While Mr. Park is technically correct that donors are buyers of services, I still very much like inviting donors to “invest” in the lives of the people we serve. This is different than refering to them as investors or stockholders in the not-for-profit.
I think of the organizations I have directed as “belonging” to the whole community, with our board acting as trustees for the community. So, in that sense, donors are stockholders, in a way.
However, 9 out of 10 donors want no more than an assurance that administration and fundraising overhead is kept at a reasonable level, and that there are successful outcomes from our programs. They may also want to know that funds designated for a certain purpose will be used as promised, and the proof can vary from a simple acknowledgement of that purpose in a thank-you letter to a detailed a project report to a foundation.
A sense of “ownership” by donors is a good thing, a bond that development officers and CEO’s strive to create. With many excellent causes seeking donor support, I would caution non-profits to be careful about applying the marketplace model of buyer and seller to our donor relationships.
Why is the conversation about wether the mentality of the Funder is as “investor” or “purchaser”? Both of these out looks seem dysfunctional. Funders should be “Givers”. The principle of giving is lost when reinforcing the mentality of investing or buying. The nonprofit has been set up so that a community can “give” resources to those that need it. I agree we need to be very careful when applying market place models to donor relationships. So what if the conversation shifted in the direction of educating funders rather than appealing to an “investor” or “purchaser” mentality?
I find the terminology and mentality behind purchaser and seller inaccurate for this field. The sector in NZ has had to become highly accountable to fund providers and this has been a driver to professionalise how funding takes place. I do agree with the comment that funders to an extent control the activities of a board and therefore the NFP, the alternative is to become entrepreneurial and more self-sustaining. This leads to examining the type of people who become board members and the skills package they bring. Much like Boards of Trustees in NZ attracting the right kind of person is significant challenge especially in small communities; these individuals are often highly sought after.
BYCarole Sumner Krechman Peacemaker Corps Associatio
I have been looking into a hybrid which would allow the general public to “invest” into a non for profit with the security of a government or major corporate guarantor to spread the risk. I agree that giving is an important element in the entire process and should not be lost in the 21st Century. But giving will some monetary return in addition to doing good, should be attractive to a larger audience.
I have run this charity that I started almost 15 years ago, and before that run another NGO non for profit at the United Nations, so fund raising has been a big part of my life. This is a very diffcult environment for gaining support with any new product. Those with funds to donate have their special groups and focus, the individual donor is strapped for cash. We all must become more innovative in the paths we take to underwrite our causes.
Social media allows us to reach into the grass roots community where the benifits of our work will find the most gains.
Nonprofits do sell a product to their funders, it’s just not a tangible product. If you are operating within the limits of economic theory, as Mr. Park does for this article, then it would be better to treat funders as a purchaser of a product. The goal of the buyer is to maximize their pleasure, some seek this through funding organizations that provide a service to their fellow man. The buyer, through funding the nonprofit, is in effect purchasing a product, that product being the existence of programs and organizations that work in the third sector. As a buyer or purchaser, they don’t hold any sway over how the organization spends that money directly. In this transactional system the only power the purchaser would maintain is that to remove their support from the organization and funnel it towards another. It’s an interesting theory, perhaps by trying to attract and woe potential funders with specialized packaging for their funds nonprofits are suffocating their best interests.
BYYolanda B. Gomez, Streams of Knowledge Foundation
Interesting article and comments. Working with a non-government organization and a non profit one, this gives me a new insight as looking at funders and investors. Very informative, as well.
BYShem Andege, Olemila Community Based ORganization
I am overjoyed with this comment. I have been working with a nonprofit organization for the last 10 years. This has helped me a lot and looks like an eye opener to me.
This is a very interesting discussion and one of the most debated issues as ‘Not for profit organizations reaches their booming stage. Considering the donor as a purchasers or investor when it comes the funding seems missing one of the important characteristics of donor.
However, funding is a social and moral responsibility of the donors rather than having ’ purely’ economic description. These have got two reasons why donors should think beyond the box:
1. Donor wants to ensure their fund goes to the targeted
2. Donor satisfies with end result as they met their objective and this has to do with the effective use of the fund and using the fund more appropriately.
