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Home » Should Non-Profits Make Money? – denise rose (Transcript)

Should Non-Profits Make Money? – denise rose (Transcript)

Here is the full transcript and summary of denise rose’s talk titled “Should Non-Profits Make Money?” at TEDxHieronymusPark conference.

In this TEDx talk, denise rose discusses how the non-profit paradigm needs to be reformed to make a significant impact on society. She emphasizes the importance of non-profits valuing themselves and their impact, and argues that they should not always operate at a financial loss. She also discusses the importance of compensating leaders at an appropriate living wage and investing in their own growth.

Listen to the audio version here:

TRANSCRIPT:

All right. Now, do me a favor and close your eyes for just a minute and imagine a world without. A world without homelessness, a world without food deprivation, and a world without abuse. A world without oppression where the arts can inspire and beautify and a world without limits where people who need help can get it and the people who want to help can afford to give it. Can you picture that?

Now, open your eyes. Let’s talk about how to make that vision a reality. Many changes need to happen, but we need to start with two. And part of that is reimagining the nonprofit paradigm. We expect nonprofits to do the Herculean work of making our world a better place to live, work, and play. But at the same time, we make that task nearly impossible by hobbling them at every step. So, I wish there was some easy answer, but you and I both know there isn’t.

What I do know is that we can make a real difference, and that will start with our relationship with the nonprofit sector. First, we need to change how the public perceives nonprofits. And second, we need to change how nonprofits perceive and value themselves.

First, let’s start with educating the public on what it actually means to be a nonprofit. The actual word here, nonprofit, is the primary roadblock. Nonprofit does not mean that you cannot make money on events and services or that you have to operate at a loss. That doesn’t make any sense. No successful organization or business can survive very long in a perpetual financial deficit, right? Makes no sense.

So, what nonprofit really means is that it’s a tax status that indicates that organizations do not generate profits for their owners and that no portion of their income is distributed to their members and directors and officers.

Now, that’s why donations to nonprofit charities are generally tax deductible because that money is going to support a nonprofit mission and not to line the pockets of shareholders. So, successful fundraising endeavors that generate profits to help nonprofits operate in the black need to be lauded and supported and not criticized and looked at with suspicion.

It’s time to reject the harmful myth that nonprofits cannot and worse, should not make money. It’s also time to get rid of the concept of mandatory low overhead. So, in response to some isolated sector scandals, nonprofit overlord watch groups decided that nonprofit overhead should never exceed 20% of their budget, especially when it comes to fundraising. It makes no sense at all.

But this low overhead direct services only concept caught on and was fanatically accepted by donors and foundations and the general public. Nonprofit leaders, in fear of losing their funding, had no choice but to adopt it as well.

Now, don’t get me wrong, keeping overhead low is a smart business move, but this artificial limit restricts growth, threatens the infrastructure, and makes it difficult, if not actually impossible, for nonprofits to do their job well. I get it.

Most donors want their money to go to direct services because that makes them feel good and proactive and responsible. But even in a perfect world, that just isn’t realistic because overhead expenses are necessary to steward the success of a nonprofit. And those expenses include things like administrative payroll, the power supply, internet, phone, fundraising, liability insurance.

Sure, nonprofits can misuse funds just like any organization or business can, but why in the world would you just expect that they’re going to? We need to trust nonprofits, and rather than championing this overhead limit that kneecaps progress and accomplishment, we need to engage stakeholders for accountability. We need to look at the actual costs and benchmarks of organizational success, and we need to turn the dialogue to a nonprofit’s impact and effectiveness.

Now, with all of that in mind, let’s look at the other major change that needs to happen. Nonprofits need to be allowed to value themselves. They need to value the important, far-reaching, high-impact work that they do and promote themselves accordingly. And in part, this means that nonprofit board members need to step up and educate the public that nonprofits are bound by two bottom lines, a financial bottom line to stay open and be able to make money like any business does.

But then there’s also a mission bottom line to keep their nonprofit status and to do the job that they were actually created to do. For nonprofits, this usually means offering a service or a product at well below market value if not actually free. That’s why fundraising is so very important and why the fixed overhead without mission value is so very detrimental.

Valuing themselves also means that nonprofits need to compensate their leaders at an appropriate living wage. Now, many nonprofits, especially small, single community and rural nonprofits, are led by passion and proximity. Their leader is a person who is passionate about the mission and is available to spearhead the project.

