The post title is a blatant attempt to generate interest.  That said, it is a true (if incomplete) statement.  What the sector is in desperate need of are markets; debt, equity, M&A markets.  In short, it needs buyers and sellers, creditors and equity holders.  In the commercial sector these are necessary financial tools for growth.  Hell, in our own personal lives we have access to all of this (e.g. mortgages, car financing, loans, credit cards).

Why then is the non-profit sector so incredibly hamstrung?  Why are there no market makers (yes, the stock exchange is an example but don’t forget Ebay and Craigslist and dozens of other market makers who bring demand and supply together) in the non- profit sector providing these basic financial instruments to generate growth and scale?

Why is a non-profit’s main (and generally only) source of significant money to fund scale and growth a rich guy or gal committed to the cause?  That is an incredibly small market with severe limitations.

Think bigger, demand bigger.

This is not crazy, Pollyannaish talk.  This sort of more traditional funding occurs in the sector on a routine, albeit entirely too limited and entirely too misunderstood basis right now.  The participants seem embarrassed by it or at least preferring it not be discussed when in fact it should be shouted from the proverbial rooftops.  We are talking about vendors who will provide monies to front, for example, a particular acquisition effort, take the funds raised to cover their out of pocket cost and turn over the newly acquired donors to the organization.

The media report on this as if it is sinister.  The watchdog groups declare it to be borderline fraudulent or mismanagement.  The vendors and organizations hope the story blows over in a day.  The media and watchdogs are ignorant on this score but we have nobody to blame but ourselves – those of us involved, directly or indirectly who know better, understand the utter legitimacy of such funding mechanisms and yet do nothing.

Time to think bigger, demand bigger.

But why stop there?  Why stop with a few well-funded or at least risk-averse vendors as the second source of capital?  In Europe there are companies setup to provide financing to the sector for a myriad of activities.  Why are they not in the states?  But why stop there?

What we really need is liquidity, the kind that comes from big, efficient marketplaces to provide capital (debt or equity) by bringing together buyers and sellers.  Many a non-profit is capable of producing pitch decks akin to those seeking venture or angel investor capital and equally, financial reports and documentation akin to the private sector.  There are buyers out there in need of decent, predictable returns.

What about divestiture and mergers or acquisitions?

If we think the non-profit sector with its proliferation of organizations is somehow immune to the healthy pruning and consolidation required in the private sector then we are kidding ourselves.  Going out of business should not be the only option for a non-profit.  Merging, acquiring and divesting are healthy, normal and necessary activities for any sector to reduce redundancy, provide scale and divert resources to the better performers, allow the strong to get stronger.  This is mandatory if real social change, in whatever subsector you may occupy, is EVER going to occur.

We have to think bigger, demand bigger.

Where to start?

1)      The sector needs an analyst doing buy side and sell side research.

2)      Get a foundation to pay for it.

3)      Focus this person on a sector – let’s pick environmental.

4)      The analyst produces a report covering health of the sector and ratings on the top 20 groups, including possible merger possibilities based on size, focus, redundancy, health, etc…

5)      The foundation shops the report to institutional investors, banks, etc..

6)      We learn, iterate and make decisions about next steps.  Do it quick, fail fast, learn, move.  We don’t have to act big initially to think bigger and demand bigger.

7)      We do have to do something different.  Radically so.