Balancing the Mission Checkbook

I was at breakfast last week with the founding executive director of a nonprofit and he made an off-hand, joking comment about how he supposed that that meant the organization had “Founder’s Syndrome.” It did make it sound like a disease, like Carpal Tunnel Syndrome. This isn’t the first time that I’ve heard this annoyance from a founder about this term that is used so frequently. Is it really fair, or even accurate, to label all founders with a pejorative term? It doesn’t sound very appreciative – like, “Thanks for having the guts and moxie to start this organization.” Most founders who I know didn’t fully realize what they were getting into when they started the nonprofit. Most start nonprofits because they feel deeply about the program and mission. They didn’t anticipate needing to fundraise, recruit and develop a board, manage staff, and make dozens of decisions every day. They did what they needed to – and now they have this Syndrome.

I won’t deny that there are organizational development issues that frequently occur in organizations with a strong founder/leader that impact decision-making, control, knowledge, and direction. When we call it a Syndrome, though, it sounds incurable. I think it needs a better identity as a leadership problem that can be corrected. I also take issue with the description of Founder’s Syndrome since I’ve worked with many nonprofits with all the same poor practices that were led by a second, third, or fourth director. Whoever the director is, these characteristics describe a common leadership problem that becomes an obstacle to effectively sharing responsibility, authority, and building a strong organization.

Does the founder, or strong leader, have to leave the organization to “cure” the Syndrome? I hope not, and I have seen plenty of examples of founder/leaders taking part in an organizational transition. It takes commitment, effort, and lots of trust – and requires that the board and staff respect the leader for what they have done in the past and what they are capable of in the future.

I have shared some of my thoughts and opinions about the field of social enterprise in this blog, including the question of whether the hubbub about creating business ventures is just a new name for a long-standing practice (see Is Social Enterprise Really New or Different). However, I have to extend my congratulations and admiration to the Animal Humane Society (AHS) for their plans to open a premier pet boarding facility at the Minneapolis-St. Paul airport. This plan sounds like a real winner that merges the assets of the nonprofit with a real market demand. I have high hopes that the return to the AHS will not only be financial, but will also increase their visibility, community support and donations, and reputation. The plans are described in a press release issued on March 10th.

When I lead discussions with nonprofits interested in finding a social enterprise idea to pursue, I encourage them to resist the temptation to replicate what looks like a good idea that they read about in an article or heard at a conference. The best enterprises are grounded in both the mission and the assets of the organization. The most successful enterprises support the mission beyond a projected financial return. They also take advantage of one or more assets, such as knowledge and expertise, location, understanding of a community, and reputation. To be financially viable, an enterprise must also find a market – a bona fide market that is willing, and wants, to buy the service or product.

The pet boarding facility looks like a good idea on all of these fronts. It’s a mission fit, takes advantage of organizational assets including understanding of how people relate to and care for their pets, and the reputation of the organization. The market demand is demonstrated every time you talk to a colleague who has to take a half day off before a vacation to drive across town to drop off and then pick up their pet. There are risks, of course. The facility is expensive ($4.25 million) and the AHS is investing $750,000 of their own designated funds to launch the venture. The goal is to return financial dividends to the nonprofit to support other programs, and the pet boarding facility is structured as a for-profit subsidiary of AHS.

Best wishes to the AHS on this venture – and thanks for the great case study for us all to observe.

This week has brought an interesting alignment in the discussion, or debate, about the future of philanthropy. Last Sunday, the magazine section of The New York Times was all about “Giving it Away” and trends in philanthropy. One particular article, “For Good, Measure” discusses a current hot topic: “Foundations are increasingly using “metrics” to determine if their grants are working. But can you really measure the return-on-investment of giving to a cause?” The article is one of many that I’ve read on this theme of trying to quantify impact, and it’s direct cost and value. An interesting article and we could debate many of the points. I really paid attention, though when, in a single day this week, two business leaders in Minneapolis asked me if I had read the article. They were impressed and very interested. That was a sign to me that this is moving from the conferences and into daily reality.

