The grim economic news of the past week underscores why life in the nonprofit world isn’t going to get better anytime soon. Economists agree that this will be another “jobless recovery” where the gross domestic product will continue to improve but employment figures will stagnate.

At the same time, we seem to be ready as a society to tighten our belts and go down the path of “all cuts, no new taxes” to balance state budgets as well as to trim the burgeoning federal budget deficit. It sounds good to those who believe that government is rife with waste and inefficiency.

But in neighborhood after neighborhood, we will see the devastating impact of budget cuts on social services that will disproportionately punish the most vulnerable in our communities.

Nonprofits won’t be able to make up for the government reductions with money from private donors.  Giving from…

Read More

Over the past few months, the Nonprofit Finance Fund has had the opportunity to work with several foundations and regional associations of grant makers across the nation on efforts to rethink how they can better use their grant dollars to achieve more and better results in their communities.

Time after time, I have been struck with the deep desire by foundation program officers and staff members to change what many understand is a flawed system. Too often, foundations bear the brunt of the blame for creating many of the problems facing nonprofits.

As Ann Goggins Gregory and Don Howard suggest in the Stanford Social Innovation Review, the problem boils down to “funders’ unrealistic expectations about how much running a nonprofit costs.”

Laying the blame and responsibility on the doorstep of grant makers and their “unrealistic expectations” might play well with many people who…

Read More

For those who believe in the notion that the nonprofit model is broken and that we need to create new approaches based on business strategies, let’s step back a moment.

We need to ask a simple question: Are we dealing with the cause of the problem or simply a symptom?

To find an answer, let’s start with what we know:

• Nonprofits exist for a commercial reason—to address a market failure and fill a need where for-profits can’t or won’t.
• The “rules” that allow many corporations to succeed simply do not apply in the nonprofit world.
• The consequences of decisions driven by business approaches fall to the organization but even more to those we seek to serve.
• The success of far too many corporations has come at a social cost that has been passed on to government and nonprofits.
• Nonprofit organizations have demonstrated tremendous innovation, creativity, and sheer…

Read More

Over the past few years, we have seen a rapid acceleration of business strategies being applied to work traditionally done by nonprofits.  This is certainly nothing new—Muhammad Yunus, the Nobel Prize-winning founder of Grameen Bank, and others have been at this for decades. But we seem to have reached some type of inflection point.

A number of blogs and conferences are now devoted to social entrepreneurship. Foundations and philanthropists—not to mention whole consulting firms—are also rushing into this space. What’s going on?

One answer is that the nonprofit business model is broken. Social entrepreneurs have referred to nonprofits as “our cousins”—but we’re treated more like the stepchild.  Many say nonprofits and philanthropy are dysfunctional at best and totally broken at worse.  Nonprofits cannot innovate. They are inefficient and ineffective, and they lack…

Read More

The seemingly sudden decision of Unitus to exit the microfinance field has raised many interesting questions about the rise of social entrepreneurship.

Unitus—a Seattle organization founded by venture capitalists and tech entrepreneurs to use innovative, private-sector strategies to fight global poverty—this summer dismissed its entire staff and saw three board members resign as it declared victory and exited microfinance.

Donors, meanwhile, were left wondering what the heck had just happened.

The ability to quickly change, to abandon a strategy that no longer holds true, and to turn and head off in some radical new direction are seen by entrepreneurs as normal and a regular part of a successful business. But in the nonprofit world, Unitus’s decision was greeted with confusion and consternation. To understand why, we must understand how the nonprofit world perceives the…

Read More