- Donna Lim
Profit First: Creating Capital as a Non-Profit
Note from Donna… As our businesses mature and grow, it’s nice to look at the impact we are making on the world. One of my greatest joys in life is helping people achieve their goals in life. You might recall that I’m allowing a newly college graduate to get some press-time by writing a few articles. Please enjoy this article written by Larissa Summers.
Profit First: Creating Capital as a Non-Profit
While it might be ironic to title an article about Non-Profits as “Profit First” these companies still need to earn money. While Non-Profits can provide services that generate income, that isn’t where most of the funding comes from. Charging customers for a summer camp isn’t going to fund an organization for the rest of the year. This begs a few questions: How do Non-Profits create capital sustainably and expand their operations? What is the purpose of donations and fundraisers? Why should anyone start a Non-Profit rather than a for profit company to achieve their goals? These are all good questions, let’s look at the money.
During the 1970s, the UNDP (United Nations Development Programme) offered guidance to its staff and governments on what it defined as ‘Institution Building’. The goal was simple, strengthen an organization’s ability to “produce, perform, or deploy” and was focused on developing nations across the globe. The UNDP identified multiple sources of capital that were vital for a growing economy. The UNDP’s model can be used by Non-Profits in a similar way to strengthen their organizations in a method that is commonly called “Capacity Building.” Capacity building is the primary method that a Non-Profit can expand its funding, budget, and scope of influence. Noted philanthropy researcher and philosopher Alan Fowler suggests that Non-Profits need to build different types of capital at the same time year-round. While an organization builds monetary capital, they should also build political, social, and human capital. Increasing these different aspects simultaneously allows for Non-Profits to take advantage of a variety of fundraising opportunities.
For example, social capital might take the form of brand recognition and public trust allowing a Non-Profit to sell a service or having a donation drive. Selling services and collecting donations are an excellent way to provide funding to fulfill short term goals (a soup kitchen may hold a donation drive to make rent or open a temporary location). Social capital may also manifest as endowments and trusts from wealthy individuals that are invested in the long-term goals of the organization. Endowments and trust can lead to different kinds of financial assets such as real-estate. Social capital is essentially the ‘who’ in building capacity: who will pay for this project? Who will help keep our doors open year-round?
Political capital is more difficult to achieve, however developing this kind of capital can be especially beneficial to a non-profit. Political capital doesn’t necessarily refer to the actual governance of a city or nation but refers to any influential organization in a particular region. Non-profits need to build this type of capital to properly expand and generate money to achieve goals that individuals cannot. Organization leaders need to consider that there are millions of dollars to be made by securing lucrative grants from government agencies and large for-profit companies. Aligning yourself with brands and public initiatives allows an organization to gain trust from these foundations to more easily secure grant money. These grants can help organizations expand into different nations, begin new projects, and acquire assets that will continue to create monetary capital. Political capital answers the ‘what’ in capacity building: what do we need to do to open a permanent location in a new city? What can we do to build social trust?
The most important type of capital needed to build capacity is human capital. Employees and volunteers both count as human capital, but Non-Profits ought to include training and education as a kind of human capital as well. The benefits of having this kind of capital allows for Non-Profits to deploy and execute their goals as well as secure grant money, host fundraisers, and sell services. Without enough people to rely on a Non-Profit has no hope of expanding, and Non-Profit leaders need to always make sure they are gaining more human capital than they are losing. Even monolithic Non-Profits like the Red Cross are aware that without human capital they will quickly fail and watching news trends shows that Non-Profits campaign for volunteers and employees well before a human capital shortage affects the organization. Human capital answers the ‘how’ in capacity building: how will we have a successful fundraiser? How will we be able to host say, a graffiti cleaning event? How will we acquire grant money?
A focus on capacity building year-round is the way that Non-Profits succeed and continue to achieve their goals. Non-Profits would be smart to take Fowler and the UNDP’s advice to build capacity by acquiring multiple different types of capital. Non-Profits would also be smart to remember that capacity building isn’t an operation only taken during times of duress. Building more capacity than needed allows for Non-Profits to take bold actions and build wealth. Non-Profit leaders also need to research Fowler and the UNDPs models because monetary, political, social, and human capital are not the only types of capital are specifically identified. Different Non-Profits may need different types of capital that were not described in this article based on their goals. Though, broadly speaking, if an organization has their who? (Social capital), what? (Political capital), and how? (Human capital) answered accounted for, then it will continue to grow and thrive.
Written By Larissa Summers