The New Reality for Nonprofit Funding
For decades, nonprofits have relied heavily on a mix of grants, donations, and government funding to sustain their missions. But as global philanthropy evolves, those traditional sources are becoming less predictable. According to The Nonprofit Finance Fund’s 2024 State of the Nonprofit Sector Report, nearly 56% of nonprofit leaders said funding uncertainty is their biggest operational challenge.
On a recent episode of the Nonprofit MBA Podcast, host Stephen Halasnik and guest Joe Reed, founder of the Exponent Group and SolveLine, discussed an urgent question: What happens when your biggest grant disappears? Their answer—nonprofits must begin to think like startups, diversifying income streams and even launching mission-aligned for-profit ventures to ensure long-term impact.
Both Reed and Halasnik agree that funding uncertainty is one of the major reasons nonprofits must rethink their revenue models. “We don’t have the luxury to not have this conversation anymore,” Reed emphasized. “Healthy nonprofits must start thinking creatively about how they generate revenue.”
Summary
Why Relying on Grants Alone Is No Longer Sustainable
Historically, many nonprofits, particularly smaller or regional organizations, have depended on one or two key donors or foundations. But that model has become dangerously fragile. In for-profit business, Halasnik noted, if more than 10% of revenue comes from a single client, it’s considered a critical risk. The same principle applies to nonprofits that depend on one major funder.
This level of dependency magnifies funding uncertainty, putting entire missions at risk. When a primary grant sunsets, or a foundation shifts focus, entire programs can collapse overnight. Reed’s own organization in Boston faced this reality when a major foundation announced its closure. Rather than panic, he used it as a catalyst to reimagine how the nonprofit could generate self-sustaining income.
This mindset shift, from dependency to diversification, is essential in the modern philanthropic environment. For more context, the National Council of Nonprofits provides valuable resources on nonprofit financial sustainability strategies.
Case Study: SolveLine- A For-Profit Venture with a Nonprofit Soul
Reed’s organization, Exponent Group, developed SolveLine, a virtual assistant outsourcing company in Nigeria that employs graduates of the nonprofit’s job-training programs. The idea emerged when the nonprofit realized that while they were teaching valuable administrative skills, they couldn’t continue placing trainees into jobs fast enough due to limited donor funds.
This moment of funding uncertainty pushed the organization to innovate instead of contract. So, they flipped the model: instead of waiting for external employers, they became the employer. SolveLine contracts with global businesses for remote administrative services. The employees—graduates of the nonprofit’s programs—earn wages in the top 5% of their community. Profits are then reinvested into Exponent Group’s mission-driven initiatives.
The impact is twofold: financial sustainability for the nonprofit and economic empowerment within the local African communities they serve.
“We’ve been able to flip the narrative on compensation,” Reed shared. “Our workers are earning real wages that are transforming local economies.”
How Mission-Aligned Businesses Prevent “Mission Drift”
When nonprofit leaders hear “for-profit venture,” alarm bells often go off. Board members worry about mission drift—the fear that commercial interests might overshadow charitable goals. But Reed and Halasnik both argue that alignment is the key.
Diversifying revenue streams helps reduce funding uncertainty while strengthening mission integrity. “You’re not starting a real estate company just to make money,” Halasnik explained. “You’re identifying where your existing programs already intersect with market needs.”
For Exponent Group, SolveLine’s business model didn’t distract from its core mission—it expanded it. By providing employment, training, and upward mobility, the for-profit directly reinforced the nonprofit’s community development goals.
As Reed put it: “If it’s tightly aligned with your mission, it’s not mission drift—it’s mission acceleration.”
First Steps to Building New Revenue Streams
For nonprofits intrigued by the idea of creating self-sustaining income but unsure where to start, Reed offers a simple framework:
- Audit Your Programs – Examine your existing activities for marketable value. Are there services, training programs, or intellectual property others might pay for?
- Engage Your Board and Donors – Your board often includes professionals with business acumen. Ask them which aspects of your work could have market appeal.
- Pilot Before You Scale – Start small. Test your idea on a limited basis before fully launching it.
- Seek Expert Advice – Work with advisors familiar with nonprofit law to ensure compliance with 501(c)(3) regulations.
The IRS provides guidance on unrelated business income tax (UBIT) for nonprofits that operate commercial ventures—a critical read before launching any revenue-generating initiative.
