The Profit from my Nonprofit Background
How nonprofit consulting prepared me for tech advising
How consulting nonprofits prepared me for early stage tech advising
A startup can throw all types of problems at entrepreneurs. As an advisor, I’m constantly asked to help solve various issues that keep the founders up at night. First-time entrepreneurs ask for guidance on product development, marketing, sales and hiring talent. Obviously, I have only been a founder once, but I don’t allow that to limit the guidance I can provide each specific company. However, utilizing my prior industry and work experience has really helped me to customize advice to founding teams. Many times a specific prior role, such as REIT equity research analyst, directly equips me with the knowledge to help real estate tech companies navigate through the market. But there are also occasions when the most “contrasting” experiences have led to insights for solving the founder’s critical problems.
In another life I helped launch startup nonprofits as a The Bridgespan Group consultant and although the social sector seems to be light years apart from helping aspiring entrepreneurs become the next Jobs or Zuckerberg, I find myself applying the nonprofit “learnings” (a real management consultant term) to startup problems. Over the last three years I’ve just come across so many similarities between the nonprofit and startup arenas. Here are 5 key lessons my nonprofit career prepared me for advising early stage startups:
Lesson 1: Money is not the first objective to solve
The first thing aspiring nonprofit leaders would often tell me is that they needed money. They would stress to me that before they could strategize how to implement their services they had to secure funds. But with approximately 1.5M nonprofits in the US, there is a lot of competition for the same philanthropic funds. I found quickly in my consulting career that philanthropists were more comfortable donating when they had data from previous services to benefactors. Philanthropists then could grasp anecdotes and have a better understanding of what their funds would be used for. This experience has heavily influenced my advice to early stage tech founders. Money should not be the first priority. It is essential to have a minimum viable product and prove there is a market that the product appeals to. Traction and product market fit provide the foundation for an investor to project how this business can scale to larger heights.
Lesson 2: Building the right initial team is key
Many nonprofits I advised as a consultant had amazing services that met the needs of their targeted benefactors but found themselves at certain limitations due to the gaps in expertise and skills of the management team. Teams would typically be led by a mission-driven domain expert. However many times their corresponding team members did not fill blind spots such as business acumen and project management that was necessary to expand reach while maintaining programmatic fidelity. These scenarios increased the value I place on startup teams when conducting due diligence. You can have the best product that solves a clear problem in a huge market, but if the team doesn’t have the skills to take advantage of this market opportunity, I will pass on the investment.
Lesson 3: Creating multi-stream revenue models provide a huge advantage
Occasionally my work stream (consulting buzz word alert) was to examine the business model of the client. I worked directly with the CFO or Executive Director to optimize the revenues and expenses over a 3–5 year period. A common problem I found with smaller nonprofits was that they relied too heavily on one revenue stream. Whether it was a certain federal or state grant, these nonprofits had a huge risk associated with expanding if a specific funding stream was not renewed due to government budget cuts. I would conduct market analysis to find other streams of income from private foundations, strategic partnerships, and help design earned income services. Currently, when working with a portfolio company I always strive to provide market research or conduct business development to assist entrepreneurs with developing new streams of income.
Lesson 4: Clearly, understand the motivations and needs of all stakeholders
Nonprofits generally have complex sales cycles because the stakeholders who purchase or fund the services are not the end benefactors. Therefore it was always important to examine how a change in services or growth into a new market should be implemented. I was responsible for finding out the motivations/challenges of the foundations, community partners, government agencies and end benefactors. This experience of carefully mapping out complex stakeholder networks has been really helpful for advising startups looking to disrupt similar markets (EdTech and Health tech) where the end user and buyer are not the same.
Lesson 5: Passion brings talent through the door but culture keeps them there to see the vision play out
The best clients to advise were those nonprofits that had a unique ability to add extremely talented individuals that filled an apparent long-term need and that fit the culture. Those individuals were passionate about the mission but also were culture carriers that would inspire others during times of frustration but also leaned on colleagues when their specific role faced issues. These strong cultures derive from the visionary founding team that had a clear understanding of the organization that could solve a social issue in the world. I continue to share lessons from great visionary leaders I encountered in the social sector when guiding first-time entrepreneurs. I encourage each founder to have a “North Star” that the team will continue to strive to but also identify the team’s limitations. This balance of confidence and self-awareness that is evoked through an organization is typically the culture that leads to world-changing products.
Use all your experience for your career path
Earnest Sweat is an Entrepreneurial Engineer for Camelback Ventures and an Investor in Residence for Backstage Capital. If you have any questions or requests please connect with Earnest through LinkedIn, Twitter, or AngelList.
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