For anyone involved in, or supporting nonprofits, here are a few of my takeaways and action steps after reading some of the great research and articles by friends at Bridgespan, developed in partnership with five leading foundations. In “Ending the Nonprofit Starvation Cycle,” the authors provide a range of excellent analyses that one could consider as an activity-based costing approach for nonprofits. They dive into the true costs of running a nonprofit compared to the expectations of funders.
The results highlight critical insights and opportunities for people who want to deliver social impact:
• The true cost of overhead, operations, and “restricted grants” are far higher than traditional nonprofit counting captures, much the same way you find in for-profit companies where many an effort costs more than expected when you dive into the data.
• Many nonprofits try to manage expense allocation list to meet a “cost effectiveness” expectation that is a misrepresentation based on a few outliers and a lot of data that doesn't capture the true overhead of most nonprofits' operations.
• Those with well-heeled boards have more access to funding and the free labor of connected fundraisers, than lesser-heeled boards. Great, grass roots organizations that may not have a well-connected board have a disadvantage on raising funds and therefore will need higher development budgets and mechanisms to raise funds.
What to do?
• If you’re a nonprofit leader on a board, work to ensure the organization knows it’s true costs, so that you can ask funders to support the true cost of operations. Ensure that funders who want to fund special programs are ALSO asked to support the organization’s required overhead.
• If you’re looking for nonprofits that may be lesser known, without a well-heeled board, good for you and but make sure to manage your expectations as to what they will need in funds and your support. It could be that their programs are dollar for dollar far more productive than better known organizations, but their fundraising expense may need to be higher.
• Just like for-profit businesses where there is constantly work to be done to improve operations and effectively deploy capital, the nonprofit world has the same need.
In summary: Bring your bucks, bring your brains, bring your compassion, and bring your bandwidth – or any combination. There’s a lot of talented people working on good causes, who could use your help.
Rafi Musher is Founder and CEO of Stax Inc.