How a design-class formed a company with online sales & banking in 2 weeks.

College students in a design-engineering class also wanted to learn real-world entrepreneurship and business skills. My job was to help them succeed, so I created a legal business entity with a bank account to accept online sales. I'll explain why we did this first, scroll to the bottom if you only want the steps.

For this class, students immersed in farmer's markets and homeless communities to design products that could be manufactured by homeless people using public resources, bought, and resold at farmer's markets to create a sustainable social business. The principles of this article apply to most new business ideas or someone wanting to start a nonprofit company.

Our class was offered in the Shiley-Marcos School of Engineering, part of the University of San Diego. This class was User-Centered Design, or how to innovate products for other people's needs. The process begins by immersing with a customer, identifying needs, prototyping ideas, and many iterations based on real-world feedback.

We used project-based learning, a type of learning where students immerse into a real-world project that may not have a solutions but allows many iterations with real-world feedback. I felt it would be hypocritical to "tell" someone how to design products for other people, so I treated the class as a design project that met diverse student needs. The class and I decided to learn-by-doing, learning along the way, rather than not using textbooks or lectures.

I served as the project-manager, and participated in the project as a co-learner, learning a new skill necessary for success of the project. You can read about this class's project in my article on User-Centered Design, which includes a 3-minute video created by the students to explain their work:

Students wanted to experiment with entrepreneurship and running a business. This was a design class, so I wanted them to focus on that while I learned how we could start a legal business entity in our short time-frame. I began by researching how a classroom could sell products. How would it deal with accepting credit card payments? Taxes? I became overwhelmed, but that's helpful when leading a classroom or corporate team because it reinforces empathy for what it's like to try something new, leading to a more humble form of leadership where you're a collaborator rather than dictator.

I had learned of a nonprofit that handles all online payments and taxes so that students could practice real-world skills, called, appropriately, Real World Scholars. They facilitate student-ran educational businesses, called EdCorps, for Kindergarten through 12th grade. I contacted them, but I had three weeks to complete my part of the project and had to act faster than most reasonable organizations could respond.

Any entrepreneur understands what I just said; few people respond quickly enough when your eyes spring open at 3am every morning trying to solve a problem.

I spent several sleepless nights researching ideas on the internet. I learned about a legal entity new to me, called an unincorporated nonprofit, by pestering - I mean politely asking - every person I met involved with nonprofits and entrepreneurship. At a bar - I mean a public gathering establishment - someone mentioned an unincorporated nonprofit that sounded like it would solve the class's needs.

I was surprised to learn something at a public gathering establishment because I believe I have crazy-good skills with Google and the internet. That's why I'm posting here, to help anyone else struggling with this challenge. I'll start by summarizing other business options to show why an unincorporated nonprofit may be the best option for classrooms or new, socially-responsible business ideas. The information is also valuable if you're starting a traditional business.

OVERVIEW OF BUSINESS TYPES

• Most consultants and small businesses don't worry about corporate structure, operating as a Sole Proprietor. A sole proprietor's personal assets are not protected if their business goes bankrupt or become involved in a lawsuit.
• Many businesses include Corporations such as a C Corporation (C-Corp) or S Corporation (S-Corp). These are complex legal entities and not relevant to most startups or education programs.
• An LLC is a Limited Liability Corporation, providing legal protection of personal assets and a way to split ownership between a few owners. It's available in most states with varying rules and procedures that can be confusing and range from free to surprisingly expensive. I've started several LLC's in California and advise most clients to start with an LLC before going to a more complex C-Corp or S-Corp. Many large businesses remain LLC's.
• A Benefit Corporation (B-Corp), is a relatively new legal entity available in >20 states as of 2017. It provides tax advantages and personal asset protection for socially-responsible, or socially-beneficial companies that sell products or services. B-Corps get funding from sales and have transparent accounting to show benefits in areas such as environmental impact, social responsibility, etc.
• A 501(c)3 nonprofit company is a legal corporation with tax benefits because it's a charitable cause. There are over 25 types of nonprofits, with a 501(c)3 being the most common and typically relying on donations rather than sales. It can be expensive and time consuming, but the benefits include being able to apply for grants and getting $10,000 of free Google AdWords on YouTube.
• An unincorporated nonprofit, or unincorporated association, is simply a bank account set up to have less than $5,000 towards a charitable goal or fundraiser. It's something many of us have done without knowing it. An unincorporated association is selling products rather than asking for donations, something most of us did as kids when we sold candy for a school fundraiser. The IRS has tax classifications for selling products as an unincorporated nonprofit so that you don't have to pay taxes if you use a bank account linked to your name.

Who knew that we've been founders of unincorporated nonprofits! Make sure to update your LinkedIn profile.

