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Thinking of Starting Your Own Nonprofit? Think Again.

April 09, 2014

(Susan Danish is executive director of The Association of Junior Leagues International, Inc. A founding member of 1,000 Women for Mentoring, she is a member of the board of the National Human Services Assembly and national representative for the U.S. for the International Association for Volunteer Effort.)

Headshot_susan_danishEvery year, Americans start thousands of nonprofit organizations. Some are dedicated to eradicating disease, others to addressing social issues such as poverty, homelessness, or gun violence. In fact, according to the Urban Institute, the number of registered nonprofits in the United States grew some 25 percent, to 1.57 million, between 2001 and 2011.

That's good, right? Not necessarily.

As someone who came to a second career in nonprofit management after working at some of the best-known consumer products companies in the world, I'd ask that we carefully consider whether there might simply be too many small nonprofits and charities in the United States for them all to be effective.

Yes, I'm aware that nonprofits sometimes close their doors and disappear. I also know that in 2011 the IRS revoked the tax-exempt status of some 275,000 nonprofit groups for failing to file an annual information return or notice with the agency for three consecutive years.

But even such a dramatic house cleaning doesn't change the reality: a large number of organizations focused on achieving a single goal – however desirable that goal – makes achieving that goal more difficult. That's certainly the case in corporate management, where such an approach typically results in fragmented markets and reduced market share for an ever-larger number of market participants. Of course, in the for-profit world, there are any number of solutions to the problem of too many companies competing for the same customers. Companies, for a variety of reasons, fail all the time. And as part of that process, their investors and shareholders lose their investment and, in theory, become smarter about where and how to invest the next time.

In contrast, an over-supply of small nonprofits and charities typically leads to duplication of effort, an ever-growing percentage of scarce resources devoted to overhead, an overall reduction in funding for new ideas and approaches (i.e., R&D), and, critically, more competition for donor funding and other kinds of support.

I'm not suggesting that the nonprofit sector should operate like the for-profit sector. Nor am I dismissing the possibility that large organizations can have a significant impact on a major social, environmental, or health issue. They can, and have…but largely because they have the resources to bring to bear on a problem that small nonprofits and charities simply lack.

Yes, a small nonprofit that employs new social media or crowdsourcing tools, or one that has a better solution to a problem, may grow up to become the twenty-first century equivalent of the Red Cross or American Heart Association. Every iconic nonprofit with which you are familiar was, at one point in time, a start-up. That's the alluring promise of the nonprofit sector – the possibility of creating an innovative solution to a problem that will improve the human condition.

No, what I am saying is that we all need to take a long, hard look at the sector's long-standing tendency to reinvent the wheel. Think about the tens of thousands of new tax-exempt organizations that will be created this year and ask yourself: How much thought did the founders of those nonprofits give to the question of whether a larger, more established organization could do the same thing they're hoping to do, but better? And what are the chances that any of those new nonprofits will ever have a significant impact on the problem they were founded to address?

As I see it, there's a related question: Why are so many larger, better established nonprofit organizations perfectly content to operate in silos, fenced off from ideas and new approaches pioneered by others? Why is there so little collaboration in the nonprofit space? Has the explosion of nonprofits over the last decade or two turned fundraising into a zero-sum game?

Speaking both as a leader of a large human services nonprofit and as an individual who believes deeply in the sector's potential to come up with innovative solutions to some of our biggest problems, I urge you to consider these questions – and to think twice before taking the plunge and starting your own nonprofit.

At the end of the day, only you can decide whether the expenditure of time and energy, and the financial support of your donors, is the best and most effective way to advance the cause you care about. Just remember: there are others out there doing the same thing who would welcome your passion and contributions to the cause.

Susan Danish

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Posted by Voice of Reason  |   April 09, 2014 at 10:22 PM

Call me a cynic, but I think the explosion of small nonprofits has only served to pay the salaries and expenses—sans taxes—of a lot of these groups' founders….

Posted by Amy  |   April 10, 2014 at 03:01 PM

Couldn't agree more, but a little surprised not to see Fiscal Sponsorship mentioned as an alternative. Often sponsored projects can be responsive and nimble in ways that organizations can not. Done well fiscal sponsorship can be a wonderful way to test new programs and collaborate with existing organizations.

Posted by CA  |   April 10, 2014 at 04:37 PM

Working for a small nonprofit alliance we frequently suggest to individuals asking about starting their own nonprofit, that they explore the potential advantages of partnering with an existing organization or to consider fiscal sponsorship. That said, as communities are different, don't want to discount the great work done by small organizations that really know their niche and fill a need in a way not being done by other organizations and that possibly can't be done by a larger organization.

Posted by Allison Shirk  |   April 10, 2014 at 08:19 PM

Unfortunately, many start ups haven't taken the time to research what other organizations are doing before they start their own. Collaboration might be a better answer.

Posted by Karen Reside  |   April 12, 2014 at 01:40 PM

Many people start nonprofits out of frustration with larger organizations. Many nonprofits, even larger ones, do not always operate with effectiveness and passion and are not open to new ideas. Having help start five nonprofits with others, there is still a need for nonprofits if they are started by those willing to learn about good governance and operations. To me the question is why do organizations that are not ethical or fulfilling their original intent continue to exist.

Posted by Deborah Finlayson  |   April 23, 2014 at 02:44 PM

I totally agree, well said.

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