It would be great if earned revenue strategies could pay for everything that members of society would like to see happen. Of course, if that were so, then there would be no need for nonprofits (or for government)in the first place.

Problem is, even in a well-functioning for-profit economy, there are large swaths of market failure — in other words, large areas where members of society would like to see something happen, but business people can’t (and won’t ever) find a way to make it profitable without philanthropic or governmental outlays that go on “forever”.

Nonprofits are in the business of turning people’s money into program execution. In that sense, they are just like for-profits, except for a difference in tax status, and the fact that their paying customers mostly purchase goods and services for folks other than themselves.

Your comment agree with me, except you seem to assume that if a program is not sustainable on earned income, it is only due to them not finding the right “innovation”. I think there’s a lot of innovative ways that nonprofits can earn income, but I highly doubt that all social problems are fixable via earned income strategies.

I guess my favorite variety of donor engagement comes in the form of what you might call customer loyalty. Indeed, the “builder’s” role is to help pay the bills while an organization learns how to attract these loyal “buyer type” funders and get them to come back time and time again, simply paying the nonprofit to do what it does so well.

You are quite right to point out, however, that the “builder” concept can tend to nudge particularly desirable funders towards “exit”. Much as with other types of capital campigns, particular care must be taken to avoid allowing a single large grant to prematurely end a valuable ongoing relationship.

Often a single funder can play an interim builder role, and then transition over to a long term buyer one. This is not unlike a for-profit company that provides an equity investment to help launch a new company that it then buys things from. The transition involves a shift from helping to “change what the organization does” to simply providing money that pays the organization “to do more of what it does so well”.

Since George has been posting on this blog, I hope he’ll see this comment because I do have an initial question:

Does the ‘build vs. buy’ framework adequately address ongoing donor engagement? After all, what we want is an ongoing relationship with an expanding donor base, not builders who abandon what’s built (”My work here is done”) or buyers who feel like Kwik-E-Mart customers: “Thank you! And come again!”

(George, thanks also for the Rolls/Saturn observation. It’s great to have “sticky” examples and I expect I will use this one in the future.)

Interestingly enough, though, the builder/buyer concept is meant to help combat the problem. Reason being: when a nonprofit presents itself as selling something (a unit of output or a unit of outcome), then the buyer of that something is less prone to focus on inputs, or to second guess how the nonprofit is managed.

To extend the example - we don’t think about overheads when we consider the price of a tutoring session from Kaplan, whereas a nonprofit that “needs your support” is often viewed as a conduit that takes money from the rich and gives it to the poor… in which case the overhead rate can become a tempting proxy for efficiency. Much better for the nonprofit to reposition the conversation towards units of output or (better yet) units of outcome.

(The “buyer” approach is not the same as traditional program funding.)

By the way, a favorite debunking of the overhead mindset: did you know that a Rolls Royce carries less overhead than a Ford Saturn? (more advertising) Clearly, that does not make the Rolls a thriftier buy!

I am much more interested in approaching philanthropy as a Builder. I’ll spend some time explaining the Builder vs Buyer concept in the future.

But in short, I agree with your point completely.

It’s fine to be a Buyer and not a Builder, but Buyers have to pay the full cost and that includes overhead that goes to turning on the lights, raising more money, and investing in developing and retaining a high staff. Overhead is not part of the equity-like, growth capital the Builder provides. It’s the fixed, organizational costs and in a for-profit world, those costs are included in the price of the product.

Funders and government agencies have dictated arbitrary amounts of overhead (10 or 12%) for so many years now that nonprofits sometimes don’t know how to talk about what it would really cost to “buy” their services, including the appropriate overhead.

Of course you and George Overholser know this, but I think you have to be careful that you don’t throw around Buyer and “project support” without that caveat.