The following is a conversation between Kathleen Kelly Janus, author of Social Startup Success: How the Best Nonprofits Launch, Scale Up, and Make a Difference, and Denver Frederick, Host of The Business of Giving on AM 970 The Answer in New York City.
Denver: Approximately two-thirds of nonprofit organizations never break through the $500,000 revenue barrier. They hit a wall, live a vicarious existence, and never have the opportunity to scale their efforts, even in cases where they are making an impact and a real difference. That is exactly what happened to my next guest with a nonprofit she started. But what she did next was set out on a five-year journey, speaking to more than 100 successful social entrepreneurs and their organizations to find out how they broke through this wall and other walls a little further down the line. She is Kathleen Kelly Janus, who is now sharing those findings in her wonderful new book, Social StartUp Success: How the Best Nonprofits Launch, Scale Up, and Make a Difference.
Good evening, Kathleen, and welcome to The Business of Giving.
Kathleen Kelly Janus: Thank you so much for having me, Denver.
…you don’t know what you don’t know when you start a nonprofit organization.
Denver: You started a nonprofit in the Bay Area called Spark. So, when you hit your wall, Kathleen, you probably had a few ideas as to why. Now, having completed this book and all this research, were your initial instincts pretty much on target? Or did you learn it was something altogether different from what you first thought?
Kathleen: I think as many people find out, you don’t know what you don’t know when you start a nonprofit organization. When we co-founded Spark, I was a young graduate of UC Berkeley and had just come out of law school and was spending my days billing hours and my nights co-founding this organization to engage young professionals in gender-equality philanthropy. At that time, we were doing it to fill a need which is how most nonprofits start. You find a problem, and you realize that you have a solution, and you do what you can to solve that problem.
But I had no idea at that time how to fundraise or how to hire or how to measure impact… that it was even important to measure impact. So, this journey of writing Social Startup Success has been for me such an important education in how the best nonprofits do these best practices.. and has been important for Spark as well.
Denver: Well, you found five key strategies that were common factors in the successful social enterprises who broke through these revenue thresholds. Let’s review each starting with testing ideas, and this is really a period of illumination for a startup social organization. What occurred here?
Kathleen: What I found is that most organizations that succeed tend to have this period where they go out and test ideas before they actually launch their product. Take for example, Beth Schmidt, who founded Wishbone, an organization that’s a crowd-funding organization for low-income students to follow their passions. When Beth started, she was a teacher in Compton. Like when I started Spark, she saw this problem that she wanted to solve, which is that her students didn’t get to follow their passions in the summer.
So, she took some of their essays that they wrote about their passions and photocopied them using an old-fashioned photocopying machine and sent them in the mail with a stamp to her family and her friends to say: Would you fund these students? And got back thousands of dollars and was able to send these kids to summer camps, to art camps, and to film school. During this process, she realized, not only that she had a great idea and that people wanted to help fund early stage young people to get their ideas off the ground, but that also, she was able to figure out what was working and what wasn’t.
So, she figured out, “Wow, I can’t go out and ask these schools for full tuition. I’ll never be able to support the millions of kids that need it.” So, she got tuition discounts. Or she figured out that technology was going to be a really important platform to give people an opportunity to give and to fundraise for their cause. All these little tweaks that she got out, so that by time she went out and started raising money, she knew what she was doing, and she had impact to show for it, and that was ultimately what got funded.
It’s not just not about falling in love with your solution and then getting that solution off the ground. It’s about falling in love with the problem and about ensuring that you’re constantly innovating as you grow, because situations change.
Denver: She really had built a culture of innovation in the process.
Kathleen: Exactly. Exactly, and that’s what’s key. It’s not just not about falling in love with your solution and then getting that solution off the ground. It’s about falling in love with the problem and about ensuring that you’re constantly innovating as you grow, because situations change. We have new policies in place, new presidents come into power, and all of that has an impact on your work.
Denver: Speaking of impact, the second thing was measuring impact. I found it interesting is that these organizations started measuring that impact right from the get-go. Correct?
Kathleen: Absolutely, and this was a very important trend that I saw in the survey I did of hundreds of social entrepreneurs is that, the organizations that said they began measuring their impact from Day One were more successful in their growth trajectory. They scaled more quickly, and when I first saw that data I thought, “Well that makes perfect sense. These are the organizations that go out and have data to show to donors, and then those are the ones that get funded because donors want data.”
