In this episode of The Nonprofit Fix, we discuss the struggles and potential breakthroughs that shape the world of nonprofits as we examine the complexities and challenges nonprofit organizations face today. As we cover the landscape of "The Exhausted Sector, Part 1," we peel back the layers of nonprofit management, funding challenges, and the often-precarious balance between mission focus and financial viability. Prepare to have your assumptions challenged and your perspectives shifted in a candid discussion beyond the nonprofit narrative's surface.
Explore nonprofit financial sustainability with us as we examine the delicate dance between organizations and their funders. The perils of restricted grants, the pull of mission drift for financial security, and the heroic effort needed to harness a diverse donor base are all in the spotlight. We don't just stop at identifying the pitfalls; we also illuminate the path forward with strategies for clear communication and the transformative potential of embracing data analytics to revolutionize impact measurement and funding practices.
In our attempt to rejuvenate the worn-out nonprofit sector, this episode confronts the systemic barriers of technology adaptation, talent management, and organizational effectiveness that linger beneath the surface. The democratization of technology, the necessity for equitable practices, and the imperative for transparency in diversity, equity, and inclusion efforts are not just buzzwords—they are critical components in the blueprint for change. Join us as we explore how to address what makes the sector so tiresome, and pledge to stay the course as we prepare to delve into the remaining seven challenges in our upcoming episodes.
In this episode of The Nonprofit Fix, we discuss the struggles and potential breakthroughs that shape the world of nonprofits as we examine the complexities and challenges nonprofit organizations face today. As we cover the landscape of "The Exhausted Sector, Part 1," we peel back the layers of nonprofit management, funding challenges, and the often-precarious balance between mission focus and financial viability. Prepare to have your assumptions challenged and your perspectives shifted in a candid discussion beyond the nonprofit narrative's surface.
Explore nonprofit financial sustainability with us as we examine the delicate dance between organizations and their funders. The perils of restricted grants, the pull of mission drift for financial security, and the heroic effort needed to harness a diverse donor base are all in the spotlight. We don't just stop at identifying the pitfalls; we also illuminate the path forward with strategies for clear communication and the transformative potential of embracing data analytics to revolutionize impact measurement and funding practices.
In our attempt to rejuvenate the worn-out nonprofit sector, this episode confronts the systemic barriers of technology adaptation, talent management, and organizational effectiveness that linger beneath the surface. The democratization of technology, the necessity for equitable practices, and the imperative for transparency in diversity, equity, and inclusion efforts are not just buzzwords—they are critical components in the blueprint for change. Join us as we explore how to address what makes the sector so tiresome, and pledge to stay the course as we prepare to delve into the remaining seven challenges in our upcoming episodes.
Welcome to the Nonprofit Fix a podcast about the nonprofit sector where we talk openly and honestly about the many challenges that face the sector where we will discuss current and future solutions to those challenges where we explore how the nonprofit sector can have much more positive impact in the world a podcast where we believe that once we fix the nonprofit sector, we can much more dramatically help to fix our broken world.
Speaker 1:Hello everybody, ken Berger and Peter York here, hello for our next episode, and our working title for this episode is the Exhausted Sector, part 1. And this is another of a group of episodes where we're trying to level set what are the greatest obstacles to fixing the nonprofit sector. So this speaks to part of the key purpose of this podcast. It's about describing the wide ranging and daunting challenges that need to be fixed in the nonprofit sector. And I'll tell you, we ran into a real challenge doing this. In fact, we were so unhappy with our first attempt at covering this subject that we decided to do a do-over. So hopefully this time we'll be happy and you'll be happy with the result. So one of the things that I found very helpful in my preparation was I happened to run into a book. Literally I found it in a bookstore I was walking through, and the book is called Managing Nonprofits and it's by a fellow by the name of Ted Billich, and the author shares the following words. In the very first chapter of his book he said the nonprofit business model is so ridiculously challenging that an early draft of this chapter used 25 pages describing 50 different reasons why it's tough to run a nonprofit. And so, because it was so daunting, he decided to stick it all in an appendix. It was such a, it was such a bummer, he just pushed it out. Sad, that's a sad chuckle I was just giving. Yeah, I know. So there are other authors that have. Obviously there are many other authors for authors that have chronicled the challenges, and so one of the very famous authors is a fellow by the name of Lester Salomon. He's written a number of books on the subject, including one called the Resilience Sector, and he has a very supportive viewpoint of the nonprofits, a positive attitude, and I think I would call it a lighter touch when it comes to his view of the challenges. And then you have what I would consider, at the other extreme, writers such as Anand Jairaharadis, who is very critical and essentially almost basically rejects the entire nonprofit sphere in favor of a more socialistic or government doing all of the work that nonprofits do. And I think I speak for Peter and myself when I say that I think we stand somewhere in between those extremes.
Speaker 1:Yeah, yes, on the one hand, we have found that most experts within the sector tend to be less critical of the challenges than what's really needed for an honest assessment, which is part of the reason we created this podcast Again. But on the other hand, there are those, like Anand, who entirely reject the nonprofit sector and in fact, in our last episode with our first expert he too was Kevin Fee was also implying that perhaps there shouldn't be a nonprofit sector. We reject that point of view and we think we think that there really is, because, you know, we, for example, we think a large and centralized one size fits all bureaucratic system is not the way to go, among other things. So we hope to find a middle ground, as always, and we want it to be honest about the problems, but also hopeful that we can find a path to make this sector far better than it is today.
