The Non-profit Innovator's Dilemma


In 1997, Clayton Christensen published the "Innovator's Dilemma" that sought to explain the very reasons why successful companies eventually fall victim to their own successes. Christensen argues that successful companies often get very 'comfortable' by relying on the very products / services that created their success that they do not feel any urgency to think about what their customers today will want tomorrow.

Non-profits are faced with the same dilemma described by Christensen and in many ways, are more likely to fall victim to it. Non-profits typically have a disproportionate reliance on passive income streams (donors who just write checks year-after-year), which creates less of a desire to reach new donors through new channels that can create far more engagement and sustainability to the organization's enduring mission.

So how can non-profits avoid the 'Innovator's Dilemma'?

  • Build a diverse board

Non-profit boards are often very homogeneous and un-engaged. A few members often drive a disproportionate amount of contribution. There is often very little accountability to attend critical meetings and provide strategic oversight to ensure the organization is developing the necessary channels to engage with both donors and recipients. Boards need to have diversity in every sense of the word - age, gender, professional trade, and economic standing (to name a few).

Boards often look for 'whales' who can generate huge fundraising leads through their personal connections and there is a lot of value to that. However, there is not only a place, but also a huge need to have board members who can bring insights on how to reach donors that have never been part of your funding base. This is not about 'millennials', it's about psycho-demographic targeting that seeks to reach donors based on contextual values such as lifestyle, personality and values - all things that are agnostic to traditional segmentation attributes.

  • experiment more

Non-profits need to be experimenting far more today than in previous generations. Why? Simply put, there is too much of the same in the world of non-profits. It's not good enough to connect with donors on pure mission alone. You need to create a two-part narrative - problem and solution. It's easy to define the problem, but creating solutions that truly resonate with people is the linkage needed to build sustainable support. I am a huge advocate of 'multi-channel giving' - enabling people to engage with your cause through multiple avenues besides simple financial donation. But, in order to create these channels, you need to experiment and fail.

Organizations that don't tolerate experimentation and failure will never unlock growth. Ideas come from everywhere and simply dismissing them because they don't fit perfectly into a strategy is like throwing out a whole carton of eggs because one is cracked. This is far easier than it sounds, but a diverse board who brings a deep breadth of different attributes will help facilitate into an experimentation-driven organization that is willing to invest in ideas, even at the expense of failure.

  • Have the courage to change

It takes a lot for non-profit organizations to change course. Non-profits that have a long history often feel that changing course on mission or modality of solution will be undermining the founders of an organization. When the ailing Apple CEO, Steve Jobs, was transitioning out of the CEO role to Tim Cook, he gave him one piece of advice..."don't ever ask yourself what I would do?" It was probably the single most empowering thing for an incoming CEO of the most valuable company in the world to hear.

But, there are many lessons from that simple advice. Perhaps the most important is that times change and the way you empower others is by giving them the freedom to make the choices that are best for the organization as the world around it evolves. Far too many non-profits are paralyzed by their founders - it is not about fundamentally changing the underlying purpose of the organization; it is about creating better engagement and ultimately, sustainability, so that future generations can carry the torch of the cause.

Innovation is not some mythical leapfrog residual of thinking - it is iterative and it involves a lot of trying and failing.

"When you bring the right diversity of people together who are committed to the underlying cause, you will find evolutionary change in the form of an organizational culture shift based on new ideas and the initiative to actually try them. That will gradually dislodge the theory that 'what worked yesterday will work into perpetuity'. The best answer to any dilemma is to analyze carefully, but act definitively."

