Nascent Nonprofit Entrepreneurship

Abstract

The purpose of this article is to provide a window into the earliest phase of nonprofit organizational formation. Using a sample of 91 nascent nonprofit entrepreneurs and a framework from the entrepreneurship literature identifying the vital capacities for new venture development success, this exploratory article examines the capacity endowments of nascent nonprofits. The results indicate that nascent nonprofits have rather well-developed venture ideas and also a good understanding of whom they will serve. However, few have developed programs or services ready to be implemented or established relations with real beneficiaries and/or payers. In addition, this research highlights differences in capacity between nascent nonprofit entrepreneurs with and without previous start-up experience.

Keywords

nonprofit entrepreneurship nascent stage capacity business platform framework

Scholars have long recognized that what transpires at the formation stage of an organization can have a lasting effect on its structures, practices, and output (Hannan & Freeman, 1977; Stinchcombe, 1965). Comprehending and analyzing these early stage phenomena is a centerpiece of contemporary entrepreneurship research (Davidsson, 2004) including what takes place before an organization is formally established, commonly referred to as the nascent organizational stage (Reynolds & Miller, 1992). Organizational formation can be depicted as a process in which multiple actions (e.g., assembling a founding team, connecting with various stakeholders, developing services or products, and obtaining critical resources) are undertaken (Brush, Greene, & Hart, 2001; Gartner, 1985). Studying these undertakings starting from the nascent stage is important because they help us understand the mobilization and development of various capacities that ultimately set the stage for the future fate of the organization (Brush, Manolova, & Edelman, 2008; Katz & Gartner, 1988). Seeking to better comprehend the pre-organizational stage is not only an area of growing academic interest but also of great practical significance for current and would be entrepreneurs and external stakeholders including funders and policy makers (Dennis & Fernald, 2001).

Nonprofit scholars have indeed explored the early life-stages of not-for-profit entities by focusing on why nonprofit entrepreneurs create new organizations (e.g., Carman & Nesbit, 2013; Young, 1983), exploring and explaining the early dynamics of the nonprofit organizational life cycle (Bess, 1998; Stevens, 2001), depicting factors affecting entry (and exit) of nonprofits (e.g., Harrison & Laincz, 2008; Twombly, 2003), and addressing the issue of liability of newness among nonprofits (e.g., Chambré & Fatt, 2002; Hager, Galaskiewicz, & Larson, 2004). Furthermore, there is a growing social entrepreneurship literature targeting the start-up process of social enterprises (e.g., Harding & Cowling, 2006; Haugh, 2007), examining social entrepreneurship start-up intentions (e.g., Baierl, Grichnik, Spörrle, & Welpe, 2014; Koe Hwee Nga & Shamuganathan, 2010), and how social entrepreneurs mobilize resources (Desa, 2012). Recently, social entrepreneurship scholars have also started to explore the nascent stages of social enterprises (e.g., Renko, 2013), yet few empirical inquiries have explicitly examined the nascent stage of nonprofit organizations (for an exception, see Bess, 1998). Notwithstanding the insights that can be derived from the nonprofit literature on new and young nonprofit organizations and the emerging findings from the social entrepreneurship and social enterprise literature, our understanding and knowledge about the nascent stage of nonprofit organizations remain limited. Hence, the purpose of this research is to add to this scarce literature by providing a window into the formation phase of nonprofit organizations. Using survey data obtained from 91 nascent nonprofit entrepreneurs, for example, an individual or group of individuals that “initiates serious activities that are intended to culminate in a viable organization” (Honig & Samuelsson, 2012, p. 369), this article specifically examines the capacity endowments of nascent nonprofits. Drawing on a framework developed by Klofsten (1994, 2009; Davidsson & Klofsten, 2003), which identifies the vital capacities or “cornerstones” for success during the early development process of a new venture, this article describes and examines the levels and distributions of these vital capacities in a sample of nascent nonprofit organizations. This article depicts to what extent the examined nascent nonprofit organizations have developed these vital capacities, and more importantly are some capacities more or less developed across all of the nascent ventures? In addition, this research also investigates the extent to which differences in the human capital of the nascent entrepreneurs account for differences in the type and levels of capacity developed.

Diagnosing Early Organizational Life

As indicated in the previous section, there is an extensive line of work in entrepreneurship, social entrepreneurship/social enterprise, and nonprofit studies devoted to various aspects of organizational creation and early organizational life. Taken together, this body of literature points to a wide range of factors, internal and external, influencing and shaping the early evolution of an organization. Moreover, this literature suggests it is the configuration of factors rather than the properties of any single factor that ultimately affects the chances for success for an emergent organization (Brush et al., 2008; Stevens, 2001). Accordingly, as illustrated by nonprofit studies seeking to determine the specific characteristics new nonprofits must have or take on to survive their early years (see Chambré & Fatt, 2002; Hager et al., 2004), the dynamics of nonprofit organizational emergence and early development defy easy generalizations.