But when I went and talked to organizations, I realized that they weren’t doing this for the donors at all. Don’t get me wrong; donors want data. But actually, it wasn’t about the dog and pony show; that they really genuinely cared about their impact, and if they were not having an impact, they needed to course-correct, and the only way they were going to do that is if they had the data to show it.
So, for example, Nick Ehrmann from Blue Engine, a mentoring program for new teachers here in New York City, he wasn’t just satisfied with seeing that his assessment numbers and his classrooms were going up. That was great! But he didn’t pat himself on the back and move on. He tested the counterfactual. He wanted to make sure that it was exactly because of their intervention that those scores were going up. So, he hired a PhD for $100 an hour to go out and get the other school district scores to test it against other classrooms. Really being rigorous in data collection is critical, and it’s something that organizations struggle with; 75% of nonprofits collect data; only 6% of them feel like they’re making a good use of that data.
Denver: It’s interesting how the motivation is so important here. It isn’t just to raise money. It is that they really care deeply about the problem and trying to solve the problem. As you pointed out in the book, you don’t have to have lots and lots of data. You really need just a couple of metrics to focus on, right?
Kathleen: And you have to go after them rigorously, yes. Ultimately, that’s what’s going to help you tell the data story; it’s just being laser-focused on those few pieces of data.
What is your mission? Stay laser-focused on that mission; and then build the funding model around it, as opposed to chasing the money, as we see so many nonprofits do.
Denver: The third thing was funding experimentation, testing different revenue streams, which also include earned income.
How do some of these organizations go about that?
Kathleen: There is no one-size-fits-all funding model. That would be nice if there were. But everyone’s got to figure it out on their own. What the best organizations do is they figure out how to test both earned income, as well as philanthropic income, to come up with a funding model that is most suited for that particular mission and that particular area and that particular access to resources.
So for example, Hot Bread Kitchen, also based here in New York …with delicious avocado toast… I recommend everybody take a visit. When Jessamyn Rodriguez started the organization, she thought she was going to be 100% sustainable on the bread that they would sell, and that that would in turn fund their program for low-income women to go into the food industry.
Problem is, first, bread has really slim margins. So, it’s not a great plan. I was on a panel with her recently; she said if she had it to do all over again, she would have done like pest control or laundry; might have been a lot more margins for her. Also, she was going to be selling her programs short by not accepting philanthropic income and integrating that to make the programs better, even beyond when they might be profitable. So, yes. She had incredible sources of earned income, whether it was the bakery where they sell the baked goods that the women make, whether it was the incubator that they charge small businesses to go out and sell food products here locally, or whether it was a wholesale that they were doing to Whole Foods and to JetBlue and other bakery outlets.
Ultimately, it was the 35% philanthropic income that allowed Hot Bread Kitchen to do things like hire childcare for the women while they were at the program, or keep the women involved in the program longer even though it wouldn’t be profitable, but it was ultimately better for their long-term outcomes. That’s what organizations have to figure out. What is your mission? Stay laser-focused on that mission; and then build the funding model around it, as opposed to chasing the money as we see so many nonprofits do.
Denver: Another interesting example you had was Room to Read. How did they go about raising their $50 million?
Kathleen: I love the Room to Read example because they actually got other people to raise money for them, which is every nonprofit’s dream. Fundraising can seem like such a lonely path especially if you’re a founder, and it’s the biggest bait and switch as a founder of an organization. You do this work because you’re passionate about it and then, surprise, 99% of your time is going to be spent on fundraising.
What Room to Read did so brilliantly was they figured out that connecting donors with the ultimate outcomes… these libraries that they were building around the world where girls education programs; that this was something that was going to get people really passionate, and that they could harness this energy to get even more people involved. So, they created this chapter model where they have 40 chapters around the world, and these chapters raised millions of dollars every year by hosting their own events, by getting their friends and family involved in house parties, jog-a-thons, or you name it.
They get really creative. They bring them together every single year for a sales conference. Basically, It’s like the annual sales conference where they bring together their big champions. Then they inspire them. They teach them how to fundraise. They make them leaders within their communities. So, it really is a win-win, and I think every organization has the opportunity to find like-minded people who also care about their cause, so that fundraising doesn’t have to be such a lonely battle.
