Category Archives: Impact Measurement

Curmudgeonly Comments: Online Capital Markets for Nonprofits?

March 15, 2010 – 9:13 am

This is a guest post from George Overholser of the Nonprofit Finance Fund. This post follows the bullet point format George used when he wrote the Bullet Point Manifesto guest post last year.

By George Overholser

George Overholser
  • Someone recently defined nonprofit “mid-caps” as organizations with revenues in the $5 million to $25 million range.
  • We need to keep in mind that the definition for for-profit mid-caps is 200 times as big:  revenues in the $1 billion range.
  • This matters because there are metaphors flying around that we need our nonprofit mid-caps to provide more financial disclosure to the “capital market”, just like for-profit mid-caps.
  • This is the equivalent of asking a guy who owns a couple of pizza restaurants ($5 million in revenues) to begin publishing detailed quarterly public reports of his financial and quality assessment results.  Problem is, his office is the kitchen table, and he needs to get up at 6am every morning to roll the dough.
  • Wall Street is the wrong metaphor for an online “nonprofit capital market”.  Wall Street only works for companies that are literally hundreds of times bigger than typical nonprofits.  Wall Street companies get easy access to equity, precisely because they are already so advanced that they can afford to provide exceedingly high levels of financial transparency.  But the vast majority of firms (for-profit and nonprofit alike) are nowhere near the size required to afford the cost of making these types of disclosure. That’s why the vast majority of firms are capitalized privately, by intimate investors who get to know them personally.
  • Let’s not kid ourselves into thinking that strategic equity-like investments should be made based on the snippets of data that an exhausted executive director posts on a web site.
  • If information is to be shared online, the better metaphor is Amazon.  The better information to share is more akin to marketing information than to investor information.  Keep it simple:  What am I buying with my donation?  What gets done as a result?  What does it cost?  And… for those very few that have gone through the arduous and expensive process of scientifically documenting impact, yes, what is the impact?
  • DonorsChoose is a great example of this.  Check it out:  a highly intimate and transparent giving experience that has no need to share information about the financial health of the DonorsChoose enterprise, management team, strategic plan or theory of change.
  • Simply “asking harder” for information does not address the issue.  The problem is not one of candor.  Rather, the data does not exist, and cannot be afforded by such small and stressed-out organizations.  Asking harder merely adds to the trauma.
  • If a prospective investor comes along, who is prepared to write a big equity-like check, then have a face-to-face meeting, so that real due diligence can take place.  In the meantime, I would love to see online marketplaces focused on products and services… like Amazon and DonorsChoose!

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    By Sean Stannard-Stockton | Also posted in Capital Market Philanthropy, Effective Giving, Philanthropic Capital Markets, Philanthropic Equity, Philanthropy, Social Capital Markets, Social Investing, Transparency | Comments (8)

    What Drives Philanthropic Success?

    March 12, 2010 – 8:31 am

    Peter Frumkin is the author of Strategic Giving, an excellent book that I reviewed last year. Earlier this week, Peter wrote a post on the Philanthropy Central blog calling into question some of his own assumptions about what drivers are most important to successful philanthropy.

    Peter wrote:

    …I am increasingly troubled by a recurrent worry. It is a worry about what actually drives philanthropic success.

    Let’s define two categories of philanthropic processes. The first is technocratic, rationalistic, and ordered: It includes program positioning and issue research, alignment and coordination across initiatives, logic model drafting, white paper or concept paper development, proposal reviewing, adapting and applying new information technologies, program evaluation design and implementation, and all the other day-to-day professional work that goes into modern philanthropy…

    Now consider what might be called the more humanistic, interpretive, and adaptive work in philanthropy, which really comes down to judging the capacity, character, resilience, intelligence, and resourcefulness of the people who seek philanthropic funds. This is the kind of ill-defined and untheorized work that comes down to judgment and gut assessment by the donor of the person sitting across the desk from them. Call this Category Two work.

    Now to my worry: What if Category One philanthropic work really only explained a small part of philanthropic effectiveness and social impact? What if Category Two work explained a vastly larger percent of outcomes? If this were a social science morel, we might ask what the r-square statistics of these two types of philanthropic work are if the dependent variable is effectiveness. The r-square statistic ranges between 0 and 1 and tells us how much variation in the dependent variable is attributable to changes in the independent variable (here, that would be Category One and Two philanthropic work).

