When you’re starting a new nonprofit, or just running one, the last thing you want to focus on is failure. But if you address the common reasons for failure up front, you’ll be much less likely to fall victim to them yourself. Here are the top 7 reasons why nonprofits fail and tips for avoiding them.

1. Poor Management

   Many a report on nonprofit failures cites poor management as the number one reason for failure. New nonprofit leaders frequently lack relevant business and management expertise in areas such as finance, marketing, and hiring and managing employees. Unless they recognize what they don’t do well, and seek help, nonprofit leaders may face disaster.

   They must also be educated and alert to fraud, and put into place measures to avoid it.

 Nonprofits are held to a much higher standard than are businesses in the broader sector and once trust is lost it is very difficult, if not impossible, to regain.

   Neglect of a nonprofit can also be its downfall. Care must be taken to regularly study, organize, plan and control all activities of its operations. This includes the continuing study of market research and client service data, an area which may be more prone to disregard once a nonprofit has been established.

   A successful manager is also a good leader who creates a work climate that encourages productivity. He or she has a skill at hiring competent people, training them and is able to delegate. A good leader is also skilled at strategic thinking, able to make a vision a reality, and able to confront change, make transitions, and envision new possibilities for the future.

2. Insufficient Capital

   A common fatal mistake for many failed nonprofits is having insufficient operating funds. Many nonprofit managers underestimate how much money is needed and they are forced to close before they even have had a fair chance to succeed.

   They also may have an unrealistic expectation of incoming revenues from contributions and contracts.

It is imperative to ascertain how much money your nonprofit will require; not only the start up costs, but also the costs of continuing operations. It is important to take into consideration that many nonprofits take a year or two to get going. This means you will need enough funds to cover all costs until you can establish ongoing revenue streams that can pay for these costs.

3. Diversification of Funding

   Along the same lines as number two, it is vitally important to have a diversified portfolio of funding in order to weather market downturns. Many nonprofits establish establish relationships with a limited number of funder, or funders in a particular sector of the economy.

   This can be disastrous when, for example, the bank that has been a major funder of your organization is acquired by another institution and decides that you are no longer a priority area. Just like in the stock market, it’s important to have a well balanced funder portfolio that touches many different areas of the broader economy.

4. Location, Location, Location

   Your college professor was right — location is critical to the success of any business, and don’t fool yourself nonprofits are businesses. Whereas a good location may enable a struggling nonprofit to ultimately survive and thrive, a bad location could spell disaster to even the best-managed enterprise.

   Some factors to consider:

   Where your clients are

   Traffic, accessibility, parking and lighting

   Location of competitors and partner agencies

   Condition and safety of building

   Local incentive programs for start-ups in specific targeted areas

   The history, community flavor and receptiveness to the organization at a prospective site

5. Lack of Planning

   Anyone who has ever been in charge of a successful major event knows that were it not for their careful, methodical, strategic planning — and hard work — success would not have followed. The same could be said of most nonprofit successes.

   It is critical for all nonprofits to have a business plan. Many nonprofits fail because of fundamental shortcomings in their business planning. It must be realistic and based on accurate, current information and educated projections for the future.

   Components may include:

   Description of the nonprofit, vision, goals, and keys to success

   Work force needs

   Potential problems and solutions

   Financial: capital equipment and supply list, balance sheet, income statement and cash flow analysis, sales and expense forecast

   Analysis of competition and community need

   Marketing, advertising and promotional activities

   Budgeting and managing company growth

   In addition, most large funders request a business plan if you are seeking to secure addition capital for your company.

6. Overexpansion

   A leading cause of nonprofit failure, overexpansion often happens when managers confuse program success with how fast they can expand their services. A focus on slow and steady growth is optimum. Many a bankruptcy has been caused by rapidly expanding organizations that drift into areas that are outside there core mission.

   At the same time, you do not want to repress growth. Once you have an established solid client base and a good cash flow, let your success help you set the right measured pace. Some indications that an expansion may be warranted include the inability to fill client needs in a timely basis, and employees having difficulty keeping up with demands.

   If expansion is warranted after careful review, research and analysis, identify what and who you need to add in order for your nonprofit to grow. Then with the right systems and people in place, you can focus on the growth of your organization, not on doing everything in it yourself.

7. No Website

   Simply put, if you have a nonprofit organization today, you need a website. Period.

   At the very least, every nonprofit should have a professional looking and well-designed website that enables users to easily find out about their mission, their client base, achievements of the organization, and how potential clients can access their services.