Speaker 1:You know, I just got to take a quick moment before we leap in here and begin to outline some of the challenges with a personal note. So I said to my wife the other day that on my tombstone I could see the words husband and father. And then right after that, right after that, my life seems to be like the nonprofit fixer, that every job that I've had I've had to fix what was there. And, by the way, just as a sidebar, also Jedi minister, but I don't want to get into that here. So I you know, at one of the organizations actually more than one there was fraud that had to be addressed. At another, the agency's reputation in general was just in the toilet. In another, in another, the board was just had no clue as to what it was doing. And I've seen, and it goes on and on like that. So my experience is that actually in every single place that I've worked, to one degree or another, it needs fixing, it needs to be fixed.
Speaker 1:And so I would just leave this final thought here that you who are listening to this, as a nonprofit leader, or potentially as a future nonprofit leader, I suspect for the foreseeable future, you are going to need to embrace your critical and likely role as a fixer. And so, with that in mind, we're going to now go through the challenges, and there are 10 of them. We're probably not going to get to all of them. That's why this is part one, and what we want to do with each of these problems is to our challenges, is to outline sort of the broad strokes of what it is and then talk about, at least in a preliminary way, some of the solutions, and then, once we get through all that at the end, probably in part two or three as well. We also want to just talk a little bit further on the subject of what are the characteristics, what is the framework, the state of mind that a nonprofit leader needs to have to weather these storms and to weather these challenges for the long term, because they are often so daunting. So that's it All. Right, here we go.
Speaker 1:So problem number one money, and so couple of comments about the problem of money. So nonprofits often, in my experience usually find themselves in a precarious position in that they're overly reliant on funders, especially small number of funders. I think I heard a statistic at one point, and I have a feeling Peter knows better than I that many direct service agencies, the vast majority of their funding, is maybe from one or two sources, and oftentimes it's governmental funds. For a lot of the direct service organizations, like our special education schools, as an example, or when I was working in homeless services, a lot of money, and so there's often a tremendous reliance on one or two funders, and that can it has. That leads to all kinds of challenges when it comes to that where the money is coming from, because if you're that dependent on one or two funders, you're in many ways be holding to those funders, and it could lead to a point at which you might have what's called mission drift, where your core objectives are sidelined or are not as first and foremost, in favor of the interests of the priorities of your funders. And it sort of reminds me of some.
Speaker 1:People say that oftentimes political figures are just consumed, they're perpetual fundraisers, and that sort of gets in the way of their primary role of helping to govern and to legislate and so forth. So it's a big deal, this concentration of funds in a handful of funders. Second is just the general problem of scarcity. So many nonprofits live in scarcity. There's a constant struggle to have enough funds for the work, and so it forces organizations to be in crisis mode, to be perpetual fundraisers and also, related to that, to be much more likely to be concerned with short term issues and solutions at the expense of a more long term view and a more strategic view, and so it not only limits their effectiveness, but it also limits their ability to speak candidly about the problems they're addressing.
Speaker 1:You don't want to speak out against your major funder. You don't want to push too hard back against a major funder. You don't want to bite the hand that feeds you, but if the hand that feeds you is feeding you, let's say, not the healthiest diet for what you need, it's a problem. I mean, I can't tell you how many times I've run into this situation where a group of agencies, including my own, are so frustrated with very short-sighted requirements that we have from funders and are afraid to do anything because of the repercussions that could follow if we do that. So those kind of limitations in our ability when it comes to money are both our big deals. We were, by the way, just last thing on this. We were also thinking of calling this the bummer episode, but we abandoned that because we also want to talk about solutions. So that's what we're going to move into now and, peter, I'll be relying on your help to talk about that.
Speaker 2:In that vein. Let's touch a couple of areas. So what we're going to do on these episodes where we're talking about the exhausted sector and we will have a series of episodes we're going to take these 10 problems and dig into them. So what you just said, let me just add some of my own thoughts on it as well, even in terms of how we frame the problem. So if we look at the Let me I'm going to ask a question that I'm going to answer. So it's a rhetorical question, but it's essentially when you think about the one to two or nonprofits are very reliant on a few, one or a very few number of funders.
Speaker 2:I think it's important to just say something about that. That's not always a problem. In a lot of the research and work I've done, it's a problem in some cases and it's not a problem in other cases. And let me say more, because really what it comes down to is what type of strings are getting attached to those funds. It's a very big challenge if you're dependent upon one, two or three funders for a large proportion, a majority proportion of your budget and those funders also come with strings attached. They want to tell you what they will you can use their money for and what you cannot use their money for, which a lot of funders fall into this strings attached kind of thing. This starts to bleed into a conversation I want to bring up in a moment as well, around just the operating support versus program funding kind of funders.
Speaker 2:But I really do think it's important to understand this problem with a little nuance, that the problem with so few funders is that oftentimes those funders come with strings attached. They come with directives, they come with things they want you to do with it and they also come with as importantly, if not more importantly they come with things you can't do with the funding. And that becomes a real challenge. Now if you had a funder that was like willing to cut you a check for 10 years straight for the same amount and they trust you to do whatever you need to with it and they don't care how it's apportioned overhead versus program, et cetera, et cetera but you know your business. In other words, treat you like an investor who did their due diligence on you and they're investing in you, but they're not in your kitchen running stuff and telling you how to build your products and services. If you have that kind of funder. That's a different story.
Speaker 2:It's just not the case in the nonprofit sector that we have a lot of these no strings attached. This is also why, when it comes to the money challenge, some of the best organizations are organizations that have a whole lot of no strings attached funders. You know what they're called. They're just called small check writing donors, and so there are those that fund raise and those dollars become way more flexible. It becomes way more, but even there it is a long term relationship process. There's, you know, hundreds of content. There's some podcasts and other things all around fundraising. It's a big area, but there are a lot of nonprofits who have a multitude of individual funders that go beyond one, two or three major funders like government or philanthropy that also do actually benefit because they don't have to. They're not inflexible on how they spend it. And then, of course, you're talking about some of the funding that is really government, but by the way.
