Category Archives: nonprofits

The Nonprofit Institutional Imperative

March 4, 2010 – 6:06 am

Warren Buffett is known to warn investors away from companies who have fallen prey to the Institutional Imperative. The Institutional Imperative is the phrase Buffett uses to describe the way that many management teams, generally for reasons of greed, manage their company to the benefit of the institution rather than for shareholders.

The Institutional Imperative leads to companies making acquisitions of other companies which increase the size of the institution, but do not increase shareholder value. It leads to companies following what other companies are doing so that they do not risk looking bad instead of charting the course that would best lead to enhanced shareholder profits.

In short, the Institutional Imperative describes how many management teams manage their organization for the sake of the organization instead of recognizing that they should be managing their organization for the sake of shareholders.

I believe that many nonprofit organizations are in the grips of a variant of the Institutional Imperative.

The for-profit Institutional Imperative is driven by greed (management teams that want to run bigger organizations) and a desire to not look bad (management teams that follow the herd, even during periods of irrationality such as the dot-com boom and the period leading up to the financial crisis). The nonprofit Institutional Imperative is driven by fear, the fear created by running an organization which is constantly fighting for survival.

Nonprofits, even large ones, rarely have enough money. Even when their revenue is high, they frequently do not have the philanthropic equity on their balance sheet that would give them the ability to invest in the future. When an organization, or an organism, is in survival mode, it must shut down nonessential functions. It must operate so as to preserve itself. In the case of a nonprofit, this means focusing on fundraising and executing existing programs.

The nonprofit Institutional Imperative is responsible for the fact that so few nonprofit measure their performance, track the outcomes of their work or make the resources available to share information about what works (and what does not) with the field.

The nonprofit Institutional Imperative leads nonprofit management teams to run their organization for the sake of the organization rather than for the sake of stakeholders.

Warren Buffett believes that simple human nature is responsible for the Institutional Imperative. Observing that many for-profit and nonprofit organizations fall prey to the Institutional Imperative is not a criticism so much as a recognition that the normal human emotions of greed and fear lead management teams of both for-profits and nonprofits to run their organizations in ways that do not maximize benefits to shareholders and stakeholders.

But great organizations are led by teams who refuse to succumb to the Institutional Imperative. They recognize that the organization they lead is not itself an entity to preserve so much as a vehicle for delivering value to shareholders and stakeholders. The gifted executive is one who realizes that they have been entrusted with stewarding this value creating vehicle. They have been given the responsibility of maximizing the value that their organization creates, not simply tending to the care and feeding of the organization.

Before making every decision an executive team should be able to answer “Yes” to the question, “Does this action enhance value to our shareholders or stakeholders?” NOT “Does this action benefit our organization?”

By throwing off the shackles of the Institutional Imperative, you can align all of your resources towards your true goal. You can do more with less because you are putting every ounce of effort into creating value.

You can truly make a difference.

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

Nonprofit Survey 2010

January 11, 2010 – 8:17 am

Last year, the Nonprofit Finance Fund released a survey of the financial state of America’s nonprofits. Among other things, the survey focused on nonprofit finance, what organizations expected in 2010 in terms of funding and demand for services, and what steps they were taking to weather challenging economic conditions. The survey received a staggering amount of media and sector attention (relative to most surveys). Stephanie Strom did a piece in the New York Times and the data was cited throughout 2009 – recently in the Washington Post and the Boston Globe.

This year, NFF will conduct a similar survey. In the interest of providing the most valuable information possible to the sector, NFF wants to ask people what information would be useful to them and has selected the Tactical Philanthropy Community as the venue through which they’d like to gather input.

You can find information about last year’s survey here, summary results here and the full survey here. NFF would like the Tactical Philanthropy Community to make suggestions as to what additional questions should be asked in this year’s survey and plans to add a couple of questions based on this input.

To add your thoughts on what you’d like them to ask, leave a comment on this post.

