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Why Non-Profits Need to Invest in Systems & Donors in Outcomes

Updated: Aug 12, 2021


In 2019, I decided to take a break from non-profit fund development. After years of successful (and unsuccessful) fundraising. Eventually, I came to the realization that there was always a “need” for more, no matter how much money was raised.


Non-profits were constantly needing more funding partners, more programs, more services. Programs and services were added to address systems ’gaps’ and sometimes simply to attract more funding or to matching newly released funding. When funding was secured, the money led to added programs and services while ignoring and adding to significant internal bottlenecks and breakdowns.


To be clear, the breakdowns were not caused by a lack of prioritization or inappropriate use of resources. Instead, they were caused by granting agencies hog-tying non-profits into competing, then spending money only on direct services to clients. The more services and programs non-profits added, the more the organizational systems broke down. It is like installing brand new solar panels to capture energy on your house while your windows and doors are left damaged and broken.


For example, organizations hire operations managers to run programs from newly acquired grants. The managers create intake forms and run programs independently of the overall goals and structure of the organization because they want to appease donors. This results in massive duplications and redundancies. For operational staff, this leads to confusion, frustration, and misalignment. Staff begin to believe they work for funding agencies, not for the non-profit service agency.


The effect on clients is even worse. For low-income clients, it’s often said that being poor is a full-time job, this is because all the paperwork and appointments and visits from non-profit staff. It’s like walking into the bank and asking for a mortgage, a bank deposit, and a loan. Each time you make a transaction, you’re forced to submit an intake form, submit all your personal information, and speak to people who have no idea they work for a bank.


The worst part is none of this is not new information. The issues surrounding grants and funding models have been written about ad nauseam. But it is worth repeating that funding usually comes with strings attached that force the organization to spend nearly 100% of the financing on direct services rather than “admin costs.” This forces non-profits to focus on service delivery instead of decent staff pay, practical software to track outcomes, modern hardware, operational expenditures, transportation, or anything else that makes the service delivery effective. This is equivalent to walking into a barbershop and insisting that your money only be used to style and cut what you see in the mirror and forbidding the use of combs or clippers. The result is that the back-end is a disaster, but you look great in the mirror and for those directly facing you.


In all seriousness, I don’t have the solutions for the wicked problems our society faces, but I do know that if we don’t get our systems tuned, we will never address social issues. We don’t need more committees, academics, community conveners or systems organizations to tell us the problem. We also don’t need more creative types bringing the community together to talk about possible solutions. We don’t need private industry to tell us how they’ve overcome issues because they’re not the same. Most importantly, we don’t need people with no experience with poverty, gender or racial inequality, creating programs and services in communities. It's not that I believe they're incapable or incompetent, I just believe they have no skin in the game. We need non-profit organizations to have a laser focus, train their staff in leadership, technology, and build the systems in place to achieve their goals.


According to Imagine Canada, an organization gathering this type of stats, most non-profits spend, on average, 9% on administrative costs. Think about that for a second, that’s all the administrative staff, hardware, software, internal communications, financial controls, human resources, training and development and everything else that keeps the organization moving. Smaller organizations on a shoe-string budget could have up to 10,000 participants, and they’re all recorded on spreadsheets or any other free software they can get their hands on. Further, subscription costs for software have gone up, inflation has gone up, technology has evolved, but non-profit organizations operating budgets have remained flat for the better part of 20 years.


To understand the extent of the problem, we have to recognize that there are over 200 registered charities addressing poverty in Calgary. When you add the minimum revenue generated from all poverty relief agencies, the combined revenues are a staggering $251 MILLION. This is a VERY conservative estimate and more likely to exceed $500 Million. If you factor in non-profits that do not publish their information online, the number is likely much more significant. Help Seeker’s audit of The City of Lethbridge’s investment into the social safety net is estimated at $700 M annually.


This is all to say that we have enough money going into the non-profit industry, and we have plenty of non-profits doing great work. So how do we have the money begin to work for the industry and not against it?