   If you don’t have a website you are losing vital opportunities to connect with funders and the community. Just as important, make sure that website makes your organization look good, not bad — you want to increase revenues, not decrease them.

When it comes to the success of any new nonprofit, you — as the leader of the organization — are ultimately the “secret” to your success. For many successful nonprofit leaders, failure was never an option. Armed with drive, determination, and a positive mindset, these individuals view any setback as only an opportunity to learn and grow. Just as in business, a large portion of the most successful nonprofit leaders possess average intelligence. What sets them apart is their dedication to the cause, openness to new knowledge and their willingness to learn whatever it takes to succeed.

Working with businesses to fund your programs can be one of the most stressful and challenging aspects of nonprofit leadership. Many in the business of making a better world don’t have a clear understanding of the profit model or what drives business to support nonprofit programs. That’s where a little creative thinking and honest conversation can help align goals and ensure that the partnership delivers for the business and the community. Below are some ideas that should help move these negotiations along in a productive way.

Once interest has been established and an initial meeting set, ask your prospective funder what they want. At this point you have done enough research to know the basics about what they might consider a goal of the partnership, but stay on top of the ever-changing corporate world. Who knows, they might come up with even better ideas than you initially considered.

Mutually beneficial relationship.  You can put the stress on whichever word you want in that sentence and it’s an appropriate reminder for how corporate philanthropy is supposed to work.  As a community partner, make it your motto – it keeps you from underselling yourself and from taking advantage of a funder.  It promotes long lasting partnerships and is an all around great perception to maintain about funder relationships in general.

Remember the movie starring Mel Gibson: What Women Want?  Mel finds himself in the middle of a freak accident involving a wax kit, pantyhose, and a hairdryer; after which he’s able to hear a woman’s thoughts.  He finds it fascinating as well as frightening, and uses it to further his career and generally get him what he wants.  Eventually the surprising insights and transparency moves him to a place where he’s able to empathize with the hearts of women, and he ends up with much better relationships as a result.  Why? – Because he took the time to listen and perceive what women were thinking, what they wanted; beyond the petty self serving surface level stuff.  When you as a community partner take the time to peel back the onion and uncover the true goals and objectives of your partners, you become much more valuable and the partnership becomes mutually beneficial.

The reality is that we live in a world that’s rather self seeking.  In business, people have on their best defense and offense when they go into meetings.  The question is; “how can I make sure I get what I want out of this deal?”  Not that I’m knocking a proactive approach to ensure a deal is well made – but I ask this; how would you feel if you sat down in a meeting with a potential partner, and the first words you heard them say were: “I think we both have reasons to be excited about where this partnership could take us; but just to make sure we’re on the same page, tell me, what is it you would like to see happen in order for this to be beneficial for you?”  Then how would you feel if they sat quietly and listened, taking careful notes, responded appropriately and seriously considered your perspective before they transitioned over to themselves?  Personally, I would breathe a sigh of relief, I’d feel more invited to be creative because I believe they genuinely have an interest in hearing my ideas, I would feel inclined to loyalty (even just for the relief of a sincere partner), and I would be inclined to trust their interest in keeping their side of a deal – and caring about valuable activation.  I would feel like I was being pursued for a partnership and not being pitched for my money.  When you prepare yourself to go into initial meetings, ground setting meetings; with the purpose of moderating a conversation and not verbally dominating; and when you’re quick to listen and slow to speak, you break down walls of suspicion, and self-seeking behaviors.

You know the saying: two heads are better than one?  It’s true, and hardly anyone will refute it.  So the application is that no matter what kind of great ideas you might have or expect your partner to have regarding activation strategies, the best thing you can do is make it a dual effort.  If you simply listen and do not hear, or worse – ignore the wants of a funder, you might as well not have listened at all.  And when you invite a manageable number of individuals into a whiteboard session where you’re brainstorming how to best strategize your efforts, you’re bound to stumble onto something truly brilliant.

According to a new study by Compass Point Nonprofit Services, sending nonprofit leaders on sabbaticals not only helps those executives return to their jobs with renewed enthusiasm, but it also provides opportunities for the organization to nurture up-and-coming talent.

• Sabbaticals helped organizations improve the management abilities of their second-tier leaders: Eighty-three percent of sabbatical awardees said the managers under their supervision had grown more skilled since the sabbatical, and 77 percent of staff members said the same.

