can non-profits really make a difference?

ImagesWhen I chaired MOUSE in the late 90's, Sarah Holloway was not only one of the founders, she was also the Executive Director.  I loved working with Sarah.  She is smart, insightful, has great instincts and can see through the lines.  Fast forward, Sarah is a professor at Columbia University teaching a core class on non-profit financial management and she more than anyone I know understands how inefficient non-profits are.  Not all of them but most. 

She shared with me a speech she gave on this topic and truth is we have been having the same converstion for years.  The good news is Sarah is speaking on the topic to a group of young people who are interested in making the world a better place as socially responsible entrepreneurs. 

Here is some perspective.  The NYC public school system has an annual budget of $24 billion a year.  That means that one in every 283 Americans are currently enrolled in the NYC public school system.  There are 311 million Americans and 1.1 million kids in the NYC public school system.  You can figure out the math. 

I do not know the number of nonprofits who are either vendors of the Department of Education or are trying to work with individual schools but here is some numbers that might be of help.  The Gates Foundation has an endowment of $33.5 billion.  Most foundations give away about 5% a year so if we go by that statistic that means the Gates Foundation gives away about $1.6 billion a year.  $800 million of that goes to global problems such as health.  $250m goes towards building smaller schools.  That number is probably less than half of what it costs just to build a school in NYC. 

The numbers above makes you wonder why it doesn't make more sense to set up a booth in Union Square and have underserved high school students stand in line and just give them a computer with a number that pays for the services they need for the year.  That would make an impact.

Why do non-profits end up spinning their wheels?  One of the main reasons is that they spend a lot of time trying to remain alive by just raising money each year to retain staff.  The other thing is that non-profits don't evaluate themselves like for profit companies.  Most don't ask themselves "how are we doing and how can we do this better" but spend more time being concerned about the audit committee, insuring next years resources and less focused on being effective. Non-profit boards do not expect much from the organization.  To many, it is a charity not a business. 

I look at an organization like Donors Choose.  Donors Choose is about voluntary contribution so scale is about more people giving money directly to the problem needing to be solved.  No different than setting up a kiosk in Union Square and giving out computers to underserved kids.  Initially Donors Choose had to raise money to kick off their mission but now people who give through the organization are happy to pay for Donors Choose overhead because they are making sure the product is going directly into the hands of the people using the product.  MOUSE, although not a sustainable organization, it is run like a business.  They have two years of their operating budget in a bank account so they do ask themselves every year, what can we do better vs how do we raise money to keep our jobs.  Then there is Hot Bread Kitchen.  A social enterprise.  They are making a product that is being sold to the marketplace bringing back a revenue stream into the business.  At one point, they will be able to be sustainable.  Are they impacting hundreds of women, no but they are impacting a small group of women and their families and to me that is success. 

I want to support Social Enterprises.  Organizations that act like profit businesses and do not rely on charity.  They can find ways to work with partners, they can create solutions to become sustainable by making a difference in the world.  I am going to circle back to the Gates Foundation.  Even if they spent the entire $1.5 billion a year trying to fix a $24 billion a year organization it would be impossible.  What we need is more socially responsible companies who are trying to disrupt the ways of the past which are just feeding money into organizations.  We should all ask the question before just writing a check…is this organization really making a difference?  Some certainly are but the majority of them, unfortunately, are just feeding the staff. 


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Comments (Archived):

  1. Dale Allyn

    This has been a funding issue for our startup.We believe that for-profit business models have distinct advantages over charities and non-profits when it comes to sustainability and efficacy. However, if seeking funding to build such a company traditional VC is not ideal because for the most part such investments need a dramatic (and often distracting) exit such as IPO or acquisition/merger. And much angel seed funding can be modest for some visionary projects which design to positively affect education, employment, ethics, etc.I would like to see investment partnership opportunities for projects with a distinct humanitarian vision; where IPO is not an appropriate goal because of SEC restrictions on charitable giving or focus; and where investors receive a very good return on investment after which retaining some equity in the project. There are models worth exploring in this area (and we’re working to outline some options), but finding good investment partners willing to think outside the VC box a bit, with strong ethics (a requisite) is a non-trivial task. Fred acknowledged in a comment to me that he thinks about this problem as well. Hopefully more people will put some thought and effort in this direction.Great post. Thanks.

  2. Dale Allyn

    @gothamgal I just left a comment and it disappeared. I felt is was appropriate to the topic, i.e. not spam. I’m not sure if it was manually removed or trapped by a spam filter.I had also commented on your mexican meal post and offered a link to a tomatillo salsa recipe that our family and friends like and it disappeared, too. Perhaps the link caused the spam flag that is also affecting today’s effort to participate.Do you mind looking into it. It’s a pain to attempt participation and find the comments disappear.

    1. Gotham Gal

      Strange. Will check it out. Makes no sense

      1. Dale Allyn

        Thank you. To be honest, I try to be polite and wondered if I had been misunderstood or stepped on toes. 🙂

        1. Gotham Gal

          i can’t figure it out. i’d be the one to star it as spam. maybe something happened in the process.

          1. Dale Allyn

            Thank you, Joanne. Disqus has had some hiccups over the past few days and I understand that they rolled some code back in hopes of fixing some of it. Maybe this is part of it.Feel free to delete this conversation from your post so that new comments have a clean slate. (Maybe I’ll remember what I posted in the first place and redo it, ha! ;)Have a great evening.

  3. Marjan Ghara

    One other inefficiency I see in the non-profit world is that there is no incentive to merge organizations. Some times multiple organizations address similar issues and instead of collaborating (merging) or the market place, shaking out the inefficient ones, they exist in silos and the money they do manage to raise is then spread thinly across multiple entities and therefore not used as efficiently. They do contribute and make a difference but its not always optimal.

    1. Gotham Gal

      I could not agree more. I have said for years that the city council of NYC (who gives quite a pretty penny to non-profits) should take a look at each and everyone to see who is doing the same work. Merge and reshuffle. We’d all be seeing a bigger bang for our buck.

  4. Nick

    “Here is some perspective. The NYC public school system has an annual budget of $24 billion a year. That means that one in every 283 Americans are currently enrolled in the NYC public school system.”Where’s the logic in this? The budget is X, therefore the number of students enrolled is Y?”There are 311 million Americans and 1.1 million kids in the NYC public school system. You can figure out the math.”Didn’t you already do the math for us?

    1. Gotham Gal

      ha. yes i did.