How to Start a Nonprofit Charity

The business of charity: Behind every successful nonprofit is a well-thought-out business plan. First, make sure there isn't already a nonprofit with a similar program in your region. Efficiency is crucial. Before launching their urban, college prep boarding school, The SEED School, in Washington, DC, co-founders Eric Adler, 42, and Rajiv Vinnakota, 35, applied their experience from major management-consulting firms to concoct numerous financial plans, which they then bounced off experts. Even then, the pair had to regroup when expenses outstripped their forecast.

A former private-school teacher, Adler was frustrated with the way scholarship students from tough neighborhoods often floundered. His idea: board students, providing a safe, quiet place to study and mentors to keep students focused on college.

Started in 1998, SEED has since seen two similar concepts on the East Coast fail. Key to SEED's success is a model that requires only modest ongoing fundraising -- about $400,000 of its nearly $11 million annual budget. Most of their finances come from state and federal charter-school funds. Buoyed by graduation rates substantially higher than the district average, the pair hopes to open two more schools in the area within three years.

Finding Funding, Getting Paid and More

Finding funding: Although many nonprofits collect fees for services of some kind, most rely at least in part on funds raised from private donors, foundations or government grants.

"A common pitfall is that founders don't regard fundraising as one of their principal obligations to the people they serve," says Schwartz.

As a start-up nonprofit with no track record, fundraising can be tough, says Adler. Most funders require documentation on how well the nonprofit is meeting its goals -- data start-ups lack. But it can be done -- SEED raised $2 million in initial funds and $26 million to build its campus.

Adler had the most success with individual philanthropists in the DC area with personal knowledge of the district's problems, rather than national foundations. "You have to make them believe you need their gift now and you're going to succeed," he says. "You've got to knock on door after door until you meet the people who can introduce you to the people who are willing to fund it."

Social entrepreneurs: Instead of relying on fundraising, some nonprofit entrepreneurs create a nonprofit business that generates the needed revenue. Though this model has been around for years, it's blossomed in the past seven years into a major movement nonprofit managers call "social entrepreneurialism."

A prime example is Athena Partners, a Seattle-based, nonprofit bottled-water company founded by former marketing executive Trish May. After surviving a bout of breast cancer, she spent six years investigating how to help fund a cure. Her answer: bottled water adorned with the pink breast cancer-awareness ribbon.

Founded in 2003, Athena has since made a deal with food-distribution giant Sysco that will take Athena nationwide next year. Sales this year were $1 million, and May projects $2.5 million for 2007. May, 52, says being a nonprofit allowed Athena to tap volunteers who'd been touched by cancer, and it brought free advertising. For instance, Alaska Airlines provided the necessary funds to put giant pictures of Athena's bottle on the Athena delivery trucks.