Thinking of starting a local digital news site? Do it, but be aware of the pitfalls.

The local news digital startup sector continues to surge as legacy newspapers decline. One new census of the field found 704 of them in the U.S. and Canada, and that is probably an undercount.

Funding and training are plentiful and displaced journalists are eager to recommit to a community news mission, but the picture is not all sunny. As the sector matures, pain points — difficulties and some outright failures — are emerging, too.

So the next round of support is likely to be less generic and more tailored to particular operational challenges.

For instance, Sue Cross, executive director and CEO of the Institute for Nonprofit News, said that her 12-year-old, 250-member organization now has some “very focused programs by life stage of a news organization” — startups, growing news outlets and established nonprofits.

The Project Oasis census, part of an initiative from Local Independent Online News Publishers, found many outlets staying alive by virtue of a journalist founder or founders taking no salary. That may work for a high-energy initial burst but is not likely to be sustainable for more than a year or two, Chloe Kizer, director of the project, told me.

Project Oasis, as you might infer, anticipates making a dent in the much-reported problem of news deserts — communities that used to be served by a newspaper, now closed. Remedying the news desert issue may prove problematic, too.

About 250 of the 704 identified sites responded to a survey. Two-thirds of founders had put savings or other personal funds into the launch. Half of the 250 had an income of less than $100,000 a year. Only one in seven was located in a true news desert where a newspaper had closed, and those had “median revenue markedly lower than the rest of the field.”

Each of the two main support organizations has an approach to the first-step challenge of getting going.

At LION, it’s the Tiny News Collective, now picking a first cohort of participants who will be offered expert advice and a full stack of support services at roughly $100 a month. The program, created with Google News Initiative funding, will particularly target underserved communities and hopes to support 500 launches over the next three years.

Cross said INN “loves freelancers and solo entrepreneurs” but counsels them to consider the merits of forming a launch team as soon as possible, both as a check against burnout and to diversify the skill set applied to the enterprise.

No one I could find closely tracks failures in the sector. The current emphasis is measuring and cataloging growth. Cross said that perhaps 5% of members drop out after a year or two, but the sector “is growing like crazy.

“So, for now, we’re focused on continuing to accelerate that,” she said. “We want to see more than 20,000 nonprofit journalists in the field by 2030, and we’re on pace to get there”

Even were that ambitious goal met, the sector would not fully replace the corps of journalists the newspaper industry fielded in its heyday.

About 35,000 daily newspaper journalism jobs have been lost from a peak of more than 57,000. Resources are migrating from metros and smaller locals to the biggest national outlets like The New York Times, The Washington Post and USA Today. The herd of city magazines and alt-weeklies has also been thinned.

But we are way closer to seeing a level of energy, money and focus on investigative, serious journalism than looked possible a few years back — for instance when I first tried a quantitative comparison in a 2009 piece and argued that the new nonprofits were promising but only a small fraction of the losses. Collectively they are not so small anymore.

LION accepts for-profit startups as well as nonprofits and has not been tallying sites that close. The for-profits’ rate of closings or failures to flourish is probably slightly higher than that for nonprofits. Nonprofits plug more easily into support from community members they serve and foundation grants, both rich sources of operating revenue these days.

Philanthropy, Cross said, is “the single biggest sustainability ticket for news nonprofits: increasing their major individual donors. Major gifts are the backbone of all kinds of nonprofits in the U.S., making up some 70% of philanthropic funding on average. For news outlets, it’s about half of that because it’s a young field. So our center has an expert major gifts coach on call, provides prospect research, fundraising assessments that lead to a roadmap for development, and so forth.”

Two important positives for funding have emerged in the last five years. Google and Facebook have large news philanthropy initiatives. Both seem to favor a portfolio of small to medium-sized projects rather than sweeping industry-wide solutions, a good match to the digital startup sector.

The second positive is that news is now on the radar for community and family foundations, whose traditional focus has been on causes like health and education. Big journalism funders like the Knight Foundation have been trying to seed that interest for many years — the clear crisis in local news has helped make the case.

