New Charity Review Panel vs. Federal Government

When we left you last Friday, we had this issue about the funding relationship between a new charity start-up review group and the federal government's fund dispersal procedure. What is to be the appropriate relationship: grant making, or the regular bureaucratic budget process?

You're probably going to think this is a bit off the wall, but I would opt for the grant making process, and I would do it on a four-year cycle pegged to the off-year elections. The review agency would have to apply to a specific government department to which Congress would give the oversight responsibility. There would be a consistent application process, and the agency would need to make a periodic report to that department. The grant would be almost automatic, but not quite. There would need to be a formal review of the review agency's work to show that all those organizations who were reviewed and granted 501-c-3 status are alive and well and functioning as they should. The funding to do this review and assessment job should be voted by Congress every 10 years, and that vote should be taken in a year when there is no other election.

I think there are three reasons why this would be the best relationship. First, it would keep the review group honest, in that it would require performance evaluation to be done regularly, and a report made to the public about what's happening in the process. Second, it would provide the funding necessary to get this vital job done. Third, it would periodically raise to public view the fact that nonprofits are there, are working on our behalf, are scrutinized by some government-related agency, and are doing what they're supposed to do.

And, with that comment, I am going to close out this thread of how we might prevent the phenomenon known here in this blog, at least, as "Founder-itis." I believe that if we could prevent this phenomenon from occurring that it would serve our nation well. I think also that the way to prevent it is to put the founder on the spot even as the new charity is being founded, and make sure that proper governance is in place by people who are qualified to manage the founder, and by having a fundraising infrastructure in place that will prevent the founder and his/her organization from getting into fundraising problems down the road.

Next is: Why do we leave so much money on the table after Special Events? See you tomorrow!

Constitute a "New Charity Review Panel"

Having set forth the objectives we need to achieve relative to keeping new charity start-ups from getting into fundraising capacity problems, we now need to consider the method by which this can be accomplished. Currently we have some 40-50,000 new charity start-ups arriving on the U.S. philanthropy scene every year. What kind of a mechanism could we invent that would screen these new nonprofits in a way that will help them get a better start and be more effective both in mission and in fundraising?

I propose that we set up a New Charity Review Panel to review the plans of those who are applying to the Internal Revenue Service for a nonprofit 501-c-3- designation. You may remember that back in the 1970s and 1980s it was hard to get a 501-c-3- designation. The IRS took forever! One group I worked for struggled for nearly three years to get their IRS letter. The reviewers kept asking probing questions, we responded as best we could. It took many hours of Board time planning and making decisions. But, in the end, that charity had many of the right ingredients in place to ensure its fundraising success.

Since that time, it appears that the IRS's stance is to go ahead and let anyone who asks for it have their letter and then wait for them to make a tax-related mistake or be caught advocating in Congress, and then pounce on them and threaten to remove their 501-c-3- status. Much less administrative headaches, much less expense, but we have an incredibly huge group of new charities coming on line every year and, at least in our area, many are floundering in the throes of fundraising incapacity by the time they're 5 or 6 years old.

What's with this? Is this way of doing business a help to the society? Charities perform a vital function in our society: they do the work the government can't or won't do, and they do it much more efficiently. I heard Lawrence Lindsey, governor of the Federal Reserve Board say the "If you give charity a dollar, you're more than likely going to receive back $6 worth of service." Whereas, he said, "if you give the government $6 in taxes, you may get only $1 in service." But what kind of service is it if a whole bunch of your charities end up dead in the water because they couldn't get off on the right foot in their fundraising and therefore can't be self-sustaining? It's a strain on the start-up charity and their board, a strain on the donors, and a drain on society having to pick up the pieces when they fail. Why not develop a better system.

The system I have in mind wouldn't use the IRS, but would turn, once again, to the private, charitable sector. We need to have people who know charities review and make judgments about the plans of new charity start-ups. We need to have people who are sensitive to the issues that confront each of the major types of charities, such as health, education, arts, human services, environment, etc. If we're going to review strategic plans, it must be done by people who have done this process successfully in many organizations over time.

There are three organizations that I think could handle the job. Maybe not necessarily the size of the job, but they could do the job if they were so structured and funded. One is the Association of Fundraising Professionals, one is the American Association of Fundraising Council, and one is Independent Sector. Any of these three organizations have the leadership and the staff experience to be able to review new charity start-up plans and assist those charities in firming up and plugging the holes in their plans PRIOR to setting up for business. They have the ability to give constructive input and help new charities get started on the right fundraising foot.

So we have the organizations already extant who can do this review and approval job; the only question now is how do we get them organized around this task and funded annually by Congress? That's probably going to be pretty tricky. But it will be cheaper and more effective than having the IRS do the job, because these organizations are already set up to do GOOD in the society. Charities – with the leaders and staff with the long-time experience governing and managing charities – judging whether new charities have it together enough to succeed in their fundraising and management. That's as it should be.

What a Review Panel might Review

The final item that I think would be appropriate for a new charity start-up review panel to understand about a new nonprofit is the strategic plan developed by the founder. Having seen the plans developed by several charity start-ups in recent years, I know that what these founders have understood by "strategic planning" is not adequate to the task at hand.

Strategic Planning must be done according to a model, and the model I like most includes the following topics:

1. Who are we, in terms of our past? Where did we come from? What are our traditions, our symbols and our customs? How and why did these develop and over what kind of time?

2. What is our present situation? Where are we located geographically and conceptually? What is our current purpose, mission and vision, and what are our values? What programs of service do we presently offer and why do we offer these, and to what target populations? What resources do we have available? What is our Case for Support?

3. What are the current trends in our arena of service? What's happening to change the picture in which we find ourselves?

4. What, going forward, should be our new role and mission? What are the ways we want to affect the society around us? The environment? What is the greater social good that we seek to serve?

5. How do we define the steps we will need to take to get from where we are now to where we need to be in order to fulfill our role and accomplish our mission? Over what kind of time? Using what resources – human and financial?

6. What strategies and tactics are we going to need in order to achieve the objectives defined by those steps? How will we structure ourselves for work? How will we program our organization? What procedures and policies will be needed, and at what conceptual levels?

7. What resources will we need (including those we have now) and how do we find or make a continuing source of those resources? Particularly, the fundraising strategic plan comes in here, as well as the plan for human resource procurement and management.

8. How will we know when we have succeeded in accomplishing our mission? What units of measurement will we use? What process of measurement will we use, in the short run and over longer periods of time? To whom will we report these accomplishments?

9. What means do we have in place to make mid-course corrections within the framework of the organization's structure, budget, policies, procedures and human limitations?

10. What are the means by which we will make our strategic plan operational on a day-to-day and week-by-week basis so that we understand every action and every policy in the context of our strategic plan?

If and as the new charity start-up review panel would have in hand the details of such a plan, they would be able to identify immediately any potential flaws they see that would mean trouble down the road for the new nonprofit. They could point these out and the founder would have a chance to continue the work of planning, ironing out those wrinkles before getting started. That would save the donors, the taxpayers, the service recipients, the board, and, ultimately, the founder him/herself a lot of time and wasted effort. Unfortunately, if this system were in wide use today, there would be less work for us fundraising consultants to do!

Digging for the Evidence that a New Charity is Needed

Our fourth objective, as we said before, is to help donors easily find the information they need to assure themselves that their gifts will be effectively and efficiently used for the purpose the donor intends. This information is of two distinct types.