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By Sean Stannard-Stockton | Also posted in Philanthropy | Comments (2)

Causes, MySpace & ideablob

November 16, 2009 – 8:06 am

In recent days, Causes has left MySpace and IdeaBlob has shutdown. To some, these events were unimportant. In reaction to the Causes announcement, Economist bureau chief Matthew Bishop tweeted “Who knew it was on MySpace?” to which New York Times reporter Stephanie Strom tweeted back “No kidding.”

But to many people active in online social action communities, these events had deeper meaning. This is a guest post from Amy Sample Ward, NetSquared’s Global Community Development Manager

By Amy Sample Ward

The Effect on Community in Community Platforms

There’s something in the wind, other than in-coming winter, that has my attention. It’s something I can only wrap my mind around by talking to others and hope that this is a chance to further a very important conversation. First, let’s start at the beginning:

Causes Leaves MySpace

Two weeks ago, Causes, the application that lets individuals and organizations campaign and fundraise, removed itself and all Causes-related content/data from MySpace. (Read more about Causes leaving MySpace here.) This separation came with no public announcement, either before the move or when it happened, except for a very short email sent a couple days beforehand to account administrators as a warning. The message explained that Causes would be focusing on only providing service to the Facebook platform, encouraging any MySpace users that wanted to continue using the application to migrate, too. and then… 

ideablob Shuts Down

By now, you may have heard about the very abrupt closedown of ideablob, a competition and promotion platform for entrepreneurs. Late last week, registered users, interested supporters and social changemakers participating in a funding competition were all greeted with the message below when visiting the ideablob website:

 ideablobclose

Users (whether they were people with a project in the competition, those that had voted to support an idea, or were general registered users of the site) received no notice that the closure was coming, or even when it happened. The only bread crumbs to find were some business reports about Advanta declaring bankruptcy, like this one, that don’t even mention ideablob. Here’s a bit of John Brennan’s story (an ideablob member who was competition in the competition) from his comment on my original blog post:

"It’s upsetting that companies like this aren’t actually thinking or caring about the real people and ideas they are effecting. This week our idea was up for the sprint and in the top 3. Why did they even start the competition when they already were going through bankruptcy talks?"

and so… 

The Conversation

What’s this mean to you as an activist, supporter, volunteer, changemaker, entrepreneur, innovator or *insert preferred title* online? Well, it means a lot. We can see (and learn a valuable lesson about) the way current ecosystem of social media works in regards to transparency, data, and community. To unpack this, let’s narrow in on each:

Transparency
The lack of communication about the actual decision, but more so in the lack of communication about the development, direction and intention of Causes and ideablob indicates that transparency isn’t a part of the package. There are many who approach the online landscape with very different views than their offline business decisions. For example, if ideablob or Causes were a product offline, and you were a funder, an investor, or a consumer/user of ideablob or Causes as offline products providing no integral communication, you would probably not have ever considered participating/consuming. Just because you aren’t meeting offline, in real-time, in the same room with your supporters and the competitors in the ideablob competition, does not mean likewise that you do not need to know if the platform will even be around for your competition to finish. The transparency issue is a steep mountain to climb with social media. Unless you knew that ideablob was part of Advanta, and you were reading the business sections of the papers last week, you wouldn’t have had any idea ideablob was even considering discontinuing. But, transparency is even more than this, and really is a part of the Data and Community, too.

Data

We can count our Twitter followers or how many people have commented on our blog post, or could have counted the number of supporters on Causes or voters on ideablob, but that doesn’t mean we connect with them. Now that Causes removed itself, it’s content, and any related data from MySpace, organizations cannot connect with their supporters who were using Causes. ideablob participants are locked out from seeing any comments or feedback on their ideas. The fact that access to data, whether it’s supporters’ email addresses, tracking actions taken, or anything else, is instantly gone should be a big alert bell to those working in a "networked" way via social media to grow their community. To connect with supporters, organizations and individuals working on projects will need to be sure that data gets back to them. How are you encouraging your supporters all over the web to connect with you directly? For example, when you post a message (whether it’s on Twitter, Facebook, or even Change.org) telling your supporters that you’re ramping up for some big news, a new project or something else, include a link where they can sign up with you to be on the email/announcement list. When supporters sign a petition or take action on your organization’s behalf in social media platforms, include "thank you" and "learn more" links wherever possible that link to ways to connect directly with your organization, ensuring the contact information is in your database, not just Facebook’s.

