THE NON-PROFIT DISADVANTAGE

Now if you’re someone who doesn’t want to donate money to a water-based non-profit because you think they are wasteful, have too much overhead, pay their employees too much, or are not really innovative, let’s start talking.

I’ve talked a lot about social enterprises that have revenue-generating models. But even the social enterprises with revenue-generating models still fundraise. And fundraising is what non-profits do. So today, I want to talk about the disadvantage that non-profits face because of the different standards applied to for-profits and non-profits.

I’ve been bothered a lot lately by the fact that there is no multi-national, global, big-money social enterprise. When you think of big companies you think of Apple, Samsung, Coca-Cola, GM, GE, Shell, Chevron, Wal-Mart, BP, etc. But I can’t think of one non-profit company or one social enterprise that size. Some say, it’s fundamentally and inherently an impossibility. Why it bothers me is that I think of all the amazingly impacting change a multi-billion dollar social enterprise could do—one that was still amazingly innovative in selling its products but just as innovative in using its profits for seeable change and whose products themselves were changing the world for those without access to basic needs. I’m still pondering this and what it would mean if it existed and if it’s possible to exist.

I do know that non-profits, today, are often hindered in their growth due to concerns of giving to non-profits, efficacy, efficiency, and waste. So I want to list the disadvantages they face in their work compared to for-profits and for-profit work. These disadvantages are highlighted by fundraiser and activist Dan Pallotta in his recent TED talk, The Way We Think About Charity Is Dead Wrong.

      1) COMPENSATION: It’s ok for for-profit leaders to make tons of money, but we do not like it when non-profit leaders make a lot of money. People don’t care so much if someone makes a lot of money selling violent video games, but they get very angry when a non-profit leader makes a lot of money. The problem is that for-profit sector then has an advantage because they can use compensation and salary to attract talent whereas the non-profit sector cannot. Dan gives a beautiful example where he takes the median compensation (with bonus) of a Stanford MBA holder at age 38 ($400,000) compared to the average salary of the CEO of a hunger non-profit ($84,000). It may not be greed that entices a person to take the $400,000 job., according to Dan. It can be much smarter to (1) take the $400,000 job, (2) donate $100,000 every year to the hunger charity, (3) save $50,000 on taxes (still $270,000 ahead of the hunger charity CEO), (4) be called a philanthropist for the $100,000 donation, (5) sit on the board of the hunger charity, (6) supervise the poor person who decided to become the CEO of the hunger charity, (7) and have a lifetime of this type of power and impact.

(Now, I have a slight problem with this thinking since I find it counter-productive, on one hand, to be part of a system that creates hunger and, on the other hand, sit on a board to fight it. However, the point that we need to be willing to compensate non-profit workers in general is an important one. At the very least, the extra attraction of higher salaries, allows people to live consistent lives “on both hands.”)

2) ADVERTISING: We’re ok with for-profits spending as much as possible on advertising, but we don’t like our donations to non-profits to go to their advertising needs. This reminds me of criticism heaped upon Invisible Children. What’s interesting here is that for-profits use advertising to increase revenues.  In the same way, a non-profit can actually increase the amount of money they bring in and fundraise, and therefore increase the good they do and the amount of money directly impacting beneficiaries through advertising.

  

      3) RISK TAKING: We’re ok with for-profits taking risks to generate potential new revenues such as new products (Apple) or new, daring movies (Disney). But when a non-profit takes a risk with a fund-raiser that doesn’t produce huge profits, they get in trouble and their reputation is hurt. Non-profits then become scared to take risks. The problem is that prohibiting failure kills innovation, which prevents the possible growth of revenue and stifles an organization or industry.

      4) TIME: We’re ok with for-profits taking time to get a return on investment (Amazon took 6 years before it generated profits). But if a non-profit needed 6 years of work before generating any return that benefited the hungry, people would critique the non-profit out of business.

      5) PROFIT: For-profit companies can pay out profits that can attract capital for investment into new risks and new ideas, but non-profits can’t pay profits, which reduces their risk capital, idea capital, and potentially their growth potential.

I’m not sure if these things will change, but I am happy that through social sector enterprises combining the social aims of non-profits with the for-profit revenue-generating models, that at least 5 is being addressed. However, it’s still a problem with non-profits. I know people criticise Jeffrey Sachs a lot, but often, I do understand what he means, that we honestly have not given much money (percentage-wise) to the problems we want to resolve. So I often wonder what would a world look like where a multibillion-dollar-profit-making company was a social enterprise and was so innovative in its products that it always remained on top. How would their profits go to social use and would it make a difference? My guess is that its products would become socially good if it was the ethos of the company. But is it possible?

I’ll leave the topic alone and invite you to comment and respond to it. Do you agree with the list? Do you see any possible solutions? Any new ideas bubbling beneath your hoods?