Even if the particular configurations of factors determining the success and/or failure of emerging and new organizations are difficult to pin down, several scholars maintain it is necessary for nascent ventures to, as noted by Widding (2005), “attain a stable foundation from which they can continue to develop” (p. 598). To reach this initial stabilizing point, the entrepreneur(s) must accumulate and build a sufficient capacity endowment from which the organization can continue to evolve (Gibb & Scott, 1986). Stevens (2001) explicitly applied this idea to nonprofit organizational development. She argues the transition from the earliest life cycle stage (in which there is no formal organization) to the formal start-up stage is unlikely to happen unless the nascent nonprofit can develop capacity in several essential areas, for example, programs, governance, and administrative functions. Moreover, these capacities must be developed concurrently, that is, it is not sufficient to just develop capacity in one or some of these areas, so “until balance is reached, the ‘stalled’ capacity point will continually hold the organization back” (Stevens, 2001, p. 25). Consequently, an important initial step in comprehending nascent organizations and how they evolve is to diagnose their resource/capacity endowments. The purposes of such a diagnosis is to identify a nascent organization’s capacity starting point, and by virtue of the disposition of that capacity mix begin to build a better understanding of similarities, differences, and challenges among nascent organizations (Cooper, Gimeno-Gascon, & Woo, 1994; Davidsson & Klofsten, 2003; Stevens, 2001). Clearly, diagnostic approaches have limitations; they are, for example, not particularly good at capturing the particular processes and dynamics of emerging organizations. Dahlqvist, Davidsson, and Wiklund (2000) maintain that if we want to start building a more systematic understanding of the variation in new and emergent organizations’ ability to progress, “the first place to look would be the initial resource endowment” (p. 2).

Although Stevens (2001) describes the key characteristics of the capacities at the nascent stage, she offers no specific measures to assess capacity in emerging nonprofits, which is why this article builds on an alternative framework from the entrepreneurship literature. The business platform (BP) framework was specifically developed and designed to assess capacity in new ventures by focusing on a variety of “cornerstones” essential for the venture’s early development process (Klofsten, 1994, 2009). The eight cornerstones were derived from an extensive review of the life cycle-, entrepreneurship-, small business-, and innovation-literature (Klofsten, 1994). Each cornerstone begins to form and take shape before any formal organization is established, and a central assumption underlying the BP framework is that any organization is inherently frail during the nascent and start-up stages and to overcome this vulnerability every organization needs to build a certain minimum level of capacity in each cornerstone. When all cornerstones have reached this minimum level, the organization has obtained a BP, that is, a stabilizing state from which it can persist and continue to grow in the marketplace. Hence, the BP framework is not time-dependent but focuses on the level of “maturity” in each cornerstone (Klofsten, 2009).

Klofsten (1994) originally created the BP framework to analyze and understand the early development phase and challenges of technology-based firms. However, his conceptualizations of the eight cornerstones are broad and do not appear to be industry specific, which in turn could be interpreted as a sign they are not exclusive to technology-based ventures. Davidsson and Klofsten (2003) reinforced this notion when they—nearly a decade later—observed how “subsequent research has indicated broader applicability” of the BP framework (p. 18). Thus, the general characteristics of the cornerstones make the BP framework applicable to other types of organizations as well, including nonprofit organizations. For example, cornerstone characteristics such as formulating and communicating the start-up idea, defining the market(s) for the new organization, developing structures to facilitate functional coordination, accessing expertise to solve emerging problems during the start-up stage, and crafting stakeholder relations (Klofsten, 2009) are just as important during the early development phases of nonprofits as they are for for-profit firms (Bess, 1998; Stevens, 2001). Moreover, in contrast to existing nonprofit capacity frameworks for assessing the nascent and early development stage, the BP models come with measures for capturing the various cornerstones (Davidsson & Klofsten, 2003). However, although the cornerstones may be equally important for a nonprofit as for a for-profit, one must keep in mind that business enterprises and nonprofit organizations are not identical creatures. In other words, nonprofit scholars must be vigilant when adopting concepts and constructs from the business entrepreneurship literature, and properly evaluate—and, if necessary, adjust and/or modify—constructs and measures to better represent the context and characteristics of nonprofit organizations. (See, for example, Morris, Webb, and Franklin’s [2011] analysis and adjustments of the entrepreneurial orientation construct in a nonprofit context.)

Table 1 outlines the original cornerstone items and presents the eight corresponding items this article ended up utilizing.

Table 1.

Business Platform Cornerstones.

