By his lights, a not-for-profit like the one we envision (not unlike the real-life MinnPost), could reasonably generate more than $700,000 in membership revenues by year three, compared to the $547,000 we had estimated. Barnett, a journalist who is studying not-for-profit management at The George Washington University, was kind enough to plug his own assumptions into our model. His revision is available as an Excel download here.

Barnett started with a slightly higher number of member-donors in year one, taking the number of MinnPost members in its first 14 months and translating that to cover just 12 months. His calculations include some members not included in MinnPosts’s annual report (which was our source), arriving at a first year membership estimate of $298,000, roughly $25,000 more than our model.

But the real differences start to show up in years two and three as the news organization matures and puts roots deep into the community. Barnett estimates that by year three the not-for-profit should aim for a five-fold increase in the total number of members, to 4,157 from 762.

Barnett, who is studying not-for-profit management at George Washington University, says his assumptions draw on studies of membership efforts at mature not-for-profits. Typically, a robust membership drive will result in a pyramid where the majority of donors are at the lower contribution levels. Rather than extrapolating membership based on a conversion of estimated unique visitors (as in our model), Barnett has drawn a picture of what a healthy membership pyramid for a metropolitan news organization should look like in three years. Even with his more robust assumptions, however, Barnett’s organization still converts just one percent of estimated unique visitors. Indeed, the lowest rung accounts for much of the growth in Barnett’s model while membership at higher levels grows more slowly and actually decreases in the highest.

While there isn’t a defined statistical correlation between the top and bottom of the pyramid, Barnett says there is a relationship.

“It’s a social process, people see what leaders in the community and their peers are giving and say they want to be a part of that,” Barnett says. “People start small and work their way up. Not every body will move up the ladder, not everybody who moves up will go to the top, but the end game as a not-for-profit is to make this a part of people’s lives. When there’s a socialization to it, that’s when you start getting the reinforcing numbers at the lower end.”

More and more journalists, casting about for ways to preserve their livelihood, have been drawn to the not-for-profit model. The Voice of San Diego announced last week that it will provide advice and support to an offshoot in nearby Orange County and Spot.Us has launched a franchise in Los Angeles. But, as Barnett makes clear in a post on ProPublica’s effort to start finding alternatives to foundation grants, launching a not-for-profit cannot be a “tin-cup substitute” for journalists who balk at running a business.

“A lot of these organizations get the grant money but then struggle to make it on their own, he says. “That’s what this is about, how to go from being hatched to going out in the wild to survive.”

Want to add your own assumptions to our models? Go right ahead! And, please, shoot them back to us. (The New Business Models for News Project has been funded by the Knight Foundation.)

We sent invitations to hundreds of online news organizations, from hyperlocal blogs serving small communities to outfits that cover major American cities. In all, we received responses from 111 websites (81 for-profit, 30 not-for-profit). The entire interim report presented at the Aspen Institute last month is available here. (The New Business Models for News Project has been funded by the Knight Foundation.)

As expected, many of the for-profit ventures are bootstrapping their businesses with 20 employing 2 or fewer full-time editorial staffers (out of 27 businesses that answered the question). Meanwhile, 14 do not have any full-time workers on the business side. (Part-time staff levels at most sites are similarly low.) A majority of the sites, 58%, reported bringing in less than $500 per month in advertising–that won’t pay for a newsroom expansion anytime soon. However, we found plenty of room for optimism, too. A dozen respondents, or 14%, make more than $5,000 per month in advertising revenues alone.

Most of the folks running these sites are journalists with little business experience, so it is not surprising that many of the responses to the question ‘what are your biggest challenges’ revolved around getting help selling advertising and developing the business. Here is a sample of the comments:

Getting local businesses to understand the value of advertising on the internet. This problem is HUGE. Even with our large amount of traffic, it’s hard to get local businesses to take us seriously because we don’t have a print product.

***

Sales, sales, sales. And pricing. I think I have a service I can sell here. But I need to sell it and then handle the invoicing and record-keeping. Since this is something I’m doing on the side, I let the sales efforts lag while I spend most of my effort creating the content.

***

As the owner/editor/publisher, I have trouble balancing the news and administrative aspects of the job. I’m really a journalist at heart, so given a choice, I’d rather write a news story than work on a spreadsheet or a web page coding problem. I am actively seeking a publisher to join me, perhaps as a partner, to help guide the business side.

