The Playbook on Tech Nonprofit Business Models

November 2, 2020

So you’ve nailed down your why and narrowed in on the exact customer you want your organization to serve. Now it’s time to start thinking about your business model. To be clear, not all problems can or should be solved using a nonprofit business model. But if you’re serving a hard-to-reach customer or a customer that markets will never touch, the tech nonprofit business model makes a whole lot of sense.

Every year we talk to hundreds of entrepreneurs who want to build a social impact startup. Many of them haven’t heard of the tech nonprofit model before or have received advice to incorporate as a for-profit social enterprise. While there are some great things about being a social enterprise (your product or outcomes of your business are doing some good for the world), if you incorporate as any type of for-profit, your bottom line changes.

If you decide to become a for-profit social enterprise, you enter double bottom line territory. That means you’ll have to split your focus between impact and profits, which is a tough line to straddle. One always wins out. But guess what?! There’s a model that allows you to build powerful technology, partner with renowned funders and corporations, bring in earned revenue, and exist entirely to create positive social impact. That’s the magic of the tech nonprofit model.

“When you’re ready to incorporate your startup, remember to ask yourself what matters for your business – reaching the people who need your product most, or maximizing profits? The advantages of being a nonprofit will likely surprise you.”

– Michelle Brown, Founder & CEO, CommonLit

Your Customer Might Make the Decision for You

Sometimes, your customers will define which business model is a better fit. Let’s compare tech nonprofit Tarjimly, an on-demand translation app for refugees and aid workers, with iTranslate, a company that delivers text and voice translations across 100 languages.

Business Model Question	Tech Nonprofit: Tarjimly	For-Profit: iTranslate
Who is it serving?	Tarjimly serves refugees and aid workers, specifically those with high-needs. These refugees are often confined to camps or in new countries with very little resources.	iTranslate’s customers include travelers, students, business professionals, and medical staff. These customers are able and/or willing to pay for the product at full cost.
Is there a market for this product?	Limited opportunity for a paid market. Refugees are unable to pay for the service. Aid organizations could likely pay for low-cost access to the platform.	Yes. Because iTranslate is targeting a customer with the ability to pay, the app is free to download but leverages a monthly subscription fee.
How important is the mission?	Tarjimly’s mission is to improve the lives of refugees and the efficiency of humanitarian services by eliminating language barriers. Because Tarjimly wants to ultimately help refugees, who are hard to reach and likely unable to pay for the product, the mission is front and center.	iTranslate’s mission is to enable its target users to read, write, and speak in all languages, anywhere in the world. Because it’s targeting a user base that’s able to pay and it has taken investor capital, the mission is geared towards a more profitable customer.

The customer Tarjimly wants to serve inherently puts mission at the forefront, making the nonprofit business model an obvious choice. A for-profit model would jeopardize Tarjimly’s ability to help the hardest to reach customers.

When serving hard-to-reach populations, understanding specific needs and challenges is critical. AI tools can assist in this process by identifying and bridging communication gaps. For example, Tarjimly could use AI to analyze linguistic and cultural nuances within different refugee populations, helping tailor its translation services to be as effective as possible. By leveraging AI, the platform can ensure it meets the specific needs of the communities it aims to serve.

Still not sure what path to take? Thankfully, there are some simple gut check questions that will help you determine if the tech nonprofit model is right for your startup.

The Playbook on Tech Nonprofit Business Models – Fast Forward

Decoding Tech Nonprofit Language

Some words and phrases used in for-profit tech have different meanings in the tech nonprofit world.

Term	For-Profit Startup	Tech Nonprofit
Solution	A product looking for a market	A market failure in need of a product
Fund	Investment in return for expected financial returns	Funding in return for expected proof of impact
Returns	Profit and financial gain	Impact and social gain
Revenue	Income from receipts, proceeds, or earnings	Income from donations, fee for service, or earnings

Social Entrepreneurship, Defined

Tech Nonprofit. A tech startup, building original software or hardware, that has selected a nonprofit business model in order to scale impact, not profits.

Social Enterprise. An organization that applies commercial strategies to maximize improvements in financial, social, and environmental well-being. This may include maximizing social impact alongside profits for external shareholders.

B Corp. Benefit corporation is a certification that requires a commitment to have a positive impact on society, workers, the community, and the environment in addition to profit as its legally defined goals.

Nonprofit. An organization dedicated to furthering a particular social cause or advocating for a shared point of view. Also referred to in the U.S. as 501(c)(3) organizations, nonprofits are exempt from federal income tax under section 501(c)(3) of Title 26 of the United States Internal Revenue Code.

NGO (non-governmental organization). A nonprofit organization that operates independently of any government, typically one whose purpose is to address a social issue.

Hybrid Model. A model in which a nonprofit and a for-profit are linked. Generally, one is a subsidiary of the other, or the two entities are bound by long-term contracts in which one entity fulfills a need for the other and vice versa.

Nonprofit Business Modeling for Tech Nonprofits

Yes, your tech nonprofit is a business! And now is as good a time as ever to draft your business model canvas. You should complete this twice because as a nonprofit you’ll be effectively driving value for (at least) two distinct groups: your beneficiaries (end users) and your funders (the foundations, institutions, individuals, or governments funding your product or service).

Your beneficiaries always, always come first, but you still need to make sure you’re fulfilling a need for each group. Stanford’s Impact Business Model Canvas is popular among social entrepreneurs.

In summary, with the tech nonprofit business model, you’re not taking venture capital, your funders do not expect financial returns, and any revenue you earn will fuel your mission. When you go down the tech nonprofit route, your business model will have an immense impact on your ability to serve your desired customer. If that’s the path that you’re after, we’re thrilled to welcome you into our ranks.

Choose a Business Model Checklist

Decide what business model makes sense for your mission. Refer to the “Should I be a tech nonprofit?” decision tree for guidance.
Apply for 501(c)(3) status. We believe in you! Here’s a guide on how to do it, and learn more about the process in Chapter 12: Tech Nonprofit Administration.
Complete a business model canvas for your beneficiaries, and then for your customers.