Seed NewsvineThe non-profit Private Security Company
Mar 26, 2009 Commentary, Jake's Posts
By Jake Allen
One of the critiques often leveled against private security contractors is that we have the audacity to accept a pay check for our services. It’s a silly argument and one to which I have two stock responses for.
1) Most often I politely engage the usually over-educated and under-experienced antagonist remind him that he too is receiving compensation for his services and that it seems judgmental and condescending that he would begrudge me for feeding my own family through the application of skills I have spent many years to learn.
2) However, occasionally, just occasionally I just stare at the inquisitor for what becomes an uncomfortably long period of time without even uttering a single word. This invariably confirms, in his mind at least, his prejudiced and unshakable core believe that I am indeed a knuckle-dragging-money-grubbing-baby-killing-mercenary who would sooner shoot him on the spot in cold blood than pass him the salt and pepper at the dinner table. True, this doesn’t much help camp relations but it sure is fun sometimes.
All joking aside I have given this question a lot of thought over the years and after countless hours of discussions with many NGO staffers, some of whom are also close friends, I have discovered that the real crux of their disdain is not the fact that I am paid but it is the source of those funds. After all, almost everyone in the field whether with the security element, the government, the NGOs or the journalists each of us is exchanging our time and services for financial compensation. It just seems to be more honorable, from the NGO’s perspective, that their salary is paid by ‘donors’ where as my salary can only possibly derive from gold-digging war profiteers.
But what if this argument could be defeated? Why couldn’t security be the only service (or ‘project’ as NGOs like to call it) that is delivered by a non-profit? Security…full-stop. Not digging wells, or teaching kids to read or working with farmers, or providing medical services, or any of the other important services NGOs are known for. Instead the purpose of this entity is singularly to provide a secure environment. The mission could be to secure just one home, just one building, just one village, just one town, just one province or even one whole country. In other words why couldn’t a PSC charter itself as a non-profit entity and use ‘donations’ to fund the delivery of this most valuable service? Better still, why couldn’t this non-profit PMC use donor funding to teach the locals how to provide security for themselves?
I said non-profit not free…
Don’t confuse a ‘non-profit’ organization with volunteers who work unpaid. Believe me; large non-profit organizations with headquarters in London, New York and Geneva are paying themselves quite handsomely particularly at the corporate level but also for their field based staff in some cases. I don’t begrudge them for that and neither should you, as I said at the top, we all need to get paid. I am just pointing out that the existing not-for-profit humanitarian service NGO model has set the precedence for a fully functional non-profit PSC like the one I am envisioning.
Instead of Save the Children or Feed the Children or Cloth the Children or Immunize the Children I am talking about an organization called something like ‘Secure the Children’. Our charter and our mission would be to provide security to places that are being plundered by bandits of all sorts. I mean raise your hand if you are AGAINST protecting innocent children?
Let me know what you think of this concept?
March 26th, 2009 at 8:25 pm
LOL Jake. I would love to see the reaction of Amnesty, Human Rights Watch, International Alert to your points.
Though, in fairness, some, not many, but certainly some, Human Rights First comes to mind, have ex-military on their own staff and would never make idiotic accusations about the money.
Not to mention it presumes, wrongly, that people on active duty don’t also plan their careers with an eye towards making more money.
Shalom,
David
March 26th, 2009 at 8:40 pm
It’s not entirely tongue-in-cheek David. I think this can be done. There are certainly a lot of wealthy individuals, not to mention corporations with various interests in developing nations who already donate millions every year to ‘charities’ of all kinds. I am convinced that you could run a small/medium PMC on donor funding. The key to this is results. If you carefully selected and planned a reasonable mission and demonstrated that you could get results without making a fool of yourself you could tap into huge amounts of funding.
Jake
March 27th, 2009 at 1:47 am
Interesting. Often times, good ideas come from a relaxed and joking environment. Pete Blaber referred to this in his book The Mission, the Men, and Me in his Gorilla Warfare chapter. Pete and his men had to figure out how to distract a target for a snatch and grab mission, and they came up with dressing a guy up in a gorilla suit while joking around. LOL After thinking about it though, they thought it was a brilliant idea, because it was the last thing the enemy would expect.
But the point of the process was that the idea came out of joking around about the possible solutions. Typically, commanders tell guys to ‘get serious’ during problem solving sessions, and yet getting serious actually can stifle the creative process of coming up with out of the box ideas. So getting serious, can be a detriment some times, when trying to solve tough problems.
So to me, taking the idea down this path may sound funny, but it is also worth exploring. I did the same thing with combining PMC’s with social networking. I am sure there are some who thought it funny or absurd, but others had quite the opposite reaction and really thought about the possibilities. My intent was to push the boundaries of what is possible, and possibly come up with a Gorilla Suit idea. Either way, ideas like this should be explored, because no one else has and it is fun. lol
The thing that gets me, is the titles of NGO’s these days. Save the Children is a great title, but are they really doing all they can to Save the Children? Sure they might be fed, or given medical aid, but all of that goes out the window when a gang of machete wielding thugs chop up the poor kid because he is a member of the wrong tribe. All that money that came from all of those donors, just went out the window, because the basics of security were not met in that village.
I like the idea, and you could actually use a social networking site to help organize the non-profit fundraising aspect of this company. I think a SN site could be helpful to communicate to the donors, what exactly the company plans on doing with that money. The donor would want to know that their money was being used in a legal and acceptable manner, much like the NGO’s of today send out newsletters or update the website with news. And if the company gets out of line, then all of your donors will run away. It is the ultimate test of a companies ability to produce results.
The interesting angle on this, is how will the donor react, once there was an incident with the company? For example–an ambush or IED? What if security contractors killed some bad guys, or even civilians by accident? Would the donors run away, and be repulsed by such activity? Or would they continue supporting the operation? Some tricky questions there.
I think with this model of funding and operation, your media connection with donors and the rest of the world needs to be on the ball. But that also could be what would drives more funding and donors. The more youtube videos and media attention, the more possible donors could latch on and feel a part of something. And with a SN site, they could actually give input. If they have a question about a practice or an incident, they could get an answer within that network.
