A ‘sustainable’ revenue stream?

Hats off to Nell Edgington at the Social Velocity blog for a post titled “The Critical Alignment of Mission, Money and Competence,” which kicked off an interesting conversation between Nell, me, Sean Stannard-Stockton who writes the Tactical Philanthropy blog, Nathanial Whittmore who writes the Social Entrepreneurship blog for Change.org, and Kjerstin Erickson, the CEO of FORGE.

My first observation is that this discussion happened very quickly thanks to Twitter.  So I’ve realized that Twitter is here to stay for me, and that even if I’m not ready to commit to more than a 1-2 Tweets/day, Twitter enables very useful conversations that I’d miss if I gave it up.  So, if you’re interested in following, you can find me @sashadichter

On the substance of the discussion, there are two threads that I found particularly interesting:

1. The first thread centers on the risk many nonprofits run of their revenue model compromising mission.  The stark example is when a nonprofit ends up chasing funding dollars and makes small programmatic contortions for each subsequent grant (more on this here).  As I suggested to Kjerstin, your only hope as a nonprofit is if you start with a bright line that says you absolutely will not compromise mission at all to get funding…since even with this much clarity, you will still make the occasional compromise.  But if you start saying that some compromises are OK, you’ll be so far off mission in a year or two that you won’t recognize yourself or your organization.

2. The second thread was somewhat more subtle, and it centered around what it takes for nonprofits to have a “sustainable revenue model.”  When I read that phrase it implies “earned income,” which worries me because there are tons of nonprofits out there that do not and should not have a model that itself generates a significant revenue stream.   Which I why I commented that, “I sometimes feel like there’s an implicit notion in the (sometimes too theoretical) discussions of nonprofit funding models that downplays the fact that philanthropic dollars can beget philanthropic dollars; that there are very powerful network effects that come from the creation of strong communities of supporters/friends/advisors/Board members; and this itself can be a “sustainable revenue model.”

Put more simply, to me a sustainable revenue model is one that gives the organization and its donors a high degree of confidence that 1,2, 5, and 10 years down the line, the nonprofit will continue to exist, will continue to focus on its current mission (or the next iteration of that mission), and will have the capital on hand that will allow it to engage in long-term strategic planning and execution.

There are a LOT of ways to get here, and we shouldn’t forget that most “sustainable revenue models” center around creating an energetic, passionate tribe of donors who want to give and who are fervent advocates for your organization (no matter if they make $10 or $10 million donations.)

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Mind the Gap (Something for something)

A reader emailed me with information on this entry from the BusinessToolsBlog, Donate to Charity with Your Mouse, Not your Wallet.  You click on links and the charities get money.  The reader asked me if I agreed that this was a promising way for people to get involved in and support organizations they might not know about – specifically because  people could support charities without much effort, and over time this would introduce them to the idea of being more philanthropic.

I’m torn about this. On one hand, there’s an economic value in just about everything you do online, so if someone wants to take that value and transfer it to charitable organizations I think that’s a very good thing.  And there is the distant possibility that by coming across one of these sites, someone might learn about a new organization and get involved in a more significant way.

But I’m unconvinced that this will open many people up to giving and to supporting organizations with their time and energy.  To the contrary, I worry that this reinforces the notion that you can get something for nothing, that change can come without effort and sacrifice.

This is the same hesitation I feel about the Gap’s Inspi(RED) t-shirts and other products that make donations to worthy causes – happy that the money is going to the cause; hopeful that the act of buying the shirts (or the water or the cereal) is educating people about and motivating them to act to support the cause; but worried that we might delude ourselves into thinking that this is enough – worried that buying the “responsible” shirt acts as a salve on our sense of responsibility to others, and worried that when doing something “good” becomes a fashion statement, we can loose sight of the impact in favor of the fashion.

And, by the way, here’s what the NY Times reported last February about the RED campaign:

In its March 2007 issue, Advertising Age magazine reported that Red companies had collectively spent as much as $100 million in advertising and raised only $18 million. Officials of the campaign said then that the companies had spent $50 million on advertising and that the amount raised was $25 million. Advertising Age stood by its article.

You see how tricky this gets once you get into the details.

It strikes me that buying is one thing, giving is another.  As long as they are complementary we’re in good shape.

But I worry they might be substitutes.

What would Maimonides think of Kiva?

(First blog Milestone reached: a blog post inspired by a reader’s comment. The next milestone will be when the same thing happens and I don’t know the reader personally).

A blog reader of mine brought up Kiva in response to yesterday’s post, which I thought was interesting – both because I didn’t mention Kiva and because it was on my mind too. So what would Maimonides think of Kiva?

In Maimonides’ discussion of charity, he says that you should not put money into the tzedakah box unless you know that the person responsible for the box is faithful, wise and trustworthy. If not, you’re not sure if the donation will help improve a person’s life.

This sense of distrust has become more common in recent decades, especially in international charity. There’s a sense, fair or not, that little has been accomplished with the $2.3 trillion the West has spent on foreign aid in the last 5 decades, since much of the world is still very poor. William Easterly in his book The White Man’s Burden has been one of the most vocal critics in this camp, explaining the many failings of international charity and international aid. On the other end of the spectrum, Jeff Sachs argues in The End of Poverty that we could end global poverty by increasing global giving.

(There’s a book’s worth of discussion that this opens up, which I’ll avoid for now and just point out that the US GDP last year was just under $14 trillion, so if my math is right the total spending on foreign aid by the West over 50 years is equivalent to two months’ worth of the U.S. GDP. Two months worth of output for .25 billion people vs. 600 months’ worth for ~3 billion people? So maybe it’s not that much after all…)

While Easterly’s focus is more on international NGOs (e.g. the World Bank), someone like my friend who raised the question about Kiva can’t be blamed for thinking, “Why would my $25 make a difference, and how can I know it’s being spent wisely?” To me this is just a step removed from the legitimate fear that the tzedakah collector is unfaithful or dishonest. The worry is that your money goes into the box with the intent of helping someone, but that someone isn’t helped as a result.

To me this helps explain why most giving in the United States is local and through religious organizations: it is much easier to feel confident that your donation will make a difference when you personally know the person asking you to give, are giving as part of an established community, and have first-hand exposure to the problems your donation is meant to address.

So what would Maimonides make of Kiva? There are lots of organizations doing international work that are incredibly effective and trustworthy stewards of people’s charity (yes, I think that Acumen Fund is one of them). The brilliance of Kiva is that it has found a way to create that personal connection and the sense of empowerment on the part of the donor, allaying the fear (conscious or not) that the $25 donation will be lost in a sea of larger donations, or will never reach its intended recipient. Kiva has used the Internet to get rid of the tzedakah box altogether, allowing the giver to “give directly to the poor without being asked” (Level 5 in terms of honorability, for those keeping score).

My own hope is that this is increasing the number of people giving and increasing people’s comfort with and habit of giving – especially by people in their 20s and 30s –and that this will lay the foundation for more generosity, education, and awareness of the problems of international poverty and the innovative solutions now available to address these challenges.