1. The first kind of information needed is essentially demographic in nature. It would consist of the number of potential service recipients in the start-up charity's geographic area, along with a determination of the number of charities already serving that population. Arts, environment and public service organizations will have a harder time coming up with such figures. But human service networks can readily provide such information and much of the work has been done in the collection of census data.

2. The second type of information needed is that we would need to know the types of service program already in operation and their relative effectiveness with the people they serve. The result should be a number of those who comprise the target population that is understood as not being served with necessary programs. Here, the founder of a charity start-up may need to do a little digging. But this is relevant work when starting up a new nonprofit, and the founder's feet need to be kept to the fire to investigate the field thoroughly before putting together the plan for a new nonprofit.

Through these numbers we can see the relative need for the new charity, both in terms of numbers of target population, and in the extent of programming needed to complement or assist that which is already in place. These should become a part of the new charity start-up review process.

"Case For Support" is Part of the Planning Effort

Our third objective is that we want to help ensure that prospective donors in the community have reasonable clarity about the mission and accomplishments of the charities they are asked to support. How can we do that in this new "charity start-up certification" process?

Part of the strategic plan of any new or continuing nonprofit organization is its mission statement, its case for support, and its method of disseminating that case for support among its constituents on a regular, frequent, persistent and consistent basis. So these will be good ingredients to give to the organization that is certifying the new charity start-up.

1. There should be a mission statement developed for the organization, so that should be shared with the start-up certification panel. Along with that mission statement there would also be the plan of mission accomplishment, or service delivery. That would describe in some details the scope of service delivery and the methods the founder envisions being used. It will also need to include anticipated outcomes so that there is something to measure effectiveness from the very beginning. These items should also be part of the certification review process.

2. Instead of waiting several years until a convenient time presents itself (or even never getting around to it), the organization's case for support should be developed and written down right at the beginning. This document would contain a complete and detailed set of reasons why anyone should or would give any money in support of the organization's work. It should state the set of features offered to individual, foundation and corporate donors, as well as the benefits to be derived from making a contribution. This is going to include the schedule of benefits for corporate sponsorships, and the recognition system, along with any naming opportunities that can be devised. These should all be part of the certification review process.

A Serious Look at Duplicative Nonprofits

I said in yesterday's post that our second objective for regulating a new charity start-up is to discourage the creation of new charity start-ups in geographic locations where similar charities have already been set up. We want to avoid duplication of effort, while, at the same time, encouraging new charities to care for needs that have been left unmet.

I think one way to care for this would be to gather specific information about target populations and the numbers of charities serving those populations. That information, however, would have been gathered in the approval process as we described in yesterday morning's post.

But a second step would be to have other charities already operating in the start-up's territory certify that another nonprofit in that specialty is, in fact, needed in order to serve the target population. This would mean that the founders of a new nonprofit would need to have met with the leadership of other, similar charities that already exist, and obtain the support of those existing charities for the new start-up. I think this would do a lot to weed out duplicative charities, and would force the issue of "turf" out in the open right from the beginning.

This means that the human service charities, or the arts charities, or the health groups or educational institutions would need to meet with would-be founders of new nonprofit start-ups to decide together whether there is 1) an urgent need in the geographic area for such a new start-up; 2) sufficient support available from within the community to fund the work of both existing charities and that of the new start-up; and 3) an adequate strategic plan devised by the new start-up that is likely to ensure its success. Experience is a good teacher, groups on the ground, in the locality – however cumbersome – are more likely to be better regulators of charitable activity within a given specialty in a given geographical area.

Now, I would agree with you that this is going to blow the lid off of new charity start-ups. Where "turf" is an issue, it's going to be extremely difficult for a new charity to get started. But those groups will need to show that they are covering what needs to be done, and the onus of that burden should be great enough to forestall turf-based greed among existing charities.

Where "turf" is NOT an issue, and progress holds sway, there is going to be careful assessment of just how a new start-up will contribute to the ultimate success and advancement of all such groups in the geographical and program area.

Getting Straight on Planning and Finance

Picking up the thread where we left off, we were detailing what it is we want to accomplish with regard to new charity start-ups. Then we can deal with how we might accomplish those objectives in a way that gives new charity start-ups a better chance at avoiding fundraising capacity problems down the road.

We set forth four objectives:
1. Ensure the right strategic ingredients
2. Discourge charity overlap in geographical areas
3. Obtain concrete information about mission performance in existing similar charities in the area
4. Help donors find accurate information on how their gifts will be used

To care for the first objective – making sure the necessary strategic and financial ingredients are in place – I think we should request the following information on some sort of application to be a 501-c-3 nonprofit organization:

1. Ask each charity start-up to submit information regarding their prospective board members. We need to know their name and contact information, of course. But we also want to know their field of professional work, their relative capacity to give or solicit contributions to the new nonprofit on a continuing basis, and their estimated previous experience in governing nonprofit organizations. We want to know that the skills and experience background of the initial board is diverse and strong enough to provide good governance. We want to know that the board members selected are going to be independent of the founder/executive.

2. Ask each organization applying for nonprofit status to submit a 10-page summary of their strategic plan – or their "business plan." What we would want to see here is a summary of the organization's mission and vision statement, the group's strategic objectives, the program strategies that will be used to accomplish the strategic objectives, and the organization's budget for the first five years of its existence, including all sources of revenue. We would also want to have a comprehensive fundraising plan to ensure the continuing sustainability of the new nonprofit. We want to know that this group has done their strategic planning and financial homework.

3. We also want to know how, and the extent to which, the founders of the new nonprofit have ascertained that there is, in fact, a community need for their anticipated mission, and that the community and its leadership are supportive of and ready to undergird the new nonprofit and its work with their contributions of time and money. This would require some sort of means testing and some affidavits from typical community leaders in government, education, business, media and nonprofit sectors.

4. We would also want a summary of the competence areas and the experience depth of the organization's founder or starting executive or other program staff that will be employed as the new nonprofit gets underway.

5. Once the new nonprofit is approved, we would want a series of follow-up reports on financial status and mission accomplishment for up to five years after approval. We would want to see comparative budgets vs. actual revenues and expenses, as well as an annual balance sheet. In other words, we would want a full and audited financial statement for each of the five years of the start-up charity's existence. We also would want audited figues relative to programs of service provided, the target populations served and the results obtained in service.

Now, you're probably saying to yourself, "Is this guy nuts, or what?!"

But tell me, dear reader: is it better to require this information up front and for the first five years, and to set up the mechanism for doing that? Or is it better to have a plethora of charity start-ups, many of whom will no longer be in existence in five years, or who will be serving ineptly and inefficiently, thus mis-using the public's contributed funds?

Is it better to "let 'em run wild" and proliferate, or to weed out the inadequately prepared groups right from the start? In my view, it serves the public interest – both the society at large and the donating public – to have charities out there whose start-ups have been properly certified as having the right ingredients from their beginning.

If new charity start-ups don't get off to a good start, of what ultimate use are they to society?

Input from a Reader on "DIS-couraging" Nonprofit Start-ups

I got a very interesting email from David Kaiser yesterday responding to the blog thread on "Dis-couraging start-up charities." Here's what he said.

"'[I]t's government's role to support such things as human service, health, education, the arts, etc.?' This is an unconstitutional idea and counter-Biblical.

"Obviously you see it as the role of government 'to discourage the creation of too many new charity start-ups in geographic locations where similar charities have already been set up.' Such centralization did not work in the former Soviet Union. This is what the free market does best.