Bootstrapping a Mission-Driven Business
Launching a social enterprise doesn’t always require new fundraising campaigns. In Reed’s case, SolveLine was bootstrapped through the nonprofit’s existing budget. They redirected funds from administrative expenses and became their own first customer—hiring SolveLine to handle internal support tasks.
This creative approach eliminated startup costs and ensured immediate profitability. Once the operation proved viable, the organization sought donors and investors to scale infrastructure—such as satellite internet and solar energy systems—necessary to expand.
This “bootstrap-first, scale-later” method offers a roadmap for other nonprofits to follow without taking on excessive risk.
Overcoming the Bandwidth Barrier
A common objection from nonprofit executives is simple: “I’m already overworked.” Running a nonprofit often feels like a 150% time commitment, so adding a business venture may seem impossible.
Reed’s advice? Don’t do it alone. Seek partnerships and external expertise to lighten the lift. “Lean on your board, trusted donors, and advisors,” he urged. “You might already be doing something that could generate revenue with just a small shift in direction.”
In other words, innovation doesn’t always require more effort—just a new perspective on the work you’re already doing.
Real-World Examples of Creative Nonprofit Revenue
The concept of nonprofits owning for-profit subsidiaries is not new, but it remains under-discussed. Reed shared several inspiring examples:
- A Massachusetts nonprofit built a $50 million real estate portfolio over two decades, reinvesting rental profits into community programs. Their nonprofit owns the for-profit LLCs outright, ensuring all proceeds fund social impact.
- Community centers have started renting unused building space for coworking or events, turning dormant assets into steady cash flow.
- Mental health organizations like those profiled by The Chronicle of Philanthropy have launched fee-for-service programs offering training and counseling to corporations—charging market rates while expanding their reach.
Even simple strategies—like leasing rooftop space for cellular towers or solar panels—can add thousands in passive annual income without compromising mission integrity.
Global Giving Trends Are Changing
Another force driving innovation is donor behavior. Reed noted a troubling trend: donors are giving to more causes, but in smaller amounts. These shifts contribute to growing funding uncertainty across the nonprofit sector.
Data from Giving USA 2024 supports this: while overall charitable giving in the U.S. increased by just 1.9%, the number of active charities grew by nearly 7%. More organizations are competing for relatively static philanthropic dollars.
In Reed’s words: “There are ten million options, and donors are spreading their thousand dollars across all of them.” That’s why new income models aren’t just optional—they’re essential.
Collaborating With For-Profit Partners
Not every nonprofit must create its own business. Partnering with existing for-profits can also produce steady, mission-aligned revenue. Reed encourages nonprofits to explore joint ventures or revenue-sharing agreements with companies that share their values.
For example, a workforce development nonprofit could partner with a local manufacturing firm to train employees, sharing revenue from contracts. “A 50/50 split can be a win-win,” Reed said, “as long as the mission remains front and center.”
This kind of collaboration expands capacity without overburdening nonprofit staff or distracting from daily operations.
The Long Game: Building Generational Sustainability
Some of the most successful nonprofit enterprises took years—if not decades—to mature. The Massachusetts organization Reed mentioned, with $50 million in assets, spent 20 years methodically building its portfolio. But today, it could lose every donor and remain financially stable.
That’s the goal: to move from scarcity thinking to sustainable abundance. The payoff isn’t just survival—it’s freedom. Nonprofits that control their own revenue streams can innovate, take risks, and expand impact without waiting on the next grant cycle.
As Reed concluded: “We have to be more creative. I don’t think we’ll have the luxury much longer to depend solely on philanthropy.”
Final Thoughts: A New Era of Nonprofit Innovation
Nonprofits are entering a new era—one where business thinking and social impact coexist. The future belongs to organizations that can blend compassion with creativity, mission with markets.
Whether it’s launching a social enterprise, renting underused assets, or partnering with a for-profit, the message is clear: sustainability is innovation.
For resources on starting mission-aligned ventures, visit:
About the Experts
Joe Reed is a social entrepreneur and founder of Exponent Group, where he helps leaders restore and strengthen their communities. Through its newly launched impact studio, Exponent Studios, he equips nonprofit leaders to innovate like startups—building mission-aligned revenue models that create financial sustainability and lasting community transformation. Their latest venture, SolveLine, exemplifies how scalable, mission-driven solutions can fuel both growth and greater impact.
Stephen Halasnik is a Managing Partner at Financing Solutions and host of The Nonprofit MBA Podcast. Financing Solutions has been the largest provider of lines of credit to small nonprofits in the US since 2012.