    My concern is that the growing philanthropic industrial complex—made up of consultants, researchers, trainers, and advisors—believes, earnestly believes, that the r-square statistic for Category One work is high, perhaps up to .75, and this justifies the substantial amounts of money invested in building up and supporting this work. But I have come to doubt this assumption over time and now think the r-square statistic might actually be very low for Category One work. I am more and more of the belief that Category Two work has the big r-square and explains a lot more of the achieved social impact than anyone wants to admit. The problem is that Category One work has an army of salespeople out and about selling tools and frameworks, while there is virtually no infrastructure to support Category Two work.

    What I think the field really needs is a systematic guide to the difficult art of assessing the innate ability and capacity of grant seekers  to conceive wisely a vision and then actually carry out their plans. If donors cannot judge character and capacity correctly, all the tricks of the philanthropic trade will not help them achieve their goals. What such a guide would look like I do not know, but I doubt the current philanthropic industrial complex has the will to design and deliver it.

    This is a dramatic declaration on Peter’s part. Peter is the kind of academic who talks about r-squared statistics in blog posts. For him to write that the “untheorized work that comes down to judgment and gut assessment… explains a lot more of the achieved social impact than anyone wants to admit,” is a shot across the bow of the philanthropy industry from someone who should more naturally side with the philanthropic process folks.

    Personally, I think Peter is right. It isn’t comfortable to believe that the intangible art of judgment and gut assessment is the most important driver of philanthropic success. It would be far easier if we could all just learn specific, repeatable processes, that while complicated, insured that our giving was effective. But I think the evidence from other fields fully supports the importance of judgment over process.

    In investing, Warren Buffett has a process, but it is his intangible gift for spotting value that makes him great. If the reverse was true, then anyone who read the vast literature covering the process that Buffett uses could fully expect to replicate his success.

    In writing, novelists around the world study the writing styles of the greats. But The Elements of Style won’t make you Ernest Hemingway.

    In economics, thousands of men and women run rigorous studies in an attempt to predict how the economy will behave. Yet we know that this process fails them time and again and fails to even adequately explain historical events.

    This is not to suggest that process doesn’t matter. In the book Blink: The Power of Thinking Without Thinking, Malcolm Gladwell explains the incredibly important role of judgment and gut assessment in expert decision making. But he does not declare process and rigor is not important. In seems to me that systematic processes are necessary but not sufficient building blocks on which to develop effective philanthropy.

    Unless we heed Peter’s warning that “judgment and gut assessment… explains a lot more of the achieved social impact than anyone wants to admit",” all the efforts to build a more effective philanthropy will do nothing more than create elegant mental models that sound great, but fail to make the world a better place.

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    By Sean Stannard-Stockton | Also posted in Effective Giving, Grantmaking, New Philanthropy, Philanthropy | Comments (9)

    Social Innovation Fund Finalizes Guidelines

    February 19, 2010 – 8:29 am

    Key Points

    • The final Social Innovation Fund guidelines recognize the limited availability of evidence in the social sector.
    • The guidelines lower the minimum grant size to broaden the range of grantmakers who can apply.
    • The Social Innovation Fund offers a chance for smart grantmakers to demonstrate effective philanthropy on a national stage and influence public perceptions about philanthropy.

    Last month, the Social Innovation Fund released a draft of the guidelines they would be using to distribute grants and solicited public comments. They received over 200 comments and I hosted a number of those comments publicly here at Tactical Philanthropy.

    To a large extent, the final guidelines have not changed dramatically. However, the Fund did make two key changes and attempted to clarify the level of evidence they expect from nonprofits receiving funds (the level of required evidence was at the heart of the comment I made on the draft guidelines).

    This is what the Fund had to say about the level of evidence they expect:

    Over 50 public comments were received on the use of evidence of effectiveness and impact in the SIF. Many of the comments encouraged the Corporation to be more inclusive about the types of evaluation that would produce strong evidence of impact. The Corporation has captured these insights in its Frequently Asked Questions (FAQ), a companion document to the NOFA. The FAQ clarifies that the Corporation expects subgrantees to demonstrate some level of impact in order to receive a grant, but does not expect that most initial subgrantees will have the strongest level of evidence.The SIF is designed to build the evidence-base of programs over time using rigorous evaluation tools that are appropriate for the intervention.The Corporation is committed to ongoing discussion about evidence moving forward through learning communities and other forums.

    While the final guidelines still express an preference for nonprofits that have strong evidence that their programs work, the summary of the guidelines says that the Fund expects grantmaking intermediaries that it funds to:

    Complete a competitive subgrant selection process within six months of award
    that seeks subgrantees with either preliminary, moderate or strong evidence of
    impact and effectiveness… [and] Have an intentional approach to improving measurable outcomes that relies on evidence in decision-making and leverages the strengths of distinct innovations.

