Take the Risk Assessment Quiz
Take the time, and be willing to say no.
Here are practical tips for considering alternative revenue streams while safeguarding your mission and resilience. These guidelines can help you decide when to go for it and when to say no, regarding a new revenue idea.
Before chasing any revenue idea, ground yourself in strategic planning. Ask: Does this idea naturally advance our mission, or is it a random add-on for cash? The more “embedded” the revenue activity is in your mission, the better its chances of strengthening (not straining) your organization. For example, a therapy nonprofit selling counseling services to the public might align with the mission, whereas the same nonprofit opening a bakery likely does not.
Use a Lean Strategic Planning approach to vet ideas against your core purpose and long-term goals. (Our Lean Strategic Planning model is designed for this kind of agile, mission-focused decision-making, helping you spot risks and opportunities in real time.) In short, ensure any new venture serves your mission on more than just a financial level. It should either enhance your impact or at least directly connect to your area of expertise.
Perform an honest assessment of what it will take to execute the new revenue model.
It’s critical to budget and plan for the true costs – both financial and human. Often, earned income ventures require upfront capital and a runway of maybe 1-2 years to breakeven, if they ever do. Make sure your board and leadership understand this isn’t “free money.”
If you decide to proceed, set clear go/no-go metrics and a timeline. For instance, “We’ll try this for 18 months, and we need to see X outcome by then, or we’ll pivot.” This prevents the sunk-cost fallacy of pouring good money after bad. And don’t forget to assess risk by undertaking a mini risk assessment for the project (market risks, compliance risks, reputational risks). If you need help structuring that, seeking outside expertise or training is wise. (Shameless plug: programs like our Foundations for Growth can equip you with early warning systems and risk management strategies to catch red flags before they become crises.)
It sounds obvious, but many passionate nonprofits have leapt into social enterprises without a solid business plan, only to realize revenues were wishful thinking. Do the math. Conduct market research to see if there is there real demand for what you plan to sell. What pricing will people bear, and how much volume can you realistically move? Project expenses conservatively and include indirect costs and staff time. If the numbers don’t add up, don’t proceed (or drastically simplify the concept until they do).
Be especially cautious with ventures that require heavy upfront investment or fixed costs, such as buying a building for a thrift store. Consider testing the concept on a small scale first. Also, plan for how you’ll fund the venture’s startup phase. Will you dip into reserves, seek a loan, or use surplus from operations? How will that impact your financial stability if things run tight? A new revenue stream is rarely immediately profitable, so ensure you can absorb losses early on. Essentially, treat it like a business plan: if you wouldn’t fund a for-profit startup with that plan, don’t fund your own.
Set guardrails to avoid mission drift and stakeholder alienation. Communicate with your board, staff, donors, and clients about why you are exploring a new revenue idea and how it fits your mission. If key stakeholders express serious concerns (e.g., a major donor fears you’ll become “too commercial” or staff worry about overload), take that feedback seriously. Sometimes pursuing a smaller innovation that everyone supports is better than a grand venture that splits your team. Make sure your existing programs and obligations remain funded and high-quality even as you divert some attention to the new initiative.
One practical suggestion is to establish a separate budget and possibly a separate team or entity for the enterprise. This allows you to monitor its performance without complicating your nonprofit’s finances. This also makes it easier to pull the plug if needed, without bringing down the whole ship. Throughout, maintain focus on your mission outcomes.
If at any point the new revenue activity starts to harm your service quality or cause mission creep, be ready to course-correct or discontinue it. No amount of revenue is worth your integrity and impact.
It’s perfectly acceptable to decide not to pursue a revenue idea. Nonprofits should not be guilted into social enterprises or tech gimmicks that aren’t right for them. It’s unrealistic and impractical to expect most nonprofits to generate significant earned income. Many organizations thrive for decades primarily on philanthropic and government support. So push back on funders or board members who insist on revenue experiments that don’t make sense.
You can point out evidence that such ventures often don’t work out or can distract from solving the social problem at hand. Re-frame the question of sustainability: instead of asking “when will we no longer need donor money?,” focus on building a diverse funding base within the charitable sector, such as individual donors, grants, etc., or on strengthening reserves. Sometimes the wisest choice is doubling down on what you do best and educating funders why that is the most impactful route. Pursue new revenue streams when they flow from strategy and decline or delay them when they don’t.
If you do move forward, approach it as a learning experience. Set up metrics for success but also metrics for learning (e.g., “we want to learn if our brand can attract customers beyond our clients”). Conduct periodic reviews of the venture’s impact on your mission and finances. Involve your board in oversight without letting them micromanage the project. Celebrate small wins and be honest about setbacks. If the project succeeds, great, integrate it and continue to monitor for mission alignment. If it struggles, don’t view it as a catastrophe; use the data to adjust your strategy. Perhaps the pricing needs tweaking, or you discover a different service is more viable. Adopting a lean experimentation mindset will serve you well – pilot, evaluate, iterate, or exit. Through it all, keep an eye on resilience and maintain your contingency plans and financial cushions in case the venture underperforms. Remember, your goal is not just more revenue, it’s resilience. That means the ability to withstand surprises and continue delivering on your mission.
By following these principles, you can be prudent and strategic about revenue diversification. The goal is to innovate in ways that strengthen your nonprofit, not to gamble its future on an untested idea. When in doubt, fall back on your mission and sound risk management practices as your guiding lights.
As we wrap up Challenge 10, the key takeaway is that revenue diversification is a means to an end, not an end in itself. The end is a resilient, mission-driven organization. New revenue models can be part of the solution, but only if pursued thoughtfully.
Risk Alternatives enhances the resilience and sustainability of nonprofits through comprehensive tools, training, and support. For inquiries about conducting a risk inventory or other matters, please contact Risk Alternatives at info@tedbilich.com.