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Social Startup Success
How the Best Nonprofits Launch, Scale Up, and Make a Difference
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In order to make a difference, any modern nonprofit needs to achieve multimillion-dollar annual revenues. After surveying more than 200 high-performing entrepreneurs across the country—including the leaders of Teach for America, City Year, Donors Choose, charity: water, and Hot Bread Kitchen—Kathleen Kelly Janus is here to show you how to reach and sustain lasting organizational growth. Janus asked a simple question: “What is the key to nonprofit success?” The answers she received reveal five key strategies responsible for the most successful social startups:
- Testing Ideas
- Measuring Impact
- Funding Experimentation
- Leading Collaboratively
- Telling Compelling Stories
Rob Gitin never intended to start a nonprofit organization. But in college, he stumbled upon a class titled “Poverty and Homelessness in America,” largely because he liked to sleep in late and the class met at two in the afternoon. The course changed his life. The students were required to intern with an organization that helped homeless people; Gitin selected a program for homeless youth, and he quickly fell in love with the work and the kids he encountered. The injustices they faced—let down at every step in their lives by the social services system—kept him up at night.
After three years volunteering or working at this program, he became determined to do something different to address the problem, and a few months after graduating, he and cofounder Taj Mustapha decided to try to create a program to reach the most disconnected youth. The well-known seed-stage funder Echoing Green supported him, and his organization, At The Crossroads (ATC), was born. He and Mustapha conducted nightly outreach with homeless youth, walking the streets of San Francisco’s Tenderloin and Mission districts, often from seven-thirty until eleven-thirty at night. They were able to build trusting bonds with some of the hardest-to-reach youth and helped them build healthier, more stable lives.
The work was personally fulfilling, but after about a year Gitin and Mustapha realized that they alone could only make a small dent in the growing homeless epidemic in San Francisco. If they really wanted to make a substantial impact, they would need an army of people and money to pay them. Gitin worked hard to raise funds, and he was able to hire some staff, but he faced a number of daunting hurdles in trying to scale up. He had no idea how to hire or manage well, and there was a ton of staff turnover. He also didn’t know the best methods for raising funds, and as a recent college grad with few contacts in the foundations or with high-net-worth individuals, he spent dozens of hours chasing donations that never panned out.
Despite those challenges, Gitin persevered, and he managed to grow the organization to a budget of around $800,000. But then he hit a wall; he couldn’t break past that level of funding. Even after fifteen years of successful work, the organization’s budget was still stuck at that level, and meanwhile the need for its services had increased several-fold, and ATC couldn’t keep up with the demand. Gitin decided to make a concerted new effort to expand services and to raise more funds, launching a four-year plan to achieve an annual budget of at least $2 million. He has now just about achieved that goal, and I’ll share the story of how he’s done so, along with the stories of a host of other nonprofit leaders and the methods they used to scale their organizations. The struggle to scale, I have found, is the most pressing challenge for the social entrepreneurship community.
I have had a front-row view of the boom under way in social entrepreneurship. As a social entrepreneur myself—cofounder of Spark, a network of millennial philanthropic donors who raise money to support gender equality—and a lecturer in the Program on Social Entrepreneurship at Stanford University, I have watched the launch of so many exciting innovations for good. And yet, while for many nonprofits this has been an invigorating and transformative time, so many other nonprofits, like At The Crossroads, have struggled on the sidelines. Despite doing important work, many operate in constant survival mode, scrambling for the money to make payroll every month. In 2014, almost two-thirds of reporting public charities in the U.S. had an annual budget of less than $500,000.1
I became obsessed with understanding how nonprofits can get off the treadmill and attain organizational sustainability, which I define as reliably raising around $2 million in annual revenue. Of course, for some organizations, a small budget is sufficient to sustain their operations and be highly impactful. Scaling revenue also does not necessarily equate to scaling impact; an organization can be very good at raising money with programs that aren’t really making a significant difference. But many organizations that have the potential to do a great deal more good by scaling, and that are trying to grow faster, are stymied.
I learned this the hard way in working to grow Spark. I cofounded the organization in 2004 with six friends from my undergraduate days at U.C. Berkeley. We wanted to create a membership network of young professionals to raise money for other organizations focused on issues of women’s equality. As recent college grads living in San Francisco, we saw that there was no shortage of charitable galas to support, but rarely did those events educate their guests about the problem addressed by an organization or give them an opportunity to get more involved. Over drinks one night after work, my friend Maya Garcia said to me, “These events are leaving so much untapped potential on the table. What if we do something different?” Our hope was that if we could connect young people to social causes in a meaningful way early on in their careers, they would become participants in the social justice movement for life. Passionate about global women’s issues, we decided to start there. We invited some other friends to join us, and the seven of us crammed into Maya’s studio apartment over the course of several months, sharing several bottles of wine, to begin planning.
