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NGOs – the big losers in the current social investment sphere

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Social and developmental enterprises like NGOs are increasingly struggling to get funding for their projects and programmes – and with good reason. While everything else in the world – also in the social investment arena – is changing, too many NGOs are still stuck in their old ways, expecting better and different results while doing the same things for years.

After extensive research on the latest trends in the social investment and development sectors, Next Generation Consultants can unequivocally say that today’s social and impact investors, grantmakers and donors want their investment to have greater impact and return on investment that’s also sustainable. They want NGOs to show value – and value that beneficiaries should pay for. It’s not good enough to hear that their money built a home for a poor family – investors want to know how that home changed that family’s lives for the better. They want hard evidence that their money was worth spending, and this is where most social and development enterprises fail.

Hard evidence plays into the principle of accountability, of course. With scandals surrounding payouts to the social sector, global companies accused of unethical and unfair business practices, and increased corruption on all fronts, public reporting and publishing, good governance and transparency are now demanded, also in the social development sphere. We’ve been shown that a “good name” is not good enough anymore. You’ll have to prove it. Organisations lining up for funding will have to prove with scientific detail what difference that money has made or will make, to what extent and for how long. And so many NGOs and NPOs are currently failing in this regard.

We’re in a trap of thinking development should be for free, but investors are now buying impact, not programmes. Unfortunately, a huge part of the social sector has been on the same-old same-old cycle, not adopting new ways of thinking and doing, not finding new ways to generate or ensure an income, and not embracing technology. They don’t do market research and don’t stay up to speed with the latest developments and trends in the sector, as they’ve become complacent and used to just receiving.

The days of NGOs that do good, but stay poor, are over. Doing good for free, is out. Development is not free anymore. Social investors want to know how the beneficiaries or recipients of their money are giving some of it back, or pay for and contribute to the services they have received. Investors want to see that there’s at least some effort to balance the books from a project or programme, and that there’s a plan for sustainability. They expect to see efficiency, change and return on investment.

Be ready to pitch for funding

NGOs and NPOs are increasingly competing against for-profit organisations, companies, social entrepreneurs and social enterprises that have the resources to put a watertight pitch together, that show that it can deliver relevance, innovation, efficiency, and sustainable change, and can implement with speed.

Yes, pitching for funding is increasing. Community and social organisations should get used to fending for themselves in highly innovative ways in competitions for funding. They will have to be pitch-ready, providing reasonable proof or scientifically based arguments that their programmes will deliver significant change and ROI. They will have to show that they’ve done thorough research and that they’ve engaged with their potential beneficiaries, and they should be prepared to implement at the drop of a hat if they should win such a funding competition.

Funding any type of organisation that is agile enough to implement a programme the next day and who can provide reasonable proof that it will succeed with scale means that there’s not much reason to favour NGOs and NPOs above other types of organisations. Although there will always be room for donations and grants to assist the poor, the social sector will have to be satisfied with the crumbs from the table, which will not be enough to survive – unless they shape up.

What to do to stay relevant

Global research verifies findings of the trends highlighted in Next Generations’s research report. Experts from the American social sector, for example, support the company’s suggestions to nonprofits to stay relevant.

One way to survival is to move away from the silo mentality, each nonprofit running its own show, and rather band together with other nonprofits with similar goals. By working collaboratively and leveraging each other’s core skills and resources, they can not only assist each other, but it can result in securing funding for cooperative and innovative programmes with greater impact and a longer lifetime.

Embracing technology is a non-negotiable for nonprofits standing in line for funding. Not only can technology be used in various innovative ways, such as scaling impact or connecting social investors directly to the causes/communities and the impact they are making, but technology should also be harnessed for other solutions, like being able to receive funding in cryptocurrencies, accessing new donors, collecting and managing impact data and more targeted marketing.

Although keeping up with the times and new trends is a great thing, it can also cause confusion and conflicting goals that don’t support each other. Many players in the social sector will clear their desks and get the fundamentals rights, from clarifying their marketing messages to implementing a simple, yet effective fundraising strategy.

Marketers and fundraisers should also break down the walls between them to improve overall results, working hand in hand to develop marketing materials that correlate with each other, and speak the same language. In this regard, old ways of doing things will not suffice – innovation and creativity is key.

Communication – as always – is extremely important. This starts with articulating your strategy and goals and intended impact clearly and supported by facts, as well as implementing a clear, compelling message consistently across all your communication. It also includes building better relationships with funders and donors, focusing communication on understanding and managing their expectations from their point of view, and not only looking at your organisational wants and needs.

This will change in the social sector

The Next Generation team has learned from experience through executing hundreds of impact assessments, and predict the following changes in the social investment and grantmaking spheres:

  • Investors will be demanding performance contracts from the social sector, which will include a risk management or mitigation clause to keep them to account and ensure that evidence of effective delivery is provided. If not, they will have to “pay back the money” in some way or another.
  • It will no longer be a free-for-all. Beneficiaries and recipients of development programmes will have to make contributions and pay for services, even if it’s in a non-monetary manner, showing the community’s ownership of the programme. Social and impact investors will consider this contribution to development budgets when allocating funds. Not only will it help to balance the social enterprise’s books, but it will also ensure responsibility and accountability.
  • A certificate of legal status as proof of an organisation’s credibility will no longer be important. Proof of accountability and due diligence will shift to accessing the relevance, effectiveness, efficiency, impact and sustainability of programmes rather than looking at a legal form of such an organisation.
  • If an organisation fails to show how its programme or project supports the strategic objectives and the intent of its funders or investors, it will be overlooked for funding. It will have to provide credible proof of significant and sustainable impact to qualify.
Conclusion

Generally speaking, the social sector is fighting for survival. Only the most relevant, advanced, innovative, capacitated and skilled will survive. The value of NGOs and NPOs is questioned and if the sector can’t stay relevant and prove to be value for money and, more importantly, show evidence of impact and ROI, the serious money will pass them by. It’s a classic case of “only the strongest will survive”.

For a more in-depth look at the latest trends in the social development arena, download Next Generation’s full research report.

Next Generation’s Reana Rossouw presents practical, useful, interactive master classes on
(1) Stakeholder engagement and management, (2) Human rights management, (3) Strategic social investment and (4) Monitoring, evaluation, impact and return on investment assessment. See the full brochure (including dates and booking details).

Author Reana Rossouw is one of Africa’s leading experts on social innovation, sustainable development, shared value and inclusive business strategies. As director of Next Generation Consultants, a specialised management consultancy, she believes strongly in contributing to the development and capacity-building of the sector.

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