When Startups and Nonprofits share solutions to build sustainability

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:

• A strong foundation: well understood legal and local context, stakeholders commitment to lean startup business venture management philosophy Funders, especially public funders, may disagree with the approach if not explained well.
• A robust strategy process: Lean startup is about asking the ‘why’ at the right time and make the next step when the right answer is found.  Lean startup thinking needs a clear business canvas as a working tool to identify synergies and conflicts, formulate simple and clear goal statements, guide the hypotheses testing and the business decisions all the way in the execution.
• A robust market definition: Lean startup is changing the premises of action, questioning the market opportunity, the venture sustainability instead of organizational capability. Lean startup works on multiple iterations to find the right target customers and the right positioning vs., competition – in sales volume, pricing, partnerships, scaling up opportunities, etc.
• A pragmatic financial and operating plan: Starting a business venture to generate more income should not generate unnecessary risk, To review and confirm the business is on a path to success, lean startup needs a simple financial framework focused on key business venture dimensions: business model structure, drivers of financial performance, the financials and the overall management information systems capturing and processing data clearly and quickly. Full-fledged complex financial systems must be justified by the magnitude and the maturity of the business venture.

Lean startup is about working smarter not harder.
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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.