HOW TO CREATE A NONPROFIT WITH BANKING AND ONLINE SALES

1. Have your class or team brainstorm a Company Name while everyone's online so you can quickly see if the internet Domain Name and Hashtags are available. Start by focusing on what you want to accomplish and summarizing that concisely as possible. Select your top 2-4 names.
2. Secure a domain name for about $14. This can be through GoDaddy, Squarespace, Wix, etc. Wix and Squarespace have pre-made e-commerce pages, allowing you to sell products if you have online banking. I used Wix because they have a free version that allowed students to start prototyping a sales website while I figured out what to do next. (I'm not kidding about being a co-learner. I had no idea how to do this at first!)
3. Optional: Create a Google Voice account, which gives you a virtual phone number. Several steps in this process require a phone number that may generate unwanted texts or calls. I now use Google Voice for almost everything, it lets me block unwanted calls and receive emails of my voice mails so that my personal phone is only for important messages, such as friends wanting to skip work to go surfing or visit a public meeting establishment.
4. Get a business name and secure it in your city; this will eventually let you cash checks written to the name you chose. This is called a Fictitious Business. (Seriously, "fictitious business" is a real thing; I couldn't make up something so ironic.) Use the internet to find the exact process in your city, it's usually as simple as visiting a government administration building, completing a form, and paying $40ish. You should be able to do several names at once, so add all names from your brainstorming. Save all forms to bring to your bank later on.
5. Most states require you to publish the name of a new fictitious business in a newspaper within 30 days. The government agency that gave you fictitious business paperwork should have a list of acceptable news sources, including inexpensive ones with a contact person to help you. This may be $30ish. Ask for the forms that will prove your fictitious business name was publically available.
6. Create and print a one or two page summary of your nonprofit name, goals, and guidelines. You may want to ask others' views and list them as contributors. Don't worry about this too much, just put something down that's close to your goals. It's a formality a bank may ask to see, and they may call it "guidance documents" or "meeting minutes".
7. Take all forms to your bank (fictitious business paperwork, evidence of printing in newspapers, and your meeting minutes).
8. Ask to see their business representative and say you'd like to open an unincorporated nonprofit for your fictitious business name.
9. You could put money in the account now but it's not critical; I put in about $50 because that helped the process at my bank.
10. They should be able to set you up with a banking account number, limited to $5,000 per year, with a credit card or ATM card.
11. Record the account and routing numbers, you'll need both soon.
12. Get PayPal or Square for online sales and the "swipe" machines that accept credit cards at point-of-sale businesses. The swipe machines work on most smart phones and tablets, so you don't have to buy other hardware. Most services even give you a free swipe that will work with your phone; additional ones are under $20 each. They'll need your banking account and routing numbers if you want to have funds deposited directly into your bank account. I used PayPal, which can also store your funds and let you pay for other services from their account, but I preferred depositing funds into the bank account and using the bank card for purchases; I believe this makes taxes more straight-forward.
13. Put money into your fictitious business bank account through PayPal's online interface. You'll need your bank routing and account numbers. You could have done this at the bank, but I liked testing paypal.
14. Return to your website and purchase a plan for e-commerce, about $20/month-ish. Link your PayPal or Square to this e-commerce site (Wix and SquareSpace make this surprisingly straight-forward). Test the web site a few times, especially the PayPal sending funds to your Fictitious Business bank account. You may have to verify an email and phone several times. (Fortunately, I had a Google Voice account to simplify and consolidate this process).
15. Prepare yourself for handling your taxes to include owning an unincorporated nonprofit, ensuring you save all receipts and following IRS requirements. (Note: I chose to give away products rather than accept cash because I didn't want to track those receipts; I use online resources that link my PayPal to how I do taxes that's an obstacle to entrepreneurship rather than helping; when you have to solve that problem you're doing pretty good and don't need my help :-)
16. Relentlessly improve your product and website user interface while selling whatever product you already have. Don't over-think this part, you'll learn more from your first real-world sale than from dozens of meetings. 

This takes 1-3 weeks from start to finish if you work as hard as you expect from your students. It could take months if you prefer to work by having lots of meetings about how to do something perfectly.

It would be about $100-200 in startup costs, assuming you have a computer and internet access. Later, if your projects exceed $5,000/year in real-world sales, you could research how to set up a 510(c) and use PayPal's and Google's nonprofit features. Or, investigate if a B-Corp would be best for you.

This was a lot of work at the time, and now that tax season is here it's the gift that keeps giving because I'm responsible for the nonprofit in addition to my personal and business taxes. Next time, I'd probably work with a program that automates this.

For example, for K-12 classes, Real World Scholars provides teachers with a free online sales platform and allows each class to run a student-run business under their nonprofit umbrella (which means they pay all taxes). Students still have total autonomy over their profits and can use them throughout the year to scale their business or support charities that they believe in. They call these student-run businesses EdCorps, a way for students to practice real-world skills with teacher's acting as project managers.

I'd also start the project ensuring I'd be available to continue for several semesters. It's a lot of work for a one-semester class, but probably worth it for someone building their project-based learning program over several semesters.

I'd also learn more about Benefit Corporations, or B-Corps, which are legal in >20 states including California, and may be a step forward in helping more people run a sustainable social business. This is especially true for people considering socially-responsible business, not just a classroom. Two of my favorite examples of B-Corps are Patagonia outdoor products and North Coast Brewing (see my previous comments on the benefits of public gathering establishments.)

There's a lot in this article, ranging from business to Medical Device innovation to education. I love that! Real life is rarely a single, simple concept. I believe that progressive education should be as close to the real-world as possible, so students learn problem-solving, communication, and entrepreneurship that could be applied to any situation rather than only being trained in skills that may not be relevant in the near future.

Innovation and the process of learning are life-long skills. Progressive educators recognize this, providing authentic project-based learning opportunities, being a co-learners so they lead-by-example. Or, as I once used on Twitter, #LearnByExample.

I hope you found something of value, especially if you're a progressive educator or socially-responsible engineer wanting to experiment with early-stage sales or business models.

Thank you for reading.

You can follow my journey of learning to write about innovation towards equitable healthcare and education at JasonPartin.com/blog