Students Should Stop Incorporating Nonprofits

Students Should Stop Incorporating Nonprofits

Students Should Stop Incorporating Nonprofits 1000 877 Lloyd Nimetz

Hey high-schoolers, don’t incorporate your cause-based, passion-project as a nonprofit! This is one of the most common mistakes that high school students make when they embark on an ambitious, social venture (which we call a “Spike”). There is a time and place to incorporate (more explained below) but most never should, and all projects should resist incorporating while they are still in the initial “discovery” stage — when the idea has yet to be tested and proven in the so-called “real world”.

Young entrepreneurs should avoid, at all costs, getting distracted by cumbersome legal formation processes because they are time-consuming and costly. They should wait until they know exactly what they’re doing, and they have validated that it works with some initial traction.

I’m very passionate about this relatively administrative topic because of my past experience. 18 years ago right after graduating from college, I started a nonprofit organization (NGO) called HelpArgentina, and it’s still thriving today. But I attribute much of our initial success to the fact that I waited almost a year before incorporating as a US 501-c-3 public charity. This allowed me to focus on our initial fundraising campaigns to fight infant malnutrition in Argentina and therefore channel all our energy to having real impact. Over the course of the first six months, it became clear that the organizational model that I really wanted to create was very different from my initial vision. Only when I had more validation from my initial experiences did I incorporate the initiative as a nonprofit. I am still on the Board of Directors of HelpArgentina, and I’ve been deeply involved in the nonprofit sector for almost two decades. I can’t stress enough how important it is to avoid unnecessarily incorporating a nonprofit too early.

The primary reasons why it’s so commonplace for kids (and their parents) to incorporate as nonprofits too early are:

  • Availability Bias: everywhere you look, there seems to be a nonprofit working for a social cause, so they assume that is “the” way to organize all cause-based initiatives.
  • For Legitimacy. Students often feel like they will be taken more seriously if they are a formal legal entity. Don’t let insecurity get in the way of your success. Just because you are the founder of a nonprofit doesn’t mean you’re having any real impact. People in-the-know (i.e. college admissions officers) know this, and it especially looks bad for the kids of wealthy families to be starting nonprofits that are all mission and little impact.
  • For Administrative Reasons: Students think they need to be a nonprofit to raise donation money or to partner with nonprofits or legal entities.

In almost all cases, none of these are good reasons. Unless you have a huge donor saying that they will only donate money if you incorporate as a nonprofit immediately, then you probably shouldn’t. There are three other, much better, organizational models that we encourage students to pursue early on:

  • Option 1: Staying Informal. Most initiatives do not have any need to legally incorporate early on. We wrote recently about Greta Thunberg’s #FridaysForFuture initiative (which won our “2019: Spike of the Year” recognition), and she kept her initiative informal until only recently.
  • Option 2: Organizational Sponsorship. In this case, students run their initiative as a pilot within an existing nonprofit that is mission-aligned and that they have a relationship with. The most common forms of this are for students to start a club in their school or as an initiative at a local community organization like their church, Rotary club, etc.
  • Option 3: Fiscal Sponsorship. This option is similar to the option above, but it is with a nonprofit entity that has programs explicitly designed for the purpose of hosting and supporting new mission-aligned ventures, like yours, that don’t want to bother with the incorporation process early on. Click here to learn more about it from The National Council on Nonprofits.

The Lean Startup and Customer Development frameworks for innovation are today’s gold-standard when it comes to best practices for starting new ventures, including youth social ventures. Here are some links to useful articles on the stages of Lean and Customer Development. As depicted in the diagram below, the stages include: “Discovery”, “Validation”, “Launch” and “Scale”. If you are in the “Discovery” stage, which means you are still determining your model and haven’t started testing yet, then you definitely should not start the nonprofit legal incorporation process (Option 4 below); stay informal (Option 1). As your idea matures and gets more proven, you should start thinking about forming a legal entity, but we recommend you staying informal or pursuing organizational (Option 2) and fiscal sponsorship (Option 3) until the idea is fully proven and ready to scale.

If you are a youth entrepreneur and want some advice with this type of strategic decision, we recommend you talk with a more experienced entrepreneur or, even better, someone who is an expert in starting youth ventures. Here is a short list of some experts you can talk to:

Lloyd Nimetz

Serial entrepreneur, educator, investor, milonguero, dog-lover and Coach, Founder & CEO of The Spike Lab

Read more by: Lloyd Nimetz