Denver: Nothing like passion, is there? When you find those kind of people!
Fourth area, and the one where founders said they made their most mistakes, was leading collaboratively.
What do they wish they had done better?
Kathleen: What organizations I think realize is that the human resources challenge of running a nonprofit is huge… that it’s so critical not only to hire well, but also to fire well. So often there, you find that there are employees that are part of the organization that aren’t maybe necessarily a good fit, and people stay on too long. That can really diminish the culture of the organization. What I hear from the best nonprofit leaders is that they figure out how to develop hiring practices that are authentic to the organization, that really identify with the culture of the organization.
Like Charles Best, our friend, who we were talking about. Charles Best runs DonorsChoose, and he asks every single job candidate, “What are you grateful for?” Because he has a culture at Donors Choose of really, really strong, positive attitude… people who want to give back. And so, if you can’t come up with more than like your mom, then that’s not a good answer. He wants people who are grateful for a lot of people in their life. Developing this culture of really knowing who you are, knowing what you’re looking for, and then empowering people within your team at every single level, whether it’s your senior leadership, your team, your staff, or even your board of directors is really critical to success.
Denver: And very few have done that any better than Kiva.
Kathleen: Kiva is a fabulous example. The crowd-funding platform for small businesses, for microenterprise around the world, Kiva had the blessing and the curse of being on the Oprah Show very early on. They were featured in Bill Clinton’s book, Giving, and raised $11 million overnight and broke their servers. They had to figure out very quickly how to leverage volunteers, how to create a flat organization that wasn’t reliant on hierarchy because they didn’t have the time to manage so many people. They had to distribute this $11 million, and so that has become imbedded with their culture since Day One.
… they make storytelling their Olympic sport, that they go after it. And they know that they’re not going to build a movement unless they can really get people onboard with their words. And so, they practice.
Denver: Everybody there feels like an owner. So, we have testing ideas, measuring impact, funding experimentation, leading collaboratively, and finally telling compelling stories. This pretty much includes everyone connected with the organization, correct?
Kathleen: Absolutely. I think we all have the tendency to hear a great political speech or a great TED Talk and think: Wow! That person is just a natural! I wish I could do that! And what I realized in going out and talking with some of these great orators that we’ve heard is that they make storytelling their Olympic sport, that they go after it. And they know that they’re not going to build a movement unless they can really get people onboard with their words. And so, they practice.
My friend Nadine Burke Harris, who founded the Center for Youth Wellness, talks about her TED Talk on adverse childhood experiences, and how this was going to be critical in building a movement in the pediatric sector. And she practiced that speech for six months and said that by the time she gave it, her husband could have given it for her, practically, because she had said it so many times at the dining room table. That was critical because she did get millions of views on that TED Talk and has created a movement.
I think what the best leaders realize is that it’s not just at the founder level; that every single staff member, every single board member, even your beneficiaries have the potential to be brand ambassadors for your cause. And you have to equip them to go out and tell that story, whether it’s at a cocktail party for donors, or a meeting with new potential partners.
Denver: Nadine reminds me a little bit of Fred Astaire, who always used to make dancing look so effortless… until you found out that he was almost impossible to work with because he was such a perfectionist and did it so many times, over and over again. But it looks like he’s a natural when you see him on the screen.
Kathleen: Even comedians. Every comedian goes out and has their practice gigs, so that by the time they get their HBO special, they are game-time ready.
Denver: Absolutely, got to have thick skin there. You know when you watch somebody perform, if they sing or dance, you clap. Nobody ever fakes a laugh. It could be pretty tough.
Kathleen: No, that’s true. That’s a good one.
Denver: Through this research and surveys and interviews, were you surprised at all what you didn’t find… things that you may have thought would have been indispensable elements to one of these successful organizations, but just wasn’t the case?
Kathleen: I tested dozens of factors in my survey – social media engagement, different forms of leadership – it really did come down to these five. When I was in my interviews, I kept waiting for someone to just say, “Well it’s charisma, or a great idea, or grit, or something like that that gets people ahead.” No one said that. It’s not to say that charisma and a great idea aren’t critical to an organization’s success. Of course, they are. But ultimately, it comes down to these tools and strategies that any organization, no matter how big or small, can implement. To me, that’s really exciting. As an educator, I teach at Stanford. I truly believe that these tools are both essential and teachable. Any organization can become better by implementing them.
