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.
I would love to find a way to take all the energy used by people putting on galas and luncheons and fundraising events and move that toward mission delivery…
Great piece, Sean.
This is interesting…I don’t agree with all of it.
I think more nonprofits could be charging for services (sliding scale) as a way of cultivating future donors. The mission of many nonprofits is to help individuals succeed. If the organization achieves its mission then those they serve today should become their donors tomorrow. But most groups lose touch with those who “graduated” from their program and have lost the opportunity to create relationships with successful “alumni” that could now give back to their “alma matter.” As schools have found, the best time to start to create new donors is when students just begin at the school. Thus, asking should be part of the culture of every organization: be it time, skills, or money.
Hi Patricia, I would characterize your suggestion as one way for an organization to “tack into the wind”. Certainly for a college, providing top programs can enhance fundraising. The same is true at hospitals or anywhere that nonprofit beneficiaries are current or future potential donors. Unfortunately, this isn’t generally the case for social service organizations that work with the poor and disadvantaged. Charging for services, or earned income strategies in general, is useful and interesting, but if they were always the solution we wouldn’t need nonprofits since profit seeking firms would see the profit opportunity and fill the missing need.
Thanks for the post. We as a country have been grappling with how best to fund and implement social programs for the social good since the country was founded. I found understanding what has worked, not worked and why over the past 300 years powerfully useful in navigating the current discussion. For those that are interested I’d recommend both “Making the Nonprofit Sector” by Hammock as well as Lester Salamon’s primer “The State of Nonprofit America”.
Sean, thanks for this great post. It is so critical that nonprofits and their funders understand that the organization has two customers: those who benefit from their services and those who pay for them. This is so often overlooked in the sector.
However, I don’t share your pessimism that “fundraising is all about the sizzle and not the steak.” I think that that is often the case, but it doesn’t have to be. If nonprofits can create an overall financing strategy for the impact they want to create, which analyzes and implements an array of methods for bringing adequate resources to bear on their solution, as opposed to simply working to sell a sexy idea to a limited and highly sought-after group of donors I think this challenge can be overcome. In other words, nonprofit leaders need to figure out a “strategy for getting there that takes into account the prevailing winds,” which means that they must tap into all effective methods for financing the impact they want to achieve, and one of those methods may be convincing donors that their theory of change is the right one.
Thanks Nell, I didn’t mean to use that phrase as pejorative remark. But I can see how it comes across that way. I just meant that fundraising is all about how donors “feel” about the program rather than the actual results since they never experience the actual results. I believe that donors are shifting more and more to caring about the results they believe a nonprofit is having, but at the end of the day donors will never become the recipients of the program and so the wind/energy/money they provide will never be directly linked to program success.
But of course we can help create a more direct linkage by helping focus donors on results rather than on less meaningful triggers.
As usual, you have clearly delineated a problem we all know about but don’t quite know how to handle.