5 Reasons Many Nonprofits Fail to Reach Their Highest Potential

America’s 1.5 million nonprofit organizations play a crucial role in our society by addressing important community needs like healthcare, education, affordable housing, food insecurity and many other important social causes. Their work not only meets immediate needs, but also contributes to the overall well-being of society: The sector employs about 12.8 million people, representing about 10% of all private sector employment. Nonprofit organizations are also a significant economic force, contributing about $1.5 trillion to the nation’s economy.

As nonprofits are a type of business — run with a specific tax designation — looking at statistics on business failure rates can offer perspective on nonprofit failure rates. According to LendingTree, 21.5% of U.S. private sector businesses fail in their first year. At five years, that percentage jumps to 48.4%, and at 10 years, it reaches 65.1%.

Having worked with hundreds of nonprofit organizations over the past 20 years, I’ve seen the many nonprofits fall short of success. Here are five reasons most nonprofits fail or never reach their full potential.

1. Lack of Competent Leadership

As the sector has grown and dramatically changed over the past few decades, nonprofit executives need to have an entrepreneurial spirit and a high level of emotional intelligence. They also need to be visionary thinkers, relationship builders, collaborators, brand builders and inspirational motivators. They need to know that nonprofit is their tax status not their business plan.

2. Stale or Uninspiring Vision Statement

A vision statement should be an articulation of your organization’s destination — a future that in many important ways is better, more successful or more desirable than your present. It should inspire enthusiasm, encourage commitment, set standards of excellence, be ambitious but realistic and, most importantly, be measurable. You should be able to discuss on a quarterly basis at a minimum how your organization is progressing toward achieving your vision.

3. Unengaged or Improperly Trained Boards

Aside from providing fiduciary responsibility and strategic advisory services to your organization, your board and CEO must create a strong partnership. They must share a sense of ownership, ask the right questions, put forth new ideas and challenges and continually refresh and renew your organization. 

4. Indistinguishable Brand Identity

Whereas building an effective brand was once limited to profitable corporations like Microsoft, AT&T and other big-name companies, today’s nonprofit organizations must build a strong brand identity that identifies and distinguishes themselves from others. Nonprofits need to tout their achievements, successes and the positive impact they are having on those they serve, whether that be on a local, national or global level. When a nonprofit has a unique brand identity, it has better brand awareness, a proud and motivated workforce, active board members and engaged donors.

5. Inadequate Revenue Sources

Relying primarily or solely on state or federal grants, or on money raised through your fundraising gala, will not provide sufficient financial support for your organization. Instead, you should focus on a strategic initiative that centers a culture of philanthropy where your CEO, board members and development officer all work together as partners in seeking donors to invest in your success, not just give to your organizational needs.

These are the five most crucial strategic initiatives to address if you want your nonprofit to succeed, not just survive, though this list could have easily been expanded. By solving these five major causes for nonprofit failure, your odds of successfully beating the failure rate will be much higher.

The preceding content was provided by a contributor unaffiliated with NonProfit PRO. The views expressed within may not directly reflect the thoughts or opinions of the staff of NonProfit PRO.