No Ordinary Business is a platform designed to raise the profile of social enterprises and purpose-driven businesses. Our mission is to challenge the perception that doing ‘well’ financially and doing ‘good’ for society are mutually exclusive. The blog showcases both for-profit and non-profit organisations that are experimenting with innovation and have the courage stray from the conventional path in pursuit of sustainability and greater impact.
This post considers one significant challenge confronting traditional philanthropy: donation dependency. So many in the non-profit sector are ardently striving to tackle some of the world’s most pressing changes. Their work and efforts are commendable but sadly the traditional donation-reliant funding model is unsustainable and limits impact. Our thesis, therefore, is:
The 20th century model of donation-based funding for non-profits is obsolete for what is being asked of civil society today. It is time for non-profits to move away from donor dependency to increase their social impact.
What is the problem?
Non-profits are bending over backward to please and attract donors. So much time and energy is focused on the ‘ask’. Further, most donations are tied up with all sorts of restrictions on how funds can be applied and in so doing donors diminish the power of the non-profit to create meaningful change.
On the other hand, donors are justifiably concerned about what is going on behind the scenes of every fundraising solicitation they receive. How much of every donation dollar is going to pay for fundraising efforts versus programming? Questions of accountability linger at the back of donors’ minds every time they are asked to cut a cheque.
The current donation-based funding model produces a cycle of dependency that has an unintended consequence: detraction from the mission and limiting impact.
We all have the same objective: to create positive social impact. But we find ourselves in a quandary: how do we break this cycle so that third sector operating charities can have the independence to develop and implement organisational and programming strategies without compromising accountability? Although this dilemma is widely known, it is rarely spoken of publicly because charities are afraid to lose financial support and donors are reluctant to relax restrictions on spending. Now is time to break this cycle of silence. We do not have the luxury of perpetuating an out-dated model that by its very nature limits effectiveness.
How does the traditional donation-based funding model play out?
i. A general reluctance to fund a non-profit’s operations and direction of donations to programming. A paucity of funds is available to operations leaving an organisation weak and less efficient/effective.
ii. Restricted funding can inadvertently drive the non-profit’s priorities, hampering their power to design and implement a strategy.
iii. Ongoing fundraising efforts for donations demand incredible time and resource allocation that would be better utilised elsewhere. Short-term grants perpetuate the ongoing fundraising cycle.
iv. It is easier to raise funds for new infrastructure than to maintain existing schools, wells, and roads, thereby undermining the impact of prior work and creating duplicated effort.
v. Monitoring and reporting methods are oft designed to meet donor needs and are not necessarily useful to the implementing organisation.
vi. Stringent impact monitoring and measurement, a necessary component to evaluating prior programming and informing future activity, is typically underfunded and therefore lacking.
What is the solution?
How can non-profits and donors partner differently so that we are more actively contributing to meet 21st century needs? The following suggests some of the ways we can proceed to disrupt donation dependency:
i. Non-profits must work towards greater financial independence and organisational sustainability by engaging in commercial activity or trade to offset dependency on donations.
ii. Non-profits do not have a monopoly on creating positive change in society. More hybrid or for-profit purpose-driven enterprises must be formed and funded leveraging different structural solutions to achieving sustainability.
iii. Greater philanthropic capital must be invested in social enterprises and for-profit purpose-driven business through grants and impact investing.
iv. Better evaluation of the effectiveness of intervention programmes through stringent monitoring and measurement. Philanthropic capital must be made available to support the development and implementation of evaluation monitoring and measurement tools.
v. Donors must be more flexible on fund expenditure and be willing to give the implementing organisation the discretion to adapt to changing circumstances.
vi. Programmes must be supported by longer-term financial commitments of philanthropic capital.
Why does this matter?
Resources taken away from programming to support fundraising efforts frustrate both donors and charities. While it is commonly acknowledged that altruism and goodwill are insufficient to address today’s social and environmental challenges, non-profit funding models have by and large not been updated to reflect this shift. Changing the current model matters because the traditional model hinders impact and sustainability.
No Ordinary Business is committed to promoting innovators and changemakers who are experimenting with new methods and vehicles to affect sustainable positive social impact. We endeavour to raise awareness of new paradigms in the making that better reflect twenty-first century needs. Open and regular discourse around the limitations of current philanthropy models is needed, exploring new approaches and techniques, and showcasing examples of innovative ways of working towards achieving greater sustainable impact.
Stay tuned for our next post exploring the role of philanthropic capital in supporting for-profit, purpose-driven business.