This document outlines 4 steps to determine if a startup should be nonprofit or for-profit. It discusses whether the goal is to make money for the founders, if the business can be financially viable as a for-profit, where initial capital will come from, and who will control the business. The document provides guidance on these questions and how the answers help determine the optimal legal structure based on balancing financial and mission goals.

1. How to decide if your
startup should be nonprofit
or for-profit in 4 easy steps
An oversimplification prepared by Ben Wirz, director of business consulting
John S. & James L. Knight Foundation Contact: wirz@knightfoundation.org

2. 1
Do you need the business
to make money for you?
A. If the point
of the business
is to make you
money...
...then, the
business should
be for-profit
B. If the point
of the business
is to give away
money or
services...
...then, the
business should
be nonprofit
C. If you want a
business that
generates income
to change the world
and make you money...
...then, you need to
ask yourself a few
more questions...
(see next page)
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On Twitter: @knightfdn

3. 2
Can your business
be a viable for-profit business?
In other words, is there a reasonable chance that the business
will be able to repay all of the capital invested within 5-7 years?*
NO yes ???
Then focus
on your
charitable
purpose and
become a
nonprofit.
Then ask
yourself
a few more
questions
(see next page)
Not sure?
Focus on the revenue model:
• Who is your customer?
• How large is your target market?
• Can you be competitive within that market?
• Do you have a viable financial plan?
• What realistic scenarios would lead to
capital reimbursement?
* (1) 5-7 years is a general guideline; the timeline can be longer, particularly for asset intensive businesses.
(2) Reasonable chance of repayment does not mean risk-free; it just means the assumptions do not defy logic.
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On Twitter: @knightfdn

4. 3
Where will the capital to build
your business come from?
for-profit
investors
philanthropic
investors
(angels, venture capitalists,
corporations, banks, etc.)
(foundations, philanthropists,
nonprofits, universities, etc.)
Then your business should
be for-profit. Early-stage
for-profit investors will
want equity returns which
nonprofits are legally
incapable of providing.
Then your business should be
nonprofit. Philanthropic entities
find it easier to fund nonprofits for
legal reasons, and many programs
are set up to be available only to
nonprofit organizations.
could be either one?
Turn the page.
Getting Local: How Nonprofit News Ventures Seek Sustainability
•
knightfoundation.org
•
On Twitter: #infoneeds
knightfoundation.org
•
On Twitter: @knightfdn

5. 4
Do you need to be in control?
If you’ve made it this far, you are starting a business that is potentially
both profitable and mission-driven. How do you want to run the business?
Nonprofit startups are boardcontrolled and transparent
where management is replaceable, but, mission is safeguarded. If this appeals to you, then
you have your answer.
For-profit startups are typically
management-controlled, opaque entities.
Mission priority depends on commitment
of management. Importantly,
most startups become investor-controlled
after a few rounds of funding, which can
effect mission priority. If this structure
appeals to you, then you have your answer.
If neither structure appeals to you, there are hybrids including:
• L3Cs and B corps
• For-profit subsidiaries of nonprofits
• Nonprofit subsidiaries of for-profits
BUT, the fundamental tradeoffs outlined here remain.
Getting Local: How Nonprofit News Ventures Seek Sustainability
•
knightfoundation.org
•
On Twitter: #infoneeds
knightfoundation.org
•
On Twitter: @knightfdn

6. additional resources
1. For Love or Lucre; Jim Fruchterman.
Excellent detailed look at how to make this decision from an entrepreneur
who knows both worlds.
2. Forming a Business and Getting Online;
Citizen Media Law Project.
Excellent, detailed view of what kinds of options are available, geared
particularly towards entrepreneurs who want to put content online.
3. Startup Tools; Steve Blank.
Fairly comprehensive list of tools to use once you have made the decision
to go forward from the Lean Start guru. You should also probably try to
read everything he has written on what it means to be a startup.
Getting Local: How Nonprofit News Ventures Seek Sustainability
•
knightfoundation.org
•
On Twitter: #infoneeds
knightfoundation.org
•
On Twitter: @knightfdn