Must Read: For-Profit Arm No Panacea For Non-Profit Funding Woes

If you have ever thought that starting a for-profit arm for your non-profit to help support the latter’s mission, you must read The Nonprofiteer’s post on the subject. I have been hearing it suggested that non-profits embrace these types of arrangements as grants and donations have become increasingly difficult to secure. A study linked to by The Nonprofiteer requires one to pause in such considerations.

Writes the Nonprofiteer of the study:

“nonprofit agencies which choose to support themselves with for-profit businesses end up serving their clients less and worse. Moreover, when the businesses thrive the profits go back into the business, while when the businesses falter the losses are taken out of the hide of the agencies. “

I took a look at the study, “Social Enterprise: Innovation or Mission Distraction,” in which author Rebecca Tekula analyzes the 990 filings of Human Service organizations in New York County from 2000 to 2005. The number of organizations this encompasses is not cited though Tekula writes that the data “represents 700 organizational years” which averages to 116.67 organizations for each of those six years.

What Tekula says she found is that enterprises that yield non-business related income undermine the value provided through the non-profit program-

“As hypothesized, the internal capital markets of nonprofit firms seem to follow that of for-profit firms in that diversification leads to value loss as proxied by programmatic expenditure. What can be inferred from my findings is that this particular type of external enterprising behavior is associated with less value in the programmatic output of human service nonprofits.”

And, no surprise, ineffective programs can be a drain on the resources that should be directed to the effective ones-

“My findings are in accordance with cross-subsidy theories of diversification in which internal budgeting allocates funds to divisions with few investment opportunities (ailing enterprises of nonprofits) while failing to channel funds to those with ample investment opportunities (effective, efficient programs). While this research is a first step toward identifying the factors associated with earned income behavior in nonprofit organizations, there is much work to be done in this area.”

Tekula is careful not to say this will be true for all sectors of the non-profit world and encourages similar study of the arts, healthcare and education. But does caution, (my emphasis)

“Clearly more thought and research must be invested in this area and caution must be given in popularizing and glorifying the unproven benefits of unrelated or external enterprising activities on the very organizations that have become important service providers for society’s neediest individuals.”

Where Your Duty As A Non-Profit Lies

I had to wonder if people were intentionally misreading the post I made about the Arts Council of England requiring applications for funding. My declaration that “Once again, Europe proves their arts policy is superior to that of the U.S.!” was meant to be read a little tongue in cheek lampooning the constant refrain that the arts policy and audiences in Europe are better than in the U.S. And even if that tone didn’t come across, I would have thought that when I wrote sentence or two later that the reality was that the policy is exclusionary and then spend 500 or so words talking about how it will be improved, it would be clear that I wasn’t seriously supporting the old way of doing things.

But I wasn’t really put off by the comments on the entry or by Leonard Jacobs post criticizing this view on The Clyde Fitch Report. In my mind, I was guilty of the age old failing – If you have to explain the joke, you didn’t deliver it correctly. Besides, I figured my blog would get some traffic from the Clyde Fitch Report post.

But then I got to thinking about it. No arts organization ever forms for the purpose of filling out grant applications. Yes, you know when you form your non-profit, it is something of a necessity for doing business. It isn’t a surprise that filling them out does indeed divert energy from the core purpose of the organization. So yes, on second thought, I do think it is pretty much the duty of every non-profit organization to gain funding with the least effort possible so they can get on with their core purpose. It isn’t just me saying this. The biggest measure of non-profit effectiveness is the ratio of how much raised goes toward programs vs how much goes toward overhead and expenses. This is the measure Charity Navigator used to rate my local United Way dead last among local non-profits.

Charity Navigator admits their evaluation doesn’t look at the quality of programs non-profits offer, a fact those at the bottom of the list are quick to cite when they decry the legitimacy of the rankings. But this is a measure that is gaining more and more traction, especially among politicians who are questioning the salaries of those few non-profit executives who actually make enough worth noting.

