In 2013, activist and fundraiser Dan Pallotta suggested that the way we think about not-for-profit organisations is wrong. “For 40 years the not-for-profit sector has not been able to wrestle any money away from the for-profit sector,” he said. “Financial incentive has been exiled from the realm of charity so that it can thrive in the area of making money for yourself.”
In his now legendary TED Talk, Dan sparked debate worldwide by highlighting some of the key limitations present within traditional charity structures, mainly that they spend their money inefficiently, prioritising low overheads over innovation and expansion. He believes that a NFP should be run like an intelligent enterprise. In other words, it should relentlessly drive for success as much as a for-profit company drives for capital gain.
The question of how a NFP should spend their precious finances has always been a point of contention, and the notion that a charity should be ‘business-minded’ seems to undermine the very purpose of a non-profit organisation. Palotta’s ideas may be progressive, but at their core his message is simple: in order to help more people, we need to expand the NFP sector, not just sustain it. And the best way to do this is to innovate in the same way for-profit businesses do – taking risks, utilising new technologies and collaborating across other sectors.
He’s not the only thought leader pushing for NFPs to innovate. Catherine Brown, CEO of the Lord Mayors Charitable Foundation, blogs about the need for NFPs to lead the way for social innovation. “In a time of change and disruption, it is essential that NFP leaders are able to explore new ideas and test new solutions to social and environmental challenges,” she says. “The next key step in the social innovation process is the having the courage and support to help test ideas and build that future.”
From a Funding Model to a Business Model
In order to innovate, it is becoming increasingly more important for NFPs to apply a cross-sector approach to aid. Managing Director of Spark Strategy Company George Liacos believes that NFPs should think beyond funding models to unearth a sustainable business model.
“NFP leaders must do two things: anticipate the long term future demanded by their communities; and generate ideas for adaptive business models to deliver this future value better than anyone else,” he says in his blog about sustainable NFP Models on Probono Australia. He argues that for-profit organisations stay relevant by delivering more value than their competitors, and the not-for-profit sector should be no different.” This constantly shifting value demand landscape will call for the collaboration of different skills at different times, which is another shift that will – and indeed already is – fundamentally changing how the sector operates.”
Collaboration and ‘Boundary Riders’
The pressing need for NFPs to collaborate calls for more of what lawyer, NFP consultant and Director of Social Impact Legal Libby Klien refers to as ‘Boundary Riders’. Boundary Riders are NFP leaders who have experience in more than one sector, and because of this, can facilitate collaborative efforts to aid service. “It used to be that not-for-profits were regarded and felt themselves to have a monopoly on doing good, and conversely that corporates thought they had a monopoly on making profit and they had nothing to do with doing good,” she says. “Thought leaders in both sectors are now realizing that regardless of whether you’re for profit or not-for-profit that you really need to be very concerned both about your purpose and your profit.”
For businesses, it means re-imagining markets and thinking of innovative ways to supply low cost products profitably. For NFPs, it means reimagining relationships with corporates and government. “Rather than taking money and doing good with it, there are ways [NFPs] could achieve much greater social impact if they worked collaboratively with partners,” says Ms Klien.
It’s called shared value, and Klien suggests that it could be the answer to how social problems are solved on a massive scale.
Case Study Scott Neeson CCF
Cambodian Children’s Fund (CCF) is a great example of a NFP that is utilising shared value. And it is not afraid of collaboration – seeing other charities such as TOMS Shoes and World Housing as partners, not competitors. CCF lifts Cambodian children permanently out of poverty by implementing long term education and leadership programs within the community. Since its inception in 2004, CCF has drastically improved the living standards, livelihoods and career potential of impoverished Cambodian children and their families. And it has done so by applying a business-like approach to charity, completely innovating the NFP model to attack poverty at a systemic level, and collaborating across sectors to create programs that achieve these results.
The success of the CCF can be attributed to founder and ‘boundary-rider’ Scott Neeson. Originally a high-school dropout from South Australia, Scott built up a successful career in the film industry from scratch. From a projectionist job in a cinema in South Australia, he rose to be CEO of 20th Century Fox international, and over his 10 year tenure was responsible for the release of blockbuster movies such as Titanic, Braveheart and the Star Wars Trilogy.
After a life-changing trip to Phnom Penh, where he witnessed hundreds of children scavenging through the Steung Meanchey garbage dump, Scott quit the business world forever and established CCF. But with such a firm grasp of the corporate world, he did not set it up like a traditional charity. He applied a ‘whole systems thinking’ approach to the problem of poverty in Cambodia, which entails looking at the interrelationships between all parts of a problem. By incorporating a range of perspectives, conditions, connections and capabilities Scott gained from having a foot in both corporate and NFP worlds, he was able to create a program that attacked the whole system of poverty, rather than trying to construct solutions from within a limited focus.
