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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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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Does impact per dollar go down as nonprofits scale? Should go up, right? Or is the argument that the people you’re impacting need it less as you scale beyond the initial target market? Or that the cost to reach them goes up because you already impacted the “low hanging fruit”?
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Yes, I’m arguing impact per dollar goes down as nonprofits scale bc they spend more $ / time per dollar on fundraising. The problems that arise from having one group pay while another benefits seem to compound as nonprofits scale.
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On what basis are you making the argument? Does the data show that larger nonprofits spend > budget % on fundraising? I don’t often hear that. That said, nonprofit work often doesn’t scale like software. Nothing scales better than SaaS. And how much of it’s $8B budget does ...
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No, the data doesn't show larger nonprofits spend more on fundraising. It says the opposite! I'm arguing that self-reported data is not accurate (see accounting gymnastics tweet). Also not sure why we're comparing nonprofits to software/saas, we're a nonprofit and we sell saas.
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