Beyond the Halo: A Warning for Tech Founders Thinking of Starting a Nonprofit

by | Nov 22, 2023 | CEO/Executive Directors, Organizational Leadership, Staff Relations | 0 comments

Beyond the Halo: Navigating the Real Challenges of Tech Founders Leading a Nonprofit in the Wake of OpenAI’s Upheaveal

At the time of this writing, four and a half days have passed since the OpenAi board’s surprise firing of Sam Altman. As the following days have shown so much turmoil, I’m not confident the drama is over yet.

Given that, here are some thoughts for tech startup founders thinking their new project is perfect for a nonprofit.

The hazards of setting up as a nonprofit versus a business

Starting a cause as a nonprofit seems so wonderful. You aren’t held captive to venture capitalists and their incessant demands. And you have the feeling of the world understanding the good that you are bringing to it.

But as the world has discovered thanks to Sam Altman and OpenAi, incorporating as a nonprofit can be incredibly hazardous.

If you think your business would thrive as a nonprofit, please consider these warnings.

The top 6 things you give up incorporating as a nonprofit

Here are the top six things you give up as a tech business founder if you incorporate as a business.

  1. You give up being the boss.

    In a business, as a boss you get to make up all the rules. You get to cast vision, set strategy, and decide how you measure success. But not as a nonprofit. In a nonprofit, you are no longer the boss. “Found has no legal standing.

    Founder has no legal standing.

    You give up all authority. But you still are held accountable to all the outcomes. The authority for vision and mission are now with a group of volunteers who know less about the actual work you’re doing than you do.

  2. You give up a large chunk of time each week to stewarding the board

    You know all your visions of working full time in what you love? Dash those dreams. As a nonprofit founder, you need to communicate regularly with the board. These are a group of volunteers who have full lives and don’t understand the complexity of your day-to-day work. The board takes feeding and nurturing. To be your cheerleaders and ambassadors, they need to know what you’re doing. And to trust you’re doing it well. The benefit is they will lead you to new funders and partnerships. The risk is that, in a lack of communication, they will believe the worst about your and your intentions.

  3. You give up some of your best friends

    Given the enormous complexity of communicating to the board in ways that each board member understands, you fundamentally change the nature of the relationship of some of your best friends. They are now the boss. And since the board’s job involves the hiring and firing of the CEO, you’ll start feeling like every conversation is a performance review.

  4. You could cost your staff their jobs.

    Given that you likely are starting something because you don’t like bureaucracy or, truth be told, oversight, you will tend to not communicate with your board. And you’ll likely wish they’d get off your back. That they’d just let you do your job. But your lack of tending to the board puts the welfare of your staff at risk. The board doesn’t hire or fire the staff, only the CEO. But as we saw with OpenAI, the board’s decisions but all the stock options of the staff at jeopardy and caused most to want to leave. But no matter how much the staff loves you, if you don’t do your work with the board, the stuff is seriously in harms way.

    As a nonprofit founder, your work is now no longer the cool thing you organized to do. Your work is now also learning to communicate with the board. (And the rest of your work if fundraising.)

  5. You give up the ability to take risks.

    As a tech founder, you know that risk are necessary. That failing fast is the way to success. But in the United States, nonprofits aren’t afforded that luxury. Because a nonprofit exists for the greater good, the culture currently says “greater good” means “playing it safe.” You can mitigate this some by recruiting board members who are life givers. It’s good to have people who don’t agree with you. We all need checks and balances. But be sure those people are people who build you up as they disagree, not people who tear you down.

  6. You give up permission to be rich.

    If you incorporate as a nonprofit, you’ll pick up that halo from the cultural narrative that nonprofit people are doing good for humanity. Of not being in it for the material gain. But be warned. If you would like to make money, even to be rich, you are giving up that option. As you start making money, you’ll quickly find that the other cultural narrative is do gooders should live in poverty and without any material comforts. So while you see your tech peers jetting around in private jets, you’ll find your decision to get a business class ticket questioned. Prepare to feel nickel-and-dimed.

Setting up a nonprofit is risky

Setting your organization up as a nonprofit is risky. Seriously consider if a nonprofit is the way you want to go. You lose autonomy. You lose authority to a well-meaning group of volunteers who have no way of being as expert in what your organization is doing than you do. You commit to a large amount of time caring for the board instead of doing the thing you started out to do. And for most nonprofit founders, you will need to spend the rest of your time raising money to fund the work you no longer have time to do. People don’t just throw money at you because you’re a nonprofit. There is no magical pot of money in the sky.

Being the head of a nonprofit is a stressful dance between (hopefully) well-meaning volunteers who are your boss and control the mission you set out to accomplish.

If you’re fine with that, then pursue becoming a nonprofit. Many, many of the most amazing leaders in the world are in the nonprofit sector. But be sure to count the cost, both to you and to the board and the staff who will help you.


Marc A. Pitman is an executive coach and advisor to tech founders and nonprofit CEOs. He blogs at ConcordLeadershipGroup.com and FundraisingCoach.com

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