The Two Nonprofit Sectors
A post from James V. Toscano
In his post, Minnesota Council of Nonprofits’ Jon Pratt discussed “A Virtuous Cycle” referring to the recent UnderDeveloped study. He reported difficulties of smaller nonprofits in affording needed development and related infrastructure costs.
The idea of a virtuous cycle for nonprofit organizations able to afford infrastructure and transaction costs provokes discussion on the haves and have-nots among us.
A recent study helps. In the March 2012 Stanford Social Innovation Review article, “ Why More Nonprofits Are Getting Bigger,” authors Peter Kim and Jeffrey Bradach reported on the emergence of a new wave of large organizations, e.g. Teach for America, Habitat, Komen, joining the long-established United Ways, Boys & Girls Clubs and Goodwill crowd.
Four Themes Shaping the Growth of these Nonprofits
The authors found four themes explaining growth of new non-profits, defined as organized after 1975 and having at least $50M in annual budgets:
- Single-Engine Growth. Concentration of funding sources rather than diversification.
- Heavyweight Stability. Reliance on Government funding through grants and fees, followed by corporate support.
- Magnet Fields. More than half of these growth organizations were in health care, international and human service.
- Big Bettor Philanthropy. Focused, large amounts of philanthropy going to selected nonprofits from individual investors and foundations.
Excluding hospitals and universities in the study, the authors estimate 200,000 new nonprofits were organized since 1975, with 201 of these organizations achieving the vaunted $50 million.
Just One Percent
In a HBR essay, Paul Carttar points out that the 201 are just 1% of those nonprofits formed since 1975. Carttar, A Bridgespan Group partner and former director of the Fed’s Social Innovation Fund, continues:
“For starters, 1% is far too few if we hope to build strong organizations that can address big problems. Secondly, and more troubling, we don’t have any idea if this 1% comprised the organizations making the most actual impact. Indeed, it is entirely possible that what most distinguished the scalers from the non-scalers was simply their skill at getter bigger.”
The two important variables? Strength and scale. His solution is to reward organizations with measurable impact and the infrastructure and capacity needed for growth. In other words, let’s identify the correct “haves” through better measurement of outcomes. Is this the only way? An emphatic “no! There are, it turns out, many ways.
How About the Other 199,799 Nonprofits?
What about the rest that constitute legions of highly motivated, focused institutions?
We hear from national sources that there are too many of them, that they are inefficient, that they duplicate each other, that they are doomed to be second-rate, that quality is missing, yet they continue to grow, to proliferate. And do good things.
How can we achieve sweet spots for the smaller agencies? Certainly, some will go out of business and new ones will be formed, the typical ebb and flow of organizational life cycles.
Cooperate-Coordinate-Affiliate-Share-Acquire-Merge Continuum
What are some of the things than can be done to optimize the contributions of this large number of nonprofits?
If the goal for the 99% is to focus performance and service for public benefit, there is a spectrum of ways to achieve cost savings, reductions in expenses, elimination of duplication, efficiency and effectiveness—all producing measurable outcomes demonstrating the very highest quality and value to society.
While there are many ways to achieve these results, modal concepts constitute what I call the Cooperate-Coordinate-Affiliate-Share-Acquire-Merge continuum.
Such actions will also lead to high standards of quality and performance, enhanced training, market compensation for employees, sufficient infrastructure and, above all, enriched programs.
First Steps
A first step for groups is to enter into a cooperative arrangement, working together to achieve a common aim. Rarely related to mission, many of these pacts achieve economic buying power, or less often, political influence. The arrangement may be episodic, such as a disaster or a holiday meal, or a permanent working relationship.
The co-ordination of services and/or program is similar, although usually related to mission.. A good example is the “partner” idea of the Northside Achievement Zone in Minneapolis, which is dedicated to the closing of achievement gaps for minority families living in a distinct geographic area. Modeled on the Harlem Children Zone, this federally funded group has social service agencies, public and charter schools, the University of Minnesota, county and local government departments as partners, all working toward common agreed-upon goals and coordinated by an in-common computer tracking system, co-location of personnel and program and frequent communication.
Middle Steps
Affiliation implies joining together to achieve a common purpose, agreeing and accepting a common set or rules and standards. United Way, the various specific fundraising organizations in the arts, health, etc. are good examples of affiliating for more efficient community-driven support. Affiliation goes well beyond fund-raising to such examples as the recent agreement among three dance companies in Chicago to all move to one venue and create rules for its upkeep and use. The agencies retain their independence, yet adhere to a set of standards that results in positive advantage for all.
Sharing moves to a next level of interdependency and quality outcomes.
I have long advocated sharing of back-office functions, more specifically shared development offices and programs. For more about this read Doing Development Differently.
A good example of sharing is the formation of MACC CommonWealth by five social service agencies almost ten years ago. The new group was given responsibility by each agency for functions such as finance, HR and IT. MACC CommonWealth is a great success, with membership of almost thirty nonprofits.
The Acquisition-Merger Nexus
If the partners to this legal procedure are carefully selected, and if the merger math adds to a win-win, this may be an ideal solution, not so much to reduce the number of nonprofits, but to increase service to the community. If done well, as carried out by the Management Assistance Program for Nonprofits (otherwise know as MAP for Nonprofits) here in the Twin Cities, it is a thing of beauty.
If use of the process is the result of a shotgun wedding foisted by foundations or other funding sources, it damages public service, not to mention careers of dedicated staff and unwitting clients.
We hear much about merger and acquisitions as the solution to our 99% problem. As unrealistic as that really is, whole journals and conferences have been and are devoted to it. It is only a partial answer for a very small portion of the 99%.
The Middle Way
More attention needs to be paid to the middle of this continuum, especially the sharing concept. If we build trust, as was shown by those original five agencies forming CommonWealth, certain services can be brought to a higher scale and more efficient operation without doing harm to program or autonomy.
Extended to development and fundraising, the problem spelled out in UnderDeveloped might be addressed better and in a more professional and systematic way. The combinations and permutations of sharing without losing identity are many.
We already know that some things need to remain small, that scaling may reduce outcome and quality. We also know that large doesn’t always mean better. What works in Pittsburgh may not work in Birmingham. And what works in 2010 may not work in 2020.
Let us hope that we can convince the sectors involved-the providers, the funders, the intermediaries, and the government to begin a new era of experimentation with this continuum, to allow many flowers to bloom and not to select only one way to achieve outstanding social benefit.
We will all benefit.
excellent post