This week’s theme is change and the many forms it comes in. Change as in a Founder changing her mind on an approach, or changing the structure of a project entirely.
I often meet clients who started their initiatives as charities because of societal norms and not because of a deliberate intention or strategy. In other words, because society presents nonprofits as THE only way to do community-oriented work, that’s the design people go with without giving other alternatives much thought.
Why Some Founders Want to Change Their Non-profit
Somewhere into the process, a few things can happen:
1. The scarcity mindset government and grant-making entities have toward non-profits can start to turn Founders off.
2. Founders discover there was an underlying intention to depend on grants that aren’t there or are super competitive.
3. Founders find they aren’t touching the people they want to touch or having the impact they want to have; either because of legal or perceptional limitations on non-profits.
So they’ll come to me and wonder if they can change their non-profit into a socially conscious business.*
*(I don’t like the dichotomy of non-profit v. for-profit because a non-profit SHOULD be for-profit but I use in the title because I understand that’s how most people frame the question. )
The Answer is Likely Nope
The short answer is typically no. Each state has its own laws around non-profits and separate laws on changing (or converting) a type of entity.
Nonprofits are created with community benefit in mind, where funds are held in “trust” for the public so the organization can accomplish its mission…for the public. The moment money or resources touch a non-profit, they are dedicated toward a community-focused implementation of the mission the organization has set out in its documents. However, as I mention below this can change depending on where you are so you’ll definitely want to get with a local attorney.
Alternatives to Changing a Non-profit Entity
For this reason, and to avoid unfair competitiveness, you generally aren’t able to turn a non-profit entity into a socially conscious business. There are, however, a few options:
1. You could sit down and conduct a business model session if the amount of money coming in is a concern. Thinking about the business model is especially important if you went into the non-profit game believing there was an abundance of grants being sprinkled about. Odds are, you are constricting the ways you bring in money with bone-deep, but incorrect, narratives you have on what it means to be a non-profit. Or, limiting your money making efforts with internal narratives you have on making money in general. Either way, coming up with new and unique ways of generating revenue to support your impact could entirely shift the work you’re doing.
2. Another option is to create another arm to the non-profit that houses a social enterprise or socially conscious business. I talk about this often, but KABOOM playgrounds is a wonderful example. KABOOM found many municipalities have money to create their own parks and don’t need KABOOM’s grants. What they do need is expertise, that they are willing to pay for. So KABOOM has a thriving consulting arm that supports the work the non-profit does.
3. A flip to 2, you could create a socially conscious business under which the non-profit operates as a charitable or educational arm. The difficulty in this arrangement is ensuring you set up the right agreements to use the intellectual property (computer programs, strategies, etc.) or the assets (computers, offices, etc.) of the nonprofit that doesn’t appear to make the nonprofit a tax shelter.
4. For some clients, it’s not ideal to start over. Others welcome the chance of having a clean slate. Whatever may come up for you, another option is to wind down the nonprofit or merge it with an existing nonprofit. Then, start a new socially conscious business.
If you’re considering a big switcheroo for your nonprofit, the first thing you’ll want to do is look in your governance documents and understand what’s permissible under the law in your state. Your state or location (I’m limiting this post to the US) may allow for big changes. A bonus option might simply be changing the state your nonprofit is formed (domesticated) in to another state more aligned with what you want to do.
I often work with founders on business model brainstorms, North Star or Navigation plans to figure out where they are an come up with steps to get to where they want to go. Don’t hesitate to set up a free consultation if you feel like you could use some support.