No surprise politics plays a big part in who gets government funding and who doesn’t. In that context it is get tougher to say that the old policy for funding by the Arts Council of England is really worse than that of the NEA. There are categories of people who were once eligible for funding by the NEA who no longer are due to changes in laws and policies made in reaction to political pressure. We have had mayors of New York City who have unilaterally declared that arts organizations will not receive funding because of program content. Are situations where individuals have the power to rescind funding awarded by a small group of people based on an application any more egalitarian than a situation where a small group of people are empowered to decide who will receive funding based on their own judgments (as well informed as they may be by the vastly superior arts environment which exists in Europe)?

Actually, on the face of it, I would say yes since the criteria being used by the NEA to award grants are clear from the outset, regardless of the pressures exerted to shape those criteria. As I mentioned in my original post, the process and criteria by which the Arts Council decided which organizations to fund and how an organization might even enter the council’s consideration was murky at best. Politics are going to tinge any decision making process where judgments are present. Lets not pretend though that the lengthy application process, be it an electronic or paper submission process, is the best and only way for governments to disburse funds.

When my consortium met last week, one of the aspirations we had for our fledgling merger was right in line with the regional partner initiatives the Arts Council of England hopes to implement. We are looking to become organized enough to propose becoming a partner organization to the state arts foundation and receive annual funding for our activities outside of the normal granting process. To my mind 10-15 performing arts entities coming together to work in partnership is an approach worth funding in an alternative manner. I believe it would be counterproductive to require each of us to submit a separate applications because it would perpetuate the idea that we needed to compete as individuals for funding rather than to collaborate.

Let’s be honest, there is a lot of self-interest when non-profits are seeking funding. As Leonard Jacobs notes, many funders have restrictive criteria about what they will fund based on interests, geography and shifting priorities. Our interests in the criteria for government funding is based immediately on whether we and perhaps our close partners qualify. A desire for an egalitarian arts policy that benefits everyone else is more philosophically abstract, based generally on creating an environment in which our potential audience base comes to appreciate the arts. If our perceived rivals gain significantly more largesse, our attitudes can become less charitable.

I am all for any system that encourages a shift toward group interest and responsibility–especially if the group shares in the paperwork rather than just me. But more importantly if you haven’t guessed, I would welcome a shift away from the damn paperwork. Leonard Jacobs says to stop whining about the paperwork and do some work for it. Well, it is the art that is the work you are doing for the grant, not the paperwork. Nobody is interested in funding paperwork. Though reviewing written applications may be efficient in terms of cost, the paperwork is really about the least effective way to measure the worth of a project. It is just a measure of good writing ability, which granted is an art itself and deserving of support. But that is just the genteel way of saying that someone knows how to bullshit well and use all the correct phrases and keywords. Many of the online application forms don’t let you submit them if your costs exceed your income and therefore require that you lie to complete them even if the truth is that you spent $50 more than you made. The whole process is dishonest before anyone even looks at the application.

The arts by their very nature are meant to be seen and experienced. Yes, sending people out to visit grantees is expensive, but perhaps it would be done if there was better funding. Yes, the visiting team might make subjective judgments about the worthiness of your organization, but they are doing that already when they read your grant application.

Colleges and universities are accredited by regional bodies who send people to evaluate them on a regular basis to bring them into compliance with current standards. Now I will readily admit that compliance translates into paperwork. I will also concede that the schools probably pay quite a lot to be part of this process. And even though they aren’t part of the government, members of Congress have been criticizing the accrediting bodies. So I won’t even pretend this idea would satisfy the NEA’s biggest critics.

But if arts groups were organized under regional bodies, then the cost could be borne by many just as it is with the schools. The experience of those participating as visiting evaluators would be much more valuable than sitting on a grant review committee. Instead of learning what committees were looking for in a grant application, the committee member could actually learn about the best practices by groups in their region and share that information with their home organization. Not to mention they would be sharing information and developing deeper relationships with other arts professionals beyond what can be accomplished at conferences.

Granted so much of this is pie in the sky idealism currently, but that doesn’t mean we have to complacently accept the current way of doing things. Really, it may not be that the written application is a bad format, but rather the criteria it looks to evaluate is flawed. The visitation process I am suggesting would change the evaluation criteria out of necessity. But as an alternative, as our ability to record and share our accomplishments on media improves, it can be just as valid a tool in shifting what criteria is emphasized too.