"I have prayed that Christ will change your heart and that you will realize that a larger role for government is incompatible with liberty, human dignity and personal responsibility.

"Until then, I cannot benefit from your blog. "

Here's my response:

"Keep reading, David. It hasn't all been said yet, and your input is valuable. I like the way you're thinking.

"We must, of course, provide avenues of expression for any idividuals who desire to start up charities. There's no question but what this is both right and a staple of our system of government. It also fits well with the role of the independent or voluntary sector as we have defined it in this country in the last 50 years. Nonprofits sit in between government and business, because nonprofits do what business won't and what government can't.

"However, it seems to me that the proliferation of nonprofits (some 40,000 per year at this point) can work best in an environment where resources are quite a bit more plentiful than they are now under current political circumstances. This is true both for the federal level and for the State of Michigan But I am speaking mostly here about the significant decline in federal resources available to charities of all types since the beginning of the Reagan presidency.

"Keep in mind that our nonprofits have three main sources of revenue: fees for service and receipts from sales of products; grants from government agencies or entitlement programs; and voluntary contributions from the public.

"During the 1950s thru the 1970s the American public got used to having government be largely responsible for a lot of human services, arts, health and education funding. Since the early 1980s, however, this trend has dissipated and the feds have gotten out of providing a good deal of that support and have left the states and our nonprofits scrambling for money. Not a real solid way to support a voluntary sector that does as much good as our nonprofits do for us, is it?

"I am identifying two different (but not unrelated) problems here in discussing the proliferations of charity start-ups.

"1. They are too often set up without careful, thorough strategic planning and without a solid and comprehensive fund development plan, and that gets them into trouble in their first 5 to 7 years of existence. I'd like to find ways to avoid this trouble they get into because it's inefficient and nonproductive for the public to give to such organizations only to see them fold up. It's hard on the target populations they serve too! That doesn't mean we need to squelch individual initiative. It may mean we need to examine more closely the way in which that personal initiative is expressed through charity start-ups in better planning, fundraising and governance. So that's what I'm supporting here in this blog on "founder-itis. We need to find a way to help new charities succeed."

"2. The other issue here is that unless we become more generous at the federal level with our nonprofits, and provide them the funding they need to serve the society as we've come to experience and expect -- and they certainly do serve more effectively and cost efficiently than government agencies have or could do -- then we will continue to have this problem of scarcity of resources for an increasingly greater number of nonprofit enterprises. How much money is there to go around?

If the current climate continues -- and there's no compelling reason to think that it won't (Democrats controlling Congress notwithstanding) -- then the question becomes "How can we deal with a proliferation of new charity start-ups in an environment of decreasing public resources to support them?" What's the picture going to be 20 years from now. Well, at roughly 40,000 new charities per year, in 20 years we'll grow from 1,049,000 in 2005 to about 2,650,000 in 2025. Will we have the resources to adequately fund the work of all those nonprofits? Where will the money come from? Congress? Fees for service? The donating public?

"Pehaps one answer, or one PART of an answer, lies in more effective solicitation of the giving public. I certainly think that we have left a considerable amount of money on the table and that we should all be out there asking more people for more money. But I do not sense that the complete answer is to be found there. Can the private sector be reasonably expected to bear the entire cost of the volunteer sector, to the exclusion of significantly increased contributions by the business sector and government? And is the donating public ready to bear it, psychologically, after 50 years of increasing government assistance in these various causes? I think that's a tall order. We may need to do some educating.

"You might consider going back to read the report of the Filer Commission in 1973, which did a great job of detailing the efficacy of nonprofits for the greeater society. It is certainly instructive, and provides a good basis for the case for support as we go to individual donors with more requests for more money. But wouldn't it also be of help to find ways to slow the growth of the voluntary sector in ways that bring acccountability, transparency and better planning without impeding the personal initiative and voluntary spirit that has been so essential to the development of our democracy?

"Thanks for your comment! Much appreciated."

Do I hear more comment? Readers, it's time for you to get in on the conversation.

Giving Charity Start-Ups a Better Chance at Success

Yesterday evening, I had the opportunity to teach a segment of a public policy class at Easten Michigan University on the sources of revenue for nonprofit organizations. During the discussion, one of the students raised a most interesting question. Remember that these students come at the question from the standpoint of "what makes good public policy" and not from the view of being fundraisers in any sense.

She asked "With money getting tighter from both feds and state, and with increasing need of existing charities to sharpen their cases for support and go to the giving public for increased contributions, why are 40,000 people a year opening new charities? Won't that make it nearly impossible for anyone to raise the money they need to sustain their operations?"

Her question was right on target. Since the early 1980s, starting with Ronald Reagan's presidency, the Republicans have been hell-bent for leather to find ways to cut taxes for the rich and have, therefore, embraced the idea that nonprofits should be allowed to do many tasks that government had been doing in the late 1960s and 1970s. This is made all the more palatable because nonprofits can typically deliver $6 worth of service for every $1 contributed. They do what government cannot do, and what business won't do. But then the GOP also wants to cut taxes and that means the charities have to go to the public for increased contributions.

But the public isn't psychologically ready to shoulder this burden. For the past 50 years they have been increasingly aware that it's government's role to support such things as human service, health, education, the arts, etc., and that their contributions only supplement what fees for service and government can regularly provide.

Consequently, the student's question: With charities proliferating wildly, what will the philanthropic marketplace look like in 10 or 20 years? "Even more highly competitive than it is today," would be my response. And we have the task of informing the donating public that nonprofits will be relying on them for perhaps as much as two to three times the contributions they're now giving in order for nonprofits to keep providing the services they now render to the society.

And, now, back to our thread on the subject of the proliferation of charities...

As we start to figure out how to deal with the proliferation of nonprofit organizations in our society, especially when we focus on the problems many of them get into because they are not planned and structured properly, I think we need to start with the premise that "it's a free country, and anyone should be able to do whatever he/she wants to do." Individual human liberty should not be abridged or constrained, unless the action anticipated is going to cause significant harm to others or to the society generally.

But for the good of society, we do generally regulate human endeavor. You can't, for example, keep gaming arcades out of town, but you can use zoning ordinances to regulate where they can or cannot be placed. On the other hand, you can pass an ordinance forbidding something like prostitution or gambling in your town because that action is deemed harmful to individuals and to the society at large. Let's see how we might apply that to charity start-ups in a helpful way without abridging the freedom of individuals to do what they wish to do.

Let's start with what it is we want to accomplish with regard to charity start-ups, then we can deal with how we might accomplish those objectives in a way that gives new charity start-ups a better chance at avoiding fundraising capacity problems down the road.

First, we want to ensure that every charity start-up begins its life with enough of the right strategic ingredients to keep it on an even keel financially and ensure that it will be able to perform its intended mission, thus bringing considerable good works to society over the long run.

If and as we continue to think of the nonprofit organization as a public trust, we need to ensure that each one has the best chance of success, and we need, as a society, to ensure that each charity actually accomplishes the mission for which it is created. If we have 20 drunks in town and two de-tox units, are they both doing a good job, and are they working to, but not being pushed beyond, their capacity for service?

Second, we want to discourage the creation of too many new charity start-ups in geographic locations where similar charities have already been set up. We want to avoid duplication of effort, while, at the same time, encouraging new charities to care for needs that have been left unmet. We want to avoid the situation where there are more homeless shelters, or more drug and alcohol treatment facilities than are needed by the target population in a given geographic area. If you have 20 drunks in town, you may not need more than one de-tox unit. So we need information about target populations served by nonprofits vs. the number of nonprofits established to care for various classes of target populations.

