Category Archives: Impact Measurement

How Much is Philanthropic Advice Worth?

August 28, 2008 – 9:41 am

(Note: The kind of advice I’m discussing in this post is grantmaking advice. In other words “which nonprofits should donors invest in”. My firm, Ensemble Capital Management, does not provide this sort of advice. We provide wealth management and philanthropic concierge services)

Recently I predicted that donors would move towards paying for grantmaking advice and that this would transform philanthropy. So how much and why will donors find it valuable to pay for this sort of service?

Let’s say there are five nonprofit organizations working on reducing homelessness in your city. Even without any quantitative impact statistics, it is completely commonsense to assume that some of those organizations are better than others. In fact, it is likely that one or two are significantly better than the others and that one or two are significantly worse. Just for the sake of argument let’s make some assumptions about the organizations.

Let’s assume that the five organizations have the following quantitative social return as measured by reduced cost to tax payers from reduced homelessness (ie. a return of 0% would mean that every dollar given to the organization reduced tax payer expenses by $1).

Org A: 35%, Org B: 25%, Org C: 10% Org D: 0% Org E: -20%

This example assumes that Org A and B are achieving great tax payer savings, Org C is producing a positive result. Org D is reducing tax payer costs on a dollar for dollar basis with donations (meaning the same results could be achieved by making donations to the government treasury). Org E is actually destroying value. If you gave an equal donation to each organization your average return would be 10%, so we can think of this as the “market return” or expected return.

Right now, I think that philanthropists are funding nonprofit organizations without focusing enough on which one is best. With this example we can see just how valuable advice that identifies the best nonprofits actually is.

If you gave $1 million to Org A, you would generate $1.35 million in tax savings. The same gift to Org C would save $1.1 million and a gift to Org E would save $800,000. If you assumed you couldn’t tell which one was best and gave $200,000 to each organization, you would save $1.1 million in taxes. This means that if you could pay an advisor to tell you which organization was the best, this advice would be worth $250,000 (the difference between the $1.35 million savings from funding Org A vs the $1.1 million savings from equally distributing your donation).

If you run the math, this means that an advisor who can correctly pick Org A out of the group can justify charging a fee equal to 18.5% of the donation. (Email me if you’d like to understand the math).

Most all donors would choke on the idea of paying an 18.5% fee on their donation. Donors don’t even like nonprofits have operating expenses, so most couldn’t stomach the idea of paying hefty “operating costs” just to decide which nonprofit to give to.

And yet by not paying and not identifying the best nonprofits, donors are destroying social value. They are starving great organizations of resources and subsidizing poorly performing nonprofits that should be going out of business.

The fact is, the spread of returns in my example is probably conservative. Those returns (from +35% to -20%) are more typical of the range you’d see in small to midsize businesses that are functioning in an imperfect market, but one that still rewards top performers and squeezes bad businesses until they go bankrupt. It seems to me that since in the nonprofit world, poorly performing nonprofits that have good fundraisers can stay in business, the spread between the best and worst performers is probable much larger than my example suggests (which means the advisor’s advice is worth more).

Now think about this: Americans gave $300 billion last year. 18.5% of that amount is $56 billion. It might seem ambitious, but that means that there is a potential $56 billion a year business opportunity for grantmaking consultants. That’s almost twice the size of the market of wine and beer. It is almost twice the size of the amount Americans gamble every year.

18.5% seems like a really high fee. $56 billion seems absurd. But think about it this way: If you endowed American giving, so that the $300 billion was a 5% annual payout (in line with most foundations) of our “community endowment”, then the fee would be equal to 0.93% of the endowment.

Guess what many for-profit investment advisors charge their clients? 1% of assets under management.

Being able to identify the best for-profit investments is a hugely valuable talent and a massive industry has grown up around it. I think that nonprofit analysis is just as valuable and we’re going to see quite a robust industry grow over time.

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

‘Blood money’ that became a force for good

August 12, 2008 – 10:11 am

My newest column from the Financial Times is out. For those that read the print edition, my column has been moved to the Tuesday edition. For those keeping score, this column marks the one year anniversary of my On Philanthropy column. You will find the full archive of my past columns here.

‘Blood money’ that became a force for good

By Sean Stannard-Stockton

Published: 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 a head.

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.”

The writer is a principal and director of tactical philanthropy at Ensemble Capital Management and author of the blog TacticalPhilanthropy.com.

