The One-and-Only Thing Wrong with ‘What’s Wrong with Nonprofits’

Sue Gardner, the outgoing Executive Director of Wikimedia, has just launched a brilliant and insightful mini-manifesto on fundraising; specifically, the disconnect between what we do and how we pay for it. (Vs. the for-profit sector, where what they do is how they pay for it.)

As a fundraiser who works within an open culture, I relish the instances when fundraising is discussed transparently, with statements like this one:

“All sorts of energy is therefore dedicated towards making it [a satisfying experience for the donor]: donors get glossy newsletters of thanks, there are gala dinners, they are elaborately consulted on a variety of issues, and so forth.”

It doesn’t say anything fundraisers and donors don’t already know, but it’s wonderfully direct to call it out.

The post also echoes many of my favourite rants:

“I’m particularly irritated by people who say that nonprofits “should be more businesslike,” with businesslike as a kind of confused stand-in for “better.”

“In the for-profit sector…[p]aying attention to revenue makes sense in part because revenue functions as a signal for the overall effectiveness of the org… Nonprofits also prioritize revenue. But for most it doesn’t actually serve as much of an indicator of overall effectiveness.”

“Donors seem relatively willing to accept the proposition that administrative effectiveness is a good proxy for overall organizational impact, even though such a proposition is actually pretty weak. A whole industry has developed around this: supporting good compliance and measuring it, as a service for potential donors.”

Sue outlines how Wikimedia built their small dollar program, which is (quite rightly) held up as best-in-class. They raise a huge amount of unrestricted money in a very short period of time. What’s more, they do it all in the open, publishing their strategies, results, and practices to be understood and emulated by other non-profits.

But I break with the post when Sue asserts that successful non-profits focus on one type of fundraising.

The Bridgespan study she cites has fostered prevailing wisdom that effective organizations build around one form revenue: grants, gifts, or donations. This assertion is based on the premise that the type of money you chase shapes your organization, so expertise and impact can be achieved through focus.

The flaw in the study is its conclusion that efficiencies flow from a permanent focus as an organization. Instead, the gains are achieved through a time-bound, need-driven focus based on your stage of development. I.e. You should chase the type money best suited to what you need to do next. Not just chase one type of money.

This is how the private sector works.* You bootstrap through contract work, focus with angel investment, scale with venture capital, and generate revenue to sustain operations and create profit. There are financial instruments and practices for each stage of development.

The strategy we use at Mozilla is to launch projects with grants, scale them through gifts, and sustain them through small dollar donations. This keeps us on the plus side of all the various trade-offs, benefits, and challenges related to different types of fundraising revenue.

The jury’s still out but it seems to be working. Webmaker and OpenBadges were built with grant funding. As they begin to scale our focus is shifting to lining up investments — gifts — to drive their growth. And, in parallel, we’re experimenting with how they can play into our small dollar program.

I’ve written a series of posts that lays all this out in greater detail and would love to hear your thoughts.

If you love these topics as much as I do, I’d also encourage you to check out the work of Dan Pallato on breaking away from the the ‘low overhead’ approach to fundraising and Jennifer McCrea on how to build true working relationships with your donors.

* I realize I’m contradicting myself about modeling from the private sector. =)

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