Let’s Change the Way Nonprofits Find Money to Grow

For those who believe in the notion that the nonprofit model is broken and that we need to create new approaches based on business strategies, let’s step back a moment.

We need to ask a simple question: Are we dealing with the cause of the problem or simply a symptom?

To find an answer, let’s start with what we know:

• Nonprofits exist for a commercial reason—to address a market failure and fill a need where for-profits can’t or won’t.
• The “rules” that allow many corporations to succeed simply do not apply in the nonprofit world.
• The consequences of decisions driven by business approaches fall to the organization but even more to those we seek to serve.
• The success of far too many corporations has come at a social cost that has been passed on to government and nonprofits.
• Nonprofit organizations have demonstrated tremendous innovation, creativity, and sheer determination by making real differences in their communities despite working under a fundamentally dysfunctional financing mechanism.

If these statements are true, then perhaps we need not abandon the nonprofit structure. Perhaps there is another way for nonprofits to achieve their goals.

In almost every social entrepreneurship discussion I’ve attended over the past two years, the question has arisen of what type of structure is best. All these discussions have ultimately boiled down to one thing–money.

Businesses have access to an exponentially larger pool of money than nonprofits and operate in a world in which rules about accounting for that money are much less restrictive.

So if the issue for nonprofits is really the access to and the flow of capital, why don’t we just change the rules of how capital works for nonprofits? Why don’t we abandon the bad “best practices” that starve nonprofits and limit their ability to fulfill their missions? Why don’t we pay for the fully loaded costs of serving the poor like we pay the fully loaded cost of a cup of coffee? Why don’t we change the accounting rules and allow for “philanthropic equity“—capital that is used to help nonprofits pay for substantial growth that serves the greater good? These are the private-sector ideas that need to be adopted by the world of philanthropy.

These changes will not only allow nonprofits to grow and bring about more social change but they will also finally bring nonprofits and businesses together. We cannot create a true social-capital market until we address the inequities and dysfunctional rules that are starving nonprofits.

Imagine what could be achieved if nonprofit groups had access to a large and unfettered flow of capital to pay for their efforts to serve the greater good. And then add to that new and innovative social enterprises that work to extend the reach of nonprofit organizations. That is how we can achieve scale. That is how we make a true and lasting difference.