The Disruptive Third Party Amongst Nonprofits Rides Again

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One of the many odd characteristics of nonprofit finance is the “muted market” effect; that is, the fact that many of us serve one group of people but another group (or groups) pays us to do it—foundation, government agency, donor, or whatever.

This creates problems of many kinds, including making accountability and direction-setting much more complicated, and specifically interrupting in many cases our communications with those we are supposed to benefit.

The much esteemed Lester Salamon and I wrote an article years ago on the issue that is still in active circulation: “In, but not Of, the Market.” If you have not yet read it, I recommend it.

But one of the other problems with a muted market is that we can believe that all is well, that we are doing everything right, and that we’re in good stead with funders and those using our service, and still find the rug suddenly pulled out from underneath us. A key foundation may change its focus or spend a year or two rethinking its funding priorities or the local United Way decides that it must narrow its funding to three priorities, a strategy they believe will be favored by donors. I had this experience with rogue funding decades ago at a shelter for battered women with which I was involved—the agency that funded 90 percent of our budget, LEAA, was disbanded and our funding gave us but six months to live.

And this morning, I read a story that cited a situation so reminiscent that it took me back: A battered women’s shelter that believed it was completely compliant with all requirements and had been funded annually for years by a federal agency was, with little notice, defunded. In such situations, good leaders haul out their relationships with influencers and those served and make a lot of noise—Volunteers to the fore! If you got ’em, use ’em, all while doing a rapid set of scenario plans.

If you don’t, woe to you. Engaged community members are your ace in the hole.

Not the same dynamic as most businesses in the least—unless, of course, you happen to be a financial institution that has caused ruination to all and sundry and then you can replace “those served” and “volunteers” with the descriptor “those who benefit from heedless plunder and have friends in high places.”

In any case, I would deeply appreciate, as we think about updating this article, your thoughts on the nonprofit sector’s “muted market” and its effects.

Looking forward to hearing from you!