Stop the Nonprofit Fundraising Treadmill: 3 Reasons I Want to Get Off

Philanthropy; Not Fundraising

I’ve often wondered why we’re the only sector that defines ourselves by what we’re NOT. Nonprofit.  Why not what we ARE? Social benefit.  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 that jeopardizes their ability to raise the resources they need to succeed. Three “town criers” have recently shed light on the growing problem. Though they come at the problem from different perspectives, it is arguable that they’re headed in the same direction.  Let’s take a look at the underlying reasons for the sector’s inability to build sustainable capacity.

The first reason is revealed in a recent study, UnderDeveloped: A National Study of Challenges Facing Nonprofit Fundraising, a joint project of CompassPoint and the Evelyn and Walter Haas, Jr. Fund. You can download the full report (PDF) here. It’s a fascinating report, with plenty of food for thought. In part, it concludes:

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. Fundraising can’t be a priority for just one individual. It has to be a priority, and a shared responsibility, for the board, the executive director and the staff alike.

A culture of philanthropy that is essential to long-term success in the sector is 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.

Why can’t we sell charity like we sell perfume?

The second reason is highlighted in a recent TED talk by Dan Pallotta, The way we think about charity is dead wrong. You can also read his full Wall Street Journal article, Why Can’t We Sell Charity Like We Sell Perfume? He concludes:

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.

A culture of investment, where overhead is not seen as the enemy, is hugely lacking within the 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.

The third reason is the basis of Jason Saul’s book, The End of Fundraising: Raise More Money by Selling Your Impact. He argues that we need to be looking more to the vast ‘social capital market’ – which is approximately 20 times the size of the $300 billion philanthropic market. The fact that we aren’t set up to engage people who attach real economic value to social outcomes (rather than just a slight “feel good” as a result of giving) is vastly limiting our ability to attract the social capital we need to survive and thrive.

The three rationales are related, and potential solutions dovetail.  It’s really all about how we invest in philanthropic work — both in terms of the money we spend and the human capital we involve.  When we silo the fundraising function to one person, one department or one board committee we think too small to scale our resource development to match the worthy needs we seek to address via our missions.  Thinking small this way we will never attain our visions.  Problems will never be solved.

Things that are puzzling

What puzzles me is how much the nonprofit sector is itself to blame. I’m sure some will hate me for saying this, but after 30+ years in the nonprofit trenches I’m still amazed at how small many of us think.  I’m constantly trying to remind folks to think bigger.  In 2008 all I heard was cut, cut, cut.  No one wanted to talk about how to grow, grow, grow so that more (not less) needs could be met.  Yes, some efficiencies were created.  But did they result in sustainable organizations?

Deep down we all know you must spend money to make money.  We expect it of the for profit sector.  Yet somehow when we cross the threshold of the nonprofit all our common sense seems to leave our heads. We pat ourselves on the backs for being self-sacrificing (“overworked and underpaid” was a common refrain I heard through the years, often spoken with a deal of pride yet an underlying, gnawing sense of outrage and/or lack of self worth).

Maybe when we begin to value what we do more, then so will the rest of society.  Here are some of the questions that gnaw at me:

1. Why do we persist in thinking that money is the root of all evil? Why do we tell ourselves that nonprofits are about mission and values and doing good deeds; whereas for profits are about greed and sales.  In both cases, it’s about accomplishments.  That’s where the value lies.  Money is merely a symbol of what can be done with it; an enabler. As a result of this misplaced focus on money, the social benefit sector is hugely undervalued and hugely under-enabled.  Puzzling.
2. Why do we ignore the fact that fundraising is a huge profit center?  It has a remarkable ROI.  I’m not talking about a social ROI (though it has this as well) but a financial ROI.  I’ve often thought that businesses who had the return on investment that nonprofits have would be turning cartwheels.  But when folks see on Charity Navigator that our cost of fundraising or overhead is more than 20% they go nuts. Puzzling.
3. Why are we so impatient with organizations trying to achieve monumental change?  Why won’t we let them invest the resources needed to build an infrastructure suitable to sustain change? Why do we think “overhead” is the root of all evil?  We don’t want to pay for it; just for “services.”  Huh?  People give services.  Shouldn’t they get a salary (aka “overhead”)? Puzzling.
4. Why do we focus on overhead rather than outcomes? As long as we’re making a difference, responding to a demonstrated need and creating social value, does the overhead number really matter? Why would we rather see a charity spend $10 to bake cookies that sell for $100, allowing them to buy five new library books (10% cost of fundraising) or $300,000 to create $1 million worth of social value? Puzzling.
5. Why do we demand self sacrifice from our nonprofit employees?  What’s with the hair shirt mentality?  It doesn’t say much about the value we place on nonprofit work.  We don’t demand self sacrifice from airline pilots or neuro-surgeons because we want them to take good care of us! Don’t we want nonprofit professionals to take good care of our communities and our planet? And the notion that folks are supposed to be so rewarded by nonprofit work that money should not be important denies the reality that folks have expenses, families to support and as much a right as anyone else to earn a living for their good work. Puzzling.
6. Why do we not reward our “ordinary heroes”?  We hugely reward our celebrities and sports heroes.  We don’t seem to complain that they make a million dollars for a one-minute commercial.  Yet let a nonprofit executive begin to make more than $200K and suddenly we’re aghast at how unethical this is.  We don’t want to pay for nonprofit salaries, for goodness sakes! Puzzling.
7. Why do we condone businesses who give million dollar plus golden parachutes to failed business executives just to get them out the door, yet castigate nonprofits who have the good sense to reward a successful E.D. with a salary that keeps them there?  Why do we keep telling nonprofits to “be more business-like”; then not prepare to offer the types of salaries that will attract and retain effective business leaders? Puzzling.
8. Why is the lion’s share of social benefit investing going on outside of the sector these days?  This question is the basis of Jason Saul’s book, which leads to the conclusion that there are plenty of investors out there interested in social innovation and change.  Yet they aren’t doing so through existing nonprofit channels.  They’re starting their own social businesses.  At the same time, giving as a % of GDP that has been flat at 2% for an extremely long time. Puzzling.

It’s going to take a culture shift to move the needle.  We need to stop demanding that charities cut, cut, cut expenses rather than encouraging them to invest, invest, invest in ways to grow impact.  We need to talk more about vision and what it will take to get there.  We need to insist on finding ways to actually solve some of our intractable problems.  We need to clearly articulate our impact and results in order to attract social investing. Studies like “Underdeveloped”, books like Jason Saul’s and TED talks like Dan’s, can only help.

Are you as puzzled as I?  How do you think we can move towards a culture of philanthropy that is not self-limiting? This post is part of the 2013 Philanthropy, Not Fundraising series.

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Image: Flickr by Martin de la Iglesia