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Nov 7, 2012

Minnesota Foundation-Nonprofit Conference seeks bridges between nonprofit and donor-entrepreneurs

I just came back from a remarkable conference in the Twin Cities.  Every three years the two statewide organizations for foundations and for nonprofits get together at the same time.  I observed a level of honest and transparent communication between foundations and nonprofits that is unusual in my experience.   The cooperation and collaboration among foundations, and the level of conversation with nonprofits, will serve them well.  I was privileged to deliver the keynote to their CEO/Chair dinner on the opening night.  The title of the conference was Allied for Action: Bridging  Differences for the Greater Good.  I did not realize how well my message meshed with one difference they need to bridge:  continuing the committed generosity of their fabled Keystone Club, the corporate-giving effort started by Ken Dayton in which companies committed to give either 2 percent or 5 percent of their pre-tax profits, including product donations and employee volunteer time.   That storied effort is waning.  One impediment is that some worried that joining the club was a public signal for fundraisers to line up at their doors.  The second impediment is that most of the new generation of potential donors are entrepreneurs, and they want to be associated with an organization that is willing to be entrepreneurial.

I believe that entrepreneurial nonprofits are the nonprofits that will survive.  Philanthropy has stalled at less than 25% of nonprofit revenues since 1984.  That constancy reflects the reality that philanthropy is at capacity.  Many of today’s nonprofits grew up on the government outsourcing movement, which awarded contracts that covered all costs.  Those days are over and unlikely to return in light of federal and state fiscal pressures.  What nonprofits need to do in order to overcome the losses they now sustain from being a government contracted service provider is not to hire a fundraiser or grant-writer to boost gifts.  While that may work for individual nonprofits, philanthropy is unlikely to expand to make that work for all nonprofits.

Instead, nonprofits need to recognize that they must be two businesses:  the “key mission” that serves a community need that can be filled only by losing money; and the supporting activities which earn profits to supplement philanthropy to cover the losses of the key mission activities.  This is the sweet spot for social entrepreneurship.  Here is an example I wrote about recently. This is a solution for the Twin Cities to consider.  Develop entrepreneurs in the nonprofit sector and provide them capital to build those businesses.  Approach the businesses as an investment, not as a handout.  Expect the business plans to be financially viable.  Expect the businesses to pay back investors and plow the profits into supporting their key missions.

As I outlined this vision and provided examples of nonprofit social entrepreneurship in action I saw excitement, doubt, and validation.  In the Q&A participants provided examples occurring today in the Twin Cities — it is that people hadn’t called out those efforts as models for others to copy.  I am forming an angel investment fund to provide private capital to social entrepreneurs, especially in the nonprofit sector.  The ideas are there, but the capital and the encouragement are too scarce.  The Twin Cities might want to consider following our effort:  it will take the “gimme” target off the backs of prominent donors and it will show them the entrepreneurship they want to be associated with.

If this idea intrigues you, contact me.  I would love to talk to your community about accelerating and funding innovation in the nonprofit sector so this critical sector can be sustainable to meet the needs of our communities through recession and recovery.