.
- Decide on a business name.
- Form your business formally: register your business, get tax IDs for your business, apply for business licenses and permits, and open a business bank account.
- Ultimately fail because this method is flawed.
Until you get to number eight, it’s easy to see why most entrepreneurs think these steps should provide them with an effective way to start their businesses. It makes it sound like all you need to start a nonprofit is a business plan, funding, and a great location and the money will start rolling in with very little effort on your part.
While this all sounds nice, this plan and its goals aren’t rooted in reality.
The reality is that you can follow all the steps on the list of the traditional startup method and still never own a successful nonprofit organization. As a matter of fact, four out of five businesses that started using the traditional method will fail within a year of opening their doors.
The businesses I’m describing that were started using the traditional startup method don’t fail simply because their owners didn’t want it enough, or because they didn’t have the drive it takes to make it in the business industry. They failed because the traditional startup method makes three assumptions that are quite flawed.
Assumption 1: You have deep and intimate knowledge of your market.
If you’re learning how to start a nonprofit organization, it’s likely that you’ve never run one before. You haven’t experienced things like the 501(c)(3) form, tax-exempt status, fundraising, or close relationships with public charities and charitable organizations.
As a new nonprofit, you don’t have the sort of experience that the traditional startup method assumes you have. But because a nonprofit often begins its life as a corporation, you probably have more of an idea how to file Articles of Incorporation to incorporate your nonprofit, as well as the rules that the Secretary of State enforces about board members and how the board of directors should conduct itself. While this information and experience is invaluable, it isn’t quite the same as starting a nonprofit.
The first assumption that the traditional business model makes is that when you start a nonprofit organization you have expert levels of experience and knowledge about nonprofits. Unfortunately, it can take decades of experience to obtain this knowledge and experience. The assumption that you are somehow pre-equipped with intimate knowledge of nonprofits before you even have any experience with them is deeply flawed.
However, when you start a nonprofit organization using the lean startup method, you have the opportunity to gain experience and knowledge while running your nonprofit corporation. You won’t have to deal with the stress of simultaneously attempting to run a successful nonprofit corporation while also learning about nonprofits, and your corporation will be more likely to succeed without the added stress.
Assumption 2: Your needs and wants are more important than your customers’ needs and wants.
Many people falsely assume that a nonprofit organization doesn’t make any money. The idea is to engage in fundraising for a private or public charity, and to make money through donations, investments, and selling services, products, or resources. This is how your nonprofit corporation has the potential to gain 501(c)(3) tax-exempt status under the Internal Revenue Code. But the core idea of any nonprofit organization or nonprofit corporation is to make money for a cause, and if you don’t listen to customers and investors, or value feedback, your nonprofit will be doomed to fail.
Under the traditional startup method, you’re encouraged to think of reasons YOU want to start a nonprofit. It doesn’t take into consideration your customers and investors or what THEY want, or why they would purchase things from or donate to your nonprofit corporation.
You need to put thought into your potential customers and investors, or your marketing campaign will come off as little more than “I own a nonprofit organization, please come buy stuff.” This is an ineffective advertising campaign strategy and ultimately isn’t a good look for your corporation.
Choosing the lean startup method means that you’ll learn about other nonprofits in the area, your potential customers and investors, and what they want from a nonprofit corporation. Are there not enough charity concerts in your area? Are there no nonprofits that benefit public charities for environmental concerns? Would people in your area like to do more to help the unsheltered?
The flawed assumption that the traditional startup method makes is that your desires as the owner of your nonprofit organization are more important than what potential customers and investors want.
When you use the lean startup method to start a nonprofit corporation, you’re encouraged to ask what potential customers like about other nonprofits and what they expect from yours before you even open it. This means that you won’t have to sink your money into a nonprofit organization without knowing whether your company will even succeed. The information that your potential customers provide you with is priceless because you can use it to build your corporation and provide your community with the services they want, while meeting the goals of your organization and making money.
Assumption 3: You have unlimited cash to burn.
It would fulfill the dreams of board members and corporation owners the world over if money became a never-ending renewable resource. Alas, even the richest people in the world don’t spend money like it’s going out of style because they would eventually go broke if they did. So while every business owner knows that it’s necessary to take on some financial risks, it’s not wise to throw money away.
