Giving Compass' Take:

• Dhananjay Vaidyanathan Rohini explains how the expectations placed on nonprofits prevent effective scaling of effective social programs in India. 

• How can funders work to support nonprofits in scaling up their efforts? 

• Find out why giving in India offers an opportunity to scale impact. 

The private investment world is obsessed with unicorns–startups that are valued at a billion dollars. They often scale rapidly to disrupt existing markets or create entirely new ones. Where are the equivalents of unicorns in the nonprofit world? Scale is an oft-repeated word in the sector, but only a few organisations manage to attain it.

Our recent engagements with philanthropic clients led us to ask some fundamental questions about the way the sector operates. Is there something peculiar about the nonprofit world that leads to only a handful of organisations scaling? If so, what can funders do about it?

The private sector paradigm:
In the private sector, industries often have very different dynamics leading to very different growth patterns. Some industries such as proprietary pharma require very high upfront investments and many years of gestation before the first returns are realised through relatively high margins. Revenue growth can go from zero for many years to a high figure all of a sudden upon launch.

The growth template here is to ‘carefully assess risks, hire smart scientists, spend a lot of money and time on research and trials, and then (hopefully) reap rewards’. On the other hand, many internet startups can get a minimal viable product in front of target customers within weeks, and tweak it with minimal investments. Big ticket investments in marketing are needed to ensure that users’ attention is on their product

Consider the ‘nonprofit industry’ on the other hand:
In comparison to the examples above, growth in the nonprofit sector would fall on the tougher end of the spectrum for at least four reasons.

First, nonprofit ‘firms’ tend to take on inherently harder problems (it’s tougher to end polio than to sell soap); many expressly work in areas where there is commercial market failure because they believe an existing unmet need must still be met. Second, they almost always operate in places where institutions and systems are weak, and they aim to fill the gaps. Third, they have a complex set of stakeholders to work with, and often operate amidst regulatory landmines.

“Nonprofits almost always operate in places where institutions and systems are weak, and they aim to fill the gaps.”
Finally, and crucially, nonprofits are often project-based organisations. Operating on a project-to-project basis has high transaction costs; many heads of large nonprofits talk about the pressures of constant fundraising. Projects often require bespoke solutions, not suited to ‘templatised’ implementation.

Read the full article about scale by Dhananjay Vaidyanathan Rohini at India Development Review.