If OPSEC and PERSEC has to be maintained, then the SN would have to work through the media guy of the company and understand the sensitivity of the operations. I think if members of the SN were told that OPSEC and PERSEC equates to saving lives and minimizing deaths in the company, I think they would accept that. And I would argue that if you don’t have a SN site to control information from, then people will start a Facebook or Myspace or whatever about it anyways, and the company will have no control at all. You want people to be involved, and feel like they are part of the process, so they care not to sabotage it.
The other reason I like this concept, is that there isn’t a lot of money floating around for the projects that really need it. Most PMC’s are able to function, if the customer has cash, diamonds, gold or oil to draw from. But what about the customers that don’t have any money, yet really need protection?
I brought up the small town in Mexico that is currently being attacked by Los Zetas on Feral Jundi, and the Mexican police and military is not able to cover the protection of that town. They are defending the town poorly with a moat they dug, and few .22 rifles and shotguns–and it is not working. A non-profit company, that only deploys when a funding goal has been achieved, could be the answer to that town’s security problem. The more the media promotes the threat to that town, the more possible donors could come up. Even other countries or companies could contribute as donors. Hollywood celebs could actually pump up the project. Or even micro financing could be the answer. Who knows, and I say any way that an NGO gets their money, a non-profit PMC could do the same thing.
This non-profit could take many forms as well. For the Mexico example, the ‘Protect the Children Mexico’ company could be formed in Mexico, and completely licensed in Mexico. Yet the support and funding could be global because of the reach of the main company site called ‘Protect the Children’. I think a lot of NGO’s operate like that. The Red Cross comes to mind, with a regional Red Cross’ and an International Red Cross.
As for making it legitimate and legal, back it up with Montreux Document. Even Amnesty International acknowledges the document. Make the company up front and above the board. Out NGO, the NGO’s when it comes to operations and ethics and accountability, and Protect the Children might be a go. Cool topic Jake. S/F
http://www.amnestyusa.org/document.php?id=ENGIOR300102008
March 27th, 2009 at 4:48 am
I kind of like your idea Jake. But I would make the NGO’s hire the individual operators and manage them themselves. Same for DOS and DOD. Just like there is no free lunch, there are no “turn key” security solutions. The idea of outsourcing the management of private security operators in the field has led to most of the problems as far as I’m concerned it has allowed everybody to point fingers and pass the buck and there is no coordination or accountability. The current private security companies can still do training and certifying, kind of acting as a security operator employment agency. Presumable the principle would be more concerned with getting the job done professionally and within the framework of the overall mission than with increasing profits and lowering costs thus preventing what is currently becoming a disturbing race to the bottom.
Or……I’m I just nuts?
March 27th, 2009 at 6:32 am
Your right Marc but I am of the belief that any company or organization must take responsibility for its people and their actions. But I cannot agree that orgs like the DOD must hire directly. The do that already, its called the Army, Navy, AF, Marines. There is a role here for civilian contractors who can be brought on quickly and dismissed quickly depending on mission requirements. The accountability, coordination issues you raise are real and can be solved short of making everyone involved a government employee. A few people at a few PMCs have made mistakes but so have a few idiots at a few firms on Wall Street. I trust your not calling for all traders in NY to convert to civil servant status?
Matt also brings up some great questions regarding funding and the reaction of donors post incident. Well, we are back to square one aren’t we? It would depend on the incident and the actions taken by company staff? If it were a shooting; was it in line with published ROEs? If it were some other kind of scandal (read: U.N. MONUC, rape, human, trafficking, drugs, whatever…) the organization would likely be forced to completely disappear due to the catastrophic loss of donations. I think this fact alone would go a long way toward a ’self policing’ culture within the company. I know that if I saw a couple of guys doing something that was against company policy (or worse) I would be more inclined to deal with the issue head-on to get it resolved if for no other reason than the salaries of say 98 other guys is likely to be lost because of the stupid actions of only 2.
Jake
March 30th, 2009 at 7:07 am
Hi Jake,
Yes that is great idea……
March 30th, 2009 at 8:24 am
This seems to be a problem that not only sits in the security field, but in the normal work place.
Knowledge, experience and training recieved in the Military is secone to none!
I have learnt how to lead and manage, whilst in the military. Yet have found that the civilian enities are threatened by that ability. They do not understand what it is to have a leader and a manager in the same person.
Ok - so some of these “Over educated, and underexperienced” persons deem all person who worked and lived in the military, are all mercenaries. I’d like to accuse them of the same thing - are they not trading their qualifications and exeperience (or lack of it) for financial reward? I’d say yes they are.
As regards the point made, on donations, to finance the Protection of a designated area….This does provoke some interesting thoughts, that I believe will need to be explored in more depth.
On the other hand, we have to understand what the driving force is for the “Dogs of War”. Why do they do it? how do they chose to get paid by? Do they have any actual conviction that the person(s) they are fighting for are “right”?
This again opens a wealth of questions, going bcak to the dawn of time.
Some of the people I have spoken to, have found that on leaving the service, they have been pushed to one side by the civilian world, for what ever reason, and to support themselves and their families, they have gone back to “war”, this time, what ever side pays!
I must admitt, that I considered that option once or twice.
JA: You have certianly opened a can of worms, and yes it does need a lot more debate.
March 30th, 2009 at 3:16 pm
The model for the nonprofit security scenario has been around for a little while but not very widely diseminated nor widely utilized.
Here in Arizona, the Maricopa County Sheriff’s Office Posse uses that model: several posses are 501c3’s and are “uncompensated employees” of the Sheriff’s Office.
On the compensated side, I know that a nonprofit was established to provide security in conjunction with other law enforcement agencies to help lower costs. The scenario was to provide security for a community organization providing shelter services to the homeless via an operating contract.
Nonprofits can be managed and operated not just by “donors” but by contract as outlined above.
