Case Study: Should We Convert to a Nonprofit

Case-Study December 26th, 2017

Problem: “Should We Convert to a Nonprofit?”

Background A technology company (we’ll call them “A Really Cool Company” or “ARC” for short) works with children in the coding space. ARC made well over 150K in revenue each year, but its operations are capital intensive and is struggling to grow its low income user-base within schools. ARC is contemplating a conversion (i.e. change) from a for-profit with to a nonprofit, so it can work with more low income students and capitalize off of the lower fees or in-kind opportunities that can come with being a not-for-profit.

EMPLLC to the rescue!

EMPLLC was hired for a brief ​Exploration Chat​. In this quickie session, I help companies get a better sense of how to structure their businesses or projects, something that’s particularly tricky for businesses with positive impact as a focus.

I send out a questionnaire so both the founder and I get a better sense of where the priorities are.

Next, I do in-depth research on ventures in similar or adjacent spaces. This gives everyone a sense of what the trends are, what competitors are doing and what the opportunities, weaknesses or gaps may be with what’s being done. I also look into potential funding sources; things like foundations, corporations, institutions, government initiatives and potential investors.

Equipped with all of this I met with the Founder of ARC to work through its question of whether or not to convert. First, I walked through some of the assumptions the question was built on to highlight blind-spots. This could be assumptions like, “Being a not-for-profit equals more community partners”. Then, I walked through general observations I made of nonprofits currently in the space.

For example, most of the nonprofits in coding focus on two selling channels, and all of them have some sort of wrap-around service or angle. Working in leadership, education, advocacy or soft-skills.

What would this mean for ARC? It means as a not-for-profit it may have to fundraise for capital intensive selling channels. In addition to funding an expanded scope so it’s more competitive for foundation dollars and to get its 501(c)(3) status with the IRS.

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Next, I outlined the opportunities converting would create, the largest being public perception and the ability to work with schools more easily. Followed by concerns with converting. Would the business have the capacity to fundraise? What differentiators would it develop in the crowded space?

What would the new business model look like?

Where the magic happens: My Value I close every chat with suggested next steps, based of my experience working with funders, donors and investors.

In this instance, my suggestions were: ● ●

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Play with the business model, and look at ways to leverage their expertise and technology. ​For example, building out curriculum and pricing for licenses or facilitation packages.

Create white-glove services for local technology corporations who want to build out their own branded curriculum. A great sponsorship opportunity for them, it possibly creates a recruiting pool, and ARC could get a license fee if the business wants to train on its own.

Leverage existing expertise to cut down on costs. This could be done by utilizing university students or crowd-sourcing solutions. The company could also ease capital expenses by digitizing itself, continuing to touch students through collaborative conference technologies. Allowing a site to serve as its hub or a lead generator.

Open up scope specific projects (like expanding access to low-income students) to the community.

Build out a network or consortium to leverage the assets and funds already out there.

Create a nonprofit entity under the for-profit, where its focus would be accessibility and education.

While the for-profit focused on more innovative product development and delivery.

Finally, I closed out with next steps we suggested be taken by the founder to come to a final decision, and a visual mind map was sent out to capture our discussion along with a brief write-up.

The client appreciated the overview of what exists, because it gave them a better understanding of the possibilities. What helped most were all of the ideas around how to structure aspects of the business.

In a way that would still allow the company to impact communities without having to convert the entire business. Saving them the time and money of having to research this themselves. Or worse, spending money to start down a path that wasn’t feasible. Now ARC has a better understanding of the hurdles, competitors, options and the legal implications of each.

Not sure how to set-up your business of venture? Want to better understand your options?

Set up a free consultation with me ​here​.

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