New Business Models in the Not for Profit Sector

There’s more consultants than you can shake a stick at in Not for Profit (NFP) sector telling us that we need to diversify our income streams, build new models, and drool over Social Impact Bonds (SIB’s).

There’s a couple of concerning issues arising from this; 1. the narrative that NFP’s are inefficient, and can’t manage their budgets or run businesses. 2. the resultant marketization of the sector, enabling government’s to divest themselves of the long held social contract that they should redistribute wealth through taxation to fund social services.

To do away with the first myth; NFP’s in Queensland run budgets of a few thousand dollars to over a Billion dollars (Uniting Care Qld and Goodstart Childcare). I have worked in the sector for 20 years in variety of roles from support worker to Director level, and I know that the skill and tenacity of most NFP CFO’s and CEO’s regularly surprise and outstrip those in the private and government sector.

The argument that the sector must diversify it’s income is driven by government’s who claim that their own budgets (read the money they look after for citizens) are in deficit, and so we must find new ways of raising money to spend on social services.

 

The consultants and intermediaries driving these changes are often corporate refugees, who fed up with working without a higher purpose bring their considerable skills to bear in the NFP sector; but ultimately have no idea of what it’s like to work with the poor, on the ground, day in day out, bearing witness to extraordinary equity discrepancies that exist in modern Australia. Lived experience is a pretty good starting point to design innovative ways of funding the things that actually work, redress inequity and create impact.

The marketization of the sector is best exlempified by the obsession with SIB’s and Payment by Outcomes. However, as mentioned I share the

“philosophical” critiques regarding the implications of introducing private for-profit capital into the social services arena as “an abrogation of government’s responsibilities to address social problems.” (1).

We are opening up the social sector to flawed business business models. A huge investor in SIB’s in America is Goldman Sachs – yep, the very same bank that was accused of triggering the GFC by ‘misleading markets’, ‘manipulating clients’, and operating a ‘culture of greed’. (2).

Are these the sort of investors we want in the NFP space? They have even managed to wangle a potential 87.5% return on a SIB in the States by insuring and minimizing their risk through Bloomberg Philanthropies (1).

It’s strange that in the current paradigm where government and philanthropics are rightly obsessed with measuring outcomes, there has been very little evidence that SIB’s actually work. According to a Brookings Institute report as at 1 March 2015, there were only 38 SIBs in existence worldwide, with very little evidence of their efficacy.

This type of funding ignores developmental ways of working with people; community development work is essential to community capacity building and assists often the most marginalised to have a voice. It is a method that works alongside people and not for them, it is an empowerment model interested in the process of change as much as the resultant outcomes; therefore making it difficult to measure using market based analysis tools. Community development is the the Slow Food Movement of the social sector.

Having run social enterprises for a decade I don’t believe that they either, are the answer for most NFPs seeking to diversify income; unless they want to diversify by loss. The sector in Australia is littered with failures of social enterprise started by organisations big and small.

A major reason is not that NFP’s don’t understand how to run budgets and business models, it’s that they have severely underestimated risk and the market for their goods or services. Even models I’ve seen tested by the so-called experts in private sector finance badly misjudge risk and cashflow.

Additionally social enterprise startups in existing NFP’s often fail because they are not driven by someone with “founder’s-desire”. A founder in any type of enterprise will generally be willing to work 80 hours a week to see their project succeed, and if they fail it’s usually their own money they have failed with.

This begs the question; what if the best learning in business is from failures? How can social entrepreneurs legitimately take risks with NFP’s money, fail, learn, take more risks, fail, learn, repeat? A private entrepreneur can do this until bankrupt if they so desire, but is it ethical to do this with public funds? What does it say about the risks for organisations’ long term viability? If NFP’s are being pushed into marketization, especially those looking at entrepreneurial solutions to their lack of funding they would do well to think long and hard about risk.

I’m all about innovation (it’s in my job title after all), and I’m desperate to see great new innovation come about in the NFP sector especially from millennials and Gen Z, but I caution against the ‘NFP model bad – market good‘ narrative. A properly funded social sector is essential to the well being of society, and funding social innovation that doesnt have to rely on a market driven fetish would go a long way to see Australia succeed in the 21st century.

1 https://nonprofitquarterly.org/2014/06/12/eight-sobering-thoughts-for-social-impact-bond-supporters/
2 http://www.abc.net.au/worldtoday/content/2011/s3191452.htm

Postscript Social Innovation Definition from Open Conversation

Social innovation is about tapping into the ingenuity of charities, associations and social entrepreneurs to find new ways of meeting social needs which are not adequately met by the market or the public sector. It can help bring about the behavioural changes needed to tackle the major societal challenges, such as climate change. Social innovations empower people and create new social relationships and models of collaboration. They are thus innovative in themselves and good for society’s capacity to innovate. (European Commission Innovation Union, 2010)

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About stevewilliams1901

Social entrepreneur based in Australia.
This entry was posted in A Social Entrepreneurs Diary. Bookmark the permalink.

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