TheGivingMachine: Flaws in the Charity Business Model

A conversation I had some years ago left quite a profound effect on me and it is worth revisiting with the benefit of hindsight. I had been introduced to Edwina Dunn of Dunn-Humby fame. She was half of the dynamic duo that helped transform loyalty via data acquisition and analysis with Tesco Clubcard.

TheGivingMachine: Flaws in the Charity Business Model

I had hoped that this would lead to a fruitful advisory relationship or more for me and our charity. However, early on in our conversation, Edwina told me that she did not believe in charities as a business model. Needless to say, the conversation faltered somewhat there and never really recovered.

As I’ve had time to ponder that view, there are definitely some aspects that I agree with and of course some that I don’t. In general, I’m of the opinion that commercial companies should take more responsibility for the impact they have on the world and people around them by acting more responsibly or ‘charitably’ if you like. Likewise, it’s important that charities become more commercial, organise to be sustainable and not be afraid of making money as long as what you do with it is still the ‘right thing.’

But there are some issues built into the charity business model both from a public view and also from their general structure and I’m going to pick on two of them.

Firstly, charities are often judged by the percentage of income that goes to front line delivery of the services they deliver. This is somewhat self-destructive in the world we live in. Our world, its communities and their needs are changing faster than ever before.  Most companies will invest some of their income in testing and evaluating new services for tomorrow. Why shouldn’t charities be the same? It does mean that you will spend money on things that don’t work but that is the risk if you are to evolve and change. This requires a big change in the way the public view charity and its ‘efficiency’ but one that everyone in the sector should help change.

The second point is that just like normal, vanilla companies, charities are easy to create but there is a good argument to say that there are too many of them doing the same thing.  Commercial companies fold or merge all the time and so there is a natural evolution but the same cannot be said for charities. It is harder for them to fold or merge. Harder from a legal and process point of view but also from a corporate personality point of view.  It is too easy for a charity board to see their role as preserving the charity rather than ensuring what’s best for the people they serve.

I was fortunate enough to be on the board of YMCA East Herts when we took the decision to fold the charity into One YMCA.  This made complete sense for the longevity of services to the young people served and came about because it was clear that smaller charities in the assisted housing market would struggle to continue as the contracting landscape changed. It was sad in some ways but the right thing to do and went through with a minimum of fuss.

Looking back on that conversation, the charity model is definitely flawed in some key ways. However, I also see that charities and community groups plug the gaps that local authorities can’t reach and commercial companies and their investors wouldn’t touch.  If any of these organisations have played a significant role in your life or that of people you love, you’d be thankful that they are there regardless of the flaws.

By Richard Morris, Founder and CEO TheGivingMachine.