Original cornerstone items	Nonprofit items
1. Articulation of the business idea	1. Articulation of the nonprofit idea
2. Development of a finished product	2. Development of a finished program/service
3. Definition of market	3. Definition of market
4. Development of an operational organization	4. Development of an operational organization
5. Core group expertise	5. Core group expertise
6. Commitment and prime motivation	6. Commitment and prime motivation
7. Customer relations	7. Beneficiary/payer relations
8. Other corporate relations	8. Other nonprofit relations

As shown in Table 1, some of the items have remained the same whereas others have been reformulated. The next sections of this article will go through each item and clarify the reasoning behind any adjustments to better accommodate them in a nonprofit context. Klofsten (1994) originally grouped the eight cornerstones into three overarching areas: the development process (1-4), the people behind the organization (5-6), and the organization’s relationship with the environment (7-8). In the discussion below, the eight nonprofit items have also been grouped into these three overarching areas.

The Development Process

New organizations come into being due to purposeful action and the initiation of several venture-specific aspects, which Klofsten (1994) calls the development process. The base for purposeful action is the intention of the founder(s), which is why many business as well as nonprofit scholars consider idea formulation as perhaps the earliest and most basic feature of the nascent stage (e.g., Adizes, 1988; Stevens, 2001). However, ideas can vary immensely in terms of specificity and complexity, so to build capacity in this cornerstone, it is not sufficient to simply have an idea.

1. The idea must also be articulated and clarified to the extent it can be distinctly communicated to internal as well as external stakeholders (Davidsson & Klofsten, 2003). It is important to note that the term business idea does not refer to specific product or service ideas but to the purpose and idea that will build up the new venture, that is, the business idea is the higher order idea all product and service ideas are subordinate to (Klofsten, 1994). In a similar way, new nonprofits build on and require an articulation and clarification of a nonprofit idea. Nonprofit scholars often consider the nascent stage an important time to articulate nonprofit ideas into a compelling vision and mission for the emerging organization (Bess, 1998; Stevens, 2001) as an emerging nonprofit “without a clear statement of mission is not likely to survive long because lasting support, [ . . . ] is not likely to be forthcoming to an organization that does not have a clear and compelling purpose” (Jeavons & Cnaan, 1997, p. 72). Hence, the nonprofit idea cornerstone emphasizes the importance of having a precise and defined idea of what the new nonprofit’s undertakings should be in addition to having a concise mission and vision.

2. To advance and concretize the idea, one or several products/services must be developed which other people can identify, examine, and try out. According to Davidsson and Klofsten (2003), it is not enough to just create a product or service; to reach the minimum platform level, the product must also be tested and accepted by at least one customer. As posited by Wiewel and Hunter (1985), “In an environment with many organizations, new organizations are forced to reduce their utopian visions to specific goals that are more easily translated into concrete activities” (p. 491). Just like a for-profit firm, a nonprofit must develop, deploy, and gain acceptance of what it has to offer. However, the term product appears less applicable or at least less intuitive in the nonprofit context, which is why this cornerstone has been reformulated to explicitly emphasize the specific service(s) or program(s) the new nonprofit will offer.

3. A firm cannot effectively operate if it attempts to offer products/programs/services to all customers on all markets. Thus, to define the domain and boundaries that ultimately allow the organization to focus and develop a strategic direction, it is vital to define whom in the market the organization is targeting and serving (Davidsson & Klofsten, 2003). Accordingly, to give priority and establish the focus necessary to advance the nonprofit idea, a nonprofit must be able to demarcate its beneficiaries (Bess, 1998; Boehm, 2003).

4. In the nascent stage, organizational structures are often simple and informal (Miller & Friesen, 1984). Still, as more internal and external stakeholders get involved, communication and coordination challenges arise (Greiner, 1972). Thus, even nascent organization must begin to establish structures and functions to help facilitate and resolve these types of problems (Klofsten, 1994). Similarly, a new nonprofit must build structures that aid functional coordination, determining who is doing what, and who has authority and power to make things happen (Hasenfeld & Schmid, 1989).

People Behind the Organization

New organizations rely greatly on and are often dominated by their founder(s) (Lester, Parnell, & Carraher, 2003). Thus, as noted by Klofsten (1994), the potential of emergent organizations is “intrinsically linked to their qualifications and abilities” (p. 538). Consequently, the people associated with an emergent organization play a vital role in establishing a BP.

5. To operate an organization, various types of competencies are needed. While many organizations start out as a one-person endeavor, few individuals possess all expertise required to successfully operate all aspects of an organization. Adizes (1988), for example, observes that as a firm starts to operate and grow, the capacity required to continue progressing quickly exceeds the personal capacity of the entrepreneur. Renko (2013) adds that bringing in management competence is especially critical for many social ventures as social entrepreneurs, while highly knowledgeable in terms of the needs being addressed, sometimes operate using “subjective and emotional biases that hinder the objective management decisions required to build and grow any venture” (p. 1048). Hence, emergent organizations must ensure they take steps to acquire and maintain the core competencies to (among other things) develop products and services, manage stakeholder relations, and manage daily operations (Davidsson & Klofsten, 2003). It should be noted that this cornerstone is primarily focused on management competence, and again such competence is as important for nonprofit organizations as it is for firms. As Drucker (1989) observed, nearly 25 years ago: “[ . . . ] nonprofits need management even more than business does, precisely because they lack the discipline of the bottom line” (p. 89).