Community

In the Causes move, the issues around community are very clearly focused on the different demographic groups represented on MySpace and Facebook. With ideablob, it isn’t so much that groups are being separated/segregated, but entirely shut off. These events raise many questions and flags about diversity, opportunity, and even corporate decision-making. Communities on both platforms were clearly not part of the development and communications process, yet they were actively using the platform (for example, a grant from ideablob helped Epic Change implement a technology lab in a school in Tanzania). What is the difference between a community actively using a platform and one actively involved in the evolution of the platform? If a platform were to disappear, would the community be able to continue on? Perhaps so if it had been active in the development and direction (or, perhaps that would indicate that the platform would be more unlikely to disappear or at least not without notice)?

What’s Next

I don’t necessarily want to call for the communities on MySpace or on ideablob to call for the return of the tools. We can see by the issues raised above that the platforms weren’t necessarily operating in the best ethos anyway. But, I do want an arena for the communities to describe what they do want and be an integral part of the process to building and sustaining whatever that is.

How can this work? I can’t speak for others working in the "innovation sector," but at NetSquared we can’t emphasize enough that our Community is what drives us – whether’s it’s online or offline. Community feedback shapes everything from our goals to our website and everything in between. We are able to work as a small team on the organization side because of the passionate, collaborative, dedicated Community. For example, you can follow the website redesign process via the blog where the feedback and directives for the redesign, the people who stepped up to implement, and the step-by-step process have all been open and Community centered. This isn’t about creating a new splash page, this is involving the users in the design of the Gallery where their Projects are housed, showcased and voted on; involving bloggers in the design of the collaborative sharing space they contribute to already; involving Community members in telling us both the bad stuff and the good stuff, so we can work to make it everything they want.

As another example, the Net Tuesday network is now up to 56+ groups meeting every month around the world—a global network of events, bringing the NetSquared Community together offline—and growing in an entirely organic way. That doesn’t mean NetSquared’s perfect, by any measure, but it does mean that a quick abandonment isn’t in store. That also doesn’t mean that NetSquared is the *only* or the *best* place for absolutely everyone to find what they are looking for. It is, though, one example of trying to make it work.

Your invitation: Join this conversation. Tell me what the recent Causes/ideablob announcements means for our sector and for you. And share your ideas with your friends and colleagues to further the breadth of the conversation. The more voices the better! Here are some places to start:

  • Evaluate your use of social media tools: do you encourage your supporters on other platforms to register on your website, ensuring you have their contact details?
  • Evaluate your community: are you reaching a diverse community or operating in a silo?
  • Evaluate your relationship with developers: are you using tools that allow you to surface suggestions, ideas, and useful functionality for development? Do you know what the plans are for the tools you are using?

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By Sean Stannard-Stockton | Also posted in Cross-Disciplinary Conversations, Innovation, Open Source Philanthropy, Philanthropy, Social Media, nptech | Comments (7)

Leveraging Expertise in Philanthropy

October 20, 2009 – 8:20 am

Here’s an example of a way that donors with knowledge about a specific area of social impact can leverage their knowledge by sharing it with other donors. This comes from Social Venture Partners Rhode Island, but it is a format that any group with domain expertise in a particular grantmaking arena could copy.

Leveraged Investments in High-Potential Social Enterprise

Want to participate in Rhode Island’s growing social enterprise movement? Consider SVPRI’s Social Enterprise Investment Fund. The fund, which will be formally announced at the SERI Summit (November 12, 2009 at Bryant University), seeks to maximize social return on investment (SROI) through qualified investments leveraged by hands-on human capital in business models that help sustain the mission of high-quality non-profits.

The fund will invest in social enterprises that are "non-profit owned, mission-driven businesses which seek to maximize the efficiency, sustainability and social impact of its non-profit parent.” An investment in social enterprise is different from a contribution in a social program. It is an investment in the long-term success of the organization and its ability to best serve its clients and stakeholders. Each investment is leveraged with a team of SVP partners providing pro bono consulting services, so that non-profits benefit from access to the growing institutional knowledge and significant social capital of the SVPRI human capital network.