Several NGOs in Africa have some form of security element attached to it, but that is mostly by hiring an unarmed security manager…armed is another kettle of fish altogether.
Security and “Nonprofits” are not necessarily mutually exclusive concepts.
March 30th, 2009 at 3:26 pm
There has been some talk of “self regulating” contractors lately…a comment or two: I don’t believe in self regulation on just about any level.
The model of true checks and balances have proven worthy over time.
By establishing a set of rules and holding people (organizations) responsible and accountible, is a standard that is reasonable. It’s very difficult to maintain any level of credibility when one “self regulates”…what is the point of a contract if not to regulate and limit and to memorialize expectations?
Look at the security model in Iraq as one example: The criticism fell completely on the individual operator and not the policy makers for not living up to a “code of conduct”…but there was no real code nor were there any legal recourses other than to say, “Well, gee, maybe one shouldn’t do things like that.”
Self regulation is really a myth that, in the final analysis, does no favors for the entity doing the work nor for the individual operator who is “expected” to perform to a very difficult and oftentimes dangerous and lethal standard.
March 30th, 2009 at 7:13 pm
Well said David I could not agree more. I would only add, or counter I suppose, to your suggestion that all self regulation is worthless by saying that in reality we all ’self regulate’ every day via our own personal moral compass. This does not mean oversight is not necessary but discipline borne of training and a culture comprised of a common vision for what is ‘right’. In the Marines we learned that discipline is defined as doing what you were trained to do and expected to do IN ABSENCE of supervision. Of course the military has a well defined and well used framework in the Uniform Code of Military Justice but the core of what makes the military work is personal discipline.
Jake
March 31st, 2009 at 5:40 am
Boy Jake, you hit it on the nail. I want to work with the guy that does it right, when no one is looking. That is discipline.
March 31st, 2009 at 2:41 pm
Excellent idea. When I first read this idea, I have to admit I had a small chuckle but the more I think about it, the more it seems do-able. Press friendly, a BIG plus, it wouldnt be everywhere on the press like BW mercs making $30k a month. Selling friendly also. Setup right, NPs you can still draw a nice salary. It actually does have alot of advantages and begs for more discussion.
April 14th, 2009 at 12:58 am
I seem to remember hearing recently about a NPO-PMC standing up this spring. I will try and find that info but I remember it was supposed to be up and running by summer.
Thanks
May 1st, 2009 at 6:06 pm
I feel you are right on the money. I have thought for years of creating a non-profit security company. Only we would protect missionaries out in the field in dangerous countries. I have a group of prior military/LE guys that are ready to start training…any tips/suggestions??
May 1st, 2009 at 7:28 pm
Tim, I am not really sure how you would get off the ground. I suppose that starting a company and incorporating it as a non-profit (in the U.S. it is called a 503c) is the first step. From there I’d suggest getting a website that describes your services. Then it’s just a matter of making contacts and talking with NGOs and making them aware that you willing to assist. In parallel you need to be working to gain funding from donors who support your idea. This money will allow you to hire some staff and conduct some training so that you are ready to fulfill your first contract when you win it.
Good luck and keep in touch.
Jake
May 2nd, 2009 at 3:29 am
Tim and others, here are some ideas. For problem solving, the best way to do this is to saturate, incubate, illuminate. That means saturate your brain with everything there is about about successful non-profit companies that operate in bad places. Find out what the best models there are for non-profit groups.
Then let that incubate in your brain, and then hopefully the illumination part will happen in do time.
Do not be afraid to be creative with the process is another point. Do not be quick to shut down ideas as well, and you can take little bits here and there to add to your stew of ideas.
If I was to do this, I would find the the Toyota of non-profit companies, and copy their program. Then slightly modify it to suite your needs.
The other thing I like about non-profit PMCs is that Col. John Boyd would have liked the idea. He actually wanted to work for free, so money was not a tool of influence that could be used against him. He also talked about this in his grand strategy stuff. You defeat your enemies by isolating them morally, physically, and mentally.
One area that we could defeat our critics in, could be in the ‘evil profit making company area’, and that is the beautiful part of the non-profit PMC. A company that exists to pay it’s employees an industry standard salary, so they can go out into the world to do good things. The CEO or any of the share holders are not in it for profit, only to help others, based on the rules of the non-profit.
Once the argument that we are profiteering mercenaries is taken out of the discussion, then that will change the dynamic of how we are viewed. We might even get the title of guardian angels, yet still make enough to feed our families.
Anyway, if anyone actually pursues this concept, we would love to hear how it goes. S/F
May 2nd, 2009 at 4:12 am
This is golden. Read this if you want to saturate your brain with some non-profit funding ideas.
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Ten Nonprofit Funding Models
Published Date: 2009-03-05
Author(s): William Foster, Peter Kim, Barbara Christiansen
This article (PDF) originally appeared in the Spring 2009 issue of The Stanford Social Innovation Review.
Money is a constant topic of conversation among nonprofit leaders: How much do we need? Where can we find it? Why isn’t there more of it? In tough economic times, these types of questions become more frequent and pressing. Unfortunately, the answers are not readily available. That’s because nonprofit leaders are much more sophisticated about creating programs than they are about funding their organizations, and philanthropists often struggle to understand the impact (and limitations) of their donations.
There are consequences to this financial fuzziness. When nonprofits and funding sources are not well matched, money doesn’t flow to the areas where it will do the greatest good. Too often, the result is that promising programs are cut, curtailed, or never launched. And when dollars become tight, a chaotic fundraising scramble is all the more likely to ensue.[1]
In the for-profit world, by contrast, there is a much higher degree of clarity on financial issues. This is particularly true when it comes to understanding how different businesses operate, which can be encapsulated in a set of principles known as business models. Although there is no definitive list of corporate business models,[2] there is enough agreement about what they mean that investors and executives alike can engage in sophisticated conversations about any given company’s strategy. When a person says that a company is a “low-cost provider” or a “fast follower,” the main outlines of how that company operates are pretty clear. Similarly, stating that a company is using “the razor and the razor blade” model describes a type of ongoing customer relationship that applies far beyond shaving products.