6. The role of motivation and commitment are central interests in both business and social venture entrepreneurship (Renko, 2013). In his case study of six emerging nonprofits, Bess (1998) highlights the importance of a prime mover, that is, “someone who voluntarily leads—carrying the banner at a formative and critical time in the organization’s development” (p. 38). While individuals may decide to start a new firm or new nonprofit for different reasons—for example, to explore an opportunity, be one’s own boss, address a need, avoid unemployment, and so on—there must be at least one highly motivated individual that pushes the organization forward and ensures the commitment of other individuals associated with the organization (Davidsson & Klofsten, 2003). According to Klofsten (1994), without strong impetus and commitment, many organizations either dissolve or transform into hobby projects with very limited chances of taking off. Moreover, even though this cornerstone is typically well developed at the time of founding, it is important not to assume that high levels of commitment characterize all emerging organizations.

The Organization’s Relationship With the Environment

The six cornerstones discussed so far are comparatively similar in the business and nonprofit organizational context. The final two cornerstones target exchange relationships and the flow of various resources. While both are essential for any type of organization, they have somewhat different properties in the nonprofit arena compared with the for-profit sector.

7. Firms must develop both quantitatively and qualitatively strong customer relations as customers represent the most significant source of operating revenue for any business enterprise (Davidsson & Klofsten, 2003). Therefore, establishing relations with paying customers is one of the most fundamental elements of business activity because without paying customers, it is only a matter of time before the firm goes out of business (Klofsten, 1994). Emerging nonprofits must also establish relations to secure revenue, thus the ability to marshal financial resources is a vital capacity for new nonprofits (Bess, 1998; Chambré & Fatt, 2002; Hasenfeld & Schmid, 1989). Thus, establishing relations with paying customers is equally important for many nonprofits including arts and membership-based organizations. However, the notion of a paying customer does not necessarily apply to other types of nonprofits where the beneficiary of a service and payer of that service are not the same person—for example, animal services, food banks, or disaster relief. Thus, nonprofits are typically required to develop relations at multiple levels with an often diverse set of funders (e.g., individual donors, foundations, corporations), customers (i.e., those paying to receive a particular service), and beneficiaries (i.e., recipients of programs and services that pay nothing or only cover a portion of the cost of the service provided).

8. Customer relations are indeed the bread and butter for building a sustainable firm, but as posited by Davidsson and Klofsten (2003, p. 5), a new firm typically needs additional “oil in its machinery” in the form of additional and complementary exchange relationships. These complementary relationships are necessary to get access to competencies not currently possessed by the firm (e.g., legal, accounting, and/or marketing expertise) and to establish relationship that help facilitate access to financial capital (Klofsten, 1994). When looking at the other relations of nonprofit agencies, these complementary relationships are commonly built from the social capital of the nonprofit entrepreneur and the work of the board of directors. As highlighted by Miller-Millesen (2003), nonprofit boards fulfill a boundary-spanning function that is intended to reduce uncertainty, help manage problematic interdependencies, ensure financial resources, and enhance the image and visibility of the organization. Board members can also provide important know-how and the type of complementary human competencies required to obtain the minimum level of capacity for this particular cornerstone. Thus, given that any nonprofit wanting to be incorporated must have a board of directors, this particular cornerstone, in addition to the connectedness of the nonprofit entrepreneur, also reflects the development of the board and other forms of governance capacity because these capacities are the essential stepping-stones in ensuring strong exchange relationships with the operating environment in a nonprofit context.

Research Method

As stated earlier, depicting and assessing the capacity endowments of nascent organizations is an important first step toward a greater understanding of the early development process in new and young ventures. Thus, this article takes a descriptive quantitative approach to explore and contrast in some detail nascent nonprofit’s capacities.