Here are the survey results from the for-profit news outlets. Click here to download.
New Business Models for News survey results — For-profit

The survey results suggest that the not-for-profit model has been more successful at building a larger staff, at least at the beginning. Roughly half of the not-for-profits, 12 of 30, reported having more than three full-time editorial staffers. Employment on the business side also trends higher.

Still, the not-for-profits want help developing new revenue sources that will help them keep all of their colleagues around (or even hire more). As the example of the Chi-Town Daily News makes clear, finding that sustainable model is not a sure thing. Here is a sampling of their comments:

Sustainability, of course, is our paramount concern. But we seem to be on a road to a healthy and robust diversification of our resources. Our biggest concerns revolve around defending potential legal attacks and improving technology without investing in innovation.

***

Finding a steady source of income in order to continue to employ an editor and to offer him a decent salary and benefits.

Here are the results from the 30 not-for-profit news organizations that participated in our survey. Click here to download.

New Business Models for News survey results – Not-for-Profit

Dougherty explains the move:

We’ve concluded that, as a nonprofit, we cannot raise the money we need to build a truly robust local news organization that provides comprehensive local coverage.

The Daily News needs $1 million to $2 million per year to do a great job of covering a city as sprawling and complex as Chicago. And despite hundreds of phone calls and letters to foundations, corporations and individual donors over the past four years, we’ve never come close to that.

Last year, we raised about $300,000. This year, due to the economic downturn, it was unclear whether we would be able to maintain that level of revenue, let alone move quickly to expand our coverage.

Jim Barnett, former Washington correspondent at The Oregonian who is now studying not-for-profit journalism models at George Washington University, thinks other news start-ups may follow the Chi-Town Daily News example and use not-for-profit status to prove an editorial concept before launching a for-profit venture.

“I do think more will follow this path, but not this quickly, and, I think, out of strength rather than necessity,” says Barnett, who blogs his research here and at the Nieman Journalism Lab. “I think other nonprofits with ambitious revenue goals will consider hybrid strategies — perhaps launching for-profit operations that help supplement their resources, much as Minnesota Public Radio did before spinning them off. But the strength of the nonprofit model would remain — that is, it puts the needs of the newsroom ahead of the investor.”

View the Not-for-Profit business model as a Google Document here. (To make changes to this document, simply click File>>Create a copy or File>>Export.)

Or, download it as an Excel file here.

Click here to see the other models. (The New Business Models for News Project has been funded by the Knight Foundation.)

As Neiman Lab noted, the deal gives the Tribune, which is set to launch this fall, a team of experienced reporters and an archive of content dating back to 1984.

The Tribune’s founder, venture capitalist John Thornton, told Alan Mutter last week why he thinks the not-for-profit model is the only avenue for quality, public-service journalism:

“In 2006, we looked at the challenges being faced by newspapers and how guys like us could make a profit,” he said. “The for-profit conclusion was to buy lead-generation businesses and that has worked out for us.”

But…

“I was reminded of something my pastor said when I was a kid growing up,” he explained. “If you mix politics and religion, the pastor said, you get politics. The same thing seems to be true in journalism. If you mix journalism and business, you get business. That’s when I realized serious journalism is never going to be a really good business again.”

Thornton told our own Jeff Jarvis last month that raising enough money through donations to cover state government should be a cakewalk, and might even lead to an increase in reporters on the beat.

Dance companies in Texas raise $20mm a year. . . . If journalism philanthropy, 10 years from now, were the size of dance, we’d put 150 reporters on statewide issues and could literally change the way state government operates. Think about that: an extra 20 at the capital; a couple each for all the agencies and the school board; 20 on the border. You almost can’t spend that much money responsibly. I don’t need opera. I don’t need visual arts. Don’t need symphony. Just give me dance, and I’ll change state government.

But, the starting budget will be closer to one ball than the entire dance season. Thornton tells Mutter the Tribune will run on a budget of $2 million and support a staff of 15 reporters. They won’t cover the waterfront of the state government, but they will be able to focus on the energy industry, the border with Mexico, and how demographic change is transforming the state’s politics. As Andrew Donohue, the editor of Voice of San Diego, another not-for-profit newsroom, noted in a chat with us last week, for a start up focusing on getting just a few things right in the beginning works best anyway.

Finally, here is a surely meaningless, though still interesting, indication of the Tribune’s anticipated Web 2.0-ness: even though it won’t even begin publishing for a while yet, it already claims more Facebook followers than any other newspaper in the state.