Fundamentals

Many of the first reactions to the closing of JDub Records have followed the same pattern: they look for someone to blame. Some fault philanthropists for lacking a true commitment to innovation, notwithstanding the enormous and ongoing support for the startup sector by Jewish foundations. Others point to traditional institutions for not embracing innovators, even though many Jewish institutions have had partnerships with startups like JDub and have helped support them financially for years. A few think that the management ought to have done things differently, despite JDub’s considerable reputation and substantial impact over a relatively long period.

Finding villains who supposedly sabotaged a noble cause is less an analysis than a set of talking points. Let’s look instead at the expectations behind new nonprofit ventures and see how they might be reconsidered in light of experience. For the venture philanthropists who seed nonprofits like JDub a key expectation is “scalability” and “sustainability,” buzzwords that came into use with the Internet startups of the 1990s. Venture philanthropists made their own money from such startups, and they believe their paradigms can be applied to the nonprofit sector with analogous results.

But can they? Venture capitalists get rich when their equity multiplies in value and they cash out. They may think that a similar incentive applies in some metaphorical way to the entrepreneurs who invest their time and effort in a nonprofit startup, as if having a regular salary is somehow a huge payoff for years of sweat and dedication. The truth is, there are easier ways of getting a steady job. The upside for startup managers who “invest” their time is not remotely comparable to the outcome that motivates venture-capital investors. That analogy is fatally flawed.

Even more seriously, thinking of grantors as “investors” amounts to a fundamental misunderstanding. Of course management should treat both donors and investors as if they have a stake in the company, but there’s a crucial difference between for-profit and nonprofit ventures. Investors in a for-profit have a simple, shared objective – making money – while different donors often want very different outcomes. One supporter may want to set attendance targets, another will look for evidence of a shift in Jewish self-definition, a third may be satisfied by having a private dinner with a favorite artist. To say that a nonprofit will attract donors when it shows measurable results is more slogan than strategy and it reflects a serious misunderstanding about the complexities of fund-raising in the nonprofit world.

Venture philanthropy has provided the impetus for a gigantic wave of creativity in Jewish life, but it has yet to find a durable model for financing that creativity over the long run. The reason is simple. A project that can make money will be organized as a for-profit; nonprofit projects are the ones that need ongoing subsidies. It’s seductive to imagine that that’s now an outdated distinction because the rules have changed, just as venture-capitalists in the 1990s imagined that the Internet had changed the rules about what made a successful business. But, as Dooley Wilson sang in Casablanca, the fundamental things apply.

There’s no reason that a lot of innovative Jewish startups can’t become well-funded, stable nonprofit institutions, but they won’t get there by imitating the Internet startups of the 1990s. Nonprofits don’t become stable by attracting “investors” who are impressed by a project’s novelty and scalability. They succeed when they systematically tap diverse sources of revenue, including foundation grants, on an ongoing basis. If the venture philanthropists in Jewish life want innovative nonprofits to last more than a decade, they might begin by recognizing the ways that their venture-capital experience doesn’t apply in the nonprofit sector and drawing on the best practices of what does.

Instead of invoking the misplaced mantras of sustainability and scalability, they might give innovators serious training in traditional fund-raising: how to build a base of annual donors, cultivate major gifts, and eventually create an endowment and run a capital campaign. In place of faith in an “innovation economics” where knowledge and creativity are imagined to be a substitute for capital, strengthen leaders’ skills in nonprofit management. In lieu of rhetoric about transformation, reward innovators who slowly but surely build a base of support the unglamorous, old-fashioned, time-proven way. That’s what will keep the best of the startups in business, not for just a few years but for generations.

Bob Goldfarb is the president of the Center for Jewish Culture and Creativity, the fiscal sponsor for more than 20 innovative Jewish projects. He earned his MBA at Harvard Business School.

Here are additional responses to JDub Closing Up Shop.