Investment Units

A full investment unit – with voting privileges and a partnership for two in SVPRI — is $5000. Smaller investments, including half shares, are available. A portion of each investment provides working capital for building the team and managing the process. For more information, please contact Chuck Holland, SVPRI Board Chair.

So let’s run with this idea for a minute. There are 24 Social Venture Partners chapters and over 2,000 members. With this fund, the Rhode Island chapter is effectively unleashing their knowledge, making it available to the public and offering to steward any gifts made by the public since they are already providing services beyond the grant to the nonprofits they support.

In effect, this sets SVPRI on a path that potentially competes with community foundations. They are offering geographic specific advice on outstanding nonprofits without requiring that donors place the money with them (such as in a donor advised fund) and they are doing it for free. Why for free? Because information about social impact becomes more valuable as it spreads since the “owner” of the knowledge generates social value when other investors use their knowledge.

Of course, SVPRI’s fund will not offer personalized one-on-one consulting. They are not getting into the relationship management game. But they are “unbundling” information about which nonprofits are doing a good job from the administration and relationship management services that have traditionally been bundled within community foundations.

One of the underlying premises of Tactical Philanthropy Advisors is that high end advisors to major donors no longer need to have a geographic focus because geographic focus is only relevant in regards to grantee information and today we’re witnessing a massive trend towards sharing knowledge about grantees.

On Friday, I’ll be at the Social Venture Partners conference in Dallas. One of the session I’m leading will be on SVP’s potential role in sector-wide initiatives. I think the new fund being launched by the Rhode Island chapter is a fascinating example of how SVP (and other smart grantmakers) can leverage their knowledge and engage with the sector as a whole.

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By Sean Stannard-Stockton | Also posted in Community Foundations, Effective Giving, Information Sharing, New Philanthropy, Philanthropy, Social Enterprise, Transparency | Comments (3)

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, Impact Measurement, New Philanthropy, Philanthropic Capital Markets, Philanthropy | Comments (23)

Philanthropy at the End of the Recession

October 12, 2009 – 9:31 am

Most economists believe that the Great Recession is ending. Let’s assume for a moment that this is true. That the economy has finished the deepest contraction since the Great Depression and is now on the verge of beginning to expand again.

If this outlook it correct, it is critical that nonprofits recognize this moment as one of great opportunity.

Cutting back is tough to do. Income is relative, so while getting a raise from $50,000 a year to $75,000 a year makes people feel flush, getting your pay cut from $100,000 to $75,000 requires painful cutbacks in your lifestyle.

The good news is that if the recession is ending, we have all completed most of the cutbacks we needed to achieve. Today, we stand within organizations that were able to handle the downturn and are now operating on budgets set well below where they were a few years ago. We’ve completed the tough layoffs, we’ve cut back on wasteful spending, we’ve reset our expectations.

If you are operating a nonprofit you have a huge opportunity to reset the future path of your organization’s financial health. At any given time, it is hard to take resources that are needed to tackle today’s problems and invest them in the future. But because income is relative, as the economy improves and additional resources become available, you will face the easiest possible time to earmark those resources for investment in your future.

  • Develop the next generation of your most effective program.
  • Put in place an outcome measurement system.
  • Build a reserve fund.
  • Upgrade your technology infrastructure.
  • Hire a top notch fundraiser.

You’ve already done the hard work of cutting back. Don’t let this opportunity go to waste by simply letting your budgets slow creep back up to where they were before the crisis. If before the crisis you had told people you wanted to enact layoffs, cut back on travel and eliminate your weakest program in order to invest in one of the items above, you would have faced a revolt. But today you’ve already done the cutbacks. It is up to you what new path you chart as the economy recovers.

This recession was the worst since the Great Depression. So if economist are right and the recession is ending, the next few years offer the easiest possible time to invest in your future.

If not now, when?

