Nonprofits Can Fail

An organization that was once a thriving enterprise had a several million-dollar budget, an impressive board of directors, outstanding case for support, multiple employees and a very capable executive leader. Over time, through a variety of missteps, foundation revenue plunged, board members resigned, employees left and the organization began to fail.

A nonprofit colleague, who was serving on this foundation's organizational board, tearfully asked me to accept a six-month assignment as its interim executive director . By the time I accepted this assignment 12 years ago, there was one employee. The budget was $300,000 and the office was filled with unused furniture. In fact, the office space had shrunk to two offices from a suite of at least 10 offices. I had never been in such a failing situation. 

Funders were calling me asking for their funding updates. I could not find a filing system and had to recreate proposals. The point of this story is nonprofits can fail, and I felt the sad reality of an organization that eventually closed its doors. That was such a shame, as the services the organization provided were desperately needed in the community.     

There is a huge gap between top performing and poor performing nonprofit organizations, according to research from the Concord Leadership Group. Almost half of the respondents reported in this research that their organizations did not have strategic plans while 77% lacked a leadership transition plan. These organizations surveyed admitted they do not have systems in place to ensure all stakeholders share the vision and brand of their nonprofit. If donors believe their donations are being wasted, you could lose that donor forever. It is imperative that organizations have a strategic plan and operational plan that is sound.

Some common symptoms of organizations in decline include deviation from core values, lack of transparency, insular thinking, failure to attract new resources, failure to change with the environment, mission creep, declining influence, declining involvement and engagement of board members, lack of self-determination, and inability or refusal to resolve conflict. One element does not typically reverse the trend of an organization. When elements negatively change over time, without treatment, the organization is in a state of decline.

On top of internal and external forces affecting nonprofits, the pandemic and residual aftereffects have placed more than a third of nonprofits in financial jeopardy, according to the PBS News Hour report, citing a study by Candid and Center for Disaster Philanthropy. The study notes that nonprofits are in jeopardy of closing soon, with the most vulnerable nonprofits trying to reduce expenses, or even merge or acquire other organizations. Nonprofits are considering many structural changes, but the need for additional donations has never been more apparent.          

About 30% of nonprofits fail to exist after 10 years, according to the National Center on Charitable Statistics. The National Association of Nonprofit Organizations & Executives (NANOE) declared there are seven reasons why nonprofits fail, including empty optimism without the elements to make success work, values vacuum or poor organizational development, competitive blinders without thought to competition, iced innovation or lack of innovation, mission creep or expansion without reality, forgetting who the real boss is such as revenue, and fear of appropriate data information. The real reason nonprofits fail is because they should not have existed in the first place.

For nonprofits not to fail, continuous watch on a variety of elements within the nonprofit is in order. Make sure progress continues in every area of operations. Have a written strategic plan and operational plan that is monitored and refined. Do periodic audits and have outside examiners review and observe your nonprofit. Look at best of class nonprofits and seek to emulate them.

Nonprofits can fail; do not let it happen to your nonprofit.