by Dr. Kevin Dean, President & CEO, Tennessee Nonprofit Network
At Tennessee Nonprofit Network, we get lots of calls from well-meaning people who want to start a nonprofit. Sometimes they have a great idea. Other times, they have been recently laid off and decided that launching a 501(c)(3) is the natural pivot, much like people in the mid-2000s decided they were suddenly artisanal cupcake bakers. Others feel called by a higher power to start a nonprofit, though I often wonder if the higher power mentioned that the IRS requires a three-year financial look-back.
We used to spend a lot of our time helping people start nonprofits, but most of those well-intentioned visionaries are now working at FedEx, working for another nonprofit, or have disappeared from the radar entirely, presumably living off the grid where Form 990s cannot find them. A great majority of the organizations we helped incorporate are now forgotten to history, their only legacy being a dusty binder in a garage and a dormant bank account with $14.12 in it. This is why we stopped helping people get their 501(c)3s and articles of incorporation in 2022.
The reality is that good intentions don’t lead to lasting, sustainable nonprofits. Hard work, professional development, careful planning, intentional capacity building, and focused strategy do. Lived experience also matters… a lot. People with limited nonprofit experience starting a nonprofit is rarely a recipe for success. “But I was a board member once” is not a qualifying statement; that is like saying you are qualified to perform open-heart surgery because you once watched an episode of Grey’s Anatomy and have a favorite stethoscope.
Here are the “OMG” truths that most people miss before they dive into the paperwork.
The D&O Insurance Trap: Putting Your Cousin’s House on the Line
People rarely ask about Directors and Officers Insurance when they are busy picking out a logo. D&O insurance is an important and costly part of being a nonprofit. Did you know that if your organization becomes insolvent, your board members could be held liable for all unpaid debts? If one of your volunteers trips over their own shoelaces, gets hurt, and sues the organization, your board members may have to cover the costs and can be sued directly. (PS. You also need to insure your volunteers!)
When you ask your best friend or your favorite aunt to be on your board, you aren’t just asking for their “expertise.” You are asking them to potentially put their personal assets on the line for your vision. If you don’t have D&O insurance, you aren’t running a charity; you are running a high-stakes gambling ring where the prize is a lawsuit. Many startup board members don’t even know to ask about this until the first process server knocks on their door.
The Landscape Analysis: You Aren’t the Only One with an Idea
A landscape analysis is essential, yet most people skip it because they are convinced their idea is a unique snowflake. Many people try to start nonprofits without realizing someone is doing the exact same thing three doors down the street. This creates an unhealthy competition for the same five donors and makes it nearly impossible to fundraise.
It also causes brand confusion. If there are five different organizations in Memphis all called “Hope for Paws,” “Paws of Hope,” “The Hopeful Paw,” “Paws and Hope,” and “Hopeful Paws of Memphis,” the only thing people are going to give you is a look of utter exhaustion. An established organization already fundraising has a leg up on you. They have the data, the donor relationships, and they probably have a functional copier. No, just because you don’t like their Executive Director or you think their gala is tacky is not a valid reason to start your own.
The Myth of the Instant Grant: Foundations Aren’t ATMs
Most funders don’t fund startups. Read that again. Most foundations and corporations have zero interest in being your seed money. It is a painful truth that often, funders won’t even look at an organization until it has been in existence for three or more years.
If you think foundations will be throwing money at you right out of the gate without having data showing your impact, you’ll never succeed. Foundations are risk-averse. They want to see that you can survive without them before they give you money to help you survive. Starting a nonprofit with the plan of “getting grants” to pay your rent is a financial strategy equivalent to “buying a lottery ticket” to pay your mortgage. And if you didn’t notice in 2025, federal grants are drying up and foundations and corporations are pulling back. This is a new normal that even long-standing nonprofits are facing.
