In my business, I work with nonprofits and social enterprise organizations every day, and it still amazes me when I speak to executives and they tell me they essentially hope for lightning in a bottle around their revenue efforts. They anxiously wait the same fundraising practices that they have always used will work again this time around. Hope is a mindset. It is not a financial business strategy.
Businesses, and especially nonprofits and social enterprises, should recognize that it’s all about the bottom line. It’s all about the money. Without consistently exceeding your financial goals, you’re simply not going to do what your organization has in mind. This takes a detailed and well-thought out plan by leaders.
In his book, “The End of Fundraising: Raise More Money By Selling Your Impact”, Jason Saul notes that a business spends $4 to earn $100. A nonprofit will spend $20 to earn $100. The reason for this is because donors do not have to give and they will only support a charity if they want to, whereas businesses have the advantage of selling products or services that people want to purchase.
Yes, it’s true that the non-profit sector is mired in what has been referred to as the “starvation cycle”. Essentially, because non-profits are not designed to make any profit for investors and they exist to help address social ills, the public, government and donors expect them to operate with minimal, if any, resources and still make the greatest impact. It’s simply not possible.
Dan Palotta has highlighted in his writings a point made by George Overholser and Sean Stannard Stockton in their blog “Tactical Philanthropy”. Since 1970, the number of nonprofits that have made at least $50 million in revenue have been 144 and the number of for-profits that have crossed that threshold during the same period have been 46,132.
We expect, and some senior executives within the sector buy into this thinking, that nonprofits need to do great things with a little money. They go around to donors and speak about how little they are spending and wear that as a badge of honor. Being careful about how money is spent is smart business. Finding ways to keep the budget as impossibly minimal as possible and do everything for years and years on a shoe-string budget with flat or minimal growth is not smart business.
We hear more and more about major corporations today saying they are looking to make an impact on society where non-profits have failed. But, do we really thinking that the for-profit model – to the exclusion of the nonprofit sector – is really going to adequately address the needs of society around poverty, education and healthcare, for example? Let’s remember that the corporate leaders who are stating that business is the answer to addressing these issues are beholden not to society, but to their shareholders. Do we really think that they are going to sacrifice ever-increasing profit margins to address the societal needs that have to be dealt with on an enormous scale?
Therefore, nonprofits and the executives and board members who lead them need to understand that there is a call for changing the fundraising model. Inspired by the size and scope of the Millennial generation, there is a greater demand by the public overall, and donors in particular, on nonprofits to meet the needs they seek to address to scale.
As Dan Palotta has said, capitalism needs to be part of the nonprofit sector. I agree with my friend and colleague. We need to free nonprofits from the constraints that have limited its role to second-class status. More importantly, executives within the sector need to become adept at communicating with individual donors, corporations and foundations about why they need investment into talent, operations, research, development, marketing and revenue generating efforts.
People and organizations are out there, such as Dan Pallotta, the Better Business Bureau, Guidestar and Charity Navigator, are speaking loudly about the need to invest in the nonprofit sector. However, change will not come without nonprofit executives and board members lending their collective voices.
Nonprofit leaders, both paid and unpaid, have an obligation to educate and inform donors, the media and general public about the resources they need. And, in particular, they need to be able to succinctly and cogently explain why they need the money for things beyond directly funding programs.
Any executive who is not able to do this effectively, is failing the organization and the nonprofit sector as a whole. People who believe that we need speak out in order to liberate the nonprofit sector from the shackles which have bound it for way too long so it can make a greater impact on intractable issues that continue to plague society need to be joined by nonprofit boards and executives.
Nonprofit leaders need to recognize, if they haven’t already, that it’s all about the money and it the conversation starts with them.
© 2014 Wayne Elsey and Not Your Father’s Charity. All Rights Reserved.