Jim Herrin, Director, Salt Lake Region SBDC
Starting and running a non-profit business can be one of the most satisfying and beneficial endeavors you can have in your life. From time to time people come to our office that are interested in creating non-profit companies for very worthwhile causes, and some for fairly strange causes. The problem is they usually don’t have a good understanding of the work and struggles that lie ahead.
It is difficult to find needs that are not already being served by one or more entities. There are even non-profits to help non-profits. Nevertheless, there are times and causes for which a new charitable entity is appropriate, necessary and can be successful. Most of the time these are discovered by people with first-hand knowledge of the need, such as persons that have suffered rare diseases. Sometimes, the only mechanism to further a cause or fulfill a need is through a non-profit organization.
To be successful with a non-profit company, there are realities that you need to understand at the outset.
A non-profit organization is a sales organization
You may have an incredible passion for the cause, but do you have equal passion for selling? Outside of administration work, this will take up most of your time. Furthermore, being a people person, using good networking tactics and proven sales techniques are critical for obtaining contributions.
Passion is a driving force for success
The passion you have for the cause needs to be the driving force that motivates you to do the critical tasks that you may not have much passion for. Starting and running a non-profit will certainly test this passion.
Passion alone cannot replace knowledge and experience
The most successful companies are founded and run by those with substantial knowledge and/or experience in the particular industry or cause. If you have the passion but not the knowledge, research it heavily first, learn how to operate a non-profit, then begin your company.
Trust is the key required to pry open pocketbooks, but trust takes a long time to establish
Reputation and trust are earned and may take many years to acquire. Donors need to be able to feel comfortable that their money is being used effectively and efficiently, and that most of it is spent directly the cause. Shoddy management, administration, and excuses will kill trust. Misuse of funds is a death knell.
A critical mass of donors is required for success
Unless you already have an extensive network of philanthropic friends, you may have a huge Everest to scale. A critical mass of repeat donors and/or other sources of funding is essential for long-term sustainability.
The competition for available charitable funds is fierce
Most wealthy people and potential contributing entities already have their favorite charities and a set budget for their charitable giving. This means you need to get them to either take from ear tagged funds and/or increase their charitable donation budget. And you are one of many that are trying to get them to do this.
If one of your goals is to get rich, it’s almost surely not likely with a non-profit company
Although you can potentially make a decent living in a non-profit company, laws and regulations require close scrutiny, reporting and justification of every dollar spent. Non-profits are designed to create wealth for a cause and not for owners/management. However, non-profits also need good management and may need to pay a premium to get it. The level of compensation depends on the charity itself, the type of charity and the location of the charity.
“With an average salary of roughly $130,000 and a raise of just 1.5%, our findings demonstrate that most nonprofit leaders are not excessively compensated nor did they receive increases that were out of line with the times.” Charity Navigator, president & CEO, Ken Berger. (source: https://www.charitynavigator.org/index.cfm?bay=content.view&cpid=1458)
If a non-profit company is not the best entity type or the hurdles are too high, there are other ways that may be better, quicker and of more value to the cause or need.
- In the near term, donate the money, time and other resources that you would have spent starting and running such a company.
- In the longer term, instead of a non-profit, start a for-profit business that sells services or products related to that cause.
- Or start any type of for-profit company and as you generate larger and larger profits you can become philanthropically involved in the cause. Bill Gates, Warren Buffet and most other mega-wealthy people made their billions from for-profit companies. Most billionaires donate a major portion of their wealth to charitable causes. Utah’s own Jon Huntsman Sr’s drive to eliminate cancer is also a prime example of turning profits into charitable good.
The wealth created by business facilitates a huge flow of resources to charities from owners/shareholders, employees and the companies themselves. Then the non-profit organizations facilitate the use of these resources. Former British Prime Minister, Margaret Thatcher, once stated, “How could we respond to the many calls for help, or invest for the future, or support the wonderful artists or craftsmen whose work also glorifies God, unless we had first worked hard and used our talents to create the necessary wealth?”
The ability to assist so many causes and needs in our country, as well as in other countries, is because of the liberties we have and our open economy. According to Charities Aid Foundation, the United States is the world’s most generous nation with 1.44% of GDP donated to charitable organization. This is almost double the second and third highest nations, New Zealand and Canada, and almost triple the fourth highest, the UK. (source: http://www.independent.co.uk/news/world/americas/america-new-zealand-and-canada-top-list-of-world-s-most-generous-nations-a6849221.html
When a business succeeds it has a snowball effect that benefits everyone. That’s why The Salt Lake Region SBDC with the Miller Business Resource Center is here to help your business succeed, which will benefit you, your family, your employees, your vendors, your customers, your community, the needy…….