We also want to avoid the situation where there is so much demand on the giving public that they simply "rebel" and give up trying to meet the demand for contributions through rash and inadvisable local ordinances or other measures that stifle local charity start-ups in strange and new ways.

Third, we want to help ensure that prospective donors in the community have reasonable clarity about the mission and accomplishments of the charities they are asked to support. We want to know that of the 20 drunks in town, 17 are under treatment and ten of them are now well on their way to getting off and staying off alcohol. So we need readily available information about, and some standards of measurement for, mission accomplishment by the nonprofits currently serving in our community.

Fourth, we also want to help donors easily find the information they need to assure themselves that their gifts will be effectively and efficiently used for the purpose the donor intends. As a member of the general public, can one easily find out how many drunks there are, what proportion of drunks are taking advantage of the de-tox units that exist, and how many are in what stages of treatment? So we need information on target populations, standards of performance, and numbers of charities serving.

Can you who read this think of other objectives that should adhere to a system of regulation for new charity start-ups? If so, let me have your comments. Or if you have objection to talking about regulating charity start-ups, let's have you point of view.

More tomorrow...

Should New Charities be DIS-couraged?

Maybe it's time to summarize this thread?

We've been dealing with a condition I have called "founder-itis." This condition can develop when a nonpforit founder, who also is probably still acting as the executive director, has either set the charity on its present course with a series of well-meaning but inappropriate decisions, or has contributed a variety of management errors along the way that have now resulted in a situation where governance is impossible, fundraising is faltering, and the organization is in strategic trouble.

Part of our analysis of this type of situation demonstrated the role played by a Board of directors that was set up without a written job description or with performance standards and regular self-evaluation. Where job description and performance standards are clearly delineated and provided in writing to all board members, governance is more successful. When this is not the case, trouble can occur.

We found that another contributor to "founder-itis" has to do with the lack of a real managemment team. This may be the result of personal "turf" issues with the founder/executive, or with the lack of a community that is able to stand supportively behind the fledgling charity start-up.

Yet another aspect would be the founders whose planning lacks sufficient study and reflection that then leads to the founding of "another" charity in a given field of work where there are already many others doing the same or similar work – this may be an instance of founding another charity because "no one is doing it the way I can do it."

Certainly, "founder-itis" is exacerbated, too, by a founder's failure to discover, relate to or amass a broad base of community support – both verbal and financial – behind the cause and the mission of the organization.

The results of some or all of these various factors, then, can manifest themselves as lack of true governance and strategic planning; and also as a proclivity for limiting fundraising to "foundation and fun" (by which we mean reliance on foundation grants and special events) at the expense of a broader approach to fundraising that would involve heavier emphasis on individual and family giving. And this, in turn, may occasion, or may even be occasioned by, repeated decisions not to invest in fundraising infrastructure.

It would seem that all these conditions are preventable. And, in fact, it must be said that out of some 40,000 new nonprofit start-ups that happen each year, probably the majority manange to avoid "founder-itis." But how can we help the problem?

Question: should we, then, as a society, let so many of these nonprofits proliferate without some rather stringent guidelines, peer review and regular accountability for management of funds? A charity, after all, is considered a public trust.

How can we build into new charity start-ups the quality of accountability? I think we must do this for the sake of the philanthropic marketplace (both charities and donors), and I'll tell you why in the next post.

More on Board Complicity in Founder-itis

Continuing with the problems that occur when the Board of a nonprofit develops and inability to fulfill its roles…

4. Board remains ignorant of, or eschews their true governance role. As they are micro-managing daily operations and not doing any strategic planning, the Board, by this time, has lost sight of its governance function. They no longer know what that role is, if they were ever so informed by the founder – most I've seen really don't have any idea. Since it was the founder "roped us into this," they have no sense of themselves as a body responsible to the general public for getting a specific kind of mission done for and in the community. They have little sense of "achieving a greater social good" and, much less, a willingness to be held accountable for the organization's performance of its mission.

5. Board members give up public advocacy when organization falters in fundraising. As revenue decreases, while there may be considerable pressure for increased expenditures to enhance and deepen the organization's missional effectiveness, the Board members cringe when it comes to vocal public advocacy for the organization's cause. No more passionate speeches at Rotary and Kiwanis meetings; no more going around to the local churches; no more political advocacy and lobbying local officials on behalf of the cause and the mission. Board members who may have once vociferously defended the founder's motives and program, now quietly take a back seat and let someone else take the advocate's role. And that someone else is most likely going to be the founder/executive.

6. Board members let founder/executive do as he/she pleases. As the organization gets deeper and deeper into financial trouble, the Board members are much less likely to be able to devise new corrective measures or suggest specific changes in management methods. The result is that the Board members will step back, let the founder/ executive carry the ball, alone, on every front. The end result is that the founder/executive, who by this time urgently needs board backing and needs the board to do its work and be part of the team, finds he/she has to do it all – from service delivery, to fundraising to governance. That's ultimate trouble, because what started out looking like "a team" is now really a one-person show. And if that person gets sick, wants to retire, or shift roles significantly, there is no way the organization can handle any of those possibilities without significant intervention or possible collapse and re-building.

So this is how the Board of Directors of a nonprofit find themselves unable to fulfill their appointed role when the organization is in the grip of a real case of "founder-itis."

Bound Complicity in Founder-itis

There's another thing that I have seen happen in nonprofits that are suffering from "founder-itis" in both early and later stages. That is the inability or the unwillingness of the members of the Board of Directors to take seriously their role as supervisors and managers of the organization's chief executive officer. This happens principally for the reason that the CEO is the founder who originally asked these board members to serve.

The CEO is the charismatic presence that dreamed up the idea, motivated other volunteers, put the organization together, and maybe even invented the methodology used in serving the target population. Thus the CEO is someone the Board members believe in, and someone to whom the Board members look for leadership. They believe in the founder's cause, in the person and the rationale for service. Why, then, should they want to manage, much less try to discipline, their founder/executive. They find themselves in a role that permits no easy solution. The result? They basically ignore that role, and let the founder/executive do as he/she pleases. And that's a major source of trouble on several fronts.

1. Board become micro-managers. The Board, having refused, albeit informally, to be the founder/executive's supervisor or manager, now becomes the micro-manager of the organization along with the founder/executive. Together they focus on the daily issues of program details, budget, hiring practices, the staff, and even staff hiring and performance. They focus on the special event details, and on the grant proposals written to foundations. They take apart, digest, mull over and discuss every aspect of the organization's life; every aspect, that is except the founder/executive; that position is left untouched, because it wasn't in the unwritten job description when they started, and the political situation doesn't lend itself to such work.

2. Board relinquishes the fundraising role. Since the Board is micro-managing the organization, it has little time, but also little inclination, to perform as the chief fundraising arm of the organization. Once you see all the inner workings of any nonprofit, all the bad stuff and the good stuff together, it's so complicated and so multi-dimensional, that a board member has a hard time climbing back up to the kind of eagle's-eye view of the organization's work that gives them the excitement and motivation necessary to go out and cultivate and solicit friends and colleagues. The view of all the minute details is also very often counter-productive for the continued personal giving by many of those board members. So they stop giving, and they stop cultivating and soliciting gifts.

