For almost every association in existence today, there was a beginning moment when a group of people banded together for a common purpose and declared, "We need our own association."
An urgency or common need prompts people to work together to pursue goals and interests. For your group, it might be an industry crisis, a need to certify members of a new profession, a rise in neighborhood crime, recruiting volunteers to fight illiteracy, or the desire to split away from a parent organization. As new industries, professions, and causes emerge, new associations to represent them are established. Americans are forming more than 1,000 new associations and clubs each year, according to ASAE, which is regarded as the preeminent "association of associations." Whatever the impetus, the decisions made by the founders during the start-up period of the new organization will have a profound impact on its success, effectiveness, and longevity.
But what is an association? Quite simply, associations are groups of people who find strength in numbers while sharing common interests in industries, professions, charities, hobbies, or philanthropic action. Associations are founded upon the principles of democracy, volunteerism, and common interest that are the heart of the American experience. By definition, associations exist for the mutual enrichment and advancement of their members. They call themselves a host of names--associations, organizations, federations, alliances, institutes, guilds, societies, foundations, clubs, congresses, coalitions, centers, networks, unions, chambers, bureaus, fraternities, or sororities. Although they come in many shapes and sizes, they are all associations, sharing the twin goals of helping their members and advancing society.
America is a nation of joiners. Nine out of ten adults belong to at least one association, reveals a 1998 study by AARP. According to figures by Gale Research, today more than 140,000 associations exist in the United States (at the national, international, regional, state, and local levels) representing nearly every industry, profession, charity, hobby, cause, and interest. Many associations are volunteer-run with no paid staff. While cities may provide office space for big national associations, there are three times as many local associations located outside urban areas. In virtually every community, associations are going about their business, like local farm bureaus, hobby clubs, chambers of commerce, Rotary clubs, the American Legion, 4-H clubs, Mothers Against Drunk Driving, and hundreds more. Depending where you live, dozens of local associations can be found right in your own town or neighborhood.
Building the Foundation
Starting an association or club is much like starting your own business. It requires hard work and careful planning. As people band together for a common goal, however, they realize they can achieve far more collectively than by working alone.
When starting an association, the first step is to identify a core group of leaders to serve as the organizing committee. These men and women should be chosen with care because they will probably become the new association's first officers and board members. It is particularly important that you identify recognized community leaders, because an effort spearheaded by such luminaries will gain immediate notice and credibility, and help to ensure an immediate following during this important start-up period.
It is also wise, however, to see that the core group represents all factions of the constituency the new organization will serve, not just a few leaders or a well-established clique. You'll need broad support to get the new group off the ground, and you won't get it unless all facets feel they have representation among the decision-makers.
In creating the core group, also consider the ability of those chosen to make a commitment of time and funds to the new association. For example, a person serving as president of a fledgling business is unlikely to have the time or the money to commit to a new trade association, no matter how great his or her interest.
Once the organizing committee is set, the real work begins. Various tasks may be delegated to individuals and reported on when the group meets as a whole, much the way committees will report to the full board when the organization is up and running.
Where do you start? First you must articulate your purpose. This new organization must have a reason to exist or a pressing problem to address. Your purpose might well contain a sense of urgency, and it will serve as a rallying point for potential members.
The next activity is a requirement before the start-up of any kind of business: look at the competition. What other groups are out there serving your constituency? What services are these other groups offering and how satisfied are their members?
Now look at your potential consumers. How many people or companies are potential members of your organization? Do they represent a base large enough to support an association? If not, you may need to consider a structure other than a membership organization to meet your goals.
Are your potential customers not only easily identifiable, but easily reachable? You must be able to contact potential members by print, phone, the Internet, or advertising to promote your new organization.
A lot of information must be acquired, but it can be obtained fairly easily with a little networking and some minor research. If possible, send for membership information from every competing organization. The more you know about the others, the better you'll be able to structure your group to fill unmet needs.
Don't skimp on this important homework! In the excitement of building a new association, there is a tendency to want to start business immediately. But time spent studying the market in which you'll operate is crucial to the future success of your organization.
