Modernizing the Impact Sector
Successful entrepreneurs share one fundamentally common trait … they identify gaps in a market and develop a bridge to generate, at the very least, a measurable, replicable and sustainable result.
In Australia there are approximately 600,000 non-profits – one for every forty men, women and children in the country. The US, by comparison has one for every two hundred – a much lower number for a nation many believe to supersize everything. Some view the size of our third sector as an indicator of how much better we take care of our citizens. Yet others, myself included, are perturbed at the ever-increasing replication of effort across not only non-profits, but the rapidly expanding social enterprise sector as well.
Vast numbers of organisations are engaged in similar endeavours, pursuing the same sources of philanthropic, public, equity and crowd funding, and contributing to a collective level of awareness raising that results in a cacophony of competing messages that our empathetic nature makes extremely difficult to ignore. On any given day, my information channels are clogged with news of yet another initiative to save humanity from itself. Despite the value of the work being done, I find myself paying less and less attention.
In short, I’m suffering from cause-fatigue, and I know I’m not alone
While living in Boulder I would often hear the comment ‘every time a cat dies in Denver, another non-profit is born’. Around the world, well-intentioned individuals support an estimated $350 billion (and growing) annual giving market. The rise of philanthropy, however, appears to have been almost inversely proportional to the level of improvement we’ve seen in global social, environmental and economic systems.
We’re spending more money and things are getting worse.
If I were the CEO of a company that received capital investment of $350 billion per annum, spent virtually every cent of that capital, returned to my shareholders year after year for more investment and still didn’t achieve the outcomes I committed to, at what point would my competence be called into question? Further, if the board of directors had permitted this to go on for decades without resolution, we all know that the shareholders would revolt.
So now we are.
It seems time we questioned whether or not there is a better way to go about influencing our social, economic and environmental systems.
PROFIT IS NOT THE ENEMY
The creation of profit, with good reason, has long been viewed as an ineffective way to acknowledge value; it’s long been generated by the uninformed (or wilfully ignorant) extracting capital from a finite system without acknowledging or mitigating the costs.
Profit is achieved, however, through social agreements about value. If a product or service generates substantial value to a particular individual, organisation or community, the distribution of profit (and the investment of capital) will inevitably be uneven. Humans are fickle and value is relative – so despite well-intentioned clamoring for more equitable distribution of capital, it’s inevitable that it will flow toward that which is most valued and away from that which is the least.
In most countries there is a presumed moral or ethical benefit to running an organisation that doesn’t disperse profits (despite the profound irony that they are dependent upon the mechanics of capitalism to continue funding them). Yet every for-benefit organisation has the intention to generate social and/or environmental capital outputs that exceed their capital inputs (profit, in other words). Further, as the flaws in our current iteration of capitalism continue to be exposed, and our global financial systems struggle to adjust to a more intelligent system for recognising, measuring and facilitating the flow of non-financial forms of capital, future access to public and philanthropic funds is under threat. It’s reasonable to assert, therefore, that financial profits – dispersed or otherwise – are essential if for-benefit organisations in capitalist economies are to continue bridging the gap for much-needed social and environmental reforms.
MISSION TRUMPS ORGANISATION EVERY TIME
For-benefit organisations have been created in service to mission, yet how often do the mission and the organisation become conflated?
Do we really care about who is going to save the Amazon rainforest, end childhood detention, clear plastic from the oceans or toxins from the air, provide employment opportunities for the marginalised or fund AIDS clinics in Africa
The short answer, by and large I imagine, is no.
Every argument I’ve heard to the contrary, runs along the lines of ‘we don’t want McSanto to be involved with food security, or Shellron with energy security or, heaven forbid, Microogle to be hosting our health records’. While I would echo those concerns (specifically), I would also hasten to assert that the resolution of our various and growing challenges requires us to undertake a rigorous interrogation of our values and see where our various philosophies are standing in the way of getting-s**t-done. Ultimately, all pontificating aside, those of us working for change are simply concerned that these issues are resolved (rapidly, effective, affordably and equitably, granted).
For too long we have determined that certain legal forms are inherently less ethical than others – yet organisational structures emerge as a consequence of strategy, and not the other way around. Determining a legal form before crystallising vision, determining strategy and defining culture is counter-intuitive and subsequently counter-productive.
Defining an organisation by its legal structure is as foolish as defining an individual by their colour, gender or sexual preference
‘Non-profit’ is no more meaningful than non-homosexual, non-christian or non-woman. It’s nonsensical. Further, a definition that by its nature only includes what we are not, is not a definition at all.
We have, collectively, been defining ourselves in ways that are exclusive, not inclusive and have been building walls rather than bridges as a consequence. While we’re defending our philosophical fiefdoms, the people who most need our help are, quite literally, dying. Beyond that, the one system we can’t afford to break – a global ecosystem that will sustain human life – is in such a state of flux that even the best informed amongst us (the increasingly rare, unbiased and hyper-rational scientist) appear to have issued a three-letter white paper appropriately entitled ‘NFI’.