By Sean Stannard-Stockton | Also posted in Financial Times Column, Foundations, New Philanthropy, Philanthropy | Comments (0)

Measuring Impact at Weddings

August 6, 2008 – 10:08 am

Recently I attended a wedding and saw a perfect demonstration of how real and tangible impact* is and yet how ephemeral and impossible it is to quantify. The wedding was going along just fine. The bride was beautiful, the groom handsome, the setting a wonderful public garden in New York. There were even little bunny rabbits jumping around the lawn (amazingly enough they were wild rabbits who live in the park).

But then, a little after dinner but before the cake was cut, something kind of wonderful happened. The band started to play a song that everyone knew, people began moving towards to the dance floor, laughing started as a couple of people who didn’t want to dance got pulled along by a spouse or child… and then everybody danced. The song seemed to last for just a moment and yet that moment lasted forever. When the band came to a halt the whole dance floor exploded into applause, everyone laughed and then people began wandering back to their seats or over towards the bar.

That moment was what made the wedding great. It was what transformed it from a simple ceremony to a true celebration and the welcoming of the newlyweds into their community of friends and family.

There’s no system that a wedding planner can put in place to insure that “the moment” happens every time. There’s no way to systematically rank the “impact” of weddings or the effectiveness with which wedding planners create “the moment”. But is still real.

A smart wedding planner will take note of those things that help create the great weddings. They’ll recognize which bands have that certain something that brings people out to dance. Some wedding planners will be better than others and some will be just terrible. And sometimes the best weddings will happen almost by accident.

One of the problems with talking about impact in the social sector is the lack of ability to accurately quantify or even identify impact. In a perfect world we would measure the impact, compare it to the cost of achieving said impact, and we’d be able to perfectly allocate resources to the highest impact projects.

But something that cut and dry is nothing by a fantasy.

Impact is real. Some nonprofits achieve more than others. Some funders are better than others, too. It might be hard to measure, but we can recognize the elements that help it to occur. And when real impact does occur in the social sector, it is amazing what we can achieve.

*Impact is the “good” that an organization achieves.

By Sean Stannard-Stockton | Also posted in Philanthropy | Comments (14)

Giving vs. Free

July 18, 2008 – 9:16 am

Back in May, Stephanie Strom at the New York Times wrote an article about increasing challenges to the tax-exempt status of nonprofits. I think there’s plenty of rational positions to take on issues like whether universities should be required to pay out a certain percentage of their endowment, whether nonprofit hospitals deserve full tax exempt status and if nonprofits who serve wealthy clientèle (such as the opera) should be given a tax exemption. But there was another theme to the article that I want to explore.

Strom writes about how last year the Minnesota Supreme Court denied a property tax exemption to a nonprofit day care agency because (in Strom’s words) “it gave nothing away.” Audrey Alvarado, executive director of the National Council of Nonprofit Associations agreed with Strom’s interpretation of the court decision saying that the court, “is saying, ‘wait a minute, charities are supposed to give things away for free.’”

I think this is such a disturbing concept. Recently I’ve been writing about how philanthropy is not defined by making the gift of money, it is the impact that the gift achieves. The idea that “free” equals maximum impact is asinine. Nonprofits are not supposed to “give things away”, they are suppose to provide public goods and services (goods and services that benefit society as a whole). The government also has the role of providing public goods and services. But imagine the outrage if the government made it policy to only give things away for free. No more toll bridges, museums all free, welfare checks and college tuition aid given without any expectations of the recipient.

Doing good is not the same as giving something away for free. Let’s set aside the intellectual argument for a minute and just look at how nonprofits actually work. According to the Urban Institute, in 2005 nonprofits collected $1.6 TRILLION in revenue.

The Minnesota Supreme court ruling is so damaging because it reinforces the idea that running a nonprofit is easy (jeez, you’re just giving stuff away, how hard can that be?) and it validates the idea that nonprofits should keep operating expenses very low (if you’re just giving things away, why would you need a complex infrastructure and highly talented employees?).

Giving something away is easy. Doing good social sector work is hard because it has nothing to do with giving things away for free.

By Sean Stannard-Stockton | Also posted in Philanthropy, nonprofits | Comments (7)

Philanthropy Evaluation: The Courtroom Approach

July 11, 2008 – 9:38 am

Steven Mayer is one of the people behind the Pathways to Progress website, dedicated to social justice philanthropy. Albert Ruesga wrote recently that “metrics based” philanthropy and “social justice” philanthropy are often viewed as two warring camps. But Albert suggested that in fact, “We fail to appreciate how closely united these two camps are in their rejection of philanthropy as usual.”

