Stanford Social Innovation Review

Your questions are really intriguing. All of the sectors of the economy--nonprofit, corporate, venture capital--are now engaged in the nonprofit sector, raising interest in how all the activity will "play out," what can best be performed by which sectors, and how nonprofits, in particular, will fare in this heightened arena.

The following data should help provide a context for predicting the future of nonprofits. According to the National Center for Charitable Statistics, there are currently approximately 1.4 million registered nonprofit organizations, representing a 13 percent growth rate during the last five years and, on average, 30,000 new nonprofit organizations per year. Approximately 81 percent of the total nonprofits fall into the below $100,000 revenue category. At first glance, a 1-5 percent yearly growth rate in nonprofit organizations doesn't seem significant. Yet, in view of a somewhat limited donor and leadership pool, 30,000 additional nonprofits yearly is staggering.

While increased funding may open up to nonprofits in key areas such as energy and other global efforts, corporations could just as easily shift donations inward to their own projects. On balance the average nonprofit within a growing nonprofit population is unlikely to see much additional funding. Furthermore, nonprofit growth will cause a leadership deficit. According to an extensive study by Bridgespan, nonprofits with $250,000 plus in revenue will require 640,000 new senior managers over the next decade; this is 2.4 times the number currently employed and will require the opening of alternate sources for leaders. (Stanford Social Innovation Review, Summer 2006.) Overall, as nonprofits compete with each other and socially responsible business for funding and leadership, a shakeup is inevitable.

To address your specific questions, how will this growth in both arenas "play out"? While it is difficult to discern an order within the current activity, the end result should be a more efficent, improved and socially responsible economy.

In the interim:

The Nonprofit Sector. Nonprofits have indeed become more businesslike. They've become much more adept at crystallizing their missions and marketing and finance strategies, and many have taken on self-sustaining initiatives. To date, they have reaped benefits from reciprocal relationships with socially responsible corporations that have ample resources to take on some portion of "good."

Corporate Social Responsiblity. There is going to be a range of growth in this arena. Some of these corporate responsiblity areas will continue as they are, and the reciprocal relationships with nonprofits will remain similar. At the other end of the range, businesses will establish and fund comprehensive nonprofit units. While most of these current corporate efforts seem different from those of the typical nonprofit, it is less certain what the relationship will be in the future. Also uncertain is the longevity of these areas, given corporate shareholder responsibility, including the need to see immediate results.

Over the next decade, we should also see the following:

• Because of the increasing competition among nonprofits for limited resources, many traditional nonprofits will fail. Only the strongest, those with the clearest mission, the most well-defined niche in the marketplace, the best messaging and delivery to customers and other constituencies will continue to attract the money and talent to survive.
• These winning nonprofits and their clients will be beneficiaries of the considerable information technology and other large-scale efforts currenty undertaken by socially responsible corporations(e.g. Google.org).
• Many new joint working structures will emerge, both ad hoc and formal, as nonprofit and business goals intersect.
• Some nonprofit organizations will become acquisitions of for-profit organizations; this is already in process in consumer products and related industries.
• The upcoming nonprofit leadership deficit will play out in part with increased hiring from the corporate sector, and overall, there will be more fluid movement of people between the two sectors.
• Over time, as competition continues to accelerate in all sectors of the economy and corporations become increasingly worried about the bottom line, some of the large corporate efforts will either scale down or fold back into the organization.

To answer your question on reacting to "encroachment," there is going to be some "encroachment" of the corporate sector into nonprofit organization territory. Rather than react to it, nonprofits should expect and prepare for competition by positioning themselves as the single source of trust and credibility with their marketplaces, through zealously adhering to their missions, guarding their unique value propositions, going to the next level to attract talent, and delivering on their promises. They also need to become increasingly agile in preserving competitive advantage against constant change in the marketplace.

You've asked whether big companies do a better job and/or are more efficient in doing good? Who does the best job at "doing good"? In general, nonprofit organizations, who don't have shareholder responsiblity, can do the most good. Their clear passion for the mission and their zeal can establish authority and trust in the marketplace, build an unbeatable value proposition, and accomplish extraordinary social progress. However, when the effort mandates large-scale development, technology, and/or production processes, business is most likely to be more efficient. So, in general, greening and other large-scale global efforts require partnerships of development and production by business, and advocacy, enforcement, messaging, "selling," and delivery of services by nonprofits. Overall, the involvement of business in greening efforts is positive; the synergy of business and nonprofit work will produce far more than previously possible. It is just hard to predict how it will all play out. With $3.95 billion in 2007 venture capital going to North American companies that create eco-friendly products and the Internet giants taking on established energy leaders, all the sectors will be in play.

With regard to future nonprofit strategy and positioning, I believe I've covered most of this above. The more adept nonprofits are at nonprofit functions as well as disciplined business functions, the more successful they will be. For compelling reading on nonprofits and socially responsible business, I highly recommend The Social Venture Network Series of books, written by high-profile business owners, investors and nonprofit leaders (for example, Ben Cohen, Chip Conley), who are advancing the movement for social responsibility in business.