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Navigating the Maze: Key Challenges for New Nonprofit Startups

Navigating the Maze: Key Challenges for New Nonprofit Startups

In the nearly 30 year history of our company, we have helped tens of thousands of nonprofits startup.  From small to large, and with budgets measured in thousands to millions of dollars, we’ve seen them all.  And though there are many differences between each of them, each faces a similar set of challenges when getting started.

In this post, we’re going to examine the key challenges for new nonprofit startups.

Challenge 1: Securing Funding

I’m putting this one first because this is a big challenge for all but the self-funded variety of nonprofit startup.  From a standpoint of percentages, the majority of new organizations will have to raise support for their mission.

Let’s look at 3 sub-challenges:

Limited funding sources – Most nonprofit organizations, particularly those of a charitable, 501(c)(3) nature, are going to have 3 primary, potential sources of revenue:  donations/grants, fundraising event revenue, and program revenue.

I’m not going to speak much here about the last of those, program revenue, as that is revenue generated by the sale of products and services related to the nonprofit’s purpose.  The success or failure of the program(s) generating the revenue will determine the outcome there.

The bigger issue is generating donor support.  Most new nonprofits startups are going to need contributions from the general public in order to raise sufficient funds to get their program(s) going in earnest.  Grants are nice, and we encourage organizations to seek them out.  But it is important to understand that grant funding for startups is pretty rare.  Learn early the best practices of cultivating donors who love your mission.

Competition for Resources – As much as we would like to pretend that charities exist in a utopia of cooperation and inter-organizational generosity, the truth is a little more brutal than that.  There is a finite number of dollars available to fund your new organization and all the other nonprofits competing for the attention and devotion of your potential donor.

Understanding how to publicize your message and capture the hearts of supporters is part art, part science.  Know on the front-end that it is a challenge.

Balancing Mission and Financial Sustainability – New nonprofits often struggle with this in the early days, primarily because every need requires more dollars than you have to fund it.  But as the organization matures, it is critical for those leading nonprofits to learn the skills necessary to fund their mission while preserving financial strength for the future.

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Challenge 2: Building a Strong Organizational Structure

Nonprofit growth and success are rarely organic.  This isn’t Field of Dreams, where you build it and they will come.  No, long term impact never comes without a strong organizational structure.  Consider these three elements as non-negotiables:

Effective Leadership – Your new endeavor simply won’t last without effective leadership.  Without it, momentum will fizzle and the nonprofit will never achieve the goals you set out to accomplish.

Part of the reason for this lies in the unique nature of a nonprofit startup.  While many businesses are started by people particularly skilled in the area of expertise the business is addressing, that is most often not the case with nonprofit startups.  In fact, we coined the phrase right-brain entrepreneur around our office many years ago to describe the creative and cause-driven personality of so many of the founders we work with.

Don’t get me wrong…that’s not a bad thing.  But it sometimes does hinder leadership when founders have little experience in heading up an entity.  All the more reason to bring in knowledgeable and talented leadership for board service.  There is no substitute for good leadership.

Recruiting and Retaining Skilled Staff and Volunteers – Just the headline makes this one rather self-evident.  Just like you need skilled leadership, you need skilled team members and volunteers who will be the day-to-day operators of your program.  Planning for your human resource needs should be a key component of your first 3-year business plan.

Developing Efficient Operational Processes – Great leaders and talented staff cannot operate in a vacuum.  To effectively move a new organization towards its missional goals, you need efficient processes that are both effective and repeatable.

Sure, you can see examples of nonprofits that seem to accomplish their mission almost in spite of the lack of systems and processes, but that is the exception, not the rule.  Further, I submit that those that seem to defy this necessity are only operating at a fraction of what they could achieve, often running off the vision and energy of the founder alone.

This can be both exhilarating and exasperating.  And it won’t be effective for long.  Take the time develop the processes that make it possible to continue moving your mission forward, even when you lose key individuals.  Bring new talent in and plug them into systems that work.

Challenge 3: Creating Impact and Measuring Success

Creating impact is the very reason someone starts a nonprofit.  What is critical is learning how to measure that impact and translate what is learned into growth, expansion, and future success.  Let’s look at 3 elements of this challenge.

Defining Clear, Achievable Goals – For a nonprofit startup, it’s crucial to have a clear and focused mission. This involves setting specific, measurable, achievable, relevant, and time-bound (SMART) goals. Without clear goals, it’s challenging to gauge success or direct efforts effectively. Startups should ask themselves what change they want to see and how they plan to bring about that change.

It’s tempting to think this is self-evident, but I can tell you from experience that it is not.  This type of planning is hard work, and it takes clear-eyed thinking to lay out these goals effectively.  It’s very tempting, particularly early on, to overestimate the reach and effectiveness of what you will accomplish.  Better to be surprised by exceeding your goals than falling woefully short due to unrealistic expectations.

Implementing Strategies for Impact Measurement – Measuring impact is a complex but essential part of nonprofit management. Nonprofits need to develop a framework for assessing their effectiveness. This can include both qualitative and quantitative methods, like surveys, interviews, and data analysis. Regularly measuring impact not only helps in understanding the effectiveness of the programs but also in making necessary adjustments.

Communicating Success to Stakeholders and Donors – Transparency and communication are key to building trust with stakeholders and donors. Nonprofits should regularly update their supporters on their progress, challenges, and successes. This can be done through newsletters, social media, annual reports, and direct communications. Sharing stories of impact can also be a powerful tool in demonstrating the value of the organization’s work.

