As noted in the last blog post, in the last year donor and foundation revenue is down for nonprofits. Given that the interest on some foundation endowments is also likely to be down for 2009, 2010 may also be a down year for foundation dollars. So, what is a nonprofit, short on cash, to do?
Increasingly, entrepreneurial nonprofits are turning to earned income. Earned income is generated when a nonprofit makes money from a business or product not directly related to its mission. In the current economic crisis, several nonprofits have begun such ventures. Earned income is taxable and requires filing a Form-990-T with the IRS.
Such a move has some potential benefits for nonprofits including more independence from donor-driven or foundation-driven priorities and timetables. However, similar risks to starting any new business are present and such ventures can detract from the core-competencies of the nonprofit. Earned income is just one example of the blurring boundaries of nonprofits and businesses. In the next blog post, I will define another: the for-profit social enterprise.
Wednesday, December 16, 2009
Friday, December 11, 2009
Misconceptions about nonprofits
In an ongoing series in Smart Money, Jason Kephart has recently written about the 10 things that nonprofits won't tell you. None of these items are particularly surprising to nonprofit leaders. What may be the most telling about the article is how little most people outside of the social sector know about how most nonprofits work. Here are two misconceptions that colleagues and friends have mentioned to me in the last 3 months:
1. As there is more need, won't nonprofits grow? (or alternatively as a college professor, shouldn't there be more jobs for students in nonprofits since there is so much new need in the economic downturn?) The answer to this is unfortunately no. Nonprofits, like for-profit organizations, require resources. Unlike for-profit companies, often their core business activity doesn't bring in that money. Instead, nonprofits are behoven to multiple different stakeholder groups with different priorities including: clients/policy-makers (depending on type of nonprofit), donors, staff, and volunteers. So, while there may be more need among clients, there may not be more resources from donors.
2. Can you tell me which nonprofits are most effective? The answer to this question is again more complicated than for many for-profit organizations, since the bottom line is more ambiguous. Do you mean effective in terms of the proportion of administrative costs verses program costs (available via Charity Navigator)? Do you mean effective in the number of people served? What if a nonprofit serves fewer people but addresses their needs more completely? What if they are an advocacy nonprofit and don't do direct service?
While there are a number of tools that have been developed over the years to help nonprofits identify areas for growth including:
they are largely designed to help nonprofits compare their past, present, and future. These metrics are ill equipped for comparisons among nonprofits. While evaluation is a growing area of interest among many, there is still a long way to go before more rigorous standards for nonprofit evaluation are available.
What other misconceptions about nonprofits have you heard? Post them in the comments section, and I will take them up in future posts.
1. As there is more need, won't nonprofits grow? (or alternatively as a college professor, shouldn't there be more jobs for students in nonprofits since there is so much new need in the economic downturn?) The answer to this is unfortunately no. Nonprofits, like for-profit organizations, require resources. Unlike for-profit companies, often their core business activity doesn't bring in that money. Instead, nonprofits are behoven to multiple different stakeholder groups with different priorities including: clients/policy-makers (depending on type of nonprofit), donors, staff, and volunteers. So, while there may be more need among clients, there may not be more resources from donors.
2. Can you tell me which nonprofits are most effective? The answer to this question is again more complicated than for many for-profit organizations, since the bottom line is more ambiguous. Do you mean effective in terms of the proportion of administrative costs verses program costs (available via Charity Navigator)? Do you mean effective in the number of people served? What if a nonprofit serves fewer people but addresses their needs more completely? What if they are an advocacy nonprofit and don't do direct service?
While there are a number of tools that have been developed over the years to help nonprofits identify areas for growth including:
· Institutional Development Framework (Renzi, 1996)
· Participatory, Results-Oriented Self-Evaluation (Levinger & Bloom, 1997)
· Organizational Capacity Assessment Tool (PACT, 1996)
· Participatory Capacity Assessment Tool (CARE International, 2000), and
· Institutional Strengths Assessment (Child Survival Technical Support Project, 2001).
they are largely designed to help nonprofits compare their past, present, and future. These metrics are ill equipped for comparisons among nonprofits. While evaluation is a growing area of interest among many, there is still a long way to go before more rigorous standards for nonprofit evaluation are available.
What other misconceptions about nonprofits have you heard? Post them in the comments section, and I will take them up in future posts.
Sunday, December 6, 2009
What is the role of the nonprofit sector?
In my inaugural post to this blog, I would like to begin by offering a big question, why does the nonprofit sector exist? What is its global role?
The question is not purely academic, but one related to a number of issues being raised about the sector these days including:
1) Are there too many nonprofits? As discussed in today's NYT, there are over 1.1 million nonprofits registered in the United States. This have led some to decide that there are too many nonprofits (see this debate in the Blue Avocado nonprofit blog) and others to question whether what nonprofits do should free them from paying taxes. Many wonder, can the government do what nonprofits are attempting better or more efficiently?
2) One of the new trends/fads in the social sector is the for-profit social enterprise. Proponents argue that for-profit business models allow for the scaling-up of social impacts in ways that are not possible in not-for-profit models. Detractors argue that for-profit models work only for some social problems (e.g., microfinance) and that in such models values and profits may conflict. For more, see this podcast for an example of 1 year old social sector organizations using both for-profit and not-for-profit models.
3) A growing number of government-nonprofit and corporate-nonprofit partnerships have arisen in the past decade. For example, intergovernmental organizations, like UNDP, rely of nongovernmental organizations to accomplish development goals. New corporate-nonprofit partnership forms, including nonprofit certification of corporate practices and cause-marketing, have emerged. Critics argue that governments and corporations may co-opt nonprofits making them less distinctive.
So, here is the questions that I hope to investigate. What is the distinctive role of the nonprofit sector? What can nonprofit organizations do better than governments and for-profit organizations? Feel free to weigh in and offer suggestions. I will take up suggestions in future blog posts.
The question is not purely academic, but one related to a number of issues being raised about the sector these days including:
1) Are there too many nonprofits? As discussed in today's NYT, there are over 1.1 million nonprofits registered in the United States. This have led some to decide that there are too many nonprofits (see this debate in the Blue Avocado nonprofit blog) and others to question whether what nonprofits do should free them from paying taxes. Many wonder, can the government do what nonprofits are attempting better or more efficiently?
2) One of the new trends/fads in the social sector is the for-profit social enterprise. Proponents argue that for-profit business models allow for the scaling-up of social impacts in ways that are not possible in not-for-profit models. Detractors argue that for-profit models work only for some social problems (e.g., microfinance) and that in such models values and profits may conflict. For more, see this podcast for an example of 1 year old social sector organizations using both for-profit and not-for-profit models.
3) A growing number of government-nonprofit and corporate-nonprofit partnerships have arisen in the past decade. For example, intergovernmental organizations, like UNDP, rely of nongovernmental organizations to accomplish development goals. New corporate-nonprofit partnership forms, including nonprofit certification of corporate practices and cause-marketing, have emerged. Critics argue that governments and corporations may co-opt nonprofits making them less distinctive.
So, here is the questions that I hope to investigate. What is the distinctive role of the nonprofit sector? What can nonprofit organizations do better than governments and for-profit organizations? Feel free to weigh in and offer suggestions. I will take up suggestions in future blog posts.
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