• Eighty-two percent of leaders who took sabbaticals reported that their ability to balance their work and personal lives improved either “somewhat” or “very much.” Sixty-eight percent also reported that their physical health improved either “somewhat” or “very much.”

• Sixty percent of people who took sabbaticals and 53 percent of interim leaders said their organizations’ boards had become more effective due to the process of planning for an executive’s sabbatical.

The report, “Creative Disruption: Sabbaticals for Capacity Building & Leadership Development in the Nonprofit Sector,” is available for free download here.

Measured Outcomes not only helps you get the funding and support you need, we also help approach issues in new and creative ways. Contact us at (415) 968-9121, or email Stephen Blakley at stephen@measuredoutcomes.net.

Together we can achieve great things!

For 15 years Breaking Barriers Community Services Center has provided support services and transportation to and from medical appointments for low- and moderate-income Sacramentans with catastrophic diseases.

Then the economy tanked and the State and County began cutting funding. In response, Breaking Barriers has teamed up with Golden Rule Services, a local minority based nonprofit organization committed to addressing the disproportionate rates of HIV/AIDS in People of Color communities, by sharing office space and administrative resources.

Breaking Barriers also worked with the NorCal AIDS Challenge, an organization that raises funds large amounts of money for local HIV charities by presenting a three day cycling fundraiser, to become an independent organization. “For people in at-risk communities these services are life and death,” said Stephen Blakley, board treasurer of Breaking Barriers “Whenever there is a risk to services we are committed to doing everything in our power to help.”

For an equal number of years Ride & Shine offered disabled children and adults the chance to build physical and emotional strength by working with horses in El Dorado County. With donations plummeting, feed and veterinary costs skyrocketing, and clients cutting back on what they could pay for services the agency was struggling.

This summer, with bills piling up, the nonprofit group’’s board of directors pondered closing. Instead, they turned to another charity with similar goals, and found new life.

Ride & Shine is now part of the Grace Foundation, a horse rescue organization based in El Dorado Hills.

“We were in bad shape, but we just didn”t want to let this program go,” board member Ed Kaufmann said. “Grace seemed like a perfect fit.”

Across the region and the state, as nonprofit groups struggle to stay afloat, many are turning to one another for survival. Collaborations, partnerships and mergers are becoming more and more common, said Ann Lucas, executive director of the Nonprofit Resource Center in Sacramento.

“It’’s the new reality,” Lucas said. “People are having to find new ways to be efficient and effective with less money, and these alliances are part of that.”

When Wonder Inc., a mentoring program for foster youth, was having trouble meeting expenses because of state budget cuts and a drop in donations last year, it approached Sierra Adoption Services, now known as Sierra Forever Families. Sierra acquired Wonder in July.

“We are one of the organizations that has remained economically healthy, so we were happy to be able to assist another group that helps families,” said Sierra spokeswoman Sara Hanson. “It’’s worked out very well for both of us.

“There are more than 6,000 nonprofits in our area, and many of them service the same segment of people,” Hanson said. “So it makes sense that we would work together on ways to share resources and collaborate.”

For Women’’s Empowerment, which helps homeless women find housing and jobs, partnerships “are central to the way we do everything,” said spokeswoman Amber Stott. “We don”t want to duplicate services that already are available in the community, so we look for groups with shared missions.”

Women’’s Empowerment works with the nonprofit Rudolf Steiner College to provide parenting classes; with CARES for HIV education and testing; and with UC Davis Extension for classes in nutrition and cooking, among many other partners, Stott said.

Before aligning with Grace, Ride & Shine was suffocating from a combination of declining donations and increasing costs, said board member Marlene Price. “We were operating month to month, trying to pull everything together,” she said. “Looking at the long range, we did not see things getting much better. So to keep things intact, we really had to reach out.”

The Grace Foundation has suffered the effects of the shaky economy as well but pays no rent at its ranch, which sits on 600 acres owned by developer Angelo K. Tsakopoulos. Grace was able to absorb the smaller Ride & Shine with few complications, said Beth DeCaprio.

Ride & Shine horses, staff members and supplies have moved to the ranch in El Dorado Hills, and the smaller group’’s board of directors will advise the Grace board. Ride & Shine clients will be able to take advantage of Grace’’s educational, counseling and other programs.

Julie McBride, director of programs for Grace, said Ride & Shine brings something to the table, too. “We”re just starting our fourth year, so our program is very new and very small. Ride & Shine had some years behind it and a wonderful reputation, so we”re all excited about this.

