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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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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Does market size matter that much? Most nonprofits are raising such a small portion of the $400B+ donated annually is sector growth the issue?
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I don’t think market size matters to this argument (though it’s tiny at $400B vs $4T gov and $18T GDP), what matters is that it appears to be zero sum, meaning the “they might have been inefficient, but at least they helped a few ppl” argument doesn’t hold water.
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I think you’ve gone down the rabbit hole of impact measurement. Not everyone sees the world this way. Not all donors are trying to maximize for most efficient impact. Many are optimizing for what makes them feel best. That could be impact, but it’s likely something else
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I agree with you, but my argument is that "relying on donations is an ineffective way to scale impact." If you want to view nonprofit success as making donors feel good, then yes, most big nonprofits are succeeding, despite not doing much with the donations (which is my point).
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I don’t see the argument. I see $400b in donations making impact everywhere. I don’t see why after school programs for kids need to scale. Or homeless shelters. Or churches. Or soup kitchens. Place based solutions have a role in addressing local issues.
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They don't need to scale! In fact, the best way to allocate the $400B may be to support as many small, amazing nonprofits as possible. This was one of my suggestions... stay small and have impact, don't scale w/ donations and turn into a big ineffective nonprofit!
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