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Why Our Definition Of Nonprofits Restricts Problem Solving

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I’ve often wondered why we’re the only sector that defines ourselves by what we’re NOT.


Why not what we ARE? Social benefit. Or, as Dan Palotta once suggested, “humanity sector.”

Rather than focusing so much on how to scrimp and save and be as cost-efficient as possible, shouldn’t we be focusing on how to spend and grow and be as big and effective as possible?

Nonprofits are stuck in a vicious cycle, jeopardizing their ability to generate the resources they need to succeed. 

Let’s take a look at six underlying reasons for the sector’s inability to build sustainable capacity to solve the world’s pressing problems.

1. Where are our cultures of philanthropy?

To be loving, one must begin with a loving stance.

Over a decade ago, CompassPoint and the Evelyn and Walter Haas, Jr. Fund published a three-part series of reports exploring culture of philanthropy. Or what I like to call a love-train culture. The first, UnderDeveloped: A National Study of Challenges Facing Nonprofit Fundraising, concluded:

“Organizations need to make fundamental changes in the way they lead and resource fund development in order to build the capacity, the systems, and the culture to support fundraising success. Among the signs that an organization is up to the task: It invests in its fundraising capacity and in the technologies and other fund development systems it needs; The staff, the executive director, and the board are deeply engaged in fundraising as ambassadors and in many cases as solicitors; Fund development and philanthropy are understood and valued across the organization.”

Alas, a culture of philanthropy essential to long-term success in the sector is still largely absent from our institutions. 

Huge instability in the development director role is just one symptom of a larger problem: lack of basic fundraising systems and inadequate attention to fund development across the board.

2. Why aren’t we investing in greater impact?

To drive impact, one must truly value that impact.

Also, a decade ago, Dan Pallotta gave what’s become a famous TED talk, “The way we think about charity is dead wrong.” He talks about how the ways we’ve been taught to think about social innovation, and the role charity plays, are undermining the causes we love and our profound yearning to change the world.

It’s time to change how society thinks about charity and social reform. The donating public is obsessed with restrictions—nonprofits shouldn’t pay executives too much, or spend a lot on overhead or take risks with donated dollars. It should be asking whether these organizations have what they need to actually solve problems. The conventional wisdom is that low costs serve the higher good. But this view is killing the ability of nonprofits to make progress against our most pressing problems. Long-term solutions require investment in things that don’t show results in the short term.”

In his book, Charity Case: How the Nonprofit Community Can Stand Up For Itself and Really Change the World, Pallota writes:

“The nonprofit sector is critical to our dream of changing the world. Yet there is no greater injustice than the double standard that exists between the for-profit and nonprofit sectors. One gets to feast on marketing, risk-taking, capital and financial incentive, the other is sentenced to begging.”

A culture of investment, where overhead is not seen as the enemy, is hugely lacking within the social benefit (aka nonprofit) sector and among the public at large. 

There is a separate rule book for charities that has a chilling effect on risk-taking, social innovation, and entrepreneurship.

3. Why aren’t we attracting social capital?

To be of social benefit, one must sell impact.

More than a decade ago, Jason Saul published The End of Fundraising: Raise More Money by Selling Your Impact. He argued we need to look more to the vast ‘social capital market’ – which is approximately 20 times the size of the philanthropic market. The fact that we aren’t set up to engage people who attach real economic value to social outcomes (rather than simply the psychological “feel good” individual donors get as a result of giving) is vastly limiting our ability to attract the social capital we need to survive and thrive.

Social benefit organizations must stop begging for charity and start selling impact. 

It’s a subtle shift in approach that can pack a big punch. Saul details four steps for nonprofits to follow:

  1. Get a deep understanding of the impact you have and express it in clear terms.
  2. Identify those who want and can pay for impact (e.g., corporate partners, social and impact investors, and service providers).
  3. Understand your impact on buyers’ specific needs.
  4. Ensure your value proposition is clearly defined.

