A look at three nonprofit organizations that are changing their approaches to funding, and achieving their goals.
Dwight Wilson never thought he would mix business with benevolence.
The former Peace Corps volunteer and self-described “serial social entrepreneur”
has spent most of his adult life working for nongovernmental organizations (NGOs) and nonprofits — all with the intention of making the world a better place.
Wilson started EarthCorps and World Corps, two Seattle-based nonprofits designed to focus on environmental projects and improve the living standards of rural populations in developing parts of the world. He always relied on traditional funding from foundations and individual donors.
Nonprofit Goals, For-Profit Model
In 2005, Wilson began to feel he was misguided in his longtime dismissal of business as a force for good. “The change of heart was a combination of the personal and the big picture,” he says. “World Corps was sputtering along and we weren’t getting any traction with foundations or donors,” Wilson says of the nonprofit, which he created to train workers in developing countries. “Plus there was my own frustration that — after being in [NGOs] for two decades — I wondered just how much impact we were having.”
Wilson had discovered what many nonprofit organizations are facing — the competition for funding is intense. Giving USA, which tracks philanthropic spending, estimates that while charitable contributions were up an inflation-adjusted 2.7% in 2005, the number of nonprofits vying for that money has almost doubled since 1995.
Wilson’s soul searching led him to radically overhaul his idea of a nonprofit. He took the dramatic step of changing World Corps from a nonprofit into a for-profit venture with a mission of bringing nine essential services, such as the Internet, clean water and solar energy, to rural communities in developing nations.
World Corps now has become OneRoof, a for-profit company that provides those services to would-be small-business owners in India and Mexico through stores that are franchised using the OneRoof brand name. Wilson describes the store as a “humble Kinko’s.” Selling the services gives OneRoof a steady revenue stream for years — if not decades — says Wilson, adding that such long-term support is something foundations and individual donors couldn’t or wouldn’t provide. That’s important to Wilson, who believes OneRoof does more than help a single person or family. He hopes the company will help create strong communities — something that doesn’t always happen when NGOs or nonprofits step in.
“I had to take off my own blinders and realize that business could be a potent source of good,” Wilson says. “Twenty years ago, I never would have said that. But I do believe now that business has more potential to make truly long-lasting change than do NGOs and government.”
||John Wood, founder of Room to Read, expects to raise $5 million this year through his funding network, roughly 40% of his nonprofit’s overall funding for the year.
Competition for Funding Breeds Change
While Wilson’s decision to go for-profit is extreme, OneRoof is an example of how nonprofits are broadening and diversifying their funding sources beyond the traditional world of foundations and individual donors as they compete in a quickly growing nonprofit industry.
Historically, philanthropy was funded through a mix of individual donors and corporate or family foundations. Government grants also played a role for many nonprofit organizations. New funding models began to emerge in the late 1990s, driven in part by newly wealthy entrepreneurs from the dot-com boom. Today, many hedge fund founders are turning their focus to philanthropy. These entrepreneurs not only bring large amounts of money to the philanthropic world, they also bring new ideas for how to spend it — including the for-profit model Wilson is using. His early start-up capital for OneRoof came from the founder of a San Francisco-based hedge fund.
Networking With a New Twist
Room to Read, an organization that provides libraries, books and educational opportunities to children in developing countries, has put a new twist on an old idea. To raise the funds necessary to support its mission, Room to Read focused on a network of fundraisers in major U.S. cities for a significant portion of its funds.
“We were a startup in 2000. No one knew who we were or what we did,” says John Wood, Room to Read’s founder and a former Microsoft executive. “Foundations didn’t want to take a risk on us. They told us to come back after we had shown them what we could do. But it’s a catch-22 because how the heck are you going to get it off the ground without funding?”
A friend of Wood’s threw a party for the nonprofit and donations poured in that evening from people who weren’t traditional donors. But they had a personal interest in the mission because many of them considered education and books vital to their own success, Wood says. He decided the party idea could be turned into a permanent funding mechanism that suited Room to Read’s mission. Partygoers can choose exactly where their money will go — for example, $3,000 could fund a library in Cambodia or $2,500 could fund a girl’s entire education for 10 years. The parties also have very low overhead. “This isn’t about the black-tie at the Four Seasons,” Wood says. “We tell people to start at zero for their budget.”
This year, Wood expects to raise $5 million through the network, about 40% of the nonprofit’s funding for the year. The rest comes through those foundations that wouldn’t have considered Room to Read seven years ago. Room to Read also receives several corporate donations because of introductions made through its network of fundraisers. “I call it the democratization of philanthropy,” Wood says.
Charging Toward Critical Mass
For almost a decade, J.B. Schramm had been working diligently to increase the number of high school students who go on to college. But in the late 1990s, he made the first of two funding decisions that have propelled his Washington, D.C.-based nonprofit, College Summit, from a small organization working with a few hundred students into a national program that is changing the way students and teachers think about the purpose of high school — shifting focus from simply graduation to college preparation.
“My moment came when a counselor and principal in Denver asked what would happen if we were able to train all their teachers. What if we had a critical mass?” Schramm says. “We could bring about a culture shift. But we wondered if we could take this on.”
By rethinking funding sources, nonprofits can find the financial stability often lacking in the
Schramm knew training thousands of teachers would require a lot more money. First, Schramm decided to begin charging school districts for College Summit’s services. School districts were willing to pay for what had been free because more schools had begun promoting their college enrollment rates and feeling the pressure to create an environment where all students are ready for college.
Private Placement, Public Mission
The fees created a more stable financial base for College Summit, but they weren’t enough to fund a major expansion of the program. In 2005, Schramm turned to one of his board members, an executive with a large financial institution who was acting as the organization’s development director, for advice. Looking at the problem of funding growth, the development director viewed it in terms of what a business would do if it needed upfront capital. He decided to offer a private placement.
While there isn’t a long history of private placements in nonprofits, it is a proven funding model in the for-profit world. Instead of asking individual donors and foundations for funds separately, the development director decided he would offer them a chance to invest in College Summit’s mission through a private placement that put them all on equal footing. The donors weren’t different, but the terms were: similar status for all of the donors and unrestricted funds.
The unrestricted nature of the money was important. Many large donors restrict their funds for specific purposes. But College Summit’s $15 million private placement is strictly to capitalize growth, specifically for four programs over four years. The donors’ return on their investment is two-fold. First, College Summit won’t be coming back to ask for money every year, a traditional route for funding. Instead, the nonprofit is committed to making the four programs self-sustaining from fees and other donations after four years. The other return is a measurable rise in the number of high school students going on to college.
Schramm says that while having money with which to grow allows his team to focus on the mission — getting more students into college — it isn’t without its “points of pain,” as he calls them. “The plan has increased the pressure to achieve,” he says. “But that’s the kind of pressure you want if you want to achieve these social outcomes.”
Financial Stability, Strategic Thinking
Rethinking funding sources can help nonprofits find the financial stability often lacking in the not-for-profit world. But there are bigger payoffs in thinking strategically about which funding model is best suited to the nonprofit’s mission. By focusing on the type of funding — not simply the amount — that best suits the nonprofit’s needs, funding experts and nonprofit leaders say more organizations can achieve their social mission goals.