Speaker 1:that's not been my experience at all and I appreciate, I believe you because I know you have the data, but I'm just telling you that, from whether it's serving people with developmental disabilities, people with mental health needs, the homeless, I can go through the list of almost virtually every single direct service organization I've worked for and, almost without a doubt, at least in those kinds of organizations that are doing something, at a certain scale at least, the reliance upon government funding in particular is absolutely enormous, and it's the preponderance of their funding.
Speaker 2:Yeah, it's the category that you're talking about. It's just really important that there are a number of different categories of organizations and you are covering health and human services.
Speaker 1:And.
Speaker 2:I don't want to ignore. So we're not in disagreement, because oftentimes, if we're talking about the sector and we're trying to start to talk more broadly, there are a number of different sectors a number of different sectors and subsectors for which they have very different business models.
Speaker 2:The point I'm making is also the subtlety of there are different types of grants. So I'll give you an example Grants coming from community foundations and United Ways are very different than grants coming from a private family foundation. They often come with very different level of strings attached. If you become dependent upon a small number of private family funder grants, you're going to have to fit exactly what the vision of that money is supposed to do according to that family foundation, and I'm generalizing. Oh yeah, you're going to you know. So my point is just that if we're going to talk about the problem the funding problem, the one, the funder influence and mission drift the mission drift component is the thing I just wanted to nuance a little bit, because I think that's a really important point that we want to emphasize. Mission drift is oftentimes the risk that's associated when your funders and donors get to have a say in what you can and cannot do with their dollars. However, that comes through.
Speaker 1:Yeah, yeah, yeah, Okay. So yeah, and there are other ways to get to mission drift, but this is one of. There are other ways to get to mission drift too, but this is a biggie.
Speaker 2:Right and the exhaustion comes from there has not been some effective solutions with respect to that piece. So the second piece I just want to clarify and there are I shouldn't say there hasn't been scaled you know solutions. We'll talk about some of the solutions that might be out there that can help with that. On the scarcity side and the short term issues, you were raising the short termness of this. I think it's one of those things that it is. I perceive in a lot of the work and research and evaluation work I've done, that the short term urgencies and problems really do create challenges. Like you point out, it's a big issue when you start to have these problems, and you got to address the financial problems. The thing that I want to say, though, is I don't think it that those short-term problems, when we talk about, the expense of the long-term view, I think the challenge is that those short-term problems make the long-term goals and objectives which I think is what you were saying almost always getting kicked at. You know it's kicking the can down the road.
Speaker 2:Yes, yes and so that's a big part of it. Yes, and that's really the central part of it. So I think you know very much agreed with your point there, and so I just wanted to clarify a couple of those things and now shift it back to you and we can start to have the kind of solutions discussion.
Speaker 1:Yeah, and one last last comment on the problem side, before you get the solution. You know, when we go through this list of 10, there are gray areas really that divide the different problems, and so there are things that we'll be covering later that one could also say they sort of are related and have money impacts, and just to touch on. I'll just say them as examples, but I don't want to get into it now. Just for those that are wondering why the list doesn't include that at the moment. One thing is what are called unfunded mandates, where you have a funder that's requiring you to do new things, additional things, without any additional funds associated with it. So there's a money implication to that. Another is over overregulations, where you have so many encumbrances and requirements that are costly in general even from the get go, that can affect your efficiencies and your ability to do the job.
Speaker 1:And those are just two examples, but again we're going to get to those later. But this is meant to be more of a broader conversation, so I don't want to hone in on government or hone in on it's just a general conversation about the challenges of money and how funders and the challenges of that in general can affect you. But go ahead, peter.
Speaker 2:Well, and there's another problem we're going to talk about later as well, which is the challenge of engaging and managing volunteers is a very important part of the workforce of the nonprofit sector. I bring this up in the context of the money discussion we're having, because I also do believe that there's an ethos out there amongst the funders and donors outside, where there's this idea that they don't have to fund certain things, or they feel like you should be able to do it, these unfunded mandates, and oftentimes they'll rely on the thing that's like well, that's what volunteers are for, right? Why am I paying you for this? That's what volunteers are for. There's oftentimes this idea that comes with this that whatever a nonprofit can't pay for, it's okay to ask them to do it because they can get all kinds of volunteer help. This is what it is you got pro bono this and you got all these kind of things.
Speaker 2:So at the end of the day and that goes back to our sector's roots where really, I think foundationally, when we go back to its original historical roots, there was so much in white charity and so many in the sector want to shed the name charity, because it is this idea that we do it with the energy of the goodness of our hearts rather than the dollars we need in our banks to be able to take care of what needs to happen. And I have done a lot of work in the space of volunteerism and how important it is. It's foundationally critical to the sector. I just wish we could figure out a way to change the kind of public dialogue that still gets dragged from the past to the future, to the current, in relation to you know. Well, that's what volunteers are for, or that's what you can do.
Speaker 2:Non-profits that's what they're about. It's charity, isn't it? And so, from that standpoint, that whole mindset has still got a lot of historical hold on us. And I think that's an important part of the money piece too, because I really do. People think, people believe. Well, we just get volunteers, and in many settings, nonprofit settings take churches as an example that do a lot of good in the community. It's all that volunteer kind of mantra. We have entire nonprofit models built on volunteers and therefore the public perceives them not to require resources, but they do. And so there's this, there's that factor that's playing in with that check that gets written, that donation that gets made. It comes with that kind of an attitude or a philosophy, or how you think of the sector.
