Do we need a fourth leg on the old three legged stool?

by Anne Yurasek on February 15, 2008

When I was In Calgary last week, a client handed me an article on nonprofits in Canada that was actually written in 1998, indicating as she did that its main points about a funding crisis for the Canadian nonprofit sector continue to this day. The crisis is largely made up of the dependence of Canadian nonprofits on government contracting and the actions of Canadian provinces to reduce these ties.  As I have more and more conversations with RI agencies who are struggling with the prospect of massive government budget cuts and the potential for bankruptcy, the parallels are obvious. So I have been thinking about what might make a sustainable revenue strategy for a nonprofit organization these days.

Last year, a client asked me to do some research and create a brief history of the sector and an overview of “nonprofit economics.” As a result of that exercise, I saw some connections that I hadn’t noticed before. (I am going to oversimplify a bit.) Over the course of its history, the nonprofit sectors in the US and Canada, as a whole, have known only growth, as remarkable as that may seem. The sector has an uncanny ability to reinvent itself. When individual donors were insufficient, the sector learned to partner with, first, foundations, and then, corporations. When philanthropy was insufficient, the sector learned to contract with government. In the 1970’s and 1980’s, we used to say that a healthy nonprofit’s budget was like a three-legged stool: funds from donors whether individuals or corporations, foundation grants, and government contracts.

Of late, however, there appear to be increasing doubts about that government contracting piece. Since the 1980’s the forms of support from the federal government have changed in several ways: (a) government program managers have been encouraged to promote for profit involvement in government contracting, causing significant entry of for profit entities into traditional nonprofit markets including, home health care, nursing, hospice, substance abuse, and day care; (b) the ascendancy of conservative forces has favored forms of assistance that maximize consumer choice, leading to the proliferation of vouchers to consumers rather than grants and contracts to providers. Nonprofit providers have been forced to compete in the private market for these consumers, and, as a result, must master complex billing and reimbursement systems as well as learning to market directly to consumers. Managed care, involving capitated rates, has become more of the norm in health care and has increasingly invaded the fields of drug treatment, rehabilitation, and mental health.

The Social Enterprise Alliance says on its website that: “Social Enterprise is the next thing.” (  They define social enterprise as: An organization or venture that advances its social mission through entrepreneurial, earned income strategies. This is an international movement that seems to be furthest along in the UK, the Netherlands and Australia. The movement recognizes a very wide range of investments in the common good and acknowledges these investments as made by government, nonprofits and for profits. The social enterprise movement is less concerned about the source of revenue or the type of sponsoring entity and more concerned about the intended impact and the choice making inherent in achieving the organization’s objectives.

I recently had a fascinating discussion with a network of disability providers who were able in about ten minutes to identify an array of possible social enterprise ventures that could be undertaken collaboratively and that could employ their disabled clients and/or generate income to support the work of their agencies.  What was interesting and different about this discussion was the obvious fact that these opportunities would only work if pursued collaboratively. So my last email from Michael Gilbert wanted to know if we were working at all on “financial structures that facilitate network centric funding?” Yes, we are working on those models, and, for many in health and human services, they may well be the replacement leg on a new four legged stool: funds from donors, foundation grants, government contracts, and income from social enterprise.

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