Failure to Thrive

While many parts of our sector are about responding to crises—food insecurity, homelessness, the opioid epidemic, global warming, etc. – our sector as a whole is potentially on the verge of its own crisis that threatens its survival. 

On the first night of the first class of the Nonprofit Leadership masters program, a student asked a question that I don’t usually get from students, especially this early on.  In fact, it is a question that I usually ask them at about the halfway point in the semester. 

The question:  Will B Corps replace nonprofits?  While it certainly is a possibility, some things would definitely need to change.  First, every B Corps would really need to have a clear and unquestionable mission of doing social good.  Every B Corps, unless they created a new sub-subset, would have to prove, as nonprofits currently must, that they are truly working on behalf of some portion of the public good.  (Too many of the B corps certified by B Labs leave me scratching my head, wondering just what is their social good.)

And, then, of course, they’d have to be able to accept philanthropic dollars, regardless of whether those dollars are being given by individuals or organized philanthropy.  After all, caring for others is a trademark of a civil society, and philanthropy is one manifestation of that caring.  Certainly they would have to do all of this while continuing to honor their promised triple bottom line.  Could all this happen?

As I said in my answer to the student’s question, I worry less about B Corps ousting nonprofits than I do about the nonprofit sector leading its own demise.  According to the National Center for Charitable Statistics, almost 1/3 of nonprofits fail to exist after 10 years.  Forbes recently noted that more than 50% of nonprofits fail or stall out “within a few years.” 

Why?  Leadership—or the failure thereof.  These numbers are quite similar to what the Small Business Administration (SBA) reported last year:  30% of for-profits fail within their first two years and half within their first five years.  The SBA points to poor market research, a weak business plan, under financing, and poor location and marketing as the sources of these failures.  In other words, for-profits, too, have issues with leadership leading to their demise.

Despite similar life-cycle and leadership patterns, the for-profit sector is seen as the place to be.  The press release of a new NonprofitHR study to be released next month, shared the following finding from the study:  Almost half of the [survey] respondents … said they will seek new or different employment in the next five years;  23% said that nonprofits would not be among the types of organizations they intend to pursue.

In other words, 12.5% of the current nonprofit workforce won’t be looking for their next job in the nonprofit sector.  Imagine losing 1/8 of your workforce and not being able to replace them.  And while we are seeing a steady stream of folks moving from the for-profit sector to the nonprofit sector, a) it is a weak stream compared to the opposite direction and b) it tends to be dominated by seasoned executives and not those willing to step into various tiers of a nonprofit organizational chart.

But, the bigger problem is why people are planning to leave the sector and these reasons are not secrets. 

Again, from NonprofitHR’s press release, the number one reason people gave for seeing their next job in the for-profit sector (given by 49% of respondents) was the fact that nonprofits don’t “pay enough.”  Almost another fifth (19%) noted the lack of “long-term” career opportunities and 12 % said “nonprofits are not well-run businesses.” 

As a sector, we are failing to attract and retain employees, we aren’t paying them fairly and we aren’t hiring quality leadership.  There is a clear relationship between these three, and all can be relatively easily fixed with some work on the part of nonprofit boards and executive directors.  Unless we think it is time for the sector to sunset and let others step in, we best do something now to redress these issues, before it is too late.

I think I know how Greta Thunberg must feel as she tries to get the powers that be to wake up and see that “our house on fire.”  We’ve known for too long that our poor compensation and flat organizational charts have turned away great talent.  We’ve known for too long that we ask people who are steeped in mission, but know nothing about business, to run our nonprofit businesses, lead our teams, build solid infrastructures. 

And, yet, these issues remain.  Bringing in that for-profit executive who knows nothing about nonprofits—other than s/he likes them and they make her/his heart feel good—to run the business more often than not chases out nonprofit talent, regardless of whether it improves the business operations or not. 

The solutions are there; it is time to start using them,  but immediately.  Our failure to act now may just lead to an inadvertent sun setting of the sector.