3. Board never has time for strategic planning. Each meeting is full of micro-managing details of running the organization. It's the golf outing, it's the auction. Maybe it's the hiring of a new staff person. Maybe it's the production of the annual report. It could also be the new program, with the matching grant application to the local foundation. Whatever it is, no matter how often or how long the Board meets, this type of agenda fills the time.

They never give themselves a chance to step way back, take the eagle's-eye view and ask the strategic questions: "What do we want to accomplish in the society." "What steps must we take to ensure that this result happens?" "What are the ways we will evaluate progress toward this goal, and how will be define and initiate mid-course corrections that need to be made in our strategies?"

By the time it gets to this stage, the Board is so mired down in daily operations that it cannot view the organization's situation strategically. Thus it does no strategic planning. After all, it's easier to leave that up to the charismatic founder who really has the answers on what we need to be doing and when and how and for what purpose. It's easy just to buy into that dream, that vision, as originally articulated very long ago. But that's going to spell no end of trouble for the nonprofit within a relatively short time. And this will be especially the case with regard to fundraising and the ability to build capacity in that area.

Still more on this to come on this complex aspect of "Founder-itis"….

Administrative Albatross

Another example of "my way is the best way" was an organization early on in my practice that asked me to do a development audit to show them new fundraising capacity. This was not by any means a new charity start-up, but it did have a bad case of "founder-itis." The founder/executive had been in place for more than thirty years. The genius of the organization was that it had developed an organization management model that successfully allowed it to continuously diversify its human service offerings to an increasing breadth of service recipients.

The problem was that this woman had stayed in place so long because she believed that her administrative style was working, that it was superior to any other management procedure, and that no one could learn it from her to her satisfaction.

Over time, this administrative or management style, which had in early years been so unusually helpful to the organization's life and growth, became something of an albatross. When changes in the style were needed to keep up with more modern management practices and the demand from funders and government for more accountability, she refused to change. By the time I got there 99% of the people interviewed for the development audit said it was long past the time when she should step down. But she wouldn't budge.

This is another example where you have both a "turf" issue and a "my way or the highway" issue working together. The lesson I learned from the encounter with this client was that you can have a Board that knows its work, wants to do its work, and is (relatively) independent of the founder/executive, but this is not always enough to provide the kind of supervision that has the political strength to fire the founder.

What was the sticking point? The roots the organization had in the local archdiocese – had that founder/executive been fired, the founder had the power to, effectively, replace enough of the Board members to keep her in office, and there would have been a community-wide upheaval that none of the Board leadership was prepared to endure.

More on this tomorrow.

"Nobody Can Do This as Good as I Can"

There's a corollary to "turf." If we say that "turf" is "stay off my property, don't tread on me," then the corollary to that is "My methods are the best; nobody can do this as well as I can."

The level of self-investment by the founder/executive can be a source of "founder-itis" down the road. For this reason: if you're convinced and invested in the belief that you're the only one who can do what your organization is doing, then any message – whether from donors, regulators or consultants – that there should be coordination, collaboration or merger with another existing charity – is going to fall on reluctant ears.

It may be the case that any given founder's methods really are "the best." Such methods may be recognized by those who are experts in the field; or the measurement of "best" may be in terms of the results being obtained by these methods. I was once asked to serve as consultant to a nonprofit whose work with child literacy was simply outstanding. Year after year, their numbers were stellar; they could teach kids to read at incredible rates in unbelievably short times. That's what gave them an outstanding case for support.

But because the founder had developed this method, which involved enhancing the self-esteem of her students along with teaching them to think about what it was they were reading, that founder was reluctant to become involved with any of the six or seven other literacy charities in the area. She had an issue with the public schools locally, and it was a crusade with her. So much so that as funding dried up, it was impossible to move her to consider a wider geographic area or coordinating or combining with other literacy groups so that service could be delivered to more people in a more efficient way, and in a way that would involve and motivate more donors.

This meant that the organization's sphere of influence stayed the same and the number of students coming to the agency shrank, while its per-pupil expenditure each year increased. So the strength of the case for support as found in the results she could obtain with her pupils was diminished by the high cost and the limited number of illiterate children in the community she was able to reach each year. Not only did this founder/executive have a "turf" problem, she also had a "my way or the highway" attitude that impeded chances of enhancing and enlarging this nonprofit's base of funders. That provided trouble down the road in the form of limited fundraising capacity.

We'll delve more into this corollary to "turf" issues tomorrow, with another example.

Why Campaigns are "Board Cleaners"

So, talking about "turf" as a factor in new-charity startups, we've tried to delineate the meaning of turf, something of its possible origin, and how it operates in a general way. Now I want to describe some of the deleterious effects I see that this "turf" situation has on a nonprofit's fundraising activity and on the organization's ability to enhance and enlarge its fundraising capacity.

Right from the beginning "turf" allows a proliferation of nonprofits, all of whom want to accomplish relatively the same kind of work, but none of whom want to work with, and especially not work under, any other group like themselves. The effect this has on fundraising is that in the immediate geographic area where the charity is located, among donors and prospects who might be called upon to financially support that nonprofit, the waters become muddied by the proliferation of several, even many, nonprofits, who are all doing the same or similar work.

Questions like "Who do we give to?" or "Who's doing the best, most efficient work?" are increasingly difficult for a would-be donor to answer the more nonprofits there are in a given field. If a donor is trying to ferret out the best way to invest dollars for an anticipated result, the decision becomes more frustrating each year. Eventually, that donor may stop giving, or may choose another cause. The long-term effect is that there are fewer dollars with which to do charitable work, and fewer donors/prospects for whom our work is relevant. After a while, they just don't care and give up. So money is left on the table that could be given to charity, and the nonprofits go begging, have to tighten their belts further.

Another effect of "turf" on the life of a nonprofit is that it makes relying solely on "foundations and fun" (foundation grants and special fundraising events) so much more of a temptation for local charity boards, executives and fundraisers. But the more they rely on foundations and fun, and the less they get involved with individual and family donors, the more these charities find their fundraising options restricted. Therefore, the result is stultified fundraising capacity.

Three strikes and you're out. If you get "turf" operating together with "foundations and fun," and this is, in turn, complicated by a management process that makes repeated decisions against investing in fundraising infrastructure, you have a combination that is certain to provide trouble for the nonprofit. And it is from this troubled position that many charities have contacted me through these last ten years as they need help in extricating themselves from this predicament so they can enlarge fundraising capacity. They're starved for revenue, but they can't make headway because they cannot undo the mindset that led to unidirectional fundraising, that was coupled with non-investment in fundraising. Sort of a vicious circle.

The problem, then, is that the intervention that must be made to rectify the situation is so major, and the changes required are so massive, that the executive and the board may well not hold together through the intervention. I don't think it's any accident that, as the old cliché goes, that "capital campaigns are notorious board cleaners."

I think this happens because in a capital campaign most organizations will employ a fundraising consultant to play a variety of roles. First, there is the feasibility study, which requires a keen and objective view of what community leadership thinks about the organization and its campaign project and goal. Next there is the internal assessment of past and present fundraising practices and results, fundraising infrastructure, and board readiness to support and work hard in the campaign. There is also the training that makes plain the conditions under which nonprofits typically succeed in their campaigns. The result of these rolls played out by the fundraising consultant is an exposed, dead-honest, objective revelation of the organization's fundraising problems in expanding fundraising capacity. Many executives and board alike don't like what they see, and it's not uncommon for many to be asked to leave or simply to jump ship as the campaign swings into action.