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By Sean Stannard-Stockton | Also posted in Philanthropy | Comments (9)

Seth Godin : Fear : Vertigo Tolerance : Change

September 16, 2009 – 10:01 am

Seth Godin is someone who a lot of people look at with reverence. Books of his like Tribes and The Dip have been very influential for me and many other people. But boy, oh boy did his post yesterday in which he called nonprofits to task for not embracing change and social media let loose a hornet’s nest of angry nonprofit folks!

(Full disclosure: The recent redesign of Tactical Philanthropy was done by onramp Branding. While they generally work with very large corporations, they took us on as a client at the personal recommendation of Seth Godin. In addition, Tom Watson who I mention later in the post thanked me in his book CauseWired, which I wrote a very positive review of. And Beth Kanter, mentioned as well, is also a friend.)

Seth wrote:

[Nonprofits] exist solely to make change. That’s why you joined, isn’t it?

The problem facing your group, ironically, is the resistance to the very thing you are setting out to do. Non-profits, in my experience, abhor change.

…Beth has a great post about the feeling of vertigo that non-profits get when they move from the firm ground of the tried and true to the anti-gravity that comes from leaping into change.

…Where are the big charities, the urgent charities, the famous charities that face such timely needs and are in a hurry to make change? Very few of them have bothered to show up in a big way. …The internet represents a change. It’s easy to buy more stamps and do more direct mail, scary to use a new technique.

Of course, some folks, like charity: water are stepping into the void and raising millions of dollars as a result. They’re not necessarily a better cause, they’re just more passionate about making change.

A few years ago I met with two (very famous) non-profits to discuss permission marketing and online fundraising and how they might have an impact. Each time, the president of the group was in the room. After about forty five minutes, the meetings devolved into endless lists of why any change at all in the way things were was absolutely impossible. Everyone looked to the president of the group for leadership, and when he didn’t say anything, they dissembled, stalled and evaded. Every barrier was insurmountable, every element of the status quo was cast in stone.  The president of the group was (he thought) helpless.

Sorry if I sound upset, but I am. The work these groups do is too important (and the people who work for them are too talented) to waste this opportunity because you are paralyzed in fear.

On its face, the post seems simple enough. Nonprofits are scared of change. Isn’t everyone?

But Tom Watson, author of CauseWired, a look at some of the best examples of nonprofits utilizing social media in service of a cause, argued Seth was wrong in his post, “Why Seth Godin is Wrong”:

Online marketing guru Seth Godin takes aim at nonprofits in a widely-quoted blog post “The problem with non” today, a diatribe of sorts that repeats a meme that’s been active in American philanthropy circles for at least a decade: nonprofits are afraid of change.

And it’s true, of course – at least on the surface. Most organization, especially large ones, do not race to take risks. But Godin’s piece is both simplistic and under-reported. Sure, it’s easy to say – as he does – that “non-profits, in my experience, abhor change.” Yet in my experience, they hate a change a lot less than failure – and they also hate change less than vast swaths of the corporate world (Wall Street and big insurance leap to mind).

…For one, I’m impressed every week by the work of nonprofits – work that does indeed, blow me away. And for another, there is some risk-taking out there – more and more capital directed toward experimentation – and some terrific advances in story-telling, organizing, fundraising, and activism. My book spent much 200 pages covering those stories.

…nonprofits are way, way down the list of sectors that really abhor change. Wall Street, big insurance, government – now they really hate change. More nonprofits need to adapt, to experiment, to take risks, to embrace change. But they need to keep on providing services while they’re doing it.

OK. So Tom’s arguing that nonprofits are scared of change, but not any more so than the for-profit and government sector. That makes sense.

But here’s where things get really interesting in my opinion. In Seth’s post, he points to a Beth Kanter blog post where she looked at the one characteristic of all nonprofits that do successfully adopt social media: Vertigo Tolerance.

Beth wrote:

The leaders of the nonprofits that can embrace social media can tolerate vertigo.  Another way to put this is:  the c-suite is comfortable with discomfort.

Wait! My post from Monday was titled “Accepting Discomfort as We Navigate Uncertainty”:

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.

…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.