Today I want to highlight a recent essay by Steven Mayer that I think shows an approach to metrics that has the potential to bridge the divide between “metrics” and “social justice”. Because of the way Steven frames his approach to evaluation, I think he even presents a way to think about these issues that bridge the gap between the participants in the philanthrocapitalism debate.

Steve Mayer:

Our website JustPhilanthropy.org presents many productive avenues for pursuing social justice using the resources of philanthropy. Funders, nonprofits, and potential donors exploring these options frequently ask, “How can we evaluate these efforts?”

Needed: useful evaluation questions

“What is being achieved through this effort?” and “What kind of results are you getting?” are worthwhile questions that must be addressed to be fair to those who support this work. But demands for “measurable impact” and “outcome measures” are inappropriately placed on separate, local efforts; they apply more to the bigger picture, the picture indicated by disparities data. This is not to avoid the questions, but instead to find better ways of answering them. More satisfying data that inform next steps, stimulate innovation, engage participating stakeholders, and make better use of scarce philanthropic capital would come from asking for “evidence of progress” or even “early signs of impact.”

Think courtroom, not science

To appreciate these better questions, try this mental exercise: assume the program you support or operate has been accused of being trivial or ineffective, doing nothing to reduce disparities or improve social justice. What evidence could you provide in its defense? Think of a parade of witnesses testifying from their unique expertise, vantage point, experience, and vested interest. What “portfolio of evidence” could make a case good enough to persuade a jury of peers that this work, when considered in context, is useful and necessary for closing a key disparity?
No less rigorous or accountable

Asking for “evidence of progress” is by no means a diminished demand for rigor. Instead, it frames evaluation in more familiar and approachable terms. Data of all kinds can be considered — numbers, stories, graphs, pictures, records, opinions, artifacts, etc. There is no single “measure” that communicates effectiveness or truth, just as in a courtroom no single witness provides all the testimony. In a court, multiple lines of evidence are entered and judged on their merits, resulting in conclusions that stand tests of credibility and accountability.

I’ve seen lots of frameworks borrowed from different disciplines in an attempt to find a good way to evaluate the effectiveness of nonprofits and philanthropy. I even once suggested that we should turn to movie critics as a model of how evaluation should be performed. But I think that Steven’s court room framework is elegantly simple and captures the way I think of evaluation and impact analysis better than I have ever been able to describe.

The fact is, I think that the best way to evaluate the social sector is via a system similar to investment research on publicly traded stocks. But to most people, this is an alien system that they incorrectly believe is concerned only with quantitative evidence. In actuality, stock market analysis is much more like the idea that Steven presents, “Data of all kinds can be considered — numbers, stories, graphs,
pictures, records, opinions, artifacts, etc. There is no single
“measure” that communicates [the potential of an investment idea].” But most people do understand that in court rooms all sort of evidence is presented and evaluated as a composite whole.

Steven’s framework is brilliant. The one point I would make (I think Steven would agree although he doesn’t make this point explicitly) is that in the court room things musted be proved “beyond a reasonable doubt.” This makes sense because the ramifications for deciding incorrectly are very high. But in the nonprofit/philanthropy world, we simply need to get to a point where it can generally be agreed that some funding opportunities are better than others.

Bravo Steven!

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

Bill Somerville on CBS

June 11, 2008 – 10:55 am
A producer at CBS read my Financial Times column about Bill Somerville and asked Bill to take them on the same field trip that he took me on. The result is this three minute video with the news crew visiting all the same places that I mentioned in my column.

Click here to view the video.

You have to watch the video just to hear Bill compare the grantmaking process of most foundations to someone trying to milk a cow upside down. The Project Streamline report seems to suggest that description is pretty accurate.

By Sean Stannard-Stockton | Also posted in Effective Giving, Foundations, Grantmaking, Media, Philanthropy, Venture Philanthropy, video | Comments (0)

Givers: Go Out and See For Yourselves

June 3, 2008 – 7:34 am
This is my most recent column from the Financial Times. You can find the full archive of past columns here.

Givers: go out and see for yourselves

By Sean Stannard-Stockton

Published: May 31, 2008 (link to original Financial Times article)

I recently left behind my office, with its constantly ringing phone and glowing computer screens, to visit some of the non-profits funded by Philanthropic Ventures Foundation, a public charity founded and led by Bill Somerville.

As we stood in line at a soup kitchen in our dress slacks and collared shirts, the other men and women turned curious eyes our way. “I’ve brought people here in the past who worry that these people won’t want to be stared at,” Somerville said, “but as you can see, it is you and I who are the ones sticking out.”

