Revolutionizing the Impact Sector

Successful entrepreneurs share one fundamentally common trait — they identify gaps in a market and develop a solution to generate, at the very least, a measurable, replicable and sustainable result.

In Australia there are approximately 700,000 non-profits — one for every forty men, women and children in the country. The US, by comparison has one for every two hundred — a much lower number for a nation many believe to supersize everything. Some view the size of a nation’s third sector as an indicator of how well they take care of their citizens. Yet others, myself included, are perturbed at the ever-increasing replication of effort across not only non-profits, but the entirety of the impact sector — including both publicly funded institutions and private enterprise.

Vast numbers of organizations are engaged in similar endeavours, pursuing the same sources of philanthropic, public, equity and crowd funding, and contributing to a collective level of awareness raising that results in a cacophony of competing (often conflicting) messages that our empathetic nature makes extremely difficult to ignore. On any given day, my information channels are clogged with news of yet another initiative to save humanity from itself. Despite the value of the work being done, I find myself paying less and less attention.

In short, I’m suffering from cause-fatigue, and I know I’m not alone

While living in Boulder, Colorado I would often hear the comment ‘every time a cat dies in Denver, another non-profit is born’. Around the world, well-intentioned individuals, organisations and governments support an estimated $1 trillion (and growing) Impact market. The growth of philanthropy, foreign aid, CSR programs and impact investing, however, appears to have been almost inversely proportional to the level of improvement we’ve seen in global social, environmental and economic systems.

We’re spending more money and things are getting worse.

If I were the CEO of a company that received an annual investment of $1 trillion, spent every cent of that capital, generated virtually no revenue, returned to the market year after year for more investment, and still didn’t achieve the outcomes I committed to, at what point would my competence be called into question? Further, if the Board of Directors had permitted this to go on for decades without resolution, we all know that the shareholders would revolt.

So now we are.

It seems time we questioned whether or not there is a better way to go about improving our social, environmental, economic, political and cultural systems.

PROFIT IS NOT THE ENEMY

A focus on generating profit has, with good reason, long been viewed as an ineffective way to acknowledge value; it has historically been generated by the uninformed (or wilfully ignorant) extracting capital from a finite system without acknowledging or mitigating the costs.

Profit is achieved, however, through social agreements about value. If a product or service generates substantial value to a particular individual, organisation or community, the distribution of profit (and the investment of capital) will inevitably be uneven. Humans are fickle and value is relative — so despite well-intentioned clamoring for more equitable distribution of capital, it’s inevitable that it will flow toward that which is most valued and away from that which is the least.

In most countries there is a presumed moral or ethical benefit to running an organisation that doesn’t disperse profits (despite the profound irony that they are dependent upon the mechanics of capitalism to continue funding them). Yet every for-benefit organisation has the intention to generate social and/or environmental capital outputs that exceed their capital inputs — profit, in other words. Further, as the flaws in our various iterations of capitalism continue to be exposed, and our global financial systems struggle to adjust to a more intelligent system for recognising, measuring and facilitating the flow of non-financial forms of capital, future access to public and philanthropic funds is under threat. It’s reasonable to assert, therefore, that financial profits — dispersed or otherwise — are essential if for-benefit organisations in capitalist economies are to continue bridging the gap for much-needed social and environmental reforms and interventions.

MISSION TRUMPS ORGANISATION EVERY TIME

For-benefit organisations have been created in service to mission, yet how often do the mission and the organisation become conflated?

Do we really care who is going to save the Amazon rainforest, end child prostitution, clear plastic from the oceans or toxins from the air, provide employment opportunities for the marginalized, or fund AIDS clinics in Africa?

The short answer, by and large I imagine, is ‘no’.