Speaker 1:So, actually, so that that triggers a bigger idea that brings to mind, which also, I think, cuts across a number of these problem areas, and that is that you have people who fund programs who don't really they've never run them and they don't really understand the nuance, the complexities and the requirements and they don't understand, along those lines, the ramifications, the full ramifications of the things that they place upon you to do to receive the funds. So, whether it's foundations, whether it's government, whether it's an individual donor, there are times because they have a certain, as you are indicating, they have a certain thing in their mind that they think is the way this group can operate, the way this group can can handle something that may be really divorced from what it really would require and what the real day to day is in running a nonprofit. So I think that cuts across a lot of things.
Speaker 2:I think, yeah, I just want to make a little sidebar plug or public service announcement Volunteer recruitment, retention, training management costs money. We're going to get to volunteers, that's like that.
Speaker 1:I know, but I just want to say that number seven I think that's number seven, I know, I know, I know but the money part is the part I'm trying to go.
Speaker 2:There's two sides of that coin and what I'm going is this is that what I really think is important to?
Speaker 1:say Number five.
Speaker 2:It's important to say that because if for anybody listening and our hope is that more we get a broader audience please, you know, don't starve charities that base a lot of their work on volunteers. It costs money to make those volunteer programs work. That's an upset. That's an important part of this, yeah, but I do think it impacts. To come back to the conversation, I really do think that that perception impacts the way dollars flow to nonprofits, so I think that's important.
Speaker 1:So this is really really good.
Speaker 2:Do we want to switch to solutions?
Speaker 1:Absolutely let's. Let's talk about how to how to deal with this Gordian knot and what, what. And I keep saying this. I think that one of the one of the ways which we also will keep coming back to is what a critical role it is for nonprofit leaders to understand that they must be advocates and educators of funders, to educate the funders to what it is to run a nonprofit, to educate the funders to what the full ramifications are with these requirements that you, that you're giving us, and also advocacy.
Speaker 1:There are some funders that are just not having it and they're not listening to you and sometimes you may have to go over their heads, if you can, whether it in a case of a government agency, to go to the legislature, to go to, you know, the head of the government, the governor or whomever, or to try to get to their office.
Speaker 1:And that also speaks to the fact that nonprofit leaders need to be actively involved in any kind of trade association or advocacy association associated with them. And that, by the way, will also help you with that fear factor. If you're part of an association you have, you hire an association head and that person, and that that entity is the voice for you as a collective, and so it also protects you to some degree from the biting the hand that feeds you that I mentioned earlier and it really is so important. And, of course, the other thing that this gets back to from one of our earlier episodes is by saying that I'm implying that your organization is of a certain size, because really, really small organizations you may not have the bandwidth for this. Once you reach a certain scale, as soon as you can, I would argue you should be definitely doing that to as one of the ways to try to deal with this money problem.
Speaker 2:Yeah, peter me fuck yeah one of those lines agree.
Speaker 2:I think those are fantastic parts of the solution. I do think that the other thing that's important to understand the solutions to is this is that we also, in addition, in addition to educating and advocating, I do think that we are now in a space where we have the kinds of data to be able to begin to sort of crack open. Part of the problem is a lot of funders work with kind of generalized approaches to things no more than X percent for overhead, you know. You know when we make a program grant, we're only gonna make it for three years and then you gotta sustain the program after you're done. Right, all these standards that get applied In the world of data that we are now in, and I know the work that I've done by basically, you know, doing kind of Cause a modeling of the entire irs data set I think what we need to do it and we need to end and gauge funders more in the process of coming to the realization that this whole one size fits all you know, one rule must be applied to everyone Is just so egregiously wrong. There are so many different Nuances as to what's the right level of overhead. We're gonna talk about that in a future episode and the data indicate.
Speaker 2:The answer to the question is what's the right level of overhead is? It depends. It depends on where you are, how much resources are in the community. It depends on on the kind of organization you are, what programs you provide, how large you are. So all of these things really matter.
Speaker 2:And when we think about the data potential of being able to finally be able to say you know what, for these types of organizations, these, this is what works best, these type of organizations, that may sound counterintuitive, but something completely different, and maybe even the opposite, is what would work.
Speaker 2:And we really need to cease and assist with the kind of like we're all seeking, kind of the one number, the one rule, the one approach that gets us there. I think moving in that direction, but it is, and there's still too much of this that's going on, and I would argue that part of the solution lies in something that funders and nonprofits, everybody needs to start to embrace, which is we have the data, we have the tools like AI, machine learning. We can now disaggregate this, this information, and start to get away from these generalizations that are, in themselves, biased, because what you're doing is your, by the way, the rule that some funders fund say we're only going to fund 10 percent. It turns out in our data that if you were to do that, not only does it not help, it hurts organizations of certain types and sizes and in certain communities. So you're doing a disservice and we no longer can say we don't have the data. So funders and everybody else need to start to really embrace the use of data to a whole nother level.
Speaker 1:And at the same time, there are certain trends and efforts underway that we hope to see more of that are of a more generic nature, such as advocating for funders to provide general operating support as a means to you know, nickel and diming, I want it just for this or that or the other thing, and related to that long term support. Don't give us a one shot deal grant for this little thing and then say how do we sustain it? I think you might have gone down this road a bit already, but let's have a long term investment in this organization and let's trust them enough to give them general operating support, knowing that they know better than anybody where that funding would be most effectively utilized to get to the goal, to meet the mission and, more importantly, to achieve the outcomes, to have the impact. So I think that's another area where that education and that advocacy plays a part as an important general message for nonprofits.
Speaker 1:And I think you know this is an area where we've talked before that sometimes foundations can be the innovators, the leaders that eventually government may eventually come and follow. And you know we've seen that there are a number of foundations that I think are going down this road. But again, much like everything else we're talking about here. We're only seeing it currently with a small number and you know they may be some of the bigger, not foundations, but we would love to see more of that and more advocacy for that sort of thing, because it's so important and again could get us begin to lift us out of this scarcity, short term view and this, you know, mission drift kind of problems.
