It’s never been easier to start a nonprofit.
Technology and experience barriers are almost nonexistent. And our cultural focus on entrepreneurship, as evident in the popularity of TV shows Shark Tank and Silicon Valley, is reducing the mental barriers and providing an extra social incentive to start something new.
As part of the increase new nonprofits, founders have begun to develop new nonprofit business models.
Some of this innovation can be explained by the numbers: more nonprofits are being started so we’re seeing a greater variety in business models.
But this innovation is also necessary given the state of charitable giving.
You see the charitable giving rate has been hovering at around 2% of GDP for years. And while it is absolutely a good thing that more entrepreneurs are turning to the nonprofit world, a “stuck” giving rate and more nonprofits means that there is less money to go around to each nonprofit.
Therefore nonprofits are adapting. I’m using the label “nonprofits” here to refer to both traditional nonprofits and newer for-profit, for-good organizations. I believe it’s fair to lump them together because their purpose is the same. The difference in legal structure, at least in the cases I looked at, is merely a technical detail.
Before starting to build CharityX, I spent a long time researching the nonprofit space and found I could group nonprofits models into three categories: traditional nonprofits, innovative nonprofits and alternative giving models.
Here’s a look at each category.
The Traditional Nonprofit Business Model
The traditional nonprofit business model relies on grants and public donations for funding. When it comes to public donations, traditional nonprofits rely on donor’s existing connection to their cause to raise public donations i.e. I like dogs so I give to Paws.
Best for Under-served Causes
This model is best for nonprofits aiming to target an under-served cause. Because traditional nonprofits rely on “existing cause connection”—a.k.a. Better World donors, see below—an undeserved cause is likely to have untapped donor and grant potential. Because the tribe of people motivated to give to the cause are less likely to have a method to do so.
Innovative nonprofits are using new tactics that better connect with the reasons why donors give, which can be loosely organized into three categories:
- Better World: I donate because I value the social good done by the charity.
- Feel Good: I donate because I feel good knowing that I contribute.
- Show Off: I donate because I want to show off.
Reason for Giving: “Animals are suffering.”
Attracted to: A lovable mission. Emotional connection to cause.
Reason for Giving: “I helped a kid named Tim in Bulgaria go to school.”
Attracted to: A direct link between my donation and impact. Making a significant difference.
Reason for Giving: “My run-a-thon generated $500, look at my Livestrong.”
Attracted to: A cause I can share with others.
Charity: Water is an example of an innovative nonprofit. Charity: Water directly connects individual donations to impact in the field e.g. donors may use GPS to track the impact of the exact well-building truck they helped fund.
If you think about the population of people that are truly passionate about “water” it may not be that that big. But because Charity: Water intimately connects you with the effects of every cent of your donation, they are able to tap into the other reasons for giving and have been extremely successful as a result.
Best for Organizations Who Can Afford Innovation
Innovative nonprofits typically rely on uniquely tying donations to effects. This often requires a significant capital investment.
Can’t afford innovation? Your creativity might be able to make up for it.
Alternative Giving Models
A number of organizations, both for and non-for-profit, are using alternative giving models to better connect with donors. Alternative giving models are typically a hybrid for/non profit combination that utilize for-profit potential to fund innovation in both technology and creativity. CharityX belongs to this category.
Here are some examples:
EverydayHero – A for-profit that allows people to track every aspect of their impact: from donations to volunteer hours. You may create pages to collect donations from others.
GlobalGiving – A nonprofit, the first and largest global crowdfunding community for nonprofits. Similar to DonorsChoose, which crowdfunds classroom projects.
Kiva – A nonprofit that connects lenders with entrepreneurial borrowers.
Benevity – A for-profit that offers online workplace giving, matching, volunteering services.
Omaze – A for-profit that raffles dream experiences with celebrities for donations.
Best for Fast, Scalable Growth
Alternative giving models unlock the power of profit. Profit is often thought of as “evil” but used in the right way it is what fuels societal innovation. Profit just might be what it takes to break the 2% of GDP giving threshold.
What to Do Next
Which category does your idea fall into: traditional, innovative or alternative?
There is no best model. In fact, you can likely be just as successful using any provided you can find creative solutions to tap into all three reasons for giving.
Your best path forward is to choose. In the scheme of your journey, this is a minor decision. Make a choice and then spend time on what’s important: changing the world.