The Capacity Building Slog: The Boring Stuff is the Important Stuff
You have to build your capacity. Many people want to start serving communities right out of the gate because the “direct service” part is what makes for a good Instagram post. This is a mistake. You should spend at least the first three years spending an enormous amount of time building your systems, policies, procedures, and working towards having sustainable practices.
Everyone wants to do the fun, helpful stuff, but they skip the less fun capacity building where your organization actually develops an infrastructure. If you are out there “changing the world” but you don’t have a conflict of interest policy, a whistleblower policy, or a functional accounting system, you aren’t a nonprofit leader. You are a person with a hobby and a very high risk of an IRS audit.
There are Other Avenues (That Won’t Give You an Ulcer)
Consider creating a B-corporation. A B-corp is a for-profit corporation that is certified to meet high standards of social and environmental performance. You get to do good and—wait for it—actually make a profit without the restrictive oversight of nonprofit law.
Also, consider a fiscal agent. Fiscal sponsorship allows you to run your program under the umbrella of an existing 501(c)(3). They handle the boring back-office stuff, the tax receipts, and the audits, while you do the actual work. Or, here is a wild thought: could your idea just be a program of an existing organization? Why build a whole new ship when you could just add a very cool cabin to a cruise liner that is already sailing?
The Paycheck Mirage: The Legend of the Unpaid Founder
You will not get a paycheck immediately… if ever. If you are starting a nonprofit because you want a “CEO” title and a salary in the first few years, I have bad news. A majority of people who start nonprofits not only aren’t able to take a salary, but they end up spending their own money to keep the lights on.
True story: I know a guy who started a nonprofit and ended up putting all of the expenses on his personal credit card for years. He was never repaid, the interest rates were predatory, and while the organization still exists, his credit score is currently lower than his age. If your plan is to “draw a salary once the first grant comes in,” you should probably update your resume for a corporate job instead.
Ultimately, you need to know these truths before you file that paperwork. Starting a nonprofit is like deciding to raise a child that never grows up, constantly needs money, and requires you to report every single thing it does to the federal government. These truths are just the beginning.
ADDENDUM: UNDERSTANDING A LANDSCAPE ANALYSIS
To determine if your nonprofit idea is a groundbreaking innovation or just a well-intentioned duplicate of the charity two blocks over, you need to conduct a landscape analysis. This is the part where you play detective to see who else is already “saving the world” in your specific niche.
Here is a questionnaire to help you figure out if you should move forward or if you should just go work for the person who beat you to the punch.
Questions to Ask
- Who is already doing this? List at least five organizations within a fifty-mile radius that have a similar mission statement. If you can’t find five, you aren’t looking hard enough at Google.
- What is their “Secret Sauce”? What do they do exceptionally well? Do they have a massive donor base, a fleet of vans, or a thirty-year head start on reputation?
- Where is the actual gap? Is there a specific neighborhood they don’t reach? A specific demographic they ignore? “I think I can do it better” is a vibe, not a gap.
- Can you describe your “Unique Value Proposition” without using the words “passion,” “heart,” or “calling”? If you can’t explain your technical advantage in one sentence, you might just be creating brand confusion.
The Resource Reality Check
Before you file those articles of incorporation, take a look at the competitive ecosystem you are entering.
| Factor | Established Org | Your Startup |
| Funding | Multi-year grants and recurring donors | Your personal savings and a GoFundMe |
| Infrastructure | Office, software, and HR policies | A laptop and a dream |
| Trust | Proven impact data and audited financials | “Trust me, I have a great idea” |
| Staffing | Professional team with benefits | You, your spouse, and a confused volunteer |
Next Steps for Your Research
Once you have answered these questions, your next move should be The Coffee Test.
Reach out to the Executive Director of the organization most similar to your idea. Buy them a coffee. Tell them your idea. If they sigh deeply and point to a stack of paperwork, listen to them. If they say, “We’ve been trying to do that for years but can’t get the funding,” take that as a sign.
The goal isn’t to discourage you; it’s to make sure you aren’t building a ship that is destined to sink because the harbor is already full.