Factors contributing to the early failure of small new charity start-ups

Abstract

Purpose – The purpose of this paper is to establish the main causes of early failure of small recently established fundraising charities. Design/methodology/approach – Heads and ex-heads of small recently established British charities that had either shut down within two years of registration with the Charity Commission or had survived for two years following registration were surveyed to determine the sorts of issue they believed were particularly problematic at the time their charities were formed or shortly thereafter. The research combined ideas from human capital theory, organisational ecology, and the survivor principle to investigate the mortality of new charity start-ups. Information was obtained from the ex-heads of 182 charities that had been removed from the Charity Commission’s register and from 356 heads of charities that were still in operation. Findings – Participants in both groups reported that they had experienced major difficulties relating to funding, the development of plans, lack of marketing and management skills, and personal workload. Differences between the groups emerged with respect to their perceptions of problems involving competition from other charities (both for donations and for clients), internal conflict within their organisations, networking, and the need for background research. Start-ups run by people with prior experience of working in charities had a significantly better chance of survival than start-ups managed by individuals lacking such experience. Research limitations/implications – The data used in the investigation were self-reported and less than a majority of the sampling frame participated in the study. Practical implications – Prospective founders of small new charities need to recognise competitive realities and the competencies required for success before commencing operations. Government and nonprofit support organisations should arrange short work experience placements and shadowing activities for individuals contemplating starting a new charity. Originality/value – This was the first research ever to examine reasons for small enterprise collapse within the nonprofit domain.