March 20, 2011 | Read Time: 6 minutes
We are facing the end of fund raising as we know it.
The primary sources of revenue for nonprofits are all in irreversible decline: The federal government is broke, states are running budget deficits that total $140-billion, the charitable tax deduction is in jeopardy, and giving has seen the deepest declines ever recorded. As The Chronicle reported in its Philanthropy 400 in October, donations to the nation’s biggest charities dropped 11 percent last year. What’s more, contributions to foundations fell 8 percent in 2009, following an almost 20 percent drop the year before.
So now what? We can lobby harder. We can beg more. We can tread water.
Or we can find a new way to operate.
Today most nonprofits offer opportunities for donors to feel good—and to expect nothing in return for their gift other than a warm glow.
Because most donors are not directly affected by the results of nonprofit work—they themselves don’t get groceries at the food bank or benefit from the scientific research they finance—nonprofits have no leverage beyond sheer moral suasion. And even that is getting harder: While the $300-billion Americans give to charity each year may seem like a big number, when you skim off the $100-billion or so that goes to churches and other religious organizations, and then divide the remaining $200-billion by the nation’s more than 1 million charities, you get an average of $200,000 per organization. That’s not much.
But perhaps the reason that all seems like too much of a struggle for too little money is that we’re focusing on seeking money from the wrong places and in the wrong way.
For too long in the world of philanthropy, there has been a substantial disconnect between supply and demand. Nonprofits “supply” social impact (research, services, advocacy, etc.), but the “consumers” of that impact (the beneficiaries) are often the least able to pay. As a result, foundations, donors, and governments are the ones that set the demand for these services, using their best judgment to choose which organizations should get financed and which should not.
Imagine instead if there were people, companies, and other entities that actually valued nonprofit work and had not only the ability to pay for it but also a direct economic benefit in guaranteeing the results nonprofits produce.
We wouldn’t have to “beg” for contributions; we could actually “sell” the results they commit to producing. No longer would we traffic in the currency of psychic benefit; we could actually have leverage with rational decision makers. We could be judged not by the content of our programs, but by the quality of their accomplishments.
Nonprofits produce loads of results that have direct economic consequences—in education, environmental protection, health care, international development, youth empowerment, even the arts and animal rights.
Nonprofits that increase the number of people who get food stamps generate millions of dollars of new spending for Wal-Mart and other grocers who value that social outcome. Instead of seeking a philanthropic contribution from those companies, nonprofits could negotiate directly with the owners of local stores for support.
Other groups also have opportunities to steer the search for money to other parts of the corporate world that benefit from their work and no longer need to focus solely on grant seeking from corporations.
Organizations that work to improve science, math, engineering, and technology programs provide a valuable pipeline of new talent for technology firms.
Ronald McDonald Houses, which offer needy families a place to stay while their children get high-quality medical care far from home, help hospitals achieve better results—in large part because patient stays are shorter and kids are better off when their parents are around for support. Easter Seals benefits large insurance companies that need a high-quality service provider to help autistic children become more independent.
Consumers spend $227-billion annually for goods and services related to health, the environment, social justice, and sustainable living. Corporations spend billions on environmental sustainability, social responsibility, and volunteerism and other efforts to keep employees loyal and motivated. Governments spend more than ever on education and health care results not just because they are social entitlements but also because they affect our nation’s economic competitiveness. Investors have allocated $2.71-trillion to socially screened mutual funds, pensions, and other impact investments. Those dollars mean there’s no reason to focus just on the $300-billion in charitable contributions but to look at the quest for money in a whole new way.
The fact is that today social change is no longer something that operates outside of the economy. As a result, neither do nonprofits.
The “product” that nonprofits sell—social impact—now has mainstream economic currency. Think about that: Mainstream economic actors, not just do-gooders and philanthropists, want to buy what we have to sell. This is surely a transformational moment. In lieu of donors and subsidies, which are inherently unsustainable, nonprofits must identify those “impact buyers” who value and directly consume their results.
Still, as much as the market has embraced nonprofit work, nonprofits have yet to embrace the market. They continue to sell to donors who “feel good” about their work rather than mainstream economic actors who “value” their work. They continue to raise money outside the walls of the economy when they could be selling their impact within.
Many groups will struggle to make the changes they need to adjust to this new reality. In the social capital market, nonprofits can’t just tell stories or produce emotion-tugging photos. They have to appeal to companies, donors, and others who are placing huge economic bets on the value nonprofits can create. Moreover, these folks aren’t just looking for “reach” or “raised awareness”; they’re looking to solve social problems.
So nonprofits need to change—and to figure out how to capture, market, and sell “high value” outcomes—the outcomes most relevant to actually solving those problems. Bottom line: Now that there are direct economic consequences of social change, the margin for error (and failure) is that much lower. Performance needs to be that much higher and results that much better.
To solve social problems, nonprofits must take more entrepreneurial, innovative, and systemic approaches to their work. This means that groups can’t just keep doing what they are doing and hope that someone will finance it.
If people are really “buying impact,” not just giving money to programs, then nonprofits need to devise better strategies to produce those results. That requires a whole new toolkit: public-private partnerships, new technologies, new incentives, and cutting-edge approaches to creating change.
It’s time for all of us to think about new ways to forge social outcomes into economic currency. It is time for the nonprofit world to tap into the engine of the economy, not just the fumes.
