The World Has Changed? Have You?

Note: This article was co-written with Sylia Obagi, Founder & Chief Strategist, The Generative Group

Are you still living in 2005?

In 2005 the number one selling phone in the world was the Nokia 1100. It had a monochrome display with support for 4 lines of text and a resolution of 96 x 65 pixels. It had no browser, no camera, no mobile data, basically, it was just a phone for calling and texting. It would be two more years before the very first iPhone was released. There was no Twitter and Facebook was still limited to just college campuses. Was that really only 10 years ago?  Seems like a very different world indeed.

In today’s social sector, not only have there have been massive changes in the tech world, one can argue there have been many more changes in the social sector. In fact, we are in the midst of the fundamental transformation of the nonprofit sector. There are new forces at play realigning the sector and the ways in which nonprofits must operate within it to survive. If nonprofits don’t act now they risk being as outdated and irrelevant as the Nokia 1100. In the past ten years, we have seen:

• A wholesale shift in how government is funding and approaching social issues.
• A new wave of philanthropists who don’t think about making donations to ‘charity’ but rather look for investments in social innovation.
• A blending of the nonprofit and for-profit capital markets.
• The rise of hybrid social enterprises, B Corps, and triple bottom line business.
• The advent of big data and a push for social outcomes measurement.
• The flood of big money that is threatening to drown out the voices of those who lack the resources to compete.

In 2005, there were no such things as B Corps, there was no ‘impact investing’ as a recognized approach to funding, there was no collective impact framework, there was no ‘Social Capital Markets’, and social impact bonds were still 5 years away. And there was no “Citizens United” that opened the flood gates of “big money” into political campaigns. Ten years ago, the social sector was a vastly different place. The pace and intensity of change has only accelerated over the past 6 months with new administration.  For nonprofits looking to plan for the future, it is a very uncertain and unpredictable time.

Yet for too many organizations and their boards it is still 2005, with business strategies resembling the old Nokia phones – useful in its time but now passed by with more powerful and innovative thinking.

When we hear nonprofit leaders touting that they spend .93 cents out of every dollar on programs, we have to ask, “How are they staying competitive in today’s rapidly changing world?”  In our new normal, nonprofits must have even greater professional talent, adopt cutting edge technology, and be even more flexible, responsive and innovative than ever before.  And you don’t get there by starving your organization.

Social sector leaders and their boards need to understand what it really costs to deliver great outcomes over the long term.  In today’s world, success and sustainability means having a business model that generates reliable revenue that covers the full-cost of doing business as well as the necessary investment capital and reserves.

Forget fundraising ratios and overhead rates.  We find the debate over ‘overhead’ a bit like arguing the virtues of Beta vs VHS in the age of online streaming videos. It is not about good or bad, it just not relevant.  Focusing on overhead means you are focusing on an old paradigm of scarcity and bare bones operations. Whereas today’s world requires a focus on capital, resources, innovation, and quality to ensure an organization stay’s competitive in today’s outcomes-based world.

Organizations must move away from the scarcity paradigm, and create a leadership team and board structure that focuses on outcomes, understands what it costs to achieve those outcomes, and invests in a revenue model to secure the necessary resources. By focusing on the generative questions of building a sustainable organization, social sector leaders and board members can successfully lead their organizations into the rapidly changing 21st century.