“I think that as a result of my background, CCF’s structure is more corporate; we’re an organization that requires accountability and responsibility, and where financial and operational measures are applied,” says Scott. This results-driven approach to running an NFP is most evident with CCF’s 65 comprehensive programs that address 6 core areas (access, housing, food, healthcare, mentorship, support) preventing a child from receiving a quality education.
The programs transform children who previously scavenged on garbage dumps for money into bright, ambitious and inspired university graduates who will work to transform their own community and country. “The CCF model of integrated, interconnected programs has wonderful, quantifiable outputs,” says Scott. “School absenteeism has dropped from 55% to 5%, school retention has moved from 58% to 96% and maternal care, once a dire 8 – 12% (estimated) amongst new mothers has maintained zero deaths in the last 7 years and 1,100 births, since the establishment of the Maternal Care Program.”
The Business-minded NFP leaders like Scott Neeson are a unique combination of idealistic and pragmatic, applying the professionalism and tirelessness usually associated with profit to the goal of creating the greatest social impact. “I’ve often been accused of running CCF more like a business than a charity, and I agree with those sentiments when it comes to the infrastructure, staffing and general organizational aspects,” says Scott. “The for profit sector can drive better efficiencies, accountability and financial management in the nonprofit sector and this was highlighted this year with CCF’s 100% score from Charity Navigator, an award received by only 51 of 8,500 evaluated NFPs.”
Scott may attribute the success of CCF to his firm grasp of the corporate world, but he also emphasises that a deep understanding of community needs is a key characteristic that sets CCF apart. “CCF started by looking at the most obvious issues of education and need for medical care and has over the years evolved the program and services so that the community is more involved, has greater governance and the empowerment to make decisions,” he says. “With this approach, we have set up a structure that has a better educated and higher functioning community and one that will certainly outlast CCF.” Scott’s goal is one that utilises business-thinking, but ultimately transcends it: CCF will be truly successful when the community it helps no longer needs it. In other words, redundancy is written into Scott’s business plan, and that is something that a solely for-profit leader could never imagine.
Case Study: FONA
FONA is another charity pushing boundaries for cross-sector orientated NFPs. FONA is an organisation committed to bringing global expertise into a local setting where communities most need help. With an initial focus on villages in Nepal most affected by the 2015 earthquake, FONA is providing state of the art technology and learning hubs, resilient housing support and restoration programs to rural and remote communities.
Amit Thapa, chairperson and co-founder of FONA, says that the innovative “benefit mindset” model adopted by FONA is what set it apart from other aid organisations. It is a process that looks at the opportunity and potential of people and a community, playing to their strengths. FONA’s whole systems approach involves both the consultation with local communities and the collaboration with global partners in order to find a solution that promotes long term well being and collective benefitt. “We’ve gone straight into communities with the goal to determine what their real aspirations are, what inspires them,” he says. “And then we bring in leapfrog solutions and technologies that regenerate their community and connect them to the rest of the world.”
Partnerships are a critical element of FONA’s model, a priority that Amit attributes to his extensive experience in the business sector. “Myself and my co-founder, we work at dynamic international organizations where innovation and collaboration is the forefront of what we do and what we’re trying to do was replicate the model in a not for profit situation with FONA,” says Amit. “ So rather than donations, what we’re finding is that some people are giving us $100, 000 worth of their time and their capabilities, and to me that’s priceless.There is so much to gain on both sides from creating relationships between a partner and our benefactors.”
FONA recently hosted a “think tank” with the University of Melbourne, IncluDesign, Thrive Research Hub, Cohere and Biourbem to workshop the design of a world class education and community hub facility in the Purano Jhangajholi village in Nepal, a state-of-the-art centre that will meet global resources with cultural community needs. Each facility will be uniquely designed collaboratively with a community, using FONA’s replicable methodology. “What we’ve seen through our work is that people are willing to wait for the long term benefit if they are communicated with and they are engaged to be part of the solution,” says Amit. The education centre is the first of many in Nepal, and part of a program they plan to roll out in communities across the world. “At the end of the day,every human being whether they live in Australia, Nepal or elsewhere in the world, seeks to grow, improve, progress and thrive. The Education Centre is a really metaphor for what a thriving community looks like, through education and holistic infrastructure. We think it’s possible to create a scalable model that respects the unique, cultural needs of a community.”