Starting a nonprofit means that you’ll be doing things like selling products, or hosting free local events for charitable organizations, which probably isn’t as fancy as your dreams of co-hosting opulent charity events with Bono.
If you were starting a nonprofit organization using the traditional startup method, you would jump directly into things like filing Articles of Incorporation to incorporate your nonprofit, filing Form 1023 for 501(c)(3) tax-exempt status choosing board members to fill out the board of directors for your nonprofit and choosing a mission statement without knowing what methods you would use to make money. The traditional business method assumes that you have the funding and experience to support your nonprofit, that you’ve done loads of networking and made useful contacts in your community and can immediately start making money.
Funding a nonprofit can cost between $300 to over $10,000 depending on how minimal your needs are and whether you immediately seek legal assistance for things like filing Form 1023 for 501(c)(3) status, Articles of Incorporation, or other legal matters your nonprofit corporation may face. This is a sum of money that most of us can’t afford to lose or just throw away, and I’m betting that it would be quite the financial blow for you, as well.
Using the lean startup method to start a nonprofit organization means that you can start slower and on a smaller scale, making business connections and learning about local public charities and charitable organizations and earning money before you go all-in.
If you would rather own a successful nonprofit organization than become one of the four out of five businesses that fail every year, then the lean startup method is the best option for you.
What is the lean startup method?
The lean startup method revolves around these three ideas: build, measure, and learn.
Starting a nonprofit with the lean startup method means that you’ll experiment with various ideas and products you come up with. You’ll get hands-on experience immediately when you use the lean startup method to start a nonprofit, though you start it using smaller increments than you would with the traditional startup method. This is preferable to the traditional startup method, which essentially dooms your business because you’re forced to create a business plan for your nonprofit before you really even know what the nature of your business is. It’s also important when you’re using the lean startup method to use ideas that are the cheapest and easiest to produce.
First, you build your business. To complete this phase you must go out and ask local people about the problems they face with other nonprofits, find a problem that you can feasibly solve, and think up a solution to that problem that people will pay to receive. Is there a lack of nonprofits in your area? Do the nonprofits in your area lack inspiration when it comes to their fundraising efforts? Do people feel that the local nonprofits don’t support a public charity they care about?
The second phase is to measure, or test. During this phase, you actually test the solution you developed during the build phase. This phase should allow you to find out whether people actually like your solution and whether it can be successful for your nonprofit. Do people like the public charity or private foundation you’ve chosen for your nonprofit to support? Do they like your fundraising ideas? Have you received donations or profit from your events?
The last phase is to learn. This phase is important because it allows you to obtain valuable feedback from customers about the services, products, charitable organization, or private foundation your nonprofit supports, and about the fundraising events you’ve held. Do customers like the products you’re selling? Do they have a favorable opinion of your nonprofit organization? How do they feel about other local nonprofits compared to yours? If you find that any of your marketing and funding efforts fail, or are unpopular, you can stop focusing time, energy, and money on them and focus on strategies that do work, which will ensure that your nonprofit corporation has a better shot at success.
Why use the lean startup method?
If you knew that a product you were considering buying had an 80% probability of failing within a year of purchase, would you still buy it? That sounds outlandish, but that’s the reality of starting a business using traditional methods because four in every five businesses started this way will fail during their first year of business.
However, when you start a nonprofit using the lean startup method, you avoid this extreme risk of failure. It also allows you to explore methods to reduce startup costs and encourages you to create a customer base for your fledgling business before it’s established.
Starting a nonprofit with the traditional startup method involves taking significant financial risks on your part. Instead of completing thorough research and learning about the market for nonprofits in your area, you’re expected to dive right in and hope that your nonprofit organization succeeds. But for business owners who use the lean startup method, testing their ideas for their nonprofit is a constant cycle that leads to better products and services based on customer feedback. When you start a nonprofit using the lean startup method, you’re automatically equipped with advantages that business owners who use the traditional startup method don’t benefit from. You’ll create a community for your corporation which will evolve into a primed customer base for your nonprofit.
