Set the sector free

Simply to survive, non-profits often have to balance the considerations of foundations, the private sector, and the state. All three types of institutions frequently come up in Labs; in fact, we recently held a session entirely devoted to the proper role of philanthropic foundations.

One reason we were interested in the problem is that many in the non-profit world feel that the way they operate is largely determined by these powerful institutional funders. But should it be? Blogger and non-profit consultant Kelly Kleiman says no. Based on decades of working with a variety of clients in the sector, she argues that in some cases foundations and other institutional investors are leading non-profits astray. To round out our perspective on this subject, we engaged Kleiman in a conversation about this problem, as well as the relationships non-profits have with the private sector and the state. Here are the most significant questions she answered for us.

On your blog ?The Nonprofiteer,? you regularly call out some of the logical fallacies of the non-profit sector. What are a few of the ones that bother you the most?

The primary one is the notion that all that really matters in the non-profit sector is what institutional funders think or what corporate giving officers think.

Given that three-quarters of the money given to charities comes from individuals and only about 10 percent comes from big institutional funders, we really have our priorities upside-down if we spend all of our time thinking about what the MacArthur Foundation thinks about this or that. A lot of my clients and prospective clients feel that they?re forever chasing what the institutional funders are interested in this minute. And that?s something that is liable to change since the institutional funders have the attention span of fruit flies. This week it?s addiction, next week it?s going to be performing arts. In no other sector would something as obvious as the fact that the money comes from someplace else be overlooked in favor of prestige funders in this way. ?

In some ways, it?s sensible. Institutional funders can be very important to start-up organizations. Almost every organization has gone through a start-up phase in which all of the money that really mattered was coming from an institution. It?s also true that it?s easier to raise $5,000 by writing one grant application than by appealing to 50 individual founders. But grant-writing is also something you constantly have to renew, and more often than we would like to think about, it means that you have to think of a new program so that the funders are willing to give you money because they don?t like funding operating expenses. Whereas individuals give you money because they believe in your cause.

You know, I understand the origin of the mistake, but it?s such a profound mistake and it damages the way the sector operates to such a great extent, that it just drives me insane.

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You?ve criticized large foundations for behaving too much like businesses. For example, you recently took the head of a large foundation to task for saying the group would do ?what any sensible business would do? and spend less in a tough economy. Could you tell me more about what you feel is wrong with that kind of thinking?

Non-profit organizations have multiple constituencies and multiple bottom lines. And so what any ?sensible business? would do is not what a non-profit would do. No ?sensible business? would say to itself, ?Let?s go into business to provide people with things they can?t pay for and where it costs us more to provide a service that we can possibly get reimbursed in any way.? That?s not sensible business thinking, but that?s the essence of charity.

In the non-profit community we have spent so much time mimicking businesses that you know, we?ve permitted ourselves to act as if our business model, the non-profit business model, is somehow secondary or inferior. It?s not; it is adapted to a particular set of demands.

You and I can have an argument over whether the non-profit or for-profit business model is most effective for, say, the performing arts. A number of performing arts ventures support themselves in a for-profit way, and if they decide to establish themselves as a non-profit, you should ask a lot of questions about them, like whether they are just doing something so bad that the market would never support it.

But we generally respect that the non-profit business model is best for things like social services. The reason that they exist is that it is not profitable to house battered women or educate poor children. If it were profitable, we would have solved this problem already. Any conversation they have about adapting to situations like a business leads them in the wrong direction.

You know, in this economic climate, a lot of companies are going to go out of business. Fine, big deal. So we don?t have floor mats or whatever it is they were making. But in this economic climate, every non-profit, every charity that goes out of business, leaves another group of people without resources that they desperately need, precisely because the economy is the way it is. And that in and of itself, demonstrates the difference between non-profits and businesses. Businesses make money when people need their services and non-profits lose money when people need their services.

So all the clatter about how ?non-profits should operate like businesses? just enrages me, especially to the extent that what it really means is that non-profits should be more efficient. Most non-profits can squeeze a dime in a way that any CFO would envy. And to the extent that non-profits are inefficient, they tend to be inefficient in the same way that poor people are inefficient. They can?t afford the economy size. Non-profits don?t order paper by the gross because they don?t have the cash flow. To blame people for behaving a certain way simply because they don?t have the necessary resources to behave otherwise is just illegitimate.

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Do you think there are cases where business thinking ? and in particularly entrepreneurial thinking ? can help non-profits?

Absolutely. It happens in every functional non-profit because the board of directors is always made up of people from other fields: entrepreneurs, corporate leaders and others are passionate for the cause but are not involved in its day-to-day management. That is precisely the job of the non-profit board of directors. These are people who have already decided that the work of this non-profit is a valuable thing that the question is how best to pursue it.

The people who attract my ire are people who haven?t even bothered to consider the goals of the non-profits and the environment in which it operates before they start spouting off about business. I?m not in any way suggesting that business has nothing to contribute; business has everything to contribute. But you have to start from the perspective that non-profit organizations are fundamentally different animals. They still need to make strategic decisions, but their constraints are different, their time frames are different, their dependence on the outer environment is different.

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Another issue you?ve raised in your writing is the problem of the relationship between non-profits, politics, and the state. Specifically, you object to the idea that non-profits are going to ?pick up the slack? when budget cuts lead to a decline in government services. Why does that bother you?

Republicans are particularly very fond of saying,? ?Well for private sector, the private non-profit sector can handle a lot of these problems.? No we can?t. We can put Band-Aids on amputations, but really making any significant dent in hunger involves food stamps. Making any significant in homelessness involves Section 8 housing. The fundamental problems of poverty in the United States are already primarily handled by the United States government. They?re not handled enough, and I think we should work very hard to make sure they?re handled more. But any realistic-thinking person in the non-profit world will ultimately say, ?We are not going to solve these problems. These problems have to be solved by collective action.? And that means government. The non-profit sector is not a substitute for the government.

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Everyone would probably agree with that point of view in regards to some function of government, particularly security. But presumably in your ideal political economy there would still be some role for non-profits or non-governmental organizations. What would it be?

I think charity?s focus should be on different aspects of social need. For example, we have universal K-12 public education in the United States. There are nonetheless private schools because there are people who want something different from their educational system than what taxes can provide. We could have universal healthcare, and there could still be private medicine and private medical care for people who wanted something additional or different.

I think this principle goes across the range of things that non-profits provides. You know there might be even adequate shelter for battered women, but not counseling services. So private non-profits would provide counseling services.

I cannot imagine a circumstance under which we come to such a global consensus about basic human needs that the non-profit sector would be superfluous. But even if we did come to that global consensus, there would always be people who wanted something more or something different. And the non-profit sector would always be there to provide that.

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