Wednesday, January 27, 2010

Let's rethink non-profit

A for-profit organization exists in order to turn a large profit. Sure lots of them these days say they care about the environment and society, but their purpose, fundamentally, is to make money.

So my question is: what is the purpose of a non-profit organization? Everyone working in non-profit can tell you that they do it to work toward a cause that they care about.

I would agree. However, what, then, is the most efficient way to achieve one's vision of a better world? The classical view of this is to spend as little money as possible, to fundraise like crazy, and to put every single penny of this money into the organization (with very little of it going to its employees).

At first glance, this makes a lot of sense: the less you spend on overhead, the less you pay your employees, and the more you fundraise, the more money goes to the cause. However, there are many problems that I see with this model.

First, money is always such a critical issue with non-profit organizations. When you spend every penny you have on the cause, and depend almost wholly on generous donors and the government, the very existence of your organization depends on outside forces you cannot control. For example, with the recent economic crisis, donating to non-profits were quickly crossed off of many people's to-do lists. Fair enough.

Second, relating to the previous point, efforts are often diverted from achieving the vision when the organization is forced to spend hours on applications for grants that may or may not go through. Wouldn't it be more efficient, and less uncertain, if the organization can provide a product or service at a charge in order to become self sufficient? For example, Pinelands Creative Workshop in Barbados runs a program that provides meals to elderly people, and sells chickens raised for this program on the market in order to partially fund it.

The next point I only recently became aware of after speaking to the founder of a small non-profit organization. Donors are easily bored. Earthquake in Haiti. Terrible. Everyone donates for 2 weeks. The fad fades. Haiti eventually runs out of money. By the time this happens, no one will care since there will be something else that will "impact their lives significantly." All organizations lose steam sometimes, and it is imperative for organizations to continue innovating and marketing themselves.

Finally (for now anyway), it is extremely difficult to attract new, fresh, long-term talent into the non-profit business. Why would I, someone who could possibly make 100K settle for a job that pays less than half? What if I cannot afford to intern for a year in order to break into the industry after I graduate because I have 100K of student debts? By making positions so comparatively unattractive (financially, not morally), it is therefore difficult to attract good, long-term talent - the kind that corporations fight for - that is needed for the organization to innovate, prosper, and sustain.

Isn't it interesting that all the above issues mirror issues that occur in the for profit world? Then, aren't these same issues solvable by having an organization that is both profitable - and thus self sustainable - and focused on a defined vision? A merger of the for-profit world and the non-profit world can be the middle ground. If an organization can make money to support their humanitarian work, and thus be financially sustainable, many of these problems can be solved. They will be able to raise funds (no, not another dinner and auction) through taking bank loans and selling shares (and paying small dividends), and attract talent with fair compensation.

It's so taboo in the non-profit world to even think about taking money from the organization. How dare someone steal the opportunity for 10 children to go to school? How can that person sleep at night?

However, sometimes you get what you pay for. I don't mean to say that grassroots organizations need to start dishing out six digit compensations to their employees. But if you're in a place where your organization is ready to expand, and can benefit from quality, long-term expertise that can make your organization more effective and efficient in the long run, you should not hesitate to compensate fairly. For example, it is not cheaper in the long term to hire someone new every year who doesn't intend on staying - and may not do the best work - and who needs a month or two to adjust to the job just to pay a lower wage. Don't forget, the purpose of a non-profit organization is to work toward a vision. You cannot effectively do this without a strong, committed staff.

I guess what I'm getting at is the fact that this world needs a new way of looking at non-profit and for-profit organizations. There is so much crossover between the two fields that has proven to be successful. Thus, why not a new business model that completely melds the two together? A for-profit organization...with a purpose. What's wrong with that?