The Non-Profit Sector's Silent Struggle: Starvation Cycles and the Aftermath

A Workplace Psychologist's take on funding constraints, burnout and diminished impact

“One gets to feast on marketing, risk-taking, capital and financial incentive, the other is sentenced to begging.” Dan Pallotta, The way we think of charity is dead wrong

Hey fellow wayfinders. Today I’m muddling through the messiness of not-for-profits and the impact a ‘survival’ system has on people, productivity and problem-solving.

Not just today. I’ve been grappling with this in different ways since I began my first not-for-profit role four years ago. Perhaps today I’m writing to make sense of that experience and the new knowledge I’ve gained as I’ve immersed myself a little deeper in social impact in 2024.

As someone who has 'grown up' in corporate and business settings, exposure to the social impact sector over the past few years has been an eye-opener.

In the for-profit, corporate world the resource you need to work and live well is easy to come by. Need an expert in marketing or talent management or finance? There’s someone in-house. Looking for specialist engineering for a project? We’ll hire a consultant. Salaries are solid. Bonuses flow. Work travel, accommodation, conferences, courses - all covered*.

There’s an understanding in the for-profit world that investment in the five ‘p’s (plant, processes, promotion, product development and people) is imperative to long-term sustainability, growth and success.

The not-for-profit sector works a little differently**. For those unfamiliar with some of the challenges of the NFP world (also referred to as the Social Impact or For Purpose sector) here’s a little of how it breaks down.

1. Funding constraints: With limited revenue streams, many organisations in the for-purpose sector rely on grants, donations, and other forms of external funding to deliver their services and impact. These are often unstable, unpredictable and require considerable sourcing effort. If you, like me, have gone cross-eyed writing grant applications (knowing that you’ve got a less than 50/50 chance of success), you know what I mean. Fundraising requires a fundraising resource but how do you fundraise to pay the fundraiser, without the fundraiser? See where I’m going with this?

2. High competition: With many organizations vying for limited funding and attention from donors, grants and supporters, competition is fierce. Collaboration amplifies impact, we know that, but there is a disincentive to collaborate when you’re competing for the same dollars. This is unhelpful.

3. Uncertainty: Economic, political, and social factors create an unpredictable environment for for-purpose organizations. An economic downturn squeezes donations. A change in government can mean the end of program funding. Short-term cycles drive the sector and it’s kryptonite for strategy implementation, long-term planning and decision-making.

4. Leadership turnover: With these☝️just some of the frustrations, you’d want to be paid well but no, the average CEO salary in the NFP sector in Australia sits below $180,000. You can 2x that and more for many corporate roles. Money is not everything, of course, and many in the For Purpose sector will tell you that they sacrifice dollars for, well, purpose. But as any good workplace psychologist will tell you, salary may not be everything, but it’s absolutely something, and that something is important when it’s lacking. (Want the detail? Read about salaries, Motivation-Hygiene Theory and the weasels).

There are other challenges, including an expectation that NFP funds are invested in program delivery not ‘overhead’ that experts articulate better than I.

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'You are out there doing everything in your power to change the world with $5 spread between you.'

This is how someone once described the work of the not-for-profit sector in our regional community to me. I wish I could remember who.

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This situation is so pervasive there’s a term for it - the ‘non-profit starvation cycle.’ This cycle results from funders (and I’d argue some NFPs themselves) having inaccurate expectations of how much overhead is needed to run a not-for-profit. They underrepresent their costs which leads to a sector starved of the necessary money required to invest in people, plant, processes, promotion and product or service delivery. The result is fragile organisations struggling to deliver long-term impact on complex social issues - their very remit.

My worry - Burnout and Brain Drain

The people who work in social impact are passionate and hardworking and committed and sustained by a strong sense of meaning and purpose. They are incredible in so many ways and their work is so necessary. But they burn out.

In 2023 McKinsey asked 93 nonprofit leaders in Australia to characterise their stress level. The results were telling. 88 percent of respondents indicated that stress was leading to “fatigue, health problems, panic and anxiety” - all indicators that they are approaching or experiencing burnout.

This is reflected in day-to-day conversations in the sector.

As a workplace psychologist this is alarming. I worry about the level of burnout I see in for purpose organisations. I worry that passion, hard work, commitment, vision and progress is thwarted by unsustainable business models. I worry that good people are lost and great initiatives stall because the focus is always on survival.

Work is being done by organisations like Benefolk to provide wellbeing support in the sector but as business is now discovering, supporting individual resilience is not enough. Suboptimal workplace systems override the individual wellbeing efforts of the most resilient individual. A multi-system approach is vital and that means creating workplaces and work systems built for thriving, not just surviving.

