The Nonprofit Paradox
Every Executive Director grasps the same brutal truth: to run an effective nonprofit, you must serve not one, but two customer classes. The first are the people (or interests) supported by the mission, such as the homeless. The second are the donors most likely to fund your mission like individuals, foundations, companies, or government. When the two are sync, fabulous. But the reality is that they rarely are. In fact, the whole apparatus to sell and market to donors while at the same time serving a mission that those donors think can be served better results in complexity, contortions, and stress for Executive Directors. Here are five observations…
At its Heart, a Tightrope: Balancing Dual Constituencies
Navigating the nonprofit sector is akin to walking a tightrope, with Executive Directors (EDs) balancing the conflicting needs of beneficiaries and donors. This dual-customer paradigm is the core paradox: how can one effectively serve those in need while simultaneously catering to the wants of those who fund the mission? The answer is never simple or straightforward. The good news is that it has improved from where it was 10 years ago.
The Donor-Centric Model: A Double-Edged Sword
The prevalent donor-centric fundraising model positions donors at the heart of nonprofit operations. While this approach emphasizes relationship-building and acknowledges the critical financial role donors play, it can inadvertently sideline the very communities’ nonprofits aim to serve. Vu Le, in his critique of donor-centrism, argues that this model can perpetuate inequities by prioritizing donor preferences over community needs. He suggests a shift towards community-centric fundraising, which balances the interests of both donors and beneficiaries, ensuring that fundraising practices do not reinforce systemic inequities.
The Nonprofit Starvation Cycle: Underfunding Infrastructure
Compounding the challenge is the "Nonprofit Starvation Cycle," a phenomenon where organizations underinvest in essential infrastructure yielding to donor expectations that funds be directed towards programmatic activities. This cycle leads to weakened organizational capacity, hindering the ability to deliver effective services. Back in 2009, Ann Goggins Gregory and Don Howard highlighted the cycle in their iconic article concluding that funders must take the lead in breaking this cycle by supporting the full costs of operations, including administrative and fundraising expenses.
The Donor Revolt: Increasing Influence on Organizational Direction
In recent years, there has been a noticeable shift in donor behavior, with major contributors exerting more influence over nonprofit operations. This "Donor Revolt" sees benefactors dictating terms and expectations, sometimes steering organizations away from their core missions. Paul D'Alessandro notes that this trend can lead to conflicts between donor intentions and organizational goals, challenging EDs to maintain mission integrity while securing necessary funding.
The Ethical Quagmire: Navigating Donor Intent and Mission Alignment
The ethical landscape becomes murkier when donor intentions clash with organizational values or community needs. Accepting funds from donors whose activities or beliefs contradict the nonprofit's mission can lead to public distrust and internal conflict. The ethics of philanthropy necessitate that nonprofits carefully consider the sources of their funding and the potential implications of donor influence on their work.
Four Responses: Strategies for Impact
As noted above, some of this has gotten better. But in my experience leading nonprofit, it is still prevalent albeit more nuanced. EDs can implement several strategies:
Demand Transparency with Impact Reporting: Clearly articulate the organization's mission, needs, and most importantly, the true costs of operations to donors. This transparency can foster trust and understanding, encouraging donors to support infrastructure and capacity-building efforts. Part of this strategy, which could almost stand on its own, is measure impact and share it. And truly measure, don’t exaggerate. You owe that to your mission and the donors. Too often I’ve seen organizations conflate impact. It is tough not to because the fight for survival compels it.
Educate Donors - Now: Provide donors with insights into the complexities of nonprofit operations, including the necessity of funding administrative and operational costs. Educated donors are more likely to support comprehensive funding strategies that sustain the organization's overall health.
Implement “Doncom” Fundraising Yesterday: Balancing Don(or)Com(munity) wishes is a tough but urgent balance. Rebalance from solely donor-centered approaches to models that balance community needs and involve beneficiaries in fundraising narratives. The way to approach this is incorporate transparency in the first point, with education of donors and invite both donors and communities into the design of programs. This strategy best ensures fundraising practices do not perpetuate inequities, and that donor engagement aligns with the organization's mission. This doesn’t mean bringing everyone in but it does mean being intentional with many of your key donors.
Aggressively Diversify Funding Streams: As an Executive Director, your best strategy is to reduce dependency on a narrow pool of donors by diversifying funding sources. This approach can include exploring grants, corporate partnerships, and individual contributions to mitigate the risk of donor overreach. In fact, the greatest way to diversity donor streams is to start revenue generating businesses and programs that leverage your core competencies.
EDs - Integrate, Don’t Separate
None of this is easy, especially in the warped nonprofit environment where we find ourselves in recent months. We might have imagined changes in policy, but few could have anticipated a federal government refusing to pay its bills for services already rendered. But here we are. EDs need to be adept navigators of a cruel landscape and added complexity as they integrate relationships with clients being served and donor wants being met. By embracing transparency, educating donors, adopting Doncom approaches, and diversifying & generating funding, nonprofits can ensure impact.
Let go of cautious compromise. Let go of risk aversion. Your hesitation is risk. Never has this balance & your action been so critical.