    In addition to the shift in language around evidence, the Fund is making two changes based on public comment:

    • A lowering of the minimum grant award to $1 million from $5 million in the draft NOFA.
    • The elimination of an explicit preference for intermediaries that have already selected their subgrantees at the time of application.

    The lowering of the minimum was the subject of a number of the comments hosted here on Tactical Philanthropy, notably those authored by Adin Miller and Eileen Ellsworth.

    My reading of the new releases and the public comments made by the people running the fund is that they get the tension that exists between requiring evidence and funding innovation and that they appreciate the fact that very few nonprofits exist today that have a rigorous base of evidence that prove their effectiveness.

    I think that the Fund is off to a great start. I applaud the vast majority of the choices made in designing the fund. I hope very much that grantmakers who pride themselves on supporting and scaling innovative nonprofits will apply to be a Fund intermediary. Not just because they could use the additional funds, not just because it will help clarify the link between private philanthropy and public sector funding, but because the Social Innovation Fund offers an opportunity to showcase an effective approach to philanthropy on a national stage.

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    By Sean Stannard-Stockton | Also posted in Capital Market Philanthropy, Effective Giving, Evaluation, Philanthropy, Social Innovation Fund | Comments (0)

    Qualitative Evaluation Conference Call

    February 18, 2010 – 10:01 am

    For all the focus on quantitative metrics, many donors forget that the act of investing, whether it be social or for-profit investing, is largely driven by qualitative information.

    Join me on Monday, February 22  at 10am pacific on a Philanthropy Action hosted conference call with Timothy Ogden of Philanthropy Action and David Roberts of New Dominion Philanthropy Metrics. I’ll be making opening comments and then turning the call over to David who is an expert in measuring qualitative information. He’s currently one of the lead researchers on the National Institute of Health project to replace the current patient reported “pain scale” with a more effective qualitative measurement system.

    To register for this free call and receive call in info send an email to info@ndpmetrics.com.

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    By Sean Stannard-Stockton | Also posted in Evaluation, Philanthropy | Comments (0)

    Crowdsourcing the SoCap Conference

    February 17, 2010 – 9:34 am

    Within minutes of announcing that there would be a Tactical Philanthropy track at this year’s SoCap Conference we started getting emails from people who had suggestions for panels and speakers. So I’m glad to say that our plans for designing the track include soliciting your ideas and comments.

    Below you’ll find a number of session concepts for the Tactical Philanthropy track. We would love to hear your feedback on these concepts, ideas you have for other sessions and your opinion of whether these sorts of concepts will draw the savvy donors, foundations and nonprofits who have in past years not been strongly represented at SoCap.

    Nonprofit Analysis: Beyond Metrics

    Nonprofit analysis, the evaluation of nonprofits to gauge their social investment potential, is a holistic process that does not lend itself well to simplistic financial measures. This panel will explore how donors should go about deciding which nonprofits to support and how much bang a donor can expect for their philanthropic buck.

    Philanthropy Fail

    The best laid plans don’t always work out so well. Since philanthropist can generate social impact through sharing what they’ve learned with others, sharing failure is a critical impact strategy. Join this brave group of donors and nonprofits as they share ways in which they’ve failed and what they’ve learned.

    Information Sharing in Social Capital Markets

    Profit is often derived from a firm’s access to proprietary information. However, social impact is often maximized by sharing important information with other market participants. This panel will explore how socially relevant information is valued differently in social capital markets and will offer strategies social capital market participants can use to maximize the social value of intellectual capital.

    Replication vs. Diffusion: Does scaling social impact require scaling organizations or not?

    A successful for-profit organization must maintain ownership of its concept while it scales in order to capture profit. But social impact accrues to the public, not the firm that owns the process that generates the impact. How should social enterprise weigh the tradeoffs between scaling their organization or scaling impact through sharing their process with others?

    The Role of Philanthropy in the Social Enterprise Capital Structure

    Most social enterprises receive either philanthropic capital or profit seeking capital. But there can be a role for each in both for-profit and nonprofit capital structure. What role can philanthropic capital play in helping social enterprises gain access to traditional market rate capital? What role does philanthropic capital have in kick starting new market driven industries?

    Mission Related Investing: Why Foundations have NOT taken up MRI.

    Mission related investing is seen as a way for philanthropic entities to align the 95% of their assets that they do not give away each year with their social impact goals. Yet for the most part MRI has not gained traction with the vast majority of funders. This panel will explore what is holding funders back and whether mission related investing will ever become mainstream.