A Cross-Sector Approach for NFPs
Paul Ronalds, CEO of Save the Children, is another thought leader pushing for a ‘whole systems thinking’ approach to running an NFP. In his closing address in the ANU workshop ‘Cross-Sector Working for Complex Problems: Beyond the rhetoric,’ he talked about the pressing need for the government, not-for-profit and for-profit sectors to collaborate effectively in order to solve the challenges faced by society. As a former member of the Cabinet in 2010, he has experience across sectors and believes that the biggest challenge we face is the challenge of change. “What we need most of all to make progress is to change the current system’s incentives,” he says. “Only by changing the incentives of politicians, public servants, civil society and the private sector can we hope to achieve the type of progress we are all seeking.”
Ronalds believes that the social aspects of any solution must be integrated with economic aspects to support a joined-up, long term solution. “We need government and philanthropists to support capacity building and sector consolidation. We need to ensure we are thinking about the economic underpinnings of social interventions and vice versa.”
Philanthropic Corporates and Social Enterprises
Paul Ronalds emphasises that collaboration isn’t just about NFPs rethinking their models but about for-profit companies taking on a more philanthropic approach too. Bank of America’s partnership with the Khan Academy on Better Money Habits was of course an exercise in content marketing by the bank, but in a context where the outcome was to genuinely improve financial literacy and outcomes for ordinary Americans. Arguably, Amex’s Shop Small is also benefiting communities, as a “movement dedicated to helping small businesses.” In fast food, Chipotle actually eschewed all other forms of marketing when it found that its ‘Cultivate Foundation’ (dedicated to education around and provision of better nutrition in poorer communities) worked harder to drive business for them – in other words, philanthropy making great business sense – the perception of these two facts being at odds is increasingly receding. There are many examples of corporates now looking at building social impact and shared value structurally into their business model to replace outdated CSR contributions.
Just as corporates are building purpose into their model, so not-for-profits are building business into theirs – hence the birth of ‘Social Enterprise’ – classic examples being Thankyou Water or Tom’s Shoes and World Housing. Libby Klien says that while a social enterprise model may not suit every organisation, it is the social enterprise mentality that is defining the future landscape for NFPs. “I think the social enterprise mentality certainly is the way of the future because it is based on the idea of making profit and having a positive social impact,” she says. “So charities or organizations with charity status can also of course adopt that mindset and that approach even though they may not label themselves as social enterprises.”
These businesses operate within, and compete with, the for-profit sector, but offer consumers the chance to spend their money on a philanthropic service. Other examples include STREAT, who provide employment for young people who are homeless or at risk of long-term unemployment; Pollinate Energy, a company that works in India selling low cost, efficient energy appliances to unpowered slums and Zambreros, who provide a meal to the developing world for every meal sold in their restaurants.
Driving the NFP Sector towards Change
Just as NFPs need to become more like corporates, corporates need to become more like NFPs. For charities, this means working in collaboration with other sectors and taking on a business-minded approach to innovation and expansion. For businesses, it means looking for ways in which social impact can be integrated into a company’s business model. In order to move forward, we need more ‘boundary riders’ like Scott Neeson and Paul Reynolds to lead NFPs down a more innovative path; forging relationships across sectors and ensuring that the best resources and minds are pooled together to provide aid to those who need it most.
Interview with Libby Klien from Social Impact Legal
To start, could you briefly describe in your own words what you do?
LK: My firm is Social Impact Legal. So I describe myself as a strategic legal and governance advisor for organisations intent on making a positive impact. And that means I work with social enterprises and impact investors and corporates who are needing help with governments or local arrangements. And I do that because I think that if they get the governments and legal arrangements right then they will have greater impact and be more successful.
A lot of thought leaders are now saying that NFPs need to learn from the for-profit sector. We need to really reconsider the way we run our charities, not so much driving for profit but driving for success like a for-profit company would. Do you agree?
LK: It’s a fascinating area and the real thing that I that I keep seeing and – I think it’s a really important trend – is that thought leaders in both sectors are now realizing that regardless of whether you’re for profit or not-for-profit that you really need to be very concerned both about your purpose and your profit. It used to be that not-for-profits were regarded and felt themselves to have a monopoly on doing good, and conversely that corporates thought they had a monopoly on making profit and they had nothing to do with doing good. So I think that we’re seeing a little bit of convergence conceptually by some people in those sectors. And of course there’s a lot of potential for skepticism. Rightly so. On both sides but particularly, people say ‘oh yeah sure a big multinational cares about doing good.’ Actually some of them do. And many of them of course don’t. But just because there are some who don’t doesn’t mean that there can’t be some corporations who actually do both profit-making and positive social impact.
