Grand Rapids Community Foundation

Are nonprofits less than . . . ??

May 12^th, 2010

It happened again! Addressing a large group of nonprofit, foundation, and national organization leaders recently, a business leader was trying to convey generally a positive message about how his company has taken the leap to employ people who need many supports to succeed in a competitive employment environment. However, where he tripped was when he uttered something like, "But then you are not employers here today."

HUH!? He was struggling because he likely would have liked to have said, but none of your organizations are "in business" or are for-profit enterprises. The social sector is often viewed as "less than" for-profit businesses for reasons that are just plain short-sighted.

Having talked on the value of this sector for many years and written on the topic, frankly I'm plum out of steam as there is no way to convince leaders here and around the country about the tremendous value that is returned to society by the nonprofit/social sector. Jim Collins did discover that value and wrote a monograph entitled "Good to Great and the Social Sectors" back in 2005. His premise was: "Why business thinking is not the answer" - a very wise man.

In 1998 the forerunner organization to the Community Research Institute (CRI) at the Johnson Center for Philanthropy at Grand Valley State University researched and published a report on the Economic Impact of the social sector in Kent County. At that time it was determined that the sector represented 7% of the local economy and that the economic impact was more than $1 billion!

A study was also conducted in 2006 and updated in March 2007 by CRI on this very topic and the following was found: The total economic impact of the nonprofit sector in Kent County was measured to be $2.1 billion and that local nonprofits (at that time) employed 33,000 people which may be lower in 2010 given the recession. Also it was noted that the sector supported an additional 14,800 jobs in the for-profit sector. Here's the link to this report as well as reports measuring the economic impact of the social sector for Newaygo, Muskegon and Ottawa Counties.

An important message is found in these reports which states while the economic impact of the sector is important, it is the impact that it is has on the quality of life which attracts and retains businesses in our communities as well as addressing the very serious problems surrounding the human condition.

Not employers!? Hardly! The social or nonprofit sector is critical to our society. The leaders do have strong leadership and financial skills and if they don't, they won't survive! Just like in business.

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Financing the nonprofit sector - current methods may be short sighted and inadequate

June 12^th, 2008

I just read in the online edition of today's Grand Rapids Press that the Public Museum of Grand Rapids was denied funding from the Downtown Development Authority to expand and update their kitchen facilities to increase their ability to host larger catered events. This may increase the museum's revenue which is needed to help offset the gap in their budget created when the facility transitioned from a city operated one to a private nonprofit organization.

The reasoning behind the denial had to do with using public funds that would be used to potentially create competition with other for-profit catering services and the museum was encouraged to explore those options first.

My purpose here is not to comment on this decision but to underscore that a great of deal of writing and thought has been put into how the nonprofit sector is financed particularly in the past five years. Trying to find revenue sources is increasingly challenging and I question if we are tying the hands of the sector by limiting our notions of funding mechanisms that may or may not help keep organizations healthy and vital. All funders - governmental, foundations, and others - need to take more seriously the challenge that befalls the nonprofit sector in its efforts to find sustainable revenue sources - which is actually an oxymoron these days!

In Jim Collins' monograph entitled Good to Great and the Social Sectors (with the subtitle that is important here: "Why Business Thinking is Not the Answer") he made many astute observations but one notion in particular has stayed with me since I first read the monograph back in 2005. (This publication is available on Jim Collins' website.)

"I find it puzzling how people who clearly understand the idea of investing in great companies run by the right people often fail to carry the same logic over to the social sectors . . . social sector funding often favors "time telling" - focusing on a specific program or restricted gift . . . But building a great organization requires a shift to "clock building" - shaping a strong, self-sustaining organization that can prosper beyond any single programmatic idea or visionary leader. . . If an institution has a focused Hedgehog Concept and a disciplined organization that delivers exceptional results, the best thing supporters can do is to give resources that enable the institution's leaders to do their work the best way they know how. 1

Clara Miller, the president and CEO of the Nonprofit Finance Fund, addresses another interesting aspect of this in an article entitled The Equity Capital Gap found in the Summer 2008 edition of the Stanford Social Innovation Review . (A subscription is required to read the article.)

Ms. Miller explores the premise that current methods of revenue generation for nonprofits are short sighted. These methods may include traditional grants, debt financing, and donations. She is encouraging funders like this foundation to find ways to tackle this challenge collectively. As she states, "Creating an equity capital equivalent - and an equity ethic - for nonprofits is a critical first step in this process." 2

As I stated before, all funders - governmental, foundations and others - need to THINK harder about what we can do to strengthen the financial standing of the social sector. This has been on my mind for quite some time and I am still trying to grasp how to address this challenge.

1 Jim Collins, Good to Great and the Social Sectors (Jim Collins, 2005) 24-25.
2 Clara Miller, "The Equity Capital Gap," Stanford Social Innovation Review, Vol. 6, No. 3 (Summer 2008): 41-45.

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