The Red Envelope Strategy

November 9th, 2014 by Alex Conrad


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The red envelope strategy is a real life example of a start-up Entrepreneur’s advice about raising money for your non-profit.

While working in China, I was asked to advise a friend who headed a Beijing non-profit in the clean energy space; she was having great difficulty raising money, and lamented the difficulty in getting donations to her NGO. Specifically, guests invited to luncheon lectures were rarely contributing, despite providing positive praise after the events. When I heard this, I suggested sending a red envelope along with the free invites for future luncheons.

The red envelope, pronounced “hongbao” in Chinese, is a potent symbol in Asian cultures. Gifts of money are given for birthdays, weddings, holidays and business events. In this instance the envelope was sent to inspire a gift of money for the non-profit, and proved to be a successful catalyst. Many of the envelopes were returned with money along with thanks for an interesting and useful event.

I was the recipient of happy gratitude from my friend for this suggestion. While I was appreciative of her praise, I didn’t think my suggestion was all that remarkable. I simply looked at the problem from the standpoint of a start-up entrepreneur, where you often need to convince people to engage and recognize value in different ways. But as I’d learned in countless previous experiences, creating an opportunity nexus that is timely, culturally relevant and valuable usually produces results.

Raising money for an entity, for profit or otherwise, is as time-consuming as it is necessary. It’s critically important to have a smart plan to execute against as the only thing more valuable than money in most organizations is time.

What are other cross-over lessons which exist between the start-up and non-profit sectors when it comes to raising capital?

Plan To Raise the Right Amount of Money

 

Countless start-up businesses run into trouble or even fail because they did not plan to raise the right amount of money. The ‘just enough money’ until product launch strategy rarely features a happy ending. A similar lesson exists for non-profits. Don’t plan to operate with what money you are able to raise. This is akin to planning for failure instead of preparing for success. Instead, forecast, model and test how much money the organization will need. Once this strategy is soundly in place, create the capital raising tactics underneath it to achieve the organization’s goals.

Non-profits should also think about raising money in terms of financing, not fund-raising. The results may be the same, money in the bank, but the strategic thinking and execution for a financing model is much more sophisticated and effective.

Think of Donors as Investors

 

For start-ups, early adopter customers are just as important as investors. Indeed, they are in fact investing in your company’s vision by buying your product or service in the first place. Non-profit donors may not be early adopters in the same sense, but they are similarly making a donation to your organization as recognition of the organization’s value. Actively thinking about and communicating your organization’s value to donor/investors will increase the likelihood and amount of money raised.

Note that while all customers/patrons of your product/service/event can be considered investors, it does not necessarily hold true that all investors are customers or patrons.

Your strategy must consider that there are likely individuals and organizations that will be willing to engage with you even if they don’t actively participate as a customer or patron.

About Those Investors

 

Investor management can take a significant amount of time. It’s critically important to plan for efficient and effective communications to manage your time well. As a start-up entrepreneur, you must work with your advisors to choose the ‘right’ investors. Similarly, non-profits must be cautious of the significant time required to cultivate relationships with larger, single entity contributions when it is usually the one-to-many (as opposed to one-to-one) models that generate the greatest cash flow.

Certainly both types of donors are important and have a role in the organization’s future. But planning appropriately will drive both efficiency and results.

Earned Income Should Be a Growth Strategy

 

It’s often said of start-ups that revenue is the least expensive method of capital raising. In a similar vein, earned income for non-profits should be a growth strategy. Again, it’s about value. If you’re earning income because people are paying for products, events or services, they’re only doing so to recognize the value you are providing.

What other value can the organization deliver to drive value and increasing earned income? Also, consider that earned income can be accretive to other money raising activities as well.

Technology

 

Apps, social media, digital currency…the list goes on. It’s easy for both start-up entrepreneurs and non-profit managers to succumb to the siren song of technology. But technology is just a tool, admittedly often a powerful tool, but a tool nonetheless. While technology will almost certainly play an important role in any successful capital-raising plan, it’s critical that it falls inside of the overall organization’s strategy. As well, don’t forget the companion issues to any technology adoption: infrastructure (often expensive) and social engineering (often very difficult).

Making your organization a technology innovator can be as exciting and alluring as it is successful. By all means, take the steps to accept digital currency for payment if it fits your overall plan.

But there’s another part of technology that is often overlooked at an organization’s peril. You must plan for a sub-set of stakeholders who won’t have a smart phone to download your latest app or won’t have an online presence to see your carefully curated social media updates. These are still valuable stakeholders and you must prepare to engage with them.

Conclusion

 

While nuances and important differences exist between the for-profit start-up world and non-profits, there are many similarities, particularly in the domain of raising capital. In all cases the essence of success follows a common pattern: create a strategic plan, develop a financing model that supports the plan, engage with the board of directors/advisors, and execute. Execution is then up to the start-up entrepreneur or the non-profit manager; it’s time to be a leader…

Guest contributor Alex Conrad has over twenty years of experience as an executive in the IT and resource/energy sectors. He has managed projects across the world including China, Russia, Brazil and Africa. After living in Beijing for several years, he has returned to the US and now lives on Orcas Island in WA State. He believes in the power of creative entrepreneurship and community to kindle innovation and inspire change. He is @Darnoc on twitter.

Copyright: Pilon / 123RF Stock Photo

 

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