August 13, 2017; Grand Forks Herald
As in any thriving sector, there will be many nonprofit startups this year and, as in any thriving sector, many will not flourish. But nonprofits have some of their own set of startup risks and these are highlighted in the following story.
In the summer of 2015, La Royce Batchelor, a University of North Dakota Entrepreneurship Instructor, had a vision. She saw a thriving market of diverse wares created by immigrants originating from around the world. The Global Entrepreneur Training Project would be a rich, unique opportunity for North Dakota residents to purchase one-of-a-kind crafts and food directly from immigrant entrepreneurs. The immigrants would also receive critical business advice from local college students, providing an opportunity for these college students to see how their lessons apply to the real world.
Batchelor saw the potential and thought big. She identified a 10,000-square-foot space at the local mall for $3,500 a month. Then, she reached out to a colleague at the local community foundation and received two grants totaling $70,000 to begin the project. She knew she needed more money and hired some college students (including her own son) to write grant applications and perform other administrative functions.
That strategy, a mashup of rookie mistakes, says volumes about how much Batchelor knew about the realities of the funding world. Her startup capital was too scarce to end up committed to a space without assurance of further operating grants, and that’s a big no-no. Here’s what happened next:
Launched in 2015…the project started with $70,000 in grant funding, but disintegrated over the course of 2016. First, it ran across asbestos in its space at the mall, holding up the project and jeopardizing relationships with donors. Then it failed to receive a key federal grant, immobilizing the project—a critical blow that left it without a future. By September, the project received a letter from the Community Foundation, led by since-resigned director Kristi Mishler, freezing its remaining funding.
Mishler called the move unprecedented in her nearly decade-long tenure.
What went wrong? Well, investing so much of your available capital in fixed costs like facilities allows for little flexibility. Additionally, the group estimated it would take $330,000 to put it in shape to be used—money Batchelor said she had her eye on in the form of possible grants and donations. The whole plan was a house of cards. What if there had been a shared space option, which would have precluded the need to invest so much in a first space? This would have left the group more cash-fluid and would have allowed for some experimentation toward innovation. And paying out $10,000 in a scholarship for one of the participating students? That went over like a lead balloon.
Additionally, a nonprofit is owned by the community; the broader its base of support, the greater its chance of success. It’s not unusual for founders to begin to build a nonprofit by reaching out to friends and family, but this can damn a project to an insular bubble that does not allow for prevention of classic mistakes. In this case, the relationships all appeared way too close. The Global Entrepreneur Training Project’s fiscal sponsor was the Center of Innovation, where Batchelor worked part-time and drew a salary when there was grant funding. Additionally, she employed her students and her own son. So many questions. Were there no refugees employed in her target group? Did she have a board of independent advisors, which would have helped her think through the strategy before it imploded, or was she truly accountable only to people who were deferentially connected to her?
For her part, Batchelor herself appears to have been spread mighty thin, which is generally not wise for a founder of a complicated development effort.
A black belt overseeing her own local karate studio, Batchelor was living a busy life with a heavy focus on entrepreneurship. She was pursuing a Ph.D. in communications at UND and, during the academic year, she was an instructor in the UND School of Entrepreneurship.
Finally, grants often do not materialize, as was the case for the Global Entrepreneur Training Project. A CDBG grant they were in the running for disintegrated as a possibility when the project lost traction and could not guarantee the grant, an admittedly unusual requirement. But such deals often contain “surprises.” That is why you need more flexibility in your budget and timeline than was evident here.
What Batchelor did get right was her research. She visited other sites with similar purposes and presumably talked with them about business models. She also managed to get a lot of people on board with the plan, albeit perhaps not as critical advisors.
What happened to the Global Entrepreneur Training Project displays some very avoidable mistakes. As we get straight from the founder’s mouth, “There are no easy answers to this. It’s all [an] interconnected mess.” And that’s why we need the critical advice and counsel of those who have gone before:
“I’m not saying it was La Royce’s deal,” Mishler said. “It became very clear the project wasn’t moving forward, and this (was) a formal notification to not spend any more money from this grant. And we needed to know why and what was happening. I had some general knowledge, but not all of it. And even after I left, it still wasn’t clear—after I left the foundation (in January).”
In a subsequent interview, Mishler reiterated that she felt Batchelor had done everything she could—except, perhaps, ask for help.
“I got a little bit of an impression that (Batchelor) felt that things were falling apart sooner than she shared with me, and I wish she had talked with me sooner.”
However, all present deserve kudos for gifting the world with clarity about why the effort failed. Our takeaways?
- Never skip the step of having a critical board to whom you make yourself accountable. They can help vet plans, provide a cautionary voice on contracts, help you understand how and when to speak with partners, and ensure that the nonprofit is truly “owned” by more than just yourself. This, in fact, defines a good chunk of what it means to commit oneself to being a nonprofit.
- Ensure that no early seed funders are surprised by anything.
- Don’t hire your relatives. It just makes things look hokey.
- Always have a Plan B. Learning how to build something that requires continuous recalibrations is hard, so expect that many things will go wrong and get ready to work it strategically over the unexpected barriers that will necessarily throw themselves in your path.
Lastly, remember that this sector’s strategic advantage is in its collective intelligence and ownership. Neglecting that in favor of a strong single leader is, in these days of complexity, pure folly.—Gayle Nelson and Ruth McCambridge