Every organization needs to build financial sustainability - the ongoing ability to generate enough resources from a diverse income base, thoroughly efficient spend and adequate controls. Financial sustainability comes from the financial autonomy given by multiple and diverse sources of income, ‘no-strings attached’ funding supporting independent vision, values, strategy and decision-making.
In the nonprofit sector, the funding base diversification includes establishing business ventures, such as commercial activities and partnerships, licensing agreements. The income generated through business ventures is unrestricted revenue, the much needed type of income fueling the organizational sustainability dimensions (people and competences, infrastructure, processes).
Establishing a nonprofit business venture can benefit from adopting the Lean startup principles. In essence, the lean startup methodology helps maximize the value created and minimize waste at lowest possible cost. The concepts of minimize waste, fail fast and improve are common denominators for both startups and nonprofits. Both types of organizations suffer the scarcity of resources with passion for their mission, both focus on growth and impact, each can learn a thing or two from the other.
Having worked with both, some words of caution in lean startup adoption seem appropriate.
Perceptions of failure
Lean principles operate under different set of perceptions in the startups and nonprofit worlds.
In the startups world, the philosophy is high risk - high reward and “failing forward” or “fail and move-on” is merely a personal failure, positively recognized as promoting innovation and growth. Failure is a badge of honor.
In the nonprofit sector, failure is negatively perceived because it has high stakes: multiple stakeholders bear the consequences (beneficiaries, communities, donors, partners, sponsors). They see the failure through the lenses of unrealized social benefits.
Lean startup adoption requires good understanding and buy-in among stakeholders.
Nonprofits business ventures are ... businesses
Lean startup impacts all aspects of the business venture management and require:
Think culture before strategy
The “soft” stuff is the “hard” stuff… With all the financial reports and market positioning in place, the hard stuff remains the culture: leaders must foster the lean startup culture, explain the Build-Measure-Learn approach, grow competencies, processes and systems that leverage the value of this approach to work. Lean startup adoption means change and change happens when leaders are role modeling, where they explain well the direction and the approach, when the lean skills are developed and where the performance management is an active reinforcing mechanism.
Focus on building the culture must precede the investment in lean business venture.
Ultimately, the nonprofit business venture objective is to provide resources which lead to benefits sustainability, i.e. the benefits delivered by the nonprofit must continue to be received by communities and individuals, independent of the nonprofit programme continues. If done well, with strategic clarity, operational discipline, and open stakeholders engagement, the lean startup principles can deliver real value and ensure the scarce nonprofit resources are used effectively to deliver sustainable benefits.