2/ Fundraising doesn’t scale well. The bigger nonprofits get, the more money / time they spend fundraising, and the less they spend on programs that help people.
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3/ Some people think this is ok. The argument is that while impact per dollar may go down as nonprofits scale, the total impact (eg # people helped) may increase. “Nonprofits should be able to invest in growth for future returns just like Amazon!”
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4/ The flaw in this argument is that donations are a zero sum game. They’ve been 2% of GDP in the US for 40 years. The American Red Cross isn’t expanding the pie. They’re “raising” $2B that likely would have gone to other nonprofits.
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5/ Nonprofits fight this issue by claiming they only spend x% on fundraising. Usually, this is inaccurate and results from institutional pressure + accounting gymnastics + fuzzy definitions about what constitutes “programs” vs “fundraising” as a % of people’s time.
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6/ In summary, the bigger nonprofits get, the more they focus on fundraising, the less they help people, and the more we would have all been better off if that money had gone to smaller, better nonprofits.
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7/ How should nonprofits grow? There are a few good models that can help avoid the donation trap:
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8/ One option is to stay small and only ever raise
$x / spend y on fundraising. These nonprofits can be some of the most impactful per dollar spent, but they’ll never scale.Show this thread -
9/ Another option is to use donations to find a revenue model (similar to how startups use VC). The more these nonprofits help, the more they earn, the bigger they get. Issue is it doesn’t work for everything (e.g. treating very poor patients).
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10/ Improving government is also very impactful. Govs control vastly more resources than nonprofits, and they have a revenue model: taxes!
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11/ I’d love any data or examples that contradict this hypothesis. I’m open to changing my mind if proof or even compelling counter examples are there. I’d also love to learn about more alternative models.
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12/ Lastly, I hope people don’t interpret this as “all nonprofits are broken” because that’s not the case. Lots of nonprofits are doing great work. But please don’t keep donating to / building nonprofits that raise more and do less. The donation trap is a broken model.
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Donations are hard. But so is sales at a for profit
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The problem is not that donations are hard (though I agree they are!). It’s that raising donations isn’t very correlated with effectively using that $ to help people.
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Fair enough, but why would (or should) fundraising chops correlate with impact? Would we expect the best fundraisers to have the most impact? On the other hand I do wish those having the most impact were the best fundraisers
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Yes, I think that generally the nonprofits that raise the most money *should* have the most impact, and I think most donors, nonprofits, etc. would agree.
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@ChaseAdam17 Does getting optional donations from users count as finding a revenue model? Granted, either way I would agree with you that it's hard to find scale when focusing on donations. -
I used to think it would, bc it felt more automated. But tips are still pretty uncorrelated with helping ppl. Run a marketing campaign, get tips. Improve the service for beneficiaries, get no tips. I feel like it still boils down to the same problem :(
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Can't our role be to build the stuff that governments use eventually (fixes scale and donation reliance problem in long run)? I'm seeing examples of that in India. But in the short term you still have to fundraise your way through the innovation. Is mothers2mothers an example?
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Such a great point. It applies to advocacy too. Tho I'd still argue these fall into the category of nonprofits that should stay small / cap expenses, and if they keep scaling w donations to try and increase impact, they'll eventually turn bad.
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Can't argue with that. The innovation phase is so much longer and harder than we could have imagined going in, though. And during that long journey, it's easy to get trapped into believing that growing your org = impact + scale.
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