Let’s Start a Nonprofit

In this first quarter of the calendar year I have been giving lots of talks on the latest trends for nonprofits.  Apparently a lot of people think about “what’s on the horizon” at the beginning of the calendar year, even though it’s neither their fiscal year nor their board’s terms.  And while I have five or six key trends, depending upon the audience and time I’m allotted, I don’t discuss all five.

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Two factors that I always do discuss are the growth of the sector and philanthropy.  If we aren’t paying attention to these two influencers as we work to move our organization’s forward, we have missed the two biggies.  If the sector continues to grow to the degree it has over the last 10 to 12 years-by 17% to 24%-we should finally see the scope of demise (100,000) of nonprofits that Paul Light prematurely predicted in 2008.

The pundits who make growth projections, predict that the nonprofit sector will continue down this path of excessive growth.  This growth happens unfettered by market forces, a strong influence in the for-profit sector and one that, no doubt, was the source of that sector shrinking by 5% during this same time period.  We would all be better served if nonprofits and those who start nonprofits paid attention to the market; but, alas, they don’t.  Rather, they are driven by a belief that they have the best answer and that if they just push a little harder there, tweak a little more here, talk to a few hundred more people, someone—or someones—will, eventually, see the undeniable value of their mission and life will be good.  Sadly, pigheadedness rules here, not market forces.

In the meantime, as the sector is growing, philanthropic dollars are not keeping pace.    Between the more narrow focus of strategic philanthropy practiced increasingly by foundations and the patterns of giving by individuals, sufficient money to support the growing pool of nonprofits just simply isn’t there.  Yet the Lilly Family School of Philanthropy at Indiana University recently released its projections of a 4.8% growth in charitable giving in 2015, followed by another 4.9% increase in 2016.  So, what’s the problem?  Where the money is going?

According to all the number crunchers, the growth in philanthropic dollars is coming from a small number of people giving multiple large gifts.  The growth in giving in 2013 is attributed to a limited number of people giving multiple donations of $80 million or more primarily to higher education, medical research, arts and culture, and foundations (their own or others’).

As an example, in 2013, 1,173 donors gave donations totaling $16.92 billion.  And while the total giving in 2013 outpaced 2012 by $3 billion, there were 235 fewer gifts.  This pattern continued in 2014, as we saw, once again, an elite crop of donors giving really large donations.  The Chan brothers were the talk of last fall, giving Harvard $350 million, its biggest gift ever, while poor USC got a mere $20 million.

The old adage from the for-profit world—it takes money to make money—seems to reign true in the nonprofit sector, as well.  According to Moody’s, in 2013, wealthier colleges and universities—those with more than $1 billion in cash and investments—received 67% of philanthropic donations to higher learning, while those with less than $100 million in cash and investments received less than 3% of those dollars!  It’s all about bigger gifts, fewer donors, and concentrated distribution.

The consequences of this extreme largess to a small number of mega institutions are that it is harder and harder to be the littler guys—not just in education, but all across the nonprofit sector.  And little here is relative.  Sweet Briar College has an $84 million endowment but will likely close its doors this August.  This would suggest that the organizations with several million dollars in endowment, or several thousand, or none at all, are on extremely shaky ground.  And yet so much of the work that the nonprofit sector does is best done on a smaller scale, at a local level, within a specific community or neighborhood or population.  “Bigger is better” is not one of those business adages that transfers well into the nonprofit sector.

So in this environment of ever growing competition and fewer philanthropic mega gifts going to a sliver of the nonprofit sector pie, why would anyone want to start a nonprofit now?  And, yet, they do.  A recent call to our office asking for help in starting a nonprofit—something we do not do, but rather caution them to think carefully and understand that the starting is easy, the sustaining is hard, and then refer them to those who will help them start—ended with the caller’s comment:  “you sure have to go through a lot to help people.”  She wouldn’t have liked my response:  not hardly, and it is for your own good—if only you would listen.  In fact, we should make it much harder, put up real hurdles, of which there are none now, have a mandatory waiting period, require that every applicant talk to 10 different executive directors, and my list would go on.  As already noted, reasonably easy to start; getting harder and harder to barely sustain.