Speaker 2:Yeah, and there's some great stuff going on in the general operating support realm. There are some big leading philanthropies who are actually putting their money where their mouth is, so to speak, with respect to general operating support. Funds are some great work that Ford is doing and others are doing along these lines and really starting to advocate themselves for really supporting the general operating support piece. It's just so vitally important in order to get this work done, so it's a great point.
Speaker 1:But then the North Star, the thing that I believe will probably be mentioning most often of all, and that is for to reassure the funders.
Speaker 1:It's like I'm going to give you a job of general operating support.
Speaker 1:The ultimate requirement that I think there needs to be for the nonprofits, for the funding, the ultimate metric that I think will be in our future, and I hope is in our future, is measurement of impact and, by the way, I'm not in any way trying to say that it should be imposed from from a funder per se. The best way is for it to be much from the ground up, from the data and from the learning and from the initiative of the agencies that are being funded, but that you know. We begin to evolve metrics by type of organization and location and so forth, and the specifics of what an organization is doing for each individual that's being served. That that you know as we move in that direction. The concern about, well, how do we know that the money is being used effectively? Well, we now want it. Once we have that information, say, look, here is objective data On our impact, that that is where that's the way that money in the future we believe should be be allocated.
Speaker 2:And so one of the ways to actually Become empowered to make the argument for things like general operating support. Another stuff is, if we shift our orientation right now, it's Pay to produce outputs. It's it really is. It's dollars for outputs, and what that does is it turns organizations into the emotivates. It creates a goal of growth and just kind of doing bad growth. You know it well, I'm always. It's bad in the sense that what it's not doing is it's not Anchored in outcomes.
Speaker 2:Yeah, and so here's the thing why is impact measurement so important? Can you just brought it up? I just want to emphasize something. Just imagine the difference in our sector If everybody was funding organizations and the thing that they really cared about was cost per outcome, not cost per output. Right, what that does is it orients everybody to the mission and vision of the organization, to the impact it's trying to have on the community and those they serve.
Speaker 2:And, believe it or not, we're now in a place, right now, with impact measurement, where it is feasible and possible for direct service programs to really begin to be able to understand what their outcomes are. And if you got your outcomes, all of them should, or it's. It's financially irresponsible to not know what the outputs cost. So if you know how much it costs to provide your services and you know what percentage are succeeding, it doesn't take you know a math, a PhD in mathematics, to be able to figure out the basic math to go cost per outcome.
Speaker 2:Once we have that orientation, if donors and funders could shift towards that being the metric of success, we're finally putting the client, the beneficiary, into this whole financial discussion which, if you really think about why we're so exhausted on the money, I think part of us are in this business to make a difference in people's lives but the entire financial system, the funding, the donors, everything is anchored on our productivity, not the results of for those we serve, and it's not that people are not asking.
Speaker 2:It's been a challenge to do that for now, but right now, with tech, data systems, crn systems and now with the work that I know that we're doing at BCT around modeling and all of the work that we're doing to leverage these tools and AI and machine learning, there really is no excuse for us to be able to stay here. So if 10 years from now, we have not started to really move the way the, the financial transaction is to cost per outcome or outcomes away from outputs. I think we we we've definitely gone somewhere awry and and we probably will not be a healthier sector for it.
Speaker 1:Yeah, well said.
Speaker 1:So I have one last on my list of possible solutions for this particular problem, at least at the moment, and this one is sort of out of the box and new to some degree, and I think I refer back to our earlier episode I think it was episode five where we talked about open AI and a new model for where a nonprofit has a for profit subsidiary and it's a means of generating money and investment and also buy in from employees, among other things, that can provide potentially a more stable financial base and allowing the nonprofits to focus more on their mission without the constant pressure of fundraising, because you have a new access to capital, new access to investments that a traditional nonprofit doesn't have, and that that is sort of and it also speaks to the episode with Kevin Fee where he was talking about.
Speaker 1:You know, the biggest challenge is. One of the biggest challenges is to get that kind of financial support to to reach the scale when scale is necessary to have the impact that you, that you want and you need. So so you know again, this is that this is new, but it's something that we both found very interesting. I mean, there were problems. There are problems with open AI and it is somewhat unique in terms of its size and scope and what it does, but as a model to explore in general, we think that there's there's potentially a there there for many types of organizations and we should continue to to innovate and play with that.
Speaker 2:And along those lines. I think I just want to clarify something, because there are a lot of nonprofits that have for profit or have private enterprises that they do. I mean, just take Girl Scouts as an example and Girl Scouts cookies, so. So there's a lot of that. But this model is really about talking about a mission alignment. Where you have a for profit, that's mission aligned with the nonprofit that has control over it, that that for profit is able to start to raise investment capital. And this brings me to another part of the solution, ken, that we're talking about, which is, I do think there's opportunities also to start to leverage not just the grant money of funders, but they're sitting on corpus of of of dollars that they can invest through loans and equity investments, and so all those private philanthropies, they they only kind of make grants to the tune of about five percent of their corpus, but they invest that corpus in things like the stock market and everything else.
Speaker 2:There's a definite opportunity with the kind of open business model and we do refer you to episode five. So episode five, yes, there's that. So I'll pause there. But the point being is that when you look at the open AI model and episode five, you begin to see that there's some really interesting avenues and it is innovative. It's not just simply having a for profit business that is spinning off profit for the nonprofit. It's very mission aligned and there's some ways to raise capital. And again, I would go to mission related investments, program related investments from the corpus of philanthropy and foundations, and we have yet to really effectively tap that and I don't think the private philanthropy space is really investor. I think they're a little conservative on that side. But I do think there's opportunities to begin to push that a little bit and I would encourage nonprofits to explore those models.
