Too many traditional charities are caught in a cycle of continually raising money to maintain their operations. As a result, they are not spending enough time building their operations to promote true change, said David Bornstein, author of How to Change the World: Social Entrepreneurs and the Power of New Ideas, before he delivered a speech to the Association of Fundraising Professionals annual conference here this week.
Mr. Bornstein says the traditional ways charities operate — in which nonprofit groups expend considerable time and energy chasing grants and donations — has taken the emphasis away from finding innovative solutions to major problems such as poverty, urban education, and the lack of health care for the poor.
"We have to invent new institutions and we have to improve the ones we have because we are going to see a major drop in the living standards of Americans if we don't," he said.
Mr. Bornstein, who also wrote The Price of a Dream: The Story of the Grameen Bank about Muhammed Yunus, winner of last year's Nobel Peace Prize, sees hope in a new wave of leaders who are trying to finance their operations in different ways
These leaders are taking novel approaches to solving social problems and are challenging foundations and other organizations to alter the way they support nonprofit groups, he says.
He points to Mr. Yunus as one example of a social-minded thinker who has taken a new approach to a familiar problem.
In the past, most philanthropists supported large-scale capital improvement efforts in poor countries such as Bangladesh, to help improve the standard of living in those countries, Mr. Bornstein says. But those efforts have largely failed to produce any marked improvement in people's quality of life.
Mr. Yunus took a new approach in 1976 when he founded Grameen Bank, which provides small loans to help aspiring entrepreneurs in developing countries start small businesses.
Mr. Yunus, like many other charity leaders, are taking riskier, more business-based approaches to social change than their predecessors. In turn, they are challenging an old-line system that Mr. Bornstein says is largely falling short.
"No organization can become excellent if you're spending 80 percent of your money just trying to get funding," he says. "You just can't do it."
Philanthropy will be more effective, he says, if foundations and others who provide money to nonprofit groups look at themselves like venture capitalists who make investments in the potential of businesses — rather than in what those businesses have already accomplished.
"Why can't we develop solutions that work that way? We need new institutions and we need to change institutions that have become old and stodgy," Mr. Bornstein says.
Fund raisers at traditional charities can learn from these new approaches, he says. Rather than focusing largely on telling stories about past successes, fund raisers should begin to talk about the potential of their organizations to prospective donors. In turn, they can focus on attracting a larger pool of money that can be used to support larger-scale efforts to produce change.
"Sell the vision," he says. "The storytelling approach is about what you can do in the future. If you had this money, wow look at what you could achieve."