There is a persistent myth in the nonprofit world that grants are the most logical and strategic starting point for launching a new organization. This belief is especially strong among first-time founders, who often see grants as “free money” and therefore the least risky way to turn a vision into reality. However, the practical and ethical implications of building an organization based on grant funding from day one reveal a much more complex picture of power, dependence, and sustainability. Scholars have long observed that fundraising in civil society is never neutral: it shapes strategy, governance, and even the mission itself (Froelich, 1999; Minkoff & Powell, 2006). When a nascent organization relies heavily on grants in its early stages, it risks relinquishing its strategic autonomy before it has even defined its organizational identity.

A central problem is the timing and predictability of grant revenue. Empirical research shows that new nonprofit organizations often face a delay of several years before securing their first significant grant, with the amounts generally being modest and highly restricted (Fischer, Wilsker, & Young, 2011; Lecy & Searing, 2015). In this context, the assumption that grants can reliably support initial operating costs is not only unrealistic but potentially harmful, as it encourages founders to draw up budgets and staffing plans based on revenues that may never materialize. The result is often a fragile organizational architecture dependent on speculative funds, contributing to early burnout, mission deviation, and, in many cases, the closure of the organization (Hwang & Powell, 2009). Instead of functioning as a stable foundation, startup grants can behave more like a mirage that drags new organizations into greater financial precariousness.

Grants also bring structural conditions that can distort the development trajectory of a young organization. Funders tend to favor established organizations with proven track records, robust governance, and demonstrable impact metrics, making early-stage initiatives relatively unattractive (Anheier, 2014; Ostrander, 2007). When emerging organizations do manage to obtain grants, these are often earmarked for specific projects rather than overall operations, encouraging the rapid creation of programs before the organization possesses the systems, culture, and capabilities necessary to manage them. This "project-focused" approach to impact can lead founders to pursue priorities defined by funders, designing initiatives based on what is fundable rather than what is most needed by the community. Over time, this dynamic entrenches a form of "subsidy dependency" in which survival becomes subordinated to external agendas rather than being based on the organization's own strategic assessment of social needs (Cooney, 2011; Eikenberry & Kluver, 2004).

The “grant-first” mentality also obscures the centrality of community engagement and revenue diversification for the resilience of nonprofit organizations. Studies on organizational survival consistently underscore the importance of diversified revenue models that balance grants with individual donations, own revenue, and local partnerships (Chikoto & Neely, 2014; Carroll & Stater, 2009). Individual donors, in particular, play a crucial role in early-stage organizations by providing flexible and relatively unrestricted resources, as well as forming the core of a civic base that legitimizes the organization’s work. This type of rootedness in a stakeholder community is not merely a financial asset; it is a democratic safeguard that anchors the organization’s accountability downward to its beneficiaries and supporters, rather than upward to institutional funders. An emerging organization that bypasses this relational work in favor of a grant-centric strategy risks becoming technically sophisticated but socially unrooted.

For civil society and the broader nonprofit ecosystem, the implications are profound. If founders are socialized to believe that grants are the primary avenue to viability, we may inadvertently reproduce a sector in which organizational survival depends more on access to philanthropic guardians than on the ability to respond to community-defined priorities. This is particularly concerning for women-led organizations, racialized communities, or actors from the Global South, who already face structural barriers in philanthropic marketplaces (Banks, Hulme, & Edwards, 2015; Bhattacharyya, 2018). Rethinking the role of grants in the startup phase is therefore not merely a matter of fundraising tactics, but of equity and empowerment within civil society. Leaders of new nonprofit organizations should be encouraged—and supported—to view grants as one tool among many, to invest early in diversified revenue streams, and to ground their work in authentic and responsible relationships with the communities they seek to serve. In doing so, they lay the foundation not only for financial sustainability but for a more just and democratically grounded organizational landscape.

References:

Anheier, HK (2014). Nonprofit organizations: Theory, management, policy (2nd ed.). Routledge.

Banks, N., Hulme, D., & Edwards, M. (2015). NGOs, states, and donors revisited: Still too close for comfort? World Development, 66, 707–718.

Bhattacharyya, J. (2018). Racial equity and philanthropic practice: Reimagining the funding of civil society. Volunteers, 29(5), 1019–1032.

Carroll, D.A., & Stater, K.J. (2009). Revenue diversification in non-profit organizations: Does it lead to financial stability? Journal of Public Administration Research and Theory, 19(4), 947–966.

Chikoto, G., & Neely, D. G. (2014). Building non-profit financial capacity: The impact of revenue concentration and overhead costs. Nonprofit and Voluntary Sector Quarterly, 43(3), 570–588.

Cooney, K. (2011). An exploratory study of social purpose business models in the United States. Nonprofit and Voluntary Sector Quarterly, 40(1), 185–196.

Eikenberry, A. M., & Kluver, J. D. (2004). The marketization of the non-profit sector: Civil society at risk? Public Administration Review, 64(2), 132–140.

Fischer, R. L., Wilsker, A., & Young, D. R. (2011). Exploring the revenue mix of non-profit organizations: Does it relate to publicity? Nonprofit and Voluntary Sector Quarterly, 40(4), 662–681.

Froelich, K. A. (1999). Diversification of revenue strategies: Evolving resource dependence in non-profit organizations. Nonprofit and Voluntary Sector Quarterly, 28(3), 246–268.

Hwang, H., & Powell, W. W. (2009). The rationalization of charity: The influences of professionalism in the non-profit sector. Administrative Science Quarterly, 54(2), 268–298.

Lecy, J.D., & Searing, E.A.M. (2015). Anatomy of the non-profit starvation cycle: An analysis of falling overhead ratios in the non-profit sector. Nonprofit and Voluntary Sector Quarterly, 44(3), 539–563.

Minkoff, D. C., & Powell, W. W. (2006). Nonprofit mission: Constancy, responsiveness, or deflection? In WW Powell & R. Steinberg (Eds.), The nonprofit sector: A research handbook (2nd ed., pp. 591–611). YaleUniversity Press.