Sometimes the nonprofit sector reminds me of someone with a ton of potential, but who is stuck in the wrong job and can’t make progress. Or a racecar driver stuck in a car that simply can’t go as fast as he is prepared to take it.
The problem is that the goal for nonprofits is to make a difference in the world. But the fuel they need to power their impact vehicle is revenue from fundraising. In the for-profit world, superior products and services generate more revenue – the fuel needed to make even better products and services. But nonprofits don’t have that kind of alignment. Fundraising success has little to do with superior programs.
This disconnect is frustrating, but it makes sense. For-profits collect revenue from the same people to whom they deliver their products and services. Nonprofits are stuck collecting revenue from one set of people while delivering products and services to another set of people. This means fundraising is all about the sizzle and not the steak. If you had to choose products and services to buy for yourself, but you never actually experienced the product or service, you’d only have the sales pitch to go on instead of buying what you learned actually worked.
Part of my excitement about the Pay For Success program is that the government is unique in its role as a true customer for nonprofit services. The government acts on behalf of the public for the public benefit. It cares about the actually results of products and services it buys from nonprofits both because it is acting on behalf of the direct beneficiaries and because whether the programs work impacts the government’s own bottom line.
Donors on the other hand have both the freedom and the lack of alignment that arises from taking private action for the public good. This gives them freedom to support unproven or unpopular programs, but it also saps them of the direct feedback that is needed to make smart decisions over the long term.
The movement towards for-profit social impact organizations is in part a reaction to better aligning money and impact. Yet too often these organizations trade direct monetary alignment for an imprecise or ephemeral version of social impact.
I wish I could offer an easy answer. A new corporate form, a new impact measurement approach or a nifty new social media widget that would align money and impact once and for all. But that’s not going to happen. Instead, I think it is simply important that we recognize the unaligned nature of nonprofit work.
Maybe the right metaphor is a sailboat. A sailboat is to a large extent at the mercy of the wind, whose direction has no connection to the sailboat’s actual destination. A long time ago, the only thing to do when the wind wasn’t going your way was to start rowing. But over the years, people figured out how to tack into the wind, to adjust their sails so that they could capture the most wind possible while still heading towards their destination.
But sailboat captains also know two important things.
- You can always capture the most wind by simply heading in the direction of the wind, but this won’t take you were you’re going.
- In isn’t enough to know where you want to go, you also have to figure out a strategy for getting there that takes into account the prevailing winds.