5 Things Every Non-Profit Must Have

The simplicity of philanthropy (take-in to give-back) actually undermines non-profit strategy because it discounts some of the core fundamentals needed to actually be effective, both in generating dollars and engagement, and efficiently channeling resources. Non-profits need the following 5 things to serve their underlying missions:

1) An Evolving Mission Statement (Problem and Solution)

It seems so simple, but so many non-profits lack a clear mission statement that defines the problems they're trying to solve, and how their organizations are trying solve them. A lot of non-profits do the first part very well - they define the problem. Many do a very poor job of connecting a tangible solution (or set of solutions) that they are using to solve the problem. The mission statement is likely one of the first things that a non-profit ever develops and they let it stay static. In reality, mission statements need to evolve as the understanding of the problem becomes more clear. I don't believe in annual updates to the mission statement, but I do believe a regular assessment of the mission statement is critical.

2) A Deep Desire to Experiment

In the corporate world, a deep desire to experiment results in innovation. But innovation doesn't just happen - it's based on a fundamental understanding within the executive team and the board that it needs to experiment (pilot, prototype, whatever) to stay ahead of the competition. Sometimes that means cannibalizing yourself (e.g., iPhone ate the iPod). For non-profits, this means not sitting around and waiting for the same checks to come in year-in and year-out. It means using vehicles (people, etc.) to go out and try new things. Experimentation is about failure, and failure is about learning. The more experimentation that non-profits engage in, the more they will learn about ways to create more effective engagement.

3) A Really Good Website

Statistics continue to show that non-profit websites are the main interface with the public when it comes to messaging and story-telling. Social media is a new channel for promotion, but websites are still the anchor to selling your cause. A really good website, in my opinion, has 3 components: 1) A simple User Experience (UX) - it shouldn't take somebody 5 clicks to figure out who you are, what you do, why you're doing it, why people should care, and how others can help. 2) Updated Content - there are too many non-profits out there that have websites that have stale content. In today's world of real-time everything, if the last time you updated content was 3 months ago, you're stale...and it is painfully obvious; and, 3) Rich Content - I define rich content as stories of how the work you're doing benefits people. Don't show me a half-narrative of just the problem - show me how what you're doing is helping the problem and if possible, put numbers to it. Show me your solution is working. If your website looks like it was from the 90's, what does that say about your organization?

4) A Relevant Brand Strategy

Non-profits are no different than for-profits when it comes to branding. Branding is not just one thing - it's more than just your logo. Branding is an amalgamation of both tangible and intangible things that come together to reinforce to the world who you are and what you stand for. And just like everything else, consistent evaluation of 'brand' is something that all non-profits need to be doing to understand areas that might need to be re-calibrated.

5) Multi-Channel Giving

I define 'multi-channel giving' as multiple pillars (or avenues) in which one can give to further your cause and help address the problem. I've seen too many non-profits out there that have very narrow mechanisms for giving - a donate button and maybe 2-3 fundraising events. That's not good enough today. Every non-profit needs to create mechanisms that all people (the young, the old, the rich, the poor) can give that provides true engagement with your cause and no, that doesn't mean helping with administrative tasks. It means having the opportunity to see the problem first-hand and have a channel to contribute. The best non-profits empower their donors and that's the only way to scale - create avenues that leverage the enthusiasm of others to get out there and channel their time to take action for your cause.

The Bottom Line

These things seem so simple - almost like a checklist. It's not a checklist and treating it as one only further deepens the problem in the philanthropic world - too much going in with too little coming out. The best non-profits create a multiplier effect where everything that comes in goes out at a bigger level....and that's the true power of philanthropy. In the for-profit world, they call it 'enhancing shareholder value'.

The Digital Donor? Interesting Stats on Non-Profits & Online Engagement

Every industry is taking a very close look at the channels that are driving consumer spend. For example, the travel industry continues to look at both the distribution channels (OTAs vs. native websites) and the touch-point that is being used to create the transaction (mobile vs. desktop vs. physical / call-in). The non-profit industry is no different and is keeping a very close eye on how online (including mobile) is driving donation dollars.

The Blackbaud Institute recently released its 5th Annual Charitable Giving Report to recap fundraising performance in 2016. The report captures overall giving data from 6,845 non-profit organizations, representing $23 billion in fundraising in 2016. 

