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E-mail DanDartmouth's Wacky Business Model
June 22nd, 2009 - by Dan AllenbyThere’s a buzz surrounding Dartmouth’s new “wacky business model” video. In it, the University openly accepts criticism of its inefficient business model arguing that efficiency is not the only (or best) way for a nonprofit organization to fulfill its mission.
In our annual fund appeals, we often focus on the needs of our organization without explaining why those needs exist. Need by itself is insufficient. We have to educate our donors so they understand what’s behind our needs and, more importantly, what is gained when those needs are met. We shouldn’t be afraid to let our donors look under the hood of our organization at the financial engine that moves it forward – even if doing so reveals imperfection and inefficiency.
The nonprofit industry is sometimes called the “Third Sector” because it fulfills a purpose that the other two sectors of society (market and government) are not able to fulfill on their own. To that end, nonprofits receive certain benefits (i.e., tax exemption) and are not expected to return monetary profits to shareholders. But nonprofits can learn a lot from observing other sectors, just as the other sectors can learn a lot from observing nonprofits. All three sectors are unique, but they are also interdependent.
Click here to watch Dartmouth’s video. It hits home at the core challenge facing nonprofits today, which is how to fulfill a mission that isn’t measured in dollars and cents. Value comes in many forms. Money is just one way to quantify value. You don’t need a great looking video to communicate this to your constituents. Of course, it doesn’t hurt to have one either.
There are actually two measurements of import: efficiency and efficacy. A nonprofit can be extremely efficient but still ineffective at carrying out its mission. In fact most nonprofits have the opposite problem. They are quite effective at carrying out their missions while suffering from chronic inefficiencies. There is a systemic problem in the donor funding model related to nonprofit capacity support.
Most donors try to limit their funding of capacity in favor of programmatic funding. There is actually a logical reason for this but that’s for another post — suffice it to say what’s good for foundations is not necessarily good for NGO’s in this case.
Because NGO capacity is most often chronically underfunded (unless they can support their own operations through revenue and not subsidy) NGO’s are almost by definition inefficient to some degree — think of a business that can not invest in itself properly. Amazingly however, despite this problem many are still quite effective at their mission work despite being inefficient.