A nationally recognised expert in creative grantmaking and author of the new book, Grassroots Philanthropy: Field Notes of a Maverick Grantmaker, Somerville has spent the past 17 years as the head of PVF. There he has replaced the bureaucratic shackles that hamper much foundation work with creativity.

Earlier that day, we went on a “field trip” to North Fair Oaks, an unincorporated area of San Mateo County mid-way between San Francisco and Silicon Valley where many newly arrived immigrants make their home. As we travelled from a new, privately funded school for immigrant children and their mothers, to a Catholic Workers house where a young family battling drug addiction had recently found refuge, we passed a seedy motel.

“I stayed there one night before an early morning trip to collect food for the soup kitchen,” Somerville told me. “By the time I woke in the morning the police were pounding on the door trying to figure out why I was staying there!”

In Somerville, I found a risk-taking, venture philanthropist fused with a roll-up-his-sleeves social worker. The mixture is a philanthropic force of nature.

In Grassroots Philanthropy, Somerville describes in engaging prose how to be an effective philanthropist. With no agenda other than his need to set things right in the world, he lays out a series of principles that can be adopted by both endowed national foundations and those with lesser means, providing they have an urge to use their wealth to improve the world.

Recently, a lot of effort in the philanthropic world has gone towards analyzing non-profits via an examination of their financial results. By separating how much an organization spends on “overhead” versus “programs”, some people hope to identify the non-profits that most deserve funding.

But Somerville never discusses this concept in his book. Instead, he urges readers to “locate outstanding people doing important work”. To accomplish this, he suggests visiting non-profits to evaluate the people working there. Every community has people who accomplish amazing social missions on limited funding. Just as mutual fund manager Peter Lynch once told individual investors they had an edge over Wall Street in knowing what products were the hot new thing, it seems to me that individual donors have an edge over foundations in knowing who the outstanding people are in their community. To remedy this, Somerville suggests that foundation program officers should spend at least 30 per cent of their time away from their offices getting to know the people they are interested in funding.

Individual donors who are used to writing checks in response to a fundraiser’s appeal may not realise that many foundations take six to nine months to respond to a grant request. In the chapter asking donors to approach grantmaking with “speed and grace”, Somerville admits an “intense aversion to pointless paperwork” and tells the story of PVF’s “fax grant” program.

When a donor gave the foundation $100,000 and asked it to tackle California’s education problems, Somerville knew that the amount of the grant could not address the large structural issues behind the state’s education woes. But he could help teachers pay for much-needed supplies and field trips. Thus was born the foundation’s “immediate response” grantmaking program whereby teachers could fax in requests for funding to buy such things as science equipment, make-up for the theater department, or funds to take students to the zoo.

By responding to requests in a shockingly short 24-hour timeframe, the foundation was able to deliver money directly into the hands of the people responsible for educating our children. To date, PVF has given out $3.5m in immediate response grants.

“Take risks. Move quickly. Get out of the office and into the field.” The philanthropy practiced by Somerville is energizing, creative and clearly effective to anyone who spends a day visiting the people he funds. In a philanthropic world being revolutionized by new approaches to giving, Somerville is both a throwback to simpler times and a leap forward towards high-impact, efficient giving that embraces imagination and risk-taking.

The writer is a principal and director of tactical philanthropy at Ensemble Capital Management and author of the blog TacticalPhilanthropy.com

By Sean Stannard-Stockton | Also posted in Effective Giving, Financial Times Column, Foundations, Grantmaking, Philanthropy | Comments (3)

Project Streamline

May 30, 2008 – 8:09 am

The Project Streamline report begins:

A national organization has dozens of foundation funders, each with a distinct application process, different requirements, and its own cycle for funding.

As part of their annual report to a funder, staff from a nonprofit service agency have to categorize their clients according to the funder’s specifications, even though the categories are not the same ones that the nonprofit uses.

Three times each year, a family foundation with broad funding guidelines receives 70-80 proposals in the mail. This overwhelms the single staff person, as well as the board members who serve as program officers.

Most grantmakers take their responsibilities to support nonprofit and other public-serving organizations seriously, and spend considerable time thinking about how they can be most effective. Stories of highly productive, warm, and mutually satisfying partnerships between organizations and their funders abound. Yet the grantmaking process is rife with inefficiencies such as those suggested in the above stories, and these inefficiencies mean that everyone is wasting time and money that could be devoted to accomplishing missions.

