Wednesday, October 07, 2009

No more nonprofits!

We need to do away with nonprofits in America
by Dr. Stephen L. Goldstein, "The Fundraising Guru"

1st published in The South-Florida Sun-Sentinel, August 23, 2004

Hardly anyone knows what a nonprofit really is. Most people will tell you that it's a charity that does good things for society, so they can deduct contributions to it from their taxes. Others will admit to thinking that nonprofit implies something second-rate in America--a cut below for-profit businesses, in which making money, not asking for it, is the name of the game. To them, the big players are in the rough-and-tumble business world. Lesser mortals work in nonprofits--taking handouts, frequently trying to solve social problems that seems never to get fixed.

The longtime head of one prestigious cultural group even told me that a nonprofit is an organization that, "because of what it does, cannot make money." (The surprise is not that he was constantly in debt, even on the verge of bankruptcy, but that he could continue to bamboozle donors into supporting her year after year.)

I guess that only about one in 10 people knows that nonprofits certainly can "make" money, but that what defines and distinguishes them from for-profit businesses is simply what they do with any money they generate above expenses.

Nonprofits call their extra dollars "surplus," not profit, and they reinvest them in their organization. They don't distribute their excess funds to shareholders who are entitled to a dividend, as businesses may. My cultural chief aside, nonprofits not only can make money, they should. The term really means "not having profit for investors to share in."

So, we need to do away with nonprofit organizations. Well, not with them per se, but with the term nonprofit and replace it with a clear, positive one--like Community Reinvestment Organization or CIO.

First, the word "investment" in CIO might help remind people working with them that the donated dollars they allocate to doing good in their community should produce a documentable return. For example, a cultural program might tout the dollars it generates by attracting out-of-town visitors and positive press. A program for teen substance abusers could estimate the cost to society of their continuing to be on drugs, track successful graduates of its program, and total the money it saved the public by rehabilitating them.

Creative CIOs can find compelling ways to prove that they use contributions prudently to produce a financial, not just a "feel good," return. Like public companies, every CIO should publish an annual report that documents the return on its community investment.

Second, renaming nonprofits could help invigorate the fundraising process. CIOs could make a strong case to potential donors to give money to efforts they can show make a positive difference, instead of approaching them for what too often may appear to be hopeless causes. Contributors to CIOs wouldn't receive dollar dividends as they might from their stock portfolio, but they should be shown how their donations paid dividends to society in general and to the organization they support, in particular. Informed donors are likely to contribute more money and more often.

Needless, to say, the IRS is not going to change nonprofit to CIO anytime soon, and nonprofits themselves may be slow to redefine themselves. But savvy nonprofits can have the best of both worlds by explaining why they really are Community Investment Organizations. A rose by any other name might smell as sweet, but a nonprofit smart enough to market itself as as CIO might truly blossom.

Email your comments and questions to Dr. Goldstein at
Dr. Stephen L. Goldstein's websites are:

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