The startup costs of your nonprofit will be minimal if you use the lean startup method, compared to the insane startup costs associated with the traditional startup method. The reason for this is that the traditional business method assumes you have loads of money to fund the startup process. With the lean startup method, however, you’re able to learn about your industry gradually and effectively run your corporation without having to make any risky financial decisions. Your nonprofit will have a better chance of thriving and surviving through the first year and beyond.
How do I know that your nonprofit corporation has a better chance of success with the lean startup method than it does with the traditional startup method? Well simply put, it’s because I’ve started five different businesses over the past eight years using the lean startup method. (I successfully sold three of the businesses and two are still in business today.) I’ve also helped thousands of people start the businesses of their dreams using the lean startup method, and I can help you start your nonprofit corporation, as well!
How do you use the lean startup method to start your nonprofit?
Any time I start a new business, I use the three main ideals of the lean startup method: build, measure, and grow. The lean startup method will not only provide you with a more cost-efficient way to start your nonprofit but will also give you the tools and foundations you need to run a successful corporation. This is preferable to the shaky business foundations that you get with the traditional startup method.
During the build phase of the startup process, you’ll devise a plan and develop your nonprofit. This is done by talking to potential customers to identify common problems they face with other nonprofits in the area, build a community for your nonprofit, recognize a solution opportunity, and then develop a solution to the problem you wish to solve.
This phase of the startup process is important because it ensures that the ideas you have about your nonprofit are good and that they meet the needs of people in your community. Building up a solid foundation for your nonprofit and supplying it with the tools needed for success is the goal of the build phase.
Step 1: Identify a problem
The first step you’ll complete in this startup process is to identify a problem people have that you know you can solve.
You can’t just jump right into selling products and services and taking donations for your nonprofit and hope people will spend their hard-earned money on it because most people don’t have enough money to make frivolous purchases from a new nonprofit. It’s far more effective to present people with a persuasive reason to purchase it.
The real trick is identifying that persuasive reason.
You need to find what is known in the business world as a “pain point.” This is a problem that many people have that causes them all pain and discomfort and drives them to seek a solution. They can either come by this solution themselves or pay someone else to provide them with a solution. In this situation, you want your nonprofit corporation to be the solution.
Unfortunately, starting a nonprofit is not as simple as doing the same thing that all the other nonprofits in your area are doing. First you need to identify a cause that people in your area want to support. Then, you need to identify a need that many people have that can involve your nonprofit. Do people in your area care about the environment, social issues, animal rights, or other causes that you can team up with a private foundation or charitable organization to solve? Are there too many nonprofits in your area and not enough creative ways to receive funding or donations?
Really listen to the needs of people in your community because they are your potential customers, and you can use the information they give you to start your nonprofit and bring in donations. Are people more likely to provide donations for charities that involve children or animals? Would they participate in charity runs, walks, or other feats of physical fitness to raise donations for your cause? Do people in your area wish that the live music scene were more active, and would they go to a show where a percentage of ticket sales went to charities? Do you live in an area where a multicultural festival that provides a variety of food and music from around the world would be successful?
After you’ve talked to a few people, start asking about the common problems that are repeatedly discussed and find out how much that people are affected by them. Asking these questions and talking to potential customers and investors will provide you with knowledge about the industry, what people feel about other local nonprofits, what charitable organizations are popular in the area, the services that people in the area need, and more. During this process you can decide which of these problems you want to solve.
How do you choose which problem to focus on?
The lean startup method doesn’t explicitly state how you should choose which problem to focus on. But I’ll give you three recommendations that will make the process easier:
- Choose a problem that many local people have in common. Are there a lot of nonprofits in your area that have lost people’s trust? Is the mission statement of one of the most popular organizations in the area laughable? Do people complain that local charitable events are too expensive?
- Make sure that the problem is a “pain point.” This problem causes many people distress, and the more distress it causes them the more ideal it is for you to choose it as the basis for your nonprofit. Are a lot of people looking for a nonprofit with a good reputation to contribute to? Do nonprofits in the area not allow people to donate time, service, or alternate support methods?
- Choose a problem whose solution is within your grasp. If people want you to pull off a star-studded charitable event right off the bat, that’s not feasible for your fledgling nonprofit. You could instead partner with other well-known organizations to organize an event and gain support for your nonprofit from local people.
