I hit upon this discussion while perusing the Huffpost this morning, and it’s a solid follow-up to what we talked about on this blog a few months ago about metrics for non-profit progress evaluation and efficiency in our social capital markets. Let’s organize their conversation with three questions: why do non-profits exist in perpetuity; how do we know that the ones surviving (i.e. the ones with high fundraising success) are the best solutions; and how can we leverage their dependence on donors to increase efficiency? I’m inclined to say that the most important of these questions is the last, since (I think) it represents a significant part of the demand for social solutions: non-profits are responsive to the strings attached to their grants, so let’s throw the onus on the informed philanthropist who wants to invest confidently in social improvement:

However, the largest funders in the nonprofit sector (government and foundations), have no appetite for risk, and individual donors generally invest in known brands regardless of impact. Therefore, an organization must be an institution before it can attract significant investment. These funders generally come in when the organization does not NEED the money anymore. Money follows money and ends up creating large organizations with more money than they know what to do with – and that leads to mission creep. The organizations who achieve some great feat are then rewarded to hang around and burn up money just to exist.

This is what’s keeping the “vampires” (as Lublin calls them) alive — they’re organizations with compelling images and anecdotal evidence of success, good branding and name recognition. Meanwhile, innovative approaches to social improvement are eclipsed because funders are risk adverse and won’t back new projects. Now, what if funders set up performance financing plans and hedged their investments by investing in first-round activity and progress reports (with pre-finance agreed upon metrics) before committing to longer-term investment? Also, funders need to be more informed of the management and program staff as well as of the problem and project nature, so that they can critically assess the odds of a new project’s success.

Read the discussion; it’s good food for thought and hits on a central fact of life in the non-profit sector: we’re money driven (not greedy, but dependent), so let’s get the money to flow more intelligently and maybe the sector will fall into step.