Why Nonprofits Don’t Do Big Things

Phil Stolberg over at Grizzard Communications Group wrote an interesting blog post this morning.  In his post, Next Big Things for Nonprofits, he said:

…if one can change television channels or locate a movie with hand gestures, we ought to be able to figure out how to match the communication channels that motivated a philanthropic gift with the giving channel used by the donor to make the gift. Or, if a software program can be designed to help little children write and publish their own books, we ought to be able to figure out how to send a thank you letter immediately after receiving a gift.

Phil is right.  If we can do such cool and innovative work in the commercial world, certainly we should be able to get the basics (like timely thank you receipting) right in the nonprofit sector.  Right?

Unfortunately, we consistently find that isn’t the case.  I think the problem quite possibly comes down to one word…

Capacity.

Every innovation Phil listed required time, research, testing, marketing and capital (both human and financial) to bring to market.  Some took years, and potentially millions of dollars to get off the ground.  As a society, we praise companies that are doing innovative things to change the world for the better.  Apple.  Facebook.  Twitter.  Companies like this invest significantly and have wonderful (and widely used and lauded) products and services to show for it.

But what it took for all of these companies, and everything Phil listed in his post to become reality is capacity — something that very often, nonprofits are told they don’t have the luxury of building.

After all, this is the very thing that our society doesn’t seem to want nonprofits to focus on.  They get squeezed from every direction.  Congress lovest to investigate nonprofit finances.  Watchdog organizations rank nonprofits by how much or how little they spend on administrative and fundraising expenses.  Donors (both individual and corporate) scrutinize organizations’ 990’s before making a giving decision.  And the media loves stories about nonprofit financial scandals — those sell ad time like crazy!

Nonprofits are told things like:

  • Be more efficient with what you already have.
  • We only fund program, not operating costs, and certainly not fundraising costs.
  • You’re paying your staff too much.  Don’t you know this is a nonprofit?
  • It’s imperative that you reduce your fundraising costs.  25% is way too high.
  • You’ve really got to spend more on programs and less on infrastructure and capacity building – donors don’t want to fund that stuff.

None of these is inherently bad.  In fact, I can agree with many of them (within reason).  We all want to see nonprofits doing the most good in this world.  Using donated resources in the most efficient and effective manner to create real change in this world is in everyone’s best interest.

But it is incredibly naive to think that any organization (tax-exempt or not) can do real, lasting good on this planet without having the capacity to try new things, staff appropriately (and pay appropriately), take calculated risks that could lead to major breakthroughs, and have the financial reserves to withstand fluctuations in the economy.

Unfortunately, the trend these days is to tell nonprofit leaders we want them to do exactly the opposite.  By our actions (what we will and won’t fund, watchdog rating mechanisms and congressional hearings) we are telling nonprofits to focus on the immediacy of their particular issue (whether that’s the environment, animal welfare, poverty, etc.), and not to focus on building long-term, sustainable solutions to our most pressing problems.

Can you imagine if the shareholders (i.e. donors) at Apple had told the board similar things about the way Steve Jobs ran the company?  He made too much money.  Cut his compensation.  Spend less money on research and development – can’t you find volunteers to help out with that stuff?  Your marketing budget is way too big — cut that in half.  I’m sure we can find someone to give us those services as an in-kind contribution.

We’d be without many of the products and technologies that right now are fueling economic growth around the globe.  And thousands of people might be out of work because Apple was too focused on short-term goals.

This would be a bad thing, right?

Then why is the exact same approach to capacity building the accepted norm for the nonprofit sector?

We’re tying the hands of the very people who have the vision and the ability to do great things like cure cancer, eradicate disease, provide sustainable clean water and lift millions of people out of poverty and despair.

Instead of celebrating them as they build the organizational capacity and infrastructure to create long-term systemic change in the world, we demand that they do more with less because they’re a nonprofit.

Until we fix this mindset I don’t see many nonprofits being able to accomplish their Next Big Thing.

Am I wrong?  Please share your thoughts!

Please note: I reserve the right to delete comments that are offensive or off-topic.

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10 thoughts on “Why Nonprofits Don’t Do Big Things

    • Thanks, Chip! And thanks for sharing Dan’s article. Uncharitable is a great read. Just wish it were required reading for anyone interacting with organizations in the sector. 🙂

  1. Thanks for your post. Very interesting ideas to think about. I might argue that only part of the perceived shortage of innovation seen from non-profits can be attributed to lack of capacity; the other part comes from the demand side, with news media being slow to celebrate the achievements of NPO’s, and the largest stakeholders in many NPO’s being marginalized populations. But how to increase demand for services for the homeless, or for children from low-income families, or for neglected animals?

  2. So glad you brought this up, Andrew as I think it’s a discussion that deserves more attention. While nonprofits certainly need to be as efficient as possible with donors’ gifts, so often how the public defines that efficiency limits a nonprofit’s ability to to invest in innovative solutions that can make a larger or more sustainable impact on the very mission the public wants to support. So often, people seem to feel better about a nonprofit being frugal than they do about one that takes a longer-term perspective and invests in solutions that might even solve a social challenge or exponentially increase its financial support.

    • Colleen,

      You’re so right. This is precisely the problem faced by many (if not most) organizations in the sector. To some extent I think nonprofits themselves are to blame for this problem as well. I cringe when I see a nonprofit claiming that they spend only 3% or 8% on administrative & fundraising costs and that 92% or 97% goes to programs. Often, if you look far enough under the hood you’ll find that many items that should be classified as administrative & fundraising have been recategorized as program. All this does is condition donors and watchdog orgs to gravitate toward the organizations with the lowest overhead percentages.

      Thanks for commenting — it’s great to hear from you!

  3. Andrew,

    This is a great post that is so true! I believe that changing this mindset rests with us. As fundraisers, we need to educate people especially board members regarding what it takes to operate successful non-profits that create major impact. I believe that board members sit on non-profit boards to provide these business principles to the operation, but instead they often err on the side of public perception and insist on frugality. Hiring unqualified leadership because they will accept lower pay and keep the administrative costs low does not further the mission and can often harm it. For example, I worked with an organization that has a phenomenal mission, but to save money, they have hired an executive director with no previous experience and insecurities that have damaged the institution. In fact, their board chair has confided that he knows she is not capable of running the organization the way it should be run, but she is the best that they can afford. This is not how he runs his for-profit business at all. As my mother always has said, people often “strain a gnat and swallow a camel.”

  4. I recently had the privilege of working with an organization that was willing to do the hard work of innovating. They asked themselves some tough questions and realized they could have significantly more impact on the problem they were focused on if they made a number of costly changes. They estimated it would cost $3 million over 3 years to create the necessary change. Donors were inspired to respond with unprecedented support knowing that their gift would be used transform the way the organization operated in the long term. The results have been dramatic. The lesson I learned was that donors will absolutely make big investments to support innovation if you can demonstrate that they will in turn make the difference they want to make in the world.