September 7, 2017 • 6 minute read • by Saeed
“If you’re in the luckiest one per cent of humanity, you owe it to the rest of humanity to think about the other 99 per cent.”
― Warren Buffet
Get this: the IRS approves tax exemption for new community benefit groups every 10-15 minutes!
Over 50,000 new nonprofits are recognized by the IRS as tax exempt organizations EACH YEAR.
That amounts to nearly 2 million nonprofit organizations in the United States.
Most nonprofits are small. More than 73 percent of public charities report annual expenses of less than $500,000. Less than 4 percent had expenses greater than $10 million.
In every vertical there are hundreds or thousands of nonprofits with similar names and missions competing for donors, activists, publicity and brand awareness, and followers on social media.
If nonprofits are going to truly solve the world’s toughest social issues and obtain the necessary resources to do it right, they need to examine how the sector can evolve to create more innovative and effective organizations.
Disruption #1: Harness the Power of Technology
The social sector is still very much in the nascent stages of what could be a significant transformation in harnessing the power of technology. The convening power of the Internet, rapid advances in technology, and the reduced costs of launching new applications in today’s wired world means that nonprofit organizations have an ever increasing array of tools to reach constituents with their key messages. But to take advantage of these advances, today’s nonprofits must race to adapt their business models to achieve their intended purpose with greater impact. For today’s nonprofit organization, the new digital landscape provides a multitude of opportunities to recreate yesterday’s broken business models while creating meaningful and sustainable long-term scalable impact.
However, the adoption rate of the social sector to leverage and harness the power of these new tools is still painfully slow and funders are not helping. The funding climate for nonprofits is still such that little attention is paid by funders to basic infrastructure needs. Nonprofits fluctuate between tracking a lot, or hardly anything at all. it appears that the social sector, which has traditionally had a low-tech/high touch sense of itself, is slower to adopt and optimize these enabling new technologies to communicate, collaborate, connect, build capacity, and build communities of learning and practice.
Disruption #2: Think More Like a For Profit
By no means do I want to suggest that a nonprofit is similar to a for-profit or that practices within the for-profit sector should be adopted wholesale. Still, the nonprofit sector is painfully inefficient. There is a reason for this. Where in the profit based corporate entity is motivated by delivering shareholder value, the public benefit corporation is driven by its commitment to service. In the for profit model, there is built in incentives towards productivity and efficiency. Such incentives are practically non-existent in the non-profit sector.
Furthermore, in places like Silicon Valley, it’s almost a right of passage to test new ideas quickly, fail fast and fail forward. And there is a lot to be learned from failing. How does failing fast work in the nonprofit world, particularly when it’s donors or foundations money? The nonprofit sector is allergic to failure and that predilection leads to less risk taking and therefore less innovation.
Disruption #3: Change Funding Mechanisms
Grants and donations are the traditional funding mechanism but they are increasingly harder to obtain. Further complicating matters, funders can also be incredibly slow in approving grant proposals with their due diligence process. Once approved, they may restrict funds not allowing for flexibility to direct funds towards general operating costs or they may limit the funds nonprofits need directed at critical infrastructure instead requiring funds to be directed towards programming. Nonprofits are loathe to push back on unreasonable expectations at the risk of losing funders.
Stronger sustainable funding mechanisms are needed as a holistic approach to fundraising that moves beyond traditional tactics such as securing grants or tapping a few wealthy corporate or personal patrons.
Some nonprofits are learning to become self-reliant (and therefore self-sustainable). For example, they offer trainings to members or peer organizations for a fee to generate income. Just as in the private sector, a thorough business plan, market analysis, and consideration of what you have to offer and who might be willing to pay for it are core elements of instituting a fee-for-service model.
Crowdfunding, originally used by entrepreneurs as a way to attract small-sized investments to for-profit ventures, is now widely available to nonprofits as well.
Nonprofits can also take advantage of economies of scale through shared services and back office support models that have added benefits of efficiency and better use of resources. Clearly however, more innovation (and disruption) is needed.
- As a community, the social sector (nonprofits and their funders) should be self-reflective in asking ourselves some critical questions:
- What are ways we (as funders) might be unintentionally adding to the problem?
- Are we allowing leaders to do their work, or forcing them unnecessary administrative burden upon them?
- Are we building infrastructure or demanding services without the prerequisite capacity needed to deliver these services?
- Are our processes forcing nonprofits to compete with one another instead of collaborating?
- Are we too narrowly focused on a single issue when so many societal issues are interrelated?
- When we use the word “partnership” with our grantees, are we ignoring the inherent power differential in the funder-grantee relationship?
- Do we take enough risks? Have we failed enough to say that we do?
Finally, I’d love to hear from you. What are your ideas for disrupting the nonprofit sector?