Many experts recommend hiring someone to do a feasibility study during this period. There's no question that such a study will yield valuable information for your organizing committee. However, feasibility studies take time and are fairly costly (usually several thousand dollars), so many groups do not undertake them. If you opt to skip a feasibility study, it is even more important that you carefully document the market and its needs. If time is available, you might even conduct your own informal survey of potential members regarding their needs.
Developing the Mission Statement
The tasks described above should be driven by the question, "What needs of my potential members are currently unmet and could be filled by a new organization?" Your organization should fill a “market niche.” Once you've identified that niche, you should begin talking about your mission statement.
A mission statement is a vision of what the organization is to be and whom it is to serve. It answers the question, "What business are we in, and who are our customers?"
A mission statement is usually only one or two sentences, and should be broad enough to allow an organization to increase its goals and services without outgrowing its mission for many years.
In his book, Marketing for Nonprofit Organizations, Philip Kotler states that a mission should be "feasible, motivating, and distinctive." Feasible so that members don't become disheartened in their attempts to fulfill the mission; motivating to attract members (and others) to work on behalf of the organization; and distinctive to clearly delineate your organization from similar organizations in the field, and to inspire loyalty among those working for the organization. (1)
A mission statement is usually supported by written objectives and goals. Objectives are further explanations of ideas touched on only briefly in the mission statement. Goals are far more specific, usually measurable actions that the organization plans to undertake over a defined period of time.
If your core group is unable to define a mission statement, you're probably lacking consensus in the vision of what the organization should be. You may need to return to serious discussions of the basics, and compromises may be necessary. Your mission statement will be the standard against which future progress is measured, so its articulation is very important to the organization.
The Organizational Structure: Choosing the Organizational Model
You have two important decisions to make regarding the kind of organization you will establish: whether or not you wish to incorporate; what tax-exempt status you will apply for. It would be wise to consult an attorney in these areas, but here are some general guidelines.
Today, most nonprofit organizations become legal corporations. In his Association Law Handbook, Attorney Jerald Jacobs states that incorporation "eliminates the personal liability of members, establishes continuity, creates psychological stature and makes available applicable laws and guidelines concerning the formation and administration of the organization." Unincorporated associations, on the other hand, are not subject to any reliable set of rules. Furthermore, unincorporated associations "have no separate existence of their own; but they are treated as if they did when it suits the government to do so." (2)
For these reasons, most groups choose incorporation. Unfortunately, there are expenses associated with incorporating and some other possible disadvantages. For example, the incorporated association must observe organizational requirements set up by state law. Most states require nonprofit corporations to keep minutes, hold an annual meeting, and obey other guidelines. It is important to discuss this issue with an attorney, particularly regarding the laws of the state where you would incorporate.
Tax Status
More than likely you will plan for your organization to be nonprofit and tax-exempt. Tax-exempt status is determined by the Internal Revenue Service, and means that you are generally exempt only from federal income tax. To be considered nonprofit under the Tax Code means that your income can exceed expense; however, no "profits" or portion of the organization's net earnings benefit any single individual.
The IRS will provide forms to apply for tax-exempt status. Again, you will want to use an attorney for this process. Generally, associations fall into one of two categories: business leagues are exempt under Section 501(c)(6) of the code, and scientific or educational groups are exempt under Section 501(c)(3).
You will hear the terms (c)(6) and (c)(3) mentioned frequently in referring to tax-exempt status, but there are key differences between the two. A (c)(6) organization is considered a business league and engages in activities to promote the common business interests of members and to improve conditions of business. Such activities might include lobbying at the state or federal level for favorable legislation or tax relief. These are examples of activities which are considered a part of the purview of (c)(6) organizations and permissible within their tax-exempt status.
