3 The Difference a Sector Makes: Lean Startups for Profit versus for Social Change

I’ll never forget the time that Vince, a chief financial officer I’d recently hired out of the private sector, walked into my office and asked, “So … how do we make money?” He’d gotten on top of spending in record time and had a firm grasp of our burn rate—how much cash we were using each month to pay our bills. He’d reviewed payroll for any discrepancies or inequities. He’d established policies for promotions and new hires. The one thing he couldn’t figure out was how we made money. And, strictly speaking, we didn’t.

An organization’s relationship to revenue is one example of a big difference between business and the social sector. There are others, including mission, hiring, relationships to those we serve, and the risk profile of the organization and its employees. Each of these is relevant to how the lean startup works for nonprofits and government.

The organization I was running at the time was the country’s only sustainability policy institute (called Redefining Progress), and, in a good year, other organizations paid us $250,000 for our work. The rest of our $2.8 million revenue came from foundations and donors as charitable gifts. The fact that we didn’t sell anything—that we couldn’t project revenue from something whose production, marketing, distribution, and sales we could at least somewhat control—freaked Vince out. The dominant metric that Vince was used to driving was revenue, and we had a lot more on our agenda at Redefining Progress than that.

Making change is different from making money, and startups in the social sector have to worry about far more than revenue. The ability to generate large amounts of revenue has, appropriately, been the primary metric for lean startups in the business sector.

Lean practices can deliver incredible results for nonprofit and government innovators as well, but this chapter takes a little time to highlight the similarities and differences between the sectors so that lean startup practitioners can jump into that practice and benefit—without missing a beat—from the vast array of tools available.