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Don’t Do It: Don’t Start a Nonprofit

Posted by Dahna Goldstein on Jul 14, 2017 12:37:06 PM

blog-dont_start-Nonprofit.pngDo you want to make a difference? Great. Please do. But don’t start a nonprofit.

Are you concerned about what is currently happening to vulnerable populations, the environment, and media freedom? I am, too. Are you afraid it’s only going to get worse? You’re probably right. But don’t start a nonprofit.

A lot of well-intentioned people are channeling their admirable desire to do good into starting new nonprofit organizations. Nearly 80,000 new nonprofits were created in 2016.

Don’t do it.

Many of the well-intentioned people who start nonprofit organizations are then unable to marshal the necessary resources to effectively deliver on the vision and mission of the organization. There now are 1.8 million nonprofit organizations in the U.S. Fewer than 15 percent have operating budgets over $250,000.

Don’t get me wrong. I’m not saying that small organizations don’t have an impact. Many of them do. And I’m not saying you shouldn’t run with your great world-changing idea and your desire to do good.

You should.

Just don’t start a nonprofit.

Existing organizations, particularly those that rely on outside funding in the form of donations and grants, are already competing for scarce dollars. Many of them are struggling to survive, let alone to thrive. As we’ve seen in recent years, as funding declines, demand for the services the organizations provide frequently also increases, which further challenges nonprofits that are already resource-constrained. Adding more organizations to the mix risks being counter-productive.

It’s not hard to start a nonprofit. The barriers to entry are pretty low. Find a name, get an EIN, register with your state, file a 1023-EZ. It’ll cost a few hundred dollars and a few hours. But then what? Running a nonprofit and growing it to a size where it can most effectively serve its constituents takes resources. Will you be the only one working for the organization? Will you need to get paid? How will that happen? Where will financial support come from? Will you want to add more people to deliver the great services your organization will provide? How much will they cost? Where will that financial support come from? Of course, these are not the only questions to ask, and any new organization should think through what actually running the organization will look like once it gets started.

There are economies of scale that can be achieved by nonprofits, just as they can be by for-profits, but most nonprofits face significant uphill battles in getting to scale. Many never get there.

This has resulted in a highly fragmented service landscape where many organizations are not as effective as they could be and are competing for very limited resources to support their missions and serve their constituents.

There’s an opportunity cost associated with the multitude of new nonprofits started each year: they draw resources away from other organizations that need them and might be in a better position to thrive.

I know what you’re thinking. You’re looking at the amount of money that’s being raised overnight by organizations that are fighting to protect rights and freedoms threatened in the current political climate. Surely your idea will be worthy of some of these donations. Yes, it’s true that rage donating has become a thing. And it has significantly benefited a handful of organizations. But those organizations have some infrastructure already in place to be able to handle increased demand and an influx of capital. Not necessarily so for a brand-spanking-new organization. And while the rage donating has been a kind of amazing phenomenon, we don’t yet know what sort of impact it will have on fundraising over the course of the rest of the year. Will concerned individuals just increase their giving this year to include both their rage donations and whatever giving they would otherwise normally do? Or will other donations be reduced as a result? Only time will tell. Either way, new organizations are not likely to significantly benefit.

So don’t start a nonprofit.

Instead, research the organizations that are doing the type of work that you want to do, both national organizations and those in your community. Reach out to them to see how you can help.

Maybe they need volunteers (and maybe you don’t really want to quit your day job anyway, but you’re looking for a meaningful way to have an impact). Or maybe they’re hiring.

Maybe you’ve identified a gap in the services provided for an issue you care deeply about. Great. Instead of starting a new organization, see if an existing organization — with all the benefits of an established organization — would be interested in having you work on that initiative under its umbrella.

If you’ve gotten this far and you still think you should start a nonprofit, research and plan how you would fund it. If your organization would have to rely on outside funding (either grants or individual gifts), please reread this piece and reconsider.

If your world-changing idea has some way of generating income that’s not grants or donations, you may be onto something. At least, an organization that can be self-sustaining doesn’t face the same fundraising challenges and does not further fragment the already-constrained funding available to nonprofits. In that case, I would also encourage you to think about whether starting a for-profit venture as opposed to a nonprofit makes sense for your particular idea. It may or may not — there are benefits and drawbacks to both legal structures — but a world-changing idea doesn’t have to be pursued by a nonprofit, particularly if it will be self-sustaining through some sort of earned revenue stream. Your for-profit can get B Corporation certification or can form as a Benefit Corporation to ensure that your values are built into the core structure of the business.

So if you want to make a difference, by all means, pursue your world-changing idea with as much vigor as you can. The world needs people like you, particularly now. But if your world-changing idea isn’t going to be immediately self-sustaining, please don’t start a nonprofit. Your energy will be put to better use elsewhere.

Topics: Fundraising, starting a nonprofit

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