Monthly Archives: January 2015

N=1 isn’t a compelling case against increased funding for fundraising

change management, Funding Fundraising, philanthropy,

Takes money to make moneyDid you happen to read the Washington Post’s article on the demise of the nonprofit Invisible Children, best known for its Kony 2012 campaign? (Check it out here) The authors posit that this single case illustrates the dangers of increasing fundraising expenses.

Not really, of course (for both the article and the facts of the nonprofit world). The article is more nuanced. Social change and policy organizations are complicated, especially those operating in Africa. For this N=1 (Invisible Children), a few significant forces (which had little to do with a surplus-based funding approach) tore the organization apart.

This single case may be an example of how a nonprofit can fail, but there is little evidence presented and no broader applicability of this piece about whether a more market-oriented funding strategy is appropriate. The article, for example, fails to mention that nonprofits tend to spend 65% or so of their budget on staff and–spoiler alert–poorly paid people don’t stick around long and often cost about a year’s salary to replace.

The loosely argued closing of the Post piece suggests that nonprofits have benefactors and not investors (which most major donors I know would challenge). As are result, nonprofits must operate on a shoe string, cow to risks over opportunities, and generally hope that their meager existence can marginally impact those benefiting from their mission. This notion is much more dangerous than better funding nonprofit operations.

It is dangerous to create an argument on an N=1 scenario. Just as the article indicates the IC may not have been quite as impactful as their messaging suggested, this piece relies too much on its own limited perspective to suggest that IC proves the dangers of better funding nonprofits. Instead, this “overhead” myth leads to the “starvation cycle” which leads to lean and under-experienced staffing which leads to more nonprofit failures than fundraising experts would care to count.

Do you have a suggestion to help the nonprofit sector build its case for better investment? I have a few tricks (for a later post) and welcome any other ideas.

Should your organization consider a merger?

philanthropy

America is home to around 1.4 million nonprofits. That’s probably about 700,000 too Merger and Acquisition Cartoonmany.

There are too many nonprofits competing too inefficiently for too few charitable dollars. It’s the inefficiency piece that’s the heart of the problem. The cases for support for the myriad nonprofit organizations are inspiring, wonderful, and important. Americans are more generous than any other country’s citizens. But, really, just how many nonprofits do we need in the U.S.? (Bloggers note: the successful attainment of nonprofits’ missions is my vocation. No one wants nonprofits to succeed more than I do!)

An analysis of giving in the U.S. since the 70’s show shows that charity accounts for about 2% of annual GDP…every year…despite the near 100% growth in the number of nonprofits in the last decade (compared to 35% growth in GDP in the last decade). More nonprofit organizations do not appear to result in proportionately more charitable giving.

What does increase giving? Impact reporting to donors about the value of their gifts. Better organized volunteer, staff, and peer-to-peer fundraising efforts. Marketing, branding, and the public’s trust around the efficacy of a particular nonprofit. These are the hallmarks of more sophisticated and more seasoned nonprofits. In most cases, a new nonprofit is simply seeking market share from a very similar nonprofit in their area. Sometimes, new causes require attention. Occasionally, new technology demands new nonprofits to leverage them.  But, the market is saturated.

This might seem blunt. It is. And, it should be. The public good impacted by nonprofits is invaluable but has been stagnant. So, what should be done?

An underexplored option is to apply mergers and acquisitions so effective at generating value in the for-profit sector.  The Stanford Social Innovation Review presents a powerful case for this strategy. Will, say,  Brown merge with MIT? I’d say that’s pretty unlikely. Should very small dog and cat rescue operations in, say, St. Louis, merge? Yes. Do it today. Share resources and operational infrastructure.  Grow volunteer bases. Address the “founder-itis” that plagues many new nonprofits. And, most importantly, better serve the core of your mission.

The turmoil from a merger can be difficult. Staffing overlaps and other redundancies may result in painful restructuring and job loss. But, we not running a charity here. That is, business principles apply. Your organization’s mission will be better served by being more effectively delivered to constituents and more strategically presented to donors. There surely is a place for up-start, lean-and-mean nonprofits, but donors know that they get what they pay for.

As you plan for 2015, think about whether you’re having the biggest impact possible given the potential opportunity to merge with other similar organizations. It would be a big resolution, of course, but the benefits to your constituents might be worth it.