There’s a new, or perhaps it is very old, idea kicking around the blogosphere that is probably a dream of many nonprofit leaders. The idea, put forward by Appropriate Infrastructure Development Group (AIDG) founder Peter Haas, is that there could be a company to which nonprofits completely outsource fundraising. Although the idea is intriguing, its underlying assumption that money and mission can, and should be, separated is a potentially destructive one.
Peter proposes a new business idea that takes the burden of fundraising off the backs of nonprofit Executive Directors. A fundraising contractor would solicit donations and take a 10% cut of the revenue:
This is an industry that is waiting for its day…There are incredibly talented development people with strong contacts who raise hundreds of millions of dollars for big organizations…who could do a lot of good in the world by going solo and helping smaller organizations…There need to be more contractors and less consultants in this field, people who will treat it as their job to do the work and the heavy lifting of the fund raising task instead of just offering advice.
Peter’s post set off a string of mostly positive comments and a response blog post by Change.org blogger Nathaniel Whittemore, who thinks it’s a “pretty fascinating idea.” Nathaniel’s post similarly drew comments, which were largely positive.
I completely agree that we need innovation in how nonprofits fund their impact (read my series on Financing not Fundraising), but I don’t think Peter’s justified frustration has developed a valid idea. First, there are legal and ethical challenges, for example the Association of Fundraising Professionals, the largest association of fundraisers in America, calls fundraiser commissions unethical because they inject personal financial gain into a charitable transaction, and the IRS frowns on parts of charitable donations benefiting individuals.
But in any innovation there are hurdles to overcome, so these issues are not what really bothers me. Where Peter’s idea gets dangerous is in his underlying assumption that fundraising can somehow be separated from mission, as he argues:
If the mission of the NGO is the service to the community, and fund raising is truly something administrative (as most donors like to classify it in costs analysis), then it should be something an NGO can easily subcontract. NGOs subcontract back end services all the time, book keeping, accounting, payroll. I don’t hire somebody to tell me how to reach into my heart and find my inner book keeper, I hire a book keeper. Why not fund raising?
But, fundraising is NOT simply an administrative aside that can be tossed to someone else. The money that supports a nonprofit is integral to, not distinct from, the organization’s impact. Unlike a for-profit company that has one customer group, a nonprofit has two: 1) those who benefit from their services and 2) those who fund those services. To separate an organization from one of their customer groups is unthinkable. Not many successful for-profit companies outsource their sales function. Indeed, the most successful companies are those who integrate feedback that their sales team gathers as they meet with current and potential customers (the marketplace). So too should a nonprofit integrate ideas and feedback it gets from its second customer group: its funders.
Ah, I can hear the screaming now. In some nonprofit circles it is close to blasphemy to consider that those with the money should be able to influence a nonprofit program.
But funders (love them or hate them) provide a very necessary input to an organization’s theory of change. An organization can have a phenomenal solution, but if that organization is not able to articulate and demonstrate why a community as a whole should care and how that solution provides a positive return on investment, the solution is pointless.
Nonprofits cannot outsource the absolutely critical function of understanding, building relationships with, and gathering feedback from funders. To separate financing from impact would be to wave goodbye to half your business model and the customers who support it.
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It’s a new year and a new decade, and both hold tremendous promise for creating real social change. And key to significant social change is a fundamental restructuring of how we finance that change. I think (hope) that in the next decade we will see the emergence of a new Social Impact Finance. And I imagine it will look something like this:
- Social Impact Funds Become Commonplace. Experiments like the Federal Social Innovation Fund (which combines government and private money to fund the growth of proven nonprofit models), Village Capital Fund (seed funding for social entrepreneurs, determined by social entrepreneurs), social investment funds like Good Capital, and venture philanthropy funds like New Profit and SeaChange Capital Partners are expanded and become commonplace. Seed and growth funding for nonprofit, for-profit, and hybrid social impact organizations becomes more readily available and accepted.
- Foundations Get Risky. Foundations deny their risk-aversion heritage and provide risk capital for social innovation, whether through their customary 5% cap for nonprofit donations, or social investments from their corpus, or by foregoing dreams of perpetuity and giving all their money away on a big bet or two. See Nathaniel Whittemore’s great post on this.
- Individual Donors Become a Powerhouse. Technology finds a way to harness the power of individual donors toward significant social change. Currently, individual donations make up the vast majority of funding entering the nonprofit sector, yet their gifts are fragmented. With the potential of a new nonprofit rating system on the horizon, and social media’s growing ability to gather and marshal individual participants, there could be a pivotal shift in how individual donations flow to the nonprofit sector, and how significant those individual donations become to nonprofits creating demonstrable social impact.
