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Tuesday, November 17, 2009

Why We Don’t Need Another Nonprofit

Those of you who have been following me for the past couple of months know that I recently lost my job as the Executive Director of the Hawaii Women’s Business Center. It was nothing personal. Federal funds were cut to such a point that they could no longer pay my salary, or that of our office manager. I was sad to leave the Center, because I am still passionate about their mission, but the board and I were in agreement. In a dwindling economy, you can’t squeeze blood from a turnip.

Since then, a surprising number of friends and colleagues have suggested that I should start a competing non-profit. Bless their hearts, I know that they mean well. But I consider this to be a mistake of astonishing proportions on a number of levels.

First of all, frankly there are just too many non-profits already out there in the marketplace. They often have similar goals and even though the work that they are doing is altruistic and necessary, the administrative costs involved in overlapping services ultimately hurts those who need them the most. As an example, I googled “drug treatment youth Hawaii” and quickly found 124 separate rehabilitation facilities and programs – and I didn’t even try very hard.

Let me be clear about this: I am not suggesting that we need fewer addiction programs in the state. I haven’t studied this situation enough to make a judgment such as that. But I do strongly suspect that we don’t need any more programs. I believe that we would get better ROI by putting additional funding into the programs already in place rather than by starting yet another.

Funds are dwindling – everywhere. There’s just not enough money to go around. The pie is smaller; the need is greater. In the past, it has been difficult for moderate and small-sized nonprofits to recruit suitable leadership, simply because nonprofits traditionally pay substantially less than their counterparts in the for-profit marketplace for positions of equal responsibility. Often the best candidates don’t even bother to apply. Of course, there will always be those of us (particularly baby boomers) who feel a calling for working in the nonprofit industry, despite the monetary downside. But the hard fact is that resources are diminishing, even for those of us committed to the altruistic goals.

In April of 2009, a survey of over 1,100 nonprofit leaders in markets nationwide was released by Nonprofit Finance Fund (NFF). The key findings were pretty bleak:

• Only 12% of nonprofits expect to operate above break-even this year.

• Just 16% anticipate being able to cover their operating expenses in both 2009 and 2010.

• 31% don't have enough operating cash in hand to cover more than one month of expenses, and another 31% have less than three months' worth.

• 52% of respondents expect the recession to have a long-term (2+ years) or permanent negative financial effect on their organizations.

• 93% of lifeline organizations that provide essential services anticipate an increase in demand in 2009.

According to the Washington Post, a recent survey of member nonprofits by the D.C.-based Center for Nonprofit Advancement revealed that:

• one-third have no operating reserves or endowment

• 41 % are suspending or closing down programs

• and 44% are laying off staff.

So where will the nonprofits that do survive get their funding?
Oh, oh….more bad news:

It probably won’t be from foundations. On November 4th, The Foundation Center located in New York City reported that their latest survey shows foundation giving will likely decline in 2009 by 10%, slightly worse than their 8% estimated earlier this year. And as if that isn’t bad enough, the Center predicts further declines in 2010.

The extra money needed probably won’t be coming from the public either. According to a November 16, 2009 Associated Press report, only 38 % of Americans say they are likely to give at least one charitable gift as a holiday present this year, compared to 49 percent last year.

Looks like Santa is going to be skipping a lot of 501(c)(3) chimneys this year.

So will nonprofits fold up their tents and close their doors? Some will. But the smart ones will quickly discover that there is safety in numbers. Savvy nonprofits will band together with like-minded organizations and share costs. They will disclose strategic planning information so as not to cannibalize each other’s programming and educational bases. I predict that the ones who will succeed are the ones who understand their clients’ needs and allocate their budgets to doing one thing really well rather than trying to be all things to all people.

Those who sit tight and pray for a white knight to gallop in and save them won’t stand a chance in this economy.

So, to all of my dear friends who have encouraged me to start a women’s business center, bless your hearts but don’t hold your breath. I may be neurotic but I’m not stupid. The world doesn’t need another nonprofit right now. Let’s just support the ones we already have, OK?

