Sizing Up Your Nonprofit Competition

Some nonprofit executives fear that the nonprofit pie is a zero-sum game. They fear that there is a limited number of charitable dollars available and that they are in nonprofit competition with other organizations for their share of the pie. We tend not to ascribe to this philosophy; our view is that the dollars in the nonprofit universe isn’t fixed and is far from being tapped out. The competition often isn’t another nonprofit. It is that people sometimes do nothing. The key is to engage with donors and constituents in a meaningful way.

Still, one can’t blame nonprofit leaders for feeling like they are in a perpetual horserace, if for no other reason than the sheer number of nonprofits that vie to a greater or lesser extent for charitable contributions.

According to the National Center for Charitable Statistics, more than 1.5 million nonprofit organizations are registered in the U.S. This number includes public charities, private foundations and other types of nonprofit organizations, including chambers of commerce, fraternal organizations and civic leagues. By any measure, that’s a crowd.

What Differs One Nonprofit From Another?

How do donors size up the field? Everyone likes a winner, and it’s only human nature to want to give dollars to organizations that are going to grow and increase in influence and the ability to deliver on their mission. Charity: Water is one example. It’s founder, Scott Harrison, has built a brand in the nonprofit space that rivals that of Apple among for-profits.

In its first six years, Charity: Water raised $74 million from 400,000 people. The organization gave donors a mechanism to become emotionally connected to the outcome of their donation. Donations were tracked to specific projects and donors were updated via the organization’s website on the progress of well projects.

Of course, for every Charity: Water, there are thousands of nonprofits that never make it very far from the founder’s kitchen table. In order to improve the position of our own organizations, it would be great to know what makes our peers (notice we didn’t say “competitors”?) successful. What do we know about why some nonprofits thrive, while others fail?

The research on this important question is sparse. But we can get some clues from recent studies conducted by Dr. Fredrik Andersson at Indiana University-Purdue University Indianapolis. His area of expertise is understanding how nonprofits emerge, operate and build capacity.

Survivorship Bias

One of the problems that Andersson identifies in understanding why some nonprofits succeed while others fail is what psychologists call survivorship bias. Survivorship bias refers to our tendency to focus on the winners and try to learn from them, while completely forgetting about the losers who are employing the same strategy.

One example: You see that Richard Branson, Bill Gates and Mark Zuckerberg all dropped out of school and became billionaires. So you conclude that you don’t need school to in order to be successful; entrepreneurs just need to stop wasting time in class and get started.

But of course, it’s possible that Bill Gates succeeded in spite of dropping out and not because of it. And for every Bill Gates there are thousands of other college dropouts who failed. Survivorship bias doesn’t merely mean that a strategy may not work well for you, it also means that we don’t really know if the strategy works well at all.

The bottom line is when the winners are remembered, and the losers are forgotten it becomes very difficult to say if a particular strategy leads to success. Trying to evaluate nonprofits’ success falls prey to the survivorship bias. We often study—and try to emulate—only the Charity: Waters of the world, while we ignore others who failed and why they did.

Nonprofits Need to Think Long-Term

The other tendency that skews our evaluation of nonprofits is the tendency to look at the organization as a snapshot in time, rather than over the long-term. Researchers often fall prey to this approach, for example, relying on surveys of donors who support organizations at a given point in time.

A recent study by Andersson published in the journal, Nonprofit Management & Leadership, explains how creating and nurturing a successful nonprofit is a process. Organizations evolve over time, and taking a snapshot of their success at a given moment (think: ALS Association Ice Bucket Challenge) will result in a very skewed understanding of the reasons for their achievements.

The critical phase to study is rather what happens during the “nascent stage” of a nonprofit. What happens early often shapes the organization, and the effects are long-lasting. Unfortunately, it turns out that this information is often difficult to get to. Founders of nonprofits, like all of us, are often victims of memory distortion, another trick our minds play. Our memories of the past are shaped by what has happened in the meantime, so the stories they tell about the early stages of their organizations may not be particularly accurate.

All this makes it difficult for nonprofit executives to learn from the successes—or failures—of others. The best bet is to get a picture of what’s happened to an organization over the long-term and to try to get the best possible understanding of how the foundation that was laid led to later success or lack thereof.

And it’s very important to understand why organizations fail. Alan Wurtzel, the former CEO of Circuit City, was profiled in Jim Collins’ well-known 2011 book, “Good to Great.” The book talked about the factors that resulted in some companies to go from “good to great.” A more useful book was one that Wurtzel himself wrote about Circuit City in 2016. The title of that book was “Good to Great to Gone.”