Therefore, the only thing that donors want is to see their money spent on the right thing. There may be some flaws from both sides. But what matters are the will and judgment of both to use that fund more effectively
BYVenilde Jeronimo, Center for a New American Securi
Peter Drucker, the management guru, considered non-profit organizations to be distinctive from for-profit organizations. He wrote a good amount on non-profit management and I have benefited tremendously from his practical experience, knowledge, and contributions to non-profit management. What we have been witnessing is that non-profit organizations are adopting for-profit business processes that allow them to be more effective and accountable organizations. Along these lines, we can then see why donors can be considered “investors” and “buyers.” Whatever term our own non-profit organizations decide to use for our donor base, it is important that non-profit organizations remain transparent, accountable, and compliant with donor intent. Managing donor (or investor or purchaser if you prefer) expectations and maintaining donor relationships are critical to an organization’s long-term financial sustainability.
Thanks for this interesting perspective. I agree that funders’ views of themselves—whether as “investor” or “purchaser”—might color the way they make and manage their gifts. That said, perhaps a bigger issue is indirectly addressed in the blog: trust between donor and nonprofit. As Park notes, due diligence, done well, lays the groundwork for a strong relationship, as does having mutually-agreed-on measures of success. Overhead often serves as (terribly flawed) proxy for control. The stronger the level of trust in the donor/nonprofit relationship, the higher the likelihood that the both parties focus on more meaningful definitions of impact.
Since we wrote the Nonprofit Starvation Cycle several years ago, I’ve been struck by how often conversations with audiences turn to issues of trust, or utter lack of it, between funders and nonprofits. We (Bridgespan) tried a few times to stimulate genuine conversation on overhead in “mixed company” and were met with silence. Developing deep trust between these parties takes time and, to state the obvious given the power dynamic in a room, isn’t easy. But it’s vital.
I really appreciate that Mr. Park has raised these issues. There are many points on which I agree with him, but I disagree with the main thesis. I am a longtime staff person at Nonprofit Finance Fund, a national leader in nonprofit, philanthropic and social enterprise finance. We have made and continue to make contributions in writing and presentations about the role that nonprofit funders can and should play (most notably, former NFF President and CEO Clara Miller’s SSIR article, The Equity Capital Cap, Summer 2008: http://nonprofitfinancefund.org/files/docs/2010/ssir_summer_2008_equity_capital_gap.pdf).
Our central tenet is that funders can be either purchasers (we say buyers) or investors (we say builders). In fact, some can do both. The challenge is that funders are not always clear about which role they are playing; consequently, nonprofits can be confused and their financial health and organizational viability can suffer.
Funders who purchase services provided by nonprofits on an ongoing basis—and who pay the full cost for these services, including overhead—are essential to the health of the sector and its ability to serve communities effectively. Also of critical importance to the sector are private funders who can provide periodic infusions of larger dollar amounts to excellent nonprofits. These funds act more like investments/equity and allow nonprofits to “build” their organizations’ capacity to deliver on their missions and improve their long-term business viability. Nonprofits need this capital, which is distinct from the revenue that pays for services, for many purposes: to support change or growth, invest in critical fixed assets, and build reserves, among others.
At the end of the day, most nonprofits achieve very thin operating margins—many produce deficits while others have small surpluses. They often lack the ability to make investments in improved liquidity, adaptability, technology, human resources, facilities and equipment. In the nonprofit world, private foundations and high-net-worth individuals are primary sources of such capital funds—and these are not “purchase” transactions. It is NFF’s aspiration that by continuing to talk about this issue while providing tools and advice, we can move the field toward embracing the importance of clarifying funder/donor roles—and, by extension, improving the way that nonprofits are funded and financed.
Posted on behalf of Mel Tremper, jbsinternational:
The core of Mr. Park’s argument seems to be this: “Rather than thinking of themselves as investors, funders need to think like purchasers. Economic theory identifies nonprofits as the producers of social goods and the funders of nonprofits as the purchasers or buyers of these goods. Viewing funders as purchasers rather than investors provides a clear rationale for avoiding the nonprofit starvation cycle.”
While his article is a welcome re-thinking of the current buzzword of funders as investors. The notion of funders paying for a service, and letting the nonprofit service provider determine how best to use this revenue has merit. This concept runs counter to the thinking of an important segment of the nonprofit funding community, namely goverments. Legislators often mistrust fund recipients, hence the various restrictions on how funds can be expended. This mind-set also often permeates private funders as well. His reframing is a useful antidote to that funding approach since it does return control of the uses of organization’s revenues to the organization.
However, his analysis framework also has its weaknesses. First, in a typical buyer/seller market relationship it is the buyer’s interest to deive the price down as much as possible with little or no regard for the economic well being of the seller. It is hard to see how seeing funders as buyers in this model would provide a rationale for them to want to avoid a nonprofit starvation cycle.
