I had a fascinating conversation at a conference the other day that revolved around why nonprofits don’t seem to be able to really move the the needle on some of the really tough issues we face today (see Dan Pallotta’s – the way we think about charity is dead wrong).
Apart from the obvious argument that these really are tough issues, and that if they weren’t they would have been solved by governments long ago and not downloaded to nonprofits in the first place (an argument that deserves its own conversation later), it seems to me that nonprofits really suffer from a lack of scale.
In the for-profit world, there are clearly designed market forces and processes for small organizations to make the transition to a larger scale. In a stereotypical, generalized example, small, grassroot, companies tend to generate new and innovative ways of doing things that either provided enough of a competitive advantage that it allows them to grow and rival their competitors or they are absorbed in some way by a larger organization (acquisitions and mergers). In either case the concept of scale plays an important role in the organizations ability to deliver.
By comparison, there are no similar forces in the nonprofit sector. The vast majority of nonprofit organizations consider themselves ‘grassroots’, and tend to be smaller in scale compared to for profit organizations. And though many may have unique or innovative practices, there is no formal framework, and frankly little reason for them to share such proprietary practices with other organizations. Such collaboration may happen on an ad-hoc basis, but it is by no means standard practice.
The mechanisms of mergers and acquisitions as seen in the for-profit sectors are somewhat applicable to the non-profit sector, but without the assistance of clear measurements such as market cap, or even market share the process become convoluted at best. From what I have seen, many mergers actually begin as partnerships between organizations that grow until a merger is actually a logical conclusion. A very rare circumstance indeed.
As a result, nonprofit organizations have a difficult time taking advantage of economies of scale that could help them increase their impact on our society in meaningful ways.
