Is “Financial Sustainability” being hijacked?
The quest for financial sustainability is in danger of becoming an unhealthy trend in which earned income is assumed to be the gold standard for all philanthropic work. Funders understandably want to know when their funding will no longer be needed. But for some funders the Holy Grail of “financial sustainability” is becoming code for “when will your organization’s revenue be 100% earned income?”
The problem is, when a philanthropic institution feels pressure to shift its focus from impact to becoming a viable business with earned income in order to appear attractive to funders, ‘mission drift’ is all but inevitable. Funders give to philanthropic organizations because they believe in their ability to resolve a social issue. But what price are non-governmental organizations (NGOs) paying for that support?
Dr. Leslie Lenkowsky, Senior Counselor to the Dean, Professor Emeritus of Public Affairs and Philanthropic Studies at the Indiana University Lilly Family School of Philanthropy, challenges his social entrepreneurial students to question earned income as a cure-all for financial sustainability and raises questions about funders who aim to micromanage philanthropy as they do their investments. “Charities are already complaining—often not unjustifiably—that business-minded donors are doing too much micromanaging and not giving those directly in touch with the problems they want to solve—and people they want to help—enough leeway to try unproven or unorthodox methods of making progress. If donors were to become equity investors, the conflicts would undoubtedly grow,” says Lenkowsky.
Do you really want the answer?
Let’s be honest. What funders really want to know is “when will your organization no longer need our money.” A good and necessary question. If many NGOs were to answer honestly, their response would probably be: “I will stop needing your money when we have solved the social problem we are working on together.” Unfortunately, the answer is often, “I will no longer need your money after we build this goat milk farm to support our physical disabilities center for children living in poverty. If we can manage to make both organizations run well at the same time, (even though I have no business training and my passion is improving the health of the disadvantaged), we’ll do great!”
Playing to your strengths
When the purpose of money is to create positive social impact, consider giving to an organization that knows what it is good at, focuses on that goal and unwaveringly dominates social returns.
This drift towards 100% earned income has contributed to the misguided impression that socially conscious businesses can fill social need better than philanthropic institutions. But this is simply not the case. Take Save the Children (Save), an NGO that promotes children’s rights and provides relief to children living in poverty and oppression.Save receives $807 million in revenue, 97 percent of which is philanthropic, and it is the global leader in protecting and supporting forgotten children. Save reports serving 155 Million children in 120 countries with life-saving and life-lifting resources. There has never been a socially conscious business that can say the same in history.
What would happen to those children if Save decided to shift its focus from social impact to becoming a majority earned income enterprise? Their currently lean 14 percent administration and fundraising costs would dramatically increase and their social return would suffer.
Another issue with earned income is that it doesn’t always provide the sustainability it promises. Street Business School (SBS) is an entrepreneurial education initiative that aims to lift women out of poverty. We harness private sector ideas such as entrepreneurialism, franchising and fees-for-service, but remains focused on our social impact and philanthropic aims.
SBS initially began as a program of BeadforLife. BeadforLife is a social enterprise that for the better part of a decade derived nearly 92 percent of its funding from the earned income it generated from the sale of recycled paper bead products. But the program could not sustain this level of funding. Market fluctuations, imitator organizations and product saturation affected its funding and therefore, its impact.
The issue isn’t that earned income is bad per se, but that focusing on it as a sole source of income, or preferred source of income, isn’t right for a lot of organizations. We learned from this experience and chose to diversify and combine philanthropic and earned income in the form of sales, donations, healthy savings and multi-year commitments to create a long-term vision for sustainability.
Why not both?
Diversifying in this way also allowed SBS to explore Dr. Lenkowsky’s “unproven or unorthodox” methods and develop funding models and growth strategies that best serve our mission, such as social franchising.
Social franchising differs from other scaling models because it allows the provider to replicate programs in a much more controlled and sustainable way, ensuring the high standards of the original program are maintained and resourced properly through partnerships.
In 2014, SBS began working with Spring Impact to develop a social franchise model to scale its impact and bring entrepreneurial education to 1 million women. For a fee, we train other NGOs on how to implement the program in their communities in order to teach women technical business skills and self-confidence.
Since pioneering social franchising for women’s economic empowerment, SBS has committed to a revenue model that is primarily dependent on philanthropic income in the first three years but moves to earned income, in the form of training fees, to meet our financial needs.
Combining philanthropy and earned income has resulted in a tripling of income for the women SBS serves, increasing earnings from on average $1.35 to $4.19 per day. Ultimately, the vision is to have a hybrid revenue model derived from both philanthropic and earned sources of income. For us, it is not a case of either or – but both.
Philanthropy can also mean sustainability
Philanthropic giving has had a record year, passing the $400 Billion mark in the US alone. (USA, 2018)
What would happen if we were to champion philanthropic income as much as earned income as a means to expand and scale social enterprises?
It’s clear that for many well operated NGOs creating dynamic social change, philanthropic capital needs to remains the cornerstone of their survival. For these organizations to reach their full potential they will need to continue to harness philanthropic resources. As organizations such as SBS and Spring Impact pave the way for other social franchises, here is a call to action for funders – let’s put fair value on all the assets at play and consider building something for the long-term with those organizations that have the potential to truly be one of the greats!
Director of Philanthropy
Street Business School
Marketing & Communications Manager
The article is part of a collaborative series with Street Business School (SBS) a former Spring Impact client. Together, we will examine Street Business School’s approach to scale and explore the experiences and issues that organizations may face when embarking on their own scale journey.