The Lean Nonprofit

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Can Lean Startup methods work for nonprofits?

The Lean Startup‘s author Eric Ries seems to think so:

A startup is a human institution designed to create a new product or service under conditions of extreme uncertainty… Anyone who is creating a new product or business under conditions of extreme uncertainty is an entrepreneur whether he or she knows it or not, and whether working in a government agency, a venture-backed company, a nonprofit, or a decidedly for-profit company with financial investors.

In the past year, I helped launch one new nonprofit (Center for Applied Rationality), I massively overhauled one older nonprofit (MIRI), and I consulted with many nonprofit CEOs and directors. Now I’d like to share some initial thoughts on the idea of a “Lean Nonprofit.”

Tight Feedback Loops

Tight feedback loops are a key component of the Lean Startup approach. I’ll summarize Ries’ recommended plan for a new organization into three steps:

  1. Launch your “minimum viable product” as quickly as possible, to start learning. Example: Zappos founder Nick Swinmurn set out to test the hypothesis that customers wanted to buy shoes online. Rather than building a website with a large database of footwear, Swinmurn approached local shoe stores, took pictures of their inventory, posted the pictures online, and bought the shoes from the stores at full price if customers purchased the shoe through his website. This particular setup couldn’t scale, but it helped Swinmurn learn whether his product was viable.
  2. Learn precisely what your customers want — not by asking them, but by carrying out lots of experiments, including A/B testing. Example: When Dropbox co-founder Drew Houston asked people if they wanted effortless file synchronization, most of them said “no” or couldn’t understand the concept when it was explained. But it turns out the customers didn’t know what they wanted. Early versions of the product were a hit, and millions of people suddenly learned they wanted effortless file synchronization. (See also: Is That Your True Rejection?)
  3. When your learning demands it, pivot. Example: Ries spent 6 months writing code that allowed his startup’s 3D instant messaging software IMVU to interact with popular IM networks, on the theory that users wouldn’t want to learn new software and create new buddy lists. When they finally tested the product, they learned that users wanted a standalone IM network, and they didn’t mind learning a new IM software. IMVU’s creators pivoted, throwing out thousands of lines of code for IM network interoperability.

So, can this approach work for nonprofits?


Profits vs. Mission

In a telling paragraph, Ries says:

The goal of a startup is to figure out the right thing to build — the thing customers want and will pay for — as quickly as possible.

The goal of a company is to make profit. That simplifies things. A for-profit startup can run experiments until it learns which products and services customers will pay for, then it can develop those products and services and make a profit.

But a nonprofit startup which optimizes purely for growth at the expense of achieving its founding mission is often said to have “lost its way” and been caught in lost purposes. Distributing excess Superbowl t-shirts to Zambia makes for good press and helps World Vision lower its overhead ratio, but probably doesn’t help humans efficiently.

But if we read Ries charitably, we might think he solves the problem with his distinction between vision, strategy, and product:

Startups… have a destination in mind… I call that a startup’s vision. To achieve that vision, startups employ a strategy, which includes a business model, a product road map, a point of view about partners and competitors, and ideas about who the customer will be. The product is the end result of this strategy.

Products change constantly through the process of optimization… Less frequently, the strategy may have to change (called a pivot). However, the overarching vision rarely changes. Entrepreneurs are committed to seeing the startup through to that destination.

…We [at IMVU] adopted the view that our job was to find a synthesis between our vision and what customers would accept; it wasn’t to capitulate to what customers thought they wanted or to tell customers what they ought to want.

It seems to me a nonprofit can stick to its original mission (its vision) while using tight feedback loops to figure out which particular strategies and products will best enable it to achieve its mission.