1/ After 10+ years in the nonprofit sector, I’m convinced that relying on donations is an ineffective way to scale impact. Here’s why the donation trap is a broken model:
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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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End of conversation
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In total, or per impact? Seems like nonprofits do scale their impact (and fundraising) some. Yeah nothing is as beautiful as the software model. But hey that’s a simpler game. Nonprofit world is more complex
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