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Can Nonprofits Deliver Value to “Investors?”

By Tom Watson on December 5, 2007No Comment

1. In twenty words or less, what is the main message of your book?

That’s easy: Nonprofits, like their for-profit counterparts, must do one thing: deliver outcomes their investors value.

2. The book explores the commonalities between for-profits and nonprofits.  Do they really exist?

Absolutely!  They both have investors.   They both have deliverables.  They both have missions.  In the for-profit world, the market votes with their dollars by buying or not buying a firm’s product.  In the nonprofit world, the market votes by funding or not funding the organization.  It’s really the same mechanism at work. 

3. Sustainability is a hot topic.  How is your approach different from others?

Many nonprofits think that sustainability means finding that one magic service that generates some profit, which can then finance the areas that do not self-finance.  Others think that it means an endowment.  What it really means is delivering outcomes that funders value.  The word value itself has several levels of meaning.  It is not only value in the ethical and moral context, but also value in terms of getting what you pay for. 

4. How can funders use value in their philanthropic decisions?

When one can compare apples to apples, value delivered to value delivered, the funding decision becomes much simpler.  Having a dollar estimate of value delivered, even if it values areas that are difficult to measure and often intangible, introduces a common denominator to the process. 

5. Any pushback from the nonprofit experts out there?

As one can imagine, academics and others who study nonprofits, rather than those who actually run them and fund them, consider the investment driven model nonprofit blasphemy.  Or at the very least, a bit too capitalistic and too close to a for-profit mentality.

Some experts, who typically run “name brand” nonprofits, disagree because they could easily capitalize on their name and size.   They don’t know how tough it is for the small nonprofit (under $1 million budget) to actually raise substantial funding from nongrant sources.

6. What is the biggest challenge for nonprofits in achieving sustainability?

The challenge is translating the good work that nonprofits do into the concepts that funders understand.  All too often, nonprofits think that by describing the outcomes they produce, potential funders will automatically appreciate what they do and therefore give them money.  With all of the nonprofits out there asking for money, this is just unrealistic.  What many funders are demanding these days is the value of the outcomes produced.  Value is something they can get their arms around and understand.  This allows them to make a much more informed decision. The larger the amount of money at stake, the more important the communication of value, a.k.a. ROI, becomes.

7. You discuss the difference between charity and investment.  What’s the real difference?

Charity has some negative connotations, most notably: the habit of taking any money they can get, from any source they can get it.  If this sounds familiar, it should . . . begging has been around for centuries.  Investment, on the other hand, connotes the expectation of value being delivered.  Sometimes this value is direct and self-interested (my business will directly benefit), and other times more intangible (my community will have a better quality of life), and sometimes purely emotional (but becoming less and less so).  No matter what the motivation, the end result is that by looking at the value delivered, investors in nonprofits can make sure that their dollars are being used wisely.

Tom Ralser is the founder of Capital Strategists Group, a consulting firm that specializes in nonprofit sustainability, value propositions, and fundraising.  His book explains both the theory and practice of return on investment in the nonprofit world, and why investment-based strategies, rather than charity, will be the most effective strategies for nonprofit funding in the coming years. 

ROI ROI For Nonprofits: The New Key to Sustainability
Author: Tom Ralser
ISBN: 978-0-470-16887-5
Wiley, November 2007
View Book on Wiley
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