Growth pangs of a not-for-profit

October 16, 2014
By Rang De Team

There are 1 million non-profits in India — all working to tackle a specific problem. I am sure all of us, at one point or other, have wondered why most of the problems that the non-profits are working to solve have remained unsolved. Having had the opportunity to start one ourselves, we believe we may have just discovered one of the main reasons for the growth pangs that a non-profit faces. Popular belief remains that most non-profits are not what they seem to be and have severe challenges with regard to accountability and transparency. However, for every 1 such non-profit, there are probably 5 who are striving to succeed, to break the glass ceiling and achieve the scale that the problem demands. So, what is stopping all of us from growing?

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If we look at our own journey of starting Rang De, the first couple of years were dedicated to understanding the problem, devising a strategy that is suitable to solving the problem. It was impossible to talk of scale here as the focus was very much on understanding and experimentation. It clearly takes about 5–6 years for any nonprofit to arrive at a solution that works and there will always be a need for it to evolve to meet the needs of the community. During this phase, it is most important to have the backing of enough funding and the flexibility to test, and the luxury to fail. Very few non-profits are fortunate to get this support at the initial stages. If, by stroke of luck, the organization has got the kind of funding it needs, if it manages to survive the experimentation phase, then comes the growth phase.

Today for a non-profit that is looking at growth, there is little support out there. Mainly because, most foundations/donors only fund projects based on impact. There is very little capital available for the capacity building of the organization. Building and running an organization is often termed as admin expenses or overheads which nobody wants to fund. However, what would happen without these so called ‘admin expenses’. there would be no impact anyways. It’s the classic chicken and egg conundrum.

This is perhaps not a new problem. For years, non-profits have gone through this cycle. The survival strategy of a non-profit then means accepting project based funding whenever it comes their way. That also explains why many non-profits change their course of action, sometimes even their mission in order to survive. You would rarely see a non-profit that has dedicated itself to fulfilling one mission.

While this is the perspective of a non-profit organization, what about the funders’ thoughts. Why do they think and fund the way they currently do:

1) For generations, foundations have donated to causes as an act of giving, and not always to solve the problem.
2) Notions about Non-profit organizations as inefficient, lacking the expertise and wherewithal to think and execute holistically still remain.
2) Connected to this notion is the cost of overheads — which included even basic costs such as salaries, marketing and other necessary expenses
3) The desire to take claim for the impact created on the ground often exceeds the desire to help build the organization that solved the problem

The good news however for the non-profit sector does not stop at just one:

1) A small but amazing bunch of youngsters are hanging up their corporate boots are eagerly getting into the social space. This talent needs to be harnessed, mentored and nourished
2) With well qualified, well meaning individuals getting into the space — issues with expertise and knowledge can be rested
3) Running a non-profit is no longer just a passionate endeavour, meant for part timers, but young people are hoping to make a career in the space. If not, corporate salaries, they need to be paid to help meet their expenses.
4) Without strong, mission oriented organizations — impact will only remain flaky and superfluous. A strong, sustainable organization can help create sustainable impact.

A few years ago, there was a move to change this and tackle the challenges of funding in the non-profit space. That gave rise to a new school of thought called impact investing. Typically meant for for-profit social enterprises, here was a new breed of investors looking at investing in impact and making money at the same time. The for-profit model seemed to cater to this mind set. So, how different have these for-profits been in terms of creating impact — have they been able to address the social problems holistically? Unfortunately, the answer is a big no. From our limited experience we have realized that doing well and doing good in the social space is more of a misnomer. It is impossible to achieve a balance between social impact and financial returns. Often, the latter which is more easier to achieve is what keeps the entrepreneur going. Unlike in the case of a non-profit start up where they had the time and space to experiment before arriving at a business model and an impact model, the for -profit social enterprise has no choice but to get started from the word go.

A classic example where the for-profit model of social entrepreneurship as well as investments went terribly wrong was what happened in the micro finance space in 2010. We strongly believe that there is a need to create a middle ground that will help address these problems holistically.

At Rang De, we believe in creating our own solutions, approaches to solving our problems when existing models have failed to deliver. And we are doing just that to raise growth capital. This blog series is aimed at sharing this model with the larger audience. We hope that more and more non-profits will adopt this model or devise their own ways of raising capital.