Speaker 1:Right? Well, I think that caps off problem number one for now.
Speaker 2:Yes, it does.
Speaker 1:So we're on to problem number two, and we have that listed as technology, something, peter, you might be somewhat familiar with, perhaps A little bit. So, just in a nutshell and actually Kevin Fee, in our last episode, alluded to this and we had some disagreement on that. But the basic problem, regardless of you, is that a significant hurdle for many nonprofits is they don't have adequate resources allocated to technology Funding for up to date hardware, software, training of staff, and so a lot of organizations work with outdated or inadequate technology and tools, and that impedes their efficiency and their effectiveness. That's the problem in a nutshell, thankfully. Have you seen that, peter?
Speaker 2:Yes, I think it is, but I will say from a nuanced standpoint then I do believe that there's some catching up to do in the nonprofit sector about their understanding of perception of the barriers. I still think there's a lot of folks leaders of the nonprofit sector in our organizations that are literally working in a five to ten-year-old mindset or model of what it costs, and what they have not kept up with is just how much more those costs have been reduced. You don't have to hire staff, you can outsource it, the cloud technology. So there's so many things that I just wish the sector really understood, because every time I talked to nonprofits about technology they all say, oh, it's just going to cost an arm and a leg. And then I tell them what the prices really are like now and their eyes open up big because it has changed In the last three years. It's rapidly changed, but in the last five years things have gone down.
Speaker 1:Well, I think you're doing a great segue, because that part of the problem is awareness and understanding and, by implication, the solution is once there is that understanding, there might be the realization that the problem is not quite as enormous as they thought. I will just make a little sidebar, because our IT guy at Spectrum 360, he and I speak all the time and I think it also depends on what technology. So, for example, if you've got a 100,000 square foot building and you need to put cameras all over the place that are independent of each other and linked and wired, on the one hand the cost may have gone down, but it's still $100,000 or something like that. So it depends. But I think what we're really honing in on here is the basic technology to get to measuring your outcomes.
Speaker 1:When it comes to that kind of technology in particular and using big data, I think that especially is a place where that misunderstanding as to the old way of thinking about this and the classic randomized controlled trials that are million plus dollars, that don't even have the replicability or more than a snapshot in time, as opposed to live online, real time and individualized analysis and data. So, yeah, I think that declining cost of technology is the silver lining that we're witnessing and that, contrary to what some in fact, that's what I said like Kevin Phee, was expressing the view that the technology costs are just going to continue to rise when it comes to these most critical technologies. I think what I understand from the experts that I know, including Peter, it's the opposite.
Speaker 2:Yeah, and when we're talking to your point and I'm really glad you pointed out it's an important point I'm going to talk about it in two levels software and hardware. Video cameras in every room and security systems is more of a hardware purchase. And let me be very fair to all of the nonprofits. We definitely have hardware. But even in the hardware side it used to be not that long ago. People had servers on their premises and now we don't need that and anybody that thinks in the Rule is full of that stuff.
Speaker 2:Anybody that thinks in the nonprofit sector that all of the hard, that it's unprotected or lack security or you can't trust the cloud, you couldn't be further from wrong. I mean, it's just not there. So from that standpoint, we've come a long way and, as a result, the key is it used to be we bought, we over-purchased, we bought all this hardware and software to be able to do 20% of the 10% of what we the only 20% of it we could use is kind of like the old and, by the way, this is not true. But people used to say we only use 10% of our brains, which is really not true, but it's that idea that we bought a lot because we had to have the hardware and everything and we only used a little. Now the advantage is we've moved to a place where the cost has come down, but in part because the technology has got to the point where we can begin to buy what we need and purchase what we need. But we have to be good consumers. So let me be clear you can definitely get taken to the cleaners if you don't know what you're doing. So from that standpoint, you have to have technology consumer literacy.
Speaker 2:But along those lines, what I would tell you is, on the software side, when it comes to tracking, monitoring, evaluating, transacting your services, researching, writing, spreadsheeting data all of that is stuff that the prices have come down and the access points are there. There's a literacy issue. There's a how do we put these things together? But in the world of AI, I have to tell you, even that's going to come down significantly. We're getting to a place where you don't even need to know a code to write code with the assistance of AI.
Speaker 2:Five years from now, we'll not be any longer able to say hey, listen, we can't get that technology because we don't have anybody with the capacity to use it. So much of that will be baked into the tech and that's the other thing that already is. It's already being baked in. So, from the standpoint of just, the learning curve has really been flattened, and that's because of tech, it's because of AI and other things that are going on, the costs are coming down. You don't have to have all the hardware, you don't need as many people, so just all around.
Speaker 2:That's a very important piece and if we can put that technology in its primacy in service to impact measurement and to really being able to track and monitor, make sure and hold ourselves accountable, provide insights that even the beneficiaries and clients benefit from, if we make that our anchor, and again tied to cost per outcome we talked about before, our technology systems will start to align with our mission work and actually prevent us from mission drift if we shift the way we use it, how we measure, how we learn and hold ourselves accountable. It's all there. The tools are there, the methodologies are there. It's right now a matter of motivation, incentive. People just don't like to change, but a lot of the barriers that people perceive in tech are look, I'm not going to deny there's challenges. I think the biggest barrier is learning curves. That's not the tech and the cost of software and what you need to get.
Speaker 1:Right. So I think we may have time for one more and this next one it's a biggie and we'll see. And that is staff. And let me tell you, I live this challenge every day, depending on the type of service burnout again, the exhausted sector, the exhausted staff. The workload burns them out.