Secondly, funders are not buying services for themselves, they are acting as a third party payer, buying services for some external audience. That is teh Chavez Foundation does not grant funds to buy affordable housing for itself, but for some target group of homeless persons. This differs from the typical buyer/seller relationship. Perhaps the buisness model of health insurance companies might be applicable, since they too are purchasing a service on someone else’s behalf.
Mr. Park applied the typical for profit connotation of “investor” to his framework. That is, an investor is someone who wants control over the entity invested in. Mr. Christopher’s comment illustrated what I see as the more common meaning of the term in the non-profit sector. That is, funders can be investors in the sense of building capacity within the organizations they fund. This capacity allows the non-profits to achieve the kinds of results the funders want to see within the audiences the funders are interested in.
In this model, funders as investors are seeking not to control the minutia of whether a grantee spends money on travel or staff training, but to “control” the quality of the outcomes for the audience of interest.
This goes a step beyond merely purchasing a given amount of service, such as 100 children are counseled. It means that the funder defines a level of quality of service in terms of outcomes, and specifies how the grantee will measure and report on the attainment of those outcomes. The funder might also provide technical assistance (that is invest resources beyond the funds granted) to the grantee to ensure they have the capacity to achieve the desired level of outcomes. For example, not just report they counseled 100 children, but that the children (graduated high school, did not become pregnant, never bullied, insert your outcomes here) achieved the intended outcomes.
Going a step further, a true “investment mindset” in funders might result in funding non-profits engaging in strategies to achieve lasting change in community conditions that would lead to the desired outcomes. This investment in community change would reduce the future need to continue to purchase counseling services for so many children in the future.
COMMENTS
BY Mike Lonergan, Youth Marine Foundation
ON July 18, 2011 04:09 PM
While Mr. Park is technically correct that donors are buyers of services, I still very much like inviting donors to “invest” in the lives of the people we serve. This is different than refering to them as investors or stockholders in the not-for-profit.
I think of the organizations I have directed as “belonging” to the whole community, with our board acting as trustees for the community. So, in that sense, donors are stockholders, in a way.
However, 9 out of 10 donors want no more than an assurance that administration and fundraising overhead is kept at a reasonable level, and that there are successful outcomes from our programs. They may also want to know that funds designated for a certain purpose will be used as promised, and the proof can vary from a simple acknowledgement of that purpose in a thank-you letter to a detailed a project report to a foundation.
A sense of “ownership” by donors is a good thing, a bond that development officers and CEO’s strive to create. With many excellent causes seeking donor support, I would caution non-profits to be careful about applying the marketplace model of buyer and seller to our donor relationships.
BY Patrick Kennedy, Art and Justice League
ON July 18, 2011 09:47 PM
Why is the conversation about wether the mentality of the Funder is as “investor” or “purchaser”? Both of these out looks seem dysfunctional. Funders should be “Givers”. The principle of giving is lost when reinforcing the mentality of investing or buying. The nonprofit has been set up so that a community can “give” resources to those that need it. I agree we need to be very careful when applying market place models to donor relationships. So what if the conversation shifted in the direction of educating funders rather than appealing to an “investor” or “purchaser” mentality?
BY Jane Scripps Dress for Success Northland
ON July 19, 2011 12:27 PM
I find the terminology and mentality behind purchaser and seller inaccurate for this field. The sector in NZ has had to become highly accountable to fund providers and this has been a driver to professionalise how funding takes place. I do agree with the comment that funders to an extent control the activities of a board and therefore the NFP, the alternative is to become entrepreneurial and more self-sustaining. This leads to examining the type of people who become board members and the skills package they bring. Much like Boards of Trustees in NZ attracting the right kind of person is significant challenge especially in small communities; these individuals are often highly sought after.
BY Carole Sumner Krechman Peacemaker Corps Associatio
ON July 19, 2011 02:54 PM
I have been looking into a hybrid which would allow the general public to “invest” into a non for profit with the security of a government or major corporate guarantor to spread the risk. I agree that giving is an important element in the entire process and should not be lost in the 21st Century. But giving will some monetary return in addition to doing good, should be attractive to a larger audience.
I have run this charity that I started almost 15 years ago, and before that run another NGO non for profit at the United Nations, so fund raising has been a big part of my life. This is a very diffcult environment for gaining support with any new product. Those with funds to donate have their special groups and focus, the individual donor is strapped for cash. We all must become more innovative in the paths we take to underwrite our causes.