    The Changing Media Landscape for Philanthropy and Social Enterprises

    Philanthropy has historical be covered by the mainstream media as a human interest story that either focused on “do gooders” or charitable fraud. But recent years has seen a growing interest within the mainstream media to examine philanthropy and the emergent social capital markets with a more analytical eye. Join our panelists as they explore the role of the media in the social capital markets.

    Donations as a Sustainable Revenue Stream: Ending the Fixation on Earned Income

    Charitable donations are less volatile then the overall economy, so why are they rarely seen as a sustainable revenue stream? Join our panelists as they discuss how nonprofits should view the role of charitable donations within a sustainable business model. Are donations a more sustainable source of revenue than the sought after “earned income”? Are donations not “earned”?

    Individual Donors: Navigating the Social Capital Markets

    Many of the most sophisticated, active participants in the social capital markets are institutions. But individual donors have fewer institutional constraints and can bear more social risk. Join three individual donors who are doing cutting edge work in the social capital markets without the help of a large staff.

    When to Invest & When to Give

    For all the talk of producing a blend of social and financial value through giving and investing, little is known about when a social investor can maximize their blend returns through a donation and when an investment is a better option. Given the choice to lend money to a nonprofit or make a donation, how should a social investor choose?

    Please leave your thoughts as a comment to this post. Thanks for your input!

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    By Sean Stannard-Stockton | Also posted in Capital Market Philanthropy, Cross-Disciplinary Conversations, Effective Giving, Evaluation, Individual Giving, Information Sharing, New Philanthropy, Philanthropy, SoCap10, Social Capital Markets, Social Investing | Comments (20)

    Purpose Prize: Liz & Steve Alderman

    November 1, 2009 – 4:48 pm

    The Purpose Prize, provides five $100,000 and five $50,000 awards to social innovators over 60 in encore careers. Encore careers combine personal fulfillment, social impact and continued income, enabling people to put their passion to work for the greater good. It is the nation’s only large-scale investment in social innovators in the second half of life.  Rather than a lifetime achievement award, the Purpose Prize is a down payment on what these social innovators will do next.

    This year, Liz & Steve Alderman were among the top five prize winners. I wrote about the Aldermans in one of my Financial Times columns last year. I’m republishing the column today in honor of their award.

    ‘Blood money’ that became a force for good

    By Sean Stannard-Stockton
    August 12, 2008 – Link to original Financial Times column

    Like everyone who lost a loved one on 9/11 Steve and Liz Alderman were devastated when their 25-year-old son, Peter, was killed in the World Trade Center attack. Like many, they chose to honor their son’s memory by creating a foundation in his name.

    Of the 303 non-profit organizations launched in response to 9/11, only 27 were still operating five years later, according to a study by the NonProfit Times. What has kept the Peter C. Alderman Foundation going is his parents’ focus on maximizing the impact of their foundation through rigorous analysis. In the words of Peter’s father, Steve: “We will abandon anything that doesn’t work.”

    When the Aldermans received $1.4m from the September 11 Victim Compensation Fund, Liz thought of it as “blood money” and almost turned it down. She told me recently that she used to lie awake at night thinking about the people she wanted to kill to avenge Peter’s death. But, with Steve’s encouragement, they accepted the money and launched a private foundation to help victims of terrorism and mass violence round the world.

    “Using the money for a good cause was the best revenge,” Steve told me. “The only way for us to counteract great evil was with great good.”

    Today the Peter C. Alderman Foundation, in partnership with Harvard University, builds mental health clinics and provides local doctors with the tools they need to treat the emotional wounds of victims of terrorism and mass violence in places such as Cambodia, Uganda and Rwanda. Its work has attracted partners such as the US Department of Health and Human Services and the pharmaceutical company, Eli Lily.

    When I spoke to the Aldermans about their foundation, I was struck by the fact they, unlike most philanthropists who talk about the grants they have made, talk about the effect they have had. With an annual operating budget of $500,000 they have set out to help people across the globe. Liz and Steve found that, to have the impact they were seeking, they had to identify outstanding partners and find ways to leverage their giving.

    “Starting a foundation was like starting a small business,” Steve said. “Our daughter, Jane, even got her MBA when she realized that we didn’t know enough about business.” She is now the foundation’s executive director.

    The Aldermans represent the vanguard of philanthropy – individuals who have recognized that philanthropy is not defined by the act of giving but by the achievement of impact. It is both an emotional act of love by the giver as well as a strategic investment in our social fabric. The Aldermans have discovered that the most emotionally satisfying philanthropy is a gift that has impact.