Though I really think that that an extensive program of visits by well trained teams would go an incredibly long way in improving arts leadership and management. While I think the sites that hosts the visits might receive some excellent guidance, were I designing the program, my focus would be on cultivating the abilities of the visiting team over telling the host what they are doing wrong.

Info You Can Use: More Cell Phone Donations

Back in February I wrote about using texting to donate to charities the way people were doing immediately after the Haiti earthquake. I had noted the high cost of setting something like this up was probably cost prohibitive for most. I also suggested that the costs would likely come down as its use became more prevalent or someone figured out a more efficient way to process the payment.

According to Fast Company , it looks like someone has done the latter. Mobile companies Obopay and Benevity have created a way in which you can text a word, choose your cause and have the money and acknowledgment issued immediately. Not only does everything get processed faster, but there is flexibility in the amount you can donate. According to a press release issued by the company:

“The new mobile giving solution enables charities to collect much higher amounts – up to hundreds of dollars – and provides the non-profit with much faster access to the funds, compared to other text-to-donate offerings that have been limited to $5 and $10 amounts and have taken over 90 days to get funds to the cause.

[…]

…said Bryan de Lottinville, CEO of Benevity. “As personal and corporate philanthropy recovers following the recession, mobile donations and campaigns will have increasing importance. We’re delighted to be part of a new solution that will provide companies and consumers with an easier way to give to causes that resonate with them. We’re also thrilled about making this functionality accessible to all charities and consumers, regardless of their size or the amount they can donate.”

No mention of the costs which I will grant, could be just as high as with the text giving I reported back in February. With faster receipt of funds and increased amount people can give, the costs can start to look more reasonable. Again, as people use it, the costs may come down. This partnership may or may not become the dominant player, but what the CEO says about donating by phone becoming more prevalent is likely true.

Since people tend to act on impulse with their phones, texting and calling their friends as soon as something happens, non-profits may benefit and receive more donations than they normally might if people had to pull their check books or credit cards out. I think it also likely non profits will face donors remorse in the wake of such giving and will need to formulate policies to address it.

Social Network Just For Non-Profits

Via Non-Profit Law blog, Facebook co-founder Chris Hughes is launching a social network, JUMO, later this year to connect non-profits with supporters. If you watch the video accompanying the article, you will learn that while Hughes has left Facebook, he is still supports its use. Jumo users will be able to easily transfer their Facebook information over when he opens the service.

Hughes’ hope is to provide a way for organizations to develop relationships prior to requesting assistance. “Hughes thinks that the call for support should come only after people and organizations have built that connection with one another. All too often, said Hughes, the donate button on websites is big, flashy, and colorful, and email calls to action are usually in all caps, starting with the word “Urgent!” Hughes hopes that Jumo will move organizations toward a new era where relationships are forged and cultivated before calls to action.”

Earlier the article notes: “To do that, the platform will be broken up into three main components: Find, Follow and Support. First, Jumo will help you find non-profit organizations by learning the types of things that interest you and making suggestions. Second, the site will help you follow those organizations by receiving a stream of updates about the work they’re doing and how that work is affecting real people.”

In the comments section, some wonder if people will really join another social network. I don’t necessarily share that concern. I think people who are interested in causes will welcome a place that aggregates information and lets them connect with those causes. Non profit organizations should differentiate how they use the different technologies. You might encourage people who want information on ticket specials and the hot news about just signed artists to pay attention to your Twitter feed or Facebook account. Whereas you would provide information on outreach efforts and volunteering opportunities on the Jumo account.

Focusing on a few communication channels is about all most arts organizations have the staffing to handle in any case. Developing a separate flavor for each channel and leveraging it to serve the interests of different segments of your audience is probably better than replicating the same content verbatim on each is probably a better use of staff time in any case.

The real benefit to non-profits would be if people started using Jumo in ways not anticipated by the creators, spurring the development of features specific to the needs of non-profits.