Two Recommendations


Recommendation One: Outcomes Investing


Donors, funders and granting agencies need to pay for outcomes, not outputs. When donors pay for outcomes they want to see in the community, they pay for the end results, not the tiny activities and processes. Leave the activities to the non-profits, and let the non-profit have all the tools they need to achieve outcomes. For example, funders should be paying for the number of children graduating high school and moving on to college/university. Donors should pay for the number of individuals who stay housed after exiting homelessness, not the number of programs or services provided.


Outcome-based investing will be transformational because outcomes are the changes we want to see in society, while the services and programs need to be adopted and evolving. For example, what worked 20 years ago in the immigrant-serving sector isn’t the same thing that works today. For example, 20 years ago, immigrant-serving agencies would require newcomers to come into the office and meet with someone who speaks the same language. With the advent of Google Translate, virtual meetings and many other accessible, sophisticated technologies, there is no need to run the same organization.

Further, when money comes into a non-profit agency, they expend a tremendous amount of time, energy and money trying to keep funders happy, including having every penny accounted for, and every report provided on time. I can’t over-emphasize that maintaining happy funders has become a lucrative industry. From stewardship departments, prospecting agencies, to consulting agencies trying to help organizations tell a good ‘story,’ non-profits are constantly chasing after funding, not optimizing their internal systems. Donors have incentivized non-profits to constantly chase funding by investing in programs and services not on client outcomes.


Recommendation Two: Systems Building


Organizations need to invest in systems, not programs and services. What do I mean by investing in systems? I mean that all businesses have a series of activities and functions. These activities and functions define what the organization does. Often, organizations will continue to do the same things repeatedly, get busier and busier without looking at efficiencies and leveraging modern technology to automate and streamline their processes.

I’ll give you an example; food security is essential to every community. Food Banks have been hard at work providing extraordinary levels of service to the community. Thousands of people have accessed food banks across Canada. Then a need was identified to provide culturally appropriate food to diverse communities, so organizations popped up providing traditional food. Then other organizations recognized the need to provide ‘dignified’ food, so social service agencies popped up to address food dignity. Then a need was identified to provide healthy food, so healthy food organizations popped up, which spurred food rescue organizations that tried to save the healthy food from being thrown out. I’m not saying these organizations aren’t needed (though it is questionable); I’m saying that there are efficiencies that are being missed. If food banks used systems thinking to coordinate healthy and culturally appropriate food, then we wouldn't have a non-profit being started every month to address 'systems-gaps'.


Here, I think it’s important for us to make a distinction between non-profit and for-profit businesses. For-profit businesses start because they find paying customers who see value in the product or service they provide. If customers don’t come, then the company goes bankrupt. Non-profit’s function, many times, with complete immunity to the traditional supply and demand principle. They start serving people without really knowing who they’re going to serve and why, because all they need is a willing donor or funder.


The truth is, and this will make me highly unpopular to mention this, but we’ve created a self-perpetuating poverty industry. Over the past 30 years, non-profits have grown, multiplied, expanded, and very little have merged, amalgamated, or have been acquired. Even fewer have shut down due to the pandemic. Yes, the pandemic has forced non-profits to work together, but there is still a lot more work to be done. Quite frankly, we don’t need the number of organizations we currently have in Calgary.


For example, we have five major immigrant-serving organizations with operating annual budgets of over $14 Million. Each organization has their own IT infrastructure, communications, HR, leadership management group. Each organization fundraises and applies for grants. Are all these organizations so uniquely different that we need them all? All of this to say is that if we want to make changes in the community, we need to start thinking of systems and outcomes.

Why aren’t organizations sharing assets such as space, staff, IT assets and data? If the answer is privacy laws and CRA regulations, then we’re going to continue the Sisyphean task of pushing the boulder up the mountain. Moreover, we’re going to continue to spend money on emergency services rather than address social issues by going upstream through neighbourhood agencies built to make an impact upstream in the community. While the industry is constantly innovating and making things easier, quicker more convenient, the non-profit sector is slow to evolve and adapt.


By building systems that help streamline service delivery and has the end client in mind, non-profits can become obsessive about the end client, stop competing for funding and start to think about ways to collaborate.

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