The value of such shorthand is that it allows business leaders to articulate quickly and clearly how they will succeed in the marketplace, and it allows investors to quiz executives more easily about how they intend to make money. This back-and-forth increases the odds that businesses will succeed, investors will make money, and everyone will learn more from their experiences.
The nonprofit world rarely engages in equally clear and succinct conversations about an organization’s long- term funding strategy. That is because the different types of funding that fuel nonprofits have never been clearly defined.[3] More than a poverty of language, this represents—and results in—a poverty of understanding and clear thinking.
Through our research, we have identified 10 nonprofit models that are commonly used by the largest nonprofits in the United States. Our intent is not to prescribe a single approach for a given nonprofit to pursue. Instead, we hope to help nonprofit leaders articulate more clearly the models that they believe could support the growth of their organizations, and use that insight to examine the potential and constraints associated with those models.
BENEFICIARIES ARE NOT CUSTOMERS
One reason why the nonprofit sector has not developed its own lexicon of funding models is that running a nonprofit is generally more complicated than running a comparable size for-profit business. When a for-profit business finds a way to create value for a customer, it has generally found its source of revenue; the customer pays for the value. With rare exceptions, that is not true in the nonprofit sector. When a nonprofit finds a way to create value for a beneficiary (for example, integrating a prisoner back into society or saving an endangered species), it has not identified its economic engine. That is a separate step.
Duke University business professor J. Gregory Dees, in his work on social entrepreneurship, describes the need to understand both the donor value proposition and the recipient value proposition. Clara Miller, CEO of the Nonprofit Finance Fund, who has also written wonderfully about this dilemma, talks about all nonprofits being in two “businesses”—one related to their program activities and the other related to raising charitable “subsidies.”
As a result of this distinction between beneficiary and funder, the critical aspects (and accompanying vocabulary) of nonprofit funding models need to be understood separately from those of the for-profit world. It is also why we use the term funding model rather than business model to describe the framework. A business model incorporates choices about the cost structure and value proposition to the beneficiary. A funding model, however, focuses only on the funding, not on the programs and services offered to the beneficiary.
All nonprofit executives can use our 10 funding models to improve their fundraising and management, but the usefulness of these models becomes particularly important as nonprofits get bigger. There are many ways to raise as much as $1 million a year, some of which can be improvised during the process. Once organizations try to raise $25 million to $50 million or more each year, however, there are fewer possible paths. The number of potential decision makers who can authorize spending such large amounts of money decreases (or you need to get them en masse), and the factors that motivate these decision makers to say “yes” are more established (or cannot be as thoroughly influenced by one charismatic nonprofit leader).
Our research of large nonprofi ts confi rms this. In a recent study, we identified 144 nonprofit organizations—created since 1970—that had grown to $50 million a year or more in size.[4] We found that each of these organizations grew large by pursuing specific sources of funding—often concentrated in one particular source of funds—that were a good match to support their particular types of work. Each had also built up highly professional internal fundraising capabilities targeted at those sources. In other words, each of the largest nonprofits had a well-developed funding model.
The larger the amount of funding needed, the more important it is to follow preexisting funding markets where there are particular decision makers with established motivations. Large groups of individual donors, for example, are already joined by common concerns about various issues, such as breast cancer research. And major government funding pools, to cite another example, already have specific objectives, such as foster care. Although a nonprofit that needs a few million dollars annually may convince a handful of foundations or wealthy individuals to support an issue that they had not previously prioritized, a nonprofit trying to raise tens of millions of dollars per year can rarely do so.
This is not to say that funding markets are static; they aren’t. The first Earth Day in 1970 coincided with a major expansion in giving to environmental causes; the Ethiopian famine of 1984-85 led to a dramatic increase in support for international relief; and awareness of the U.S. educational crisis in the late 1980s laid the groundwork for charter school funding. Changes cannot be foreseen, however, and, hence, can not be depended on as a source of funding. In addition, these changes were the product or culmination of complex national and international events, not the result of a single nonprofit’s work.
Earl Martin Phalen, cofounder of BELL, an after-school and summer educational organization, captured the benefits of such intentionality well, summing up his experience for a group of nonprofit leaders in 2007. “Our fundraising strategy used to be ‘let’s raise more money this year than last’ and we always were unsure of where we’d be. Then we got serious in thinking about our model and identified an ongoing type of government funding that was a good match for our work. While it required some program changes to work, we now predictably cover 70 percent of our costs in any locality through this approach.”
TEN FUNDING MODELS
Devising a framework for nonprofit funding presents challenges. To be useful, the models cannot be too general or too specific. For example, a community health clinic serving patients covered by Medicaid and a nonprofit doing development work supported by the U.S. Agency for International Development are both government funded, yet the type of funding they get, and the decision makers controlling the funding, are very different. Lumping the two together in the same model would not be useful. At the same time, designating a separate model for nonprofits that receive Title I SES funds, for example, is too narrow to be useful.
In the end, we settled on three parameters to define our funding models—the source of funds, the types of decision makers, and the motivations of the decision makers. This allowed us to identify 10 distinct funding models at level that is broadly relevant yet defines real choices.
It is interesting to note that there were several funding models we thought we might find, but didn’t. One possible model was nonprofits supported by earned-income ventures distinct and separate from their core mission-related activities. Another possible model was nonprofits that operated on a strictly fee-for-service model in either a business-tobusiness or direct-to-consumer fashion, without important supplementary fundraising (from members or prior beneficiaries) or underlying government support. Although there are some nonprofits supporting themselves with such funding approaches, they were not present among the large nonprofits that we studied. It is our belief that these types of approaches do not lend themselves to large-scale, sustained nonprofit advantage over for-profit entities.