“It’’s a necessity in these times for nonprofits to come together and support each other,” she said. “We”re more powerful when we work together.”

Today it was announced that the the U.S. jobless rate unexpectedly jumped to a 26-1/2-year high of 10.2 percent last month. The Labor Department said on Friday that employers cut 190,000 jobs in October, more than the 175,000 that had been expected but fewer than the 219,000 lost in September.

A wider measure of labor-market slack, which includes both the officially unemployed and people who want work but who have given up searching, hit a record high of 17.5 percent.

With nearly a fifth of the US workforce unemployed the question becomes, how can the economy ever recover without a well planned and structured effort that includes the resources of government, corporations and nonprofits service providers?

As it stands now the chances of landing a job in this economy are the same as gaining admission into MIT or Harvard.

With all of the gloom and doom it’s easy to become discouraged. However, being a “glass half full” kind of guy, I think of the current economy as an opportunity.

In the past, the problem of unemployment was generally confined to the lowest, and most traditionally underserved, populations. This recession has turned that on its head, unemployment has exploded over the last 22 months and is now impacting all segments of the population.

The economy will eventually recover, the question that companies of all sizes need to ask is, who will these customers turn to for their products and services when they do return to the market? Will it be ones with unrelenting news reports of layoffs, foreclosures, and other negatives, or those that are perceived as helping reduce the strain on families as they struggle through hard-times?

My money is on the companies that turn their financial and marketing resources toward the organizations that are providing food, training, and other services that help support their future customers.

In the last few months we have spent quite a bit of time working with clients on organizational transparency. Below are some general lessons learned from our interactions with nonprofits, funders, and government agencies.

When most nonprofit managers think of nonprofit transparency they generally think in terms of financials. While this is a vital piece of the puzzle, recent allegations involving activities by employees of the Association of Community Organizations for Reform Now (ACORN) have changed the expectations of funders, community members, clients and the community at large.

It is no longer enough to keep good financial records (although it is absolutely necessary to do so), funders and other stakeholders are more cautious than ever and organizations need to be completely open about all of their activities.

As nonprofit boards and Executive Directors struggle with the demands of more rigorous scrutiny by funders, I thought it would be a good time to talk about some of the basics of full organizational accountability.

Nonprofit transparency encompasses every aspect of an organization. Some of the questions being asked are quite different then they used to be:

• Do the actions of the organization reflect the core values and mission it promotes?
• What is the real impact of the organization on the community?
• Are there proper safeguards in place to ensure staff accountability?
• Is there genuine evidence of a high regard for integrity across all core aspects of the organization? These include:
  • Program operation and hiring practices
  • Evaluation and communications
  • Financial practices

Here is a brief overview of a process that we have used with our clients to answer these questions.

Since all organizational activities flow from mission, the first step in achieving full transparency requires that you have a clear understanding of the purpose of your organization.  Mission is the heart and soul of a nonprofit organization. As someone mentioned to me many years ago “Passion without purpose is action without vision.”

Once you have a clear understanding of mission it’s time to take a look at your activities. The key questions at this point are:

• Are all of the organization’s programs in-line with your stated purpose?
• Is the organization experiencing “Mission Creep?” - Mission creep is defined as “The expansion of a project beyond its original goals, often after initial successes.” Mission creep is usually considered undesirable due to the dangerous path of each success breeding more ambitious attempts, only stopping when a final, often catastrophic, failure occurs.
• What does a successful outcome look like?

If you find that some of you programs do not mesh with your mission, you need to ask yourself why your doing them. If you have a legitimate reason, maybe your founding mission is no longer accurate and needs to be re-examined and updated.

Many organizations are very good at describing what they do, but struggle when asked to talk about what that work ultimately achieves for their clients and the community. Be sure that you know what a success looks like, it will make it easier for you to justify yourself to your stakeholders.

Next comes the question of hiring and staff training. This is the place in your organization where the rubber hits the road. It is the place where all of the resources come together to achieve organizational mission. It’s also the place where, without proper supervision and policies, the “wheels fall off the bus.” Questions to ask at this point are:

• Do you have policies and procedures in place that empower staff to make decisions that are aligned with the mission of the organization?
• Are you hiring the right people for the right jobs?
• Do employees have a solid understanding of the mission and are they committed to delivering services in a way that is highly ethical?

