By Rebecca Reynolds
"Nonprofits aren't sustainable." How many times have I heard that? Too many. The idea that nonprofits aren't sustainable, that they are too dependent on gifts and grants, that they can only truly succeed with some sort of earned income stream reveals a fundamental lack of understanding about the nonprofit business model. Let's take a look.
First off, the idea that only earned income (the exchange of goods or services for money) is sustainable is ridiculous. How many for profit businesses have gone out of business because their source of earned income was no longer viable? Plenty. Earned income falls prey to the same ups and downs of the market that contributed income does. So, it's more apt to say that what is sustainable is having a broad enough income stream (funds coming in from a variety of sources) to ride the vicissitudes of the economy. Just as a financial advisor advises for a retirement portfolio, this is common sense.
Second, contributed income (grants and gifts) being unsustainable long-term is also ridiculous. United Way, Planned Parenthood, and the Boys and Girls Clubs of America - to name a mere few - have been in the nonprofit business with substantial funds coming from donations for more than 100 years each. That sounds pretty darned sustainable to me.
"Over dependence on gifts and grants" is like saying that Coca-Cola has an over dependence on its customers' willingness or ability to buy their product. Ridiculous. In fact, people have always been interested in contributing to good works, especially when there is the added incentive of a tax write-off for doing so. This doesn't mean these gifts can be taken for granted, any more than Coke can keep selling the same old way without regard to changing demographics, social trends and other market drivers. Nonprofits need to innovate just as continually and effectively as Nike or Coke (and rely on those specialists with the expertise to do so - more on this below).
Now let's look at where these fallacious ideas come from. I usually hear the nonprofit sustainability criticism coming from people in the for profit sector (often people with MBAs!) The idea of contributed income - money given without material gain - is foreign there (and I daresay, anathema). So, too many nonprofits are misdirected by board members coming from for profits who, not understanding the asset of the 501(c)3 or the profession of fundraising, push earned income methods such as golf tournaments, galas, and now online programs - all to avoid "dependence" on gifts. This misses the entire point of the nonprofit sector business model!
There's nothing at all wrong with golf tournaments or galas - many nonprofits make good money and many new friends with these types of revenue generators. But there also is nothing wrong with writing grant proposals to foundations that are in the business of granting money each year (5% of their funds, by law) or cultivating relationships with major donors who are looking for ways to put their money to good use. Nor is there anything wrong with applying for government grants that are specifically designed to encourage innovation and good works beyond the reach and ability of government.
In fact, the nonprofit sector is set up to benefit from the fact that it does good and important work for our society that is, for the most part, not commercially viable (if it was, there'd be a for profit taking it on, you can be sure!) In exchange for this good work, the American people 1) don't require income tax be paid on any profits generated (and yes, nonprofits CAN make a profit - it just can't be distributed to owners or shareholders) and 2) allow those who financially support these good works through organizations with 501(c)3 status to deduct the amount on their tax returns. In this way, nonprofits have an income stream wholly unique to them, with people expert in capitalizing on it.
And that's my next point. The only time there's anything wrong with gifts and grants is when the people trying to bring funds in from those sources don't have the know-how to do so. Trust me - I've seen it. It's like a group of earnest folks deciding to perform an appendectomy on someone in need - the gesture may be well-intentioned, but most of us would prefer a surgeon. It's no wonder board members get fed up with "fundraising" and want to do something they understand: sell something!
But this is simply cutting off the nonprofit's nose to spite its face. The fundraising profession has gotten better and better as the demand for good work increases (nonprofits account for more start-ups than for profits) and the pace of change drives the need for innovation. Nonprofits can't rest on their laurels and rely on the same foundations, major gifts and government grants year after year. Times change and so must fundraising strategy. In this environment, the value of expert fundraising professionals is significant, and savvy nonprofit boards will view them as just as critical to business success as their mission professionals.
So, if we agree that sustainability comes from a diverse revenue stream, then nonprofits having contributed as well as earned income makes good business sense. In fact, it makes them incredibly sustainable, which is why the business model still works.