We held our first fundraiser in a small art gallery in San Francisco, and were elated when our promotional work led to a line around the block of people coming to donate. We had earmarked funds from this gathering for an organization of women in Rwanda rebuilding their lives after the genocide, for whom we raised $5,000. That felt like a million dollars to us. As we continued to network, we doubled our revenue every few months, and by our third year, we could afford to hire our first executive director, Shannon Farley. By then, we had over ten thousand members, but we had hit a wall.
As I witnessed other exciting new nonprofits take off all around us, we began struggling to find more growth capital. We explored creative fundraising ideas, but we couldn’t bring in more than $500,000 annually. Year after year, we found ourselves spending inordinate amounts of time chasing gifts in increments of hundreds or thousands of dollars, barely making ends meet. We kept hearing about new forms of “venture philanthropy” being pioneered by leaders in the technology sector, such as Bill Gates, Pierre Omidyar and Mark Zuckerberg. But none of that money was reaching us at Spark.
In 2007, I decided to leave my job as a corporate lawyer and started teaching international human rights and social entrepreneurship at Stanford University so that I could devote myself full time to advancing social causes. Teaching with the Program on Social Entrepreneurship, where we host highly successful social entrepreneurs in residence for a quarter, I began to hear stories like ours at Spark over and over. Nearly all organizations struggle with the scaling challenges Spark faced. The difference with these social entrepreneurs was that they had somehow managed to overcome them. I wanted to understand why some social startups had beat the scaling challenge so successfully, sometimes growing to several million dollars in annual revenue within just a few years. I decided to study the nonprofit scaling challenge.
For the past five years, I have been traveling around the country, visiting the founders, leadership teams and funders of dozens of what I call breakthrough social startups. I’ve interviewed nearly a hundred social entrepreneurs,2 academics and philanthropists, both newcomers and veterans in the field, including the leaders of Teach for America, City Year, DonorsChoose and charity: water, and started our conversations with a simple question: “What is the key to nonprofit success?” I’ve spent time at organizations and observed their operations, getting a read on the aspects of their organizational cultures that contribute to success. I’ve also talked to staff members and to beneficiaries, seeking to understand what it is about the approaches of these organizations that has enabled them to build highly productive teams and such strong followings among those they seek to serve. While interviewing, I also scoured the research literature, reading hundreds of articles, books, studies and reports, looking for answers.
My first discovery was that very little actual data existed about how organizations grow, especially in the early stages, despite the volumes of advice offered. To bridge the gap, I conducted a survey of early-stage organizations, drawing from the portfolios of top seed funders such as Echoing Green, Draper Richards Kaplan, Silicon Valley Social Ventures, Ashoka and the Skoll Foundation. The survey asked nonprofit leaders a host of questions about how they had launched their organizations, how they measured impact, how they managed teams, how they sought funding and how they raised awareness. I then followed up in person with one hundred of them to dig deeper into how they applied the methods they described and to get more specifics about their responses to a range of the most difficult challenges, such as measuring their impact, managing their time, developing an active board that helped grow the organization, and hiring the right people. Their answers provided a treasure trove of insights and inventive methods that every organizational leader, whether of a fledgling startup or of a large, well-established organization, can profit from.
In the pages that follow, I present five key strategies that I heard over and over again were responsible for the breakout growth of the most successful social startups. Each organization that scaled most successfully employed many, or all, of the following practices:
• testing ideas through research and development to get proof of concept before seeking major funding or media coverage;
• measuring impact right from the start, often with inventive metrics tailored to their specific programs;
• funding experimentation through a combination of selling products and services that were in strong alignment with their mission and employing bold strategies to raise philanthropic capital;
• leading collaboratively in a fashion that allowed them to optimize the talents of their staff, including building a strong board of directors; and
• telling compelling stories in ways that utilized the most recent innovations and tapped into others to advocate on their behalf.
