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Thinking of Starting Your Own Nonprofit? Think Again.

September 26, 2015

PhilanTopic is on vacation this week. While we're away, we'll be sharing some of our favorite posts from the last year or three. This post was originally published in April 2014. Enjoy.

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 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.

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Posted by Stephanie  |   September 27, 2015 at 03:35 PM

On the one hand I can agree with many of your points. On the other, small nonprofits have their roots usually in one individual who is passionate about a cause. In the beginning, the "passion" wins over the practical or more logical aspects concerning the ability to be effective and impactful. But then either the opposite becomes true or their dreams die. Perhaps what's missing is that there is no incentive for small nonprofits to consider NOT forming.

Posted by Stacie  |   February 23, 2016 at 11:29 PM

I just stumbled across this while doing some research. It is interesting and the numbers can't be ignored. Based on your estimated number of non-profits in the U.S. and the census data from 2011, basically at that time there would 200 available members of the total population of the country to support each non-profit. When you consider that census data is made up of people of all ages and the staggering number of individuals living at or below the poverty line, it's simply not sustainable, or sensible. What I find most interesting about this post is the question of why non-profits do not collaborate and communicate better. It's the same in academic settings. I wanted to be a professor to be part of a think tank and unfortunately people are so limited by university policy and red tape as well as being so focused on structuring their tenured path to personal success there isn't much open communication and collaboration happening there either. Such a waste of space and resources that could be collectively working towards greater social impact.

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