Giving USA’s most recent report reflected a 2.7% year-over-year increase in US charitable giving. This growth was met with applause by mission-driven organizations that require donations to survive. However, the cost to address chronic social problems in the U.S., from poverty, to environmental sustainability, to public health, far exceeds available philanthropic funding by approximately $3 trillion. As a capitalist (and philanthropist), I believe in the adage “the way you finance your organization is the way you operate it.” If true, reliance on donations may perpetuate unsustainable habits and behaviors that ultimately prohibit nonprofit mission-driven organizations from effectively addressing pervasive social issues, and making a dent in “this philanthropic gap.”
Although donations are a critically important source of revenue, they are also episodic, unreliable and ultimately, not sustainable. For example, starting next year, millions of individual donations to nonprofits could be sharply reduced due to the new tax bill. Some estimates project that as few as 10 percent of taxpayers will continue to itemize charitable deductions on their returns, down from the current one-third. Additionally, financing nonprofit organizations solely with donations often creates unintended consequences that can prevent scaling services for those in need, including:
- Extreme vulnerability during economic downturns: During recessions, the demand for high-quality services increases, while donations decrease.
- Stretched capacity: Organizations often stretch their capacity to apply for grants that do not naturally align with their programming, in order to qualify for this free capital.
- Diluted entrepreneurial spirit: Management often focuses on what it will take to raise additional grant capital rather than develop creative earned revenue opportunities.
- Subordination to expectations of donors: Donor intent often drives strategic development, rather than an organization insisting on its own expertise to effectively drive social impact.
- Lack of commitment to impact measurement: Nonprofits are not normally held accountable for specific, measurable impact metrics created through donations, and therefore lack insight into the true effectiveness of their programs.
- Uncollaborative culture: In an attempt to preserve and protect donor relationships, many organizations do not share strategies, programs and visions with others, even though it may result in greater impact on the community.
Now more than ever, nonprofits will need more sophisticated operations and programs in order to compete for the investments of selective donors. If the legal frame is lifted from a nonprofit organization, it is essentially a business – and like any business, it requires financial stability, unique programs, and a market-based approach to scaling. So how do we help nonprofit organizations achieve these best practices?
Many funders are increasingly providing capacity expansion grants. These grants are critical for nonprofits to improve their infrastructure, and explore diversified revenue streams including earned income, to improve funding predictability, autonomy, and resiliency. Forward-thinking funders know that sustainable revenue improves an organization’s financial self-sufficiency, which in turn, accelerates mission focus, innovation, growth, and ultimately greater ability to solve our nation’s social needs.
Before making a traditional program donation, funders should pause to think — is the capital you are providing capable of driving true social change?
As the holidays approach, many of us look forward to spending time with loved ones, and to sharing stories and remembrances of the past. Many of us also look to what “can be” going forward and make personal pledges to assist those in need, change our behavior, or enhance our own value to our community. At this time of year, I often ask myself: “Is there a better, more sustainable way to fund social change beyond making donations?” I encourage you to do the same, and consider increasing your philanthropic engagement by investing in or supporting social enterprises. Why not create a true double bottom-line impact that moves the needle on both community and financial returns? If you are not sure how to do that, there are a myriad of resources available to help, including these guides from our friends at Mission Investors Exchange and The Case Foundation.
I also urge you to consider how recent federal tax reform will affect social impact organizations, and if you are fortunate enough to realize savings from the recently passed tax bill, to invest a portion of those savings in your community.
We hope you will join us in finding new ways to create fulfillment and success for others in the coming year, and we look forward to sharing our learnings and accomplishments from the past year with you in early 2018.
On behalf of the entire Mission Throttle team, happy holidays and a joyful New Year!
Phillip Wm. Fisher
In 2009, Bridgespan Group surfaced a troubling phenomenon in their essay, “The Nonprofit Starvation Cycle.” It distilled the widespread challenges that nonprofits face to function effectively, noting that a vicious cycle starts with “funders’ unrealistic expectations about how much running a nonprofit costs” and results in “nonprofits misrepresenting their costs while skimping on vital systems—acts that feed funders’ skewed beliefs.” The article goes on to note that if the cycle is ever going to be broken, “funders must take the lead.” In our experience, both grantees and funders must work together to break the ‘starvation cycle.’
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At Mission Throttle, we provide both funders and grantees with the necessary tools to enhance the efficiency and effectiveness of mission-driven organizations, thereby creating sustainable community impact:
FUNDERS: Mission Throttle partners with funders and their grant partners to develop business strategies that strengthen organizational infrastructure and create opportunities for financial sustainability, growth and scale.