The first challenge trying to capture these capacity endowments is how to assess the level of capacity in each of the eight cornerstones. As mentioned before, measures for the cornerstone constructs already exist (outlined in Davidsson & Klofsten, 2003), and have been tested in subsequent research (e.g., Yencken & Gillin, 2006). Twenty-four measures (three for each cornerstone) were adopted from this earlier work. However, just as some of the cornerstones had to be reformulated, the wording in some of the measurement questions also needed to be altered to fit a nonprofit context. Some of these alterations were minor—for example, replacing words such as firm with nonprofit. Other alterations were more elaborate. For example, depending on the emphasis of the original question, the term customer was replaced with beneficiary or payer. The 24 measures use a semantic differential format with two statements set at opposite ends of a continuum, and respondents are asked to indicate their relative degree of agreement on an 8-point scale between the two statements contrasted. According to Klofsten (2009), we should not think of a cornerstone as something dichotomous, that is, existent/nonexistent. Instead, cornerstones are in a sense “always there” but differ in character and magnitude. As a result, each measure is designed to capture levels of capacity from low (the left-hand statement) to high (the right-hand statement). Low reflects an underdeveloped and unsustainable level of capacity, whereas high reflects a viable and robust level of capacity (Klofsten, 2009). For example, in terms of articulating the nonprofit idea, low levels of capacity suggest there is no distinctly defined or articulated idea. Diffuse ideas can certainly exist but they do not stipulate with any clarity what it is the nonprofit is going to do. This lack of specificity is unsustainable if the goal is to create a functioning nonprofit organization, as diffuse ideas are unfeasible to articulate into a compelling vision and mission for the emerging organization. High levels of capacity, on the other hand, suggest a high degree of specificity in terms of what the new nonprofit is going to do and how, thus allowing the nonprofit entrepreneur to formulate a vision and mission and define and align program and services with the mission and goals. Or consider the core group expertise cornerstone. Low levels suggest the organization currently lacks the specific competencies needed in its field or that some key expertise exists but will not cover the organization’s need for the future. High levels indicate there is a core group of actors connected to the organization with complementary competences (e.g., technical, managerial) that can assist and contribute the organization’s operations. As noted by Klofsten (2009), comparisons among the different cornerstones must be conducted carefully as the difference and distance between low and high levels of capacity are not necessarily the same for all cornerstones. However, by using a semantic differential format and focusing on the levels of capacity in each cornerstone, we can capture whether an organization has generated a robust BP and what (if anything) is missing to reach it.

To better comprehend the type of capacity associated with each cornerstone, Table 2 provides examples of the measures used to capture levels of capacity (from low to high) for each of the eight cornerstones.

Table 2.

Examples of Cornerstone Capacity Measures.

Cornerstone	Low level of capacity (1)	High level of capacity (8)
1. Articulation of the nonprofit idea	The idea about what the nonprofit’s operations should be is not particularly specified	There exists a very clear specified idea for what the nonprofit’s operations should be
2. Development of a finished program/service	No user can confirm the usefulness of the service or program	The service or program has been tested by a number of potential users
3. Definition of market	At this point it is not possible to say what characterizes the nonprofit’s main beneficiaries	There exist a number of criteria which precisely define the type of beneficiaries this agency wants to serve
4. Development of an operational organization	The organization’s operations are adapted to the situation and governed by events that come up	A disciplined and goal oriented effort toward developing the organization is being implemented
5. Core group expertise	The organization lacks the specific competencies needed in its field	The organization is very well supplied with peak expertise in its field
6. Commitment and prime motivation	For all parties concerned their involvement with the nonprofit can be characterized as modest	All parties concerned have a very large involvement with the nonprofit
7. Beneficiary/payer relations	The nonprofit has as yet not provided any type of service or support to a user	The nonprofit has a large number of users who have utilized its programs and services
8. Other nonprofit relations	There exist no contacts that can provide credibility for the agency in the eyes of the community and to external stakeholders	The agency has well-developed contacts with other actors who give the agency the complementary resource credibility

In addition to the capacity questions, the questionnaire also included questions about the entrepreneur’s gender, age, education level, current occupation, and whether they had ever started a nonprofit or for-profit business in the past.

Another challenge, given nascent organizations are not formally established, is how to identify and obtain a sample of nascent nonprofit entrepreneurs. The most elaborate attempt to identify a statistically representative sample of nascent business entrepreneurs involved conducting large-scale random telephone surveys (see Reynolds, 2000). While this sampling approach is preferable, it is also exceptionally resource demanding; so for this study, the sample consists of participants partaking in a free program called “Planning a New Nonprofit: Essential Planning Steps and Legal Requirements” organized by the Midwest Center for Nonprofit Leadership in Kansas City. This program is intended for any individual expressing an interest in starting a nonprofit organization. Thus, this program is directed toward and therefore likely to attract nascent entrepreneurs, that is, those engaged in activities that are intended to culminate in a viable organization. Data were collected from participants in six “Planning a New Nonprofit” programs (two in 2011 and four in 2012). The facilitators of the program distributed the questionnaire before the program started and explained the purpose of the study. A total of 158 individuals participated in the program. To identify those who might be considered active, nascent nonprofit entrepreneurs, a screening question from Harding and Cowling’s (2006) social entrepreneurship study was utilized: Are you alone, or with others, currently trying to start any kind of social, voluntary or community service, activity or initiative? (p. 9). Only those explicitly answering yes to this question were included in the final sample. A total of 36 questionnaires returned were blank, 4 were only partially filled out, and an additional 19 participant answered no to the above screening question. Of the 19, a significant share were students interested in knowing more about the legal requirements of starting a nonprofit with no current intent to engage in any start-up activity. Hence, the final sample consisted of 91 of the 158 nascent nonprofit entrepreneurs participating in the program, which represents a response rate of 57.6%.