But that doesn’t mean that that leader has the knowledge and the skills necessary to usher that nonprofit forward successfully because there’s a labyrinth of rules and regulations that nonprofits need to follow. For example, did you know that nonprofits are required to register in every state that they fundraise in regardless of whether it’s active or passive solicitation?

So what this means is if a nonprofit sends out an email newsletter that has like a little donate button in the corner, that’s passive solicitation, or that newsletter is actually a request for funding, which is active solicitation, that nonprofit is required to register in almost every state that that email ends up in. There’s only eight states that do not require this solicitation registration. All of the others require the registration, most along with a not insubstantial annual fee, and some require special annual reports.

To not register puts a nonprofit at risk of fines and legal action, not to mention that they may not be able to get funding and grants from that state. There’s a myriad of things that nonprofits need to do. I got my MPA, Masters in Public Administration, about eight years into my tenure as a passion nonprofit leader. I had no idea that these fundraising things were even important, and that isn’t even the tip of the iceberg.

What about HIPAA versus ADA confidentiality laws, overtime laws, the difference between small rights, grand rights, and mechanical rights in the performing arts? What about HR legalities, public health laws, liability issues? The list of leadership responsibilities that is not covered by passion and proximity is endless. Nonprofits, like any successful for-profit venture, needs to have educated and inspired leadership, and the only way to get that reliably is to pay for it.

Now, there’s a concept known as psychic income, and this is the good feeling a person gets doing work that they’re passionate about. It’s also the concept that nonprofits use to not pay their leaders a living wage. And, you know, got to keep the overhead low. But I can tell you from experience that psychic income does not pay the bills.

Nonprofit leaders need to be paid commensurate with their skill set, experience, and workload, and not be expected, or worse, guilted into working incredibly long hours for low pay. Losing integral qualified staff to a higher-paying job or to burnout is what nonprofits can least afford. Like, what is the opportunity cost of saving $20,000 a year in payroll? How many people who needed services didn’t get it?

How many new opportunities and exciting programs and potential donors are missed? How much money is spent training replacement staff over and over again? And what in the world are nonprofits going to do when they find out that the up-and-coming talent is not willing to give up their work-life balance or work for less than they know that they’re worth? We have to stop buying into the idea that it is morally wrong to pay nonprofit employees a living wage simply because they work for a nonprofit charity.

We expect nonprofits to serve our society’s most at-risk and underprivileged populations. We ask them to bring beauty, health, art to our communities. We give our elderly, our youth, our veterans, and our animals into their care. And we ask them to tackle society’s most traumatic and difficult issues, homelessness, food insecurity, domestic violence, child abuse.

All of these activities take skill, knowledge, empathy, experience, and top-notch leadership. Dan Pallotta, a nonprofit fundraiser-turned-speaker activist, said it best when he suggested that we need to flip the script. We need to stop considering nonprofit employees as making money off of the needy. And instead, we need to understand and accept that they are actually people earning money off of the value that they add to the world.

Leadership is a critical skill worthy of equitable compensation, and we have to stop conflating charity work with self-deprivation. Psychic income should be an intangible bonus, not a compensation staple.

Another way that nonprofits need to honor themselves is to honor creativity, innovation, and education. Nonprofits need to be willing to invest in themselves, and that means that they need larger budgets for overhead and indirect expenses. They need to spend more money on marketing. People cannot use or support a program or a service that they don’t even know exists.

Nonprofits need to try new and exciting fundraising ideas. They do not need to deliver every dollar into direct services without thought for the future. Planning for the future is responsible and smart, and frankly, it’s good fiduciary stewardship. Mission-oriented services are necessary, of course, but those services go away if a nonprofit has to shut its doors the following month.

Nonprofits and the public need to understand and accept that it is okay. No, no, it’s imperative that nonprofits spend money on fundraising events that generate profits to keep the doors open and the mission moving forward.

Continuing education is also an important and necessary expense. Inexpensive and free workshops are a great resource, but do nonprofits actually believe that a $150 afternoon workshop is going to bring in $20,000 in return? Is there a business person here who believes that a $150 investment will return an annual 13,000%? No.

