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Our last blog entry triggered several questions and comments from our followers. This blog entry dives a little deeper into the perpetual “HOW vs. WHAT” question. One of the main challenges for any business to thrive is accessing capital, i.e., money! It’s written that the love of money is the root of all evil. However, we know that practically no forward movement can occur in a business (or life in general) without money. The nonprofit sector is not exempt in this regard.
During my time as a program officer for a large grantmaking foundation, I came across literally thousands of nonprofits and received requests for funding from at least that many. During that time, I never read a mission or a purpose statement that left me thinking, “Why would they want to do that?,” “Why do they think helping low-income families subsidize private school education for their children is a good idea?,” Why would anyone want to raise awareness about the importance of saving our environment?” You get the idea! Practically every mission or purpose statement I ever read seemed quite noble and thoughtful. If we accept this as truth, we’re left with only one logical conclusion:
The reason nonprofits sustain themselves or thrive has very little to do with their missions (i.e., WHAT they do); it’s almost always more about HOW they do it! It’s the HOW aspect of a nonprofit business that often determines whether they gain access to the money.
If you take nothing else away from this blog entry, remember that key takeaway above that’s written in bold and italicized.
Nationally, 64 percent of nonprofits registered with the IRS since 2005 are still officially listed with the IRS. As of 2015, only 28 percent of them reported financial activity in their most recent IRS file. Are the other 72 percent not reporting financial activity because they have horrible missions? Highly doubtful!
One L.A.-based nonprofit executive once told me, “Nonprofits fail due to finances, not mission.” Those words resonated with me and I’ve readily quoted that person ever since. What will make your nonprofit stand out in the investors’ marketplace? If you can’t substantiate why your nonprofit does a better job at moving the needle forward for your clients and/or operated more efficiently than other similar nonprofits, how competitive will you be in the marketplace?
As much money as they might have, social investors (whether individuals or institutions) simply don’t have the capacity or will to invest in all the nonprofits or causes they’re approached with daily. How will your nonprofit distinguish itself and compete for the money? It’s certainly a challenge that your mission alone won’t achieve.
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