On the heels of this article, Nonprofit Quarterly offered a preview of a new book, Just Another Emperor: the Myths and Realities of Philanthrocapitalism, by author Mike Edwards, opening with:

“A new movement is afoot that promises to save the world by revolutionizing philanthropy, making non-profit organizations operate like business, and creating new markets for goods and services that benefit society. Nick-named ‘philanthrocapitalism’ for short, its supporters believe that business principles can be successfully combined with the search for social transformation.”

Edwards makes a strong argument that this movement is the wrong direction for several reasons, chiefly that social transformation is an entirely different “product” than producing goods and services. The preview sparked a lively response in blogs and on NPQ’s Forum from leaders in the sector. There is an air of “think tank” to this for me, though. We can have a healthy, and undoubtedly lengthy, debate on theory, myth, and reality. Most of the nonprofit organizations that we work with every day are not immediately affected by this trend, if that’s what it is. Most charitable dollars are still received from individuals or from traditional grantmaking practices. For “service-providing” nonprofits, delivering the essential social services, health care, and education needed in the community, public dollars dominate and are unlikely to take a radical turn towards long-term “investment.”

The growing awareness of philanthrocapitalism in the business world will require an equal awareness and response from nonprofits. If you think this debate can be ignored and relegated to the think tankers, I’d suggest that the discussion is important for us all to pay close attention to. Remember that there was a time decades ago that the basic structure of grantmaking was created. You wouldn’t want to be caught napping if the world that you know really changes. This topic relates to my post last week, which generated a comment recommending the book Good to Great and the Social Sectors by Jim Collins. Edwards also notes this short (35 pages) and valuable book - add it to your must read list.

I’ve been mulling the question of what makes a nonprofit organization distinctly different from a for-profit business. Thinking about this is percolating because of an article in The New York Times about a week ago, A Capitalist Jolt for Charity, about the nonprofit In2Books, the related for-profit business ePals, Inc, and the enthusiasm of venture capital entrepreneurs to use their money and talents to do good. According to the article, by morphing the nonprofit into a for-profit with access to angel capital and business practices, the combined organization is better than it could have been as a single nonprofit. They are “making use of some of capitalism’s virtues.” Really? I’m all for any trend that gets smart people from business, and their capital, focused on doing good work, but I am put off by the implication that (a) “regular” nonprofits don’t employ growth strategies already, and (b) there is not a real difference between a for-profit business and a nonprofit, as long as the business owners are working towards a community good.

Some of the phrases used in the Times article include “encourage more nonprofits to become self-sustaining” and “make the market work for social goals.” The terms revenue, profit, earned income, investment, and entrepreneur are bandied about as if they have a clear, singular definition that is unique to this topic. This muddy and imprecise use of business terms applied to nonprofit organizations (as if we hadn’t thought about these before) contributes to the confusion.

First of all, I can think of numerous nonprofits (including Nonprofits Assistance Fund) that have demonstrated smart growth, good business and financial practices, and important community impact. Would we have done better work if we had been a for-profit instead? The bigger issue to me is the essence question – what makes a nonprofit different? Is it just tax status, or is there a more essential distinction? I would love to participate in a broad discussion about this, starting with two fundamentals.

1. Business Model Differences: Nonprofits almost always require some form and amount of subsidy to make the income, expense, and asset model work. Subsidy can take the form of direct financial contributions or grants to pay for some or all expenses, but volunteers, donated inventory and services, sponsorships, and low cost or free physical and financial capital are also forms of subsidy. In the case of ePals, described in the Times article, Intel is including the ePals icon on the Classmate laptop computers. This is a type of subsidy, since a traditional business partner would surely have to pay for this access. I also think that the investors who are willing to purchase shares in a social business without expectation of a market rate return on investment are effectively providing another form of subsidy. All this leads me to suggest that the idea that business practices will help nonprofits become “self-sustaining” and “make the market work” is trickier than it looks on a spreadsheet.

2. Structural Differences: Nonprofits and for-profit businesses have very different sources of accountability. The shareholders of a business can certainly decide to have a social mission. But the board of directors of ePals, Inc, even with its social mission and good intentions, has the option of changing their mind at a later date and reorganizing to return maximum profit. A nonprofit organization is accountable to the mission and community forever. The workings of boards of directors and staff can certainly be messy, confusing, and inefficient, but the measure will always be a true double bottom line, as it always has been.

What do you think – does this hit a nerve for you, or do you think I’m way off base?