The #1 Barrier To Nonprofit Effectiveness

The other day I heard Jason Fried, the CEO of project software Basecamp, talk about productivity. He said, “Your company needs to be your best product, because it is the product that makes everything else.” As a result, he is spending the majority of his time working on his organization, not it’s products. This challenges me! 

The organization, to me, is a tool to create, launch, and manage our products and services (our training and resources). I want to spend as little time and energy as possible working on the organization. Instead I want to put that energy into our products and services.

That’s when I realized I have been thoroughly brainwashed by the #1 barrier to nonprofit effectiveness: the Charity Mindset.

The Charity Mindset’s Unintended Consequence

I spent 25 years working for nonprofit organizations. In the nonprofit world, organizations are not only expected to be lean, they are judged by their operational expense to money-spent-directly-on-services ratio. Evaluating an organization primarily by its organizational expense footprint produces a mentality that says we can change the world with very little organizational capacity. 

By focusing on an operational expenses measurement, nonprofits keep their administrative and fundraising expenses lean. Which isn’t as great as it sounds. These cost-saving measures produce an unintended side-effect, organizational capacity stays low and so does effectiveness.

Lower organizational capacity is a result of nonprofits doing these things:

  • Dismissing ideas that are expensive.
  • Relying on well-meaning volunteers rather than well-trained employees.
  • Not investing in technology that would better facilitate their mission.
  • Unable to attract the leadership talent needed to build an effective organization.

Yet, this doesn’t bother many people in nonprofits. They are True Believers in their cause. They believe they can change the world, even with little organizational capacity.

Back to Jason Fried’s statement, “Your company needs to be your best product, because it is the product that makes everything else.” Invest in your organizational capacity so that you can produce the products and services that will have the greatest impact.

Judge A Nonprofit By Effectiveness, Not Operational Expense

The problem with mainly looking at operational expense ratio is there is no evaluation of the effectiveness of the services offered. Who cares if an organization used only 18% of it’s budget for operations if the results of the other 82% of funds didn’t achieve much?

Rather than starting with the question, How little can we spend? Begin with these two questions:

  • What do we need to be most effective?

Focus on effectiveness and organizational capacity, not just reduced expenses.

  • What do we need to do to double our organizational capacity?

Think in terms of organizational structure, operational budget, employee specialization, and the compensation package for employees.

Personally, demand for our coaching training services has outgrown our ability to provide them. The bottleneck for serving more people is not our marketing, but our organizational capacity. Lately, I’ve invested time in hiring new employees, training instructors, and implementing new technology – all to increase our organizational capacity.

Doing these things has meant slowing down my writing and new training launches, which is frustrating. But I believe Jason Fried is right, “Your company needs to be your best product, because it is the product that makes everything else.” I believe we’ll see increase effectiveness as a result of my investment in organizational capacity.

Question: What possibilities would greater organizational capacity open up for you? You can leave a comment by clicking here.

    Keith is an author, speaker and Professional Certified Coach. He helps on-the-go leaders multiply their impact. Keith is the author of several books including The COACH Model for Christian Leaders.

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    • donnamaui

      Good points. A few nonprofits I’ve worked with get this, but they also have to communicate the importance of operational investment to their donors.

      • Many donors will get it if we communicate well and actually build organizational capacity. There is a delay between building and delivering more effective services, but org capacity can be measured and reported on.

    • Lisa Murfin

      I’d love to hear updates on your progress in 6 months, a year.

      • Me too! You’ll know I’ve made progress if you see a new course or book on the way…

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