BLENDED LEARNING & EDUCATION

One non-profit doing interesting work is Matchbook Learning. The reason they stick out to me is simple. Throughout my life, I have seen people and programmes reward students who perform the best, like merit-based scholarships. I’ve seen programmes for students who are not in the top15% but quite close. I’ve even seen programmes for B and C students. But I don’t know of any regional or national programmes designed to take care and help and fund the education of the students who are performing the worst. (Incidentally, I see the same problem within my company as we decide in which countries we want to do outreach.)

But what I love is that Matchbook Learning works with the bottom 5% of schools (turnaround schools) in the U.S. using government funding for turnaround schools. You should watch the TEDxUNC talk: The Future of Education. Matchbook Learning Founder and CEO Sajan George tells how he uses technology-infused, mastery-based, data-driven blended learning founded in excellent teachers to turn schools around. I love how he left his job turning around failing companies and, wanting to have a bigger impact, decided to work on turning around failing schools.

His talk reminds me a bit of what some schools and school districts are doing with Khan Academy. Khan Academy now has an entire state using them for middle school math support. A 4-member, schools-implementation team from Khan Academy led a 2-day Khan Academy workshop for Idaho educators in October 2012 funded by the J.A. and Kathryn Albertson Foundation, an Idaho-based foundation that focuses on the expansion of excellent and limitless education for all Idahoans. The Albertson Foundation initiated a request-for-proposals to all types of Idaho schools (private, traditional, charter, alternative, after-school) to receive funding to pilot Khan Academy in the 2013-2014 school year. The grant winners were announced the 28^th of February 2013 and the pilots will start in this autumn. You can watch a video about how Khan Academy was a saving grace for the educational work of the Albertson Foundation and check out the reaction of teachers at an education conference with Sal Khan in Boise in May 2012.

SOCIAL ENTREPRENEURSHIP: The 4th Sector, The Citizens Sector

Something is in the air. Something’s changing, and this change is happening at a faster and faster rate. Every country I visit I can see it. Some days it’s difficult to see because I can see all the problems and issues around me. But most of the time I’m overwhelmed by an emerging field—no a movement, maybe even a tide-changing way of thinking that is taking the world by storm.

Looking at David Bornstein’s research (“How to Change the World,” 2004), former Rockefeller Foundation President Peter Goldmark was quoted as saying, “it’s got to strike you that a quarter of a century ago outside of the United States there were very few NGOs and now there are millions of them all over the glove.” For the moment, let me refer to these groups as citizen organizations. Let’s look at a few growth patterns of this citizen group sector as cited by David 2004.

Indonesia – 20 years ago only 1 independent environmental organization; now over 2,000

Bangladesh – all development work handled by 20,000 NGOs, almost all of which were started in the past 25 years

India – over a million citizen organizations

Slovakia – more than 12,000

Formerly Communist, Central European countries – between 1988 and 1995, 100,000 citizen groups opened

France – an average of 70,000 new groups started each year in the 1990s (quadruple the 1960s rate)

Canada – since 1987, the number of registered citizens groups has grown by more than 50% to about 200,000

Brazil – underwent a 60% increase in citizen groups from 250,000 to 400,000 in the 1990s

U.S. – saw a 60% increase in IRS-registered public service groups from 464,000 to 734,000 between 1989 and 1998; 70% of registered groups are less than 30 years old
According to Bernstein some groups estimate that Brazilian has over 1 million citizen groups and U.S. has over 2 million.

Globally – the number of registered international citizen organizations increased from 6,000 to 26,000 during the 1990’s

Something is happening. I repeat; something is happening. Historically, these groups were negatively defined and still are somewhat today. We know them as nongovernmental organizations, not-for-profits, or non-profits. But over the past 20 or so years they have gained positive names such as the “independent sector,” the “third sector” (a term Bornstein favors), the “fourth sector” (term I favor over the 3rd sector), the “citizens sector,” and more.

Bornstein lists 6 reasons they are new.

1. It’s happening on a scale never seen before.

2. This is global phenomenon; the organizations encompass more global diversity and dispersion than ever before.

3. There has been an increasing shift to systemic changes and approaches and not management approaches (an example would be addressing root causes of poverty instead of simply managing it so that it is always here).

4. Citizen organizations are less burdened by regulations than the church and state and have the power to exert great pressure on governments (International Campaign to Ban Landmines, creation of the Criminal Court, the Lord’s Resistance Army Disarmament and Northern Uganda Recovery Act, etc.).

5. They are changing the nature of the game, forming many different types of nuanced hybrid social-impact organizations, and forming alliances with businesses, governments, and academia as they create new markets.

6. As with any new field in which competition and innovation are key, with the opening and emergence of a “new” citizens sector, these organizations are benefiting from entrepreneurialism, high levels of competition, massive collaboration, and increased focus on performance.