    Unlike many relatively small foundations, the Peter C. Alderman Foundation has an in-depth strategic plan. Through its mental health clinics, the foundation has reached 65,000 people with traumatic depression. Many grantmakers simply measure themselves by the scope of their activities, but the Alderman foundation goes further and documents that it has seen 80 per cent of the people it has treated return to productive lives.

    In Cambodia, where the legacy of the genocidal Pol Pot and the brutal Khmer Rouge still grips the populace, the Aldermans have proved they can treat traumatic depression. Demand has been so large that the foundation created a second clinic to eliminate the 14-month waiting list. Importantly, the Aldermans have shown they can achieve their mission cost effectively; the Cambodia clinic system provides services at a cost of $50 per patient.

    The Peter C. Alderman Foundation is not the first to have a strategic plan, strong partners and demonstrated impact. But it is part of an emerging group of relatively small family foundations that are demonstrating how to use effectively these tools.

    The Aldermans have shown that the most effective way both to help people and soothe their own emotional wounds is through a focused strategy and measurement of impact.

    I was struck by how the Aldermans talked like seasoned social action experts with impact data and leverage statistics dominating our conversation. But, in the end, the Aldermans are grieving parents trying their best to make sense of a devastating loss. “I’ve realized that you can’t cry when you’re working on the computer,” Liz said. “You get the keys all wet.”

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    By Sean Stannard-Stockton | Also posted in Effective Giving, Foundations, Individual Giving, New Philanthropy, Philanthropy | Comments (1)

    Fixing the Power Imbalance in Philanthropy

    October 26, 2009 – 9:44 am

    It is a recurring complaint in philanthropy that the huge power imbalance between funders and grantees skews the behavior of nonprofits in negative ways. This was one of the points made by reader Aaron Stiner in his critique of David Hunter’s essay on social investing:

    I still have some concerns that the model you are presenting runs the risk of continuing the power imbalance funders hold over nonprofit organizations. This power imbalance is a mutual issue for both nonprofit organizations and funders – and I object to the implication in David’s comments that funders should continue to perpetuate that imbalance. I think nonprofit organizations need to do a better job of representing the voice and needs of their recipients to funders and I think funders need to do a better job of listening.

    I actually believe that social investing can be a strong force for rectifying the negative effects of the power imbalance. Reader Emily Gerth made this point so well that I offer her explanation rather than write my own:

    “The social investment movement is not designed to make nonprofits change, but to support high performing organizations. ”

    I think that’s the key statement here. Social investors hope to change the sector by supporting high performing organizations (and, by default, not supporting other nonprofits). Rather than remaking nonprofits or telling them what to do, they want to focus on what’s working well now.

    So I strongly disagree with Aaron that what David suggests perpetuates the power imbalance. I think it has the potential to rectify the imbalance a great deal. Of course, capital will flow to some organizations and not to others. That gives donors no small amount of power, but I don’t think that’s what causes the imbalance of power that can be so detrimental to nonprofits. The power imbalance is caused when foundations and other donors decide that they know what works well and they impose agreements/requirements/conditions on nonprofits. Social investors simply withdraw funding when the organization isn’t performing, which is a strong signal for the nonprofit to change, but doesn’t come with the assumption that the investor “knows” how to change the organization.

    Maybe I can state it more simply: The investor asks, “Can show you me that this works? If yes, I will give you funds to do it.” The more traditional donor/grantor says, “I know what works. Is that what you do? Because I will only give you funds to do that.” As a nonprofit, it seems obvious to me that first question invests you with great deal more control and authority.

    Having received both online and offline feedback on this string of posts, I do want to offer one clarification. Investors, both for-profit and social investors, are not actually interested in whether an organizations has been or is a high performer, but rather if they will be a high performer in the future. Past success is interesting only to the extent it helps predict future performance.

    It is through the lens of future high performance that we can understand why a social investors may invest in an early stage organization that has limited evidence of outcomes and limited performance based systems. For-profit investors who invest in early stage companies are almost always investing in companies that are currently losing money and have never earned a dime. But they only invest in companies who they think will prove to be high performers.

    One last point of clarification: I do not think that social investing is the only good approach to philanthropy and in fact at Tactical Philanthropy Advisors we frequently work with clients in ways that do not reflect the tenants of social investing. For instance, providing funds to support the efforts of individuals working on local community issues, supporting efforts to raise awareness of certain issues or providing support to strengthen the ecosystem of a community can all be very effective approaches that may not fall within the tight definition of social investing.

    I offer my positive endorsement of the social investing framework laid out by David Hunter not in an attempt to condemn all other approaches, but because I believe that 1) it is a hugely useful approach for the majority of grantmaking activity, especially for major donors and 2) because it offers a results focused framework and way of thinking about philanthropy that can help guide other philanthropic activity.