For those at an intermediate stage of development, the prescription for growth is well-established: collaborate with other news outlets to raise awareness and maximize the reach of the stories produced, and diversify with business and development staff rather than put all expansion money into hiring more journalists.

In research on mid-stage startups, Cross said, “We could see that few outlets had sponsorship programs, but those that did, did very well with them. So we created (a) lab with Google. It produced a playbook that is being used by hundreds of outlets, globally. The first class of seven organizations excelled and now we’re expanding with a second cohort.”

As LION evolves, executive director Chris Krewson told me, “We are increasingly focused … on defining ‘sustainability’ for the digital-only space. We tend to conflate longevity — ‘They’ve been publishing for years! They’re doing great!’ — with sustainability, and those are just different things.”

For LION, that focus means developing a framework that will measure financial health, operational resilience and journalistic impact. It’s hardly coincidental that those are at the top of the list in what foundation funders want to see documented when they dispense grants.

Newer players are entering the space of supporting digital news entrepreneurs. Northwestern University’s Medill Local News Initiative (which also supports innovation at legacy outlets) offers updated studies on revenue sources like events and specialized research on data-driven subscription strategies.

The Local Media Association, as I wrote in January, is collaborating with Google to define best practices in community funding drives to support investigative reporting, both for digital startups and legacy newspaper organizations. Its first cohort of 16 outlets is finishing its work this spring.

The last year has also seen a surge of organizations operating as public benefit corporations, a hybrid that maximizes profit and prioritizes a given mission.

Earlier this month, the newly formed National Trust for Local News, a nonprofit venture capital fund, debuted a pilot project. It collaborated with The Colorado Sun, a public benefit corporation formed by journalists who had departed The Denver Post, to buy 24 outlets in suburban Denver.

The Trust is spearheaded by Elizabeth Hansen Shapiro, a scholar and journalism activist who designed it over a three-year fellowship at Harvard’s Shorenstein Center. The initial idea, somewhat simplified, is to tap into national funding sources to keep ownership of local newspapers and their sites in local hands.

So that adds one more player to this crowded field.

Amidst all this activity, creating an answer to the news desert problem still seems to be a work in progress. Kizer of Project Oasis told me that in plans being formulated for a second year, she expects to expand and keep current the census database. At the same time, she and collaborators want to swing into a model for launching in a news desert that includes business basics, “grassroots organizing of community engagement” and relevant metrics of success.

An effort with similar goals, Project Compass, hit a snag coming out of the gate in late 2019 and last year. Funded by Google’s News Initiative in partnership with McClatchy and headed by respected digital news veteran Mandy Jenkins, it hoped to launch three pilot sites in three bona fide news deserts.

Youngstown, Ohio, which had lost its daily newspaper, was first. The Colorado community of Longmont near Boulder was the second. The project never got to a third site — growing audience, advertisers and sponsorships as the pandemic recession hit proved to be overwhelming.

Creating “a central staff of three on strategy, sales, fundraising, events, and audience growth,” Jenkins wrote, didn’t scale as a launchpad for the business side of the sites. (The two pilot sites remain under different management but Compass is dissolved.)

Penny Abernathy, who documented the news desert problems in her years at the University of North Carolina, has moved on to a visiting professorship at Medill. Her count of digital-only sites in 2020 had a more bearish finding on the sector. The number of new organizations and the number of failures since an earlier survey roughly canceled each other out.

Abernathy’s report does not offer a ready solution as much as a restatement of the problem. Failed legacy outlets and tough prospects for launches unfortunately go together:

“Locally owned and operated news outlets located in more affluent communities have much better prospects of cobbling together for-profit and nonprofit funding from a variety of sources than those in economically struggling communities. While some deep-pocketed benefactors have purchased larger, well-known newspapers — or financed the start-up of a local or statewide digital site — hundreds of other dailies and weeklies in less affluent, small and mid-sized communities have been shuttered when no one stepped forward to either buy the paper or support the establishment of an alternative news source.

“Furthermore, asking residents in poor communities to pay more for the news they receive — in order to compensate for the loss of advertising revenue — has the far-ranging consequence of exacerbating the chasm between communities that can afford quality journalism and those whose residents cannot.”