Then why do we insist on forcing that thought process on investing in our nonprofit leaders? Nonprofits must invest in the talent, training, and systems that build a foundation for healthy growth. We live in a society that values the new and the exciting and the flashy. How can nonprofits expect to be successful in that world when they’re bound by the governing concepts of no overhead, no risk, and self-deprivation?

We have to let go of the antiquated and wrongly moralistic attitude that keeps nonprofits from fulfilling their potential. If you’re a donor or a grantor, stop asking nonprofits to spend all their money on direct services with no overhead. Overhead supports the mission every bit as much as the direct services do. If you’re a board member, step up to facilitate your organization’s need for personnel, education, and marketing.

Explain those needs to your community and make sure that your donors and your funders know that their support and trust is the bedrock of nonprofit excellence. Everyone needs to accept and understand that low wages, no benefits, and excessive workloads are unsustainable and are actively destroying the nonprofit sector.

We need to not equate nonprofit with resource poor, and we all need to speak up to support dynamic leadership, just compensation, fundraising, and planning for the future. Every one of us is a stakeholder in the success of our shared community, and together we can give nonprofits the resources and room to absolutely soar.

And just imagine what our world without can look like then. Thank you.

SUMMARY OF THIS TALK:

Denise Rose’s talk, “Should Non-Profits Make Money?” addresses critical misconceptions and operational challenges faced by the nonprofit sector. Here are the key takeaways from her presentation:

  1. Redefining Nonprofit Perception: Rose emphasizes the need to change public understanding of nonprofits. The term ‘nonprofit’ is misleading; it refers to a tax status, not an operational model. Nonprofits can and should generate profits to sustain their missions.
  2. Misconception about Profit Generation: Nonprofits are often wrongly perceived as organizations that should not make money. Rose argues that generating profits is essential for their survival and effectiveness.
  3. Overhead Costs Myth: There’s a harmful myth that nonprofits should have extremely low overhead costs. Rose points out that this limits their growth and effectiveness. Overhead costs are necessary for the successful operation of any organization.
  4. Importance of Appropriate Compensation: Nonprofit leaders and staff should be compensated fairly. Low wages and excessive workloads are unsustainable and harm the sector. Psychic income, or the satisfaction derived from the work, should not replace fair financial compensation.
  5. Educational and Leadership Needs: Nonprofits require skilled leadership, which means investing in education and training. Leaders need to navigate complex regulations and laws, and they should be compensated for their expertise.
  6. Investment in Innovation and Marketing: Nonprofits should invest in marketing, innovation, and education. Awareness of their services is crucial, and they should not shy away from spending on these areas to ensure sustainability and growth.
  7. Rethinking Fundraising and Budgeting: The sector needs to move away from the notion that every dollar should go directly to services without considering future sustainability. Investing in fundraising and planning is essential for long-term success.
  8. Challenging Donor Expectations: Donors and grantors should understand that investing in overhead and indirect costs is as important as funding direct services. These investments support the mission and contribute to the nonprofit’s effectiveness.
  9. Board Members’ Role: Nonprofit board members should actively educate the public and donors about the dual bottom lines of nonprofits: financial sustainability and mission fulfillment. They should advocate for adequate funding for overhead and personnel costs.
  10. Societal Value of Nonprofits: Nonprofits play a crucial role in addressing societal challenges and should be valued for their contributions. The sector needs to be empowered to operate effectively, with adequate resources and recognition of its worth.
  11. Flipping the Script on Nonprofit Work: Rose cites Dan Pallotta’s perspective on rethinking how we view nonprofit employees. They should be seen as professionals adding value to the world, deserving equitable compensation.
  12. Call to Action for Stakeholders: Everyone involved with nonprofits, from donors to board members, needs to support dynamic leadership, fair compensation, effective fundraising, and future planning. This collective effort is essential for the success and impact of the nonprofit sector.

In conclusion, Rose advocates for a significant shift in how nonprofits are perceived, funded, and operated. She calls for a more realistic and sustainable approach that recognizes the need for nonprofits to make money, invest in their operations and staff, and be valued for their critical role in society.

RELATED PRODUCT Recommends:

(BOOK) How to Form a Nonprofit Corporation (National Edition): A Step-by-Step Guide to Forming a 501(c)(3) Nonprofit in Any State (How to Form Your Own Nonprofit Corporation) 

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