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    By Sean Stannard-Stockton | Also posted in Capital Market Philanthropy, Effective Giving, Grantmaking | Comments (8)

    Social Investing & The End of Charity

    October 19, 2009 – 8:53 am

    In my recent writing defining the difference between Tactical and Strategic Philanthropy, I’ve focused on the concept of the Strategic Philanthropist as a social problem solver and the Tactical Philanthropist as a social investor. So I’d like to draw your attention to an article by David Hunter in the brand new Philadelphia Social Innovations Journal titled The End of Charity: How to Fix the Nonprofit Sector Through Effective Social Investing.

    In the article, David (a consultant to grantmakers and nonprofit agencies and the former Director of Evaluation and Knowledge Development at the Edna McConnell Clark Foundation, a key practitioner of social investing) puts forth an excellent argument for what social investing is and what the implications of the approach are for the social sector. I encourage you to read the full article.

    David starts with three “Unpleasant Truths”:

    Unpleasant truth number 1: While nonprofits work incredibly hard, with passion and dedication, and often in incredibly difficult circumstances to solve society’s most intractable problems, there is virtually no credible evidence that most nonprofit organizations actually produce any social value.

    Unpleasant truth number 2: Because so few nonprofits are willing to face this fact and ask themselves whether they are doing any good at all, or even as much good as they may be doing harm, we cannot rely on direct service nonprofits to fix themselves without a serious push.

    Unpleasant truth number 3: In general, nonprofits do what their funders tell them to do. When funders make demands, more often than not the vision, mission, goals and objectives of nonprofit organizations give way. As the saying goes, We are what we eat. . . . and most nonprofits are what their funders make them.

    He then goes on to give examples of a number of organizations who he says are actually destroying social value (either by spending money that results in no positive change or actually encourages the opposite of the intended outcomes – such as a violence prevention program that has been show to actually increase violent behavior).

    David believes (as I do) that a social investing approach can greatly increase the social value production of the nonprofit sector and he lays out an inclusive definition of social investing:

    • the use of rigorous selection criteria to choose nonprofit organizations to support,
    • structuring investments to strengthen organizations in which investments are made in order to enhance their ability to provide effective services reliably and sustainably at high levels of quality,
    • tracking performance and providing non-financial supports as indicated, thus helping these agencies become more effective and efficient in helping the people they serve to measurably improve their lives and life prospects,
    • diminishing transaction costs to help these organizations stay focused on achieving their respective missions, and
    • helping nonprofits to build reliable revenue streams that will support them sustainably at the appropriate level of scale — before terminating the investment.

    As part of the selection criteria for investing in a nonprofit, David believes that social investors must ask the following questions:

    • Who, exactly, is the organization serving and what are their needs?
    • How many and what percentage of the people they serve finish the programs or receive a large enough and long enough exposure to services so that they can benefit?
    • What empirical basis is there for believing that an organization’s program(s) and service(s) are effective — that is, producing outcomes for the people they serve?
    • What are those outcomes, what are the indicators used to assess them, and what is the rate of success for program participants in reaching them?

    This is where the rubber hits the road. According to David:

    “In my experience, the majority of nonprofits cannot answer these questions… in this new age of accountability, nonprofits that cannot answer these questions will find it harder and harder to attract funding from social investors. And social investors will increasingly represent the larger sources of revenues flowing into the nonprofit sector… Social investing, if widely adopted, will help channel funding streams that are directed by measurable performance rather than feel-good stories, habits of giving and rank sentimentality. And social investing has the potential (yet to be realized) to advance a selection process that either forces poor performers to evolve and improve, or weeds them out.”

    I agree with David on the way he has described social investing and the implications of it being widely adopted as an alternative to traditional charitable giving. I greatly applaud the clarity with which he describes the process. However, I must also reject the nihilistic claim that most nonprofits and the social sector as a whole is not currently producing social value.

    To put this claim in context, realize that 8% of US workers are employed by nonprofits and the sector receives and spends roughly $1.5 trillion in revenue each year. Now I believe that the amount of social value creation in the nonprofit sector can be significantly increased. I believe that currently, as a country we are getting far less social value per dollar spent than we would if social investing became a dominate approach in philanthropy. But just because we have limited evidence of impact does not mean that the sector is not producing positive social value.

    I point out this disagreement because I think that David’s starting point is shared by many analytical thinkers who hope to create a more robust social capital market. But I believe that painting this picture of the current social sector actual impedes the development of social investing because it 1) Flies in the face of the experience that most donors and nonprofit employees have and allows them to then dismiss the need for social investing and 2) It greatly lowers the bar to lay claim to being a successful social investor. If in fact the social sector is currently creating no social value, then any investment that creates social value, even a minimal amount, could be seen as having been successful.

