Post 11: The Challenge of Small Nonprofits

[eJP note: This post, by Gidi Grinstein, was originally published on May 13, 2008, as part of a series on Philanthropy in Israel. With this year’s Jewish Funders Network conference taking place in Israel, we thought it would be timely to rerun the series.]

Small nonprofits represent one of the toughest challenges of efficiency for philanthropy in Israel. Such nonprofits need to merge into bigger enterprises or scale in order to effectuate meaningful social change and generate significant value. This is not only a challenge of efficiency but also a matter of broader socioeconomic context.

Naturally, there should be a space in our society for small nonprofits. They represent a vital platform for social experimentation. Almost all of the most important nonprofits started as small initiative that grew over time.

However, Israel’s nonprofit world suffers from a malady. Too many organizations are very small in size, operation and budget. They are neither scaleable nor do they provide a unique remedy to a social problem. In other words, they are doomed to an existence where raising funds is a core activity overshadowing the service of their vision and mission.

Such nonprofits generate a number of problems for philanthropy. First, there is a self-reinforcing cycle: the small size inhibits investment in growth-enhancing technology and management while weak management and archaic friends-and-family structure prevent growth. Second, because funding of such nonprofits is often based on multiple small donations, there is lack of interest in scrutinizing their performance and management. Hence, such organizations often comfortably surf beneath the radar screens of the philanthropic community.

More importantly, small nonprofits represent a macro socioeconomic problem for Israel. From the economic perspective, as mentioned, Israel suffers from a problem of a relatively low productivity in the low-tech sector compared to other countries (see post no. 8 of this series). It is estimated that a low-tech worker in Israel produces half of his or her American equivalent. Since the nonprofit world represents a very large section of Israel’s low-tech community (according to some estimates, it is larger than the banking sector), its efficiency or lack thereof are a macro economic problem. From the social perspective, as these organizations often provide vital social services, their efficiency is a societal concern.

The challenge for philanthropy is to balance two considerations: on the one hand, to provide the necessary conditions for nurturing aggressive societal experimentation by social entrepreneurs that can only take place in the nonprofit sectors. This often requires micro-organizations and prolonged incubation. On the other hand, there is a need to ensure that small organizations are challenged to scale the provision of their services that provide distinct and unique value to growing sections of Israeli society.

On the more practical level, obviously, there are many ways for Jewish philanthropy to impact small nonprofits. For example, to create powerful incentives for such organizations to scale or merge with others; to support the trend of establishing benchmarks and building platforms – primarily internet ones – for transparency and accountability that will allow donors to assess whether their gift is being put to good use; or to coach nonprofit founders, leaders, members of boards and managers with advanced methods of management and leadership.

But before we engage in a detailed discussion of strategy, we have to make this a priority.

Gidi Grinstein is the Founder and President of the Reut Institute.