Procedure and Results

For the operationalization of the various cornerstones to be deemed satisfactory, the items aimed at capturing a particular cornerstone dimension ought to display high intercorrelations. Nunnally’s rule of thumb was applied, which suggests that an alpha value of above .70 indicates a satisfactory level of reliability. The Cronbach’s alpha values were satisfactory for all cornerstone items, ranging from alpha = .715 (definition of market) to alpha = .919 (development of finished program/service). Thus, it was considered acceptable to index the various items for each cornerstone. Furthermore, consistent with the results reported by Davidsson and Klofsten (2003), the correlations among the various cornerstones were positive, ranging from weak to moderate. While all correlations are significant (and in some cases approaching the .50 level), the common variance among the cornerstones is still low, which Davidsson and Klofsten (2003) interpreted as a sign of discriminant validity.

Table 3 shows descriptive statistics for each of the eight cornerstones, providing a first glance and estimation of the vital start-up capacities of nascent nonprofit organizations.

Table 3.

Descriptive Statistics (n = 91).

	M	SD	Minimum	Maximum	Range
Articulation of the nonprofit idea	6.21	1.11	3.33	8.00	4.67
Commitment and prime motivation	5.96	1.06	3.67	7.67	4.00
Definition of market	4.46	1.36	2.00	7.00	5.00
Other nonprofit relations	3.71	1.60	1.33	7.00	5.67
Development of a finished program/service	3.67	1.81	1.00	7.33	6.33
Core group expertise	3.48	1.44	1.67	7.67	6.00
Beneficiary/payer relations	3.09	1.63	1.00	7.00	6.00
Development of an operational organization	2.98	1.55	1.00	7.00	6.00

Cornerstones with high mean scores are more mature and robust, that is, they are closing in on the level of capacity needed to establish a BP, whereas cornerstones with low mean scores need improvement to overcome vulnerabilities associated with the emergent and start-up phase (Klofsten, 1994). As shown in Table 3, some capacities are significantly more developed across all of the nascent ventures, whereas others clearly lag behind. However, as indicated by the range, there can be substantial variance in capacity among the individual nascent organizations. This is perhaps no surprise; after all, nascent entrepreneurs can look very different, and there is indeed research suggesting that differences in human capital (including formal education, job experience, and other practical experiences, etc.) matter for how and with what consequences the entrepreneurial process unfolds (e.g., Davidsson & Honig, 2003). Thus, to obtain a more nuanced understanding of the range displayed in Table 2, multivariate analysis of variance (MANOVAs) were conducted to compare and explore whether differences in the nascent entrepreneur’s age (below 25, 25-40, above 40), education (no college education, college education: less than 4 years, and college education: 4 years of college or more), employment status (employed, unemployed, full-time student, and retired), and start-up experience (no start-up experience, previous start-up experience) were related to differences in capacity among the nascent organizations.

Only start-up experience had a significant effect with regard to the overall capacity endowments of the nascent organizations, F(8, 82) = 2.099, p < .05; Wilks’s λ = .830, partial η² = .17. The preliminary analysis also showed the assumption of equality of covariance matrices and the assumption of homogeneity of variance was tenable. As the multivariate test was significant, follow-up univariate tests were performed using separate analysis of variance (ANOVAs) on each of the dependent variables (applying a Bonferroni correction). These univariate tests showed previous start-up experience having a significant effect on the definition of market (p < .05), development of an operational organization (p < .05), core group expertise (p < .05), and other nonprofit relation (p < .05) cornerstones. Table 4 provides a more detailed breakdown of these differences for the start-up experience variable.

Table 4.

Result of ANOVA Post Hoc Test.

	Start-up experience—YES (n = 23)		Start-up experience—NO (n = 68)		Significance
	M	SD	M	SD	Significance
Articulation of the nonprofit idea	6.43	1.17	6.14	1.08
Development of a finished program/service	4.33	1.89	3.45	1.74
Definition of market	5.07	1.48	4.25	1.25	*
Development of an operational organization	3.65	1.55	2.75	1.50	*
Core group expertise	4.13	1.42	3.27	1.39	*
Commitment and prime motivation	6.11	1.09	5.83	1.02
Beneficiary/payer relations	3.52	1.69	2.95	1.59
Other nonprofit relations	4.56	1.57	3.42	1.51	*

p < .05.

Although the MANOVAs for age, education, and employment status were nonsignificant, it was decided, due to the exploratory nature of this research, to examine each cornerstone separately with regard to the above three variables using multiple ANOVAs. However, to control for problems of inflated familywise error rates, the Bonferroni correction method was applied. There were no significant ANOVAs for either education or employment status, and when applying the Bonferroni correction, there were also no significant ANOVAs for age. However, it is worth noticing that age and start-up experience appear to be related. For example, 36% in the above 40 group (n = 26) indicated having previous start-up experience compared with 20% in the 25 to 40 group (n = 36), and 9% in the under 25 group (n = 22).