    David is a super smart guy. He’s also not afraid to say what’s on his mind, such as when he suggested earlier this year that I did not have a “smidgeon of knowledge” about evaluation and that I needed to get a “solid grounding” in social investing issues before I wrote any more about it(!). He’s also a member with me of the Alliance for Effective Social Investing.

    What do you think? Is social investing needed? Will it lead to a more effective nonprofit sector? If you work for a nonprofit, are David’s criteria for social investments questions that you feel are relevant and important items for you to be able to answer (I certainly do)? If you are a funder, would you describe yourself as practicing social investing? If not, why have you chosen to use another approach and what flaws are their with the social investing approach?

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    By Sean Stannard-Stockton | Also posted in Capital Market Philanthropy, Effective Giving, Grantmaking, New Philanthropy, Philanthropic Capital Markets, Philanthropy, nonprofits | Comments (23)

    Reframing Philanthropy: A Bullet Point Manifesto

    October 7, 2009 – 8:32 am

    George Overholser of NFF Capital Partners (a division of the Nonprofit Finance Fund) is one of the smartest people in philanthropy. He is one of the leading advocates for growth capital and is my mentor when it comes to the importance of philanthropic equity.

    He has written many a 25 page paper on these ideas, but as I know as a blog author, many people don’t have time to read past 700 words. So I was thrilled to recently receive a bullet point manifesto from George.

    By George Overholser

    • I visited with Jon Barron, who heads the Coalition for Evidence-Based Policy. Despite hundreds of millions spent each year on evaluation work, ONLY SIX youth-serving programs pass his gold-standard test of evidence-based impact:  two or more randomized control tests, non-trivial levels of impact, AND, scalable.  With hundreds of thousands of programs in this country, only six! 
    • Are we surprised?  Not really.
      • The metaphor is medicine.  You could argue that medicine should be easier than social programs. 
        • Six weeks later, does the patient feel better, versus 10 years later, in a different city, does the kid go to college.
        • Scientifically trained doctors in a controlled clinical setting, versus volunteers in basements or rec centers or schools of all types.
        • Placebos in the form of a sugar pill versus who knows what in the form of people who don’t participate in a program
        • Scaling in the form of making pills versus scaling in the form of hiring and training thousands of social workers
      • AND YET…. It costs $100,000,000 to conduct a single stage three clinical trial.
      • How many nonprofits have $100,000,000 available to conduct valid tests?
    • Evidence-based social progress is a scale game.  A big problem for us is that very few nonprofits are yet mature enough to be able to afford what it takes to roll out good science.
    • Same is true in business.  I’ve had a front row seat at Capital One and at Vistaprint, both of them, by virtue of direct response marketing, are perfect environments for test-and-learn innovation.  It worked great – so great that we created billion dollar companies.  On the other hand, I once had to shut down a $30 million business within Capital One because IT WAS TOO SMALL TO SUPPORT THE ECONOMICS OF TEST AND LEARN.
    • A second core challenge with the scale-what-works concept is silver-bulletism.   Imagine this:
      • 20 people sitting around a big table.
      • I say, “John, please lift the table.”
      • John tries and fails.
      • I say, “Everybody, put three fingers under the table and lift.”
      • Up it goes.
      • “FUND WHAT WORKS” IS A BIT LIKE SAYING:  WE WILL FUND ANYONE WHO CAN LIFT THE TABLE BY HIMSELF.
      • Does that cast a blind eye to the real solution?
    • A third core challenge has to do with the real pace of politics.
      • Laws get passed much faster than experiments get done.
      • Every side of an issue can find an “expert” to testify
      • Therefore only drop-dead obvious evidence can prevail… and that is rare.
    • So… real science, fund-what-works success stories are going to be few and far between.
    • BUT THERE IS SUCH A THING!  NURSE FAMILY PARTNERSHIP IS A SHINING EXAMPLE, as are the other five featured on Jon’s site.  AS A CIVIL SOCIETY, WE HAVE A MORAL IMPERATIVE TO TAKE MAXIMUM ADVANTAGE OF THESE RARE AND POWERFUL INNOVATIONS
    • So, what do we do?
      • I think we need to NOT BET SOLELY ON SCALING WHAT WORKS
      • Set our expectations as a country to surface scalable evidence-based silver bullet programs only about as often as we surface block-buster drugs.  Maybe two or three a decade.
      • Use private philanthropy, helped by government funds like the Social Innovation Fund to help surface these candidates – while recognizing it is a long and expensive journey.
      • In the meantime, REFRAME the disciplines of evaluation and impact analysis around notions of:
        • quality control,
        • continuous improvement,
        • faithful replication,
        • contribution to collective efforts,
        • if not impact, then put science behind outcomes and outputs
          • Outputs: What did you do?
          • Outcomes:  What happened to the beneficiary?
          • Impact:  Would it have happened anyway?