Some associations are recognized as scientific or educational associations, and enjoy the more favorable (c)(3) status, which generally allows them to be treated like charities or schools. Again, there are many conditions to be met, but (c)(3) organizations have other benefits in addition to those granted to (c)(6)s. They may be eligible to mail at lower nonprofit postal rates; they may be automatically exempt from other state and local taxes; and perhaps most important, money given to these organizations can qualify as a charitable contribution and thus be tax-deductible to the donor.
On the other hand, because (c)(3)s are considered charities, they are expected to abstain from political action. Thus, activities such as lobbying are severely limited.
You may know immediately that your activities dictate application for a particular tax status, but the advice of an attorney knowledgeable in nonprofit law is still desirable.
Financial Support
Your homework has revealed a strong need for a new organization, and you've identified the organizational model you want to follow. But an underlying concern exists in every founder's mind: How will we finance the new organization?
Serious thought must be given to this issue. Funding should be an obvious concern, but more than a few organizations have gone forward without fully resolving that question, only to find themselves floundering a year or two later when income could not cover the expenses of office operations and the provision of member services.
You'll want to set the dues for each membership category at this stage. There are two parts to membership dues: the base and the rate. Because you're creating the dues structure, you have the opportunity to decide exactly what base and rate will best serve the organization and its members. This is a most important decision, because you'll have to live with it for some time.
Your dues structure should meet the growth demands of your organization, generate adequate income, be equitable, and lead to accuracy in reporting. It should also be easy to administer.
For most individual membership categories, the base is the member, and a flat rate is applied to all. The member that is the base is multiplied by some number that is the rate. (For example, a single individual (base of 1) x $100 (rate) = dues of $100). While the flat rate is the easiest to administer, it is also the least equitable because all members pay the same regardless of their income or position.
In trade associations, sales volume is a popular dues base. It is equitable and responsive to inflation, but subject to inaccuracies in reporting, because many companies don't like to reveal actual sales volumes, and association staff generally cannot verify whether the number the company reports is correct.
Groups with institutional members handle dues in a variety of ways. Some charge institutions a flat rate, just like individuals, while others are more creative. For example, the Independent Sector (IS) formulates dues based on an institution's budget in an indirect way. IS determined that salary and benefits correlate strongly to budgets, so they ask institutional members to determine what salary and benefits expenditures are for the past two years. That amount is divided by two and then multiplied by some factor to determine dues.
The Association for Governing Boards of Universities and Colleges (AGB) uses the full-time equivalent enrollment of the institution as the dues base. In cases like IS and AGB, minimums and maximums are usually applied to keep things equitable for those on both ends of the distribution curve.
After setting dues and estimating probable dues income, identify all other sources of potential income. Do you expect dues to be your only source of revenue? If so, you'd better proceed carefully. According to ASAE's recent Operating Ratio Report, 12th Edition, dues represent less than 38 percent of total revenue for most associations today. Will you collect fees for certain programs like certification or data collection, realize funds from the sale of publications, or possibly hold a trade show or continuing education programs? (3)
A realistic budget should be carefully constructed, and include a contingency fund for shortfalls. You may want the services of a consultant to help you value your services and estimate volume of sales as well as to identify the probable costs for administration, publications, conferences, and other expenses. To learn the common sources of income and expenses for different scopes and sizes of national, international, regional, state, and local associations, you should consult ASAE's Operating Ratio Report.
Perhaps the founders of your association intend to provide start-up funds, or you may be considering applying for a grant. Regardless of the availability of this kind of funding, you must look down the road to the time when these funds have been expended. Are you designing services that will pay for themselves or make a profit? If not, where will you obtain the funds to subsidize these services?
Typically, dues have been used to subsidize services and pay for operating expenses. But most groups find there's a ceiling on what members will pay, and that ceiling doesn't usually allow for all desired activity. Thus, you'll hear almost all nonprofit boards and staff today talking about the importance of non-dues income.
Program of Activities
The financial considerations discussed above lead naturally to further consideration of the services your association will offer. The trend in associations today is toward "unbundling," which is offering a small number of core services that accrue to members as a benefit of membership, while making others available on a fee basis.