TAKING AN ENTREPRENEURIAL APPROACH
Pick an issue, any issue … homelessness for example. Now, imagine that this issue has arisen seemingly overnight. Suddenly there are thousands of people in our cities and millions of people across the globe without a home. Do you think that our way of tackling this new social issue would be to immediately form dozens of local, regional and national organisations, simultaneously compete for funding, invest in multiple offices, thousands of researchers, communications, administrative staff and case officers?
I doubt it. If we were entrepreneurs, we would take a step back, seek to understand the root causes of the issue, identify the opportunities for delivering a profitable service, define MVP (minimum viable product), acquire the necessary resources to field an initial service and then review, reiterate and relaunch on the basis of ongoing feedback.
We would be keenly aware of resource constraint and would stay lean to operate within it. We would be focused on doing more, with less, but would equally place a premium on the formation of a rock-star team. We would establish a governance structure that permitted the organisation to be run in a way that was consistent with our values and we would give great consideration to the seating of our board. Most importantly, however, we would plan for success.
A project that seeks the resolution of a particular social or environmental issue without also planning in obsolescence is, quite simply, unethical
Entrepreneurial CEOs are constantly seeking new opportunities as their marketplace shifts. The resolution of short-term acute problems gives way to the resolution of longer-term chronic ones. As the marketplace evolves and other organisations emerge addressing related issues, strategic partnerships are formed and ultimately we begin to see mergers and acquisitions.
There is a cost to modernization, obviously – the most important one being a rationalisation of capital (most notably human) as cause-specific and sector-wide efficiencies begin to take place. Yet to even call this a cost is to miss seeing the forest for the trees.
The reorganisation, resequencing and release of stagnant, dormant or misplaced capital presents the most effective and immediate pathway for creating more change
EVOLVE OR DIE
The growth of social enterprise is occurring for many reasons. The most significant, however, is that entrepreneurial individuals with a passion for change are seeing what many of us see – that institutions, organisations and projects for the common good (and by logical extension philanthropy, international development and foreign aid) have failed to resolve many of the most pressing social and environmental issues despite trillions of dollars being thrown at them.
They believe, quite rightly, that there has to be a better way.
As much as the general public are suffering from cause fatigue, philanthropists increasingly report that they are suffering from donor fatigue. They’ve been giving for quite some time, and are now demanding more rigour, accountability and results from the organisations they support … and rightly so. Governments and grantmakers, likewise, are raising the bar on funding proposals expecting to see more financial sustainability and better-defined metrics, and are pivoting funds towards projects that meet these expectations. While Australia is still catching up in this regard, it inevitably will. Our various state and federal governments have sold the farm leaving us with few assets to sell to raise capital for social infrastructure investment; while our economy is in good shape due to an ongoing resource boom, eventually we’re going to run out of things to dig, suck, and blow out of the ground.
Most people forget that The Lucky Country was originally a pejorative term (and the warning inherent within it is something we would do well to heed).
Impact organisations that refuse to acknowledge there will be substantially less funds available in the foreseeable future and fail to adapt their models in light of this will become liabilities standing in the way of progress
The responsibility for these changes, however, doesn’t rest solely on the shoulders of CEOs. I’ve seen all-too-often the consequence of a visionary leader seeking to pivot an organisation toward a more effective and sustainable model, only to be blocked by an intransigent board who are less informed by marketplace realities and subsequently too heavily invested in their attempts to maintain an atrophied model.
It took a while for me to appreciate this, but being a board member is neither a privilege nor a reward. It’s an honour and a responsibility.
In my experience, a board is charged with ensuring that the organisation’s vision is being strategically executed, and that every opportunity for enhancing the realisation of mission is explored.
I’m not suggesting that the non-profit sector needs to go. There is no denying that we live in a state of global flux and that there is no such thing as the perfect system. Gaps will always emerge, and there will always be a need for these gaps to be serviced. To wholesale abandon the non-profit sector and chase after the shiny bubble of social enterprise is as foolish as it is dangerous. The combined intellectual and social capital (not to mention the billions of dollars laying dormant in trusts, funds and foundations) bound up in the third sector is beyond comprehension and much of it could be put to much, much better use.
We are the bastard children of a loveless and soul-destroying menage a trois between governments, corporations and the non-profit sector
Around the world, folks working for change are bound together by the collective belief that humanity is intelligent enough, compassionate enough and pragmatic enough to recognise that our current way of living is patently unsustainable. Yet we’ve allowed pointless distinctions – largely around legal structure – to stand in the way of reaching dynamic alignment so that we can take well-considered and effective collective action.
‘Don’t make perfect the enemy of good’ was something we repeated to ourselves over and over again while developing w1sd0m. We need to ask ourselves better quality questions and recognise that evolution is a messy business. Around the world there are millions of organisations and hundreds of millions of people working toward making the world better, yet the linkages between them are frequently invisible because of semantic and legal distinctions that do more harm than good.
