Why Not Open a Business Instead of a Nonprofit?

I received an email from M. McElroy of Brighton, MI, the other day that speaks to this examination of start-up charities that get into fundraising problems early in the game. She related the following story, in which the names have been changed or deleted to protect everybody concerned:

“When I first started my career [in another state], I worked as a clinician with adolescent boys and girls at a place [that] has been in business for over 35 years.... It grew from a halfway house into a major nonprofit which focused on drug and alcohol rehabilitation. The innovation of programs were fantastic ....

“The reason I left... was because the executive director / founder had a severe case of founder-itis. The board of directors were his friends, his entire family worked [there] and there was no oversight. Although his legacy will live on, he almost ran a great organization into the ground... Discussing founder-itis is very key because it can save nonprofits from possible destruction. [I witnessed] a tragic and severe example of founder-itis.”

In my practice, I see this kind of thing on a regular basis. It must be said that some of these nonprofits that develop founder-itis do manage to change, particularly when their boards seek help from a fundraising consultant. But it usually takes some kind of outside influence, working with the board and the founder/executive, to resolve and “fix” the strategic components of the situation that were ineptly put in place early on.

On quite a few occasions, when people contact me about providing them assistance with start-up charities, during the course of the conversation I have asked them, "Why don't you just start up a business in this area and come at the problem from an entrepreneurial stance?"

Generally the response is shock and disbelief that a fundraising consultant would ask that question. Shock, because they desperately want a charity, not a business; disbelief because they come to me for help in fundraising and here I'm implying by my question that they should be in a business where they sell a product or service rather than give it free to those who need it. Most of the people who come to see me cannot understand why such a question is relevant. Their immediate answer is: "We want to set this up as a nonprofit so that people can give to us and get a tax deduction for their gift. Why in the world would we ever want to go into business with this idea?"

Well, there's a perfectly logical reason why you might consider doing that. More on this tomorrow. We're getting down into the heart of the issue here.