One of the projects I most frequently undertake with nonprofits these days is evaluating new revenue strategies in hopes of finding creative ways cover costs. More often than not, we take on this work because the organization is facing declines in its familiar funding sources like government contracts or philanthropic grants. By seeking out new ways of doing business, these nonprofits are engaging the spirit of innovation so often championed by our sector’s publications and conferences. Yet viable new financial models regularly remain frustratingly elusive, even after diligent analysis. What’s going wrong? In some cases it’s likely that nonprofit leaders just haven’t identified the winning strategy yet. But more often I believe the problem lies with an unrealistic set of expectations set by the sector’s culture of capital-I Innovation.
Beyond just pursuing something new and creative, Innovation in the nonprofit sector carries more particular meanings. The culture of Innovation generally insists that the shortest route to achieving both effective social change and financially sustainable mission-driven institutions involves breaking free from the traditional philanthropy- and government-dependent nonprofit structures. Novel combinations of market-based revenue models, performance measurement, social media, and impact investing are supposed to provide clear and implementable solutions so long as management and boards can break free of outdated and sector-siloed mindsets. Unfortunately, however, I don’t think this kind of Innovation is likely to produce a series of eureka moments that decisively revitalize the nonprofit sector, or that it should be the first line of defense for nonprofits facing financial challenges.
This isn’t just because nonprofits are doing Innovation wrong. Rather, there’s a problem at the heart of Innovation culture that makes it strategically ineffective for a wide swath of the sector. Take for example the argument made in a 2012 article in Jacobin magazine article entitled “Against Innovation”. Writing about a competition at Harvard to propose 500-word innovative solutions to the Israel-Palestine conflict, Simon Waxman writes:
Here as ever, innovation itself is the solution. Once we have innovated, intractable problems will disappear, and the struggle to overcome them will dissolve…Our seemingly insurmountable disagreements reflect what we think of as real ethical and ideological difference. The innovation ethos says that these differences are in fact insubstantial and that there is a solution we will all agree to if only we can think of it and engineer it into existence.
More recently, Amy Schiller’s piece on friction in social change notes a shift in the social sector that inherently values innovation, even when those innovations undercut democracy.
With an increasing focus on private institutions, and a fetishization of data in place of nuanced cultural narrative and history, private power has sold itself as more capable of advancing the social good than either public institutions or collective action. In the absence of obligatory transparency or accountability, greater speed and efficiency are certainly possible.
Transposing these concerns into the realm of finance, Innovation culture proposes that the long-standing economic challenges of the nonprofit sector will somehow evaporate once new models are developed that allow nonprofits to move beyond perpetual dependence on philanthropy and into a new era of self-sufficiency. Struggling nonprofits are reframed simply as ineffective businesses surviving off subsidies. Nevermind that for years nonprofits have been asked to provide more services for less money, that they’re serving clients who can’t pay market rates, that they’re providing services that aren’t easily made salable (think social justice advocacy), or that they are often expected to forgo savings in favor of spending every dollar possible on program delivery.
It will be useful, perhaps even necessary, for some nonprofits to seek out breakthrough ways of doing business in order to continue providing services in an environment where their traditional funding streams have become unreliable. This will be easiest for nonprofits that have a product or service that can be easily measured in terms of both delivery and impact, as well as buyers who are willing and able to pay. For many others, the quest for Innovation can easily become a boondoggle that saps time and money from already overtaxed institutions.
So if not Innovation, then what? Often the answer will simply be to take a long, hard look at the costs involved in providing services and then bringing a data-driven plan to familiar funders to support a transparent and collaborative conversation about the types and levels of support you can count on. If a serious gap remains, then making hard choices about cutting back some less-than-essential program and administrative functions may be necessary – at least for a while, until new funding streams or a workable new revenue model can be identified.
Sober planning around reliable resources doesn’t offer quite the same sense of boundless optimism, but for many if not most nonprofits it’s more likely to provide an immediately implementable strategy to survive through tough times and make time for creative strategy in the longer term.
