I’m a strong proponent of nonprofit organizations. Despite what I see as a growing obsession with market-based solutions in this country, I believe that nonprofit models are, at the very least, a necessary component of a comprehensive approach to creating social change.
Full Disclosure: I run a nonprofit that is currently operating as a pure charity. We are, right now, entirely donor dependent.
As part of the trend toward using market-based solutions to combat social challenges, we hear a lot about sustainability. Models that are for-profit, or at least models that involve earned revenue, have been touted as more sustainable than donor-dependent nonprofit models. I, for one, am unwilling to concede that market-based models are any more sustainable than nonprofits.
When we talk about sustainability, we’re talking about acquiring and maintaining control over the organization’s financial health and stability. Sustainability means two things: First, it means that the organization has revenue that is somewhat predictable and reliable. Second, it means that the organization has the capacity to weather unexpected revenue shortfalls. I’ve learned through my work with nonprofits—my own and others—that successfully addressing these two issues and achieving increased sustainability is not unique to market-based models.
Somehow, the narrative about sustainability seems to assume that donors are unpredictable actors whose decision-making is completely disconnected from the organization’s operations. This couldn’t be further from the truth. We actually know a lot about donor behavior.
The development (fundraising) operations of high-performing nonprofit organizations run a lot like sales and marketing departments in for-profit companies. They engage customers, create relationships, and cultivate positive feelings. In the for-profit world, this is done to establish brand loyalty. When done well, it serves the same purpose in the nonprofit world.
While donor engagement does address the predictability and reliability of revenue, sustainability only truly exists when this is paired with financial responsibility and effective planning. Reach, the organization I run, is aggressively building an operating reserve that will give us the capacity to survive unexpected financial challenges. I have two years to build the reserve to 25% of our annual budget. As we grow, that ratio is required to be maintained. So, my ability to contribute to that reserve will place real constraints on the pace of our growth.
And that, my friends, is what this discussion about nonprofit social actors vs. for-profit social models is truly about: The pace of growth. Not about who is more “sustainable” or effective. Some nonprofits suck at being sustainable, but so do some for-profits. The Catholic Church and The American Red Cross are sustainable organizations. I believe Reach Incorporated is as well. Relationships and responsibility are the driving factors in creating that sustainability – the business structure has little to do with it.
For-profit models can grow more quickly because they have easier mechanisms to raise capital—whether through investments or sales. They’re not, in any way, more sustainable. For-profit businesses go out of business all the time, just like nonprofits. Most of the time, this reality has more to do with bad luck or poor management – rarely, if ever, is this related to the structure of the entity. And, if you want to make the argument that our consumer habits are more rational, reliable, and predictable than our giving habits, then I have a slap bracelet to sell you. Or a beanie baby.
The sustainability conversation is really one about patience. Market-based solutions offer the promise of fast growth in a way that nonprofit models do not.
So let’s stop using sustainability as a verbal bomb to destroy the community of nonprofits that depend on donations. In the end, this structure impacts speed of growth far more than it impacts the likelihood of long-term existence. Yes, we all feel a pressure to solve the world’s problems as quickly as possible. But, our desire to move quickly—regardless of the organizational structure–sometimes hinders our ability to be as effective as we might be, especially for those who face the most significant challenges.
Nonprofits have a unique ability to sacrifice faster growth to achieve increased effectiveness, so it’s important that we work on being patient. Efficiency and scale – the hallmarks of market-based solutions (and also factors often conflated with sustainability) – matter little if we don’t maximize effectiveness.
photo credit: fundraisingideas.com