Findings, Discussion, and Limitations

The research conducted in this article reveals that nascent nonprofit organizations have developed and achieved a high level of capacity in two of the eight BP cornerstones. First, the commitment to the emerging venture from the prime mover (i.e., the nonprofit entrepreneur) is high. Indeed, strong commitment epitomizes perhaps the most fundamental capacity in the early development stage and thus must be developed early for any nascent nonprofits wanting to progress. Therefore, finding high level of capacity in this cornerstone comes as no surprise. As stated by Carman and Nesbit (2013), “According to the literature, the founders of new nonprofit organizations are often ideologically motivated and have a passion surrounding the mission of the organization they seek to create” (p. 604). Thus, no matter if the new nonprofit come into being for expressive or instrumental purposes (Frumkin, 2002), it is feasible to think that the early nonprofit development process obtains its stamp by a strongly committed prime mover in the form of the nascent entrepreneur(s). In their recent article, Carman and Nesbit (2013) also observe and note how nonprofit entrepreneurs decide to create new organizations due to a desire for self-employment. This research offers some further support for this observation. One of the questions for the commitment and prime motivation-cornerstone focuses on whether the nascent entrepreneur views the new nonprofit as an addition to other types of activities to make a living with or whether he or she is completely geared toward a future and earning a living as the leader/manager of the new agency. The mean score for this question is 5.88 (SD = 1.27) in favor of the latter, suggesting many of the respondents opt for making a living based predominantly on the activities of the emerging nonprofit.

The second area displaying a high level of capacity is the articulation of the nonprofit idea. This result is in line with Bess’ (1998, p. 45) finding that nascent nonprofit entrepreneurs often have “ambitious, yet well developed, conceptual statements” of their primary purpose. Interestingly, Klofsten (1994) notes that formulating and clarifying a business idea is often a challenging process for business entrepreneurs making it difficult to obtain a high level of capacity (at least initially) in this cornerstone. Why nonprofit nascent entrepreneurs appear to have greater capacity when it comes to clarifying and articulating their core idea compared with their for-profit counterparts is clearly a question in need of more research.

Nascent nonprofit entrepreneurs with previous start-up experience display significantly higher capacity in terms of demarcating the beneficiaries of the emerging organization. Hence, they display greater specificity and clearer priorities regarding whom will benefit from the services/programs of the emerging organization. Retaining capacity in this particular cornerstone is essential because, as posited by Twersky, Buchanan, and Threlfall (2013), nonprofit beneficiaries “are often overlooked and underappreciated, even though they are an invaluable source of insight into a program’s effectiveness” (p. 41). The authors note that identifying and soliciting beneficiary input is vital during the design stage of new initiatives to better capture and comprehend key needs, preferences, and constraints, which in turn allows for more targeted and ultimately more impactful programs and services to be implemented. In addition, Pyne and Robertson (1997) suggest that in an increasingly competitive nonprofit sector where more nonprofits look for earned income opportunities, knowing your beneficiaries is crucial to successfully market your organization and your services. What these authors highlight is that although ideas and prime motivation are central for an emerging organization cannot stand on these cornerstones alone. Thus, nascent and new organizations reaching a high level of capacity in this cornerstone are better prepared for and will create opportunities for future development and growth (Klofsten, 2009).

The least developed cornerstone is the development of an operational organization. This finding is perhaps not surprising for a group of nascent organizations, yet the need for this particular cornerstone to mature increases in a hurry once the agency is formally established (Klofsten, 1994). Given that the early development stage of a nonprofit is characterized by “a high degree of instability” (Hasenfeld & Schmid, 1989, p. 247), structures (e.g., the formation of a board) and administrative procedures and systems (e.g., for handling donations, accounting and program delivery) are necessary to help bring greater stability to a new, fledgling venture. Stevens (2001), for example, acknowledges that although the nascent nonprofit stage is characterized by high energy and infectious ideas, it “is also the most fragile” (p. 27); emerging nonprofits will find it almost impossible to evolve and grow unless organizational structures also begin to formalize. There is also research suggesting new ventures with higher founding team formalization and administrative intensity perform better than new ventures with more loose and/or less-defined organizational structures because formalization increases legitimacy, and thus helps counteract the liability of newness experienced by new organizations (Sine, Mitsuhashi, & Kirsch, 2006). Again we can observe a significant difference between the nonprofit entrepreneurs with previous start-up experience and the first timers for this cornerstone, which indicates that experienced nonprofit entrepreneurs appear to have a more detailed and formal understanding of what their new organization will look like and how it will be organized. Furthermore, nascent nonprofits initiated by entrepreneurs with previous start-up experience display higher levels of capacity in the core expertise cornerstone. It is not possible to determine whether this elevated level of management competence is a result of learning that occurred from the previous start-up experiences or a function of education or job experience (or a combination of two or more of these factors). Still, previous research indicates that the experience and caliber of the founding entrepreneur(s) and specific start-up competences (such as composing a business plan) function as indicators and signals of the quality of the emerging organization, and thus increases its legitimacy (Delmar & Shane, 2004; Eisenhardt & Schoonhoven, 1990). We also know from existing entrepreneurship research that many organizations fail to take off or dwindle and disappear while emerging (Reynolds, 2007), which is why exploring what happens during the nascent stage can offer important and additional insights into why organizations “die” and/or exit. Given the overall low levels of capacity in terms of developing an operational nonprofit organization, this particular cornerstone may hold important clues to why emerging and or new nonprofits struggle to survive and grow (Chambré & Fatt, 2002). The finding that nascent nonprofits initiated by entrepreneurs with previous start-up experience show greater capacity both in terms of formalizing their new organization and in their core expertise suggests they might be viewed and appear more reliable, thereby enjoy increased legitimacy, which in turn increases their likelihood of survival.