So we’ve come full circle. Tom, Beth and Seth are all right in my mind. Change is hard. Too many nonprofits (and philanthropists!) find change scary and by hunkering down instead of accepting uncertainty, they are wasting an opportunity to make a difference. Wasting an opportunity in the social sector means more people in poverty, fewer children with access to education, a quickly deteriorating environment. Seth is right to be pissed off.

But all is not lost! We are in the early stages of a technology and demographically driven Second Great Wave of Philanthropy. Books like Tom’s document the ways that more and more social change agents are getting comfortable with change and embracing new approaches.

Seth’s post was cranky, but he’s right. The work of nonprofits is too important for them to become paralyzed with fear.

Tom’s post was right as well. Everyone hates changes, not just nonprofits. And every day, more and more nonprofits are learning to overcome fear and more capital is being devoted to experimentation.

And Beth’s post offers the road map to take us from Seth’s world to Tom’s world: Vertigo Tolerance.

We need to get comfortable with discomfort. Philanthropy and social change is hard work. It is not enough to have a good heart and try hard. We need people who are daring.

We need Change Agents.

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By Sean Stannard-Stockton | Also posted in New Philanthropy, Philanthropy, Social Media | Comments (8)

A Rebuttal & an Example of a High Performance Organization

August 5, 2009 – 4:38 pm

My post earlier today and this one is an attempt to air the differing opinions that have been circling my recent posts (of course you can read the 30+ comments on this post to catch a whiff as well).

The many comments, emails and tweets that have pushed back and applauded my series of posts have been incredible useful to me. I’ve realized that there is one critically important element of a high performing organization that I did not highlight and yet is integral to the success of the model I’m advancing. The fact that this element even needs to be mentioned is one of the keys to understanding how radically different for-profit and nonprofit analysis is. I’ll examine this issue tomorrow.

Today I present a guest post from John MacIntosh of SeaChange Capital Partners, a nonprofit firm that seeks to arrange transformational fundings of outstanding nonprofit organizations.

By John MacIntosh

There’s no tension between “performance” and “impact” but they are very different and so it’s hard for one person to evaluate both well even though effective philanthropy sometimes requires it.

Let me start with Sean’s definitions:

· A high performance nonprofit is a very well run organization. It has outstanding leadership, clear goals, an ethic of monitoring performance and making adjustments as needed, and it is financially healthy.

· A high impact nonprofit is one whose efforts have been proven to cause sustainable, positive change.

First, Sean uses the ambiguous “efforts” when what he really means is “program”, “treatment” or “intervention” (collectively, “program”). “Efforts” hides the fact that that high impact is a feature of programs not organizations. In this respect, impact and performance apply to different kinds of things.

Second, the definition of “high performance” makes no mention of program! Would anyone claim that a nonprofit was high performance despite knowing that its "efforts" were believed (or proven!) to cause (or even be associated with) negative change?

Third, the tools for evaluating for “impact” and “performance” come from different disciplines. “Impact” is a concept from social science where ideally we define the treatment, develop measures of impact (wages, employment rates, test scores, etc.), identify a comparison or control group, worry about selection and omitted variable biases, organize for large Ns, and hope for p-values above 2.0!

“Performance” is about leadership, culture, management information systems, accounting, unrestricted net assets, opportunities for donor engagement, and the like. Few people I have met are equally comfortable in these two domains; very, very few are masters of both.

Here’s a more realistic definition:

A high performance nonprofit has a high impact program that it is likely to be able to deliver over time under a variety of changing conditions.

Under this definition, the question of performance can only be considered together with that of impact and Sean’s list of organizational virtues are means to the end of sustained impact.

Under this definition, there is no false dichotomy between performance and impact yet it is only over time and/or under changing conditions that high performance matters much over and above impact.

For a typical one-year grant made to a local nonprofit not going through any major change, impact is all that matters. If the program “works” the money will be well spent. If the organization falters because of a leadership change, shaky finances, or some other changing condition, then there won’t be a renewal. At the other end of the spectrum – multi-year growth capital grant to a growing organization already operating under various conditions in multiple sites – the question of “performance” is paramount since conditions will change over the course of the grant.

