Why you should not start a nonprofit organization
Do you have this amazing idea that you are so passionate about and could possibly help to make the world a better place? Do you want to take this amazing idea and start a nonprofit organization? What if I told you that you do not have to do that?
A nonprofit organization is an organization whose purpose is not focused on profit generating activities, usually dedicated to furthering a particular social cause or advocating for a point of view. All surplus revenue must go to achieve its purpose or mission and not be distributed to organization's shareholders (or the equivalent). Incorporating as a nonprofit means that you are exempt from most taxes, which means that you are held to a high level of transparency. Which costs money and time. And we have not even addressed the "how" part of getting funding for your nonprofit organization.
Prior to starting my own community minded business, Cafe Con Leche, I worked at nonprofit organizations for over 15 years. At my last job I remember clearly thinking to myself "I never want to be a nonprofit administrator". Which is funny since I have a degree focused on nonprofit administration. It should go without saying that I firmly believe that social service agencies must be fully funded. However the nonprofit industrial complex has created a world where we accept that social services should be underfunded as a rule and rely solely on the generosity of others. This sets up an impossible double standard where the most serious issues in our society are addressed by some of the most stressed out and under-resourced agencies of our society.
Not every community minded idea needs to be a nonprofit organization.
As I started to build Cafe Con Leche, everyone assumed we would be a nonprofit organization. I even had several people give me (unsolicited) advice that Cafe Con Leche should be a nonprofit organization. This was frustrating because it is based on the assumptions that 1) businesses focused on people of color cannot survive because it is "too niche" 2) people of color are not seen as valued consumers 3) in order to be a business you can not lead with your values, you must lead with your intention for profit. These automatic assumptions is at best simple minded and at worst racist. (It also is wrapped up in sexism as well, but that is a post for another time.)
For a long time I struggled with my decision to incorporate Cafe Con Leche as a LLC and not a nonprofit, even though I knew from before I even had the business name picked out, that I wanted to open a business focused on Latin culture, art and food. As time went by and I refined my business idea and functionality, I became more comfortable in my identity as an Advocate Entrepreneur. The *aha* moment came from the realization that I am a business owner, but I am also still myself. My business, no matter what it is, will always be a reflection of who I am. I am a social worker, a value based profession, that has given me the tools to understand that BEYOND CHARITY, people of color need PLACES and THINGS that are FAMILIAR and that they can PURCHASE. This is no different than someone who is trained as a gourmet chef opening a quality restaurant serving food to those who enjoy gourmet food. The difference is that focusing on people (particularly people of color) automatically leads people to conclude that it must be charity because this is a population as seen as too "niche".
However, the truth is, the United States is under going drastic demographic changes, by 2060 we will be a country made up of a majority people of color population. Therefore, focusing your business on people of color is not a niche business, it is good business. Companies who are not building relationships with Latinos, Asians and African Americans now will not be competitive in the future. Once I got this, I knew I had made the right decision to not incorporate as a nonprofit organization.
Why not a nonprofit?
- Maintaining a 501c3 tax designation is a big deal. You will need a good accountant, conduct a yearly audit and file a 990 (among other things).
- Grants rarely (if ever) fund staff salaries and overhead.
- You will be entirely dependent on grants and the generosity of others in order to stay open. And because you can largely only use grant money for programming, you must find other creative ways to fundraise additional monies to pay for salaries and overhead.
- Because you are dependent on grants for funding, you are also subject to funding trends. Meaning that what is funded today, will not be funded tomorrow. This can often lead to what is called "mission drift" for organizations. Mission drift means moving away from your mission in order to be able to to accept a grant. Often this means that you may be involved in programming and activities that you did not intend to do when you were first incorporated.
- Your time as a nonprofit administrator will become about managing the board, fundraising and ensuring the integrity of your 501c3 status. Which is not the worst thing in the world, but is also (perhaps) not what you have in mind for yourself.
How is this different from a business?
It's not much different except that as a community minded business you are living your values AND building an asset for yourself. It is not a bad thing to make money AND be doing good in the world. In fact, more nonprofits should monetize their proprietary and intellectual property AND more business should operate as a community minded business.
So where do I go from here?
You do not need to be a nonprofit in order to do good. You do not need to rely on donations and grants to build your vision. However, you do need to be strategic about your products and services.
- Figure what you most lovable product is and figure out how to scale it so that it can be sold again and again for profit. For Cafe Con Leche our most lovable product was our events (which always included the four pillars of Cafe Con Leche: home cooked Puerto Rican food, live music, art and community). From here, we began hosting a Puerto Rican supper club (with food, live music and art) in concert with our resident artist program (that we received a grant for). The supper club has become our scalable product. Scaling this has allowed Cafe Con Leche to begin making moves to secure a permanent space. This space will allow us to host our events and serve food on a daily basis while still providing the fun atmosphere that our consumers have come to love and expect from us.
- As you begin to envision your team, build in an organizing position as a part of your staff. This person can be a project manager, event planner, marketing or communications person. They are able to be the face of your business in the community; their role is (partly) focused on building relationships, supporting community activities (such as attending a community meeting or an event you have sponsored) and informing you on how your business can best meet the needs of the community you serve.
- Look for grant and partnership opportunities that can fund your community centered activities. Just because you are not incorporated as a 501c3 does not mean that you should not be building relationships with local nonprofits and foundations. There may be grant opportunities that do not require you to be a nonprofit organization or you can ask a nonprofit that you have a relationship with to act as your fiscal sponsor.
- IT'S OK TO MAKE MONEY. You deserve to be compensated for your work. Money is not evil. We all want to purchase and sell things we like. If you have a good product, people will pay for it. As your community minded business grows, so will your community. And this something to be proud of. Good luck!
Tara is available for coaching sessions!