What is most exciting about my findings is that the specific methods for executing on each of these, which I describe in detail, can all be readily applied to the work of any nonprofit, starting immediately. During my interviews, I kept expecting people to say success was driven by a truly remarkable idea, or by the charisma of the founder, but no one did. Not one. This isn’t to say that factors like charisma, grit or brilliant ideas don’t contribute significantly to success. Of course they do. But the foundation of success is this set of best practices.
In these uncertain times, when so many social problems are not only persisting, but in many cases, worsening, we need every bit of creativity and determination to find better solutions. My hope is that the stories you read in this book and the tools it recommends will help you to make your own organization, or those you are supporting, thrive. We need to spend less energy keeping organizations alive, so that we can devote more energy to spreading positive impact. This book is a guide for how to achieve that.
Social entrepreneurs are not content just to give a fish or teach how to fish. They will not rest until they have revolutionized the fishing industry.
—BILL DRAYTON, FOUNDER, ASHOKA
Social entrepreneurship is a process by which citizens build or transform institutions to advance solutions to social problems, such as poverty, illness, illiteracy, environmental destruction, human rights abuses and corruption, in order to make life better for many.
—DAVID BORNSTEIN AND SUSAN DAVIS,
Social Entrepreneurship: What Everyone Needs to Know
Social startups face a vexing catch-22: funders want to see proof of an organization’s success before offering grants, but nonprofits need funding to get their ideas off the ground. The lack of seed funding is one of the biggest differences between growing a nonprofit organization and a for-profit business. Private sector startups are often able to gain support for the research and development (R&D) phase of building their organizations from angel investors, who hope to earn a handsome return once the startup becomes profitable. For nonprofit startups, private angel funds don’t exist. Most foundations are also not interested in providing financial support for testing. Typically, they want to fund organizations with a proven approach. Even at the infancy of an idea, they press for results, asking: “What is your set of early outcomes? How do we know this is going to work?”
But how can organizations improve their programs with testing and prove impact without funding at the early stage? This dilemma has left many social startups in slow-growth mode for years. The solution is to adopt a powerful set of innovation methods—a cycle of researching, brainstorming, prototyping and implementing often called “human-centered design”—that the Silicon Valley entrepreneurship community developed for creating new products and services. These innovation methods not only allow an organization to produce compelling early indications of scalable success, but also help to speed up the development process; they avoid the common mistake of investing too much time and money in efforts doomed to fail. These methods have enabled much more rapid innovation at lower cost, while also facilitating the development of products and services more responsive to the needs and desires of customers. They have fueled the astonishing success of the Valley’s fastest growth companies, including LinkedIn, Airbnb, Uber and Pinterest—and have driven the breakout success of many of the most exciting new social enterprises too.
A consistent theme in my interviews with breakthrough social entrepreneurs was that they had used these innovation practices to develop their models for their products or services, and had tested them before going out to raise capital and seek press coverage. This allowed them to develop more effective programs and products. It also enabled them to tell a persuasive story about how they had arrived at their models, impressing funders with their research and development process and their initial set of results. In the long run, adopting these practices instills a culture of continuous innovation that helps to assure that organizations keep scaling their impact—always experimenting with ways to improve and expand their offerings, while discontinuing efforts that aren’t working so they can focus on new approaches.
There are three core methods to draw on. One is the lean startup approach to product development, popularized by Eric Ries in his book The Lean Startup.1 Closely related but with some methods of its own is the practice of design thinking, pioneered at the Hasso Plattner Institute of Design at Stanford University (known as the “d.school”) and the private innovation consulting firm IDEO. This method has been introduced in several books, including Change by Design by the CEO of IDEO, Tim Brown.2 Finally, open innovation, also referred to as “cocreation,” was introduced by Professor Henry Chesbrough, of the Haas School of Business at the University of California, and is described in his book Open Innovation.3 Collectively, these methods can be referred to as “human-centered design.” Though each has specific nuances in execution, which you can read about in more detail in the books mentioned, at the core of these methods are three fundamental principles: that organizations must design products and services based upon an in-depth investigation of the customers’ needs and desires; that organizations must test prototypes of products and services (often very simple ones) with customers, and further develop them according to their feedback; and that no matter how compelling an idea for a product or service may be to a founder or organization, if it fails to win the approval of the targeted customers in tests, the organization must pivot to a new approach and consider the failures valuable learning experiences rather than crippling mistakes.
A consistent theme in my interviews with breakthrough social entrepreneurs was that they had used these innovation practices to develop their models for their products or services, and had tested them before going out to raise capital and seek press coverage.