P.S. This holiday season, the world probably doesn’t need another $16 scented candle, either. But there are families around the globe whose lives would be changed by the gift of a goat or a chicken. May I suggest that you check out Heifer.org or Oxfam.org, two nonprofits that help families in third world countries become self sufficient while providing nutrients for their children. Or give the gift of a smile – The Smile Train performs free cleft palate surgery on children around the world, changing their lives in societies who shun those born with deformities. With nonprofit organizations like Doctors Without Borders, Project Hope, Mercy Ships or your local Shriners Hospital for Children, there is very little excuse to spend money on candy (it rots your teeth and makes your butt fat), knickknacks (they collect dust) or jewelry. Do something good this holiday season. Please. Thus endeth the lesson


  1. Talking about the Helfer Program; last year my Island mom, gave me a Christmas gift of 5 chickens for the Heifer.org Program. This was given to me instead of a Christmas gift. I was totally happy getting this for my present. Helping out the in a way I didn't even know about until then. Thank you for reminding me about the Helfer Program. d:) Robyn C. Ocepek

  2. I would encourage anyone interested in giving a gift that makes the world a better place to look at this link that I found just today: http://nonprofitorgs.wordpress.com/2009/11/18/11-holiday-gift-programs-that-benefit-nonprofits-and-make-the-world-a-better-place/

  3. UPDATE: Today, December 11, 2009, the Wall Street Journal featured an article regarding the financial status of nonprofits and it contained the following shocking statistic:

    In 2008 donations totaled $308 billion, down from $314 billion the year before, the first decrease since 1987. In fact, a recent survey by the Nonprofit Finance Fund, a financial consultant for nonprofits, found only 12 percent expect to “operate above break-even” this year.

    12% expect to break even this year!!!!! This is worse than I thought....

  4. Just got around to reading this but had to put in my 2 cents. As a non-profit financial consultant, I know that every client thinks their organization is unique and necessary. But the reality is that there is much overlap in services. I often recommend that clients who are in deep financial trouble merge with a like-minded group. There is inevitably resistance to this recommendation.

    A cost of doing business as a nonprofit organization must include the cost of appropriate and adequate staffing. And Sisters and Brothers, here is where detail is the Devil. I don't doubt the figures quoted in this article for one second. 41% are suspending or closing down programs and 44% are laying off staff: If anything, those numbers sound low. Virtually everyone is laying off staff. Phones are going unanswered. Executive Directors and Program Managers are being let go, because cutting the highest salaries makes the quickest difference to the bottom line. But it's the worst possible mistake that an organization can make.

    Without proper leadership, failure is inevitable. Finding synergistic groups and joining forces is a much smarter way to go. But few boards have the vision or the ability to set aside the ego issue. It is easier to point the finger and lay the blame on staff than it is to accept mutual responsibility and find a real solution.

    Non-profits depend on board members to be actively involved in fundraising, provide excellent leadership, and be passionate about the cause. Without every one of these, a non-profit will have some serious problems surviving.

    Kay, I applaud your resistance to forming a new non-profit. Your words are true -- the world doesn't need another non-profit right now. There are too many struggling already.

    Jonathan Langley
    Langley & Company Financial Consultants

  5. Hi, Kay.

    Thank you for your thoughts on this subject. I have thought over many years that the development of a nonprofit tax exempt organization is a spiritual act. I am not talking religion, but the use of our souls, our personal purposes and values to have a service or product that changes lives. That is a journey, adventure that takes more than one person, one ego. It requires finding and listening to others who share the mission, passion and vision albeit through other experiences and talents.

    Over a period of 27 years with legal services programs around the country working on community development among other issues I have told individuals and groups that they should give up the idea of developing a nonprofit. It was frequently because of redundancy, because they would not look at other alternatives that were available or were unwilling to look at a planning process.

    I read recently that at least one group of consultants and leaders are looking at ways for states to close down nonprofits that do not report at the state level, to reduce the numbers on the books. Having an attorney general's office dedicate time and personnel on that project seems to be fairly expensive. It is easier to get a divorce in many states than it is to terminate nonprofit status through the courts.

    In my opinion he IRS cannot and should not be setting the quality or mission standards of what groups are recognized as tax exempt. But the professionals in the field, attorneys, consultants, educators, and authors with nonprofit work deep in their bellies can do a better job of being honest and straight with folks. We should also be about a better education level through the media, social and print on what it takes to produce a nonprofit tax exempt organization that changes lives - and ask is there any other reason to incorporate?

    So many groups I have worked with for instance have been more about making poverty palatable than eradicating poverty, even if for one individual or family or neighborhood.

    I took the chance of suggesting some of the issues confronting nonprofit developers in a recent blog,

    2010 New Year’s Resolution – No New Nonprofits Unless…


    Thank you again, Don

  6. Great post! Working in the human services arena I have seen so much overlap, especially when it comes to small community programs like corner church food pantries, etc. These programs are started with passion and good intentions, but often lack a larger vision, or the humility to partner with other organizations. The solution isn't necessarily consolidation, but perhaps more coalition building and more transparency.

    Looking forward to reading more!

  7. Love it! Excellent facts & figures. I envy your research skills!