5 Steps to Starting a Successful Nonprofit

by Wyn Lydecker 

After 20 years of working with entrepreneurs who were starting for-profit businesses, I became immersed in the formation of a new nonprofit. With the growing public interest in creating organizations that have a social impact, I wanted to share the top five lessons I learned from my experience of helping to launch and build a nonprofit.

Step 1: Recognize the Value of the Idea

When I first read about Beacon Hill Village, a nonprofit in Boston that helped local people stay in their homes as they aged, I could see the value of the idea. Rather than moving to assisted living, seniors could join the Village, pay membership dues, and have a suite of concierge services coordinated and delivered to them at home – anything from meals to physical therapists. Soon after an article about Beacon Hill Village appeared in the New York Times, two older women in my church (First Congregational Church of Darien, Connecticut) approached me as the co-president of our Women’s Association to see if we could explore launching something similar. We quickly attracted a small group who saw the merit of the concept and formed a committee to evaluate it further.

Step 2: Conduct Research by Reaching Out

A little online research showed us that a nascent “aging in place” movement was spreading across the country. An AARP study had revealed that 90% of seniors want to remain in their homes rather than move to assisted living or a nursing home. Our little committee fanned out to talk with other churches and local social service agencies to see if anyone else was providing an aging-in-place service. We soon connected with a wider local movement and learned that The Darien Community Fund, a nonprofit similar to The United Way, was forming a planning committee to look into the feasibility of establishing an aging-in-place program in our town. I found myself on this new, larger committee and was soon conducting research via self-run focus groups, a mailed survey, and a conference with providers of senior services. Our research results clearly showed that older adults in our town had a need and a desire for services that could help them remain at home. The top three services people wanted were: transportation, handyman services, and referrals to vetted service providers.

Step 3: Don’t Duplicate

During our focus groups, seniors told us not to duplicate services that were already in place. The seniors’ caution to avoid squandering resources made even greater sense as we talked in more detail with the directors of similar organizations. Established nonprofits told us that they did not like new organizations treading on their turf without communicating with them. They had wanted the new nonprofit to reach out to them and find ways to cooperate and collaborate.

It turns out that nonprofits are just as competitive as for-profit companies. They are all vying for a share of the market – competing for the same consumers and, importantly, the same sources of funding. The philanthropy pie is only so big, and the nonprofits clearly viewed its division as a zero-sum game. We discovered that even municipal agencies felt the pressure of competition, fearing that if a nonprofit could do the same job as their government departments that their budgets could be cut by fiscal watchdogs. 

Step 4: Develop a Business Plan

Our sponsoring agency officially turned our committee into an advisory board, and we hired a coordinator to start a pilot program to begin to connect seniors to local services. In addition, the board set up a strategic planning committee tasked with writing a business plan and figuring out whether we should launch as an independent nonprofit or join with one that already existed.

That meant we needed to decide on a business model. Who would be our customers? What were their needs? How would we uniquely meet their needs? What would be our sources of revenue? The questions were not any different than the ones any entrepreneur needs to ask. Since I’m a business plan writer by trade, I volunteered to write our plan.

After months of meetings that proceeded at a seemingly glacial pace, we reached a consensus to run with a model that made every Darien resident over 60 a member of Aging In Place in Darien. Membership was free, and all our revenue would come from donors and grants. We would continue to connect seniors to available services and directly deliver others via a corps of volunteers. To get the word out, we planned a newsletter, a free luncheon, a website, and an email list.

Step 5: Communicate, Cooperate, Collaborate

While we were developing our plan, our board set up committees to promote communication among area agencies and to advise our paid program coordinator on how we should best offer the services. Heeding our research, the committees consisted of representatives from organizations (nonprofit and governmental) that were already delivering senior services. These other providers were excited to be involved because we actively cooperated and collaborated with them. They gained users as we connected seniors with their services.

Communication, cooperation, and collaboration became our watch words. So much so that our strategic planning committee recommended that we join with an existing 501-c-3 charitable organization called Gallivant, which had been providing transportation services to Darien seniors for over 20 years. We saw no reason to form a second independent nonprofit serving the same population and going after the same donor pool. After some tense negotiations – we were an upstart proposing to join with a well-established organization – we agreed to a trial merger of one year.

I’m happy to say that we’ve been officially merged for six years and have a new name: At Home In Darien. Our organization has been very successful in our fund raising efforts, and we are generating greater awareness, gaining more users, and delivering more services every year.

This article first appeared in the Wharton Magazine Blog. 
Wyn Lydecker WG’76 was a former founding board member of At Home In Darien. She is the co-author of a book on entrepreneurship, “The Purpose Is Profit,”with Ed "Skip" McLaughlin. 

Trying Oculus Rift

Two days ago, I stepped into the world of virtual reality. It truly was amazing. If you're a Star Trek fan, as I am, putting on the Oculus Rift headset is like stepping into the holodeck.

I got to try Oculus Rift because two friends of mine have formed a startup to develop a B2B application using virtual reality. One of those friends invited me over for a demo. While I didn't get to interact with her app, I did work through Oculus Rift's usage tutorial, learning how to use my hands and head to interact with my 3-D surroundings.

The imagination that has gone into this product is absolutely incredible, from the hardware design to the mind-blowing software. First, you're in a Japanese-like room with a fireplace and sounds of water, then you're in a blank infinity room, and you can see your virtual hands in front of you, holding the controllers. An English-accented woman gives you instructions. She sounds very other-worldly. You learn to push buttons and then shoot circles simply by pressing a button and pointing your index finger. Just like being a kid again. Blam! Blam!