‘Keeping the bastards honest’ is something you’ll have heard more than once if you’ve spent any amount of time within or around organisations advocating and working for change. Yet there’s a peculiar cultural blindness that arises within any community that views itself as superior (in any way) to the rest. We know all too well the many failings of governments and corporations – mostly through the exposure, criticism and advocacy of those organisations self-appointed to the resolution of these failings.
Organisations focused on ‘doing good’ need to recognise that not only are they not without fault, but their seeming belief in ethical superiority, suspicion of business and government and overall sense of entitlement hinders rather than enhances their ability to always be making the best decisions.
That doesn’t make these organisations or the people who staff them of any less value or significance. It merely proves out what happens in non-competitive markets. The increasing squeeze on philanthropic and public funds will result, inevitably, in sweeping change. An essential aspect of modernization is finding more intelligent ways to access, aggregate and deploy capital. In private enterprise, you deliver what the market needs or you fail. With the need for financial capital in the non-profit sector eclipsing its availability, it’s becoming increasingly clear that we need to find a better way.
We have limited resources. We have a lot of things to fix. Rather than clamouring for more, however, let’s start having the conversations we need to have to better utilise the resources we have at our disposal
Let me know how I can help.
Non-profits and many social entrepreneurs are tilting at symptoms and not dealing with causes. Why? because it’s MUCH easier! I see the same issue in the area of sustainability. Using less? Good on you, but it doesn’t do much to change why we are in this mess. It might give us a bit more time but it is not fundamentally changing who we interact with nature, nor does it do much to curb our desire for more. The game seems to be to keep the same life style, but use less to do it. That neatly sidesteps the need to change our life style. Not too very long age most people had only two changes of clothes – what does YOUR closet look like?
Really well put. This couldn’t be truer of the Aboriginal and/or Torres Strait Islander policy space in Australia – not only are most good efforts in this area hamstrung by ineffective policies and the usual vagaries of bureaucratic influence, but the for-benefits working for change are mirrored by researchers, administrators and policy departments in that it’s an all ’round clusterf*ck of small players competing for, then haemorrhaging, funding (/social awareness/political attention/media exposure/the commitment and energy of people who want to see things improve). I think the whole ‘sector’ can be defined as crippled by its own cyclical inefficiencies, where under an entrepreneurial model we’d likely find we have enough human and financial capital to solve the problem (yes, big call, but it’s time we stopped thinking it’s impossible) in half the time it takes to put together a working group to provide a set of recommendations to a board who submits a policy statement to a government agency that doesn’t have time to listen.
I believe firmly in the role of the government in addressing these issues and I support – to the point of being an apologist – the efforts of every tiny, ineffective group of blighted, buried and borderline-bitter public servants who are thrashing it out every day hoping to see some incremental difference before they retire or become consultants, but the system as it is sustains its own dysfunction. And a shake-up of the nature you describe would completely redefine social policy if it could be applied in the public sector context.
The government (and every bar, and every retirement home, and every construction site, etc etc) is full of people who know, and relish in bemoaning, that if the public service ran like a business it’d be half the size and twice as productive. That level of change might be unrealistic. But is there a way to encourage entrepreneurial thinking/strategy/policy in areas like this, where the partnerships between the private sector, for-benefits and government agencies/service providers are so close as to almost be those of colleagues? None of us have enough money – but combined, we have an incredible amount of money, to say nothing of the human/information resources finally available to us after decades of failed policies and ignorance – and we’re pouring it into a pair of fishnet stockings and expecting them to function like a hose. (and no, the hose analogy doesn’t take into account the complex nature of the problems in this area – but you can bet that if we all just concentrated and cooperated we’d have a better idea of where to point it, and that’d have to be more effective than hurling a few tens of thousands of dollars at every hole in the dyke. alright, i’ll stop.)
My point is, excellent argument, absolutely true – can you apply it to all entities that are operating in the same spaces for-benefit organisations?
I’m so surprised that you don’t have comments on this yet, Cameron, because this is certainly an article that is honest, forthright and important given the plethora of social enterprises exploding at the moment.
I’ve also been having a lot of honest discussions with myself and others in the realisation that the ethical high ground supposedly possessed by the socially aware among us doesn’t mean we need to sweep away the pre-existing economic structure. It means we need to use the structure against itself. We need engagement, deep conversations and real honesty about all of us can eventually sit and the same table and jointly create the solutions that benefit all of us.
It’s a tall order, yes. But it’s the next step, and the sooner that we figure out how to respect and incorporate the different values that will be at that table, the sooner we can change the structure that is surely going to be our demise.
Thank you for writing this!
The difference between a capitalist entrepreneur and a conman is that the entrepreneur will try to persuade someone else to deliver on his promises.