How a Culture of Frugality Can Trap Your Social Enterprise in the Nonprofit Starvation Cycle

Hey, social change agents!

Today, I'm giving you the skinny on frugality in your social enterprise. Before I start, I want to make it clear that I don't hate volunteerism. In fact, I support it for what it is - a great cultivation strategy for individuals to actively be a part of the mission. Strategically using volunteers and other low-cost solutions can definitely be a strength in the social good space:

  • Corporate volunteers can lead to funding through corporate foundations;
  • Volunteerism itself makes someone 80% more likely to give to the organization. Also bequest rates shoot up among volunteers versus non-volunteering donors;
  • Volunteers can provide the organization access to needed skills to operate;
  • And board members who protect the mission and steward the organizations assets are volunteers!

What gets nonprofits into trouble is the phrase "Why should we pay for it when we can get volunteers to do it?" This simple, yet pernicious, question can lead to a whole host of self-sabotaging cultural phenomena. Get ready for some cold, hard truth!

Choosing Scarcity over Abundance

The idea that nonprofits not only try to, but SHOULD get as much donated as possible limits the organization's ability to make strategic funding decisions. It perpetuates the idea that there is only a limited amount of money that can come to the organization through individual, corporate, government, earned income, and passive income streams. That in order for a nonprofit or social enterprise to be successful, they need to reduce their reliance on money all together and get their needs met in the form of acts of service. Can we just take a moment to let that sink in. A scarcity mindset makes success in doing good dependent upon acts of service rather than getting a handle on and maximizing funding opportunities. Now, I know some may not agree, but consider the following situation. An entity is facing a decision between doing an event where they are being benefited the funds with no costs on their part, but having no control of the overall event and being fairly limited in the maximum amount that can be raised through ticket sales OR building their own event that incurs up-front costs but maximizes the organizations control of the messaging and has the potential to bring in much more since they can offer sponsorships, special opportunities, and tickets to the event. An organization with a scarcity mindset may choose the first option because they are not paying for anything and it seems less risky to let someone else own the event while they make profits. There are (at least) two issues with that: 1) The organization is getting its most loyal funders in a room just to have someone else have control of cultivating them and bringing them toward their mission, not the organization's. 2) The organization is accepting the security of a known amount rather than the potentially risky (but really not that much more risky) prospect of multiple times that known amount. It doesn't make sense when considering that social enterprises and nonprofits are established to take on complex societal issues. How can a simple funding approach possibly take advantage of all of the possibilities associated with solving a complex problem? The point is that prioritizing risk aversion over strategic investment and calculated risk-taking limits the organization's ability to scale their funding model as well as their impact. To me, that seems the opposite of being all about the organization's mission and taking steps to make their vision of a better world come true.


"And because we are so frugal, your money goes further here!"

As a fundraiser and nonprofit management executive, this makes me weep in the deepest part of my social enterprise soul. Social good is not a bargain proposition. With the advent of charity watchdog sites like the aptly named Charity Watch or the Better Business Bureau Wise Giving Alliance, the nonprofit "efficiency" has taken center stage. According to these sites, organizations who have too much going to "overhead" are considered inefficient and not using the money to support the organizational mission. On the surface it makes sense, but digging deeper reveals a terrible truth: everything deemed overhead is exactly what the organization needs to scale their impact and the hire the right people to do so. Limiting social good organizations in their ability to scale up, is exactly what the nonprofit starvation cycle is about. There's a weird pride of being able to say 80% or 85% of every dollar goes to serve the stakeholders outline in the mission, but it really means that social good organizations are fundamentally limited in their ability to carry out their mission because programs and their idealism are prioritized over healthy, well-run organizations that are grounded in reality and actually push the needle on societal issues. Your money doesn't actually "go further." Giving based upon "how much goes to the kids" perpetuates an ignorance of the complexity of the problem itself. Did you ever wonder why there are so many poverty organizations, but no comprehensive solution? How about educational inequality continuing to rage through minority or low socio-economic status neighborhoods? This is one big, nasty reason why. The double standard for nonprofits and social good organizations to operate "efficiently" while for-profits can spend 50% of their funding or income on supporting infrastructure for the longevity of the company (and its profits) makes it impossible for any real social change to happen. It's also worth noting that from a fundraising perspective, it's difficult to justify philanthropy when people can always say "Why do you need my money? You can just get volunteers to do whatever you need done." This is especially dangerous if a board member says it because they can use it as a way they can try to get out of their board give/get. (Although, if a board member says and does that, they should definitely be removed from the board as they clearly don't have the mission in mind when making decisions.) The next time someone tells you that your money "goes further" because of the organization's "efficiency," take a moment to point out the chasm in standards between nonprofits and successful for-profits and the philanthropic self-sabotage inherent in that statement.

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Doing more with less should not be the moral or strategic underpinning of nonprofit and social enterprise decision-making. Other considerations like cashflow should be taken into account (as any good business person would!), but they should not overshadow the centrality of what will advance the mission and move the organization (and the world) toward a better future.

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