How should non-profits raise money?

Pursuant to a LinkedIn: Answers question:

What are the available models for sustainability for non-profits?

My response:

Think about asset types:
- Financial
- Social / Political
- Natural
- Intellectual

All organizations are mission-driven; the mission of some is to increase their financial asset base. For-profits traditionally have invoked the intellectual construct "externality" to avoid even thinking about how achieving higher financial weath can be exploitative long term; hence the concept "sustainability."

So first of all, when you say, "For the huge majority of non-profits, fund-raising is an extra-ordinarily expensive way to generate operating capital," you're probably not including the degree to which social capital is also generated alongside financial capital AND how little social capital it costs the organization to generate financial capital in this traditional way. Further,

some fundraisers (treeplantings and "cleanups" to name two common ones) can function as social + natural asset fundraising with or without a financial component.

Consequently, I would provide this simple framework for sustainable capital raising for non-profits:

(1) Which assets are you increasing?
(2) What are the correlated increases/decreases in other assets?

In other words:
- You can offer an asset in exchange for money (whether social recognition or a t-shirt).
- You can offer nothing in exchange for money. (You'll likely find you're paying in a different asset area but it was overlooked.)

Getting grants of course falls in the former category. You'll find hardly anything in the latter category; the only things that truly live there are the ones that people do for themselves for altruistic or self-soothing reasons: e.g. if I have a friend with breast cancer, therefore I might anonymously give money to breast cancer research.

So, make a grid of the products, services, social assets (reputation, relationships), and intellectual assets (doesn't have to be formal!) that you can exchange for financial assets.

You'll see that selling t-shirts will raise some financial but also some social capital (particularly if done cleverly), but selling coffee mugs will do less. If you sell your foundation for advertising, you'd best be sure it's on-mission because of the otherwise erosion of social assets. The Gates foundation was lambasted just last week in the LA Times for investments that contradicted its mission.

So "running a non-profit as a pure business" has far more constraints on it than the IRS ones: you're trying to achieve a mission and you might erode support for it by focusing excessively on financial capital.

The IRS constraints exist because non-profits have tax exemptions. The tax exemption concept arises directly from the concept of social good being divisible from financial growth (again, with the externalities).

Comments

[dcrowley]

It certainly is ideal when you can be leveraging your assets & otherwise supporting your mission while raising funds. We here at Social Capital Inc. have building social capital as our mission. One successful event we do is a holiday house tour. People buy tickets and tour homes around the holidays, and find it a nice way to connect with neighbors and meet new people--so it's advancing our mission while generating some revenue.