- Nonprofits Understand the Power of Finance. Nonprofit organizations understand and become successful at financing their overall operations, instead of fundraising for them. And they begin to think bigger about their work, the overall outcomes they are trying to achieve and how finance fits into that (The GiveWell blog did a great series on the “Room for More Funding Question.”)
The end result of these and other changes will be, I hope, that “Social Impact” and “Finance” are no longer separate terms that have no bearing on each other, but instead inextricably linked concepts that create a better world.
Inherent in our current time of constraint (struggling economy, crumbling institutions, unhealthy planet) is the opportunity of possibility. As Margaret Drabble said, “When nothing is sure, everything is possible.”
But it is only possible if we seize the opportunity. Nowhere is this more true than in the nonprofit sector. Let’s admit it, the nonprofit sector tends to be risk averse. And you could argue that the many constraints that they endure incent them to be risk averse. But what if nonprofit organizations seized the opportunity that this restructuring offers and became bold. I mean really BOLD.
What if nonprofit organizations adopted massive, crazy, BOLD goals? The BHAGs (Big Hairy Audacious Goals) that Jim Collins in Good to Great describes:
A BHAG is a huge and daunting goal — like a big mountain to climb. It is clear, compelling, and people “get it” right away. A BHAG serves as a unifying focal point of effort, galvanizing people and creating team spirit as people strive toward a finish line. Like the 1960s NASA moon mission, a BHAG captures the imagination and grabs people in the gut.
It is a massive, energizing, crazy goal that can bring people together, give them something to work for, make them part of a team that is doing something inventive, game-changing.
To Nathaniel Whittemore of the Change.org blog we are obligated to move the solutions we seek to a loftier realm. Those working to solve social problems must be bigger, bolder, crazier, more disruptive in their goals:
Where I think it leaves us is with an obligation to push even harder. At the cusp of that last gasp of crazy, the forces that wish to uphold the status quo kick and fight even harder. The former gatekeepers will not leave without a fight. We need to be even more bold, because at the end of the day, I don’t want 20% better nonprofits with a fundraising strategy better optimized for online giving. I want disruptive change that rights wrongs and realigns incentives for a more sustainable, just future.
And Dan Pallotta agrees. He challenges nonprofits to take a cue from the moon program as well and create massive goals:
Nonprofit organizations have to join forces and begin committing themselves to impossible goals that address the massive social problems we confront, and they must define those goals in time and space — a cure for MS in 10 years; the end of homelessness in Boston in 10 years, and so on. Think of President Kennedy’s challenge: “I believe this nation should commit itself to achieving the goal, before this decade is out, of landing a man on the moon and returning him safely to the earth.” No wiggle room there…
But bold goals are not just for the sake of goals. Those massive, crazy goals propel an organization forward. They galvanize staff, board, volunteers, funders to get up from their chairs, to step away from mindless, boring meetings, to enlist their friends, family, colleagues, to invest time and resources until it hurts. Bold goals are the rallying cry that moves us toward solutions, compels us to fix broken systems, to break out of our inertia:
If a courageous group of nonprofits would call for the end of child hunger in D.C. within seven years, we’d have to start talking seriously about…all of the…structural problems like admin:program ratios, inadequate investment in infrastructure…and those discussions would actually be exciting. There would be a reason to reframe the present structure. To try to reframe that structure in the absence of a compelling context…[is] like trying to develop a lunar module in the absence of any goal to get to the moon. You wouldn’t know anything about the booster that would carry it, the rendezvous strategy, weight limits, etc. Everything you did would be ineffective…Daring goals, set in time and space are the only way to get there. Any less courageous path lands us exactly in the chaotic and ineffectual place we stand today. And that’s a long way from the moon.
I’ve seen with my clients how massive goals can transform organizations and galvanize them toward solutions. When they have decided to take on exponential growth instead of incremental growth. When they have moved from working to grow their services by 50% each year to working toward addressing 50% of the need. The former can address the needs of 100 new clients a year, the latter can move towards actually eradicating the problem all together. This change in perspective, in goals, can revolutionize an organization. No longer are the board, staff and funders content to add a few sites each year with no end goal in sight. Rather, they understand and rally around their long-term goal, which is to solve a problem. And they see every effort they make, every meeting they come to, every investment they secure as getting them that much closer to that solution. It can transform an organization, and ultimately transform a problem. And isn’t that really what we are all here to do?