Speaker 1:The changing work ethic, where it's like the boomer generation versus the Gen X, gen Y, gen Z, and wanting to have more boundaries.
Speaker 1:That it's not necessarily a bad thing, but it does change the culture of work More people wanting to work virtually and much of our work being direct service, where virtual work is really not an option but more and more people preferring that.
Speaker 1:And then, related to all of this is, as a result of those other things, seeing positions vacant for periods of time, not being able to find staff who are qualified or even willing, even if they're not qualified and they need to be trained, but just really having a hard time finding people who are up to it. And then also, you know it has to do with their expectations of benefits and salary and so forth, and so it's really hard to get the people there, which then in turn, further propels the burnout of the staff that are there, that are being tasked with doing even more with less because they don't have enough colleagues on the front lines doing the work. So it's a big, big area of challenge that I think a lot of agencies face, especially in direct service of a certain size and scope. From my experience. Big problem, big problem for staff.
Speaker 2:Yeah, and the core workforce, especially for direct service providers, those on the front lines. You know, in so many fields I've seen the research and I'm averaging across they think of this like a meta-meta-analysis and don't hold me to this number, but the number I keep seeing all the time when it comes to those on the front lines your teachers, your teachers, assistants, your social workers, your clinicians the average 10 years, about a year and a half, you know, to three years, and so when it comes right down to it, you can go and I've done a lot of HR assessment and projects and that stuff. So you're talking turnover too, thank you, yeah, it's a big deal and what that means is and people don't realize this oftentimes what that means. Also, it's like everybody, again in this charity mindset doesn't realize most in the for-profit business the research shows I forget what it is you lose, like when you hire somebody new, three times the salary. There you go in terms of being able to get what you need the investment.
Speaker 1:There's a cost, there's all that stuff the recruitment, everything else.
Speaker 2:So, and again in the nonprofit sector, where you have funders.
Speaker 1:Let me pause there just to make sure it's clear to our listeners. So the research experts are saying that whenever you lose an employee, the cost it's going to take to find someone else, to train someone else, to get them back to the level of expertise that's required to do that job, the cost is typically three times what the salary is of the person who left. Okay, yeah.
Speaker 2:Okay and so along those lines. It just makes you realize again the exhaustion, I don't know, of the studies. We probably could look this up and see like is the nonprofit sector turnover rate, retention rate higher than the for-profit sector? I hypothesize it probably is, depending on the type of for-profit company or business you're talking about. Yeah, I'm sure there's some high turnover rates in the for-profit side for health care and other things too, because I just think the work of helping people which is not valued enough. Also, I do think compensation plays a role. I really do.
Speaker 2:I think that there's a big problem and again it comes down to this ethos that I still think we really don't address is this historical baggage that you know every—it's almost like. There's a lot of philosophy out there and I would pull the public and ask the question pertaining to you know, is it OK, or should nonprofits scrape by for the good of their mission? You know, is it—is it really the nonprofit sector where we all expect everybody to kind of chip in and tough it out without all the resources they need? I would bet you we're talking 40% to 50% of the population feels that way and I think in that vein, I think it's a root cause and it shows up here in what we're talking about the talent, the human resources.
Speaker 2:This is a very big area. We're barely touching on it, but I would say it's probably one of the biggest reasons that the sector is exhausted.
Speaker 2:I agree, there's nothing like—you talk to anybody. You've been a CEO and a manager and leader. I've been a CEO, a leader, manager of different entities, including private sector. But what's the one thing everybody can't stand is when you have high turnover. It gobbles up your attention, your focus. You can't get work done because basically you're sitting there waiting to just—you're in emergency mode, you're putting out fires for whoever left that position and you've got to get it filled because otherwise you're carrying the bucket in that, not everybody else, and so it's just such a big deal. It is such a huge issue.
Speaker 1:Two more thoughts I had on this. One is because of the level of vacancies and lack of candidates. What can also happen is that the criteria, the standards for hiring can decline and so you get more green, less experienced staff, and so that in turn has another challenge and another cost and another frustration. The other thing I wanted to add was I completely agree about the direct service professionals and frontline staff and the challenges that they face, and I also want to just give a quick moment for those who are in leadership positions. If I had a nickel for every time, somebody said to me boy oh boy, I wouldn't want your job, or I can't imagine.
Speaker 1:I mean, one of the big problems for leadership staff is, in my experience, is just a lack of infrastructure, and this gets back to the earlier conversation about money and scarcity, and so leaders of nonprofits oftentimes are doing two or three jobs because of the scarcity of infrastructure, the lack of leadership staff.
Speaker 1:And I think I told you I used to have this view, small as beautiful, and I still to some degree believe that. But when I got to a point where I was in an organization where I had a chief operating officer and I had a head of HR and a few of these other jobs. On the one hand it was like, oh, thank goodness. But at the same time that those things were happening, because the organization is so much larger and more complex, it's like there's no way the organization would function without that and it still can often feel like the infrastructure is not. It's like you're constantly playing catch up, if you're lucky and if you have the resources to even just sort of minimally get there. So that's another reality that leads to that burnout and turnover and so forth From a leadership standpoint.
Speaker 2:I'll jump on top of that and add something here. I'm going to come back to the data piece Again. You'll hear me thematically often talking about this, but one of the things you're talking about in terms of the infrastructure that leaders need is they need the kind of data and information in their systems about their staff, about their organization, about their finances, and they need that there so they can diagnose the problem. And the diagnosis is never simple. It's not one answer. But if your data are not there, you don't have the financial data right at your fingertips. If you don't actually know, you don't have your HR data system connected to your finance data, connected to your program data dash, for you know exactly where it is. You can answer and ask the question who's staying, who's not? You analyze the data. We have a problem diagnosis and nobody's investing in the capability.
