Corporatized Nonprofits–PhilanthroCapitalism: Paradox; Use For-Profits Business Models for Nonprofits Sustainability…

How often have you heard: Nonprofits (nonprofit organizations) are not sustainable? According to Rebecca Reynolds; the idea that nonprofits are not sustainable, that they are too dependent on gifts and grants, that they can only truly succeed with some sort of ‘for-profit’ like earned income stream– reveals a fundamental lack of understanding about the nonprofit business model…

Nonprofit organizations include; everything from neighborhood associations that meet a couple of times a year with no assets, to Harvard University, to Gates Foundation… each with tens of billions in assets… also, they include; soup kitchens and traditional charities that serve the poor, as well as; local churches, labor unions, chamber of commerce, community foundations, Sierra Club, Metropolitan Opera… There is no ‘one-size-fits-all’ way to think about nonprofits…

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Nonprofit organizations are divided into subsection of U. S. Internal Revenue Code 501(c). There are about 1,507,231 tax-exempt organizations and public charities reporting over $1.65 trillion in total revenues, $1.57 trillion in total expenses, and over $3 trillion in total assets… However, the nonprofit landscape is changing, and many nonprofits are increasingly becoming more like multinational corporations– in fact, many nonprofits are mimicking language of Wall Street, and donors are demanding to be treated as investors… and, nonprofits are obliging by using corporate like terms, such as; ‘returns on investment’ and negotiating gift arrangements as ‘contracts’…

Also, many nonprofit foundations and individual donors are insisting on the use of ‘for-profit’ like metrics, such as; value of outcome, best practices, benchmarking, social impact, performance standards… it’s becoming the ‘corporatization’ of nonprofits… All of this was unheard of 10 years ago in nonprofit communities… Corporatization is rapidly becoming the preferred way of doing the ‘business’ of– grant-making and it’s influencing both new and older foundations, large and small, in ways that may undermine the diversity of the philanthropic world…

In the article Metrics Mania: Growing Corporatization of Philanthropy by Alison R. Bernstein writes: The role of philanthropy is changing and ‘managerialism’ appears to be the catch-all phrase to cover a shift that transforms knowledgeable business leaders into decisive philanthropic managers… These new managers in philanthropy claim that they are much more sensitive to the economics of the institution which will increase efficiency, effectiveness… While no one can dispute the importance of knowing the ‘metrics’ of an organization and trying to make an organization as efficient as possible, however, efficiency, in and of itself in grant-making, isn’t always the most important factor in determining who/what gets funded…

A far more troubling aspect of ‘managerialism’ is the idea that an organization can only be effective when it can be measured by a metric, and thus make decisions based on metrics. But metrics by its very nature only measures what can be measured, and thus it’s a proxy or an incomplete indicator of what is actually happening. An obsessive, technological approach to measuring impact, effectiveness is highly problematic in philanthropy, especially philanthropy that is concerned with progressive social change as opposed to improving a specific outcome…

In the past, boards of trustees reviewed investment returns and asset allocations according to a set of internally generated principles, policies… and the key question was: Are you doing well relative to your own benchmarks? Now investments are judged by an external set of metrics based simply on formulaic returns… The challenge posed by metrics mania and false bottom lines is the assumption of a ‘one-size-fits-all’ model. Foundations are too diverse and the problems they hope to address effectively are too complex to be reduced to a metrics model…

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In the article Nonprofit Paradox: For-Profit Business Models by Bill E. Landsberg writes: It has become a generally accepted truth in the nonprofit world that organizations must embrace the ‘best practices’ form of governance of the for-profit business world in order to survive… The loftiest mission will fail if its delivering organization lacks the financial stability to stay afloat… An increasingly competitive business environment, with shrinking support from government and private donors, which means that nonprofits must acquire– the efficiency, flexibility, innovation, discipline… traditionally represented in competitive for-profit business; but, does this solution carry seeds of destruction for nonprofits?

