In my business, I work with nonprofits and social enterprise organizations every day. It still amazes me when I speak to executives, who tell me they hope for lightning in a bottle regarding nonprofit investment. They anxiously repeat the same fundraising practices that they always use. And even if it doesn’t deliver results, they keep doing it. Hope is a mindset. It is not a financial business strategy.
Businesses, especially nonprofits and social enterprises, should recognize that it’s all about the bottom line. It’s all about the money and nonprofit investment. Without consistently exceeding your financial goals, you’re simply not going to accomplish the mission. It takes a detailed and well-thought-out plan by leaders.
Lack of Investment Capital
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. This is because donors do not have to give. In short, they will only support a charity if they want to. Businesses have the advantage of selling products or services that people want to purchase.
Yes, the non-profit sector is indeed mired in what has been referred to as the nonprofit starvation cycle. Essentially, because non-profits aren’t designed to make any profit for investors. They exist to help address social issues. As a result, the public, government, and donors expect them to operate with minimal, if any, resources. Moreover, they have to make the greatest impact, but often, it’s simply not possible.
Not Enough Nonprofits Grow to Scale
Dan Palotta has highlighted in his writings a point made by George Overholser, who wrote the blog Tactical Philanthropy. Since 1970, the number of nonprofits earning at least $50 million in revenue has been 144. And the number of for-profits that have crossed that threshold during the same period has been 46,132.
We know some nonprofit executives within the sector buy into this thinking. You know, nonprofits need to do great things with a little money. They go around to donors, speak about how little they spend, 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 is not smart business.
Corporate Philanthropy
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.
Capitalism and Nonprofit Investment
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.
Informing Donors
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 nonprofit investment. The conversation starts with them.
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