The Project Streamline report goes on to outline how incredibly inefficient the grantmaking process of foundations are and says:

Determined to address the great waste of time and energy caused by inconsistent and inefficient reporting and application procedures, eight organizations representing grantmakers and grantseekers came together to form Project Streamline. Project partners include the following organizations:

  • Grants Managers Network
  • Association of Fundraising Professionals
  • Association of Small Foundations
  • Council on Foundations
  • Forum of Regional Associations of Grantmakers
  • Foundation Center
  • Grantmakers for Effective Organizations
  • National Council of Nonprofit Associations

Together, these diverse partners commissioned a scan of grant application and reporting practices, their impact on grantseekers and grantmakers, and the implications for the field. This report is the result. Its goal is to spark thinking and dialogue on this topic across a wide range of grantmaking stakeholders of all shapes and sizes. (Emphasis from the original).

The report cites “Ten Flaws in the System” and three “Creative Approaches” to fixing the system. Given the readership of this blog includes a pretty even split of funders and grantees, I thought I’d run with the reports hope to “spark thinking and dialogue on this topic” and start discussing the report here. I’ll start Monday with “Flaw #1″. Some initial comments on the report can be found on the Project Streamline website (is comment #1 ironic? I sure hope so!)

One quote from the report caught my eye. It is one of those things that is both shocking as well as unsurprising to anyone who knows philanthropy.

“The administrative burden placed by funders on community nonprofit organizations is so heavy and so unrelenting, and places so many constraints on their ability to operate that it is a wonder they can deliver any services effectively.”

—Lynn Eakin, from We Can’t Afford to Do Business This Way

By Sean Stannard-Stockton | Also posted in Cross-Disciplinary Conversations, Effective Giving, Evaluation, Foundations, Grantmaking, Philanthropy, nonprofits | Comments (2)

Tactical Philanthropy Podcast: Mark Kramer

May 23, 2008 – 9:52 am
Today’s post cast is with Mark Kramer of FSG Social Advisors. Mark and I talk about mission aligned investing, information sharing in philanthropy and whether achieving social impact means limiting financial returns. My favorite line from the interview, “I’ve actually talked to a couple foundation CEOs who, when I’ve said what was your greatest achievement, said putting a nonprofit out of business that just wasn’t doing a good job.”

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Sean Stannard-Stockton: Hello, and welcome to the Tactical Philanthropy podcast. I’m Sean Stannard-Stockton, author of the Tactical Philanthropy blog, and principal and director of Tactical Philanthropy at Ensemble Capital. My guest today is Mark Kramer. Mark is the founder of FSG Social Impact Advisors. FSG is a nonprofit organization that seeks to advance the practice of philanthropy via consulting with foundations, corporations, and nonprofits to increase their effectiveness and their impact. They publish research on philanthropic value creation and evaluation and create tools and best practices within philanthropy. Mark, I really appreciate you joining us today.

Mark Kramer: Thank you, Sean. I’m delighted to be here.

Sean Stannard-Stockton: Mark, FSG recently published a report called “Compounding Impact”, about mission-related investing. Would you start off just by defining what MRI means and maybe talk a little bit about the difference between SRI, PRI, and MRI?

Mark Kramer: Sure, and as that alphabet soup suggests, terminology is actually a huge problem in this field. I would not say that there are consistent definitions for any of those terms out there. But in the broadest sense, what we’ve seen is foundations increasingly taking into account their mission and the social impact of their investments when they think about investing their endowment funds. And there really are a couple different ways to think about the social dimension of your investments. One is simply to screen your portfolio. In other words, to avoid stocks and companies that you think do bad things, like tobacco companies. Or to have a positive screen, where you put more of your assets in companies that are doing what you think of as good things, like, perhaps, alternative energy, green energy.

A second way to have impact with your investments is through your vote of the proxy that you have as a shareholder. And there’s some very interesting work that Rockefeller Philanthropy Advisors, and some other organizations, have done around the role that foundations can play by influencing corporate behavior through their proxy votes. The third area, and the area that…

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By Sean Stannard-Stockton | Also posted in Information Sharing, Mission Related Investing, Philanthropy, podcast | Comments (0)

Foundation Research for All!

May 20, 2008 – 7:33 am
Yesterday I wrote about foundation consultant Tom David’s practice of posting reports he has been commissioned to create by large foundations on the web for anyone to read. Turns out Blueprint Research and Design, the consulting firm run by Lucy Bernholz (who blogs at Philanthropy 2173) posts all of their reports online as well. They also do something else; their standard contracts include intellectual property rights language that REQUIRES foundations to agree to the release of a public version of the report.