MISSION-DRIVEN ORGANIZATIONS: Mission Throttle provides a wide range of Advisory Services tailored to help mission-driven organizations achieve sustainable social impact. We use an evidence-based approach to develop creative, market-based strategies.
Stabilization: Due to capacity constraints, many mission-driven organizations are unable to create the necessary infrastructure to support long-term strategic growth. Through a range of business analytics, we partner with our clients to create solutions that lead to financial and operational stability.
We assist grantees that:
- Operate with a structural deficit
- Lack an outcome tracking framework
- Lack an integrated service model
- Have a high concentration of funders
Growth and Scale: Organizations that have diverse revenue streams are more likely to be financially sustainable and therefore, achieve greater impact. We assist our clients to leverage their existing programmatic strengths to create financial resilience. We can also work with these clients to develop and implement strategies that unlock new forms of capital and create investment opportunities.
We assist grantees that:
- Have diversified sources of revenue
- Have cohesive logic models
- Understand their programmatic outcomes
- Have strong leadership and Board of Directors
Mission-driven organizations have tremendous desire and expertise to accelerate the impact of their programs, yet many lack access to sufficient financial and human capital to scale their initiatives. By providing these organizations with the capital and opportunity to access advisory services, both parties can work toward breaking the cycle that prevents sustainable social change.
For more information on how your organization can access tools to better serve the community, contact us at firstname.lastname@example.org
Mission Throttle and COTS Collaborate to Break the Cycle of Intergenerational Poverty Among Detroit’s Homeless
Coalition on Temporary Shelter (COTS) has selected Mission Throttle to help it identify new opportunities to increase the financial stability and impact of its programs, and address recent changes in government funding of homelessness programs.
The city of Detroit is experiencing a great revitalization. Young professionals are flocking to the city to live and work; new restaurants and business are opening at a seemingly unprecedented pace; yet homelessness and unemployment remain persistent problems. Detroit is home to nearly 16,000 homeless adults and 3,500 children. While 21 local mission-driven organizations serve the homeless population of Detroit, most are focused on providing emergency shelter instead of addressing the root cause of pervasive social problems.
COTS is undergoing a significant transformation to respond to these pressing social needs, and believes that a holistic approach is critical to solve the problem of intergenerational poverty among the homeless. COTS has adopted a “housing first model,” which prioritizes the importance of stable housing, and is now a national norm with the recent increase in funding and support from HUD. COTS is using an evidence-based framework called the Passport to Self-Sufficiency, which addresses the plethora of factors that prevent families from permanently escaping homelessness, including: family stability, healthcare, financial empowerment, education and training, and career development. This approach helps clients remove critical social barriers and achieve long-term sustainability.
“A heart breaking moment for me was witnessing children return as adults with their own families, struggling with the same issues their parents once had,” said Cheryl P. Johnson, CEO, COTS. “We do housing well. But are we really teaching people the skills they need to stay housed? Or further, the necessary life skills to overcome of poverty? Handing over keys isn’t enough. Admitting we have opportunities for growth is everything. It has made the difference between offering emergency shelter and offering a life-changing opportunity. We are a learning organization. Our Passport To Self-Sufficiency successfully shows people how to navigate through life, and how to set a better example for their children to follow as they grow into adulthood.”
Mission Throttle and COTS will work in partnership to identify opportunities to enhance its organizational efficiency and effectiveness, and develop a business model designed to help lift an even greater number of families out of the homelessness all too prevalent in Detroit — ensuring that the children it serves today will not need its services as adults tomorrow.
“COTS’s vision for a future Detroit without homelessness is both radical and rational,” said Susan Gordon, Managing Director of Advisory Services for Mission Throttle. “With a focused business strategy, COTS has the opportunity to create an innovative social enterprise that aligns with its core values, provides capital for scale, and advances its mission to break the cycle of intergenerational poverty.”
About Mission Throttle
Mission Throttle is a social impact strategy firm dedicated to accelerating philanthropic innovation in communities. We advise, invest in and support mission-driven organizations that seek to use market-based strategies to address social and environmental challenges. We advance the organizational capacity and sustainability of mission-driven organizations through scaling earned revenue and instilling best practices to serve more people in need, increasing community impact and social justice.
Founded in 1982, COTS www.cotsdetroit.org is a private, non-profit organization that provides emergency shelter, transitional and permanent housing, as well as comprehensive support services for homeless families and the at-risk population. COTS mission is to alleviate homelessness by providing an array of services which enable people to achieve self-sufficiency and obtain quality affordable housing. COTS assists families in reaching their housing, economic, health, education and career goals through coaching, mentorship and support as they strive to overcome homelessness and break the cycle of poverty for the next generation and beyond. COTS also exists to advocate for long-term solutions to the problem of homelessness.