Denver: You may or may not have found this out. But in speaking to these successful entrepreneurs, did they site a moment when they know they were going to make it Whether it was a big gift, or a partnership, or securing a board member… where they said, “Aha, we’re there! We’re going to be a contender!”?
Kathleen: Every organization has that moment. For Lateefah Simon, the Center for Young Women’s Development, it was when she got the MacArthur prize; and all of a sudden, people started answering her calls. Or for Charles Best of Donors Choose, it was the New York Times article that was critical to getting the national attention that he needed to get the crowd funding platform for teachers off the ground. But ultimately, it started with laying the foundations for success. Success is the combination of preparation… and that moment that helped people get ahead.
Denver: You live in the Bay Area, Kathleen, you just mentioned you teach at Stanford, and you spoke to many nonprofits out there.
How much of what you report in the book– which includes organizations from across the country– do you think has been influenced by Silicon Valley mindset and the approach they take to these startup organizations?
Kathleen: It’s been influenced immensely by Silicon Valley. At every level, I think in part because donors in the Bay Area, and in particular a lot of donors have made their wealth in the tech industry and are applying some of those lessons… like using data, like developing new forms of revenue to nonprofits… in a very interesting way. Human-centric design is another example that I talk about in the book… about ways that nonprofits can also integrate this thinking of innovation into their work.
I think for better or for worse, because to a certain extent, some of this has swung too much in the wrong direction. We can’t expect nonprofits to be rigorous about their data and collect data and use it well and then turn around and not fund it as donors. What is happening is that we’re expecting a lot of nonprofits– without putting the capacity-building behind it. Another hope for me out of this research is that foundations and donors will realize the critical nature of this capacity-building support; that we have to provide patient capital to help organizations have the time to get this right.
Grants have to be unrestricted, so that we’re not just focused on the work itself, but that we are also supporting everything else that goes into that work. We would never go into a restaurant and say, “I’ll pay for the food, but I’m not going to pay for the plate, and I’m not going to pay for the chef’s time to prepare the meal.” We do that with a nonprofit all the time.
Denver: It’s like getting the FedEx package and saying: “I want none of my payment to go towards gasoline.”
Kathleen: Exactly. You’re not going to get your package. We can’t expect nonprofits to deliver under those circumstances. I think that the tech sector and the beauty of innovation have been enormously supportive in unleashing talent and potential in the nonprofit sector. I think that we also have to be aware of where we need to be more supportive of nonprofits in the way that nonprofits operate.
I think any organization can improve their operations. I think it gets harder as you become more mature because people become set in their ways…. So, my hope with Social Startup Success is that organizations will be able to accelerate their learning earlier on in the process, so that they can ultimately avoid some of these challenges that so many organizations face.
Denver: Do you think that these five strategies would be as effective if introduced to a more mature organization, let’s say, one who is 10 years old, still struggling a little bit? Or do you think there’s a really special dynamic to startups?
Kathleen: I think any organization can improve their operations. I think it gets harder as you become more mature because people become set in their ways. I know a lot of organizations, for example, that start out with a board that is a friends and family board. That kind of culture is hard to change down the road. But it can be done. For a lot of organizations, it is a learning curve.
Those first 10 years can be critical to learning some of these best practices and ultimately scaling. I just think we don’t have 10 years to waste on the problems that we’re solving. So, my hope with Social Startup Success is that organizations will be able to accelerate their learning earlier on in the process, so that they can ultimately avoid some of these challenges that so many organizations face.
Denver: Nothing like getting off on the right foot.
Denver: We discuss corporate culture a lot on the show. In the five strategies you’ve outlined, you sort of touch upon it here and there. But were there any other common threads you’ve picked up in the workplace culture of these organizations which may have also contributed to their success?
Kathleen: It is a little bit of a je ne sais quoi that you can’t put your finger on, but I definitely sawit in the organizations. I had the luxury of actually sitting down in person with the 100 social entrepreneurs that I interviewed for the book. So, I got to go in and see every one of their offices and the kind of the unique cultures that they brought. So many of them in the Bay Area, in particular, were bringing some lessons from the tech sector. They had the ping-pong tables in their break rooms… and a certain playfulness that we see in these new companies. I think that’s kind of a fun way to bring it in as well.