"Nonprofits aren't sustainable." How many times have I heard that? Too many. The idea that nonprofits aren't sustainable, that they are too dependent on gifts and grants, that they can only truly succeed with some sort of earned income stream reveals a fundamental lack of understanding about the nonprofit business model. Let's take a look.
First off, the idea that only earned income (the exchange of goods or services for money) is sustainable is ridiculous. How many for profit businesses have gone out of business because their source of earned income was no longer viable? Plenty. Earned income falls prey to the same ups and downs of the market that contributed income does. So, it's more apt to say that what is sustainable is having a broad enough income stream (funds coming in from a variety of sources) to ride the vicissitudes of the economy. Just as a financial advisor advises for a retirement portfolio, this is common sense.
Second, contributed income (grants and gifts) being unsustainable long-term is also ridiculous. United Way, Planned Parenthood, and the Boys and Girls Clubs of America - to name a mere few - have been in the nonprofit business with substantial funds coming from donations for more than 100 years each. That sounds pretty darned sustainable to me.
"Over dependence on gifts and grants" is like saying that Coca-Cola has an over dependence on its customers' willingness or ability to buy their product. Ridiculous. In fact, people have always been interested in contributing to good works, especially when there is the added incentive of a tax write-off for doing so. This doesn't mean these gifts can be taken for granted, any more than Coke can keep selling the same old way without regard to changing demographics, social trends and other market drivers. Nonprofits need to innovate just as continually and effectively as Nike or Coke (and rely on those specialists with the expertise to do so - more on this below).
Now let's look at where these fallacious ideas come from. I usually hear the nonprofit sustainability criticism coming from people in the for profit sector (often people with MBAs!) The idea of contributed income - money given without material gain - is foreign there (and I daresay, anathema). So, too many nonprofits are misdirected by board members coming from for profits who, not understanding the asset of the 501(c)3 or the profession of fundraising, push earned income methods such as golf tournaments, galas, and now online programs - all to avoid "dependence" on gifts. This misses the entire point of the nonprofit sector business model!
There's nothing at all wrong with golf tournaments or galas - many nonprofits make good money and many new friends with these types of revenue generators. But there also is nothing wrong with writing grant proposals to foundations that are in the business of granting money each year (5% of their funds, by law) or cultivating relationships with major donors who are looking for ways to put their money to good use. Nor is there anything wrong with applying for government grants that are specifically designed to encourage innovation and good works beyond the reach and ability of government.
In fact, the nonprofit sector is set up to benefit from the fact that it does good and important work for our society that is, for the most part, not commercially viable (if it was, there'd be a for profit taking it on, you can be sure!) In exchange for this good work, the American people 1) don't require income tax be paid on any profits generated (and yes, nonprofits CAN make a profit - it just can't be distributed to owners or shareholders) and 2) allow those who financially support these good works through organizations with 501(c)3 status to deduct the amount on their tax returns. In this way, nonprofits have an income stream wholly unique to them, with people expert in capitalizing on it.
And that's my next point. The only time there's anything wrong with gifts and grants is when the people trying to bring funds in from those sources don't have the know-how to do so. Trust me - I've seen it. It's like a group of earnest folks deciding to perform an appendectomy on someone in need - the gesture may be well-intentioned, but most of us would prefer a surgeon. It's no wonder board members get fed up with "fundraising" and want to do something they understand: sell something!
But this is simply cutting off the nonprofit's nose to spite its face. The fundraising profession has gotten better and better as the demand for good work increases (nonprofits account for more start-ups than for profits) and the pace of change drives the need for innovation. Nonprofits can't rest on their laurels and rely on the same foundations, major gifts and government grants year after year. Times change and so must fundraising strategy. In this environment, the value of expert fundraising professionals is significant, and savvy nonprofit boards will view them as just as critical to business success as their mission professionals.
So, if we agree that sustainability comes from a diverse revenue stream, then nonprofits having contributed as well as earned income makes good business sense. In fact, it makes them incredibly sustainable, which is why the business model still works.
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