Social media allows us to reach into the grass roots community where the benifits of our work will find the most gains.
BY K. C.
ON July 19, 2011 05:18 PM
Nonprofits do sell a product to their funders, it’s just not a tangible product. If you are operating within the limits of economic theory, as Mr. Park does for this article, then it would be better to treat funders as a purchaser of a product. The goal of the buyer is to maximize their pleasure, some seek this through funding organizations that provide a service to their fellow man. The buyer, through funding the nonprofit, is in effect purchasing a product, that product being the existence of programs and organizations that work in the third sector. As a buyer or purchaser, they don’t hold any sway over how the organization spends that money directly. In this transactional system the only power the purchaser would maintain is that to remove their support from the organization and funnel it towards another. It’s an interesting theory, perhaps by trying to attract and woe potential funders with specialized packaging for their funds nonprofits are suffocating their best interests.
BY Yolanda B. Gomez, Streams of Knowledge Foundation
ON July 19, 2011 09:21 PM
Interesting article and comments. Working with a non-government organization and a non profit one, this gives me a new insight as looking at funders and investors. Very informative, as well.
BY Shem Andege, Olemila Community Based ORganization
ON July 19, 2011 11:54 PM
I am overjoyed with this comment. I have been working with a nonprofit organization for the last 10 years. This has helped me a lot and looks like an eye opener to me.
BY Abdulahi,
ON July 20, 2011 02:35 AM
This is a very interesting discussion and one of the most debated issues as ‘Not for profit organizations reaches their booming stage. Considering the donor as a purchasers or investor when it comes the funding seems missing one of the important characteristics of donor.
However, funding is a social and moral responsibility of the donors rather than having ’ purely’ economic description. These have got two reasons why donors should think beyond the box:
1. Donor wants to ensure their fund goes to the targeted
2. Donor satisfies with end result as they met their objective and this has to do with the effective use of the fund and using the fund more appropriately.
Therefore, the only thing that donors want is to see their money spent on the right thing. There may be some flaws from both sides. But what matters are the will and judgment of both to use that fund more effectively
BY Venilde Jeronimo, Center for a New American Securi
ON July 20, 2011 06:47 AM
Peter Drucker, the management guru, considered non-profit organizations to be distinctive from for-profit organizations. He wrote a good amount on non-profit management and I have benefited tremendously from his practical experience, knowledge, and contributions to non-profit management. What we have been witnessing is that non-profit organizations are adopting for-profit business processes that allow them to be more effective and accountable organizations. Along these lines, we can then see why donors can be considered “investors” and “buyers.” Whatever term our own non-profit organizations decide to use for our donor base, it is important that non-profit organizations remain transparent, accountable, and compliant with donor intent. Managing donor (or investor or purchaser if you prefer) expectations and maintaining donor relationships are critical to an organization’s long-term financial sustainability.
BY Ann Goggins Gregory
ON July 20, 2011 04:20 PM
Thanks for this interesting perspective. I agree that funders’ views of themselves—whether as “investor” or “purchaser”—might color the way they make and manage their gifts. That said, perhaps a bigger issue is indirectly addressed in the blog: trust between donor and nonprofit. As Park notes, due diligence, done well, lays the groundwork for a strong relationship, as does having mutually-agreed-on measures of success. Overhead often serves as (terribly flawed) proxy for control. The stronger the level of trust in the donor/nonprofit relationship, the higher the likelihood that the both parties focus on more meaningful definitions of impact.
Since we wrote the Nonprofit Starvation Cycle several years ago, I’ve been struck by how often conversations with audiences turn to issues of trust, or utter lack of it, between funders and nonprofits. We (Bridgespan) tried a few times to stimulate genuine conversation on overhead in “mixed company” and were met with silence. Developing deep trust between these parties takes time and, to state the obvious given the power dynamic in a room, isn’t easy. But it’s vital.
Thanks again for your post.
BY Rodney Christopher, Nonprofit Finance Fund
ON July 22, 2011 12:25 PM
I really appreciate that Mr. Park has raised these issues. There are many points on which I agree with him, but I disagree with the main thesis. I am a longtime staff person at Nonprofit Finance Fund, a national leader in nonprofit, philanthropic and social enterprise finance. We have made and continue to make contributions in writing and presentations about the role that nonprofit funders can and should play (most notably, former NFF President and CEO Clara Miller’s SSIR article, The Equity Capital Cap, Summer 2008: http://nonprofitfinancefund.org/files/docs/2010/ssir_summer_2008_equity_capital_gap.pdf).