Performance may also be the best proxy for “impact” where impact is very difficult to measure directly. This might be because the time between treatment and effect is long, fidelity is a challenge, background knowledge is weak, or the program is new. Education programs often have all these characteristics. When I think about giving a drug to my children I want to know what it does but I don’t care who makes it or how. When I consider where to send my kids to elementary school I may not care much about test scores but I really want to meet the principal.

Let me finish with a concrete example:

Uncommon Schools is a charter management organization currently operating 11 schools across New York and New Jersey. SeaChange Capital Partners is arranging a $30 million financing to support their growth to 33 schools over the next five years of which we have committed $2.0 million of our own funds.

Uncommon’s program – its 11 schools that are already open — is high impact as measured by a combination of (i) the academic results and college enrollment rates of its students relative to the relevant comparison groups (including through the natural experiment of over-subscribed lotteries for admission) and (ii) the opinion of well-informed experts in the field of education. This "high impact" represents a very cost effective philanthropic opportunity because Uncommon, as an operator of public schools, receives approximately $7-$10 dollar in public money for each $1 of philanthropy.

However, none of the $30 million will be used to support the historical performance of the current schools! A small portion will be used to support these schools over the next five years but most will be used to open 22 schools.  In considering this grant the relevant question is: will the new schools be high impact and will the current schools stay high impact? Unfortunately, there is no magic formula for schooling; every school is different in its location, staffing, leadership, etc. so the ONLY way to judge (today) whether the future schools will be high impact is to assess whether the organization that will open and manage them is high performance.
 
We believe that Uncommon is high performance because of its leadership (a team of six with deep experience and an organization that has already gone through the transition from the initial founder), its track record of success (four years as Uncommon; 12+ years as individuals), its culture (self-reflective and relentless on behalf of children), its systems (for instructing new teachers, inspecting schools, using data to tailor instruction, budgeting and forecasting), its use of real-time measures delivered through dashboards, its financial health/model, and its well-developed plan for growth. None of these are virtues on their own – they are simply what gives us confidence that we’ll be more likely to get what we really want – more high impact program — in the future.

* * *

One theory of change says that “if grants flow to organizations with high impact programs then they will grow and the others will shrink”. Well maybe. But in the interim executive directors and board members need to think about what they can do now in the service of higher impact. What that should do is strive to make their organizations higher performing. (There may be cases where the program is so deeply flawed – a program based on “praying for grades” – that they should just shut it down but it is rare that a program is so self-evidently bad and that even the organization would acknowledge it.) “High impact” is no excuse to rest for conditions will change. “Low impact” should not be a death sentence but a call to action.

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By Sean Stannard-Stockton | Also posted in Capital Market Philanthropy, Impact Measurement, Philanthropy | Comments (0)

Guest Post: Exploring Nonprofit Mergers and Alliances

June 15, 2009 – 9:27 am

This is a guest post authored by Eric Kessler, founder of Arabella Philanthropic Investment Advisors.

By Eric Kessler

Nonprofit mergers and alliances (M&A) are a hot topic these days among philanthropists and nonprofits alike. Both the Association of Small Foundations and the Council on Foundations are hosting teleconferences on the subject later this month. And at Arabella Advisors, we’re releasing an issue brief this week, “Investing in Nonprofit M&A.” (You can download a copy here.)

What’s behind all this interest? And what should philanthropists know about how nonprofit mergers and alliances work (and don’t)? Let’s start with a look at some key statistics.

First, the nonprofit sector has recently undergone a period of remarkable growth. In just 10 years, between 1996 and 2006, the number of U.S. nonprofits grew by more than 36%, from one million to nearly 1.5 million. Over roughly the same period, the sector nearly doubled its revenues.

Then came the economic downturn. Foundations’ endowments fell, philanthropists’ portfolios shrank, and giving to nonprofits contracted: Giving USA’s latest numbers show total giving falling by 5.7% between 2007 and 2008, on an inflation-adjusted basis.

So we now have a large number of nonprofits in the field and a shrinking pool of resources. Meanwhile, we’re also seeing an increase in demand for many nonprofits’ services, as the population at large feels the effects of the downturn. In this context, any solution that holds the potential to cut costs without undercutting impact looks especially attractive, and M&A holds just that potential.