The science of thriving

Psychologists have been exploring the science of thriving, at both individual and organisational levels for over twenty years. There are different definitions and models but in essence we know that when people are thriving in organisations they feel a sense of vitality, and that they are learning and growing as people.

The factors that contribute to thriving include autonomy, task variety, supportive leadership, individual psychological resources (the HERO factors I wrote about last time), social support and learning opportunities.

NFP leaders can do their very best to provide these for their people, and they’ll turn themselves inside out doing so, but…

• Autonomy means being able to make independent decisions and act on them from choice, not pressure. A lack of resources = pressure and thus a lack of real autonomy.

• Task variety is often high in NFPs - ‘all hands on deck’ is a common refrain - but it’s counterproductive if flow is interrupted and strategic tasks are abandoned to fill urgent manpower gaps.

• Despite their very best efforts, a burned out, anxious leader will struggle to provide their team with the social, emotional, informational, instrumental, and reward assistance that characterises supportive leadership. You can’t pour from an empty cup.

• As for learning, Australian businesses spend twice the amount that NFPs do per employee on key capabilities such as training. Paying for your own PD is commonplace in the for-purpose sector. Annoying and detrimental - but commonplace.

Why does this matter?

Because thriving at work promotes job satisfaction, engagement, job performance, creativity, and well-being. As our world grapples with increasingly complex, interconnected social, economic and environmental issues we need work systems that support people to perform at their utmost, to collaborate, to create, to problem solve and to innovate. We need them to thrive.

Working day-in, day-out in a system focused on the source of the next dollar compromises performance, on every front. All the meaning and purpose in the world cannot prop up a disillusioned, drained and despondent social impact professional - not for long.

For-purpose organisations require the same level of investment in their people and the processes and infrastructure that support them, as for-profit entities. We can’t rely on goodwill and self-sacrifice in the name of helping others. It harms individuals and the sector, and thwarts the impact on complex issues that the world needs.

A turning tide?

There is good news!

Following the lead of the United States, there are burgeoning conversations in Australia about the critical need for better funding and ‘overhead’ investment models in the NFP sector.

The Paying what it takes report, released in 2022, explores the vulnerability of not-for-profit organisations in Australia and the role insufficient funding of ‘indirect costs’ (HR, IT and finance) plays in this. It calls for education across not-for-profits, funders, government, the media and the general public about the issue.

There is now a growing movement of initiatives such as the Pay What it Takes Charity Consortium and Reframe Overhead leading great work to make change.

My recent exploration of these issues and the work being done was triggered by watching this doco 👇.

(You can watch it too here, courtesy of the Social Impact Hub)

Directed by Stephen Gyllenhall (yep, Maggie and Jake’s dad) it challenges conventional thinking about charity in the U.S. and advocates for a radical, transformative approach to facilitate real change and impact. This includes thinking differently about the money required to support the people and organisations working hard to make a difference.

The sector itself also has some work to do. Better impact measurement for accountability and promotion, stronger use of data to support initiatives, robust, diversified business models and greater collaboration and aggregation all come to mind. (In Ballarat, where I live, there are 127 charities registered with the ACNC. This doesn’t include other ‘for purpose’ organisations and social enterprises seeking to improve our community. With a population of 122,000 people that’s roughly one charity for every 1000 people. Two-thirds of those charities have an annual revenue of less than $500,000. This strikes me as inefficient).

Above all, and with my bias unabashedly showing, I’d exhort the sector to understand, explore and implement evidence-based practices for creating thriving workplaces. We might refer to people as ‘indirect costs’ or ‘overhead’ but there is no social impact sector without the people who drive it. Combine investment in people and supporting processes with the fulfillment and purpose that prevails in a field making a difference, and you have it all over the (for profit) employment competition - a winning combination for thriving.

Onwards and upwards,

*Not always, or in every case and I know it’s a whole different scenario for small business.

**From my limited experience in one city in one country. I know a thing or two about human behaviour in groups and organisations. I’m on a steep learning curve when it comes to the social impact sector.

The Fun Stuff:

I’m listening to: Tay Tay - on an endless loop this week.

I’m reading: The Economy of Algorithms: AI and the Rise of the Digital Minions by Marek Kowalkiewicz - or at least I will be when I’m on holiday next week (#totalnerd)

I’m watching: My kid play AFL. In Ballarat, in Melbourne and on the Gold Coast where it’s 20 degrees! 👏 (Top temps of 10 degrees where we live right now)