Here are some interesting takeaways on Online and Mobile Giving:

  • Online Giving is Huge in the Month of December: Online giving in December increased for the second consecutive year, and represented ~22% of ALL online giving during the year.
  • Online Giving as a Percentage of Total Fundraising is Growing Slowly: Online giving in 2016 represented 7.2% of total fundraising, slightly up from the 7.1% in 2015.
  • Public & Society Benefit Captures the Highest Percentage of Fundraising from Online Giving: Public & Society Benefit organizations led all sectors by capturing 10.2% of its total fundraising through online giving in 2016. Medical Research was second with 9.5%.
  • Very Few Give Large Donations Online: When looking at how many 'large gifts' ($1,000+) came through online channels, the study found that 89% of those gifts were between $1,000 and $4,999, while just 3% were for $10,000 or more. Another interesting finding here was that 10% of all gifts of $1,000+ were for exactly $1,000.
  • Mobile Giving Continues Rising: In 2016, 17% of all online gifts were made through a mobile device, up from 14% in 2015 and 9% in 2014.

Medical Research sees a Disproportionate amount of Online Giving in September & October: Medical Research derives a very high 15.2% and 11.1% of its online giving donations in September and October, respectively. No other sector derives double-digit percentages of online giving in any month from January through October except Medical Research.

This was interesting to me, but then it makes a lot of sense. Breast cancer is one of the largest causes in the U.S. and Breast Cancer Month is in October. Given the number of participants in Breast Cancer walks that raise money through online platforms, those campaigns really take off in September and end sometime in mid- to late-October, thus driving disproportionately high online giving in those months.

Other Interesting Takeaways:

  • Total giving grew just 1% in 2016. However, given that 2016 was a presidential election year, it would not be surprising if money normally earmarked for non-profits went to a political campaign instead.
  • Millennials Looking for a Cause: The average age of the donor in the U.S. was 62.
  • Lack of Donor Engagement: U.S. donors made an average of 1.4 charitable gifts during 2016.

So what does this all mean?

The non-profit industry is clearly a laggard when it comes to online transactions. But, is that all that surprising when the average donor is 62 years old? So while it's easy for organizations to continue to rely on the big check every year from the retired person, that is all going to end at some point.

Non-profits should not take their eyes off of engaging with their donors who do not transact online, but at the same time, they must prepare for the huge wave of online and mobile giving that will likely follow the same patterns that have been seen in industries like retail, where the majority of people who still believed that physical stores would always have a place in our lives are now fighting for their corporate lives. As it turns out, physical stores have fallen victim to e-commerce giants who have created a friction-free, multi-channel, exponential storefront experience. I have no doubt that the best non-profits will do the same thing to the physical check that e-commerce platforms did to brick-and-mortar stores.

However, I also think that the "mobile eats everything" thesis may come very late to the non-profit sector. I still think that the non-profit industry, like the travel industry (which lags retail in mobile transactions), will remain heavily reliant on the traditional online experience encompassed by the large desktop interface (website) to browse through. People like to feel emotive engagement when they give money away and mobile is designed for efficiency, not emotion.

"A really good, clean website with rich content that creates a narrative where problems are clearly linked to solutions is still a great place for a non-profit to invest because great stories will never be commodities."

Why Non-Profits Struggle to Measure 'Engagement'

Non-profits are notoriously bad at measuring something that has become increasingly important - engagement. It is analogous to a company trying to measure the customer experience and creates the same question, "how do you solve for something you can't measure?". Like for-profit companies, non-profits often treat quantifiable numbers like 'revenue' as a measure of engagement, when in reality, metrics like revenue are a residual of engagement, not an equivalent of engagement. But, it's not an impossible battle, there are some things non-profits can do to start down the path of solving for this nebulous term:

