Entrepreneurship and the Nonprofit Sector

Do we have too much of a good thing in an already over-crowded space?

Many of us in the nonprofit sector have noticed a recent proliferation of social impact start-ups created by young people before and during college and business school. A lot of money and resources are pouring into social entrepreneurship on campuses; some centers have been around for decades, other universities only recently jumped in or expanded and consolidated their offerings. Millions of dollars of investment and endowments, new maker spaces, new staff and deans, hundreds of pitch contests throughout the year all over the country with prizes ranging to over $100,000. Amazing!

And then what?

Launched into the real world, maybe with enough funding to support a project or staff position for a year or two, most of these young, civic-minded entrepreneurs inevitably find themselves facing the question every nonprofit often asks itself: how do we keep going? These new social ventures need advice and help with funding and fundraising, strategic planning, board development and management, infrastructure, and succession planning. I don’t mean typical succession planning for the founder/president who is going to retire after thirty years. I mean succession planning for when the founder graduates from college next semester and isn’t sure who is going to run the organization after he leaves. Or for when the pitch contest prize money or founding grant dries up and the recent business school graduate who has devoted all her time to the effort realizes she doesn’t have access to the resources and support she had while a student and is concerned about the future of her fledgling nonprofit and her own personal financial security.

There is a beauty in the opportunistic thinking of social entrepreneurship.  There is also benefit to slowing down before launching, and from reflective learning when the project does not pan out as founders would have wished.  Neither of those approaches should be viewed as failures of ideas or even as hindrances to future success. So how do we balance the optimistic, entrepreneurial approach with the more traditional, established not-for-profit sector?

Unlike many other sectors, including those kept in check by private market forces¹, the social impact space has no oversight agency. No license requirements. The few regulatory agencies like the IRS and State charity departments have limited staff and jurisdiction (and incentive?) to review the social impact needs of any given community before authorizing corporate formation or tax exempt status. Certificate of Incorporation? Check. Conflict of Interest Policy? Check. Mission does not overlap with two or more existing nonprofits doing the same work in the same city? No question on the form for that one.

The nonprofit sector either suffers or increases its collective impact potential (depending on your point of view) from the number of nonprofits in the space. Much criticism can be found on this issue. Collaboration is famously lacking. M&A is still a relatively foreign term for nonprofits and only rarely utilized. Nonprofit founders and leaders feel no less attachment to and belief in the power of their own ideas, projects, and organizations than those in the private sector. The main difference is that if no one buys your widget, or your technology start-up is bought out by a bigger company, you walk away with sunk costs or a retirement portfolio. In the nonprofit sector, the problems and needs that give rise to the nonprofits trying to help do not simply go away.

I do not by any means wish to dampen the mission-driven enthusiasm of social entrepreneurs. The social sector needs their innovation. There are real human and societal needs to address. My only advice is that those with great ideas wanting to address real social challenges – and those who advise and fund them – spend some time thinking through the best way to approach those challenges (a fiscally sponsored project? private for-profit LLC? tax-exempt nonprofit?) and about the long-term viability of the initial approach, including how to staff and fund their mission. For those who do have questions and ideas and need some advice or resources, YANA is here to help.

So what do you think: Are there too many nonprofits now?  Do we need more social entrepreneurship ventures, no matter what corporate or legal form they take? Should college campuses provide more support to alumni ventures?  Add your thoughts in the Comments section!

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To help spark more conversation, below are some sample essays on the same topic produced by chat.openai.com (we can have a separate conversation on the role of AI) arguing for and against more social ventures in the nonprofit space:

Private Sector Role in Nonprofit Space

Now, don't get me wrong - I am a firm believer in the power of innovation and entrepreneurship to create positive change. But when it comes to the nonprofit sector, I believe that relying solely on private sector solutions is not only misguided, but ultimately counterproductive to the goal of achieving sustainable social impact.

Here's why: at its core, the private sector is driven by profit and shareholder value. While there are certainly exceptions to this rule, the reality is that most businesses exist to generate revenue and maximize profits for their owners and shareholders. And while this focus on the bottom line can certainly drive innovation and efficiency, it can also lead to a narrow focus on short-term gains rather than long-term impact.

In contrast, the nonprofit sector is driven by a mission to serve the public good. Nonprofits exist to address social and environmental challenges that often fall outside the scope of the private sector, and they are guided by values such as equity, justice, and compassion. This mission-driven focus allows nonprofits to take a more holistic and long-term approach to problem-solving, one that takes into account the complex interplay of social, economic, and environmental factors that shape our world.

Of course, this is not to say that the private sector has no role to play in the nonprofit world. Corporate social responsibility initiatives, impact investing, and cross-sector partnerships can all be powerful tools for creating social impact. But when we start to view private sector solutions as the default or the preferred approach, we risk losing sight of the unique value that nonprofits bring to the table.