Your main goal should be to find a problem that many people have in common, which causes a lot of difficulty or pain, that people desire a solution for so badly that they’ll pay for it.
Step 2: Build a community
The next step you’ll complete in this process is to build a community for your nonprofit. This community should be made up of people affected by the problem you’ve identified in the first step. It’s easier than ever to create a community, thanks to online culture. Social media is a good place to start. You can easily create a public Facebook group or Reddit forum or use other social media platforms. Completing this step will leave you with a community of people with the same problems and interests, as well a potential customer base to support your nonprofit, which is why this step is so important. As you complete this process, you’ll also be developing your brand, deciding on a mission statement, and learning more about your target market. It would take three separate steps to complete this using the traditional startup method, but you can accomplish it all in one easy step using the lean startup method.
It’s a smart business move to not stick to one method to create your community and set up offline community options as well as online options. This is easily accomplished by establishing a club or meetup group with regular meetings. Creating an offline community this way gives you some advantages over online communities, like meeting with your community members and talking to them face to face, as well as receiving suggestions and feedback about your nonprofit in real-time, rather than waiting for people to see posts and comment. Sometimes interacting with people in real life can create stronger bonds and make them feel like they know you on a more intimate level than online interaction can provide.
It’s also a good idea to visit local business groups. The Chamber of Commerce, for instance, typically offers a variety of unique benefits for local businesses that you can take advantage of for your nonprofit.
Reasons to build a community:
- It helps you to understand the problem you identified in the first step in more depth, as well as how deeply it affects members of your community.
- It gives you a way to start developing the brand, mission statement, and marketing strategy of your nonprofit and test it on your potential customer base.
- You will already have a customer base that you created and primed when you officially launch your nonprofit, as opposed to finding customers and having to identify your target market once you start your nonprofit.
- By creating a community, you can get funding and support for your nonprofit before you officially open it.
How to build a community:
- Start a Facebook group and grow a community by discussing issues that involve charitable organizations you want to work with, different charities and viral stories about heartwarming charitable acts. The more you post, create discussions, share pictures and videos, and interact with people, the more you’ll notice that your community steadily grows.
- Use Twitter to create polls and interact with people. People like interactive media forms, so making them feel like their voices are heard is a great way to draw attention to your account and gain publicity for your nonprofit.
- Post photos and videos from other charitable events to attract attention to your social media account as well as your nonprofit.
- Use social media to network. You can use social media platforms to connect with other nonprofit owners, local business owners, and local officials, which will provide you with valuable relationships that you can carry over into your nonprofit. Relationships with other nonprofit owners can provide you with valuable information about starting a nonprofit, obtaining 501(c)(3) status through the Internal Revenue Code, filing your Articles of Incorporation, filing Form 1023 with the IRS, and complying with federal and state regulations put in place by government offices like the Secretary of State.
When you start an online community, you give potential customers an area to share feedback with you. What’s great about this is that they’ll use this platform to tell you everything they think about other nonprofits and your own, positive and negative. They’ll tell you about the types of nonprofit organizations they would like to support, the types of nonprofit organizations they’re already supporting, and the types of fundraisers they would like to see in the area. Creating a community this way means you’ll have access to a wealth of information and feedback, which is why this is such an important step.
This step is also important because it provides you with a place to advertise and promote your nonprofit once it’s established. People in your community will engage with your posts, take part in discussions, interact with polls, and leave reviews, making your cause or page more popular and your nonprofit more well known. Once you gain a reputation for interacting with your community and using feedback to improve the service of your nonprofit, you’ll definitely get more community members as a result.
Step 3: Identify a solution opportunity
You’ll notice that the problem you identified in Step 1 didn’t disappear just because you identified it. Unfortunately, finding a problem isn’t the only step needed to get rid of it. The next step is to determine how you can provide a solution to the problem.
While you’re conducting research and building a community, ask your community about the types of organizations they’re currently donating to, what sort of contributions they’re making to other organizations (time, service, financial contributions, nonperishable food, etc.), the resources other organizations provide, and how satisfied they are with their services overall. The community you’ve built is a great resource for finding willing participants to answer your questions so that you can begin to formulate a solution to the problem you identified.
