BUSTING NON-PROFIT MYTHS

 

Over the years, non-profits have fallen victim to a host of myths that are both flawed and unfair. We unravel them here. 

Myth #1: Capacity building is ambiguous and unnecessary.

Often the term ‘capacity building’ is met with confusion, seen as too broad to define and too difficult to prove the worth of. But it’s as simple as this: Incubators work with organisations to build the ‘systems, structures and skills necessary for success’[1]. We use knowledge sharing to amplify effectiveness, efficiency and scale, ultimately supporting upstream initiatives to achieve their mission. Incubator organisations aren’t interested in giving communities short-term solely financial solutions. Instead, we’re concerned with establishing the skillsets and resources to enable long term, sustainable change. We work on the system, not in it.

 

Myth #2: Overheads are a waste of money.

 ‘Overhead’ has become a dirty work in the social space, synonymous with waste and analogous to crime, it is seen as an imperative to for-profits yet impermissible in not-for-profits.

Competition for funding means that organisations don’t want to appear to be ‘wasting’ money on overheads at the expense of highly visible, on the ground outcomes[2]. Yet in following their survival impulse, nonprofits forget that such outcomes can only be proven with strong measurement and evaluation processes and can only be sustained if backed by solid structures and skills.

A failure to invest in human capital leads to what is called the ‘starvation cycle’[3]: wherein responding to pressure, not-for-profits underspend on overheads and underreport on expenses, giving funders unrealistic expectations of their organizational costs. Next funding round, funders have even less realistic ideas of what can be achieved with little money – and the whole cycle starts again.

Goggins Gregory et al. of the Stanford Social Innovation Review, say that given the inherent power dynamic between funders and grantees, it is the funders who are best placed to break the starvation cycle. By opening up an honest dialogue with their beneficiaries and taking steps to lower expectations, funders have an exciting, and crucial role to play in changing the culture of fundraising.

Myth #3 – the successful ingredients of the for-profit sector cannot translate to non-profits.

It is undeniable that there are aspects of the for-profit sector that need not be transferred to the social sector, yet the considered use of, and investment in, human capital is not one of them. All organisations, for profit or for purpose, need sound management, strong leadership, knowledge of strategic funding and a clear theory of change in order to achieve their end game.

A recent report by Wenzel at the University of Western Australia has shown that professional development initiatives promote superior performance, greater staff wellbeing, improved leadership and a saving in funds[4], which in turn lead to organizational viability and a greater shot at true social change[5].

Myth #4: Staff training costs nonprofits money they can’t spare.

Wenzel’s study shows that from a cost-benefit analysis perspective, governance-building schemes are almost irresistible, with an economic impact factor of +6[6]. That is, for every dollar spent on capacity building, there appears an average return on investment of six dollars, attributed to the training and its flow on effects[7]. Local organisations, whose leaders had been trained, raised their revenue by around four times the cost of the program[8] and in a separate study, the return on investment from leadership development was seen to be as much as 200%[9]. Bradley et al., of the Harvard Business Review, claim that reforms to non-profit management practices, much of which capacity building works to do, could result in a $100 billion gain to the US NFP sector[10]. To me, all of this shows that capacity building is far from a waste of money, rather paradoxically it seems, the best way to save it. What the social sector really needs is the opportunity to realize this.

[1] Jared Raynor, Chris Cardona, Thomas Knowlton, Richard Mittenthal, and Julie Simpson, Capacity Building 3.0: How to strengthen the social ecosystem (2012), 2, 5 Jan. 2018.

[2] Australian Productivity Commission cited in Ramon Wenzel, Learning for Purpose: Researching the Social Return on Education and Training in the Australian Not-for-Profit Sector (Perth: Centre for Social Impact, the University of Western Australia, 2015), 13

[3] Ann Goggins Gregory & Don Howard, ‘The Nonprofit Starvation Cycle’, Stanford Social Innovation Review, Fall, 2003, para. 1, , accessed 5 Jan. 2018.

[4] Ramon Wenzel, Learning for Purpose: Researching the Social Return on Education and Training in the Australian Not-for-Profit Sector (Perth: Centre for Social Impact, the University of Western Australia, 2015), vi

[5] Ramon Wenzel, Learning for Purpose: Researching the Social Return on Education and Training in the Australian Not-for-Profit Sector (Perth: Centre for Social Impact, the University of Western Australia, 2015), vi

[6] Ramon Wenzel, Learning for Purpose: Researching the Social Return on Education and Training in the Australian Not-for-Profit Sector (Perth: Centre for Social Impact, the University of Western Australia, 2015), vii

[7] Ramon Wenzel, Learning for Purpose: Researching the Social Return on Education and Training in the Australian Not-for-Profit Sector (Perth: Centre for Social Impact, the University of Western Australia, 2015), vii

[8] Cermak and Mcgurk cited in Ramon Wenzel, Learning for Purpose: Researching the Social Return on Education and Training in the Australian Not-for-Profit Sector (Perth: Centre for Social Impact, the University of Western Australia, 2015), 11

[9] Avolio et al. cited in IRamon Wenzel, Learning for Purpose: Researching the Social Return on Education and Training in the Australian Not-for-Profit Sector (Perth: Centre for Social Impact, the University of Western Australia, 2015), 10

[10] Bill Bradley, Paul Jansen & Les Silverman, ‘The Nonprofit Sector’s $100 Billion Opportunity’, Harvard Business Review, May. 2003, para. 37, 38 , accessed 5 Jan. 2018.

 

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