This trend came about in an attempt to keep dues low in the face of members' growing demands for more services, as well as to provide an equitable arrangement whereby only the members who really want a particular service are required to pay for it.
Look for services that are almost universally needed or desired in your constituency and make them a part of the benefits that come with membership. Make the others part of a "fee for service" program. You may want to set some priorities here, listing services that you'll offer right away and others that you'll phase in as your growth allows.
Some services, such as insurance programs, can be handled through an outside vendor that offer a steady stream of income with almost no expenditure of funds or organization staff time. Such programs may serve you extremely well during the start-up period.
Meetings can be an excellent source of income as well, and some organizing committees have donated or lent "seed money" to a start-up organization for an initial annual meeting. This initial meeting is planned as an income-producing event (usually including seminars and a legislative briefing), and provides an opportunity for the committee to explain the new organization and attract charter members.
While planning your program of benefits, remember that you're really no different than a company offering new products to consumers. You need to consider all the elements that would go into a marketing operation: the product, the price, the promotion, and the distribution.
Is the product (which may be a service or a tangible product) going to be easy to supply--is your source large and reliable? Can you fix a price that your market will be willing to pay which still allows you to break even or make a profit? How will you promote the product--through advertising, direct mail, exhibitions? Finally, how will the product be distributed? These questions should be applied to every product and service you plan to offer.
Remember that most nonprofit organizations provide two different categories of products or services. The first one directly benefits those members (or nonmembers) who purchase them, such as publications, insurance programs, special forms or equipment.
The second category consists of other activities the organization engages in that benefit the industry or profession as a whole, such as working for more government funding, favorable tax rulings, reductions in regulation, greater public awareness, and increased quality assurance. These intangible benefits are often the reason the organization was formed in the first place, and to some extent will be subsidized by dues and profits from other direct services. Unfortunately, it is a fact of life that nonmembers who give no support to the organization will benefit equally with members through the successful provision of these services.
Management Options
Your organization is shaping up, and now that the structure is in place, you must choose a method of management. In general, you have four options to choose from, each with its own advantages and disadvantages. The four options are:
- All volunteers
- Volunteers with a skeletal staff
- Association management company
- Stand-alone association
Start-up organizations often choose to be managed entirely by volunteers because it is the least expensive. However, all-volunteer management is the least desirable option for many reasons. There is an advantage to volunteers in that they have an immediate and personal understanding of the needs and issues of the field or profession. But often volunteers cannot give the necessary time to the fledgling organization, despite their best intentions.
Volunteer efforts can be also be erratic and difficult to control or predict. In addition, there is little continuity as officers and board members quickly change, and even the phone number and address of the organization may have to be updated yearly.
Member promotion efforts often suffer with this management option, as requests for information and applications fall through the cracks or languish at the bottom of a deep in-box, and dues collection can be sometimes sporadic. These oversights can be disastrous for a small, start-up organization.
A better management option is to have volunteers working with a skeletal staff. Usually this means a paid administrator works on a part- or full-time basis, either in an office or out of his or her home. Frequently, a retired member of the trade or profession in which the organization is involved is recruited to fill the position. These administrators can provide continuity in the organization, but must frequently rely on volunteers for services such as writing or producing a newsletter. In addition, these people often have no training or experience in running a nonprofit organization or managing volunteers, which is quite different from having been a practitioner in the given field.
Keep in mind, too, that if the administrator was at one time a part of the field, he or she may carry certain biases or allegiances that are not necessarily beneficial to the organization as a whole.
Another option that can be very desirable for a start-up organization is contracting with an association management company. Many groups are not aware that such companies exist, but they can be found in most major cities.
When making arrangements with a management firm, certain areas need to be investigated. It is most important that the founders investigate the financial stability of the firm, since they will frequently be expected to advance payment of association expenses. Additionally, they should learn how the financial accounts of separate clients are handled (for example, is there pooling of funds?); check the depth of staffing to ensure that it's adequate to carry out all association operations; and understand how the firm makes its profits (for example, in management fees, mark-ups of products or services, commissions, or some other manner). Finally, the founders should have a clear understanding of the terms of the agreement under which they would work. Generally, a retained management company agrees to provide headquarters and professional staff for the association. The advantages to an organization are many:
- Access to a fully equipped office without having to lease or purchase equipment.
