My idea involves assisting a nonprofit org that specializes in designing and implementing systems that would generate alternative revenue streams for another nonprofit. Because of the nonprofit status of the service provider, consultancy fees would be waived. However, the service provider would be able to benefit by receiving a percentage cut of any newly established income for the “client” nonprofit org. Hopefully, that makes sense!
There are a lot of N2N (Nonprofit to Nonprofit) organizations. You can do this but a word of caution. Charging a fee establishes a value on the work that you are providing. There are other ways to establish value, but paying for a service is the most clear way. Even if you have a fee that you cut down.
Beyond the conceptual issues are the regulatory ones. Your nonprofit would need to receive their approval from the IRS (or comparable government agency). Often the guidelines require a store of ‘public good’ concept. Nonprofits can charge for goods and services, but you need to satisfy the legal requirements where you exist.
After all your idea only makes you money if these third party organizations value your concept and work enough to put weight behind it. I’ve had a few friends that have attempted to do something similar.
Their two biggest struggles:
- Generating institutional buy in to their service once implemented
- Lack of network effect. Where will the revenue come from? Most people don’t care about NGO they’ve never heard of before.
In the past few years there have been legal advancements around ‘public benefit corporations’ that might be interesting for you. If you don’t end up going the N2N route this allows you to create legal protections for your public benefit. That allows that benefit to win out against your fiduciary obligation.
At Fresh Vine we chose to not go the nonprofit route and are an limited liability company. This gives me the founder the full control of the business. It also makes a clear statement of how we relate to the nonprofits that use our nonprofit membership software. That we create and manage the software, and they pay for the service to use it. Had we gone the nonprofit route it would have introduced the question of what we provide as our public good, and what is charged for. Do some nonprofits get the service for free? How come you are asking me to pay for this, you’re a nonprofit as well?
Being a for-profit also allows us the ability to raise capital for equity, which is not possible in the nonprofit world. Down the road it also allows for the possibility of an acquisition that helps us ensure our customers will continue to be served with Fresh Vine even if we are purchased by someone else. You can have mergers in the nonprofit world, but they are much trickier as the public technically owns a nonprofit.