In my first post of the New Year I want to give advance notice on some topics deserving of greater attention.

The nonprofit sector is in big trouble. And although Tom and I realize that a lot of readers want to know whether green envelopes work better than orange envelopes, there are more serious issues that demand exploration and discussion.

Of course we’ll occasionally deal with orange envelopes. So, don’t dismay.

There are issues which all of us need to and should wrestle with and discuss. So, here’s an outline of what I intend to deal with in the coming weeks.

New thinking. New approaches are desperately needed.

Why? Because our sector is in deep trouble and new solutions and approaches must be found. Some of the approaches we want to explore will have 90% of our readers thinking we’ve lost our minds. Nothing ventured, nothing gained.

Here’re some ideas, topics and approaches I think we need to focus on, discuss, and develop in 2013. Ideas that just might make us more successful in 2014 … and wildly successful in 2020.

  • We need to challenge the traditional way of looking at the cost of fundraising and investing in growth.

The current tendency to focus on cost of fundraising project by project is just plain myopic, stupid, and inaccurate; it feeds the blind idiocy of some charity watchdogs and sound bite media looking for the sensational, inflicting collateral damage on legitimate charities and undermining donor trust. We’ll explore this in detail.

We of course will not ignore the truly abusive, fraudulent or outlandish practices and will continue urging the regulators to pursue and expose those.

  • In a sector desperate for growth and the funds to support vital missions, we need to explore and put to use some of the engines that drive the commercial world. The desirability of debt, of equity investment, of mergers and acquisitions. These are necessary tools for growth, but they’re little understood or accepted in the nonprofit world.

Just as in our personal lives we have access to mortgages, car financing, loans and credit cards, our nonprofit sector deserves no fewer creative solutions.

Frankly, we must ask ourselves, “Why is the nonprofit sector so incredibly hamstrung financially?” Why are there no market-makers in the nonprofit sector that could provide more financing options to generate growth and scale? (Yes, think of the stock exchange as an example, and don’t forget Ebay and Craigslist and dozens of others who bring demand and supply together in the for-profit world.)

Why is a nonprofit’s usual and, generally, only source of money for growth limited to either ‘stealing’ from operating funds, or some rich guy or gal committed to funding the growth of a favorite cause? Crazy.

To move into the future we must Think Bigger and Demand Bigger.

This is not crazy, Pollyannish talk. Asking for and securing investment in building our sector should not be a cause for embarrassment, but rather a demand that should be shouted from the rooftops.

Ridding ourselves of embarrassment in demanding investment for the future requires that we learn to accept the fact that vendors, donors, bankers should be encouraged to invest – and be given a legitimate and substantial return – to help build our organizations.

The media and the watchdogs sometimes report this type of investment as sinister – and sometimes it is. But automatically condemning the practice of investing $25 to acquire a $15 first-time gift is to ignore a fundamental and essential reality of organization-building. In most cases these investment dynamics are not only legitimate, but eminently sensible strategies. So why do we let the negative comments go unchallenged? We have only ourselves to blame.

Why shouldn’t a bank, vendor, investment fund, endowment fund, or private investor receive 5% or 6% a year to put money into building a nonprofit’s capacity to raise the money needed for its mission? Why deny desperately needed investment funds  to our sector, especially when investors could earn a decent return from doing good? No reason at all.

What our sector desperately needs for growth is liquidity. Money to invest in growth, without diverting funds from programs and mission. But sadly there are lots of preconceived “no-no’s” and just plain ignorance when it comes to investing in growth – and ‘cost of fundraising’ leads the list. There’s no reason to deny a nonprofit access to proper financing options other than our own squeamish fear of what some watchdogs might think.

It doesn’t have to be this way. Many a nonprofit is capable of producing pitch decks akin to those employed by the tech geeks and heavens-know-whom seeking venture or angel investor capital. There are investors out there in need of decent, predictable returns. And we can fill that need.

What about divestiture, mergers and acquisitions?

If we think the nonprofit sector with its proliferation of organizations is or should be somehow immune to the healthy pruning and consolidation required in the private sector, then we are kidding ourselves. And we need to demand that redundancies and the worn-out be merged or killed.

Going out of business should not be the only option for a nonprofit. Merging, acquiring and divesting are healthy, normal and necessary activities for any sector to reduce redundancy, provide scale and divert resources to the better performers. They allow the strong to get stronger. This is mandatory if true change, growth and sustainability are to occur.

I have plenty of thoughts on how all this can be done and so do many others. How can we bring billions in new investment into our sector while also providing decent returns for investors? We’ll explore this question and welcome your thoughts.

But, we’re not going to make much progress in attracting new sources of funding until we’re willing to put aside the beggar’s bowl and treat this, our very significant sector, as the desirable investment it truly represents.

What are your thoughts on seeking investors and paying them back a return for their investment in your organization?


P.S. In future posts I’ll explore the ‘investment option’ and tell you why most nonprofits are missing the boat … expose some over-zealous watchdogs and regulators and the very real dangers they represent … and do my best to add some yeast and ferment as we explore survival and growth strategies. Happy New Year.


This article was posted in: Donor acquisition, Nonprofit management, Transparency.
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