What follows are descriptions of the 10 funding models, along with profiles of representative nonprofits for each model. The models are ordered by the dominant type of funder. The first three models (Heartfelt Connector, Beneficiary Builder, and Member Motivator) are funded largely by many individual donations. The next model (Big Bettor) is funded largely by a single person or by a few individuals or foundations. The next three models (Public Provider, Policy Innovator, and Beneficiary Broker) are funded largely by the government. The next model (Resource Recycler) is supported largely by corporate funding. And the last two models (Market Maker and Local Nationalizer) have a mix of funders.
HEARTFELT CONNECTOR Some nonprofits, such as the Make-a-Wish Foundation, grow large by focusing on causes that resonate with the existing concerns of large numbers of people at all income levels, and by creating a structured way for these people to connect where none had previously existed. Nonprofits that take this approach use a funding model we call the Heartfelt Connector. Some of the more popular causes are in the environmental, international, and medical research areas. They are different from nonprofits that tap individuals with particular religious beliefs, political leanings, or sporting interests, who come together to form organizations in the course of expressing their interests. Heartfelt Connectors often try to build explicit connections between volunteers through special fundraising events. The Susan G. Komen Foundation is an example of a nonprofit that uses the Heartfelt Connector model. Established in 1982, the Komen Foundation works through a network of 125 affiliates to eradicate breast cancer as a life-threatening disease by funding research grants, by supporting education, screening, and treatment projects in communities around the world, and by educating women about the importance of early detection. The foundation’s mission has a deep resonance with many women, even though its work may never benefi t them directly. Between 1997 and 2007 the Komen Foundation’s annual fundraising grew from $47 million to $334 million. The average individual donation is small, about $33, but the foundation’s fundraising efforts have been driven by its ability to reach out to an ever-widening base of support. Its major fundraising vehicle is the Susan G. Komen Race for the Cure. The foundation and its affiliates hold about 120 running races each year that draw more than 1 million participants. These events not only allow individuals to give money; they also engage volunteers to put together teams, solicit funds, and participate in the race day experience. Nonprofit leaders considering the Heartfelt Connector funding model should ask themselves the following questions:
Have a large cross section of people already shown that they will fund causes in this domain?
Can we communicate what is compelling about our nonprofit in a simple and concise way?
Does a natural avenue exist to attract and involve large numbers of volunteers?
Do we have, or can we develop, the in-house capabilities to attempt broad outreach in even one geographic area?
BENEFICIARY BUILDER Some nonprofits, such as the Cleveland Clinic, are reimbursed for services that they provide to specific individuals, but rely on people who have benefited in the past from these services for additional donations. We call the funding model that these organizations use the Beneficiary Builder. Two of the best examples of Beneficiary Builders are hospitals and universities. Generally, the vast majority of these nonprofits’ funding comes from fees that beneficiaries pay for the services the nonprofits provide. But the total cost of delivering the benefit is not covered by the fees. As a result, the nonprofit tries to build long-term relationships with people who have benefited from the service to provide supplemental support, hence the name Beneficiary Builder. Although these donations are often small relative to fees (averaging approximately 5 percent at hospitals and 30 percent at private universities), these funds are critical sources of income for major projects such as building, research, and endowment funds. Donors are often motivated to give money because they believe that the benefit they received changed their life. Organizations using a Beneficiary Builder model tend to obtain the majority of their charitable support from major gifts. Princeton University is an example of a nonprofit that uses the Beneficiary Builder model. The university has become very adept at tapping alumni for donations, boasting the highest alumni-giving rate among national universities—59.2 percent. In 2008, more than 33,000 undergraduate alumni donated $43.6 million to their alma mater. As a result of the school’s fundraising prowess, more than 50 percent of Princeton’s operating budget is paid for by donations and earnings from its endowment. Nonprofit leaders considering the Beneficiary Builder funding model should ask themselves the following questions:
Does our mission create an individual benefit that is also perceived as an important social good?
Do individuals develop a deep loyalty to the organization in the course of receiving their individual benefit?
Do we have the infrastructure to reach out to beneficiaries in a scalable fashion?
MEMBER MOTIVATOR There are some nonprofits, such as Saddleback Church, that rely on individual donations and use a funding model we call Member Motivator. These individuals (who are members of the nonprofit) donate money because the issue is integral to their everyday life and is something from which they draw a collective benefit. Nonprofits using the Member Motivator funding model do not create the rationale for group activity, but instead connect with members (and donors) by offering or supporting the activities that they already seek. These organizations are often involved in religion, the environment, or arts, culture, and humanities. The National Wild Turkey Federation (NWTF), which protects and expands wild turkey habitats and promotes wild turkey hunting, is an example of a Member Motivator. It attracts turkey hunters, who collectively benefit from NWTF’s work and therefore become loyal members and fundraisers. Local NWTF members host more than 2,000 fundraising banquets each year, raising about 80 percent of the organization’s annual revenues. These banquets provide multiple donation opportunities: entry tickets (which cost about $50 each and include an annual membership); merchandise purchase (averaging more than $100 per attendee); and raffle tickets (generating about $16,000 per banquet). NWTF’s national headquarters supplies raffle prizes and merchandise to sell at these banquets. Each banquet clears an average of $10,000 after expenses. A significant portion of the money raised is dedicated to land and turkey conservation in the community from which it was donated. Nonprofit leaders considering the Member Motivator funding model should ask themselves the following questions:
Will our members feel that the actions of the organization are directly benefiting them, even if the benefit is shared collectively?
Do we have the ability to involve and manage our members in fundraising activities?
Can we commit to staying in tune with, and faithful to, our core membership, even if it means turning down funding opportunities and not pursuing activities that fail to resonate with our members?