The business people out their are already questioning how a business plan works that instantly makes valuable information available for free (why don’t the foundations all sit around waiting for someone else to pay to have a report created and then use the free version?), but that’s because of a fundamental difference in for-profit and philanthropic marketplaces. In the for-profit arena, “controlling” valuable information is the key to high profit margins. In philanthropic market places, “spreading” valuable information is key to creating impact. This is because the “returns” that philanthropists generate from applying knowledge accrues to everyone. When you pay to have a report created and others use your work to generate social good, that social good is a result of your work and so you have created more impact.

In Lucy’s words this practice of information release “directly leverages the initiating foundation’s investment with other funders money.”

PS: I think what Tom and Lucy (and I’m sure other consultants as well) are doing is great. But I want to clarify that my longer term argument for foundation transparency is focused on the idea that foundations can enhance their impact by making their accumulated knowledge available to the public. This does not mean they have to spend a lot of money to package the information for general consumption. Just as GuideStar and Charity Navigator packaged up 990 info for the public, I’m sure that third parties would emerge to package up foundation information and market it to the public.

By Sean Stannard-Stockton | Also posted in Effective Giving, Foundations, Grantmaking, Information Sharing, Transparency | Comments (5)

The Commodity Nonprofit

May 13, 2008 – 9:46 am

Yesterday I asked whether nonprofits delivered a commodity of a premium product/service. I want to reiterate that I did not use “commodity” to mean “inferior to a premium product.” I meant commodity to refer to homogeneous products that consumers general choose between based solely on price. Examples: milk, gasoline, printer paper, computer storage devices, generic pharmaceuticals. For-profit organizations can make a TON of money selling commodities (see oil & gas companies during the past few years), so I am not suggesting that selling premium products is somehow superior to selling a commodity.

Let’s think about the nonprofit space. If Organization A can deliver vaccines in Africa for $5 per shot and Organization B can deliver it for $10 a shot, a rational donor would likely fund Organization A. The assumption behind that decision rests on the idea that the product being delivered (a vaccination) is identical and so the most important thing to consider is cost. But what if we look at pre-school education? I don’t care how many teacher-hours are delivered per dollar. I care about the quality of the teaching (because the teaching is not an end to itself, it is the education of the child that we care about). In this environment, we have a premium product market where a rational donor will judge cost in relation to value. However cost still matters. A Lexus might be worth twice as much as a Ford, but even though it is a better car it would not be rational to pay 100 times the cost of a Ford.

When I think back on the discussions we’ve had about overhead expense ratios and the fallacy of quantitatively evaluating nonprofits, I realize that the commodity/premium product dichotomy can help us understand when to look at cost and when cost can be misleading.

There are a lot of nonprofits that deliver commodity-like products and that’s OK. Those organizations should be judged based on cost of delivery. But many, many nonprofits deliver a premium product that is better (or worse) than similar products offered by competing nonprofits (and for-profits). These organizations should be judged on the quality of their product and the cost of delivery in relation to the level of quality.

By Sean Stannard-Stockton | Also posted in Effective Giving, Grantmaking, Philanthropy | Comments (2)

The Tyranny of Metrics

April 30, 2008 – 2:53 pm

Reader Jeane Goforth writes:

Evaluation. My co-founder and I spent 2 hours standing on a street corner ‘after’ work discussing how to measure and convey the profound experiences we have daily. My stomach churns and my shoulders ache when our expert non-profit adviser talks about metrics. I struggle to add one more thing to my to-do list and I know metrics don’t say enough about why what we’re doing works and why it is important.

To me, this comment sums up everything that is wrong with metrics, both how they are dismissed by detractors and how they are misapplied by advocates.

Bad metrics are “one more things to my to-do list”. If the metrics don’t help the nonprofit run their organization better, than their relevance should be questioned. At Ensemble Capital we track a number of metrics about the performance of the firm. We don’t do this to show them to anyone else, we do it because they help us understand our organization better. But we also know that the metrics that are trackable do not capture everything (or even most) about our business.

One of the most important events in Ensemble’s history (in my mind) was when I was making a presentation to the CEO of a public company about why he should consider opening a private foundation. Half way through the conversation he cut me off and said, “Let’s do it. This makes all the sense in the world. A couple of years ago I asked my CPA if I should have a foundation and he gave me one answer. Then I asked my lawyer and he gave me another answer. But clearly you understand the reasons that I personally need a foundation, so let’s get one started today.” This individual had access to some of the best advisors around. Yet they failed him when it came to philanthropy. That was when I knew Ensemble was going to be a success. But that statement doesn’t show up in any metrics that we track.