Some of the things you need to ask about here that may not seem obvious include the promotional tactics of other organizations for their events, what sort of events they put on, whether they’ve visited the website of other nonprofits if it provided information and resources and if the website includes an easy method of making a financial contribution.
Learning how potential customers feel about the ideal nonprofit will help you design your organization’s mission and brand, highlight the types of fundraiser events that people would like to see and organizations they would like to support, and reveal how other nonprofit organizations are struggling so that you don’t apply failing tactics to your own organization. This information will also help you to start thinking about a solution that your organization could provide to the problem you’ve identified.
Step 4: Develop a solution
Once you’ve accomplished the first three steps, it’s time to develop a solution for your organization to provide. If you get this step right, you will solve the problems of members of your community in a way that makes them happy enough to pay for it.
How to develop your solution:
- Brainstorm until you find a solution. If your community has voiced complaints that other local nonprofit organizations don’t offer a way to conveniently donate on their website, then a donation button should be the first thing you add to your organization’s website. If people are sick of food-based fundraiser events, you should try other creative types of fundraisers, like concerts, fairs, or festivals. If you live in an area lacking an environmental advocacy organization, that could be your organization’s mission.
- Get feedback about your solution idea. Just because you think your solution idea is great doesn’t mean that it will sufficiently meet the needs of your community.You need to find a solution that your community and customer base likes, and your community must be in agreement that your solution idea will adequately solve their problem. During this time it’s extremely helpful to talk to other nonprofit owners so that they can tell you whether your organization’s solution can realistically succeed.
- Develop your Minimum Viable Product, or MVP. This is the product that is the cheapest and easiest to produce and will make the most profit for your organization’s cause.
Your organization’s ideal solution will easily solve the problems of your community, won’t cost much money to produce, and will be easy to distribute. The MVP of a nonprofit looks a bit different from the MVP produced by a restaurant or other business. Your MVP is going to be something like a charity event, food or clothing drive, or selling products as part of a fundraiser. Developing the right MVP for your organization will ensure that your products or services will be cheap to produce, and the lack of financial strain on your organization will give it a better chance of success in the long run.
Next is the measure phase. When I say “measure,” I mean it in the scientific sense of the word. This means “test” or “experiment” rather than grabbing a ruler and a notepad. In this stage, you’ll perform a series of tests to determine whether the solution you’ve developed is effective.
Step 5: Test your MVP
Now that you’ve developed a solution that your community is satisfied with, as well as your MVP, it’s time to test your MVP. Because experimentation is such an important part of the lean startup method, you’ll conduct many tests throughout your organization’s life.
There are many factors to consider when creating the MVP of your organization, such as federal and state regulations, the values and mission of your organization, event planning, booking venues, permits for setting up booths, stands, or donation bins. The good news is that if one of your ideas doesn’t work, you can go back to the drawing board and start the process over again because experimentation is an important part of the lean startup method.
Testing your MVP before seeking funding for your organization makes sense if you really think about it. Do you think a financial institution is more likely to fund a business owner who simply suspects their organization could be successful, or a business owner who has already performed market research to find what their customers want, created a community of loyal customers for their organization, and proven that their MVP will sell?
Testing your MVP may seem scary, especially since you haven’t officially launched your organization. It’s actually quite easy to do, however, and it’s a great idea to raise awareness about your organization and advertise it.
There are many ways to test the MVP of a nonprofit organization. If your organization’s focus is providing food to the unsheltered and less fortunate, you could set up a food drive and receive donations of nonperishable food items by setting up bins in local grocery stores and setting up various drop-off locations around town. Or you could team up with local restaurants or catering services to get food donations and ask for volunteers to hand it out at a free event, which could be held at local parks or nearby shelters. If your organization is focused on environmental concerns, you could host a clean-up day where people volunteer and show up at a specified meeting area to pick up litter. If your organization is focused on helping underprivileged families, then you could set up clothing drives, provide people with business attire so that they can get jobs, hold a school supply or backpack drive, or a holiday toy drive. You could even hold a pet supply drive if your organization is focused on the needs of animals and animal rights.