- A professional staff that is well-trained in the management of nonprofit organizations, but does not have to be involved in the administrative detail that goes with hiring employees (benefits program, payroll taxes, insurance, etc.)
- Continuity in location and staffing and need not worry about turnover and time-consuming executive searches.
- Overhead costs shared with other organizations, which reduces administrative expenses at a critical period.
- Access to expertise in areas like meeting planning or publications management on a part-time basis, which is often not available to freestanding organizations.
A good management company will help its associations grow to the point that they can establish their own stand-alone operations if they choose. However, because of the advantages listed above, many groups remain with a management company even after they reach the point where they could go out on their own.
A stand-alone organization means a fully operational office staffed by full-time professional and support employees. Obviously, this is the most expensive option, but it has advantages. You can locate the office wherever you wish, and choose exactly the kind of people you want working on organization activities. You have direct control over employees, costs, and purchasing decisions. Also, you're immediately visible with a well-run office, and your staff works only for your organization.
On the down side, you will have large expenses to get an office up and running, no matter whether you lease or purchase equipment. Your board must devote a considerable amount of time to hiring and evaluating your chief staff executive. Furthermore, you must have expert help to file the necessary papers to employ staff, withhold social security, provide benefits, and so on. This means that you may have to pay for more staff than you really need.
For example, you may have a large annual meeting for which you need an experienced meeting planner. Yet you might not have enough work to keep that person fully employed year-round. It's difficult to hire this kind of expertise on a part-time basis. Thus, initially you may have to contract for services, like meeting planning or publications, rather than having them staff-run.
You may also have difficulty attracting qualified employees for whom job security is an issue. Finally, systems for all operations such as accounting, data processing, and dues billing will have to be created from scratch, which is a high initial expense.
Draft Bylaws
A nonprofit organization usually has written records to guide the organization and provide authorization for its existence. Some groups have a separate constitution, which is a general statement of purpose, while others omit this entirely or combine it with their bylaws. Virtually every nonprofit group drafts bylaws, although though most states do not require them, even for incorporated organizations.
Bylaws are desirable because they define the internal structure of an organization and will serve as a guideline for board procedures long after the group's founders have departed. Well-constructed bylaws are a useful tool not only for building the organization but also attracting new members. This is because bylaws reflect the image of an organization that is professional, well-managed, and aware of its legal responsibilities.
Bylaws for nonprofit organizations run the gamut from very general, brief provisions to highly specific documents that are many pages in length. The optimum lies somewhere between.
Because bylaws actually document the relationship between an organization and its members, they should be fairly concise, easy to understand, and readily available to the membership. They should be neither so specific as to require frequent amending, nor so vague as to create uncertainty.
The organizing committee should examine the bylaws of other nonprofit organizations for content and format. It would be wise to consult a lawyer or skilled consultant in this area. This is due to the fact that bylaws constitute a legal document generally enforceable in court, and the content of association bylaws can affect its ability to obtain a determination or tax-exempt status.
The following topics are typically covered in association bylaws:
- Membership categories and qualifications
- Application and resignation procedures
- Membership privileges
- Board size
- Qualifications of officers: duties and terms of office
- Description of standing committees
- Nomination and election procedures
- Methods of filling vacancies
- Methods for amending bylaws
- Indemnification of board and officers
- Procedures for dissolution
Bylaws usually include the method of electing the first board of directors, which may or may not be slightly different from subsequent elections. The terms of the initial board members are often staggered so there will never be complete board turnover in future elections.
You will want to pay special attention to qualification for board membership, nomination procedures, and membership categories (for example, individual members, institutional members, associate members, honorary members) developed as part of your bylaws. These statements will tell potential members what kind of an organization this new group will be. Some of these qualifications are whether it will be an "open" or "closed" society, whether it will be democratic or autocratic, and whether or not a particular category of membership will have more power or privileges, thus becoming a driving force in the organization.