Our central tenet is that funders can be either purchasers (we say buyers) or investors (we say builders). In fact, some can do both. The challenge is that funders are not always clear about which role they are playing; consequently, nonprofits can be confused and their financial health and organizational viability can suffer.
Funders who purchase services provided by nonprofits on an ongoing basis—and who pay the full cost for these services, including overhead—are essential to the health of the sector and its ability to serve communities effectively. Also of critical importance to the sector are private funders who can provide periodic infusions of larger dollar amounts to excellent nonprofits. These funds act more like investments/equity and allow nonprofits to “build” their organizations’ capacity to deliver on their missions and improve their long-term business viability. Nonprofits need this capital, which is distinct from the revenue that pays for services, for many purposes: to support change or growth, invest in critical fixed assets, and build reserves, among others.
At the end of the day, most nonprofits achieve very thin operating margins—many produce deficits while others have small surpluses. They often lack the ability to make investments in improved liquidity, adaptability, technology, human resources, facilities and equipment. In the nonprofit world, private foundations and high-net-worth individuals are primary sources of such capital funds—and these are not “purchase” transactions. It is NFF’s aspiration that by continuing to talk about this issue while providing tools and advice, we can move the field toward embracing the importance of clarifying funder/donor roles—and, by extension, improving the way that nonprofits are funded and financed.
BY Jenifer Morgan (SSIR)
ON July 26, 2011 10:12 AM
Posted on behalf of Mel Tremper, jbsinternational:
The core of Mr. Park’s argument seems to be this: “Rather than thinking of themselves as investors, funders need to think like purchasers. Economic theory identifies nonprofits as the producers of social goods and the funders of nonprofits as the purchasers or buyers of these goods. Viewing funders as purchasers rather than investors provides a clear rationale for avoiding the nonprofit starvation cycle.”
While his article is a welcome re-thinking of the current buzzword of funders as investors. The notion of funders paying for a service, and letting the nonprofit service provider determine how best to use this revenue has merit. This concept runs counter to the thinking of an important segment of the nonprofit funding community, namely goverments. Legislators often mistrust fund recipients, hence the various restrictions on how funds can be expended. This mind-set also often permeates private funders as well. His reframing is a useful antidote to that funding approach since it does return control of the uses of organization’s revenues to the organization.
However, his analysis framework also has its weaknesses. First, in a typical buyer/seller market relationship it is the buyer’s interest to deive the price down as much as possible with little or no regard for the economic well being of the seller. It is hard to see how seeing funders as buyers in this model would provide a rationale for them to want to avoid a nonprofit starvation cycle.
Secondly, funders are not buying services for themselves, they are acting as a third party payer, buying services for some external audience. That is teh Chavez Foundation does not grant funds to buy affordable housing for itself, but for some target group of homeless persons. This differs from the typical buyer/seller relationship. Perhaps the buisness model of health insurance companies might be applicable, since they too are purchasing a service on someone else’s behalf.
Mr. Park applied the typical for profit connotation of “investor” to his framework. That is, an investor is someone who wants control over the entity invested in. Mr. Christopher’s comment illustrated what I see as the more common meaning of the term in the non-profit sector. That is, funders can be investors in the sense of building capacity within the organizations they fund. This capacity allows the non-profits to achieve the kinds of results the funders want to see within the audiences the funders are interested in.
In this model, funders as investors are seeking not to control the minutia of whether a grantee spends money on travel or staff training, but to “control” the quality of the outcomes for the audience of interest.
This goes a step beyond merely purchasing a given amount of service, such as 100 children are counseled. It means that the funder defines a level of quality of service in terms of outcomes, and specifies how the grantee will measure and report on the attainment of those outcomes. The funder might also provide technical assistance (that is invest resources beyond the funds granted) to the grantee to ensure they have the capacity to achieve the desired level of outcomes. For example, not just report they counseled 100 children, but that the children (graduated high school, did not become pregnant, never bullied, insert your outcomes here) achieved the intended outcomes.
Going a step further, a true “investment mindset” in funders might result in funding non-profits engaging in strategies to achieve lasting change in community conditions that would lead to the desired outcomes. This investment in community change would reduce the future need to continue to purchase counseling services for so many children in the future.