If you work in the nonprofit sector, you are hopefully aware that significant changes are occurring. If you aren’t, shame on you. The industry is experiencing a paradigm shift, and each nonprofit professional and organization has a choice to either participate in the conversation or sit back and see what happens.
The Overhead Myth: A Dangerous Mindset
One of the worst things that ever happened to the nonprofit sector was that it came to believe that not making a profit was a business model rather than simply a tax designation. Nonprofits in the United States are tax-exempt and do not have shareholders to whom they make any distributions. Any money they make is supposed to go back into the organization to support its work.
But somewhere along the way, nonprofits and donors decided since these organizations were not supposed to be making a “profit”, they should operate with the least amount of overhead and most of the money going to programs. While the intentions behind this thinking may be good, it’s simply not effective or realistic.
Why Nonprofit Funding Needs to Change
This has led to an industry that is suffering because the investments that businesses make in order to grow and expand are usually not available to nonprofit organizations. That is why most nonprofits operate with budgets in the hundreds of thousands of dollars and never grow to scale and make a broader or deeper impact.
As a whole, there is little to any investment made into professional compensation and development, technology, infrastructure and research that would enable these organizations to grow to scale. This is a mistake. Nonprofits are businesses, and they need to operate and have the same benefits as their for-profit counterparts.
Dan Pallotta and the Charity Defense Council’s Mission
Dan Pallotta has been on a crusade to change this 20th-century thinking about the nonprofit sector. To that end, he established the Charity Defense Council to help inform and educate the general public about the investments that need to be made in the industry to be effective.
The mission of the Charity Defense Council is as follows:
Our goal is singular and bold: to change the way people think about changing the world. To let them know that low overhead is not the way the world gets changed. That poor executive compensation is not a strategic plan for ending hunger and poverty or curing disease. That inadequate, donated resources are not the path to global transformation.
This is correct. I support the efforts of my friend, Dan Pallotta, and the Charity Defense Council.
The Resistance to Nonprofit Growth
Incredibly, there are individuals, even those who work within the industry, who want to keep the status quo. These people claim that nonprofits should not be thinking about growing to scale. They read in the news about a few nonprofit executives from world-class universities, hospitals, and museums who earn a highly competitive wage, and they believe this is true across the whole industry.
They hold fast to the mistaken and misleading notion that they should operate with 5 percent or even 0 percent overhead. And they believe that recruiting a cadre of volunteers and having them work a nearly full-time job makes sense; it’s simply not sustainable in the long term.
Dan and others who are sounding the bells about change in the industry have many detractors. That’s expected.
The Future of Nonprofit Leadership
But there is an opportunity for those of us who know times are changing for the nonprofit sector. Meaning, the usual is no longer realistic. As I have written in the past, it’s about money. You can find my thoughts in article links here and here.
If you believe that nonprofits should move beyond the polyester suit days, join Dan and the Charity Defense Council and every one of us who is out there saying that things need to be more efficient to change the world.
Social enterprises and businesses are joining nonprofit organizations to offer new models and ideas to bring about global change. Old ideas that don’t work should be discarded. Nonprofit professionals have a choice: speak up or have others do it for them.
© 2015 Wayne Elsey and Not Your Father’s Charity. All Rights Reserved.