New thinking and new approaches are fundamental necessities for survival and growth. Not because all “old” ways are bad.  Not all are.  And surely not because the next, shiny new thing is likely to be better.  It’s not.

In a sector desperate for growth new solutions and approaches to financing must be explored.  Incremental change –the testing of ‘whispers’ like envelope teasers, letter length, letter signers – make for only marginal improvement even when executed by the most skillful practitioners.

Nonetheless most fundraisers are focused on incremental improvement, apparently unaware that sticking to the status quo in a fast-changing world may be among the riskiest of strategies.

Given the increasing demand for support of vital missions, we need to explore and use some of the engines that drive the commercial world. The desirability of debt, of equity investment, of mergers and acquisitions. These are necessary tools for growth, but they’re little understood or accepted in the nonprofit world.

What about divestiture, mergers and acquisitions?

If we think the nonprofit sector with its proliferation of organizations is or should be somehow immune to the healthy pruning and consolidation required in the private sector, then we are kidding ourselves. And we need to demand that redundancies and the worn-out be merged or killed.

Going out of business should not be the only option for a nonprofit. 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. They allow the strong to get stronger. This is mandatory if true change, growth and sustainability are to occur.

We need to be asking, over and over,  “Why is the nonprofit sector so incredibly hamstrung financially?”  Why are there few market-makers in the nonprofit sector that could provide more financing options to generate growth and scale? (Yes, think of the stock exchange as an example, and don’t forget EBay and Craigslist and dozens of others who bring demand and supply together in the for-profit world.)

Why is a nonprofit’s usual and, generally, only source of money for growth limited to either ‘stealing’ from operating funds, or some rich guy or gal committed to funding the growth of a favorite cause? Crazy.

Fortunately, over the past few years more and more social innovators, financiers and philanthropists have been moving in the direction of exploring the use of variations of the financial instruments and approaches that help drive much of the private sector.

Tina Rosenberg, author of Join the Club: How peer pressure can save the world In a recent New York Times piece offers a fascinating insight into an increasingly popular financing instrument for nonprofits –the Social Innovation Bond.

Tina’s NYT piece,  Issuing Bonds to Invest in People tells the story of the organization Social Finance and its Pay for Success programs that uses innovative financing to improve the lives of people through the activities of nonprofits working with local governments and universities.

As an example, Tina cites a Connecticut drug program aimed at preventing family disintegration.

She explains, “The bond works like this: A group of private and philanthropic investors, led by the European bank BNP Paribas, put up $11.2 million. The agency set specific goals: Clients should have more clean drug screens, fewer reports of child mistreatment and fewer foster care placements, compared to a control group. The better clients do, the better investors do.

“If the program fails to meet its targets (the University of Connecticut Health Center will evaluate it), investors can lose all their money. If it succeeds, Connecticut repays the investors, with interest. The state will also have saved money, by reducing the number of foster care placements.”

According to Tina, “The idea of social innovation also known as social impact investing is catching on. There are now 108 such bonds, in 24 countries. The United States has 20, leveraging $211 million in investment capital, and at least 50 more are on the way.”  She goes on to report…

“…. These bonds fund programs to reduce Oklahoma’s population of women in prison, help low-income mothers to have healthy pregnancies in South Carolina, teach refugees and immigrants English and job skills in Boston, house the homeless in Denver, and reduce storm water runoff in the District of Columbia. There’s a Forest Resilience Bond underway that seeks to finance desperately needed wildfire prevention.”

(You can read more about these performance-based, “pay for success” impact investing programs, how they’re financed, and how they’re evaluated on the Social Finance website.)

Obviously, I’m not raising this to urge folks to drop their direct response and major gift programs and rush right out to their nearest investment banker. I raise it as part of my larger point that our sector simply must be more aggressive in exploring new thinking and new approaches.

Asking for and securing commercial-like investment in building and expanding the work our sector should not be a cause for embarrassment or an admission that somehow, we’ve failed to do enough.   Rather, we should explore, welcome and encourage vendors, donors, bankers and foundations to invest in ways with which they’re already familiar.

In return they should be given a legitimate and substantial return – to help build our organizations.

Your thoughts please.

Roger