When Does a Start-Up Stop Being a Start-Up

Over the last twenty years we have seen the phenomenon of start-ups move from the hi-tech world to the nonprofit world. Just as earlier start-ups created hi-tech innovation, today social entrepreneurs and nonprofit start-ups bring about social innovation – developing initiatives that seek to create new models to respond to needs and implement social, educational, and health services.

All start-ups, whether they are in the hi-tech or nonprofit arena, face the same dilemma as they morph into more permanent status: How can they maintain their uniqueness as they begin to blend into the social fabric of the community and strive to secure the benefits of a more permanent position?

One of the decisions that social innovators face is whether their start-ups should become more a part of establishment as they are integrated into the system of nonprofit organizations in the community, thereby losing their start-up status. Or do they strive to remain start-ups, remaining on the fringe of the community both in terms of reaching all those in the community who need their services and receiving support from traditional philanthropic sources?

Frequently, nonprofit social innovators are able to secure a foundation grant from a large, established, social-minded foundation or from a small, more personal family philanthropic fund or supporting foundation, which provides seed money. After the initial excitement has worn off – the funder’s connection to the project or the innovative spirit that motivated the foundation to provide the initial support has diminished – then the leadership of the organization has to develop and implement a more accepted and established form of administration and management. If it does not make the necessary transition then it may find itself out of business and closing its doors in a short while.

One of my clients has faced the dilemma of moving from a start-up to an established nonprofit. The organization was founded on the principle that each of its services would have to pay for itself. It wanted to develop a fee-based approach that would ensure that agency overhead would be covered by the funds collected, as well as by modest donations collected throughout the year.

As you might expect would happen, as the agency grew it was not able to secure the voluntary contributions or collect the fees that would enable it to be self-sufficient. It had mistakenly assumed that, once it initiated its services, their value would be recognized in the community and support would be forthcoming. Instead the agency expanded beyond its means, and it faced a financial crisis.

It is not always possible to secure long-term funding for small social innovating nonprofits, such as this agency. One solution is to remain very modest in size and reach only a fraction of the people who could capitalize on their services. When organizations choose this path, remaining modest and not stretching themselves, they lose some of their shine and sheen that made them so inviting to their initial supporters.

Agencies that want to be self-supporting yet fail to assertively raise the funds needed to provide essential services may choose another option: hiring part-time, hourly employees, whose salaries then make up a smaller portion of the annual budget. However, when organizations base service delivery on part-time employees, they are not able to build a strong professional base because the staff members always have one foot out the door and are always thinking about their other responsibilities. Full-time committed professionals not only provide services but also strengthen the culture of service delivery, which is essential if the services are to become institutionalized and the staff are to feel part of something that is more integrated and established. Many social start-ups never move beyond being an innovative counterculture approach to service delivery because they do not find a way to become securely established and funded.

A start-up stops being a start-up when it has both financial security and a more permanent, dedicated staff that can ensure the delivery of well-developed professional services. Whether the organization is providing social, educational, or health services, knowledgeable and skilled professionals, through their dedicated service, can continue to respond to the needs and represent the ideals that led to the establishment of the start-up. However, if the transition to a more established structure does not take place then the organization will not become part of the network of voluntary agencies in the community and will run the risk of closing its doors. Thus social entrepreneurs who have the vision need to find a way to institutionalize their mission in the community so that start-ups move on to the next phase of development.

Stephen G. Donshik, D.S.W., is a lecturer at Hebrew University’s International Nonprofit Management and Leadership Program and has a consulting firm focused on strengthening nonprofit organizations and their leadership for tomorrow. Stephen is a regular contributor to eJewish Philanthropy.