4. Why are we fighting amongst ourselves?

To solve pressing problems, people must come together.

Over the past several years, a whole new movement has entered into the fray – community-centric fundraising – as a counter balance to what is deemed the nonprofit industrial complex. The distinguishing argument veers from simply “not enriching shareholders” (evil for-profits) to “not reinforcing capitalism, patriarchy, white supremacy and more” (evil nonprofits).

We’re faced with an evolving definition of the sector that shifts from the concept of “social good” to one positing most nonprofits, by definition, reinforce “social ills” by upholding oppressive ways society is organized.

Perhaps. But by creating division and erecting barriers to giving, and fundraising, “philanthropy” (aka “love of humanity”) suffers. While some within this movement would say this is a good thing, arguing the sector (by any name) should not exist, and society should simply be restructured to embrace a diverse, equitable, and inclusive model, I’m not convinced.

I can’t argue with this utopian vision, yet I’m not ready to throw the baby (the “sector”) out with the bathwater (fundraising). Too many problems need solving, and Eden is not just around the corner. Which is why I advocate a practice of “philanthropy, not fundraising.” Love, not money.

5. Why are we fighting with donors?

To empower people to be the change they want to see, one must facilitate philanthropy.

This means making giving easy, not hard. Because so many problems need solving, it’s just not fruitful to get into a determination of which donors should be entitled to give, which should not, and how they should be rewarded. It’s important for fundraisers to fully embrace philanthropy as a positive, not a negative.

I always say “if you want gifts you must give them,” and in four decades of fundraising I’ve found one constant in donors who remain loyal and passionate — they repeatedly tell me:

“I get so much more out of this than I give.”

That’s how you want donors to feel. Because it’s what keeps them coming back. The more you can help people – donors included – secure what they most yearn for, the more successful you’ll be in driving purpose-filled actions, creating a community that cares for its members. All of them.

The “us” vs. “them” attitudes, roughly lumped under the mantle of “community-centric fundraising,” are unfortunate. 

Because they do the opposite of making people feel connected to your community, enveloped in your loving (the “philos” of philanthropy) embrace.

6. Why do we persist in thinking small?

To do the greatest good, one must think expansively.

I am constantly counseling social benefit organizations to think and dream bigger. Ask yourself:

  1. What’s our real vision?
  2. How much more could we accomplish with more resources?
  3. Why are we limiting ourselves?
  4. What else could we innovate?

Everything I’ve written thus far points to the fact it’s really all about how you invest in philanthropic work — both in terms of the money you spend and the human capital you involve.

Big problems will never be solved by small solutions.

When you silo the resource development function to one person, one department or one board committee, you think too small to scale your solutions to match the worthy needs you seek to address via your mission.  Thinking small this way, you’ll never attain your vision.

Concluding thoughts

It’s going to take a culture shift to move the needle.

I fear we’re racing to the bottom with our emphasis on lean and mean. As the inimitable Seth Godin notes in Cheaper than that, “Once we’ve cut every corner, all that’s left is the brutality of lessThe problem with the race to the bottom is that you might win.”

Studies like “Underdeveloped,” books like Jason Saul’s, TED talks like Dan Pallota’s, and movements like community-centric fundraising that seek a transformational approach to the task of repairing the world can help. But only if nonprofit leaders take them to heart, thoughtfully consider their implications and implementation, and actively commit to essential change and innovation. We need to:

  • Stop demanding charities cut, cut, cut expenses rather than encouraging them to invest, invest, invest in ways to grow impact.
  • Talk more about vision and what it will take to get there.
  • Insist on finding ways to actually solve some of our intractable problems.
  • Clearly articulate our impact and results in order to attract social investing.
  • Spread the love around, centering our light on staff, board members, donors, volunteers, beneficiaries, and the entire community that stands to benefit when we all fight the good fight together.
  • Figure out a way to prioritize community without cutting donors out of the picture – empowering both donors and beneficiaries alike.

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