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The Nonprofit Starvation Cycle

Nonprofit Starvation Cycle

A recent article has come out from Stanford Social Innovation Review titled, The Nonprofit Starvation Cycle. It is written by Ann Goggins Gregory and Don Howard. I believe it is one of the most important articles written in many years. Allow me to quote the opening statement which is the thesis for the entire article:

"A vicious cycle is leaving nonprofits so hungry for decent infrastructure that they can barely function as organizations let alone serve their beneficiaries. The cycle starts with funders' unrealistic expectations about how much running a nonprofit costs, and results in nonprofits misrepresenting their costs while skimping on vital systems acts that feed funders skewed beliefs. To break the nonprofit starvation cycle, funders must take the lead."

That really says it all. Those of us who work as leaders or consultants with nonprofits and ministries have always had to teach or justify why infrastructure is important. We have had to apologize for our administration and fundraising costs. There has been a growing trend to believe that program costs are "real ministry" and administration and fundraising costs are "extra" and "where the nonprofit abuses the donor". These myths and misunderstandings cause many organizations to downplay, mislead, or even cut their important infrastructure costs in hopes of impressing on the donors how little they spend on overhead.

The Better Business Bureau accepts a combined administration and fundraising percentage of between 20-35% as balanced and proper for a nonprofit. I know of ministries that have fundraising costs at 3-5% and think they are doing a good thing. With this low amount spent on fundraising they are not growing their infrastructure for development for the present and future. According to a recent ACSI report, over 200 Christian Schools closed their doors fall of 2009. From my consulting experience and as a director of development of a Christian school, I believe those schools were not prepared to weather the current economic storm due to lack of infrastructure in development, finance, and student marketing. Infrastructure to the nonprofit is the foundation upon which our programs or front lines ministries are built. I use the term Front Line Ministry and Support Ministry to demonstrate the balance needed in an organization. Support Ministry is comprised of finance, marketing, development, administration, operations, and facilities. These are the "unglamorous" departments of our organizations. Yet, they are truly a ministry, to donors, clients, and beneficiaries. Without these Support Ministries, there would not be a Front Lines Ministry. I always ask, "What does the donor care about?" I believe they care about what it REALLY costs to carry out the ministry or nonprofit cause. That means we must tell them that infrastructure (administration, development, marketing, facilities, etc.) is part of the cost of every Front Lines Ministry program. We must learn how to tell the truth to our donors or funders as the article points out.Here are some suggestions for those of us within nonprofit organizations.

  1. We must educate our donors as to the true cost of Front Lines Ministry
  2. We must begin to present administration and fundraising as ministry and not as a necessary evil.
  3. We must do a better job of presenting infrastructure as the foundation to the future of our organizations.
  4. We must move from SURVIVAL to STABILIZATION strategies within our strategic planning.
  5. We must use articles such as The Nonprofit Starvation Cycle as educational tools for our staff, board members, and key donors. Information such as this should not be just for executive staff.

I encourage everyone reading this to find this article, download it, and present it where possible in your organization. Then write to me and to others and share what reactions you receive. We can encourage one another with ideas of success that sends and reinforces this message.

Our nonprofit organizations and ministries are critical components of our communities, our society, and our ministry calling. We must do the right thing to ensure that our organizations are built to continue their vital services now and long into the future.

Blessings to you,

Dr. John R. Frank, CFRE