"We Need a Team… to Do It My Way"

A new year, an old, familiar theme: New Charity Startups. Why are we dealing with this topic? First, because there are a lot of new charity startups every year. About 41,000 per year have been registered for the past five or six years running. We now have about 1,100,000 nonprofits in the U.S. today that are filing Form 990, plus another 300,000 that are either too small to file or are failing to file.

Secondly, it is in the planning and formation of a new charity startup that we can see fundraising problems brewing. Right from the start we know whether a new charity is going to have fundraising problems down the road because there a number of significant issues that will come back to haunt the new charity if not dealt with properly during startup.

Third, we can see some of these issues more clearly in the new charity startup than we can in more mature charities because we don't have to wade through the added baggage of the internal political turmoil that most nonprofits create for themselves that muddy the waters and make fundraising problems, and their solutions, harder to identify clearly.

So, picking up from yesterday, what we're doing at the moment is examining the phenomenon of "Founder-itis" as found mostly in new, and therefore smaller, nonprofits. This is the phenomenon where the founder has become the executive director, has stayed on too long, and has led the charity to a greater or lesser quality of dysfunctionality by paralyzing its growth and its capability to change with the times. We're taking a look at the factors that can, early on, indicate trouble for such founder-dominated nonprofits, and how these are related to the early decisions and actions of the founder.

The reason we're looking at founder-itis in particular here is that this phenomenon results in rendering many new charity startups useless, or contributes heavily to their demise, within the first ten years of their existence. That does a disservice to the society that has given them license to operate. But it is also a phenomenon through which we can see fundraising problems brewing early on in a nonprofit's existence. We can see the nature of the problem, identify its characteristics and correct it more easily at this stage than we can several years down the road.

In the last few posts, we dealt with two critical factors, the first of which was the haste with which these founders sometimes rush to mission accomplishment without thinking through the questions about whether another nonprofit is really needed in the specific field, or whether it would be best for the would-be founder to simply go to work for one of the existing charities. Thorough strategic planning is critical to a charity start-up, and any founder needs to take the time to involve a whole community of people in assessing, first, whether another charity is needed, and then where it will go and what it will do.

Then we took on the problem of how the initial board of directors is formed by the founder; we examined what happens when the board is put together of friends and associates of the founder, is not given true governance capability, and is done simply to satisfy the IRS regulations, but is kept under the close supervision of the founder/executive. Boards need clear job descriptions and performance standards. They also need to be allowed to be true governors, and they need to be the real supervisors of the founder, as distasteful as that is to many founders.

This week we are delving into a new realm: fundraising, and the kinds of subsequent effects that early fundraising decisions have on a nonprofit. Such decisions set the tone and pace for fundraising for years to come; the newly-formed nonprofit has just as good a chance of becoming dysfunctional in its fundraising as it has in its governance and strategic planning.

Most often the charity suffering from founder-itis doesn't get to my door until the start-up nonprofit is about three to five years old, and they're in serious trouble. The reason they're in trouble is because of their inability to raise contributions from the public.

Early problems with fundraising are frequently masked by the founder's haste as he/she sets up a nonprofit that is initially dependent on foundation grants and special events, with a couple of direct mail letters to friends and acquaintances. That configuration is good for a few years as a way to get started serving the target population immediately; it brings in the relatively easy money.

As we saw last week, this makes the founder and the board feel good early on that something is being done in the field with the target population. But it ultimately leads to trouble in fundraising, governance, capacity building and, ultimately, mission accomplishment.

What happens is that in the haste to feel good and get something done, the founder does not test to see if there is a significant groundswell of public support in the community for the work he/she wants to do. That means the fund development plan consists of what I like to call "fun and foundations." Here are some of the ingredients:

First, the foundr is relying on the possiblity that early dollars are going to come from friendly local foundations who want to help a start-up, and from special events.

The next idea is: "Everybody likes a party, and networking is a key to advancement of just about any kind in our society. So if we bring people together, charge them a donation to get in, they'll support us just to get to the party."

The third step in this unwritten fund development plan is that the founder can then spice things up a bit at year's end by sending out a direct mail appeal, and that brings in a few dollars too, even though if one were to look closely at the statistics of such a mailing trouble is forecast from the beginning.

So, the early dollars look like they're going to be relatively easy. The problem of finding funding is quickly solved, right? We can turn to other, more urgent matters.

But the next decision compounds the problem that's starting to happen: those early dollars are spent solely to program – meeting the needs of the target population. The founder is in a hurry to get results. He/she puts on staff, undertakes the essentials of rent, utilities, materials and the like. This sets up the operating budget, but there's nothing invested in fundraising infrastructure. There is nothing invested in capacity building for the organization. Nothing invested in marketing or governance. Every cent is going to program. Why? "Because people want to see that their dollars are going to help our target population."

Now, that's not a "bad" reason for being frugal. But it is what Zig Ziglar might call "stinkin' thinkin'" -- poorly reasoned, improper planning for a new charity startup. You can't effectively accomplish mission with 1) no fundraising infrastructure; 2) inadequate governance; 3) no marketing; 4) no regard for capacity building.

The next step of this nascent fund developmetn plan is that the executive herself is going to write the grant proposals, the executive wil plan and hold the events, the executive will write and send the direct mail appeals – with the board members being called in to participate in the events and stuff and lick the envelopes. It's a do-it-yourself, mom-without-pop shop. And, very frankly, that's the way to get a new charity startup off to a bad start. There's trouble brewing everywhere in this scenario.

Through all this, the founder/executive wants to show all donors that the costs of administration are low and spending on "fundraising" is practically non-existent. No better way to do that than to actually not spend anything on fundraising, right? Double trouble is ahead.

We'll get into particulars of the first mistakes in fundraising starting tomorrow.