I should acknowledge, however, that with the small or start-up nonprofits in their first five or more years of existence, it doesn't have to be a capital campaign that forms the intervention. These charities come to a fundraising consultant because they know something is "out of whack" but haven't the ability, the knowledge or perhaps even the political will to do what has to be done. As a recent client of mine put it in our initial interview, "We know what has to be done, but we have not been doing it. We want you to help us do what has to be done" And so we begin a process of organizational intervention that will undoubtedly have far-reaching implications for every aspect of the organization's life and work.

How does this relate to "founder-itis?" Because the trouble starts with "turf" in the original decision of the founder/executive to start a new charity in the first place, when that new charity is going to duplicate efforts already underway in the community. It is exacerbated by the founder/executive's choice of board members who are not coming on as true governors but simply because they're friends of the founder and are giving use of their name for IRS certification purposes. And it stems from the fact that many founders are either unknowledgeable about or unwilling to invest in fundraising infrastructure at the beginning of the venture and this becomes a habit. So "turf" + "Foundations and fun" + lack of infrastructure investment are major reasons why founder/executives get into fundraising trouble.

The Issue of "Turf" -- "Don't Tread on Me!"

Having dealt with the issue of whether charity founders are people-oriented or more individualistic, and the effects of those characteristics on the subsequent fate of their respective nonprofits, we now turn to the issue of "turf." This issue, centering around the proprietary feelings of nonprofit founders, accounts for a good deal of the fundraising problems new charity startups seem to experience.

I will frankly admit that I don't know much of what the rest of the country's nonprofits experience with regard to personal and organizational "turf." But I do know this: that in Illinois, where I lived and worked in the 1960s thru 1980s, turf was always secondary to progress. You could get all kinds of projects done because people from one camp were willing to come together with people from another persuasion in order to get some new projects done.

In Michigan, however, it's a different story. Here, where I have practiced now for the last two decades, turf is held above all else. It is practically impossible to accomplish a new project or achieve some new direction because people are falling all over themselves protecting their own personal, conceptual or organizational "turf."

This has a peculiar and often daunting effect on fundraising; and one can see it most clearly in start-up charities that get into fundraising problems relatively early in life. I will comment on how this works in a moment, but first let's take a look at a definition of "turf" as applied to nonprofit organizations:

My "turf" is my territory: my personal or organizational landscape and context; Turf is all that which I have built for myself within my nonprofit organization, including my accomplishments and the personal learnings that have resulted from my daily experience here.

Similarly, Our "turf," speaking as a group of people involved in the nonprofit, is our territory; the organization's landscape that we have built together, the missional area we have carved out for ourselves, the learnings, policies and procedures we have developed together as a result of our experience in the trenches of service delivery and fundraising. Turf is sacred ground, not to be violated. Turf is our "place" in the world. We protect our turf at all costs, including the cost of not getting anything progressive done.

Turf is seen among board members who vie for the CEO's attention, or who compete in their leadership of committees or auxiliary groups that support the organization. The turf battle becomes hot when a given committee's or auxiliary's work is seen to be duplicative and a move is made to try to combine or coordinate those competing bodies and make the organization more effective, efficient or streamlined.

Turf battles can be seen among nonprofit staff especially when budget is tight and departments need to be downsized. We're fighting for survival of an idea, a process, a department, as well as for our paycheck and personal privileges. No one wants to be the one who has to give up a function or combine that function with someone else's. There's not room enough in the world or enough things to do that there are any alternatives for me (or us) than doing just what we're doing in the present situation.

Turf battles take place between organizations when, for example, foundation grantmakers insist on coordination, collaboration or even combining and merging organizations operating in the same field, doing essentially the same work. The excuse might be methodology, or ideology. For example, if your organization and mine are both half-way houses for battered women, and we're at the table to try to combine and coordinate our services, both organizations may claim to have the best methodology for service delivery, and so neither wants to "give in to" the other.

In fact that's what "turf" often means: a worldview that insists that "my approach" is right while "your approach" is wrong. Or, "we're the biggest and best, so you must give in to us." The phrase "give in to" is the key. One must win and the other must lose. There is only so much territory, we both claim that territory, therefore there must be winners and losers.

Where do we get that? I've spent the last 20 years looking for the answer to that question. At this point, I would have to say that it seems to have come from two sources: the first source would be those settlers who came to the Michigan area from Boston and New York in the 18th century to claim new territory for the making of their own personal fortunes. These folks staked out their territory first against the indians, then against each other. Ideology was definietely a part of the process. The scond source would seem to be the major rift between "labor" and "management" that has expressed itself in the countless battles between unions and, most especially, the auto companies.

It is instructive to reflect that "turf" is a by-product of the desire to exploit resources and fellow human beings for one's own gain. Through timber, shipbuilding, railroads and automobiles, our state of Michigan has been noted for the exploitative capacity of its leading citizens and business operators to take and to use our natural resources, along with the lives of the people who did the work, for individual personal and company gain.

But that was not a phenomenon exclusive to Michigan. Yet we're the ones who have the turf problem today while other areas, like Chicago, among mid-west areas, do not. Why is that? I imagine that it has to do with an understanding that life is win/lose rather than win/win. In Chicago, where progress generally trumps turf, one can see alliances forming between otherwise very unlikely partners just to get a project or an advancement accomplished. Referring to the famous lifelong (Richard J.) Daley Democrat, I've heard it said, "Even Ed Verdolyak can become a Republican when there's progress to be made." He made this switch briefly to achieve ends that benefited the whole Chicago community, then went back to being a staunch Democrat. But here in Michigan, turf trumps progress, and "you stay off my turf" is more important than "I'll come join you so we can be more effective together getting this project done."

More about the effects of this on nonprofits tomorrow….

Comparing Two Types of Nonprofit Founders

The situation we were describing yesterday leaves the "individualistic" nonprofit founder with a severe dilemma. If you can't start up a business, you'd better be prepared to give up your individualistic approach and get with the community – both the board community and that of the donors you depend on. If and as you try to thwart this situation, you make a whole lot of trouble for your charity start-up right from the beginning with the first few strategic decisions you make: go for the easy money ("foundations and fun") and stay away from individual donors and getting the groundswell of community support and contributions you're going to have to have for the long haul.

Is it any wonder that these charity founders don't have the fundraising infrastructure and the orientation towards individual and family giving that could get the charity off to a good start?! To me, it looks like the problem begins with the "individualistic" impulse or type of founder who is not oriented towards people and communities.

Let's see what happens with the other type off charity founder/executive, the "people-oriented" type of person.

Here we might have a different scenario. Feeling more comfortable with the community, this founder/executive may well be more naturally oriented towards two types of activities: the first is going into the community to test his/her idea of service and perceived need. This person will, in many ways, ask the community to rally around the idea of service to the poor, education, dogs for pets, starving-artist exhibitions, or whatever. If the groundswell of community perception of need and support of service isn't there to start, this person will more than likely spend the time and effort necessary to educate and motivate the wider community into learning about that need and supporting that service.

The second type of activity the "people-oriented" charity founder is likely to take on more naturally is the motivation, cultivation and solicitation of many individuals within the community, whether these be community and business leaders, or individuals and families found within the wider community. It's kind of like running for office, going door-to-door, church-to-church. This person will be naturally oriented to doing this start-up work in order to ensure long-term community support.