The final capacity area where experienced nascent nonprofit entrepreneurs differ from their less experienced peers is in the other relations cornerstone. As discussed earlier, this cornerstone is related to the nascent ventures social capital, which in turn can help improve the nascent nonprofit’s ability to acquire other types of resources by facilitating the transfer of information between various stakeholders (Haugh, 2007). Furthermore, high capacity in the other relations cornerstone is likely to play a significant role in helping the new nonprofit dealing with liability of newness issues. As observed by Hager et al. (2004), “if organizations can ‘connect’ more with stakeholders in their environment, many of the problems associated with the liability of newness can be overcome” (p. 160). What Hager and colleagues highlight is that legitimacy building and the formation of other relations and social ties are not unrelated activities. As indicated by this research, experienced nonprofit entrepreneurs appear to either have or are making greater effort to build capacity that ultimately will help demonstrate to external stakeholders that their emerging agency is worthy of their attention.

While the research presented in this article helps provide a first glimpse into the capacity endowments of nascent nonprofit organizations, it is important to recognize the exploratory nature of this study, and a number of key limitations. First, the people participating in the free program do not constitute a statistically representative sample of nascent nonprofit entrepreneurs. Second, the most significant limitation is that this research only offers a static snapshot of nascent nonprofit entrepreneurship, and leaves one highly critical and relevant question unanswered: What is the correlation between nascent capacity and the formal creation and success of new nonprofit organizations? To answer this question, one needs longitudinal data where capacity endowments can be contrasted and utilized to predict the likelihood of various outcomes including formal creation, growth, and/or failure/exit. To my knowledge, no such longitudinal data exist for nonprofit organizations, and because all survey responses were anonymous, there is no possibility of contacting the participants or the Midwest Center for Nonprofit Leadership again to examine and ask the nascent entrepreneurs participating in the program whether they have formally incorporated/registered their organization, whether they are still in the nascent stage, or whether they have decided not to continue trying to create a new nonprofit.

Other limitations include and the absence of additional variables likely to impact various cornerstone capacities such as the motivation and intention of starting a new nonprofit, the type of nonprofit being created, and various contextual influences on the allocation of capacity across the various cornerstones.

Conclusion

The underlying premise of this study is that the capacities developed during the earliest stages of organizational life can have a long and persistent effect on the organization’s potential for growth and success. Therefore, trying to diagnose and better understand the capacity endowments of nascent nonprofit organizations has the potential to offer important insights into a variety of parties. First, if policy makers hope to craft and promote policies to encourage the creation of new impactful and/or innovative social ventures, the resource demands and capacity needs of the nascent stage(s) must be explicit (Haugh, 2007). Second, as noted by Bess (1998), “Understanding the nascent period of nonprofit organization development will help organizers of emergent nonprofits to focus more appropriately their energies [ . . . ]” (p. 36). Finally, if we want to cultivate more successful nonprofits and/or social enterprises, a better understanding of the capacity needs of nascent nonprofit entrepreneurs is a valuable starting point for those who train, advise, and/or fund new social ventures to develop strategies that can support and stimulate early organizational growth and sustainability.

Currently, nascent nonprofit entrepreneurship research appears to be generating more questions than unequivocal or unanimous answers. Still, as an emerging field of inquiry, the importance of the questions asked prevails over the certainty of the proposed answers. Undoubtedly, studying nascent organizational phenomena is challenging but not impossible, and hopefully this research has encouraged and stimulated scholars to further explore nascent nonprofit entrepreneurship.

Footnotes

Declaration of Conflicting Interests

The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

Funding

The author(s) received no financial support for the research, authorship, and/or publication of this article.

Author Biography

Fredrik O. Andersson is an assistant professor with the Helen Bader Institute for Nonprofit Management in the Department of Public and Nonprofit Administration at the University of Wisconsin–Milwaukee. His research focuses on entrepreneurship in the nonprofit sector.

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