There is no one widely agreed-upon strict process to follow; organizations can either tailor the methods to their work as they see fit, or can follow one or another well-established guide. IDEO, for example, has developed a rigorous step-by-step method for nonprofits through its nonprofit spinoff IDEO.org. It offers a Field Guide to Human Centered Design for free download.4 Many other consultancies have followed in IDEO’s footsteps and developed their own set of specific procedures. Several companies and organizations have drawn on these resources to craft their own particular processes to fit their needs. Surveying the full range of methods, the following is a basic step-by-step process for producing optimal results:
1. Conduct in-depth research on the problem with the intended “customers,” who, for social innovators, we’ll call beneficiaries.
It is vital to build strong connections with the end-users in order to better understand their needs. This must involve methods such as focus grouping or surveys, as well as going out to target communities, observing the nature of end-users’ lives and conducting in-person interviews to understand the problems they face. Prominent civil rights activist Bryan Stevenson, founder and executive director of the Alabama-based civil rights organization Equal Justice Initiative, refers to this as gaining “proximity.”5 He stresses how important it is to build understanding and empathy with communities in order to design effective programs. As he said in a recent speech: “We cannot make good decisions from a distance. If you are not proximate, you cannot change the world.”6 Proximity is also critical to getting buy-in from the communities you hope to serve.
2. Brainstorm a series of solutions for addressing the problem(s) and select a first candidate for development.
Once you have conducted interviews, discuss key findings with your team and perhaps with a range of stakeholders and outside advisors. Hold a session in which you invite unfettered idea generation about the best ways to address the problem; or for established organizations, to make changes in existing programs or products. It is imperative that everyone understands that all ideas are welcome at the table, and none should be shot down during this brainstorming. A ubiquitous practice for idea generation in Silicon Valley is scribbling thoughts on brightly colored Post-it notes, then sticking them on a whiteboard, wall or large sheet of paper.
3. Create a rough prototype and get feedback.
This should be a very simple and inexpensive representation of the product (such as a sketch depicting the product), or how the service will work (a storyboard describing how the service would operate). You can present the prototype to targeted users and gain valuable feedback.
4. Refine the prototype and launch a pilot program or product to test results.
As you observe the responses to the pilot, you will generally discover additional ways to improve it, often launching a number of progressively more developed versions until you see the results you are aiming for. It is critical to have good benchmarks to measure impact during this phase to determine whether a pilot is successfully addressing the problem you seek to solve. You may find the approach simply isn’t working, and that it’s time to pivot to a new one.
NEVER ASSUME YOU KNOW THE ANSWER
Too many nonprofits have made the mistake of not interviewing and testing before launching their service. A number of the respondents to my survey described this as the biggest mistake they made in building their organization. One of these is Rachel Armstrong, the founder of Farm Commons, a Minnesota-based organization that serves farmers by providing them with information regarding legal issues. Her original concept was that the farmers would be clients, paying the organization for providing legal services. But after the service was launched, it turned out the farmers didn’t want to pay for legal representation. What they did want was education about legal issues, and Farm Commons had to completely redesign its model, not relying on income from the farmers and developing extensive educational resources and tutorials.
Even if social entrepreneurs have direct experience with the problems they are trying to solve, research and testing with beneficiaries is invaluable. Speaking with beneficiaries and all the other stakeholders, who can either help to make one’s program a success or stand in its way, will always be enlightening. It will also build understanding in the community and earn buy-in. In the nonprofit world in particular, engaging beneficiaries is essential: communities will not embrace your efforts if you do not involve them in the process of developing your idea.
Take the case of CareMessage, a multimillion-dollar organization Vineet Singal and Cecilia Corral cofounded. It provides a sophisticated web-based system that allows health clinics to send patients text and voice messages to remind, educate and motivate them to manage their disease. One target is Spanish-speaking individuals who struggle to understand the information they receive from health care providers. Corral grew up between south Texas and Mexico, and her own parents spoke only Spanish at home. She knew very well the problems these patients have with the language barrier, because she watched her parents’ blank stares as they struggled to understand doctors, and sometimes even the translators.
Despite her familiarity with the problem, Corral led extensive interviewing and testing of the prototypes for CareMessage with targeted users. She sat in on meetings between Spanish-speaking patients and translators, and even enrolled people from her circle of family and friends in the program, without notice, to see how they reacted to receiving such messages. She then proceeded to question them about their thoughts as the service evolved, constantly asking, “Does this sound okay? Is it making sense?”
