A. Lauren Abele

Last week I came across an interesting tweet from @kenscommentary (Ken Berger, President of Charity Navigator)– “Too many itsy bitsy nonprofits! Consider this before you leap into teenyness”–and a link to the following article, “Alternatives to Forming a Charitable Nonprofit.”

The article is full of very useful information outlining alternative nonprofit funding options (like fiscal sponsorship or collaborating with an existing nonprofit) and highlights the need for sufficient research to be conducted as well as preparing viability plans.

According to the National Center for Charitable Statistics, there are currently 956,760 public charities, 112,959 private foundations, and 443,464 other types of nonprofit organizations registered with the IRS. That’s a lot. I am sure that many of these organizations have overlapping missions, serve similar communities, and feed off of similar funding sources. But does that mean that no new nonprofits should join this large community? And that especially goes for new, small nonprofits?

This is where it starts to get tricky, I think, for a couple of reasons:

SURVIVAL OF THE FITTEST: “Small” does not necessarily mean “unplanned,” “not well strategized,” or “not likely viable.” Although, sometimes (maybe more often than not) that is the case. The Bureau of Labor Statistics reminds us of this fact with its statistics on small business survival rates: “Two-thirds of new employer establishments survive at least two years, 44 percent survive at least four years, and 31 percent survive at least seven years.”

What does this mean: Not every idea will make a great business. And, not every person who has an idea will make a good business owner.

FIGHTING FOR THE DOUGH: More nonprofits means more people “fighting for the dough.” Let’s look at environmental nonprofits as an example. Just because there are already a number of very large, very successful, and very well known environmental nonprofits out there, like the Natural Resources Defense Council (NRDC) and Environmental Defense (ED), doesn’t indicate that smaller environmental nonprofits don’t have a place. What it does indicate, though, is that when you are looking for environmental grants on the Foundation Directory you are going to see very long lists of grants awarded to NRDC and ED and substantially less grants awarded to smaller nonprofits that you may have never heard of before. What should a small, start-up nonprofit take away from this picture? Large, successful nonprofits are well-oiled fundraising machines that know what they are doing, have large fundraising budgets, and have built strong relationships with their funders over many years.

What does this mean: Competition for funding will be a serious issue for a teeny, tiny nonprofit and having a strong understanding of nonprofit fund development and philanthropy (or building up a team with fundraising experience) should definitely be a part of your “business plan.”

ENTREPRENEURSHIP & THE “AMERICAN DREAM”: Maybe my main issue with discouraging small nonprofits, is that entrepreneurship is heralded as the key to economic vitality and sustainability. The Ewing Marion Kauffman Foundation; has front-and-center on their homepage: “Searching for a way out of the current economic crisis? Entrepreneurs have led the U.S. out of every recession of the last 100 years.”

In addition, the Bureau of Labor Statistics provides the following interesting statistics on the impact of small firms in the United States:

Small firms:
• Represent 99.7 percent of all employer firms.
• Employ about half of all private sector employees.
• Pay nearly 45 percent of total U.S. private payroll.
• Have generated 60 to 80 percent of net new jobs annually
over the last decade.
• Create more than half of nonfarm private gross domestic
product (GDP).
• Hire 40 percent of high tech workers (such as scientists,
engineers, and computer workers).
• Are 52 percent home-based and 2 percent franchises.
• Made up 97.3 percent of all identified exporters and produced
28.9 percent of the known export value in FY 2006.

What does this mean: Lots of data supports the fact that small and micro businesses play a huge role in the U.S. economy and are a real vehicle for economic development. I think it makes sense to overlay this reality with the possibility of small social ventures and teeny, tiny nonprofits providing the same sort of social and economic boost.

Small nonprofits and small social ventures have the potential for significant social as well as economic impact. Smaller nonprofits are able to have much more focused niches, work on a grassroots level, make meaningful collaborations with small corporate sponsors, engage individual donors interested in more personalized philanthropy, and more. However, in order to be successful, small nonprofits and social ventures (like successful small businesses) need to realistically assess their “business plan” and thoroughly research all aspects of the endeavor they are planning to pursue. If it isn’t a sound investment, people either will not or should not invest–either financially or in-kind. While a start-up nonprofit can rely on an army of volunteers to get its feet of the ground, is it really ethical to ask people to donate their time to an enterprise you have not thoroughly developed, researched, or planned for? I say, “Go ahead! Start a nonprofit or a social venture!” But I caution, “Do your homework. And be prepared because it is not only going to be a lot of work, but also a lot of responsibility.” It may be philanthropy, but its not free–you will be accountable to not only your donors but also your volunteers.

For some more reading on entrepreneurship, I recommend checking out this Ventureneer post: “There is Never a Bad Time to Start Up a Company.”

Tags: Economic Development, Entrepreneurship, Fundraising, Kauffman Foundation, Nonprofit

This entry was posted on Wednesday, August 12th, 2009 at 10:29 PM and is filed under Social entrepreneurship. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.