So You Want to Start a Nonprofit?

Yesterday, I tweeted out a link to the Donor Dreams Blog, asking "What do you think? Are nonprofits not "playing nice in the sandbox"? http://ow.ly/c2acO" In that blog, the author, consultant Erik Anderson, asks:

... Why is it that every time someone has a new idea, they want to start a new non-profit organization to do it?

I find this knee jerk reaction so interesting and confounding. Instead of starting a new organization, it could be “Ah-ha, I have an idea and think I’ll take it to a non-profit organization in my community that does similar things and work with them on starting a new program.”

... The truth of the matter is that the last thing the non-profit sector needs is more struggling non-profit organizations competing for similar resources. ...

The responses I got back all seemed to agree with Mr. Anderson: "There are too many nonprofits!" I addressed this trite bit of "accepted wisdom" just over six years ago in another posting here, and nothing much has happened since then to change my mind. While many people repeat this line, there is still no empirical evidence that this is actually true.

In all other sectors of the US economy we prize competition and entrepreneurship. But not, apparently, in the nonprofit sector. Elsewhere in this nation, we say, "Build a better mousetrap and the world will beat a path to your door." In the nonprofit sector, however, we're supposed to build a better mousetrap and then turn our plans over to the current leading mousetrap provider.

When people approach Mr. Anderson with an idea for a new nonprofit, he says in his blog, "It has become my standard operating procedure to sit down with these nice, well-intentioned individuals who call me asking for help and beg them to please not start another non-profit organization." He wants people with new ideas to get together with existing nonprofit organizations and "play nice in the sandbox."

How would that advice play in other sectors of our national economic landscape? "Gee, Mr. Jobs, why don't you just take your ideas to IBM and help them to develop it?" "Well, Mr. Bezos, people may well want to buy books online, but why don't you just partner with an existing store or distributor?"

How many of our mayors would be re-elected begging entrepreneurs to not start yet another small business in their city? "Another coffee shop? Please, just go be a manager at a Starbucks." "If there were a better way to make a hamburger, McDonald's would have thought of it by now. If you must be an 'owner,' why don't you just buy a franchise?"

This is the USA. We believe that competition is good. It weeds out complacency. It weeds out inefficiency. It encourages constant innovation. And it requires paying attention to constituents. Which of these goals is bad for the nonprofit sector?

Yes, a great number of start-up nonprofits will fail. Just as in the small business sector. And that's not necessarily a bad thing.

I too get many emails and calls from folks who want to start a new nonprofit. Many of them are unprepared. They have not researched the competition. They do not have a realistic plan for roll-out or revenue. They are not familiar with the laws in their state regarding incorporation, required by-laws, etc., etc. But I wish them well.

If you want to start a new nonprofit, go right ahead. But know what you are doing, and why, and where you fit in the marketplace. Then go and innovate.

Too many nonprofits? How can there be too many people working to improve our communities? Or too many groups feeding the hungry, or sheltering the abused? Or too many arts programs enriching our lives? Or too many entrepreneurs stirring things up in any sector of our economy?

The sad truth is most of us in the nonprofit sector only worry that "there's too many organizations going after my grants and donations." I guess we're just going to have to learn to compete.

Assymetry versus Strategic Funding

My friend, Tom, over at the True Talk Blog, has an interesting post called "Asymmetry is the New Black." The concept of asymmetry explains how small, start-up companies or organizations can effectively compete and steal marketshare from larger, established ones. Tom sees asymmetry in action in everything from YouTube to the blogging movement to the Iraqi insurgency.

Tom explains it like this:

Asymmetrical competitors use size (small), speed (fast), and thinking (innovative) to more than compensate for their relative lack of resources. This brand of competition is enabled by today's technology, which dramatically reduces the barriers to entry.

As I wrote in my comment on Tom's blog, I love the concept that being small and agile is a competitive advantage in the corporate world. It's a very exciting and inspiring idea.

Unfortunately, in the nonprofit world, we tend to be behind the curve in these types of trends. Right now it's seems that we're all witnessing contraction and mergers.

This is at least partly the result of funders getting more "strategic" with their dollars (ie: fewer, larger grants to established organizations, rather than many smaller grants to a variety of organizations).

While nonprofits look to joining forces with each other to achieve some sort of efficiency, what are we losing? Does our growth destroy the competitive edge we had in achieving our missions? I'm afraid that may well be the case in some of this.

So, how do we communicate this to funders? We've got to let them know that small is beautiful!

Tom says that, "The only option for established market leaders? Get small, get fast, get smart. Now." Isn't it an irony that as the corporate world adopts this ideology, we're being told to do the opposite?

Too Many Nonprofits?

The Where Most Needed blog has an excellent posting on Charity Mergers Booming on Both Coasts. There are plenty of references to recent articles about particular mergers, and some of the issues involved. The author also points out that one of the best times for such a move is when the chief executive of one of the partners has just left, or is planning on transitioning out.

I read the posting with great interest and agreed with most everything being said, until the last paragraph, which opened with, "Mergers may be the best solution to the excessive number of nonprofit organizations." There was no evidence given, or data to back this statement up. It was just given as a fact: there are too many nonprofits.

I take great exception to this comment. This is not to say that I am anti-merger. I am all for it, when it makes sense for both organizations and their clients. Right now I am involved in a very positive merger negotiation as an interim executive director. I have also had to shut down a bankrupt nonprofit as part of my consulting practice. Nothing about either of these experiences, however, would lead me to believe that they were the result of a glut of nonprofit organizations.

In the current situation, the two organizations are complimentary. They each serve a similar clientele, but with a different program solution. Bringing the two together will give clients the choice of which solution is best for their family. Neither agency "has to merge" - they are each financially strong and healthy. The strategic relationship we are creating, however, will be better for both organizations, their staff members, the funders, and the children served.

The agency I had to close down had come to rely on a single government funding stream. When that funding suddenly ended, the agency was not ready to diversify quickly enough. That, combined with a bit of arrogance and basic bad management, is what shut the doors, not competition from "too many" other nonprofits. In fact, a great hole is still felt in the community where that organization once stood.

I do not see duplicative services as a problem, so long as each agency serves a particular niche. Mass produced solutions may be fine for selling shoes, but often the very nature of the services nonprofits provide require narrowly tailored solutions.

Why does one city need five different women's health clinics? Perhaps one has expertise in reaching recent Asian immigrants. Perhaps another has strong ties to the African-American community. Had these all been replaced by one, large women's health clinic some of the clients may have stayed away and not been served at all. Trust is so essential in the provision of personal human services that I do not think there can be too many grassroots nonprofits with similar offerings.

The funders are complaining about too many grant applications? They have too many tough choices to make? That's wonderful! What a great problem to have. I enjoy working with funders and appreciate the difficulty of their positions. But making their life a little easier is no reason to merge organizations that are just fine on their own.

Again, I am realistic. I will assist in mergers and shut-downs when they make sense. But I will not get so caught up in our quest for efficiency and "operating like a business" that I will make decisions that leave clients un-served or missions unfulfilled.