There is much talk lately about what the fallout of our deepening recession will be for the nonprofit sector. Paul Light gives four future scenarios for the sector, others are pinning their hopes on the new Obama administration, a new economic stimulus plan, and/or the Serve America Act to revitalize and strengthen the sector. Who really knows what the future will bring. However, I firmly believe that if we realize the opportunity in these unknowns, we can fundamentally transform a fairly broken sector. And let’s be honest, the sector is fairly broken:
- The sector is sorely undercapitalized. It is very difficult to find capital to scale successful organizations, to take out an expansion loan, or to build capacity. Nonprofits are forced into a continuous fundraising cycle that is difficult at best and nearly impossible in times like these. And we tend to reward those organizations that keep their “administrative costs,” the very costs that will help them be more effective at what they do, to an absolute minimum.
- Because nonprofit organizations are undercapitalized they cannot pay competitive salaries to attract or keep top talent in their organizations. That’s not to say there is not top talent in the sector, to the contrary there are incredibly talented people, but they are working much too hard, with very little resources (including adequate staffs) and are burning themselves out.
- Nonprofit boards of directors, the stewards of these organizations, are often not trained in their duties and are too strapped for time to help organizations achieve their missions, grow, and become financially stable.
- The process for becoming a 501(c) 3 is too easy and somewhat unregulated, creating incredible competition for very scarce resources.
- The high-dollar philanthropic funding for the sector comes from individuals and foundations who often have their own theories of change. Grants tend to be direct-service, not infrastructure, focused and put too many strings on the money.
- Governments who contract with nonprofits increasingly push them to deliver the same or increased level of services for less and less money, creating a move towards rock-bottom priced services.
- There are no rewards in the sector for innovation or risk-taking, in fact innovation is disincentivized.
So, how could we seize the opportunity that the changing economic, social and political climate affords the social sector? What could we in Austin do to innovate out of this situation:
- Our city government could partner with local businesses and venture capital firms to fund a local version of the proposed federal social investment fund. A pooled fund of government and private money could be invested to grow and build the capacity of nonprofits and social enterprises that deliver great solutions to our community.
- Philanthropists, both individuals and foundations, could make a commitment to fund the capacity and infrastructure of those nonprofit organizations that are demonstrating real results. These investments would not be direct-service program investments, but rather investments in the high-quality capacity and infrastructure (technology, staff, consulting, etc.) these organizations need to be successful.
- Nonprofits could talk about the social return on investment they offer investors and how they are providing real solutions to the problems we face. They could encourage their board members and funders to understand what it really costs to provide the high quality services they provide (both direct and indirect costs) and what it would really take to grow to meet the increasing need.
And finally, we could all start to recognize that we can no longer leave nonprofits alone to figure out how to serve more people with fewer resources while the problems that affect all of us get bigger and more complex. We need to recognize that things are changing. Our economy is changing fundamentally; the government, private and nonprofit sectors are converging; a movement for social innovation is going on nationally. There is real opportunity for Austin to get involved in, profit from (socially and economically), and potentially lead this movement. Let’s start that conversation.