Consequently, the drive towards "service first and fundraising second" may now be reversed so that the initial strategic decisions for "foundations and fun" can give way to a broader base of support for the charity start-up.

More than this, however, this people-oriented charity founder is going to be setting up a board of directors that represents the leadership of the community, not just a board composed of his/her cronies. And that board will most likely be given the power to really manage and control the founder/executive, because of the confidence the people-oriented founder has in the community's leaders from the start.

The result? We're likely to find here a charity start-up that has a somewhat better chance for success, and one for which fundraising infrastructure and best practices are of paramount importance. It will succeed because the community will rally; the community rallies because of the nature of the founder/executive.

The lesson? Well, I think we can say, and this is only based on my own limited experience in 27 years as a fundraiser and only 10 years as a private practitioner, that the "people-oriented" founder/executive may be more likely to succeed with a charity start-up, while the "individualistic," breakaway, entrepreneurial type, will have a better chance of running into trouble because fundraising will be given a priority lower than that of the personal satisfaction that comes from doing the service work. But remember Zig Zigler's maxim: There never was a time of plenty when someone didn't go broke, and there has never been a time of scarcity when someone couldn't make a lot of money. (Well, something like that!) So either the "individualist" or the "people-oriented" person can succeed or fail for other reasons than we've discussed here.

If you can understand these terms, we might say that the "priest" gets further than the "prophet" with a charity start-up. The so-called "prophet," or individualist with a strong message he/she wants people to hear regardless of whether they want to hear it, may well get better results with a business. Why? I think this happens because with a business the community can rally around and support an "individualistic" entrepreneur who gives an excellently crafted product or much-needed service for a fee. That is, the person gives something of value in exchange for value received. And even though we might also speculate that the "people-oriented" business owner might eventually become wealthier faster than the "rugged individualist," in fact the individualist does make a fairly good living without having to rely so much on the community from which he/she wants definition and separation.

Now, we have to deal with this: that there have been a lot of "rugged individualists" throughout American business history who have made millions and billions; but it has often been done at the expense of many others in the community and at the expense of the environment in which that community has to live in the future.

So what are we saying? It seems to come down to something like this: that those of us who like to consider ourselves "rugged individualists" and who seek the ways to survive and thrive without the community – to whatever degree we try to do that – (and I count myself among these fine folks) may well be in for something of a surprise when trying to start up a nonprofit organization.

But you might say, "What about Galileo, Newton, Edison, Barnard, Salk and all those whose individual work through the centuries of human development has so advanced humankind even though, and maybe even particularly because, they were 'individualists?' Have we all not prospered, eventually, as well from the work of the "robber barons" like Andrew Carnegie, Henry Ford and J.P. Morgan?" And I would have to say you're right.

But then, what's this about global warming? Does "individualism" get us in the end?

But, on the other hand, what about Jared Diamond's "Collapse" (or even look at his "Guns, Germs and Steel") in which he details the struggles of "communities" to solve complex environmental problems, and these communities have failed to find the solutions that more "individualistic" entrepreneurs may have been able to ascertain?

Is it not a fact that, in the long run, we need both the types of founder/executives in the nonprofit sector? Don't we need charities founded on strong individual impulses to serve as well as charities that thrive on community support? But how can communities – whether boards or donors -- tolerate, nurture, support and healthily inform their "individualist" founder/executives? how can the "individualists" tolerate, receive nurture and gather support from their communities in such a way as to be able to make sound strategic decisions?

This is where I believe the two threads of this blog over the last 6 weeks come together: the fundraising problems experienced by charity start-ups, and the problems that Boards have doing deliberative thought. The two threads come together as follows:

In case you don't recall, we said, back about November 23, that nonprofit boards, like any gathering of 3 or more human beings, can only do two things well: they can brainstorm and they can tell stories. But they cannot do deliberative thought. Now we're saying that charity start-ups founded by people-oriented persons are not as likely to make the strategic mistakes that more "individualistic" founders typically make that get them into fundraising problems down the road. The two threads have a common theme. Here's how these two threads are connected:

Boards are communities or groups; founder/executives are individuals. Each has a role that is vitally important to the well-being of a nonprofit organization. If the community has the right self-discipline in its work, it will fulfill its role well. If the individual, particularly the founder/executive of the more "individualistic" type, has the self-discipline to keep focusing on doing the deliberative and strategic thought the Board needs to have done, and then letting the Board do its more general brainstorming and story-telling work it does best, then there is harmony. And the founder-executive must also be continually involved with and referring back to the community of donors that support the organization, even though that may not be his/her personal inclination. We can achieve not only harmony but success in nonprofit management and governance.

What needs to happen to keep both founders and boards working well and producing to capacity? I think there are four self-disciplinary functions that must be performed continuously:

1. Boards will give the organization better governance if they refrain from acting like individuals and trying to do deliberative thought, because doing that frequently ends up in micro-management of the organization, confusion over strategic direction of the organization, a lack of resources for the organization to use in its mission accomplishment, and a tendency to focus on internal politics, sometimes even internecine warfare.

2. Boards that have the self-discipline to stick to setting the strategic and policy context for the nonprofit's work, and who do not override the deliberative thought provided form them by the executive and staff, will produce a better "governance product" that is more useful to the organization. On the other hand, the executive and staff need to do the essential work of strategic planning, and find ways to involve the Board in doing what the Board does best: brainstorming alternatives and options, and telling stories. So the Board would not be asked to do the deliberative thought that individuals do best, but would focus on the essential tasks that can be accomplished by brainstorming and story-telling: determining what is good for the future well-being of the organization, setting policy and limits for the executive's work, gathering resources that undergird the organization's mission accomplishment, and managing the executive's conformance with policies set.

3. Individual charity founder/executives will do well to learn, especially when it doesn't already come naturally, to live within, and even thrive on, the boundaries and limitations set for them by the two critically important groups of people in the organization's life: boards and donors. They must have the self-discipline to help the board do its brainstorming and story-telling in creative ways that result in decisions that are truly helpful to the nonprofit. They must also be involved in the sometimes complicated process of preparing and setting up every decision the board must make in such a way as to assist the board to make the very best decision possible on each issue that comes before it.

4. Individualistic nonprofit founder/executives will also find greater success in moving ahead with deliberative thought and the strategic planning necessary to do things like investing in fundraising infrastructure from day one, staying away from too much "foundations and fun" and getting involved and engaged with the individual and family donors whose support is critical to the organization's work throughout its existence.

In the event, self-discipline within each of these two critical roles is the key to success for both boards and founder/executives of nonprofit organizations. Boards whose members are wise and self-disciplined enough to do what groups do best and stay away from trying to act like individuals, accomplish better governance. Founder/executives who learn how to mesh the individual effort of deliberative thought and laying strategies into the lives and process of governors and donors alike will steer clear of strategic and fundraising trouble down the road. It takes two to tangle, and the proper role of each involves a great deal of self-discipline.

The "Individualist" vs. the "People-Oriented" Founder

The issue we're dealing with today was raised in a most interesting conversation I had with my wife, Bonita, the other day. She has very often been able to help sort out some of the deeper issues we've faced together in ten years of helping charities raise more money, and I do so appreciate her ability to analyze what's going on in difficult situations. That's why we're such a good team.

Well, we got to talking about charity start-ups and the motivations of their founders, and we tripped across this little problem: It seems the founders of new charities that have come to our shop can be divided into two types. There may be more out there, but these are the two we have seen.