BIG BETTOR There are a few nonprofits, such as the Stanley Medical Research Institute, that rely on major grants from a few individuals or foundations to fund their operations. We call their funding model the Big Bettor. Often, the primary donor is also a founder, who wants to tackle an issue that is deeply personal to him or her. Although Big Bettors often launch with significant financial backing already secured, allowing them to grow large quickly, there are other instances when an existing organization gets the support of a major donor who decides to fund a new and important approach to solving a problem. The nonprofits we identified as Big Bettors are focused either on medical research or on environmental issues. The primary reasons that Big Bettors can attract sizable donations are: the problem being addressed can potentially be solved with a huge influx of money (for example, a vast sum can launch a research institute to cure a specific illness); or the organization is using a unique and compelling approach to solve the problem. Conservation International (CI), whose mission is to conserve the Earth’s biodiversity and to demonstrate that humans can live harmoniously with nature, is an example of a nonprofit that uses the Big Bettor funding model. CI’s ability to identify locations around the world where protecting an area of land can have a significant effect on preserving global biodiversity helps it attract donors who are willing to contribute large amounts of money so that they can have an important and lasting impact on protecting the Earth. The majority of CI’s contributions come from a few large donors. Nonprofit leaders considering the Big Bettor funding model should ask themselves the following questions:
Can we create a tangible and lasting solution to a major problem in a foreseeable time frame?
Can we clearly articulate how we will use large-scale funding to achieve our goals?
Are any of the wealthiest individuals or foundations interested in our issue and approach?
PUBLIC PROVIDER Many nonprofits, such as the Success for All Foundation, work with government agencies to provide essential social services, such as housing, human services, and education, for which the government has previously defined and allocated funding. Nonprofits that provide these services use a funding model we call Public Provider. In some cases, the government outsources the service delivery function but establishes specific requirements for nonprofits to receive funding, such as reimbursement formulae or a request for proposal (RFP) process. As Public Providers grow, they often seek other funding sources to augment their funding base. TMC (formerly the Texas Migrant Council), which supports children and families in migrant and immigrant communities, is an example of an organization that uses the Public Provider funding model. At its inception in 1971, TMC tapped into the federal government’s Head Start program to fund its initial work, helping children prepare for school by focusing on the bilingual and bicultural needs of families. As TMC grew, its leaders sought to reduce its dependence on this one funding source and to identify other government funds. TMC now receives funding from a variety of federal, state, and local government sources. TMC has expanded from Texas into seven additional states and is offering new programs, such as literacy, prenatal care, and consumer education. Nonprofit leaders considering the Public Provider funding model should ask themselves the following questions:
Is our organization a natural match with one or more large, preexisting government programs?
Can we demonstrate that our organization will do a better job than our competitors?
Are we willing to take the time to secure contract renewals on a regular basis?
POLICY INNOVATOR Some nonprofits, such as Youth Villages, rely on government money and use a funding model we call Policy Innovator. These nonprofits have developed novel methods to address social issues that are not clearly compatible with existing government funding programs. They have convinced government funders to support these alternate methods, usually by presenting their solutions as more effective and less expensive than existing programs. (By contrast, Public Providers tap into existing government programs to provide funds for the services they offer.) An example of a Policy Innovator is HELP USA. This nonprofit provides transitional housing for the homeless and develops affordable permanent housing for low-income families. Andrew Cuomo (son of former New York governor Mario Cuomo) founded HELP USA in 1986 as an alternative to New York’s approach of paying hotels to house the homeless in so-called “welfare hotels.” HELP USA’s innovative approach to the housing crisis came about in an era when homelessness was a prominent public issue and government funders were willing to try a novel approach. Cuomo gained the initial support of government decision makers by positioning his solution as both more effective and less costly, which was critical during New York’s fiscal crisis. In 2007, HELP USA’s revenues were $60 million, almost 80 percent of which came from government sources, half federal and half state and local. The organization was operating in New York City, Philadelphia, Las Vegas, Houston, and Buffalo, N.Y. Nonprofit leaders considering the Policy Innovator funding model should ask themselves the following questions:
Do we provide an innovative approach that surpasses the status quo (in impact and cost) and is compelling enough to attract government funders, which tend to gravitate toward traditional solutions?
Can we provide government funders with evidence that our program works?
Are we willing and able to cultivate strong relationships with government decision makers who will advocate change?
At this time are there sufficient pressures on government to overturn the status quo?
BENEFICIARY BROKER Some nonprofits, such as the Iowa Student Loan Liquidity Corporation, compete with one another to provide government-funded or backed services to beneficiaries. Nonprofits that do this use what we call a Beneficiary Broker funding model. Among the areas where Beneficiary Brokers compete are housing, employment services, health care, and student loans. What distinguishes these nonprofits from other government-funded programs is that the beneficiaries are free to choose the nonprofit from which they will get the service. The Metropolitan Boston Housing Partnership (MBHP), a regional nonprofit administering state and federal rental assistance voucher programs in 30 Massachusetts communities, is an example of a nonprofit that uses the Beneficiary Broker funding model. Since launching the organization in 1991, MBHP has developed a reputation as a reliable provider of housing vouchers for families in need. MBHP is the largest provider of housing vouchers in the Boston area, connecting more than 7,500 families to housing at any one time. MBHP also provides related services, such as education and homelessness prevention programs. More than 90 percent of MBHP’s revenue comes from the small administrative fees the state provides as part of the voucher program. The remaining funds come from corporations and foundations. Nonprofit leaders considering the Beneficiary Broker funding model should ask themselves the following questions:
Can we demonstrate to the government our superior ability to connect benefit or voucher holders with benefits, such as successful placement rates and customer satisfaction feedback?
Can we develop supplemental services that maximize the value of the benefit?
Can we master the government regulations and requirements needed to be a provider of these benefits?
Can we fi nd ways to raise money to supplement the fees we receive from the benefits program?
