Why Nonprofits Fail — Even When They’re Well-Funded

donor retention financial stability nonprofit fundraising nonprofit strategy

Every year, thousands of new nonprofits open their doors. Many struggle right from the start; some succeed — until something unexpected like the COVID pandemic threatens to close their doors.

By conservative estimates, 30% of new nonprofits fail in just 10 years, and some experts put that number much higher. It’s not enough to have a worthy cause or a passionate team. Even money doesn’t guarantee your nonprofit will succeed. Here are seven reasons why nonprofits fail:


1. Mission Creep

Imagine trying to take a long journey without a map. You’d make very little progress and probably end up wandering all over the place. In the context of a nonprofit, that’s called mission creep. Mission creep is when a nonprofit gradually and unintentionally strays from its mission. It can happen because an organization chases funding, changes leadership, gets influenced by a prestigious or powerful supporter like a celebrity, or genuinely wants to serve an unmet need in the community.

Even if the intent is good, moving away from one’s mission puts an organization on a path where they lack experience, at best. At worst, it’s a violation of donor intent. Nonprofits owe it to their donors, big and small, to take great care in how they spend their money. When donors stop trusting you, they stop giving.

To avoid mission creep, you need a clear strategic plan. This will help guard against even gradual shifts away from your mission. A strategic plan provides context for evaluating new program ideas or opportunities. “Does this fit with our strategic plan? No? Then let’s not do it.”

A strategic plan can also help your nonprofit find shortcuts. For example, the COVID-19 pandemic showed us just how resourceful some nonprofits can be. The shutdowns provided unforeseen opportunities to use the internet and virtual technologies to create impact in innovative ways. In our experience, those organizations that responded most effectively were the ones that were already strong in strategic planning. They were able to evaluate opportunities quickly: “Does this get us to our destination more quickly or in a different way? Yes? Then let’s do it.”


2. Measuring Spending Instead of Measuring Impact

In the nonprofit sector, the most common metric used to evaluate a nonprofit’s success is the overhead ratio. The overhead ratio measures the ratio of spending on overhead (i.e. what it takes to keep the lights on) versus spending on programs. While a metric like this makes things simple for sites like Charity Navigator to rank nonprofits, it doesn’t provide an accurate measure of what really matters — impact.

As demonstrated by the Nonprofit Overhead Cost Project all the way back in 2004, a low overhead ratio doesn’t necessarily translate to high impact. Studies  show that organizations that invest in infrastructure are more likely to succeed than those that don’t. In fact, the most ironic consequence of focusing on spending instead of impact is that you can burn through money investing in programs that underperform or even fail. Enough of those and your nonprofit will fail, too.

Measuring impact — also known as measuring outcomes — has been notoriously difficult for many nonprofits. For example, how do you tell how much impact you’ve had on ending homelessness in your community when there are three other nonprofits serving that same population?

Tracking outcomes is a complex process that involves measuring program delivery, improving internal communication between departments, setting up systems and models for data analysis, surveying beneficiaries of your programs, and much more. But a leadership team that’s committed to this effort will reap benefits of knowing that the organization’s impact is real and measurable.


3. Focusing on Names Not Roles When Filling Your Board

For a nonprofit to succeed, it needs to build a strong board. And a board is strong when it’s comprised of the right people. Too many nonprofits focus on attracting high profile board members instead of looking for people with the experience and expertise that will contribute to the organization’s success. Don’t assume that just because someone is the CEO of a successful corporation that they have the particular skills that you require.

Ask yourself what roles you need to fill in order to deliver on your mission. You have a CFO who can advise on fiscal matters, but do you have someone who’s skilled at getting media attention? You have several members with large networks of deep-pocket donors, but do you have someone with political relationships or legislative experience?

When you’re missing board members in important roles, your nonprofit will have blind spots that could lessen the impact of your programs, limit your reach, and risk the long-term sustainability of your organization.


4. Emphasizing Fundraising Instead of Relationship Building

Fundraising is vital to the long-term success of a nonprofit. But if it’s not balanced with an equal effort to build relationships with donors and supporters, you’ll waste a lot of money chasing new donors instead of keeping the ones you have.

It costs far less to keep a donor than to get a new donor. And the key to donor retention is creating a relationship with your donors — sharing the outcomes and impact of their gifts, providing them with advocacy opportunities they can’t get anywhere else, and even awarding perks like insider access or special acknowledgement.

Relationship building is also the key to enrolling major donors. Major donor relationships must be cultivated. Donors like to think of themselves as partners, and this is especially true for major donors. Invest in the long game and build partnerships that will be more sustainable and yield much bigger results over time.

That said, nonprofits can also make the mistake of...


5. Relying Too Much on Major Donors

Some nonprofits, especially young nonprofits, are funded almost exclusively by a small number of major donors. If just one of those donors suffers a financial setback, finds another cause that interests them more, or even dies, it could create significant fiscal instability for the organization.

By enrolling a steady stream of smaller donors and building strong relationships with them, you not only offset the risk of losing a major donor but feed your donor pipeline. Over time, those smaller donors can grow into mid-level donors or even new major donors.

And it’s not just about raising money. Building an army of supporters helps with nonprofit advocacy, like when you need legislation to pass or not pass in order to help your work.


6. Founder-Centric Leadership

Sometimes a nonprofit is started by an individual driven by a personal experience — the loss of a loved one to a disease or social problem, for example. While this kind of personal passion can indeed inspire a whole movement, it becomes a liability for the nonprofit when that individual tries to fill too many roles or doesn't recognize when it's time to step aside. Often, roles like CEO, chairman of the board, and director of development require a dispassionate perspective. They also require skill sets the founder may not have.

A passionate founder most definitely plays an important role in the success of a nonprofit. But there is a natural lifecycle to a founder's involvement. As the organization grows, important roles once played by the founder may require a less emotional, more data-driven perspective. Make sure each role in your organization is filled by the person who can do it best.


7. Not Collaborating with Other Organizations

If a nonprofit is new or small, leadership might feel they’re too busy with the day-to-day running of the organization to explore nonprofit collaboration opportunities. Or if the organization is larger and set in its ways, leadership might be resistant to new ideas or involving new partners.

A nonprofit that doesn’t collaborate and tries to do everything in house is missing out on one of the best strategies for advancing its mission. Let’s consider two types of collaboration: partnering and outsourcing.

First, by partnering with other nonprofits (or even for-profit businesses) that serve the same populations you do, you can expand your reach and increase your impact. What might be mission creep if you tried to do it yourself becomes savvy strategic outreach when you find a partner to do it instead. You stay in your lane, they stay in their lane, and everyone benefits — your organization, your partner(s), and your beneficiaries.

Second, by outsourcing parts of your business to experts that specialize in tasks like bookkeeping, HR, IT support, and even fundraising, you can save time and money while also seeing better results. It allows your nonprofit to devote more creativity and energy to your mission and programs. Perhaps most important, it gives you the flexibility to task employees with your highest-ROI activities.


Final Words

As you review this list of common mistakes nonprofits make, remember that the most successful nonprofits were not created overnight. They developed over time by focusing on best practices and staying committed to the people they serve.


On average, new IPM clients see a 34.8% increase in direct mail fundraising acquisition response rates within the first year of working with us. Want to learn more?

Contact IPM