By Earl Martin Phalen
Full Article Posted on Huffington Post
According to the National Center for Charitable Statistics, there are more than 1.5 million nonprofits in America. Each day, 150 new nonprofits are created, and each year more than $250 billion flows into the nonprofit sector. Yet very few nonprofits — less than 10 percent — ever reach annual revenues exceeding $1 million, according to the Urban Institute’s Nonprofit Sector in Brief. As a result, many nonprofits leaders spend much of their time struggling to keep their organizations alive, and most never realize their vision. In my two decades of service in the nonprofit sector, I have been blessed to found two nonprofits and serve as the CEO of a third; two of these organizations have more than $20 million in annual revenues, and the third has revenues exceeding $5 million in only its third year of operation.
Much of what I’ve learned about building a successful nonprofit flies in the face of the traditional advice given to aspiring nonprofit leaders. In fact, I believe that many leaders too often make three critical mistakes when starting their nonprofit.
Below, I have highlighted these pitfalls and some potential ways you can avoid them:
Myth #1: Establish your organization as an independent 501(c)(3). Though independence is important, it’s initially better to ask an established 501(c)(3) (or “tax-exempt”) organization to act as your fiscal agent. Doing this provides your organization two important things: time and the illusion of maturity.
Myth #2: Assemble a board of directors. Your board has vital responsibilities, including governance, fundraising, financial oversight, and strategic planning. Unfortunately, though, most boards fail to fulfill these commitments. Many boards are ineffective because board members are often chosen for the wrong reasons. Instead of immediately assembling a board of directors, nonprofit leaders should build an advisory board. You will still benefit from your board’s experience, networks, and expertise, but will also have time to evaluate the fit of each member. commitment to the organization’s mission.
Myth #3: Focus on grant writing. Eleven years into leading my first venture, I was stumped by the question, “What is your business model?” What I thought of as our business model was in actuality a fundraising model.A business model is more than knowing your funding needs. A business model strategically links your organization to a consistent, renewable, and sustainable stream of funding. Nonprofits with strong business models must diversify within a stream of funding, and often across multiple streams.
In addition to identifying the best revenue stream, you must be equally obsessed with driving down costs while maintaining exceptional outcomes.
Find your business model, and avoid the other aforementioned pitfalls, and you will exponentially increase your chances of fulfilling your worthy mission.
Earl Martin Phalen is the CEO of Reach Out and Read. Phalen was an education advisor to President Obama’s 2008 campaign and was co-chair of Massachusetts Governor Patrick’s education task force. President Clinton awarded him the President’s Service Award in 1997. Phalen is a graduate of Yale University and Harvard Law School.