The problem with a nonprofit response to AIDS in Africa

I have been studying the role of nonprofit organizations in the international HIV/AIDS crisis for about 10 years. During that time, I have had waves of both encouragement and doubt. Encouragement, because HIV/AIDS NGOs are among the most cooperative and during the 2000s the funding for AIDS was increasing year over year. However, doubts arose about a largely non-profit centered solution with largely Western dollars. I wondered how long this system could continue. Long-term, non-wavering problems are not suited for voluntary, charity-based solutions.  According to Donald McNeil of NYT, my doubts may be well founded. The donor dependence problems that vexed work in the infrastructure development space has extended to AIDS. Donors have tired of funding the same problem with no solution (there is no cure for AIDS, just nonstop treatment) or have come up short in their budgets due to "the current economy." Donor-drift is a particular problem with current AIDS medications, since one cannot stop taking them. To go off these medications, in addition to return of the progress of the disease, creates the opportunity for virus to mutate and become resistant to the current drugs.

This leads me to the sector blender topic: can a nonprofit, western donor-driven system be the sustainable source of healthcare for AIDS? If not, is there a mixed model that should be applied here (for example, pharmaceutical companies offering an affordable drug that either local governments or patients could afford and a group like Riders for Health could deliver)? And if we enacted changes to improve the condition of Africa's poorest countries, would government be able to partner more effectively with businesses, nonprofits, and UN organizations?

I don't have a great answers, but I do have the words from Nelson Mandela's 2005 speech at the Live 8 concert that still ring true (or perhaps more so) in the face of donor-drift.

"We live in a world where the Aids pandemic threatens the very fabric of our lives. Yet we spend more money on weapons than on ensuring treatment and support for the millions infected by HIV.

It is a world of great promise and hope. It is also a world of despair, disease and hunger.

Overcoming poverty is not a gesture of charity. It is an act of justice. It is the protection of a fundamental human right, the right to dignity and a decent life.

While poverty persists, there is no true freedom. The steps that are needed from the developed nations are clear.

The first is ensuring trade justice. I have said before that trade justice is a truly meaningful way for the developed countries to show commitment to bringing about an end to global poverty. The second is an end to the debt crisis for the poor countries.The third is to deliver much more aid and make sure it is of the highest quality."

Thinking about social entrepreneurship

While I have been away from my blog for the last month, I have done a good deal of thinking about two topics, nonprofit capacity building and social entrepreneurship. While I am doing research on both topics for an academic audience, some of what I am thinking about has some wider importance.

In interviewing nonprofit founders and social entrepreneurs, one of the common strategies they identified for starting their organizations was to use a business model that they had seen work before, often copying directly from a similar organization in another location. While this is not necessarily a bad strategy, many times it shortcuts an important set of questions that need to be addressed. These include:

1. What are my short term and long term goals?
While this makes common sense, asking this question before choosing a business model may help entrepreneurs make better informed decisions. Both sets of goals ultimately should be measurable, meaning that you will know if you achieved them.


2. What are the business model choices I could make?
Before identifying what other programs are doing, get informed about the difference between a 501c3 and 501c6, learn about whether your state has a low-profit corporation option, and learn about various for-profit business models and social entrepreneurship models. Many organizations jump into a 501c3 status before thinking about the other options, simply because it is what others have done. While copying other organizations can reduce the time spent researching and keep your organization from making unnecessary mistakes, it can also lead you to make choices that are ill timed in the current market. What was right for their organization 20 years ago may not be right for your organization now. Some legal statuses, like the low-profit corporation, are only recently available.

3. Try out different business model statements.
What would your proposed business model statement look like under two or three different business models? Which business model would help you to meet your short term goals? Which ones would hinder or enable your long term goals?

4. Finally, consider the costs associated with each business model.
If your project is going to require significant general operating costs, consider if the 501c3 status is right. Many foundations and donors seem to prefer to fund program costs. If you offer a valuable service, maybe you could charge for it. If your project could use a social enterprise model, what sources of revenue are you rejecting? If you are in the health or education or environmental space, there are several partnerships with businesses that your organization could form as long as it has a nonprofit status.

Much of the research on starting small businesses suggest that successful ventures spend more time planning before they launch than ventures that end before the 2 year mark. While using other organizations' templates and plans may seem like a good way to save time, entrepreneurs should take the time to do scenario and strategic planning before launching their venture.

Nonprofts making profits: Earned income

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.

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.