FROM POST-IT TO PROOF OF CONCEPT
To see how powerful this general approach of customer research and product testing can be for social enterprises, let’s take a close look at the process Tipping Point Community used in collaboration with the nonprofit Aspire Public Schools (a group of charter schools) to devise a boldly creative solution to ineffective preschool education in low-income communities.
Tipping Point Community, based in San Francisco, is one of many funders supporting nonprofits to embrace human-centered design practices. Others include Google.org, the Michael & Susan Dell Foundation, the William and Flora Hewlett Foundation and the Bill and Melinda Gates Foundation. The Gates Foundation, for example, has spent hundreds of millions of dollars on R&D to test various solutions to the malaria epidemic. In a speech, Bill Gates described R&D funding as “urgent to stay ahead of emerging disease threats.”7 It is promising to see international, national and local funders recognizing the vital role they can play in dedicating significant amounts of philanthropic capital to R&D.
Tipping Point Community aims to find solutions to extreme poverty and to facilitate innovation. To promote more innovation and design thinking in its work, it established an R&D arm, called T Lab. As Renuka Kher, the founding managing director of Tipping Point’s T Lab, says, “The problem is that nonprofits are held to a different standard while in the business world we call R&D spending ‘infrastructure’ and it sounds essential, in the nonprofit world we call it ‘overhead’ and it is highly scrutinized.” As a result, while corporations spent $145 billion on research and development in 2015, nonprofits spent nearly nothing. Tipping Point decided to change that, making R&D spending a priority within their own organization.
Through their research, T Lab identified the lack of preschool in many neighborhoods as a key problem, leaving eighty thousand children in the San Francisco Bay area without early childhood education. The lab’s research group decided to tackle the challenge. Step one was for fellows of T Lab, a cohort of young professionals that Tipping Point trains and supports in human-centered design, to reach out to members of the communities lacking high-quality preschool options; the group asked questions about what they desired for their children in their early years, and their perspective on how to improve the situation. The fellows reached out to community-based organizations, schools and libraries to talk with parents, teachers, principles and anyone else who might have an opinion about how to solve the problem.
The team then held a brainstorming session, often called the “ideation” phase of human-centered design, and proposed a wide range of creative solutions. The team chose eight concepts, then developed a series of prototype solutions for testing. One was to convert a bus into a classroom, which was appealing because it would solve the problem of needing to either rent building space or, in many cases, construct a whole new building. They could also move a mobile classroom wherever needed, perhaps serving families in more than one location if scheduling permitted.
- "The pressing social problems we face today require creative leadership. This book will teach you what you need to know to be a good social entrepreneur."—Muhammad Yunus, Nobel Peace Prize winner and author of the New York Times bestseller Banker to the Poor
- "Shows how to scale an impact organization and, in so doing, change the world for the better."—Charles Best, Founder and CEO, DonorsChoose
- "An invaluable resource for the next generation of changemakers."—Wendy Kopp, Founder, Teach for America, cofounder and CEO, Teach for All
- "An inspiring must-read, with an empathetic voice, for all of us aspiring to maximize our social value through our organizations, work, and lives."—Laura Arrillaga-Andreessen, Founder/CEO, laaf.org, author of Giving 2.0, Founder/Chairman, Stanford Center on Philanthropy & Civil Society, Founder/Chairman Emeritus, Silicon Valley Social Venture Fund
- "Reveals the secret sauce behind the most influential nonprofits of our time, telling their stories in memorable ways that every nonprofit leader can learn from."—Darren Walker, President, Ford Foundation
- "Social Startup Success is a marvelous compilation of stories of some of the most inspiring leaders of our time."—Bill Drayton, CEO of Ashoka: Everyone a Changemaker
- "An insightful and highly useful guide that breaks down how organizations maximize their impact and create lasting change. An important contribution to the field."—David Bornstein, author of How to Change the World:Social Entrepreneurs and the Power of New Ideas
- "Social Startup Success covers all of the important building blocks...necessary for early stage organizations to succeed and build a strong foundation for further scale."—Heather McLeod Grant, Cofounder, Open Impact, and author of Forces for Good
- "[A] no-nonsense, energetic guide...Kelly hits her target perfectly, and this is a must-read for anyone who wants to combine a lucrative career with work for the greater good."—Publishers Weekly
- "Social entrepreneurship's essential playbook."—Midwest Book Review
- On Sale
- Jun 1, 2021
- Page Count
- 272 pages
- Hachette Go