It’s also about where that drive innovation comes from. And a lot of the time it does come from a need to show results to consumers, but that drive to show results is what can translate back into the to the NFP sector and that’s really where innovation comes from, that mentality you have to deliver.
LK: Yes definitely. However what I’ve found is in my work – I’ve done a lot of work with executives and boards of charities and not-for-profits – is that it’s not infrequently that a CEO will have an innovative big idea about something that has the potential to really scale up the impact that the organization can have. But they find that the directors are very conservative more so probably than if those same directors even were around a corporate table. So I think that the inherent continuing conservatism of a lot of not for profit boards is probably holding back innovation that might otherwise be happening.
Dan Palotta’s TED Talk touched on this. And that’s quite a point of contention I feel in NFP sector that people either strongly agree with or strongly disagree with because his approach is about just that – having an innovative idea and being able to follow through with it even if it means spending more money than what is traditionally considered to be acceptable the NFP model.
LK: I’m in full agreement to that. Why shouldn’t a not for profit have the same tools at its disposal and the same attitude towards achieving its objectives as a for-profit? If it needs to invest in order to achieve its objectives in the medium or long term, what’s wrong with that?
From your experience how can these separate sector companies collaborate to create greater social impact?
LK: It’s a really interesting question and I was at an impact investing conference last week in Sydney. There was a lot of discussion about even just the language difficulty between the sectors. So an investment banker talking to a government person who’s in impact investing department of Commonwealth or state and also talking with a not-for-profit or service provider and they all have very different language and not only have they often not spoken much with each other in the past but they need to learn each other’s lingo.
What about the concept of ‘whole systems thinking’ the idea that you know to solve a complex problem like a social issue, you need to incorporate different lingo different connections and collaborations. Do you do you think that this is type of thinking is being integrated? Have you seen ‘boundary riders.’?
LK: Yes definitely. But I think not enough people put themselves out there or clearly demonstrate that they can do that. So they’re not putting themselves out there as being able to bring those sectors together. An example would be JB Weir who I know do a lot of fantastic work. They run workshops for social enterprises and not for profits to help them understand the idea of becoming ‘investment ready.’ And that is really getting at this idea of ‘Boundary Riders’. Because it’s all very well to be fantastic in what you do. It’s great that you are thinking about attracting significant capital but you need to present yourself in a way that will be understandable as well as attractive to potential investors. And that’s what a lot of those organisations don’t get. There are some that do and they’re the successful ones. But many of the large profile charities and so far away from even understanding the concept.
What about social enterprises? Where do you think they sit with the future of the NFP sector? Or do you think perhaps that they are the future?
LK: Yeah I do largely and certainly in the social enterprise model. I think the social enterprise mentality certainly is the way of the future because it is based on the idea of making profit and having a positive social impact. So charities or organizations with charity status, can also of course adopt that mindset and that approach even though they may not label themselves as social enterprises.
So it’s more the social enterprise mentality that you see is the future for NFPs?
LK: Yes. So for example if I was sitting recently in the ACNC Seminar and there were a whole lot of professional advisers around the table talking about charities charities charities, and the ACNC of course their view is ‘charities full stop’ they don’t even extend to non charity not for profits let alone for-profit or even social enterprises. So there’s a real a regulatory distinction between charities and social enterprises that are structured as for profits. And people in the charity sector sort of think of themselves as ‘it’; where all the action is. But there is this whole universe of social enterprises that are structured as for-profits doing a lot of similar work. It’s an interesting and artificial distinction in some ways. It’s artificial conceptually.
How do you think NFPs need to rethink their models?
LK: I do think that a lot of not for profits and charities and social enterprises for that matter would really benefit from thinking about what they’re doing in their business model framework. So I love the business model canvas and various variations of that. The social enterprise adaptation of that is KNODE. There’s also the social LEAN canvas. That one is referred to by the NAB investment readiness fund. So I think it would help charities and not for profits and social enterprises to think differently if they utilize those frameworks. I like the Business Model Canvas because you can you can get value out of it in terms of helping develop your thinking without having to go through six months processes of detailed redesign of your business model, you can do it in a light sort of way and then take it as far as you want to.
What’s a question you wish people clients or companies asked you more often?
LK: “How can you help us think about how we can best achieve Positive social impact profitably?”
- Innovative fundraising strategies for NFPs including case studies Scott Neeson’s CCF, Thankyou and Watsi (read on linkedin)
- Helping People Help themselves: Scott Neeson’s CCF innovating the NFP model (read on linkedin)
- An unconventional success story: Scott Neeson of CCF (read on linkedin)
- Articles about Scott Neeson & CCF on Medium