The Idea in Brief
Over the past 50 years, many businesses have reached national scale, but few nonprofits have grown to a large size. This disparity is caused by a lack of development in the mechanisms and institutions that channel information and money between donors and nonprofits.
Signs of change are appearing, however. New intermediaries are demanding clear performance metrics and accountability from nonprofits.
Some intermediaries now play a role analogous to that of mutual funds. They solicit money from individuals and foundations, conduct due diligence to find the nonprofits that will use donations most effectively, and monitor postgrant performance.
A few intermediaries are more like venture capital funds. They have extremely rigorous selection processes and partner with fund recipients to formulate and execute a strategy for delivering social impact, using tools such as the balanced scorecard.
These approaches will help capital and talent flow toward the most-effective nonprofits, enabling the best to grow in scale and impact.
Fifty years ago, Microsoft, Wal-Mart, Intel, Apple, Cisco, Oracle, and Google didn’t even exist. Today each one has a market value exceeding $100 billion. Meanwhile, many companies that were business giants in 1960—including Bethlehem Steel, U.S. Steel, CBS, RCA, GTE, ITT, and LTV—have disappeared, shrunk, or merged into other companies. These dramatic shifts in fortune are vivid examples of the cycle of creative destruction famously described by the economist Joseph Schumpeter.