If holding a drive or free event doesn’t seem possible right off the bat, you have other options. If you know that another organization has an event coming up, you could partner with them to host the event and provide people with resources about your organization. If there is an upcoming fair or event hosted by the city, apply for permission to set up a booth and hand out resources to people who want to know how they can help your cause and take donations.
Ask people who participate in your fundraising efforts whether they enjoyed them. Are the resources you’re providing people with helpful? How was their volunteer experience? Did businesses and property owners have any problem with your drive or fundraiser efforts? If you held an event yourself, did the businesses or property owners (such as nearby shelters involved with food donations) treat volunteers and community members well?
The best way to tell if your drive or fundraiser event was successful is if people donated to your cause, asked about a website or further resources, lots of volunteers showed up and said they’d volunteer again, and if people said they look forward to more events of this nature from your organization.
Step 6: Sell your MVP
After you’ve tested your MVP and gotten your feet wet interacting with your community, it’s time for the next step: selling your MVP. But selling your products and services using the lean startup method won’t be as glamorous as you’ve likely envisioned it to be.
This is an important step because it’s the last step before you collect feedback about your MVP and then seek funding, file your 1023 form and obtain 501(c)(3) tax-exempt status to become a tax-exempt organization. Your nonprofit will be much more prosperous than nonprofits that used the traditional startup method thanks to this step. You’re going to prove you can sell your products and services before you even have a brick and mortar headquarters.
Selling your MVP as a nonprofit typically looks different than the way other businesses sell their products, but it’s not impossible. Many people in the United States are quite familiar with the Salvation Army, another nonprofit organization, because every year for decades their bell-ringers have been out collecting holiday donations. I’m not going to tell you to steal their idea, but you can apply similar tactics. Firefighters host an annual boot drive where they stop traffic and literally collect donations in a boot. Police typically have an annual ball. Get creative and come up with your fundraiser.
You don’t simply have to stick to fundraisers, either. You can sell products, as well. If your organization is environmentally conscious, you could sell metal or glass straws, seed packets so that people can grow their own food, or preserves made from organic fruits and vegetables bought from the local farmer’s market. If you’re supporting local animal organizations, you could sell homemade treats or pet accessories. You could sell branded merchandise, as well.
This step allows you to learn what works for your nonprofit, develop your brand and identify the mission of your organization, and grow a loyal customer base while making a profit and helping the foundation or charitable organization of your choice.
The last principle of the lean startup method is to learn. Once you’ve built your nonprofit up and completed the measure phase, you must gather feedback about the effectiveness of the solution your nonprofit is currently providing. You can use the information you gather during this phase to adapt and grow your business and finalize the solution you developed.
Step 7: Get feedback on your product idea
You’ve now created and interacted with a community designed for your nonprofit, identified a problem that your community members face, developed a solution that meets the needs of your community, and tested and sold your MVP. These steps should have helped you to determine what events, advertisements, and promotions reach your target market, and you should have a good idea how much money an event hosted by your organization should generate. The next step is to ask your community for more feedback concerning your MVP. This is how you can use this feedback to learn and grow so that your nonprofit is more successful:
- Ask direct questions of your community members to find out what they like about your products, events, and services, and what they would like to see more of.
- Pay close attention to customer feedback. Do your customers have an enjoyable experience at fundraiser events? Do they like the products you offer? What is the most popular product or event with your community?
- Take the feedback that your community provides you with and use it to improve different aspects of your business so that it’s tailored to meet the wants and needs of your community.
Social media is a good place to seek out information and feedback about your nonprofit. Create polls on social media platforms or design a survey on your website, and read customer reviews.
After you’ve read and listened to enough customer feedback that you confidently understand what changes your community wants you to make, make those changes. This will make your customers and community happy, and it will bring better success to your organization.
Take note of events and sales held by other organizations. These are attempts to solve problems in your community. If their attempts fail, steer clear of them. But if they work, you can use that information to create more successful events and sales yourself.
The feedback you get from your community and your customers is massively beneficial to your nonprofit because it will help you to grow, succeed, and compete with other nonprofits.
You’ve now proven that you can run a successful nonprofit and you’ve gathered customer feedback that you can use to make your organization even more successful. It’s now time to consider expanding. This means that you can start taking steps to become an official tax-exempt organization. Because of all the experience you’ve gained using the lean startup method, you can draft a business plan to get the funding you need to grow your business.
