Are there too many nonprofits in Central Florida?

How can I be sure the nonprofits I give to are doing a good job?

December 20 2013

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By Mark Brewer, Foundation President/CEO

In my work with individual donors, philanthropists, and institutional grantmakers around the Central Florida region, I get this question fairly regularly – “Aren’t there too many nonprofits in Central Florida?” There is a general belief that “too many nonprofits are doing the same thing” – commonly called “duplication of services.”

My response to this question is – “When they stop building a CVS across the street from every Walgreens in America, the nonprofit sector should consider mass consolidation.” The economic sector where nonprofits reside is not like the private sector and is not always a bastion of efficiency, but it may surprise you to learn it is the most innovative place to solve social and community problems, and create the social capital and strategies necessary to improve our quality of life. To get a better understanding of how your charitable dollars are used and how to measure the impact, let’s start with the big picture.

While most people talk about the “nonprofit sector” like a stepchild to the other two sectors, many economists refer to the third sector of the economy as the “independent sector” because it is designed to do what the private and public sectors cannot or will not do. Moreover, the independent sector, by design, is a place where markets are made, instead of being driven by market share. Investor money (gifts, grants, and loans) flow to nonprofits to fund new ideas, expand strategies, and build the capacity of organizations that are responsible for some of the most important elements of a civil society. So, the first step in giving is to assess what is most important to you as a charitable investor. Some of us are donors to the agendas and work of others we trust, while a growing number of charitable givers are using an investment mentality – focused more on solving social problems or creating positive social change. As donors, we tend to be more transactional in our giving – like buyers of programmatic outcomes. As investors, we tend to be more interested in building the capacity of the organizations doing measurably good work, so they can sustain and do more of it. It is the difference between giving to feed some hungry people and giving to end hunger. Sometimes we work on both sides of the equation, but most of us are attracted to one side or the other. A democratic capitalistic marketplace needs three sectors to create an efficient economy, so whether you’re a donor or an investor, it helps to know how things get done at a higher level.

The private sector creates wealth from profitable businesses, but nothing starts without equity and profit. The public sector (the Government) is fueled by tax dollars and has the responsibility to protect citizens and look after infrastructure, but only to the extent taxpayers are willing to pay for it. The independent sector is driven by need, ideas, and innovative strategies to solve social problems that attract dollars to the implementation and require a generous and prosperous marketplace of diverse investors to provide capital to try things that aren’t easily measured. While all three sectors have positive and negative attributes, the general assumption that everything should be privatized misses the idea that innovation is messy and isn’t always driven or supported by the marketplace. As Steve Jobs was fond of saying, customers don’t always know what they want until they see it. So measurement at the investor level is about the capacity to get things done, assessment of what the “thing” is that needs to be done, and some data to help us know when we get there. Meanwhile, measures at the donor level tend to be more transactional – how many did we serve, how much did it cost, were we efficient at the work, did we satisfy the immediate need?

In some cases, your measure of your own philanthropy is a traditional “glass half empty or half full” question. Investors tend to see the glass as half full and want to efficiently provide the most resources to move toward solutions. On the other hand, donors see need as a primary motivator for giving and are not as compelled by what they perceive as expensive structures and systems without a clear outcome. So, many donors label the very important work of investment as “overhead,” even as we provide more individual services than we know to the same hungry and homeless people in the name of “helping,” without solving the problem. Investors, while more systems focused, can sometimes lose a connection with the human side of helping one person at a time. If moderation seems more efficient, it probably is, but passion will dictate your direction and there is no right or wrong, only meeting your own requirements.

Today, there are about 17,000 independent sector organizations across the seven-county region. The 4,000 or so charitable nonprofits (501c3’s) are split into five key sub-sectors: Healthcare, Education, Social and Human Services, Arts and Culture, and the Faith-Based organizations. Healthcare and education straddle the sectors. The majority of our hospitals and healthcare organizations are nonprofit. Education comes from community colleges, private and public universities. However even though public universities are part of the public sector and private universities are sometime for-profit, they qualify for charitable tax deductions at some level. Arts and culture resides almost entirely in the nonprofit sector with public and private sector investment. According to one study, more than 60% of middle class Floridians used a social or human service last year. So, social and human services are really about quality of life and not just about the less fortunate anymore. Of course, the faith-based communities make up a majority of the social capital in the region, bringing people together to help others. Of course, there are others including environmental nonprofits that don’t fit into the key sub-sectors.

As efficiency and effectiveness became more important measures to all investors in the independent sector (donors, funders, and foundations), this focus is changing the criteria used to calculate the “impact” of the work they support. I see this trend as one of the most important for individual donors and philanthropists to watch. Since very few single nonprofits have the heft to take on major problems by themselves, it is up to investors to incentivize collaborative work. Today, many foundations and funders have tightened their criteria and make “initiative” grants rather than open competitive grants. In other words, they select a group of nonprofits based on their performance and either invite them to apply for a grant or negotiate an outcome for a grant investment. The majority of foundations, government funders, and many individual givers us the Central Florida Foundation Nonprofit Search as a starting point in this approach. Whatever your approach to giving, always demand transparency, so you can apply your own measures to performance.

The most common measures applied by those who use Nonprofit Search range from efficiency measures to strategically applied effectiveness measures. If you are a donor, you will most likely be interested in the mission, who sits on the board, the size of the nonprofit, its financial efficiency, and its reliability. You can get a quick overview of these measures on the Summary Tab. The Mission and Areas Served Tab provides extensive information about the organization’s commitment to its mission. The Board and Governance Tab provides information about volunteer leaders and their affiliations, along with their involvement (how often do they meet, how many give to the organization, and the demographics of the leadership. Depending on your interest and prowess in understanding financial measures, the Financials Tab provides a pictorial summary of three years of finances, a measure of reliability, and a much deeper look at ratios like how much is spent on overhead and programs, how solvent the organization is, and where its money comes from. The last component may be as important to donors as it is to investors. Understanding how sustainable your favorite nonprofit is may be simple as the diversity and sustainability of its revenue streams. For many the answer to this question will provide the clearest picture of an organization’s efficiency and effectiveness, with an opportunity to apply your own biases. For those who want to build their own deeper analysis, you also have access to multiple years of tax filings and audits for each organization. The Central Florida Foundation publishes aggregate reports twice a year to help donors and investors better understand the health and impact of the charitable sub-sector of the independent sector. You can always call on the Foundation’s team if you have questions.

Finally, the economics of innovation call for more people trying to solve problems. So, the concept that there are two many nonprofits misses the power of the marketplace to reward performance with money and support. A 2008 Johns Hopkins study conducted by the Florida Philanthropic Network (http://www.fpnetwork.org/eis.php) reinforces the need for more “boots on the ground.” It found that we actually have too few nonprofits for the work that needs to be done in Central Florida. It is clearly up to the investors to demand measurable performance and reward those who produce results with the capital needed to build capacity. If we all apply a strategic lens to our investment in nonprofits, we will build the kind of community we all want to live in.

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