  1. Define it: If you can't define what something means then you'll never be able to measure it. For non-profits, engagement is going to mean different things for different organizations. For example, event-based organizations might define engagement as repeat attendees? How many people attended multiple events during the year. A service-based organization might define engagement by the number of hours a volunteer contributes over a set period of time, and layer on a consistency aspect (e.g., 70% of our volunteers donate at least 8 hours of time per month). In any case, you have to put a stake in the ground and define what engagement means to your organization and what metrics you're going to use to measure against it.
  2. Survey Your Donors: Companies survey their customers at an increasing rate now to understand how they feel about an experience they've paid for, and non-profits should do the same with their donors.  These surveys don't have to be overly complex, but they should be consistent, which provides the ability to measure change over time. Why do you donate money to our organization? What types of things would incite you do donate more? What types of things can our organization do to grab more of your time? It seems invasive, but if done right, donors (like customers) actually appreciate getting their voices heard.
  3. Don't Equate 'Social Metrics' to Engagement: With the proliferation of always-on social media, the natural inclination for non-profits is to measure engagement by the number of followers they have on a platform or the number of 'likes' they get during a period of time. I feel that those types of metrics are overly-inflated - people follow things for many different reasons - following does not equate to engaging. No social media metric I have seen has ever convinced me that social media, in-and-of-itself, should be a standard of measuring engagement for a non-profit.
  4. Distinguish Between Campaign and Cause Engagement: The ALS 'Ice Bucket Challenge' was a huge success - perhaps the largest social-media driven fundraising campaign in history. It was such a great example of how simplicity combined with the viral nature of social media can create a huge movement that everybody knows about. That said, I question how many people that donated to ALS through the 'Ice Bucket Challenge' have interacted with ALS since then? Only ALS knows that number, but my guess is, it's not a large number. The 'Ice Bucket Challenge' created awareness and money, but did it create engagement? It likely did, but it was transaction-based, rather than a true relationship.
  5. Track Your Donors: Donors, like any type of customer, should be tracked, segmented, and analyzed. The more you know about your donor, the better off you will be in creating a methodology for measuring engagement. Not all engagement is created equally, either. The person who writes you a $100,000 check and speaks at one of your fundraisers every year for the past 10 years is likely more engaged than the person who simply just writes you the $100,000 check each year and never shows face. There's nuance in looking at engagement and there is a lot of grey area, but it shouldn't keep you from trying to understand it and measure it.

There is a disproportionate amount of time in the non-profit space right now being spent on 'blind fundraising initiatives', and not enough time being spent on measuring engagement. And by 'blind fundraising initiatives', I am talking about cold-calling, meeting with people that have money but know virtually nothing about what your organization does, etc. That is a tactical, not strategic move that relies on the 'power of persuasion', rather than on the merits of your organization - some would argue that money is money and it doesn't matter how you get it. I agree to the extent that you don't care about sustainability, which is the fundamental reason why engagement matters. Understanding and measuring engagement will enable non-profits to spend less time flying blindly and more time focused on improving the overall experience for those who are truly engaged in the cause, and that will result in the higher metrics we love to measure.

When it comes to non-profit strategy and understanding what engagement means and how to measure it, I am reminded of an Einstein quote about how he would save the world in 60 minutes:

"I Would Spend 55 Minutes Defining the Problem and then Five Minutes Solving It."

5 Ways Non-Profits Need to Act More Like For-Profits

If 'disruption' is the buzzword of the decade, then it must mean that it is pervasive, and in-reality, nobody is immune. Non-profits have traditionally been laggards in many areas because they don't have shareholders to appease, the causes they represent have not been sufficiently alleviated (thus enabling continued giving), and the fundamental paradigm of philanthropy has remained relatively constant in a world of change. That said, I believe non-profits can accelerate their platforms and bring greater benefit to the causes they support by taking a more aggressive approach in adopting 5 key things that have been part of the for-profit business model for years.