Once you’ve obtained funding from a financial institution, there’s still a lot of work to do.
You’ll need to obtain an EIN or Employer Identification Number from the IRS before you make the decision to hire employees. You should also open a business bank account during this time.
You’ll need to decide on a business structure for your organization. Of course, many nonprofits choose to file Articles of Incorporation and select board members to become corporations. However, incorporation isn’t your only option. To learn more about how to form an LLC rather than going the incorporation route, check out my article How to Start an LLC.
Whether you choose an LLC or incorporation, you’ll need what’s known as a registered agent to accept mail and Service of Process on your behalf. For more information about what a registered agent can do for you, check out my article about the Best Registered Agent.
When it comes to choosing a brick-and-mortar headquarters for your organization, location is a major factor to consider. You want an easily accessible location with ample foot traffic, enough room to store donations, and an area for board members or directors to meet.
Here is a list of some of the other activities you’ll need to take part in to ensure that your nonprofit is successful:
- Hire employees: Forming a team of trustworthy employees is important. Using the lean startup method, you hire based on how easily a person can adapt and learn, rather than the amount of experience they have. Some of the positions you should consider hiring for include: associate and executive directors, chief programing operator, directors of special initiatives, program associates, program coordinators and program managers, donor relations manager, coordinator of planned giving, community outreach specialist, publicist, graphic designer, social media specialist, and marketing associate.
- Follow state regulations: Depending on the type of events and drives you hold, the Secretary of State will likely regulate your nonprofit. If you choose incorporation, the Secretary of State will dictate how often your board members will meet and how they should act during meetings, as well.
- Obtain tax-exempt status: One of the perks of owning a nonprofit is the tax-exempt status you can apply for. To receive tax-exempt status, you must file IRS Form 1023. This is referred to by the IRS not as tax-exempt status, but rather 501(c)(3) status as it’s described in the Internal Revenue Code. It’s probably a good idea to hire an accountant to handle the legal issues surrounding your 501(c)(3) or tax-exempt status.
- Find the right wholesalers: Once you’ve obtained 501(c)(3) or tax-exempt status, it’s time to look into the right wholesalers for your nonprofit. You need quality products and merchandise at low costs so that you can make a profit for your cause. The businesses that supply pamphlets and other informational resources are important, as well.
- Switch on the utilities: Once you’ve moved to your brick and mortar headquarters, it’s time to turn on the utilities. You’ll need electricity, water, and wifi, as well as heat, air conditioning, and a good security system.
- Business software: Now that you’ve developed your tax-exempt organization and grown your customer base, it’s time to get your hands on good business software. Good business software can help you keep track of sales and donations and make employee payroll management a breeze. Check out my article about the Best Business Software here to learn more.
- Acquire legal advice: It’s not easy to get or obtain 501(c)(3) or tax-exempt status with the IRS. But a nonprofit has to deal with other issues besides just 501(c)(3) status like filing for grants, issuing donations to their designated charities, filing Articles of Incorporation, and more. To obtain legal advice and make sure your legal documents are enforceable, check out my article on the Best Online Legal Services.
- Advertise your mission statement: Of course the mission statement for any business is important, but it’s twice as important for people to know the values of your nonprofit. So be sure to add your mission statement to websites, pamphlets, and anywhere you can advertise it.
Congratulations! It’s hard to start a nonprofit on your own. That decision is made even scarier by the fact that four out of every five businesses that are started using the traditional startup method fail during the first year. But your nonprofit is less likely to fail if you choose to use the lean startup method instead. Here are the steps to starting a nonprofit using the lean startup method:
- Identify a problem
- Build a community
- Identify a solution opportunity
- Develop a solution
- Test your Minimum Viable Product (MVP)
- Sell your MVP
- Get feedback on your product idea
After you complete the last step, the build, measure, learn cycle begins again. You will go through this process numerous times throughout the life of your nonprofit to ensure its success.
It’s hard work to start a nonprofit no matter what startup process you use. But if this is your dream, you’ll be more motivated to put the work in and get through it. And the lean startup method can give you even more reassurance because your nonprofit will be more likely to succeed with it.
Congratulations again and good luck with your nonprofit!
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