STAGE ONE

Nonprofit organizations are businesses. The difference between a nonprofit and a for-profit is that the revenue generated for the nonprofit goes back into the organization and not to shareholders. So why is the first step for a for-profit founder to “research the market,” but it doesn’t seem to be the same for nonprofit startups?

When talking with Founders, it seems to me that they fail to make the connection between the organization’s purpose and the organization’s viability. They are two separate—but important—things to consider when starting a nonprofit organization.

Viability is directly linked to funding. The one thing Founders should do before starting a nonprofit organization that could save them hundreds of hours in blood, sweat, and tears and thousands of dollars in wasted money is to do market research.

I suspect one of the main reasons Founders don’t do the research is because it’s time-consuming. And it is. But the time spent researching the need, competition, and funding sources will show a Founder whether or not making this decision is a good one. 

It’s the same reason for-profit businesses do it. Investors want to know if the business will fare well in the market. It’s the very same reason why nearly 40% of all nonprofits close their doors within two years of incorporating. It’s because they didn’t research the market to see if what they were proposing met a larger need in the community.

The result? After years of depleting their personal account funding the organization, the Founder says, “Enough. I can’t keep doing this.” The organization was supposed to be Plan B or the dream job. But without understanding all of the variables that lead to viability, many Founders find themselves with a money pit that isn’t making the impact they’d hoped it would make.

There may be an easier entry point for starting a nonprofit, but that doesn’t mean you shouldn’t do your due diligence. Quite the opposite. Because people in your community will come to rely on your organization’s services, it’s important to create a solid organization that will be around for the long run.

There are five things you need to know before you start a nonprofit:

1. If you should start the nonprofit you're thinking about starting

2. If not, which would be a better one to start

3. If your nonprofit is fundable

4. If your nonprofit is sustainable

5. What your nonprofit's competitive advantage should be

Research will provide you with the answers to these questions.

Doing the research will help you discover if the market is saturated. You may have had a very personal experience, and because you couldn’t find the support that you need, believe that there is a need. But maybe you just didn’t do enough research or didn’t know where to find the resources. After learning how to research your market, you will be able to determine if there are a lot of organizations doing what you propose to do.

Why does it matter?

Well for two reasons.

One, if there are five or 10 nonprofits providing the same service in the same service area then the need of the community is likely being met. That’s how funders look at it anyway. Basically, these other nonprofits are your competitors.

You will be essentially competing with them for clients and funding. So, to answer the first question, “Should I start this nonprofit?” you need to know your market. If it’s saturated the answer will be no. At least, not in that area. The solution may be to identify another area with that need and no resources.

It’s important that you know, going into this, that your organization will be able to sustain itself. If there are several, well-established organizations delivering the same type of service, it is going to take a lot of work to break into that market. Funders like solid returns on their investments. Longevity, impact, and measurable results are bankable investments. If you are entering into a service area with organizations that have long-standing relationships with funders, you might want to reconsider.

Two, you need to be able to determine your competitive advantage. Doing research will help you identify what makes your nonprofit different from the others. It could be as simple as your target audience. Let’s say your area of focus is homelessness. Perhaps your competitors serve youth 0-5, families, or veterans. By doing research you will determine quickly that your nonprofit would be entering a market that is highly saturated.

Unless…there is no organization serving homeless victims of human trafficking. Identifying that missing gap in service will help you determine what would be the best area to focus on.  But you can only get to this determination if you’ve researched your competitors and identified what it is they’re doing.

You don’t need to pay a researcher to find this information for you, nor do you need to purchase any software. Google will give you all the answers you need. I will walk you through the steps using keywords and explain what to look for.

This exercise should take you about five hours to complete for a surface dive but could take upwards of 10-15 hours for a deep dive.

For a step-by-step guide to help you work through the process, get a copy of the Defining Your Nonprofit Organization that will walk you through the important questions to ask and how to find the answers.