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The New World of Business Savvy Ethically Operated Non-Profits

The non-profit world is reaching an inflection point. Over the past few months the non-profit model has been getting a lot of attention. The result has been overwhelmingly positive, but organization’s are being challenged to question the ways they can have the most positive long term effect while staying true to their values. It’s an exciting time to be involve with helping organizations that make the world better.

Since CIR & TBT released this report on America’s Worst Charities, we’ve researched non-profit effectiveness. This report was an evaluation of how charities and non-profits spend their money and I’m sure it has made a lot of donors think twice before donating to their charity of choice. “The average good charity spends 75% on charitable programs and 25% on admin and fundraising; some of the charities in this report only allocated 2.5% of  it’s over $100 million raised,” begging the question how should a non-profit spend it’s money for long term effectiveness? The average donor would say, “well, I want 100% of my donation to go to the charitable effort,” but creating an effective, long-term solution requires infrastructure. For instance if you build wells in Africa your organization should allocate funds to a crew and parts to maintain that well so it doesn’t break down after six months. The issue is that there is a gap between how donors think their money should be allocated and how the money should actually be allocated tomaximize long term effective results.

According Josh Mahar non-profits “are organizations that return all of their profits back into pursuing their mission, which is presumably for the greater good of society.” The assumption is that if a non-profit operates like a business it will compromise it’s moral high ground, it’s values and possibly even it’s mission. This stereotype even plays out in House of Cards as “Claire Underwood makes less-than pious business decisions to further her Philanthropic efforts,” furthering the organization’s short term goals while compromising their values and overall mission.

I don’t, however, think charity and business has to be mutually exclusive. Dan Pallotta gives an amazing TED Talk called “The Way We Think About Charity Is Dead Wrong.”

The premise of his talk is that it requires capital, R&D, acquiring assets, branding and building infrastructure to create long term, viable solutions that are effective at changing the world. If a non-profit is to establish these things then it needs to allocate funds to things that may not initially seem to be helping people on the front line; but that’s because successful strategies require a well-planned setup. It’s the same reason that Dan believes it’s wrong to discourage non-profits from allocating donations towards fundraising and marketing efforts.

We’ve also heard Charity Water’s business practices called into question because of claims that their efforts provide a short-term solution; what’s the point of raising millions for a well that isn’t maintained and ends up breaking down after 6 moths? From this article “The Problem With Charity Water,” it’s clear that FULL transparency is crucial; GiveWell backs up this claim that C:W doesn’t sufficiently disclose financials, accountability or effectiveness of their organization.

“‘We have 1.3 million Twitter followers, and our videos might get viewed a couple of hundred thousand times’,” Paul Young (their digital director) explains. The company defends these efforts as movement-building; but without participants having any clear idea what change is necessary, who is implementing it, how it is being undertaken, and whether or not it works, it’s not a movement. It’s branding.” This is a case of great marketing efforts that get slammed for not telling the ‘full story’; in fact when they were transparent with well failures donors responded positively. So what kind of storytelling should donors expect from a non-profit? And what are the necessary storytelling requirements so that an organization is fueling a movement and not a brand building exercise?

We’ve seen the rise of organizations like GiveWell who are specifically engineered to provide rigorous analysis of the effectiveness of a non-profit organization. It’s a tool for evaluating variables like the long term efficacy of a program and how donors can do the most good with their contributions. Yes, non-profits must tell a great story and act with business savvy without compromising their values or morals, but ultimately they must not only operate with full transparency but they must also engineer methods for measuring and communicating their success.

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