RESOURCE RECYCLER Some nonprofits, such as AmeriCares Foundation, have grown large by collecting in-kind donations from corporations and individuals, and then distributing these donated goods to needy recipients who could not have purchased them on the market. Nonprofits that operate these types of programs use a funding model we call Resource Recycler. Businesses are willing to donate goods because they would otherwise go to waste (for example, foods with an expiration date), or because the marginal cost of making the goods is low and they will not be distributed in markets that would compete with the producer (for example, medications in developing countries). In kind donations typically account for the majority of revenues, but Resource Recyclers must raise additional funds to support their operating costs. The vast majority of Resource Recyclers are involved in food, agriculture, medical, and nutrition programs and often are internationally focused. The Greater Boston Food Bank (TGBFB), the largest hunger relief organization in New England, is an example of a nonprofit that uses the Resource Recycler funding model. This organization distributes nearly 30 million pounds of food annually to more than 600 local organizations, including food pantries, soup kitchens, day care centers, senior centers, and homeless shelters. TGBFB acquires goods in many ways. The dominant sources of goods are retailers and manufacturers. It also receives surplus food from restaurants and hotels. In 2006, corporate in-kind support accounted for 52 percent of TGBFB’s revenues. Federal and state government programs provide TGBFB with in-kind goods and money, accounting for 23 percent of its annual budget, which TGBFB uses to purchase food for distribution. Cash donations from individuals make up the remaining 25 percent of revenues, covering overhead and capital improvements. Nonprofit leaders considering the Resource Recycler funding model should ask themselves the following questions:
Are the products that we distribute likely to be donated on an ongoing basis?
Can we develop the expertise to stay abreast of trends in the industries that donate products to us so that we can prepare for fluctuations in donations?
Do we have a strategy for attracting the cash we’ll need to fund operations and overhead?
MARKET MAKER Some nonprofits, such as the Trust for Public Land, provide a service that straddles an altruistic donor and a pay or motivated by market forces. Even though there is money available to pay for the service, it would be unseemly or unlawful for a for-profit to do so. Nonprofits that provide these services use a funding model we call Market Maker. Organ donation is one example where Market Makers operate. There is a demand for human organs, but it is illegal to sell them. These nonprofits generate the majority of their revenues from fees or donations that are directly linked to their activities. Most Market Makers operate in the area of health and disease, but some also operate in the environmental protection area (for example, land conservation). The American Kidney Fund (AKF) is an example of a nonprofit that uses the Market Maker funding model. AKF was founded in 1971 to help low-income people with kidney failure pay for dialysis. It is now the country’s leading source of financial aid to kidney dialysis patients, providing (in 2006) $82 million in annual grants to 63,500 kidney patients (about 19 percent of all dialysis patients). Before 1996, health care providers were allowed to pay Medicare Part B and Medigap premiums (approximately 20 percent of total costs) for needy dialysis patients. In 1996, the federal government made it illegal for providers to do this because it might trap the patient into receiving dialysis from a particular provider. The new law left thousands of kidney patients unable to afford kidney treatment. AKF noticed this gap and established a program to fill it. AKF now pays these premiums, allowing patients to continue their treatment. AKF is funded primarily by health care providers and other corporations. AKF is now applying the same principles used in its kidney dialysis program for pharmaceuticals used to treat bone loss. Nonprofit leaders considering the Market Maker funding model should ask themselves the following questions:
Is there a group of funders with a financial interest in supporting our work?
Are there legal or ethical reasons why it would be more appropriate for a nonprofit to deliver the services?
Do we already have a trusted program and brand name?
LOCAL NATIONALIZER There are a number of nonprofits, such as Big Brothers Big Sisters of America, that have grown large by creating a national network of locally based operations. These nonprofits use a funding model we call Local Nationalizers. These organizations focus on issues, such as poor schools or children in need of adult role models, that are important to local communities across the country, where government alone can’t solve the problem. Most of the money for programs is raised locally, often from individual or corporate donations and special events. Very little of the money comes from government agencies or fees. Very few local operations exceed $5 million in size, but, in totality they can be quite large. Teach for America (TFA) is an example of a nonprofit that uses a Local Nationalizer funding model. TFA recruits, trains, and places recent college graduates into teaching positions in schools across the country. TFA was founded in 1989, and by 2007 had more than $90 million in annual revenues. The organization relies on its 26 regional TFA offices to raise more than 75 percent of its funding. The reason this works is that TFA’s mission—improving the quality of K-12 education—resonates with local funders. TFA developed a culture in which fundraising is considered a critical aspect of the organization at every level, and it recruited local executive directors who would take ownership of attracting regional funding growth. Nonprofit leaders considering the Local Nationalizer funding model should ask themselves the following questions:
Does our cause address an issue that local leaders consider a high priority, and is this issue compelling in communities across the country?
Does expanding our organization into other communities fulfill our mission?
Can we replicate our model in other communities?
Are we committed to identifying and empowering high-performing leaders to run local branches of our organization in other communities?
IMPLICATIONS FOR NONPROFITS In the current economic climate it is tempting for nonprofit leaders to seek money wherever they can find it, causing some nonprofits to veer off course. That would be a mistake. During tough times it is more important than ever for nonprofit leaders to examine their funding strategy closely and to be disciplined about the way that they raise money. We hope that this article provides a framework for nonprofit leaders to do just that.
The funding paths that nonprofits take will vary, and not all will find models that support large-scale programs. The good news is that all nonprofits can benefit from greater clarity about their most effective funding model, and it is possible for some nonprofits to develop models that raise large amounts of money. As mentioned earlier, almost 150 new nonprofits (not counting universities and hospitals), surpassed $50 million in annual revenues between 1970 and 2003.
On the other side of the equation, philanthropists are becoming more disciplined about their nonprofit investing. A growing number of foundations, such as the Edna McConnell Clark Foundation and New Profit Inc., are investing in their grantees to improve both program and funding models. We hope that this article helps philanthropists become clearer about their funding strategy so that they can support their programs more effectively.
As society looks to the nonprofit sector and philanthropy to solve important problems, a realistic understanding of funding models is increasingly important to realizing those aspirations.
FOOTNOTES:
1 In a November 2008 Bridgespan survey of more than 1001 nonprofits, leaders were asked which of eight different and often conflicting fundraising tactics would play some role or a major role in their approach to addressing the downturn. Nearly half (48 percent) of respondents said that six or more would.
2 For example, see Thomas Malone, Peter Weill, Richard Lai, et al., “Do Some Business Models Perform Better Than Others?” MIT Sloan Research Paper No. 4615-06, May 2006.