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    By Sean Stannard-Stockton | Also posted in Effective Giving, Evaluation, Philanthropy | Comments (4)

    Accepting Discomfort as We Navigate Uncertainty

    September 14, 2009 – 8:04 am

    Last month I was invited to a brainstorming session hosted by IDEO. The focus was on Innovation in Evaluation and one of the outputs is a blog authored by IDEO and hosted by GOOD magazine. The brainstorming session concluded with the identification of a number of core concepts that we discussed and a promise from IDEO to explore these topics further. This week, IDEO’s Aaron Sklar wrote a post on the GOOD blog in which he answered the question “How Might We Increase Comfort as We Navigate Uncertainty?”

    Aaron wrote:

    Anyone who engages with new ideas must develop a certain level of comfort with uncertainty. Once an organization takes a step beyond what it has successfully done in the past—a new offering or engaging a new group of people—uncertainty becomes an uneasy factor.  At a firm like IDEO, stepping into the unknown is a daily experience, and those drawn to collaborating with us are compelled to break away from the status quo, accepting the risks and discomfort that accompany bold moves.

    …Below, we suggest four approaches to help organizations increase their level of comfort while making decisions in the face of uncertainty.

    He then laid out four core ideas and explained each.

    • Determine what to measure early on.
    • Learn by doing.
    • Let indicators lead the way.
    • Refine what you are measuring as you learn more.

    You can read all of Aaron’s post with his explanation of each approach by clicking here.

    IDEO asked me to write a response to Aaron’s post on the GOOD blog. As I prepared to sketch out my ideas, I realized that while I thought Aaron was spot on, his suggestions were ways to overcome uncertainty. I wonder if instead, we need to learn to accept uncertainty. This is what I came up with.

    Originally posted on the GOOD Magazine Innovation in Evaluation blog.

    In his recent post, Aaron Sklar gave an excellent set of recommendations that focused on ways to decrease uncertainty by measuring proxies for the inevitably messy business of creating social impact. But in addition to finding ways to evaluate under conditions of uncertainty, I think it is critical that we get comfortable with the discomfort that uncertainty causes.

    The question under consideration assumes that we should seek comfort in the way we tackle problems of social impact. But I wonder, at the risk of sounding too Zen, if instead we need to accept the idea that the business of creating social impact is one that explicitly makes people uncomfortable.

    It isn’t fun to feel uncomfortable, but it isn’t terrible. In fact, in many cases, philanthropists are attempting to fund programs serving people who are far more uncomfortable than then donor will ever be. The “discomfort” stemming from a lack of access to water or an unplanned teenage pregnancy simply dwarfs the “discomfort” that a donor might feel from grant-making under conditions of uncertainty.

    Great investors in the for-profit space have come to accept the discomfort of uncertainty. Baron Rothschild, a member of the great banking family, is known to have said, “Buy when there’s blood in the streets.” And Warren Buffett warns that “You pay a very high price in the stock market for a cheery consensus.” In other words, if everyone agrees with your investment decision, then it is probably not a good one.

    Blood in the streets? Investing when no one agrees with you? Talk about discomfort and uncertainty. In fact, I believe that the discomfort caused by uncertainty is a requirement of great philanthropy. Great outcomes are achieved when an appropriate level of risk is undertaken; risk is caused by uncertainty, and uncertainty causes discomfort. We should not just advocate for philanthropy to become comfortable with uncertainty, but to acknowledge that great grant-making requires funders to accept discomfort.

    Humans don’t like to take risks. We are evolutionarily designed to be risk adverse. But good philanthropy, just like good investing, requires taking risks. Maybe a Zen approach to evaluation isn’t just a new age joke. Maybe accepting discomfort rather than trying to overcome it is the key to navigating uncertainty.

    • How can philanthropists learn when discomfort stems from appropriate risk taking and when it signals an intuitive response to which the donor should listen?
    • Behavioral finance and psychology have offered investors many lessons on avoiding the traps that encourage them to succumb to discomfort. What lessons might philanthropy learn from these disciplines?

    You can find the original post here.

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    By Sean Stannard-Stockton | Also posted in Design Thinking, Evaluation, Philanthropy | Comments (6)