The Non-Profit Economy– New Wave of Philanthro-Capitalism: Convergence Capitalism, Philanthropy

Mixing capitalism with philanthropy: What a concept! Combining the non-profit and for-profit worlds for the greater good, and providing philanthropists with a smarter and more meaningful way to give. A hybrid organization– part business, part foundation; it’s the new wave of philanthro-capitalism…

The business of non-profit is a multi-billion dollar economy… though not many people are aware of it, the non-profit community is an enormous contributor to the U.S. economy; it provides about 6% of the nation’s entire GDP or about trillion dollars to the U.S. economy…

According to Bureau of Labor Statistics; non-profits provide about 12 million jobs, accounting for about 11% of the country’s private-sector workforce… According to National Center for Charitable Statistics (NCCS); more than 1.5 million non-profit organizations are registered in the U.S…

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Quick Facts About Non-profit Organizations:

  • 1,548,644 tax-exempt organizations, including: 1,076,208 public charities; 103,356 private foundations; 369,080 other non-profit organizations…
  • Non-profits accounted for about 10% of all wages and salaries paid in the U.S…
  • Non-profit Share of GDP is about 6%…
  • Non-profit charities reported over $1.75 trillion in total revenues and over $1.65 trillion in total expenses. Of the revenue: 21% came from contributions, gifts and government grants… 72% came from program service revenues, which include government fees and contracts… 7% came from ‘other’ sources including; dues, rental income, special event income, gains or losses from goods sold…
  • Non-profit public charities reported over $3 trillion in total assets
  • Non-profit volunteers (not paid) make-up about 25.3% of workers in non-profit organizations. This proportion has remained relatively constant since 2003 after a slight increase from 27.4% to 28.8% in 2003…
  • Non-profit charitable contributions by individuals, foundations, bequests, and corporations reached $358.38 billion in 2014, an increase of 7.1% from the revised 2013 estimates and after adjusting for inflation. Of these charitable contributions: Religious organizations received the largest share, with 32% of total estimated contributions. Educational institutions received the second largest percentage, with 15% of total estimated contributions. Human service organizations accounted for 12% of total estimated contributions in 2014, the third largest share…

In the article Importance of Non-profit Organizations in the Economy by Matt Berg writes: It never occurs to many people who are not involved with non-profits how integral these organizations can be to the overall functioning of the economy… To many, non-profits are just innocuous little entities existing in their own isolated corner of the economy. Non-profits serve one distinct purpose, i.e., bettering the world while zeroing out the books…

Even the most cursory economic impact study demonstrates the indispensable value of non-profit organizations in any economy. The jobs they provide help sustain the economy in same way any properly-functioning for-profit organization does… In fact, in terms of day-to-day operations, non-profits run very similar to for-profit corporations… Non-profits, like for-profits, rely on the same skill-sets; computer programmers, accountants, graphic designers, specialized workers to ensure smooth operation… Non-profits are businesses; they simply receive preferential tax treatment…

Non-profit organizations, like any other business, consume third-party goods and services in their day-to-day operations. They require computers, Internet, phone services, building materials, utilities… in order to run. This generates revenue for companies that distribute goods and services and that provides added economic growth. Non-profit organizations provide paying jobs… just like for-profits, and indirectly stimulate endless other facets of the economy… Hence, non-profit workers earn wages and spend money; they pay for house mortgages, car payments, restaurants, theaters, entertainments… they support the economy just like for-profit workers…

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In the article Non-profit Funding Models by William Landes Foster, Peter Kim, & Barbara Christiansen write: Funding is a constant topic among non-profit leaders: How much is needed? What are the sources? In tough economic times, these types of questions become more frequent and pressing. Unfortunately, the answers are not readily available. That’s because non-profit leaders are much more sophisticated about ‘creating’ programs than they are about ‘funding’ programs, and they often struggle to understand the impact (and limitations) of sources of funding sources… And there are consequences to this financial fussiness: Too often, the result is that promising programs are cut, curtailed, or never launched– hence the chaotic fundraising scramble– leaders begin their ‘dialing for dollars’ campaigns…