Every argument I’ve heard to the contrary, runs along the lines of ‘we don’t want McSanto to be involved with food security, or Shellron with energy security or, heaven forbid, Microogle to be hosting our health records’. While I would echo those concerns (specifically), I would also hasten to assert that the resolution of our various and growing challenges requires us to undertake a rigorous interrogation of our values and uncover where our various philosophies are standing in the way of getting-shit-done. Ultimately, all pontificating aside, we need to be primarily focused on the (rapid, effective, affordable, and equitable) resolution of these issues.

For too long we have determined that certain legal forms are inherently less ethical than others — yet organisational structures emerge in response to a strategy, and not the other way around. Determining a legal form before crystallising vision and defining strategy is counter-productive.

Defining an organisation by its legal structure is as foolish as defining an individual by their colour, gender or sexual preference.

‘Non-profit’ is no more meaningful than non-homosexual, non-christian or non-woman. It’s nonsensical. Further, a definition that by its nature only includes what we are not, is not a definition at all.

We have, collectively, been defining ourselves in ways that are exclusive, not inclusive and have been building walls rather than bridges as a consequence. While we’re defending our philosophical fiefdoms, the people who most need our help are, quite literally, dying. Beyond that, the one system we can’t afford to break — a global ecosystem that will sustain human life — is in such a state of flux that even the best informed amongst us appear to have issued a three-letter white paper appropriately entitled ‘NFI’.

TAKING AN ENTREPRENEURIAL APPROACH

Pick an issue, any issue … homelessness for example. Now, imagine that this issue has arisen seemingly overnight. Suddenly there are thousands of people in our cities and millions of people across the globe without a home. Do you think that our way of tackling this new social issue would be to immediately form dozens of local, regional and national organisations, simultaneously compete for funding, invest in multiple offices, thousands of researchers, communications, administrative staff and case officers?

I doubt it. If we were entrepreneurs, we would take a step back, seek to understand the root causes of the issue, identify the opportunities for delivering a service, define MVP (minimum viable product), acquire the necessary resources to field an initial service and then review, reiterate and relaunch on the basis of ongoing feedback.

We would be keenly aware of resource constraint and would stay lean to operate within it. We would be focused on doing more, with less, but would equally place a premium on the formation of a rock-star team. We would establish a governance structure that permitted the organisation to be run in a way that was consistent with our values and we would give great consideration to the seating of our board. Most importantly, however, we would plan for success.

A project that seeks the resolution of a particular social or environmental issue without also planning in obsolescence is, quite simply, unethical.

Entrepreneurial CEOs are constantly seeking new opportunities as their marketplace shifts. The resolution of short-term acute problems gives way to the resolution of longer-term chronic ones. As the marketplace evolves and other organisations emerge addressing related issues, strategic partnerships are formed and ultimately we begin to see mergers and acquisitions.

There is a cost to modernization, obviously — the most important one being a rationalisation of capital (most notably human) as cause-specific and sector-wide efficiencies begin to take place. Yet to even call this a cost is to miss seeing the forest for the trees.

The reorganisation, resequencing and release of stagnant, dormant or misplaced capital presents the most effective and immediate pathway for creating more immediate, effective and sustainable change.

EVOLVE OR DIE

The growth of the impact sector — and social enterprise in particular — is occurring for many reasons. The most significant, however, is that entrepreneurial individuals with a passion for change are seeing what many of us see — that institutions, organizations and projects for the common good have failed to resolve many of the most pressing social and environmental issues, despite trillions of dollars being thrown at them.

We believe, quite rightly, that there has to be a better way.

As much as the general public are suffering from cause fatigue, philanthropists increasingly report that they are suffering from donor fatigue. They’ve been giving for quite some time, and are now demanding more rigour, accountability and results from the organisations they support … and rightly so. Governments and grantmakers, likewise, are raising the bar on funding proposals expecting to see more financial sustainability and better-defined metrics, and are pivoting funds towards projects that meet these expectations.

Impact organisations that refuse to acknowledge there will be substantially less philanthropic and public funds available in the foreseeable future and fail to adapt their models in light of this will become liabilities standing in the way of progress.