3 For an early framework looking at “donative” vs. “commercial” nonprofits, see Henry Hansmann, “The Role of Nonprofit Enterprise,” Yale Law Journal, 89, 5, April 1980.
4 William Foster and Gail Fine, “How Nonprofits Get Really Big,” Stanford Social Innovation Review
http://www.bridgespan.org/ten-nonprofit-funding-models.aspx
May 2nd, 2009 at 6:50 am
Thanks Matt for those comments and information. Very useful. I would be very surprised if someone is not already doing this somewhere. But obviously they are not doing it on such a scale that is known about in the for-profit industry.
The story of TOMS shoes could also be of interest. This guy founded a shoe company under the premise that for every pair of shoes he sold he would give one pair away. He is now both making big money in a for-profit business while still doing a lot of good in the world based on his business model. I cannot think of the exact correlation to PSCs but the point is there are hybrid models which could be developed where a lot of the money which otherwise would have been pocketed as profit is diverted towards some activity that is or is at least perceived as being beneficial. Thus the company gets a lot of goodwill from the market. People feel good about buying TOMS shoes because of the charity (and the shoes they get) so the cycle continues. It’s a rare sustainable win-win model.
http://www.tomsshoes.com/content.asp?tid=271
Jake
May 2nd, 2009 at 3:31 pm
It is really interesting to watch this ongoing dialogue and note how often since Jake first posted this idea people have picked it up again to continue talking about this concept. As one of the people who stand on the threshold and look in on your industry, I think it is important to keep track of the idea as well that a vast majority of people are not concerned that PMC’s are for profit nearly as much as we care how you do you jobs. The “Cowboy” element remains the greatest concern. It seems right now that your concern is dressing up the front door so that passerbys will be more approving of your house, when the problem is the mountain of crap in the back yard. Organization, business structure, leadership, vision, accountability, transparency, training, vetting, public relations…seems to me it was Mr. Barlow who has said more than once now on his blog and on Jake’s radio program that a solid public/media relations focus would make a world of difference. Secrecy seems to be a problem in your industry. One of the most successful business people in the world, Warren Buffet would disagree with that shhhhh approach. “ One’s objective should be to get it right, get it quick, get it out and get it over. Your problem won’t improve with age.” (Harvard Business Review on Crisis Management) Jake has stated more than once how critical training is. And one of the most passionate comments that came out of the PMC contractor survey that TCO ran about a month ago was how desperate you are for strong leadership. No one mentioned money. I really don’t think that many people are caring how you get paid, or really how much you make. Aside from military who wonder why they don’t make as much. The bottom line is – we need you to be the kind of cavalry we expect you to be when you come over the hill because the shit has hit the fan. Does how you organize yourselves matter nearly as much as the fact that you need to get organized? To achieve this have the problems succinctly been broken down, prioritized, strategized around?….chronic carelessness is the number one cause of organizational crisis. Correcting this must happen at the corporate leadership level. But what I’m hearing you guys say is there is no corporate leadership that you believe in. If you want to make the changes, you become the leaders. Some of you already are company owners. Maybe you guys need to create a cooperative not a non-profit…maybe there is no model that exists now that will work for you. Build it and they will come…:) What is most important and should never be overlooked here is how much you guys want to be seen as doing something “good”. That’s a massive PR piece in and of itself!!!!! Who is running with that?!!! The correlation to Toms Shoes is that you CAN make bushels of money and do good things in the world. One enables you to do the other. The problem is how often we have all been shown power misused.
May 3rd, 2009 at 4:30 pm
Excellent points Angela, and thanks for the kudos Jake.
The thing I would like to see in this industry, is for guys to be proud of who they are and what they do. The only way to make that happen, is to fight for the legitimacy of this industry and become a ‘good idea’. How’s that for some Jundism? lol
Also, if this industry is to grow and flourish, it needs the basic elements that make that happen. Poor leadership in any company will destroy the root system and increasingly put this industry into the ‘bad idea’ category.
The other angle, like you mention Angela, is to hold people accountable. I am critical of the companies, but I am also critical of those who contract them out and apply zero leadership and quality control to the arrangement. When I look at the problems in Iraq with companies, I don’t just blame companies, I blame those that hired them for not doing the things necessary to manage these contracts. That is why I like David Isenberg’s stuff, because he at least puts blame in equal amounts onto the situation.
The really shameful thing is are we learning from our mistakes, and are we making things better? This war is no where near being over, yet it seems we continue to dance around this very important and trying problem.
May 4th, 2009 at 1:57 am
Thanks Matt…:)
I am super aware of being the “only girl in Jake’s tree fort” here..:)and absolutely don’t want to be perceived as overstepping any unseen boundaries…so I hold my breath everytime I say something. I think you guys have critical skills to offer and only want to help you succeed.
May 7th, 2009 at 4:00 am
[...] to hit up. Be sure to request the services of Chris Hughes as well, and be the first to start a non-profit, PMC or PSC built around a social networking site. [...]
June 28th, 2009 at 10:32 am
The concept of a non-profit psc is a great idea. I think probably two of the most immediate major hurdles would be finding an initial source of funding and in meeting the tax regulation requirements. I was just involved in the formation of a multi-million dollar non profit in the form of a 501-c charitable trust. When you form a non profit, depending upon it’s type you have to meet certain requirements of mission statement ie is it educational, blah, blah, blah. The funding might be a fun and interesting challenge because most initial funding, for instance for a “charitable trust” type comes from a single or multiple private source like an inheritance or bequethal. If it were my op i would probably go the way of rounding up a butt load of ngo’s who have to pay through the nose for fpo’s from large corporations and form the ground floor of a small deployable force from donated funds, which would also probably skirt a few legal hurdles by moving the team’s work into the “proprietary” category. Hmm, lots of possibilities here. Im going to have to spend some time thinking about that one.
October 14th, 2009 at 10:21 pm
[...] as the aid given by the cyber tribes is not a profit game, but purely a supply and demand game. (Jake had an awesome post about the non-profit PSC, for further [...]