Don’t Start a Nonprofit — Really, Don’t

You are passionate. You are creative and have an entrepreneurial spirit. You have an idea. You believe it’s unique and meets a community need. You decide to start a nonprofit.

You invite a couple of friends and family members to join your board and submit the Form 1023 to the IRS. After all, that’s what you are supposed to do, isn’t it?

Not necessarily.

A question we ask aspiring nonprofit founders is this — do you want to launch a program, or do you want to launch a business?

Many new nonprofits work diligently to build their programmatic offering, but often without the time and attention needed to build the business. We see new nonprofits that have program success, growing exponentially with dozens of staff members running a myriad of programs, but with little to no dedicated staff on the enterprise of the business. The executive director is expected to do it all.

Operating a nonprofit cannot just be about program development. All aspects of running a business — financial management, human resources, information technology, administration, marketing and communications, revenue growth, legal compliance, planning, security, facilities, and more — require equal, or even greater, time and attention as programming.

Nonprofit founders must also spend a considerable amount of time on board governance. Determining who sits on the board is the most important strategic decision any nonprofit founder can make, but often new nonprofits are stacked with friends and family, which can be to the organization’s detriment. Board members are usually unaware of what their roles, responsibilities, and obligations truly are, and think they are just helping their loved one follow their dream. As a result, new nonprofits often struggle.

We hear new nonprofits refer to their board as a “working board” or that they are not a “fundraising board.” It is true that a founding board will provide more hands-on support of operations in order to launch since new nonprofits are typically not fully staffed. However, all nonprofit boards are governing boards, and part of their responsibility is to ensure adequate financial resources. It is a major mistake to tell your founding board that they do not have to fundraise or support the organization with personal contributions. Why would an outside entity make a gift if those closest to the mission are not willing to support it?

We also ask aspiring nonprofit founders if starting a new nonprofit would address an unmet need. According to the Independent Sector, the state of Ohio has 59,897 nonprofits — that’s a lot of competition. While nonprofit founders often believe their mission is unique, odds are that another nonprofit is doing or trying to do the same thing.

With all of this in mind, you may still decide to start a nonprofit. We encourage you to consider these additional points.

1.    You don’t own the nonprofit. It belongs to the community and is governed by a board. You don’t have the same autonomy and agency as the founder of a for-profit business.

2.     There is no guarantee of funding. Yes, you can try to “write some grants,” but funders often want to see a track record of successful outcomes – proof of concept – before writing a check.

3.    The majority of philanthropy in this country is from individual giving, not institutional giving. Building your board and working in constructive partnership with them to develop a base of support is paramount.

4.    You have the option of working with a fiscal agent rather than applying to the IRS at the outset. By working with an already established nonprofit, you can run your program and accept donations. You can see if your idea gains traction and meets a community need. All your energy can then be on proof of concept rather than on the infrastructure needed for a business enterprise.

5.    Determine how you will measure impact. It’s not enough to say your new idea has merit — you have to demonstrate it. Determining your outcomes and collecting data is essential because good intent is not enough. Donors, partners, stakeholders, and all the audiences connected to your work need to know what is being achieved.

So again, do you want to launch a program or launch a business?

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