  1. Utilize Incentive-Based Compensation: Non-profits, by-in-large, provide their executives with straight salary arrangements that are not heavily weighted on performance. I think non-profit executives should have a 'material' part of their compensation tied to tangible metrics such as revenue growth, efficiency (% of revenue to program), development of new platforms / programs, etc. Many will argue that such incentive programs can actually work against an organization by 'pushing' executives to focus disproportionate time on only driving the metrics that relate to their variable compensation. Fair enough, but I still think that when compensation changes when certain targets are met (or not), the organization is better off.
  2. Internal Investment: For-profit organizations invest in themselves through 'research & development' and lately, the trend is to build internal accelerators (Venture Capital arms that look to seed innovative concepts that can help build synergies with current offerings or look to future industry paradigm shifts). Non-profits, by-in-large, do not do any type of internal investment because 1) it drags down efficiency numbers; and, 2) there is not a huge incentive to change. This is probably where the 'disruption' part comes up. Organizations that sit on donor bases that just write checks year-in and year-out are likely going to be disrupted when the boomer generation begins to become a smaller percentage of the overall population and most importantly, a smaller percentage of the demographic wealth. Organizations absolutely need to be experimenting with new platforms that can capture new types of givers in a sustainable way - there's a reason that for-profit companies are so obsessed with the consumption behaviors of Millennials, and that reason is equally relevant to non-profits. By 2025 (< 10 years from now), Millennials will be 75% of the workforce (meaning ~75% of the income). Research shows that Millennials do not buy the same way that previous generations did (they value experiences over things) and research shows they do not GIVE the same way previous generations did (transparency and targeted giving over 'blank check philanthropy'). Non-profits need to find ways to capture these changing demographic behavioral patterns to avoid being 'strapped to the railroad tracks'.
  3. Consolidate: Every day that you open up the Wall Street Journal right now, you are reading about another mega merger or mega buyout. Why? Because scale is everything and the only way to get it is through acquisition. I've long believed that there are far too many non-profits out there and that this 'excess' creates a lot of inefficiency in the system. Just as for-profit companies are looking to scale to drive down costs, unlock new synergies and diversify revenue streams, non-profits should be doing the exact same thing. For non-profits, it may not be traditional M&A, but there are certainly far more ways that like-organizations need to come together and build consortium business models that can drive down overhead costs and scale revenues at a faster rate that benefits. It may require giving up a little control and a little branding recognition, but if you look at what's best for the only makes cents [sic].
  4. Build Active & Diverse Boards: Non-profit boards have traditionally been made up of figure-heads that can bring in a lot of money and can bridge connections, but often are not very active in the organization. That's great - keep those people around as you'll always need money and connections. But, like so many for-profit companies are doing, go out and find people that may not bring the same wealth of your traditional board member, but can bring new types of skills to accelerate strategies to encourage innovation and external collaboration. Every non-profit board should have a social media expert on it - it's too big of a space, especially in the non-profit world, to simply ignore. But here's the kicker - experts in social media are usually about 25 - 30 years old and look nothing like what non-profits might envision as their ideal board member. However, having somebody on the board to provide guidance and oversight to your management team on this social media phenomenon, which is only getting bigger, can only enhance a non-profit's efficacy and long-term sustainability.
  5. Focus on Product, Not Process: Steve Jobs once said that the greatest companies in the world have an obsession with 'product', not process. Every non-profit has a different product - for some, it's events; for others, it's some type of experience that they provide for the community; and for most now, it's some combination of multiple things. In any case, non-profits need to identify what their products are, and put a disproportionate focus on curating those products. Non-profits are notorious for being overly interested in 'process' because when there are no shareholders, it's very easy to become an administrative cluster. Nobody benefits from administrative B.S. and internal politics, which squarely fall into "process". When you look at the most effective non-profits (just like the most effective and successful for-profits), you will find one striking commonality - they all have an obsession with the quality of their products, and how their customers / donors / beneficiaries interact with them and in turn, benefit from them.

As our world converges - CES is now an auto show and the Detroit auto show is now a tech conference (LOL), non-profits need to begin adopting for-profit characteristics at a much faster rate. When people say that they love non-profit work because it's not like the business world, I get very confused. The non-profit world IS the business world - it's the business of giving.