The last point cannot be underscored enough. It used to be the case that efficiency and excellent management were found only in the private sector. However, with increased focus on the citizens sector and the vying for position within the field, many of these socially entrepreneurial organizations are having to prove their efficacy and increase their effectiveness. (Social entrepreneur Dan Pallotta believes you should be able to get rich doing charity work). In this growing field, remaining sluggish and conducting business as usual is not a safe stance. This is because the field is awash with active, energetic and most importantly innovative social entrepreneurs looking to push further, affect more people, and challenge the status quo. So this introduction of competition and entrepreneurialism is creative a hot bed of social innovation within the citizen sector unlike we’ve ever seen before.

Now there are a number of reasoned and theorised causes for all of these changes, and if you like I can write about some of them and explain a few I’ve seen or experienced in another update. But at the moment, I want to talk about what it means to be a social entrepreneur. It can be a confusing term, and it’s not a very easily usable or definable label.

The word “entrepreneur” entered the English language from Jean-Baptise Say to charaterise a particular economic actor that doesn’t just start a businesses but shifts economic resources from an area of lower productivity to one of higher productivity. Joseph Schumpeter says the entrepreneur is the source of creative destruction necessary for major economic change.

A social entrepreneur is therefore a transformative force, a person who doesn’t take no as an answer as she moves toward disrupting the status quo to propagate a socially beneficial idea. Social entrepreneurs tend to deal with systemic change creating mass behavior change, not able to rest until they have fully attacked the problems they address. Let’s do a quiz. It should be easy, they are mostly yes-no. :-)

SHORT QUIZ

1. Was Steve Jobs a social entrepreneur? (Is Jobs the world’s greatest philanthropist?)
2. Was Leonardo da Vinci a social entrepreneur?
3. Was George Washington Carver a social entrepreneur?
4. Was Emily Dickinson a social entrepreneur?
5. Was Henry Ford a social entrepreneur?
6. Is Barbara Bush a social entrepreneur?
7. Was Benjamin Franklin a social entrepreneur?
8. Is J. K. Rowling a social entrepreneur?
9. Is Jeremy Lin a social entrepreneur?
10. Is Vandana Shiva a social entrepreneur?
11. Was St. Francis of Assisi a social entrepreneur?
12. Name 3 social entrepreneurs today.

This is a global phenomenon, and the most creative problem-solvers are outside the US, Canada, and the UK. This is often because more creativity is required when there are fewer resources. Hundreds of schools are now offering university programs and degrees in social entrepreneurship—some in business schools, others in medical schools, still others in engineering schools. Hundreds of organizations have arisen to nurture social entrepreneurs and incubate their organizations. There are social venture capitalist organizations now. Some consider the best thing we can do is to continue to create supports and bolster up a social climate conducive for the growth of social entrepreneurs because they are creating a base of energy with which we are slowly solving some of the world’s toughest challenges. By shifting the work and attitude of businesses and creating opportunities for the involvement of citizens, the emergence of the citizens sector is changing the way problems are solved all over the globe.

WE CARE

WE CARE


Definitely over my life time I’ve seen a global increase in the number of catastrophes--both man-made and natural. Earthquakes, tsunamis, famines, floods, wars, epidemic diseases, terrorist attacks . . .the list goes on. In fact, never have I felt more unsafe. I’m sometimes overwhelmed or feel hopeless. Working in government, you sometimes question how much high-level policy can do.

Every now and then someone on the ground, in the midst of the crises we face, forgets how hopeless the situation seems, overcomes powerlessness, and comes up with a simple, innovative solution that doesn’t save the world, but saves a few people, people with names. From there, it grows. That’s what Dr. Laura Stachel did.

Dr. Stachel, an obstetrician-gynecologist, traveled to northern Nigeria in 2007 with a team to investigate emergency obstetric care, and she was overwhelmed by what she saw. She saw the lights go out during an emergency cesarean surgeries, women bleed to death with no blood bank or a phone to call a surgeon, women routinely turned away and babies die due to a lack of light and no ability to perform resuscitation without power.

But she actually did something about it. She gathered the requisite technical knowledge, formed an interdisciplinary team, and launched a non-profit that created a suitcase-sized, portable, solar-powered electric system that can be used in places where there is no lighting and power to do surgeries safely or call surgeons or power a blood bank for a woman in labor.

The non-profit is called WE CARE - Women’s Emergency Communication and Reliable Electricity. And in the first 6 months they showed results, saving lives in a few countries. Since that time they have deployed solar suitcases in 9 countries including disaster relief in Haiti. WE CARE was honored as a 2010 Global Social Venture Competition (GSVC) winner and an Ashoka Changemakers finalist. Both GSVC and Changemakers are programs that incubate or award promising social enterprises. WE CARE plans to produce a 2nd-generation solar suitcase, build local capacity in countries for manufacture and distribution, and continue to improve maternal care by powering ultra sound machines, fetal monitors, computers, and videos.

The wonderful benefit of this social innovation is that though it came about to solve a problem in Nigeria, it can be used around the world, and it can be used to power any medical equipment needed at night for any surgery or procedure.

We Care Solar: Saving Mothers & Infants with Solar Powered Lights and Communication from Jose Vergelin on Vimeo.