Every nonprofit should be searching for relevant metrics to track that can help them run their business. If you don’t realize that total donations are going up only because two large donors have significantly increased their giving, then you will not see the increasing risk to your budget of losing those two donors. If you are working with high school students to help them get into college and the rate at which students are going to college is not budging, you have some examination of your program to do (although it doesn’t mean by itself that you’re failing).

But metrics that do not help the nonprofit are probably useless to donors. If a donor asks for a metric that you do not think is relevant, it is either because you are mismanaging your organization, or far more likely, the donor does not really understand what you do.

Quantifying “doing good” is tough if not impossible. But the idea that nonprofits don’t have time on their to do list to think about whether they are doing a good job is poison. Anyone running a for-profit or nonprofit organization should be thinking everyday about how they can do better and what tools can help them understand their organization. If “tracking metrics” is something that is just busy work, then it is useless work.

By Sean Stannard-Stockton | Also posted in Evaluation, Philanthropy | Comments (5)

Evaluation 2.0

April 25, 2008 – 10:21 am

I believe that in many aspects of life, a kind of pendulum effect exists. This effect describes the way in which people’s opinions tend to swing back and forth around reality. Rather than reflecting reality, people’s views vacillate in an arc around true reality. This creates a kind of boom/bust scenario that is very evident in the stock market (dot com stocks will make me rich! Ahh! Dot com stocks are poison!), but also shows up in politics, educations, pop culture, etc. I ran across a well put description this morning on Yahoo Answers:

I think the idea is that: somebody gets a good idea, and then a whole lot of people 1/2 understand it, and make it absolute, taking it to an extreme. Until somebody discovers “another” great idea, (the way things were originally done), and everybody jumps on that runaway train to hell.

The lesson: Moderation. A little common sense goes a long way. Don’t just “swing with the pendulum” of fashion in teaching/learning methods.

I think that there is a strong pendulum effect in philanthropy. I see it at work when we talk about metrics, evaluation, “philanthrocapitalism”, venture philanthropy, etc. Today I want to share with you an excellent article in the Financial Times by Gara LaMarche, the president of The Atlantic Philanthropies. I think LaMarche describes well the way in which approaches to evaluation have “swung too far” and his recommendations for a middle ground makes a ton of sense.

The philanthropic world, poked and prodded by a wave of new donors fresh from success in the business world, is grappling with the issue of evaluation. How do we know that grants – or, as they are now often called, reflecting the influence of the profit-making sector, “investments” – are making an impact?…

…Evaluation is a learning tool for the organisation and the funder, not a stick with which to beat grantees.

…Doing this correctly takes money… Funders should recognise and support their grantees in their efforts to learn what works.

…Evaluation should measure only what is important. Data should never be collected for the sake of it. The “metrics” obsession that has overtaken some funders has not always recognised this. Funders should never make grantees jump through hoops, distracting them from their core mission and costing valuable staff time, for reporting on trivial things. And there is nothing more demoralising, from the grantee’s perspective, than doing all this paperwork only to have it ignored.

…Both funders and the organisations they support need more humility about cause and effect. Organisations working for social or policy change should understand that no significant change was brought about by one organisation working alone.

…Finally, the most important thing: start with what you believe. If you have a passion about ending the death penalty or the isolation of older people – whatever it is – find a way to advance it first and worry about how to measure it second.

You can read the full, excellent article here.

By Sean Stannard-Stockton | Also posted in Cross-Disciplinary Conversations, Evaluation, Philanthropy | Comments (5)

Donors Want Impact?

April 9, 2008 – 9:43 am

In response to my recent Financial Times column about new approaches to funding growing nonprofits, the following letter to the editor appeared in the April 5 edition of the FT.

Sir, Sean Stannard-Stockton (“Non-profits look to invest in themselves”, March 29) errs when he concludes his interesting column by saying that “while yesterday’s donors were content to give to a non-profit based on emotional appeal, today’s donors want to know their money is really going to have an impact”.Since the late Renaissance and the Reformation era when the conceptual and applied shift towards “modern philanthropy” with its pursuit of rationalised solutions to systemic problems occurred, donors have sought to optimise the outcome of their investments. Today’s “venture philanthropists” promise greater results and more accountability by borrowing from the practices of venture capital, just as “scientific philanthropists” of the late 19th century did by adopting the principles of the reigning intellectual framework of science.

