One of the core lessons of financial markets is that you can only increase returns by increasing risk (you can be more talented than other people at any given level of risk, but the level of risk is the primary determinate of long term returns). I’ve been talking for a long time about why the social sector needs to embrace the idea that only people that run the risk of failure (and therefore fail sometimes) can achieve greatness.
Here’s video proof:
6 Comments
What a great video, Sean. I think people often lose sight, for various reasons, of the fact risk = greatness (or at least the potential of). In the end, the people who are willing to take a chance are usually those who end up paving the road for the rest of us.
It seems to me that people generally understand that taking risk is the key to success. I just don’t understand why people don’t think this way about the social sector.
“It seems to me that people generally understand that taking risk is the key to success. I just don’t understand why people don’t think this way about the social sector.”
Marketing.
Fundraising draws from aspects of marketing, and there is a very entrenched legion of marketing / development / PR folk dating from the late Cretaceous who have collective heart attacks at the thought of admitting failure; the theory is that you win supporters (and therefore support) by showing success, not failure.
This feeds the spiral, so while society may be instinctively drawn to that which is human, we’ve also grown used to organizations that hide behind walls of Marketingspeak.
I suppose the path to changing this lies in showcasing organizations that have been highly successful at both garnering support and supporters, *as a result of* being explicitly honest about failure (as opposed to “in spite of”). Anyone got a case study?
Since this idea has been around at *least* a long as the Cluetrain Manifesto, I’d guess that it will be a very long, slow change, if the trend changes at all.
Thanks for the video, Sean…I’ve forwarded the link a few folks.
Dave, I agree with your take, except it does not explain why investors are drawn to high flying, risk taking investment vehicles (mutual funds, hedge funds, wealth managers).
I think that most people do not want risk in their purchase decisions, but they are comfortable up to a point with risk in their investment decisions. This is why I think it is so important that we view philanthropy through an investment framework.
What do you think?
Agreed, but this is a difficult framework to suggest, primarily because philanthropy is very often the purchase of emotional satisfaction. This is an easy sell, if it’s tied to seemingly direct results (even if the tie is tenuous, at best, such as the happy smiling children on most nonprofit websites). To suggest the framework of investment implies that the donor is far more invested (no pun intended) in the process than merely watching for an expected outcome; the investor has not merely bought a product, but bought in to an idea. At that point, the investor may feel emotional satisfaction even from a failed experiment, because the failure may (if handled correctly) have furthered the cause immeasurably. Or, ideally, measurably.
How to get there?
It definitely requires a shift in thinking. Sometimes the shift gets framed as asking donors to give up the emotional connection. But I think nothing could be further from the truth. I think that reframing philanthropy as an investment will make giving far more emotionally satisfying to donors (as I’ll be discussing along with a real life example in my next Financial Times column).