So what can we do to ensure that the nonprofit sector remains strong and vibrant in the face of increasing pressure from the private sector? Here are a few ideas:

• Advocate for policies and funding structures that support nonprofit sustainability and growth. This might include tax incentives for charitable giving, grants and loans for nonprofit capacity-building, and regulations that protect the integrity and independence of the sector.

• Foster collaboration and knowledge-sharing between the nonprofit and private sectors. By building bridges between these two worlds, we can create more effective and sustainable solutions that leverage the strengths of each.

• Celebrate and elevate the voices of nonprofit leaders and organizations. Too often, the nonprofit sector is overlooked or undervalued in public discourse. By amplifying the stories and successes of nonprofits, we can help to shift the narrative and build greater awareness and support for the sector.

At the end of the day, the nonprofit sector plays a critical role in creating a more just and equitable world. While private sector solutions can certainly be part of the equation, we must never lose sight of the unique value that nonprofits bring to the table. So let's continue to support and celebrate the amazing work being done by nonprofit organizations and leaders, and let's work together to build a more sustainable and impactful social sector for all.

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Too Many Nonprofits

The social impact space has seen a proliferation of nonprofits, leading to concerns about duplication of efforts and inefficiencies. The increase in the number of nonprofits has resulted in a fragmented approach to social impact, with each organization focusing on its narrow area of interest, leading to duplication of services and high overhead costs. The fragmentation of resources also makes it difficult to measure the overall impact of these nonprofits.

To address this problem, there needs to be a consolidation of nonprofits with similar missions and objectives. Consolidation would allow organizations to share resources, reduce overhead costs, and maximize social impact. It would also make it easier to measure the overall impact of nonprofits and ensure that resources are allocated efficiently. Nonprofits should consider mergers and acquisitions to achieve this goal. Additionally, nonprofit leaders should seek partnerships and collaborations with other organizations, including for-profit entities, to pool resources and generate a larger impact.

Furthermore, the creation of new nonprofits should be regulated to ensure that they address unique problems and fill gaps in the social impact space. The regulatory authorities should scrutinize new nonprofits to ensure that they do not duplicate services already provided by existing nonprofits. A clear and well-defined set of regulations could help prevent the creation of redundant organizations. It is crucial to emphasize the importance of collaboration and consolidation among nonprofits to achieve maximum social impact while minimizing duplication of efforts and wastage of resources.

In conclusion, while there are too many nonprofits in the social impact space, consolidation and regulation can address the problem. Nonprofits should consider mergers and acquisitions, collaborations, and partnerships to reduce duplication of services, share resources, and maximize social impact. Regulating the creation of new nonprofits is also necessary to ensure that they address unique problems and fill gaps in the social impact space. By taking these steps, the social impact space can become more efficient, cost-effective, and achieve greater social impact.

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Social Entrepreneurship is Vital

Social ventures in the nonprofit space are essential in addressing social and environmental issues while generating financial sustainability. These ventures are designed to deliver social impact while operating as a self-sustaining business model. They offer innovative solutions to social problems while creating opportunities for individuals and communities. Therefore, encouraging the creation of more social ventures in the nonprofit space is crucial in solving societal problems in a sustainable manner.

One of the advantages of social ventures is their ability to leverage resources, including human capital and funding, to create social impact. Social ventures bring together individuals with diverse skill sets, experiences, and perspectives to work towards a common goal. This collaboration creates an environment for innovation, experimentation, and continuous learning. Furthermore, the funding model of social ventures, which includes revenue-generating activities, grants, and donations, provides financial sustainability, unlike traditional nonprofit models that rely solely on grants and donations.

Lastly, social ventures provide a viable option for individuals and organizations to contribute to societal progress beyond traditional philanthropy. Instead of merely donating money, social ventures provide a hands-on approach to social impact, giving individuals and organizations a more meaningful and fulfilling way of contributing to societal progress. By encouraging more social ventures, we create a culture that values and supports social innovation, entrepreneurship, and sustainability, resulting in a better society for all.

In conclusion, the creation of more social ventures in the nonprofit space is essential for addressing social and environmental issues, promoting innovation and collaboration, and creating opportunities for individuals and communities. Encouraging the creation of these ventures can contribute to a sustainable solution for societal challenges, provide a more meaningful way of contributing to societal progress, and create a culture that values social innovation, entrepreneurship, and sustainability.

1. I recognize that nonprofits are subject to their own market forces — namely philanthropic willingness and capacity of individual donors, corporations, and foundations, and the effectiveness of the nonprofit executing efficiently on its mission. But no one ever disputes that there is an infinite market of need for their services.