It’s Time for an Evolution: Creating the Superior Nonprofit*

Like business, I believe nonprofits should be rewarded when they demonstrate financial success and laid to rest when they don’t. (I can feel jaws dropping and arrows hurtling toward me).

Businesses are held financially accountable by the market. Increasingly, we’re holding them accountable for their social impact as well. We reward humanistic companies with our purchases, our employment and our advocacy.

Yet our relationship (both the positive and negative) with nonprofits hasn’t evolved. We expect nonprofits to be socially effective and financially solvent without much reward for success in either category. Sure, Charity Navigator rates the efficacy of nonprofits, but that holds about the same amount of sway as a Good Housekeeping seal today. It’s a minimal influencer of donor dollars and social benefit.

Why don’t we apply the same market forces to reward nonprofits for their social impact and penalize them for lousy financial performance?

Robert Egger, founder of D.C. Central Kitchen, advocates a return on investment (that is, a donation) that corresponds to the social productivity of nonprofit. Currently, a $20-donation to DCCK helps the organization train and put to work hard-to-employe individuals, the financial impact of which is significant. These gainfully employed individuals now pay taxes and are less likely to revert to crime or drug use, saving tax payers money in social service and prison costs. Much like a business, DCCK is able to leverage my $20-investment. Egger’s proposal to the nonprofit sector is to pay donors yearly dividends on their donations, based on the organization’s performance.

In a core conversation on crowd-sourcing social impact at SXSW, Brian Reich advocated that nonprofits that can’t cut it, should bow out. It’s a heretical perspective (applying supply and demand principles to social aid) that I share. If an organization can’t levy adequate (donor) support, it should make way for ones that can.

Cause Capitalism is about creating stronger businesses by integrating a social objectives. Why not also look at creating superior nonprofits by applying specific market mechanisms?

*N.B. I understand the absurdity of the term ‘nonprofit’ in this post, but it’s an understood label that I hope allowed me to communicate my point without messy jargon.

Tags: , , , , , , ,

6 Comments

Leave a comment
  1. Al Huntoon March 24, 2011 at 2:39 pm #

    I wish it were so simple! The difference between for profit and nonprofit performance is a lot like the difference between a track meet and a soccer match. Nonprofits are subject to market forces but, by and large, these forces are not the same sorts that affect for profit businesses. With NPOs there is usually an indirect relationship between the customer and the consumer as well as a complicated relationship between the value of the financial contribution of the donor/investor and the value of the social benefit.

    Egger’s suggestion is an interesting one but probably doesn’t actually apply to all that many situations. By far most donors what to make a contribution that is not really economically reciprocal — they imbue the nonprofit they support with a certain agency, to act on their behalf in doing good.

    In fact, nonprofits do go bankrupt when there is insufficient “market” support for their services so there are consequences for poor performance. But other than that extreme who gets to decide when a nonprofit “can’t cut it?” And is there really a problem with nonprofits that can’t cut it and are still being allowed (again by whom) to continue to operate? It’s a pretty easy thing to advocate a simple solution for a condition that may not really be a sizable problem.

    In the end, I think the real problem is one of perception. Public confidence regarding nonprofits is eroding and it probably has more to do with the lack of communication about performance than financial efficacy and social effectiveness. How can business practices be applied to the challenge of helping worthy nonprofits to be better at measuring and communicating performance?

  2. Becky Hayes March 24, 2011 at 9:59 pm #

    I absolutely agree with you. I felt hurt to my heart with the attacks on NPR What’s next Sesame Street? This is not going to do anything for the budget deficit. It’s just getting rid of the one of the few places without a profit motive where regular people can go and have a voice. It’s a place where tax payers can speak freely without having a PHD or celebrity status. NPR is the only outlet that is not own by one of the big media moguls. The moguls obviously have their own agenda — the dumbing down of America. The mission is to keep everyone stupid so they can rob us all blind. Maybe I need to hear more news about Snookie. It brings me back to my old favorite term “Cannibal Capitalism” this from of capitalism practiced in the country is deadly. Pay to play politics is sad.

  3. Olivia Khalili March 25, 2011 at 2:41 pm #

    Al,

    Brilliant comment. Thank you for digging deeper into some of these areas. I knowingly simplified several points in this piece in favor of communicating a larger message. I really appreciate the knowledge and perspective you’ve brought. I think public perception of nonprofits is an issue but so is the limited way in which we look at profit vs. social good. I also see an evolving imbalance in our expectations and reward of for-profits vs. nonprofits–with nonprofits loosing out. Thanks again for contributing to this discussion.

  4. Michael Sattler March 28, 2011 at 6:50 pm #

    While I fully support the idea that nonprofits should be judged by their ability to demonstrate a return on investment (and I completely LOVE DC Central Kitchen’s model), I think that the definition of “return” needs to be broadened a bit. We invest in social organizations for reasons that go beyond personal ROI, because we actually intuitively understand that capital comes in many forms – the financial/economic version being just one flavor. In truth, while we may *tell* ourselves that we “give” to social organizations, we *always* expect something in return – whether it’s prestige (like naming rights on a building), social (having my name on a plaque), sensory (the beach looks much better after that cleanup), experiential (I love borrowing books from the library I helped fund), or empathic (I loved the look on that homeless man’s face when I gave him money). And we all feel cheated if our money is “wasted” on things other than a specific outcome (or goes to pay for photocopies). Far from being selfish and wrong, this is actually universal/human nature and is as powerful a motivator as the capitalist/self-interest drive – in fact, I would argue they are one and the same. Imagine the world where we own our own desire for social outcomes and are comfortable asking for returns on our investment – in varieties broader than cash. We’d get a lot accomplished, that’s for sure.

  5. Olivia Khalili March 28, 2011 at 7:29 pm #

    Hi Michael, I agree with your points, including broadening the way we look at “return.”

    Philanthropic/humanistic drive is magical and powerful. I’m all for it, but I think nonprofits deserve more than being a vehicle for our good will. They deserve additional structures and practices that reward them when they are successful. We reward socially beneficial companies with our business because we believe it’s advantageous for ourselves, families, communities, planet, etc. Can’t we set up financial support systems for nonprofits when their work gives us equal or greater benefit?

    Love this discussion. I’m straddling a thin line between philosophical input and strategy. I think I may have just crossed over in this comment.

    Thanks, Michael.

  6. Michael Hill January 3, 2012 at 2:31 pm #

    We may be birds of a feather. My name is Michael C. Hill and I am the author of Cannibal Capitalism: How Big Business and The Feds Are Ruining America, about which Dr. Carl Schramm, Ph.D., President and CEO of the Kauffman Foundation said, “Anyone concerned with the serious issues and possible solutions facing our economy should read this book.” ( http://www.amazon.com/Cannibal-Capitalism-Business-Ruining-America/dp/111817531X) According to USA Today, I literally wrote the book on what’s driving the Occupy movement. (http://www.usatoday.com/money/books/reviews/story/2011-12-20/books-cannibal-capitalism/52162292/1) Santita Jackson of the Rainbow/PUSH coalition called the book “prophetic.” Some are puzzled as to why a venture capitalist and career entrepreneur would write a book entitled Cannibal Capitalism, but it is really all about sustainable capitalism as opposed to that which leads to the current economic mess. Corporate social responsibility factors in, but it takes more than that. We should see if some collaboration is in order. Cause capitalism could be a antidote for CANNIBAL CAPITALISM.

Leave a Reply