With all three of these sub-challenges, it is easy to think they may be overkill for what you have planned.  While your take on these may not need to be as robust as another organization’s, don’t write it off as too much work.  Internalizing these habits separate the high achievers from those who merely hope for a good outcome.

Challenge 4: Navigating Legal and Regulatory Requirements

You had to know that I would get around to a section that Foundation Group can help with, and that’s the world of compliance.  Unless you effective deal the legal and regulatory requirements facing your new venture, you won’t even get off the ground, much less be successful.

Here’s 3 points to consider:

Understanding Nonprofit Legal Status and Tax ExemptionGaining legal nonprofit status…usually through incorporation…and tax-exempt status are critical first steps. This involves understanding the legal framework in your jurisdiction, which can vary significantly.

Nonprofits must comply with the regulations set by the IRS in the US or equivalent bodies in other countries, which involves detailed record-keeping and reporting.  Just the process of getting IRS recognized as a 501(c)(3) requires an understanding of what purposes qualify for tax-exemption, plus what you can and cannot due programmatically.

Compliance with Local, State, and Federal Laws – Apart from tax laws, nonprofits must also adhere to various other regulations including employment laws, fundraising regulations, and lobbying restrictions. It’s important to be aware of these legal requirements to avoid penalties and ensure smooth operations.

Ethical Considerations and Transparency – Nonprofits are expected to operate with the highest level of integrity and transparency. This includes ethical fundraising practices, responsible use of funds, and clear governance structures. Maintaining ethical standards is vital for building credibility and public trust.

This has implications for your leadership, as well.  All 50 states view nonprofit officers and directors as fiduciaries, meaning they have accountability to ensure the financial integrity and health of the organization.  See our article on Fiduciary Duty for more details on this subject.

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Challenge 5: Establishing a Strong Brand and Community Presence

All successful organizations, whether a business or a nonprofit, learn how to effectively tell their story.  It’s an indispensable component of high performing entities.

Developing a Compelling Brand Story – A strong brand story helps in connecting with the audience emotionally and differentiating the nonprofit from others. This story should reflect the mission, vision, and values of the organization and be consistently communicated across all platforms.

Get help with this.  It’s not easy to do it well, and it’s amazing when it’s done right.

Leveraging Social Media and Digital Marketing – In today’s digital age, an online presence is not optional. Social media and digital marketing are powerful tools for raising awareness, engaging with the community, and fundraising. Nonprofits should invest in building a strong online presence that resonates with their target audience.

It starts with well-build, visually-appealing website.  Again, get help if you need it.  And don’t skimp on this.  An ugly or hard-to-navigate website telegraphs negatives you don’t want to put out there.  Establish an active social media campaign and keep it current.  Be realistic on this:  If your nonprofit can’t commit to actively engaging on social media, it’s better to not do it than to start and not continue it.

Engaging with the Community and Building PartnershipsBuilding a solid community presence involves more than just online engagement. It includes participating in community events, networking with other organizations, and forming partnerships that can support and enhance the nonprofit’s work.

Again, no one is going to make you do these things.  And, you can achieve a measure of success without them.  But with them, it can make the difference between a marginal impact and one that sets your nonprofit apart.

Challenge 6: Adapting to Changing Environments

The only constants are death and taxes.  Everything else changes.  Learning to adapt to changes…sometimes quickly, as COVID taught us all…separates leaders from followers.

Consider these 3 sub-challenges:

Responding to Shifts in Donor Priorities and Social Trends – The nonprofit sector is dynamic, with changing donor interests and societal needs. Nonprofits must stay informed about these changes and be ready to adapt their strategies accordingly.

This might mean revising programs, exploring new fundraising avenues, or updating their messaging.  As we’ve talked about before, it can even mean completely reinventing yourself, just as March of Dimes had to do many decades ago with the advent of the polio vaccine.

Embracing Technological Advancements – Technology can significantly enhance a nonprofit’s efficiency and reach. From donor management software to social media platforms, it’s important for nonprofits to embrace technological solutions that can help them in their mission.

Again, this is an area that causes some to shrink back.  They’re just not tech-savvy.  That’s OK, so long as you find someone to help who is.  Gone is the day when this was optional.

Navigating Economic Uncertainties – Economic downturns can impact funding and operations. Nonprofits need to have contingency plans in place to manage through uncertain times. This might include diversifying income streams, building a reserve fund, or finding cost-effective ways to operate.

COVID taught us these things better than any classroom ever could.  In a seeming-instant, the world was turned upside down, and predictable revenue streams dried up.  As you well remember, many businesses and many more nonprofits did not survive 2020-2022.  Being able to pivot quickly is a survival skill that we all need proficiency in.

Conclusion

As is typical for our numbered-list posts, this article just scratches the surface of everything we could discuss.  But our goal with this particular piece was to highlight those things that every social entrepreneur needs to consider before jumping off into starting a nonprofit.

You don’t have to execute on every point perfectly.  Simple awareness of these issues will equip you beyond what many startups begin with.  By putting intentional effort behind each of these, however, the odds for your nonprofit accomplishing its mission goes up dramatically!

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Greg McRay is the founder and CEO of The Foundation Group. He is registered with the IRS as an Enrolled Agent and specializes in 501(c)(3) and other tax exemption issues.

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