5 Ways Nonprofits Struggle (And How To Overcome Them)

Over a decade ago, Kathleen Kelly Janus, a lecturer with Stanford University’s social entrepreneurship program, cofounded Spark, a San Francisco-based nonprofit aimed at encouraging millennials to crowdsource grants and offer pro bono professional services and investment connections to grassroots women’s organizations. It’s since grown to comprise a donor base of over 10,000 supporters.

But then Kelly, who is also a lawyer who’s done social justice work, spotted another disparity: “We had all this success and we hit a wall, and we couldn’t get the funding that we needed to grow to the next level, to expand to other cities and to deepen our impact in San Francisco,” she says. She researched the concept and realized that about two-thirds of nonprofits encounter a similar roadblock because their annual budgets get stalled below the $500,000 or greater level.

“For many nonprofits in small communities that’s plenty of money to do a lot of good,” she says. “But for many organizations, I found that they were on this treadmill of just trying to make payroll every month when really they should have been focused on their impact. We have this sector where ideas are dying on the vine because people can’t get them funded.”

All of which begged a question: “Who are the organizations that are scaling and how are they how are they doing it?” To find out, Janus surveyed 250 organizations that received seed money from the top social entrepreneurship funders like Echoing Green, Ashoka, and Skoll. She also interviewed the founders, beneficiaries, and staff associated with 100 successful groups including DonorsChoose, Charity: Water and Teach For America.

The answer appears in her book Social Startup Success: How the Best Nonprofits Launch, Scale Up, and Make a Difference, which points out five key areas where the best organizations tend to focus–testing and innovation, measuring impact, fundraising experimentation, leading collaboratively, and storytelling.

Here are five key statistics that Janus has found, how they’ve shaped nonprofit logic, and what the best organizations are doing to thrive regardless.

Only 20% of nonprofit funding in the United States is unrestricted

From a testing and innovation standpoint, that means most nonprofits gain grants that dictate they put money directly toward existing programs. That can limit overhead, which when kept arbitrarily low creates what non-profit consultancy Bridgespan calls a “starvation cycle.” Groups that can’t invest in basic management and support costs generally have trouble sustaining their impact. In traditional business parlance, it also leaves organizations “very little wiggle room to invest in [research and development],” says Janus in an email to Fast Company, which lowers the chances of dramatically improving their socially-good products or services.

There’s a sector-wide effort to change that botched financing structure, but in the meantime, groups need to figure out how to do more with less. One example that Janus discovered is Beyond12, an organization that has developed an online platform to provide low-income, first-generation, and underrepresented students coaching and emotional support through college. The group needed a user-friendly app, so it initially asked students what tools might be most helpful, while working with Ideo to ensure they were incorporating the right wants and needs in a way that felt intuitive.

“They continue to innovate by tapping back into those students to get feedback on the app and improve it over time, keeping it relevant as they grow,” Janus says. That saves time and money in the long run because nothing flops.

75% of nonprofits collect data, but few feel they are using it well

The best way to think about measuring impact is to ask yourself two questions: How will what you’re collecting prove your group is making a difference?  And then: How can it also show where you need to improve? Organizations that hunt for statistics like that naturally solve a third issue, Janus says, which is proving to donors that their money has been well invested.

That concept took a moment to catch on at One Degree, an organization with a Yelp-like site that allows low-income families find and review nearby social services. Early on, founder Rey Faustino tracked site visitors, but that began to feel like a “vanity metric,” Janus says. “He had no idea whether his product was having an outcome on their life trajectory,” she adds.

To fix the problem, the group rolled out a personalized “My Plan” section, which lets users build their own list of providers they frequently use and receive other resource recommendations based on those preferences.  “They refined the service they provide by improving the site itself,” Janus says, including the emphasis on reviewing how helpful each service ultimately is. That has allowed service providers to see more clearly why some offerings don’t get used or appreciated, and to learn more about how they too can improve.  

81% of nonprofit leaders say access to capital is their biggest challenge

In her research, Janus learned that most organizations don’t engage in fundraising experimentation because they’re worried about the perception that it might create. There’s a tendency adhere to a set formula–the portion of operations supported by grants, individual contributions, or mission-related revenues–without thinking about how impact can change if you get creative.

At Hot Bread Kitchen, a New York-based program that trains low-income women to be bakers while selling their breads to help fund that effort, the initial goal was to be entirely self-sustainable. That might have been possible if they wanted to run a very basic program. But running a very basic self-sustainable program is different than running one that’s successful and helps as many people as possible.

“Through testing [they] realized that not only were bread profit margins too thin to fully sustain their budget, [but] by accepting philanthropic capital in addition to the earned income, they are now able to make the program better, for example by providing childcare for the women,” Janus says.

50% of nonprofit employees feel either nearly or totally burned out

“This is even more elevated for founders and executive directors who tend to bear the weight of the organization on their shoulders,” says Janus. That’s why it’s important to lead collaboratively, a concept that sounds oxymoronic but is really about not being afraid to delegate and share responsibility—especially in stressful times.

For Kiva, a crowdsourced, microfinance lending platform, one stress came from achieving too much recognition too quickly.  In late 2007, former President Bill Clinton championed the group’s efforts on The Oprah Winfrey Show. The group, which was then around two years old, saw a surge in contributors, clearing over $11 million in total donations. A similar deluge of loan applications poured in, many of which required review, editing, and translation to be uniformly considered.

“Overnight, they had no choice but to enlist hundreds of volunteers to deploy the donations,” she says. Its a process that continues today: the minimum commitment is just two hours a week, creating what Janus calls “a structure that allows them to maximize the potential of the talent around them.”

53% of nonprofit leaders spend less than two hours preparing for a speech

That’s especially scary considering only 10% of people in the sector consider themselves to be well-trained storytellers, according to Janus’s research. At the same time, there’s a huge payoff for those who learn how to talk engagingly about their mission.

In 2014, Nadine Burke Harris, the founder and CEO of the Center For Youth Wellness, which works to diagnose and support children who’ve suffered from traumatic events including abuse or neglect, gave a TED talk. Her goal was to popularize problem–many exposed to such “toxic stress” end up developing future physical, mental, or behavioral issues–and an early screening process to identify it. (The test involves pediatricians tracking how often kids are exposed to what are clinically called Adverse Childhood Events.)

“She practiced [her talk] for 6 months to make sure that she nailed it because this was her opportunity to share her vision for toxic stress screenings with the world,” Janus says. That talk has since generated 3.7 million views on YouTube, shifted more doctors to use ACE screenings, and encouraged other aid groups to suggest their own early interventions. “The best organizations figure out that storytelling is critical to success,” she adds, “and prioritize practicing their stories so that they can build a movement to support their work.”