For many years now, I have bellowed a mantra to anyone who will listen. In order to succeed, charities must operate with the head of a business and the heart of a nonprofit.
I can’t count how many times I’ve seen nonprofit professionals cringe at the thought of adopting a business mindset. Sometimes, it’s their own personal biases, and sometimes, they fear the repercussions of their supporters. But now, there’s Dan Pallotta who is singing a tune akin to my playbook in his Harvard Business blog.
During my marketing career in the nonprofit sector, I’ve seen some leaders adopt a social entrepreneurial attitude to revenue generation. Many organizations have diversified their revenue streams by adding businesses to their revenue mix. This has helped some move away from the high risk of dependency on government grants and other handouts that tend to disappear in tough times. Besides, so many grants come with strings attached that organizations have been unable to invest in their own growth.
Dan Pallotta says it beautifully:
The nonprofit sector remains tightly constrained by a set of irrational economic rules handed down to us from the Puritans that discourage profit, self-interest, serious marketing, and risk-taking and long-term investment for revenue development. They work against the sector on every level, and they have been elevated, of all things, to the status of “ethics.”
We have two rulebooks – one for charity, one for the rest of the economic world.
How contradictory is this?
For decades, nonprofits have been picking up the pieces that governments and the private sector let fall through the cracks. Especially now, in this recession, charities are struggling to keep up with demand while donations have been cut back. They are expected to do more with less, but frankly, so many have been coming at this from a position of weakness even before the economic downturn. How much more can they scrape off the bottom line? There’s not much gravy there.
Yet, fundraisers will tell you that supporters are frequently reluctant to fund operations. Donors are eager to have their dollars go to the mission, but not necessarily to the salaries, infrastructure, and costs associated with running the organization that makes the mission possible. If they won’t fund these essentials, where does that leave funding for innovation?
As Pollotta says, “We let for-profit companies invest in the long-term to identify new sources of revenue, but we want charitable donations spent immediately to help the needy…No wonder charities can’t scale to the size of the social problems they confront.”
So, even when nonprofits try to develop more of a business sense to sustain themselves and do more, they are butting heads with the public and supporters on whom they must rely.
How do we resolve this?