Done well, nonprofit mergers and alliances can be powerful tools for success, enabling merged or allied groups to realize economies of scale, expand their reach, tap into new funding options and achieve greater impact. But only if they’re done well, and doing them well isn’t easy.

Nonprofit M&A efforts often face significant barriers. With personal and institutional egos on the line, nonprofit leaders sometimes find it hard even to talk about mergers and alliances. And upfront costs and third-party expenses–from feasibility studies to new IT and back-office programs–sometimes undercut even the best-laid M&A plans.

Meanwhile, unrealistic expectations can cloud the entire process. Fears of M&A often stem from worst-case horror stories from the for-profit world, and hopes that M&A will produce significant short-term savings often have little grounding in reality. In fact, successful M&A usually requires significant upfront investments of time, money and patience. The returns on those investments can be huge, but they are mostly realized over the long term, not in the next few months.

It should come as no surprise, then, that M&A efforts that begin by focusing narrowly on the bottom line often go awry. Nonprofit mergers and alliances are far more likely to succeed when forward-thinking organizations put mission first and think strategically about how they can most effectively work together to achieve shared goals.

Philanthropists can help them do that in a variety of ways. They can bring together grantees working in the same geographic or program areas to discuss shared objectives, common problems and strategies for addressing them. They can sponsor educational activities that raise awareness about M&A possibilities among grantees or that help to develop knowledge within the field. They can also directly fund the costs of M&A, from initial feasibility analyses to final assessments.

A handful of foundations have already established funds to help groups defray the costs of restructuring, including the San Francisco Foundation, Dayton Foundation and Toledo Community Foundation. Meanwhile, the Lodestar Foundation has identified a variety of model cases for mergers and alliances through its Collaboration Prize.

Used effectively, such funds and tools have the potential to improve the nonprofit sector for the future–even in the midst of the current downturn.

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By Sean Stannard-Stockton | Also posted in Philanthropy | Comments (10)

IdeaEncore & the Nonprofit Information Marketplace

June 9, 2009 – 9:38 am

I’ve written extensively about the value of philanthropic information and how it is fundamentally different than for-profit information. But what is it worth and to whom? It appears that we’re about to find out if the new IdeaEncore Network marketplace takes off.

IdeaEncore says this about themselves:

[We are] an online marketplace for the sharing of ready-to-use tools, presentations, course outlines, templates, and project plans within and between nonprofit organizations. The system is designed to provide incentives for sharing and a range of intellectual property protections for shared materials.

Nonprofits can upload any information they want to the system and make it available to anyone. They can share it for free or they can charge a fee for access. IdeaEncore told me that they hope the system will increase the quality and “velocity” (the speed at which information changes hands) of nonprofit knowledge.

Let’s say you are building your development office, you might download the Development Policies and Procedures being shared by the Association of Grant Professionals (for free). If you want to recruit volunteers, you might check out the Volunteer Position Description Template being shared for a price of $5 by Volunteer Vancouver.

What I find so interesting about the project is that we’ll be able to track the demand and supply of nonprofit information under both a free and paid model. From a social benefit standpoint, everyone should be sharing for free. But would the people at Volunteer Vancouver have taken the time to upload their template simply out of the goodness of their heart? Or does the $5 fee encourage more people to share information?

IdeaEncore seems to be asking all the right questions with an in depth FAQ section that covers such things as: the impact of the pricing decision on encouraging sharing while diminishing access, the elasticity of demand (the rate at which demand for the information changes as the price changes, and why buyers should be willing to pay.

IdeaEncore only launched a few months ago. But it seems to me that if they can cross a tipping point and their network of buyers and sellers gets large enough, that they might create a robust market place. Not only will this make information sharing between nonprofits more effective, but it will help us understand the supply/demand characteristics of nonprofit information which I believe are fundamentally different than the market behavior described by traditional economics.

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By Sean Stannard-Stockton | Also posted in Information Sharing, New Philanthropy, Philanthropy, nptech | Comments (5)