In order to grapple honestly with the strengths and weaknesses of beneficence, it is important to recognise that new and better practices are often old methods that have been revived - because the problem of an unequal distribution of resources endures - and that perpetual frustration with the limits of philanthropy is a prime reason for the continual reworking of ideas.

Amanda B. Moniz,
Department of History,
University of Michigan

Michael Edwards of the Ford Foundation responded to the same sentence in my column saying, “[you] assume that impact considerations are new, when in fact they have been around for fifty years or more - just not expressed in the ways you
think are satisfactory.”

I agree that the concept of impact (attempting to give in ways that can do the most good for your dollar) is not new within institutional philanthropy. Because a lot of my readers work at institutional foundations, consult for these foundations, or work at nonprofits that receive grants from these foundations, I often address issues of institutional philanthropy. But I’m not an expert in institutional philanthropy. My firm, Ensemble Capital, serves individual philanthropists. When I talk about The Second Great Wave of Philanthropy, I’m talking about major shifts going on with individual donors. When I write for the mass audience of the Financial Times, I’m writing for individual donors. But given how my writing on this blog veers into issues of institutional philanthropy on a regular basis, I can see how it is my fault if people perceive that I’m declaring “impact” as a new concept to foundations. It is not.

Individual donors have always been aware of the idea that their donations could do more or less good depending on which nonprofits they funded. While they might not often use the word “impact”, the concept makes sense if it is explained to them. But I reject the idea put forth by Moniz and Edwards that “donors” (and that was the word I used, not “foundations”) have embraced impact considerations for half a century.

If in fact donors understood impact, which at its core assumes that some donations do more than others, than you would assume that these donors would strive to achieve higher levels of impact. Yet there are almost no mass market books that discuss this issue, almost no articles in print or online, almost no organizations that help donors achieve impact.

Now before you send me emails pointing to Inspired Philanthropy or Don’t Just Give It Away, before you point out that I’m writing a mass market column on these very issues at the Financial Times, before you tell me about excellent consultants like The Philanthropic Initiative, Arabella Philanthropic Investment Advisors, or my own firm Ensemble Capital, let me just say that all of that adds up to just a bit more than zero.

Individual donors have access to almost nothing compared to individual investors. Every bookstore in the country has a whole section devoted to personal finance (books on which generally ignore charitable giving while lavishing pages of copy on other obscure financial issues). Every daily newspaper devotes space to advising individual investors and we have many mass market publications targeted directly to the individual investor. Investors issue with investment advisors is not so much finding one (believe me, there are thousands of advisors trying to find you right now), but picking from amongst the many qualified professionals.

Most individual donors don’t even know the difference between a nonprofit and a foundation. Institutional philanthropy actual is making a effort to let people know what they do since most Americans cannot even name a single large foundation. Individual donors with a portfolio of appreciated assets still mostly write checks to charity instead of transfering assets or setting up a philanthropic account (this is similar to saving for retirement in a checking account because an investor had never heard of a 401k).

I could go on and on.

I actual have my own criticism of the sentence in my column that Edwards and Moniz call out. When I wrote “while yesterday’s donors were content to give to a non-profit based on
emotional appeal, today’s donors want to know their money is really
going to have an impact,” I actually overstated the case in the opposite direction of the way they saw it. Edwards and Moniz argued that the statement was false because they believe yesterday’s donors were focused on impact. I would say that my statement was flawed because in fact, not even “today’s donor” knows what impact is. “Tomorrow’s donor” will be the ones deeply concerned with impact. But at least today we have real movement in that direction.

By Sean Stannard-Stockton | Also posted in Cross-Disciplinary Conversations, Effective Giving, Foundations, Grantmaking, Media, New Philanthropy, Philanthropy | Comments (12)

Robert Wood Johnson & the Long-run

April 8, 2008 – 9:04 am

Referencing my post on short-term vs long-term focus in philanthropy, the Robert Wood Johnson Foundation asks for ideas via their blog:

Last Friday, in his thoughtful blog, Tactical Philanthropy, Sean Stannard-Stockton, wrote about the often-missed opportunity philanthropies have to focus on the long run…

On the Pioneer Portfolio, we’re interested in understanding those long-term trends, because they are driven by forces and create conditions that make today’s radical ideas tomorrow’s successes.

Recently, we’ve been watching trends of patient empowerment, IT/communications technology, and data mining/rapid learning. What trends are you watching and what implications do you think they have—long term—for health and health care?

You can click here to leave a comment on their post.

By Sean Stannard-Stockton | Also posted in Cross-Disciplinary Conversations, Effective Giving, Long-Term Philanthropy | Comments (0)