One type of founder is very people-oriented, and is open to the community's leading, able to freely communicate with others, receive their guidance and nurture, and return the favor with loyalty and gratitude. For these folks, amity and friendship take precedence over, or are able to inform and alter, self-initiative and personal drive. We might say that these folks are very "people-oriented;" they seem to love to congregate together, rely on one another for self-image, and for the clues to life's possibilities, dilemmas and hardships, and set group-determined standards of conduct and performance.

The other type of founder we've seen over the years is more oriented towards being an individualist, may actually be driven to individual effort, is often rebellious against the community and the ways it tends to delimit and impose its will over the individual's drive and impulse. These people could not be typified as "people lovers," and they don't tend to like the ways groups of people or communities act when they are together. It's not that they're "loners" necessarily, but when you hear that one of the reasons they want to form a new charity has to do with the fact that they want to get away from group (read "board") decisions, group pressure, etc. you know you are dealing with a person of this more individualistic type.

For purposes of this discussion, and for want of a better typology at the moment, let's just say that the first set of founders are more "people oriented" while the second group tend to be more "individualistic" in their approach.

Here's the crux of the matter, then: If you find yourself within a community (almost any kind will do: geographic, religious, interest group, political, educational, whatever) and you are of the "individualistic" persuasion, then when you start developing an idea about how you can serve the pressing needs of a specific group of people with your talents and experience, you basically have two options. You can start up a business and charge a fee for service to those who can and want to afford that service. That's the most "individualistic" expression you can have in our society. Or you can start up a charity and give the service for free.

But, if you start up the charity to give away the service, then you are immediately thrust back, again to relying on the community, and you will, like it or not, be governed by the community's needs, wants and values. That includes governance by a group of people (the Board); it also includes the donations you seek and must have for your charity to survive and thrive.

That is not going to sit well with the "individualistic" type of nonprofit founder. It is something they will assiduously try to avoid. But it will happen in many ways, chiefly through the phenomenon of Board governance (where the group manages or supervises and evaluates the performance of the founder/executive), and through having to defer to, relate to, cultivate and solicit the wider community of donors. A further problem complicates the picture: individuals and families have most of the money you will need, and foundations and corporations will have a lot of institutional strings attached that make your life difficult. Out of the frying pan, into the fire!! The more "individualistic" type of founder is going to rather naturally run into strategic difficulty when setting up a nonprofit organization; it's just "the nature of the beast."

You see where we are? The choice of relying on "foundations and fun (special events)" for support, and the choice to form boards that are going to be naturally subservient to the founder/executive, is a strategic choice that is a natural choice that comes out of an orientation that is essentially antagonistic towards community, one that is essentially more "individualistic" rather than community- or "people-oriented." The problem comes down to this, once again, that running a charity on "foundations and fun" as a support base, and denying the charity true governance by a "community" that is a board of directors, just will not succeed in the long run. Trouble is around the corner and not very far down that street.

Let's deal with the "people-oriented" type of founder tomorrow.

Independent, Entrepreneurial Founder of a Nonprofit

So, really, why not set the "charity" up as a business, run it yourself the way you want to, and be done with it? Well, of course nobody would or could purchase the service, such as literacy education, training for developmentally disabled kids, finding lost puppies or rabbits a home, etc. So they are left with the option of starting up a new nonprofit to get done what they want to do.

But here's another angle on this: If the answer is that the easiest course is to ask the public for the money to offer the service free, then why not do the strategic planning necessary to get the fundraising process started on the right foot from the very beginning? If you're going to depend on the public's generosity and pocketbook to help you do your service to the poor, hungry or illiterate, why not forgo the satisfaction of mission accomplishment long enough to start taking the strategic step of cultivation and solicitation of the donors on which you're going to depend? Why not build fundraising infrastructure right from the very beginning?

It doesn't make sense to start teaching or healing or exhibiting or pet placement first, and then give only hindsight and a few crumbs of resources to your fundraising effort, when, in fact, you're going to need that public, individual, family support in increasing amounts as the years roll on.

Well, the most common response that I've heard to this is that "the foundation I just applied to for a grant is adamant that they want all their dollars to go to mission accomplishment. We only have about 10% we can use for administration, and they do not want any of their dollars to be used for fundraising – that would be anathema to them, and we would lose the grant. Besides that, we want to be able to tell our sponsors for the golf event and the auction that their money goes to serve people, not that it goes for fundraising. So you can see where this dialogue is going to go, can't you?

The situation is set up as an impossible proposition right away. Nobody wants to fund fundraising. And in their haste to find the "low-hanging" fruit (mostly defined as foundations and special events) they have failed to notice that the foundation or the imagined sponsor is seen holding the "sword of Damocles" over their heads and making it impossible for them to move strategically in the ways they need to do before moving ahead with accomplishing their mission with their target audience.

It's a catch-22 situation, precipitated because the founder is unwilling or unable to take the time to do the strategic planning necessary to work through this dilemma right from the start.

Ah, but we now need to back up a bit and discuss a really thorny little issue that has to do with the motivations for start-up founders as they come to their work. We'll tackle that tomorrow.

More on "Why Not Start a Business?"

OK, so we've asked that fearful and mostly mis-understood question: "Why not start up a business rather than a nonprofit?"

That's not an idle question; and the answer to it is often very revealing. It gets to the heart of the motive for wanting to start up a charity in the first place. Most people tell me right away that the only way they see the mission they want to accomplish can be supported is by using other peoples' money to do it.

So, number one, right off the bat, they're off to a bad start by placing themselves in a situation where 1) they haven't tested their mission concept within the community to see if there is a groundswell of heightened awareness within the community and the financial resources that people are willing to prioritize to make this mission happen over many years.; and 2) they are nevertheless intent on relying on public support to make this thing go and give it the support it will need to survive and thrive. This is a strategic contradiction, and, very frankly, a mistake.

In trying to push the would-be founders of this new nonprofit, I suggest that setting up and running a business is generally a lot easier than establishing a nonprofit organization. And they are often aghast that anything so crude might be suggested by a fundraising consultant. "how can you suggest that!?" goes the response. "Don't you know that we can't charge the families of these [illiterate kids, or poverty-stricken families, or whoever is the target audience]. They could never afford to pay!" And indeed that's probably so. But which is easier? Setting up a fee-for-service business, or asking the general public for money to help you give the service away free?

Either way, part of the answer is that we must take a serious and strategic look at what this will mean. We're going to have to delve into what the extent of the need is, what services we're going to provide, and how much it will cost over a 10-year period to provide service to whatever percentage of the market we think we can reasonably serve. Then we're going to have to cost out how much financial support the service we provide to each member of the target audience will take. Then we have to go to the marketplace – of either purchasers or donors – and determine what the extent of that population is and how much they might reasonably be expected to pay or give. And we will need a marketing plan that will continually motivate and compel either the buyers or the donors to continue their support for significant periods of time.

Strategically, the issues are the same for setting up a business as for setting up a charity. With one exception: governance. That's the big one. Because in a business the entrepreneur is his/her own governor, but in a public charity, the board of directors is supposed to govern. And one thing I have learned from working with many of these start-up founders is that they do not really want to be "governed" by anybody, especially if they are already coming from serving in a nonprofit situation and have grown "sick and tired," as they often say, of the intrusive way their past boards have nosed into operations and stayed away from true governance and strategic planning. "This time it's got to be different," they say. But, in reality, they are setting themselves up for serious trouble down the road, if not complete failure.

But we have still more to do on this little problem tomorrow.