Others argue that for-profit commercialization and resulting revenue streams threaten the very survival of nonprofits, and hence the modern-day nonprofit paradox: Nonprofits embraces for-profits business practices to assure its survival, but these very practices threaten to undermine the nonprofits– culture, mission, public image… Hence, in an effort to save its bottom line, the modern-day  nonprofits risks losing its soul… There is a basic conflicts between the values expressed in ‘for-profits’ and those of ‘nonprofits’, and it matters a great deal that ‘nonprofits’ not evolve into another version of ‘for-profit’ with an emphasis on profitability. At stake is the cultural relevance of nonprofits and the vital services that they provide…

In the article Nonprofit Business Model: Why it Still Works by Rebecca Reynolds writes: People have always been interested in contributing to good works, especially when there is the added incentive of a tax write-off for doing so. This doesn’t mean these gifts can be taken for granted, especially within changing– demographics, social trends, other market drivers… Nonprofits must innovate just as continually and effectively as do for-profits… but far too many nonprofits are being misdirected by board members coming from for-profits, who do not understanding the asset of the 501(c) or the profession of fundraising…

These well-intended people push fundraising methods, such as; golf tournaments, galas, auctions, online programs… all to avoid ‘dependence’ on gifts. This misses the entire point of nonprofits… there’s nothing wrong with golf tournaments or galas… and many nonprofits make good money and new friends with these types of revenue generators… But also, there is nothing wrong with writing grant proposals to foundations that are in the business of granting money or cultivating relationships with major donors who are looking for ways to put their money to good use… Hence, the combination of traditional fundraising, such as; contributions, grants… as well as, various sources of earned income sources… provide a viable and sustainable nonprofits business model…

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Money is a constant topic of conversation among nonprofit leaders: How much do we need? Where can we find it? Why isn’t there more of it? In tough economic times these types of questions become more frequent and pressing. Unfortunately, the answers are not readily available… According to William Landes Foster, Peter Kim, & Barbara Christiansen; nonprofit leaders are much more sophisticated about creating programs than they are about funding their organizations, and philanthropists often struggle to understand the impact (and limitations) of their donations…

Too often, the result is that many well-intended programs are– cut, curtailed, never launched… And when money become tight, a chaotic fundraising scramble is all more likely to ensue… According to Peter Goldberg; new ways to finance the delivery of human services are needed– grants and contracts are not enough… Too many organizations are holding on to 19th century culture in a 21st century environment– the demand of change with changing times is enormous

In the current economic climate it’s tempting for nonprofit leaders to seek money wherever they can find it, causing some nonprofits to veer-off course… During tough times it’s more important than ever for nonprofit leaders to examine their funding strategy closely, and to be disciplined about the way that they raise money… nonprofits must provide greater clarity about funding programs, also philanthropists are becoming much more disciplined about how they invest their nonprofit money… Hence, nonprofit governance is moving more toward a corporate model of accountability, transparency… While applauding some of these developments, there is concern over the creeping ‘corporatization’ of nonprofits, and it’s important to recognize that nonprofits have a different mission and purpose from for-profits, also the market incentives that control behavior are different…

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In the nonprofit world, programmatic ‘impact’ strategies are a significant part of the business model. But each activity must be associated not only with impact strategy, but also revenue strategy; thus, the sustainable nonprofits have a ‘dual’ bottom-line, i.e.; program ‘impact’ and financial ‘accountability’…

According to Jeanne Bell, Jan Masaoka, Steve Zimmerman; nonprofits face unprecedented– challenges, accountability… and every nonprofit must develop a viable business strategy that– clearly defines its specific mission and purpose… identifies its primary sources of revenues… justifies its methodology of  program accountability… According to Jim Gibbons; nonprofits must be ‘work-horse’ not ‘show-horse’ organizations, such that everyone can see the ‘impact’ of their ‘programs’ on people’s lives…