Choosing a Headquarters Site
Your organizational plan is fleshed out. You have a well-defined structure, membership categories, a program of benefits and services, a draft budget, and an operating blueprint in your bylaws. One important decision remains: where will your office be located?
If you plan to be run only by volunteers, this may not be an issue, since your "office" will probably be wherever the current secretary or treasurer resides. However, if you do plan to establish an office, you must decide on a location.
Your interests may dictate where your office should be. For example, if your trade or profession is concentrated in a certain area, then almost certainly that's where you'll wish to locate. This is particularly important if you plan to rely heavily on volunteers in the day-to-day operations. If you expect to be heavily involved in government relations, you should probably be in the state capital or Washington, DC. Pacific Rim issues may dictate that you establish your office on the west coast.
If your program of activities or issues don't dictate a particular area for your office, you might consider a smaller city where the labor supply is adequate and the cost of living is lower than in a larger city. Many national organizations find that few members come to the headquarters office, so ease of access is not a major consideration, but a central location will make it easier for your board to attend meetings.
Final Details
The final details involved in an organizational set up include things like applying for a federal I.D. number, obtaining mailing permits and business reply accounts, establishing bank accounts and more. Most of these can wait to be handled by your new chief executive once he or she is chosen.
There is one more administrative task you should handle as an organizing committee, and that is obtaining Directors and Officers (D&O) liability insurance. In today's litigious society, no sensible person should sit on a board that doesn't provide such coverage, and indeed you may have trouble attracting qualified and desirable board members without it.
Directors assume legal responsibilities when they agree to serve on a board, and almost every kind of association activity can be the basis of a claim of injury by a company or individual. This is particularly true for trade associations where violations of antitrust laws could be alleged. Even when such claims prove groundless, legal costs can be enormous. D&O insurance protects the directors, and in some cases the staff, by paying for claims and the defense against them.
Costs for D&O insurance have come down in recent years, and many different policies are now available. However, policies vary greatly in their coverage and their exceptions, so it is important that you examine many different policies and compare coverage carefully. Again, the advice of a consultant or an experienced insurance broker would be desirable. Another option is to call the ASAE Services Corporation for information on group insurance programs at 202-626-2794.
Conclusion
After a time-consuming, labor intensive effort, your work is finished. Most people find the birth of a new organization to be extremely rewarding, due to the fact that as the organization prospers in future years, your core committee will have the satisfaction of knowing that much of that success is due to the careful planning and decision making of the organization's founders.
For more information on starting an association visit ASAE's virtual resource list at Association Information or contact the Knowledge Center (by telephone: 202-326-9559 or by email:knowledgecentral@asaecenter.org).
Endnotes
- Philip Kotler, Marketing for Nonprofit Organizations, 2nd ed. (Englewood Cliffs: Prentice-Hall, Inc., 1982).
- Jerald Jacobs, The Association Law Handbook, 3rd Edition. (Washington, D.C.: The American Society of Association Executives, 1996).
- American Society of Association Executives, Operating Ratio Report, 12th Edition. (Washington, D.C.: American Society of Association Executives, 2003).
The materials listed are available for sale from the ASAE's online bookstore or by calling 888-950-2723.
Other Sources of Information
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Carver, John, John Carver on Board Governance (Washington, DC: Jossey-Bass, Inc. Publishers, 1994).
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Stenzel, Thomas E., "Building an Association: The Critical First Year", A Sharing of Expertise & Experience. Vol. 5. Washington, DC: American Society of Association Executives 1987: 261-268.
Stevens, Craig, Kate Petrillo, and Dawn Brown. Financial Management Handbook for Associations and Nonprofits. Washington: American Society of Association Executives, 2004.
Webster, George D. and Hugh K. Webster. The Law of Associations: An Operating Legal Manual for Executives and Counsel. Newark, NJ: Matthew Bender, 2005.