The responsibility for these changes, however, doesn’t rest solely on the shoulders of CEOs. I’ve seen all-too-often the consequence of a visionary leader seeking to pivot an organisation toward a more effective and sustainable model, only to be blocked by an intransigent board who are substantially less informed by marketplace realities, and subsequently too heavily invested in their attempts to maintain an atrophied model.

Being a board member is neither a privilege nor a reward. It’s an honour and a responsibility.

A board is charged with ensuring that the organisation’s vision is being strategically executed, and that every opportunity for enhancing the realisation of mission is explored.

I’m not suggesting that the non-profit sector needs to go. There is no denying that we live in a state of global flux and that there is no such thing as the perfect system. Gaps will always emerge, and there will always be a need for these gaps to be serviced. Further, it is morally reprehensible to propose free-market solutions to all imaginable problems — should we be charging for the eradication of virulent disease, or providing children in the developing world with access to education, for instance? It astonishes me that this peculiarly US-centric view has remained entrenched in the Impact sector, despite Alan Greenspan’s humbling admission to Congress in 2008 that he had been wrong about the market’s capacity for self-regulation. To wholesale abandon non-profits and chase after the shiny bubble of ‘profit for purpose’ is as foolish as it is dangerous. The combined intellectual and social capital (not to mention the billions of dollars laying dormant in trusts, funds and foundations) bound up in the third sector is beyond comprehension and much of it could be put to much, much better use.

CONCLUSION

We are the bastard children of a loveless and soul-destroying menage a trois between governments, corporations and non-profits.

Around the world, individuals and organizations working for change are bound together by the collective belief that humanity is intelligent enough, compassionate enough and pragmatic enough to recognise that our current way of living is patently unsustainable. Yet we’ve permitted purposeless distinctions — largely around legal structure — to stand in the way of reaching dynamic alignment so that we can take well-considered and effective action.

‘Don’t make perfect the enemy of good’ is a mantra I’ve been repeating, ad-nauseum, for decades. We need to ask ourselves better quality questions and recognise that evolution is a messy business. Around the world there are millions of organisations and hundreds of millions of people working toward making the world better, yet the linkages between them are frequently invisible because of semantic and legal distinctions that do more harm than good.

‘Keep the bastards honest’ is something you’ll have heard more than once if you’ve spent any amount of time within or around organisations advocating and working for change. Yet there’s a peculiar cultural blindness that arises within any community that views itself as superior (in any way) to the rest. We know all too well the many failings of governments and corporations — mostly through the exposure, criticism and advocacy of those organisations self-appointed to the resolution of these failings.

Organisations focused on ‘doing good’ need to recognise that not only are they not without fault, but their seeming belief in ethical superiority, suspicion of business and government and overall sense of entitlement hinders rather than enhances their ability to always be making the best decisions.

That doesn’t make these organisations or the people who staff them of any less value or significance. It merely proves out what happens in non-competitive markets. The increasing squeeze on philanthropic and public funds will inevitably result in sweeping change. An essential aspect of modernization is finding more intelligent ways to access, aggregate and deploy capital. In private enterprise, you deliver what the market needs or you fail. With the need for financial capital in the non-profit sector eclipsing its availability, it’s becoming increasingly clear that we need to find a better way.

We have limited resources. We have a lot of challenges to resolve. Rather than clamouring for more, however, let’s start having the conversations we need to have to better utilise the resources we already have at our disposal.

Let me know how I can help.

note: this was originally published on my blog almost 2.5 years ago, but it seems apparent to me that not much has changed, despite the growth of alternative investment vehicles, new legal structures, and the proliferation of gifting, crowdfunding and petitioning websites. If anything, with the acceleration of climate change and extreme weather events, collapsing national economies, civil war and religious extremism, it could be reasonably argued that things are getting worse. I’ve republished this to Medium, with a number of substantive edits to bring it up to date, to engage in meaningful dialog on a platform that is clearly attracting intelligent and compassionate people.