Speaker 2:I have done entire HR system assessments because our company BCT, we do a lot of DEI assessments and I've done it for large scale nonprofits, very large scale healthcare systems and other stuff. We don't put enough and invest enough in getting that data right, getting that infrastructure right, making sure it's all there and accurate, accurate and reliable. And then we have to build the analysis capabilities. And, by the way, that also includes something we haven't talked about in this talent conversation, which is it really behooves nonprofits to also just because they're nonprofits, you cannot assume that they know what they're doing when it comes to diversity, equity and inclusion. And so a big part of this too and I'm channeling our CEO, dr Randall Pinkett, and his book Data Driven DEI we really need to begin to understand what's going on through the lenses of diversity, equity and inclusion within the workforce and that part of our data needs, our infrastructure needs and, by the way, it should stop being a one time thing because a funder asked us to do it.
Speaker 2:We need to do DEI assessment, accountability and leadership accountability around the talent from the standpoint of an annual basis. It needs to be woven into our infrastructure and really learning that, and so these are all things that I think underlie the problem. I really think a lot of nonprofits, the lack of infrastructure that you just said, can it's also because of why we can't diagnose the problem.
Speaker 1:You can't diagnose the problem, you can't solve it. Well said, and just as a footnote, we are planning to have a future episode that dives deeper into DEI and data driven DEI. So yeah, thank you for that.
Speaker 1:So, maybe we can just begin to touch on some of the solutions that we think are out there. One that I again just keep banging that drum each time is advocacy and education of funders to say we need to have adequate benefits, we need to have adequate compensation, we need to get away from having these sort of, let's say, there are some funders, for example, they have salary caps and it's like so great, so we'll have salary caps, and then what will happen is people will know that if you're in this industry, you've got a cap, but this other nonprofit sector over here doesn't have the cap. So at each a certain point I'm going to go over there that we've got to educate funders that there are other ways. If you're concerned about controlling costs, that is not the way to do it, because you're just you're ruining these agencies.
Speaker 2:You are.
Speaker 1:You're cutting them off at the knees, so to speak. So advocacy education for that of all funders. I think the importance of fighting the prioritization of the infrastructure and the tools to know what your challenges are and what you're working on from a staffing perspective. I think the notion of flexible work when you can. One of the things I think is, in my experience has been often the case with nonprofits because we can't provide the same salary, the same compensation and because of the challenges, sometimes, not always, I found that our vacation time, holiday time, is at least somewhat better than some of the for-profits. So that's one way to at least try to help people to manage.
Speaker 1:I know that, you know, steph, in many places I've worked it's like they slide into the a week off here or a week off there or a day off here. They'd be happy even if there's a snow day, because, even though we have to then add it to the end of the year, because just to have breaks and to give people time to take breaks and to have mental health days, and that's really, really important, and to have generous policies when it comes to taking time off, it's at least something that you can do. It's not going to solve the problem. These are big, deep problems, but it's at least something you have some control over and I think that we need to be generous as much as we can with this and whatever benefits and supports we can provide to the staff. Do you want to jump?
Speaker 2:in there. Yeah, I want to add real quick on that yeah, so one of the things I would also say along those lines and I'm going to again refer people to episode five, the Open Eye, Open AI, oh, sorry, Open AI. And the reason being is this is that the other thing that that hybrid model begins to open the possibilities for? In the for-profit sector, you can actually have your employees be owners, right?
Speaker 1:They can get shares yeah.
Speaker 2:If you have a mission aligned for-profit controlled by a non-profit the possibility that your employees and others can actually have shares in your for-profit mission aligned for-profit business it really opens up an interesting opportunity as well.
Speaker 2:When we talk about benefits and we talk about opportunities and we think about compensation and I just also want to reiterate something I really do believe that folks in the nonprofit sector, especially those on the front lines of direct services, are paid way too low the compensation there like in some ways, I think, when we talk about compensation, it always goes to the corrupt, rich CEO who's in the news, and I think what we do a disservice to the rest of the talent in the sector is. Most of the sector is not those exceptional cases that made the news of a CEO who's making millions and giving limos and can travel all over. What it really is is that conversation actually distracts in the media, distracts from the truth, which is 80 to 90% of those that are working and slogging it out in the nonprofit sector, comparatively to the private sector, are being underpaid, often grossly underpaid, and again it's that charity mindset and everything else. And so I do wish the media would cover the bigger story, which is it's an undercompensated sector and that's a big reason for the exhaustion.
Speaker 2:So, to tie this together and kind of put a segue to the end of this session, the first three things in fact are infused. All first three of our problems we talked about have a lot of root causes around money. The first we directly talked about money, right. The second was technology. There we see opportunities where technology can start to answer those data questions that we were talking about. That are part of the solution, but it is also there's a part about that and about money and being able to trace that and look at that. The third element is the piece we're talking about now which, by the way, anybody will tell you is one of the biggest costs of any organization and that's your talent. And even though it's a big cost, in our sector we're still starving a lot of people.
Speaker 1:Indeed, indeed, yeah. And again, talking about the direct service organizations, in my experience it's understood that 80, 90% of your budget has to do with people and how precious and important people are to the missions of nonprofits, and that we should treasure them and do everything we can to support them in whatever way we can, and I think that that should be constant for anybody that has any authority or any power to fund nonprofits.
Speaker 2:So that concludes our episode where we've talked about, as you introduced this, the exhausted sector, part one. We have a 10 problems and we've addressed three. We will be coming back to the other seven subsequent episodes.
Speaker 1:And you may need to have an adult beverage here and there to listen to the rest, but in the meanwhile we wish everybody well until next time.
Speaker 2:Until next time, take care, take care everybody, bye.