Circling the Drain: The Issue of Failing Nonprofits

Several years ago, I left a hospital position in another state to come back “home” to Indiana. I decided, at the encouragement of a colleague, to create my own consulting firm, which I still have today. My first assignment with this firm was to take on a six-month assignment as an interim executive director of a dying nonprofit.

I had never been exposed so directly to the day-to-day workings of a dying nonprofit, so I examined what brought this nonprofit to the state of closing and sought ways to revive it. The question on my mind was, “Should this nonprofit remain open or close?” This question especially weighed heavily on my mind, as I talked to my one employee left in the organization. At its peak, there were at least 10 employees. That assignment was as challenging as any assignment I had ever faced in my four decades in this business.

This article talks about four strategies are given for those organizations in crisis, which are to stop staring at the dashboard and make sure program indicators are correct; be honest about impact not value and have strong measured program outcome metrics; consider partnerships or a merge scenario; and stop innovating and focus on keep pace.

If you are working for an organization that is circling the drain and heading for failure or even closure, consider reviewing lessons from other organizations that closed. According to this article published by The Chicago Community Trust and Affiliates, five things arts organizations learned by closing are boards need to provide financial oversight—in good times and bad; keep boards in organizational vision; hiding financial challenges from funders blocks out opportunity; candid conversation comes first; and no “sacred cows” are allowed. When an organization is experiencing crisis, board and staff members must be willing to openly discuss and consider all possibilities for survival, without walling off options solely for tradition’s sake.

In this article, “Qualities and Characteristics Common to Effective Nonprofits,” the author notes five qualities and characteristics that are common to effective nonprofits. These qualities are clear mission and purpose; ability to perform key functions; strong practices, procedures and policies in the areas of finance, governance and organizational development; good people; and the ability to mobilize others. In an article titled “12 Keys to Successful Nonprofit Turnarounds,” the author provides thoughts to this question, which are:

1. Someone must lead.
2. The leader must have a plan and a team.
3. Leadership must engage with the plan.
4. You must focus on today and tomorrow, not yesterday.
5. You cannot save your way to organizational health.
6. Tough decisions must be made quickly, with respect and thoughtfulness.
7. Marketing at this stage is about relationships and communication.
8. There must be a lead spokesman who must keep the message positive.
9. Fund raising must be focused and realistic and targeted.
10. The board must allow itself to be restructured.
11. Organization restructuring must be an option.
12. The organization must have the discipline to follow each of these rules.

As consultant, I had to deal with the idea of recommending the closure of a nonprofit, but I decided to try to save it. That said, I had to deal with the issues of an operating budget that declined to almost zero, no strategic plan, a board that declined in numbers, alienation of the organization’s original founder, decline in number of employees from 10 to one, lack of support for the mission of the organization, loss of respect from major funders as reports were not filed on how monies were spent, etc.

At the end of the day, I left the organization on its death bed when my six-month stint was up. I gave it the old college try, but it was too late. Several board members wanted to give the organization one last attempt to succeed. Sadly, it closed several months later for many reasons, including being a victim of poor management through the years, poor operational decisions made, and lack of focus on the mission.

Many weak organizations find themselves in this situation today. I strongly suggest merging with others and seeking two options which include a plan for immediate improvement or closure. Some nonprofits are not meant to survive.