Having the right people, in the right positions, with the right guidance is something that we all intuitively understand. Unfortunately, there is a difference between understanding and execution. As organizations evolve, it’s easy find cases where employees have been moved into positions for which they have no passion or lack the proper training. Take some time to do an inventory and you may find that you have the right people to achieve your goals, but they are in the wrong positions.

After you have determined that your organization is offering mission driven, well constructed, and properly staffed programs you need to measure your outcomes so that you can effectively communicate them to you stakeholders. It is vital that you monitor programs and collect the data that allows you to communicate how you are affecting the community in a positive way.

Without proper metrics organizations will find it difficult to obtain the funding and other support necessary to thrive.

There are many arguments for funding nonprofit organizations, some moral and others practical. This post addresses the latter.

The majority of economists now believe that the US economy has returned to growth. However, the national unemployment rate stands near 10 percent and is not expected to reverse until well into 2010, if not 2011. In addition, foreclosure activity continues have a negative impact on the recovery.

As we look forward, now seems like a good time to explore what role of nonprofit service organizations have in the economic recovery, and how to best utilize these organizations to expedite the recovery.

Community Based Organizations (CBOs) are uniquely positioned to have a significant impact on the financial health of the nation. CBOs have a well-established track record of providing services to the most distressed members of the community, while containing costs. No business or government agency has the ability to deliver services as efficiently.  Any attempt at recovery that does not fully utilize this tremendously effective delivery system will be less effective and cost more.

What are the areas where nonprofits can be most influential in the recovery effort? Below is a list of areas where the prudent investment of resources could have the greatest impact.

• Job Placement and Retraining – Government agencies tend to take a one-size-fits-all approach to services and are less effective at creating lasting, meaningful change for program participants. They also tend to offer services in centralized locations that make it difficult for the most needy to access services.CBOs, on the other hand, have the ability to speak the language of their constituents, provide services in the community, and are more adept at supporting clients throughout the transition to new employment.

• Housing Placement and Retention – Businesses have a miserable track record of delivering effective foreclosure counseling to people at risk of loosing their homes. One need to look no further than the HOPE NOW program, created and implemented by the mortgage companies, that boasts help for over 2,200,000 families. While this number seems impressive on its face, the truth is much more sobering, for many this is a short term fix as the underlying issues that caused the initial problems paying the mortgage have not been addressed.In addition, government agencies have limited resources for delivering effective housing services to at-risk populations. These services are generally limited to referrals to nonprofit housing providers and/or publicly subsidized housing.CBOs have roots in the community and have the trust of their clients. This makes it easier for them to have honest conversations around difficult subjects. This allows CBOs to honesty assess borrower options, and determine the best long-term solution. They also have a better understanding of the unique characteristics of their community this helps to identify housing resources effectively.

• Emergency Services – Unfortunately this is the hard reality of any major economic downturn. As people work to secure housing and employment they all to often find themselves in a position where they need immediate assistance to make ends meet.For decades this has been the mainstay of nonprofit activity. Providing emergency food, shelter, and other essential services. In addition many human service nonprofits a great deal of time helping clients find, and apply for, the confusing and disparate programs that make up the social safety net.

Consumer spending comprises roughly 70% of the US economy, as long as a significant portion of the population are unemployed, at risk of loosing their home, and/or unable to cover basic needs no lasting recovery is possible.

As pressure mounts for companies to demonstrate responsible business practices, corporate America is embracing corporate social responsibility (CSR) as an integrated dimension of its overall operations. As CSR and philanthropy become increasingly intertwined, the line between them is blurring. What is the role of philanthropy in CSR? How can one leverage the other to achieve greater social impact? How can a small business increase the impact of their philanthropy without increasing their charitable contribution budget? (more…)

Each day I wake up firmly committed to eating right, getting enough exercise, and treating myself to some well deserved relaxation. Then the day begins, I boot up the computer, make a cup of coffee, and prepare myself for the waterfall of emails and other messages that miraculously multiply overnight. At the the end of the day I realize that I have been glued to my computer for well over nine hours and have not achieved any of the lofty personal care goals I was so committed to hours before. (more…)

As organizations look for ways to fund vital projects many are turning to corporations and corporate foundations as a source for desperately needed dollars. While they are a good place to obtain resources, they differ from foundation and government funders in fundamental, and significant ways.

Foundations and governments fund programs based primarily on social policy priorities, corporations add additional considerations to funding decisions such as: business needs, customer interests, compliance, and marketing goals. (more…)