In the for-profit world, by contrast, there is a much higher degree of clarity on financial issues. This is particularly true when it comes to understanding how different businesses operate, which can be encapsulated in a set of principles known as ‘business models’. Although there is no definitive list of corporate business models, there is enough agreement business leaders about what they mean, such that– investors and executives can engage in sophisticated conversations about a given business strategy…

When a person says that a business is a ‘low-cost provider’ or a ‘fast follower’, the main outlines of how that company operates are pretty clear. Similarly, stating that a business is using ‘razor and razor blade’ model it describes a type of ongoing customer relationship that applies far beyond shaving products…

The value of such shorthand is that it allows business leaders to articulate quickly and clearly how they can succeed in the marketplace, and it allows investors to quiz executives more easily about how they intend to make money. This back-and-forth increases the odds that businesses will succeed, investors will make money, and everyone will learn more from their experiences…

However, the non-profit world rarely engages in equally clear and succinct conversations about an organization’s long- term funding strategy; that is, because the different types of funding that fuel non-profits have never been clearly defined…  More than a poverty of language, this represents and results in, a poverty of understanding and clear thinking…

According to Clara Miller; non-profits are in two ‘businesses’– one related to ‘program’ activities and the other related to ‘funding’ activities… As a result of this distinction; non-profit funding models need to be understood separately from those of the for-profit world. It’s also why the term ‘funding model’ rather than ‘business model’ is used to describe this framework… A ‘business model’ incorporates choices about the cost structure and value proposition to the funder… A ‘funding model’, however, focuses only on funding, not on the programs and services offered…

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In the article Run Non-profit Like For-profit Organization by Mohan Sivaloganathan writes: Having a business with a noble goal is good, but does that mean you should run it like a charity? The non-profit model isn’t broken, but can be better… For-profit is a mindset in high performing organizations of all shapes and sizes, including non-profits. Here are three for-profit considerations for driving non-profit impact:

  • Impact Through Purpose: Profit need not be limited to financial gain, e.g.; profit is derived when a person becomes the first in their family to go to college, or when a veteran experiences a healthy and productive transition when they return to their community… Simply relegating organizations that improve the lives of millions to a tax status creates an uneven playing field that limits vision, resources, and commitment. Similarly, the best achieving businesses are more than the literal definition of the word: They strive to disrupt, grow, improve lives… Non-profit organizations must think big; strive to solve major social problems; generational poverty, widening income, academic gaps, inequality, refugees… The reality is non-profit issues are very complex, but locking the organizations into a ‘non-profit’ box won’t satisfy the purpose…
  • Impact Through Talent: Some critics argue that non-profits suffer from ‘too much overhead’… However, non-profit and for-profit share the same wide range of vital costs, such as; technology, finance, fundraising, marketing, staff development… And most important, they must invest in high quality people… Businesses are applauded for recruiting and retaining the best talent, which requires a robust culture and comprehensive benefits… Non-profit organizations, on the other hand, are expected to keep salaries low, minimize staff-related costs… The result of this thinking is a brutal cycle at the crossroads of purpose and unfair expectations, leading to crippling turnover… ‘Lean’ and ‘hustle’ have their place in business operations, but not when it comes to the quality of the people who are entrusted with solving very difficult social problems…
  • Impact Through Innovation: Non-profit organizations face a return on investment (ROI) conundrum… In the for-profit world, companies are encouraged to take risks; they are expected to step into new horizons and disrupt the status quo… But in the non-profit, funders are increasingly focused on immediate, measurable ROI… Most funders are risk-averse and won’t fund initiatives tied to high risk potential or uncharted opportunities. It’s no surprise that non-profit organizations are rated on leanness… Fortunately, there are signs of some real change– smart, responsible innovation– not lean and hustle…

There are many fundamental differences between non-profits and for-profits, not least of which is that non-profits’ objective is to make a ‘difference’; not to make profit. That said, there are some valuable lessons that can be applied to non-profit management that can translate into a more efficient, stable, successful organization which can have a greater impact…

At their core, nonprofits operate with two bottom lines; social impact and fiscal success… Impact may trump the bottom line, but when the two work hand in hand, it’s easier to make wider strides toward social good. Some non-profits that run organizations like a business have stopped using the term ‘non-profit’ altogether…

According to Melissa Beck; we have started using ‘social impact’ in place of ‘non-profit’: We are incredibly conscious of being financially sustainable, just like a for-profit business…