United States: The Not-For-Profit Organization Life Cycle: Start-Ups Face Challenges, Opportunities

Every organization is different, but most not-for-profit organizations follow a somewhat predictable life cycle. And just as they are for a child, the early years for organizations are full of important milestones. A not-for-profit organization's first steps can make the difference between a sustainable organization with the capacity to fulfill its mission and a floundering failure that fades out fast.

Early-Stage Traits

Not-for-profit organizations often begin as an informal group of individuals who see a need for a program or service and feel a personal mandate to help provide it. They boast a high level of motivation, commitment and passion for their vision and usually begin their efforts before they have even considered applying for tax-exempt status or mobilizing support from others. Operations are agile but unstructured. Decision-making is typically done on a consensus basis, perhaps driven by a charismatic leader.

Early-stage organizations generally do not have an official board of directors, articles of incorporation or a formal mission statement. Similarly, these organizations generally are without strong internal systems or diverse funding sources.

In fact, there might be some resistance to such formalization. Founders can be reluctant to relinquish their control — or might prefer to focus their energies on their mission of providing programs and services.

The Right Steps

The incubation period can last for months — or years. But at some point, founders' plans begin to exceed current resources of time, talent and money. Typically, they realize then that, if their organization is to survive and ultimately fulfill its mission, it must take certain steps to formalize governance and develop an infrastructure. This starts with filing articles of incorporation, drafting bylaws and appointing a board of directors.

Founders or early volunteers are likely to populate the initially small board, and critical decisions should be made by formal votes recorded in written minutes, rather than by casual consensus. As the organization grows, the board will need to move from reacting to events to acting strategically. It should begin to create a formal governance structure and add members with more diverse backgrounds.

Decisions, Decisions

To maximize effectiveness and efficiency, any early-stage organization needs to determine how best to use volunteer help and hire part-time, full-time or contractor staff. Ideally, staffers will be attracted to the job for mission-driven reasons.

Centralized management becomes essential, and you should appoint an executive director. Then, craft job descriptions and personnel policies so they are ready to go as your staff expands in coming years. As your organization approaches maturity, it also will need official marketing, fundraising and volunteer management functions.

Formulating criteria for continuing programs and services can help create a not-for-profit that is lean and mean, too. As it progresses, your novice organization should begin to track outcomes, with an eye on cutting offerings that are not working (as painful as that can be). You also might explore collaborative arrangements with other organizations to better serve client needs.

Automation is another key to efficiency. When possible, automate your data management and invest in the technology and equipment to facilitate formalized record keeping and reporting.

The Financial Management Priority

Do not underestimate the importance of developing accounting and financial systems. This is particularly true where they are necessary to satisfy compliance requirements. You should institute formal accounting principles and policies, along with adequate internal controls and guidelines for operating reserves.

Also, draw up multi-year budgets (including capital budgets) and development plans that provide for diversified funding streams. If you lack the internal staff to handle such tasks, you can — and should — turn to an outside accounting firm for assistance.

Foundation for Success

The ardent, hands-on individuals behind a young not-for-profit can sometimes find it hard to work through the seemingly tedious nuts-and-bolts measures associated with establishing a new organization. However, taking the time to build a strong foundation will greatly increase your fledgling organization's odds of success.

Sidebar: The 3 Ws of Board Development

As a not-for-profit organization grows and their boards shift from a collection of passionate early founders focused on operations to a larger, more diverse group tasked with planning and oversight, they should consider using the "3 Ws" approach to board development. The theory calls for selecting board members who possess at least two of these three valuable assets:

Work. Workers can be counted on to reliably and enthusiastically pitch in wherever and whenever needed. They do more than just attend board meetings. They also volunteer, organize events and interact with clients.

Wealth. Those with wealth, or connections to wealth, can generate funds, whether by donating from their own pockets or tapping others.

Wisdom. Wisdom refers to individuals who bring necessary expertise. They may have experience in the nonprofit world or have experienced circumstances similar to those of your constituency. Or they might have expertise in areas that are bound to come up, such as accounting, marketing and the law.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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