Denver: Are you a fan of so many startup organizations in the social sector? Or would you perhaps prefer to see more people take that entrepreneurial energy and help build and scale already existing organizations that are doing great work?
Kathleen: I think that the dirty little secret in the nonprofit sector is that there is no cemetery where nonprofits go to die. Many should go to the cemetery. Absolutely, there are too many nonprofits. At Stanford, what I’ve seen in education is that we are telling these young people all over the country that they are the best and the brightest and that that they should start organizations. I think that that is absolutely the wrong message that we need to be sending young people; that we should be addressing problems, not coming up with solutions.
There’s a big movement toward systems mapping and having students look at the systems and figure out: What are the organizations that are existing within that system? Where are the gaps? And where can their individual skills match up with the organizations that are working to support the causes that they care about?
Go work for an organization, and then maybe if you see a gap several years down the road, once you’ve had some experience under your belt, then start an organization. But what I’ve seen is that so many organizations are started by young people who go into this work with very few tools in their toolkit to address the challenges that inevitably come up when you start an organization. I think young people should get some experience under their belt before they start.
Denver: Very good advice. Going back to the beginning of Spark again, and knowing what you know now, what one piece of your own advice would have served you best?
Kathleen: I wish I had had Social Startup Success to read when I started it. It’s the playbook that I wanted. I think the one thing that we could have done better early on in Spark is getting a better handle on how to measure out the impact, and using that not just to prove that what we were doing was working, but improving and figuring out where our resources were going to be best used to support young people who wanted to get involved in gender equality issues.
When you run a network, that’s challenging because you never really fully know the ripple effects of your impact and how one person can hear something at a Spark event, and then that causes them to go talk to their HR person about paternity leave. And we can’t trace that back to our work, but certainly that impact is happening. So, getting savvier about how to measure our impact at Spark has been critical to both improving our work, as well as getting access to some of this donor money that is looking for more rigorous outcomes.
The nonprofits are critical as the incubator for governments. ..The role of nonprofits is to fill that gap where the market is not going to solve people’s problems…
Denver: Let me close with this, Kathleen. You focused your research on strictly nonprofit organizations and not for-profit social enterprises… or purpose-driven businesses; I for one am glad you did. I think they’re getting lumped together a little too frequently these days.
What do you see as the special and still unique role that nonprofits play in our society?
Kathleen: The nonprofits are critical as the incubator for government. I saw recently Elon Musk… Tesla on the rocket going to the moon. I thought to myself first of all: that is just crazy. Imagine if we put all of that energy into social change instead of putting a Tesla on Mars. But I thought: How amazing! Would that have happened but for innovation external from government? And Yes! There is a role for government to play. Government plays a critical role in scaling big ideas to support underserved communities. But ultimately, government will never be small and nimble enough to test solutions on the ground in those communities.
This is a critical role that nonprofits play… in knowing their local community, knowing what people’s needs are. Having connections and the feedback loop to constantly be improving their program. And then once you have it right, then scale that program and work with government. So, there will always be a role for nonprofits to play, both for government… and then as well as to fill the gap for market failures.
We talk about so often…people say: “Well, we need more for-profit social enterprises for social good. The reality is and yes, that will be an amazing addition to help improve the lives of many people who can be helped by social enterprises, but we can’t use market solutions to solve market problems. The role of nonprofits is to fill that gap where the market is not going to solve people’s problems, and that will always be a critical role.
Denver: Like human rights. Well. Kathleen Kelly Janus, the author of Social Startup Success: How the Best Nonprofits Launch, Scale Up, and Make a Difference, I want to thank you so much for being here this evening.
Your website is kathleenjanus.com and aside from being able to purchase a book there, what other information will visitors find?
Kathleen: So many free resources, including my Social Startup Success Evaluation toolkit, as well as a free fundraising course with all of my best fundraising strategies that people can get with the purchase of the book.
Denver: And sign up for your new newsletter, too.
Denver: Great, Kathleen. It was a real pleasure to have you on the program.
Kathleen: Thanks for having me.
Denver: I’ll be back with more of The Business of Giving right after this.
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