But the best part was yet to come - winding up in a workroom filled with electronic junk and a little robot. The robot has personality and actually seems to want you to interact with it. My friend told me to turn around. You're really in a 3-D space! The robot gives you disks to put into a 3-D printer. Out pops butterflies. You can make them land on you and fly away. The experience is enchanting and somewhat addictive. I got to build and interact with a few more items - like little rockets - before the system froze.

I've known a lot of entrepreneurs over the years, but this is the first time I've dealt with ones who are in the field of virtual reality. Now I'm hooked and can't wait to go back and experience more. I'm really looking forward to seeing my friends' app and trying it for myself.

3 Reasons Entrepreneurs Should Be Financially Literate

By Wyn Lydecker

If you are like most entrepreneurs, you have a big idea you want to develop as quickly as possible. While you may wonder how you will raise funding for your startup, chances are that you have not had much exposure to accounting or finance. You may even have no idea how you will keep track of the money flowing through your business. But your degree of financial literacy can make a huge difference in how much success you achieve. Here are three reasons why every entrepreneur needs to acquire at least some of the knowledge taught in an Accounting 101 course.

Reason #1 – To Know How Much Money You Make

           Several years ago, when I was working with an innovative energy-efficient lighting company that wanted to raise half a million dollars, I asked the CEO why he needed to raise funding. His answer was typical: so he could grow his business. He and his partner had used home equity loans to finance their launch, and now they wanted to expand. But when I asked him how much money his company was making, he had no idea. “I have to ask my accountant,” he said.

I was stunned. How could someone who had put his home on the line and now said he needed to raise capital, not keep track of the money his business was making – or worse – maybe losing? This man was an intelligent and effective salesperson, highly capable of attracting new business. But he and his partner, who provided the technical brains, had completely outsourced the financial side of the business to their accountant. Once we had the financial statements in hand, it was obvious that the company had plenty of income and plenty of cash flow to fund a good, steady rate of organic growth. They just needed to keep plowing their earnings back into the business. 

Reason #2 – To Enable You to Raise Financing

           Blindly trusting an accountant or using QuickBooks to do your books yourself when you don’t have a basic understanding of accounting or of general financial management can hurt you when you try to get financing from a bank or an equity investor. In another case, I was developing a business plan for a fashion designer. Even though she kept meticulous spreadsheets detailing the amounts and the costs of every item that went into the clothes she produced – everything from imported fabric to buttons – she left her bookkeeping to her accountant. The statements he provided convinced her that she was losing money, and she desperately wanted to get a line of credit from a bank to enable her to create samples and inventory. She had to spend money on raw materials, labor, warehousing, and shipping months before she was paid by the boutiques that sold her line.

           When I saw the statements, I was incredulous. Using QuickBooks, her accountant had allocated 100% of her raw materials to her cost of goods sold as they were purchased. A key principle of accounting is to match revenues and expenses. Some of those raw material costs should have been capitalized on the balance sheet. Then, as she sold her merchandise, she could match the revenues and the cost associated with producing those revenues. When we took her records from her own spreadsheets and developed fresh financial statements using Excel, it was clear that the designer had excellent gross margins and even made a net profit in some quarters. Her biggest problem was timing of receivables and payables through the different fashion seasons. She needed working capital to tide her over from season to season.

Armed with the revised statements, the designer went to her bank and received an unsecured line of credit, enabling her to produce new samples to sell at New York’s Fashion Week and to expand distribution to more boutiques.

Reason #3: To Build Financial Resources for Expansion

Contrast these last two scenarios with the following. Ed McLaughlin, with whom I coauthored a book on entrepreneurship titled, The Purpose Is Profit: The Truth about Starting and Building Your Own Business, did not have a degree in business, so he asked his accountant for instructions on how to keep track of his cash and his accounts. His company did all the bookkeeping in-house, and he took home a print-out of the financial statements at the end of each day. Ed wanted to know where his company stood because he had bootstrapped his real estate services outsourcing business, USI Companies Inc, with personal savings, and he had a young family that relied on his income.

As USI grew, Ed hired a CFO who put in more sophisticated accounting software. With the CFO in charge, Ed stopped taking statements home every day, but he continued to read his financial reports each week throughout the life of the business. Armed with such knowledge, the company was able to built a war chest of retained earnings, which they used to invest in regional and product-line expansion. Ultimately, when Ed and his partners sold USI to Johnson Controls, they realized the value of their financial discipline.

It didn’t take an MBA for Ed to understand and track his revenue, expenses, payables, and receivables. He found people who showed and explained the concepts to him, so he could grasp how much cash was flowing through his company. It is cash flow, after all, that determines whether a company can stay alive or not.

The accounting systems we use today were first developed in the Renaissance by the merchants in Venice to keep track of the trade flowing through their ventures. If you are starting a business or own a business, it will pay to invest some time in understanding the power of these systems and in developing financial literacy. If you are starting or building your own business, take the time to learn about basic accounting principles. You can get advice online, in books, or from your banker or accountant.                 

        

Wyn Lydecker is the coauthor of The Purpose Is Profit: The Truth about Starting and Building Your Own Business with Ed McLaughlin and Paul McLaughlin. This article first appeared on the Wharton Entrepreneurship Blog.