When we started this blog almost a year ago, it was born from a simple but pressing observation: so many aspects of nonprofit work are challenging and, frankly, not set up for success. As board members, staff, funders, and community stakeholders, we need to ask hard questions about the systems we’ve built and the expectations we’ve normalized.
But before we can rethink nonprofits, we have to define what success even means in this sector. In my view, success isn’t measured by the size of the budget, the number of staff, or even the longevity of the organization itself. Success is the achievement of a mission that has some meaningful social purpose for a defined group of constituents. It’s about the impact—lives changed, communities strengthened, opportunities created—not the machinery of the organization. That said, building a sustainable business that can continue to deliver the desired impact in a manner that is responsive to and resilient against the ever changing environment in which we inevitably operate, is paramount.
A Name That Limits Understanding
Let’s start with the word nonprofit. It’s an IRS tax designation, not an identity. By defining ourselves as what we are not—not profit-making—we frame these organizations through the lens of tax law rather than their true essence. What they really are, and what we should be saying out loud, are social impact enterprises.
These are organizations whose purpose is to advance education, provide shelter, protect the environment, strengthen communities, or any number of other urgent missions. They have the unique ability to accept charitable donations, yes, but that’s a byproduct of their purpose, not the definition of it. Board members have a role to play in shifting this mindset—inside their own organizations and in the way they speak about the sector to others.
The Hidden Costs of “Privilege”
In exchange for being exempt from taxes on profits, nonprofits take on a host of compliance obligations that their for-profit peers never face. Consider just a few:
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- Annual audits and financial reporting. These are essential for accountability but costly and time-consuming.
- Grant compliance. Every dollar that comes in from a government agency or foundation typically comes with strings attached—some reasonable, others excessive—that require detailed tracking and reporting.
- Restricted funds. Donors often give with conditions. Those restrictions may make sense from the donor’s perspective, but they can hamstring the organization’s ability to adapt and innovate.
- Fundraising. Unlike for-profit firms that generate revenue through market demand, nonprofits must devote significant time and resources to raising funds before they can even deliver on their mission.
Each of these obligations carries additional costs, and yet funders often balk at covering them. Too many donors want their contributions to go “directly to programs,” overlooking the fact that programs don’t run without finance teams, compliance staff, development operations, and the infrastructure that makes mission delivery possible.
Other Burdens to Consider
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- Governance Structure. Nonprofits are overseen by boards of volunteer directors, many of whom bring passion and goodwill but little understanding of the complexities of running such an organization. Yet the board is charged with establishing mission, hiring and evaluating the executive director, staff and board succession planning, approving budgets, managing risk, ensuring compliance, providing access to resources, and keeping the board itself active and engaged. That’s a tall order.
- Competing for Talent. Like any other business, nonprofits are only as strong as their people. Yet there’s a persistent expectation that those doing mission-driven work should earn less—even as they bring passion, expertise, and commitment. The result? High turnover, frustration, and in some cases, ethical lapses or outright fraud.
- Fragmentation. Because anyone can start a nonprofit, the sector is full of small organizations doing similar work. Each has its own nuance and loyal following, but collectively this leads to inefficiency, competition for limited funding, a stretched talent pool, and often a failure to achieve the scale required for true social impact.
A Call to Board Members
As board members, you are stewards not just of an individual organization but of a larger social contract. The expectations we set, the way we talk about our organizations, and the decisions we make about funding priorities either reinforce or challenge the flawed systems that nonprofits operate within.
Rethinking nonprofits starts with embracing three truths:
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- The mission is the measure of success. Everything else is secondary.
- The name is misleading. These are social impact enterprises and must be run with the same rigor, creativity, and discipline as any enterprise. “Nonprofit” is just their tax status.
- The burdens are real. Compliance, governance, fundraising, talent, and structural fragmentation all weigh heavily on organizations—and pretending otherwise undermines the very impact we aim to achieve. So the business solutions implemented to address these burdens need to be sustainable so that the focus can remain on the mission.
It’s time to reset expectations. To champion overhead as mission-critical. To run these organizations as the social impact enterprises they truly are. And to remind ourselves, and others, that success means making a difference in the lives of the people and communities we serve.
In subsequent posts, we’ll dig deeper into some of these challenges—governance, talent, and fragmentation—and explore what board members can do to drive meaningful change.