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.
Communications Manager
Social Venture Partners SeattleSocial Venture Partners Seattle is seeking a Communications Manager. The Communications Manager will be responsible for efficiently managing Social Venture Partner’s strategic communications and brand. These strategies will result in an informed and engaged community of donors and non-profit organizations. We hope to increase our visibility in the community as a recognized contributor– building better philanthropists, strengthening nonprofits, and positively impacting our community. We will improve and accelerate our efforts at reaching out to the community and strengthening the diversity and cultural competency of SVP.
We are not able to change the world on our own. However, we would like to be a part of that change – as a follower, catalyst, convener, and sometimes a leader. The Communications Manager will help us achieve this goal through the dissemination of best practices, knowledge, and thoughts on the advancement of the nonprofit and philanthropic sectors.
You can read the full details here.
I have a friend who emails me every time I complain that big foundations are not more innovative to say “But Sean, look at the Edna McConnell Clark Foundation!”
He’s right.
I first heard EMCF CEO Nancy Roob speak at a Council on Foundations meeting. She co-presented with Clara Miller of the Nonprofit Finance Fund on why funders need to provide growth capital to nonprofits. I dug the presentation. After I wrote up my thoughts on the session, Nancy stopped by and became the first major foundation CEO to leave a comment on the Tactical Philanthropy blog (probably any blog for that matter).
Now The New York Times’ Stephanie Strom has an excellent article talking about a new fund being launched by EMCF:
A New York foundation that focuses largely on opportunities for low-income youths is creating a fund to help charities become bigger and more efficient.
The institution, the Edna McConnell Clark Foundation, has committed $39 million to the fund and attracted $49 million more from other foundations and individuals, putting it well on its way to achieving its goal of raising $120 million by June…
…The effort by McConnell Clark and its partners “is groundbreaking,” an acknowledgment “by major funders that scale isn’t cheap and that the order of magnitude needed to scale up to make real and lasting changes will take collaboration,” said Kirsten Moy, director of the economic opportunities program at the Aspen Institute…
…[The foundation] has won financing from major foundations like the Robert Wood Johnson Foundation and the Bill and Melinda Gates Foundation, which is highly unusual. Foundations have typically been unwilling to support concepts already developed by others; thus the proliferation of tiny organizations doing similar work.
“So very often there is pressure on foundations to feel like they are the ones discovering something,” said Hilary Pennington, director of special initiatives at the Gates Foundation. “We have said we want to explore ways in which grant makers could work together for greater impact, and we have an obligation to put our money where our mouth is.”
I encourage you to go read the full article here. You can also read a Nancy Roob’s own thoughts on the fund here with more details on the fund here.
EMCF seems to have created a $1 million funding commitment to accept new funders into the pool. I believe that over time, individual donors (who give seven times more than foundations do each year) need to gain access to funds like this. However, even today, nothing should stop community foundations or national donor advised funds from aggregating their donors to make a $1 million commitment. This kind of work is already being done to provide smaller donors access to funds like Good Capital.
Paul Shoemaker of Social Venture Partners is publishing “Ten Things We’d Like to Tell Every New Philanthropist.” Paul notes in the intro: This is written in the spirit of sharing knowledge and helping philanthropists be more effective. Every mistake articulated here has been made by all of us. The intent is not to preach a one-size-fits-all formula or to be arrogant in our viewpoints. Our sincere hope is that it will encourage reflection and stimulate lots of feedback, criticism, and conversation.
With Paul’s permission, I’m going to be republishing his ten lessons. Imagine if every funder with some experience under their belt published a similar list? Imagine the resources that could put to better use if new donors (or experienced, but ineffective ones) could learn from lots of experts like Paul.
Lesson #1 – “I want all of my contribution to go directly to the program and the kids being served and not have any wasted on overhead or administration” (comment frequently overheard from philanthropists)
This desire is well intentioned, but the consequences can oftentimes be detrimental. How so? First of all, what is “overhead and administration?” For example, are staff overhead? Non-profit organizations are businesses just like any for-profit entity, but with a social mission. They have to invest not only in the “product,” but also in the systems, infrastructure and operations to support the end product. Let’s use an analogy here from the private sector: What if an investor in Intel was able to buy shares, but then instruct Intel Co. that they could only spend that money on engineers and chips? Who knows better how to ultimately, collectively invest its capital – an investor or the employees of that organization? Can you have a successful company without a sales, marketing, and finance infrastructure to support the product? A non-profit has to build a successful, holistic enterprise just like any other business.
This kind of “micro-targeting” of some philanthropic dollars can have other consequences: it can lead to under-funded organizational structure with a demoralized staff and reduced internal capacity. It can force the non-profit to play a “shell game” with donors where it rearranges its numbers to create the appearance of 100% program spending, and it can lead to a non-profit executive having to make suboptimal spending tradeoffs. This is not to suggest that a donor shouldn’t care about where their money goes and what the ultimate social benefit is. But the practice of over-controlling and directing a donation to a non-profit is like asking a non-profit to put together a 100-piece puzzle, but having duplicates of some pieces and none of others. The puzzle will never be put together right.
We’ve debated recently on this blog whether innovation for the sake of innovation is valuable in the philanthropic sector. I originally said that it was not, but then quickly came around to the idea that since innovation is not rewarded the way it is in the for-profit sector (where most innovations fail, but the few that work make the innovators very wealthy), engaging in pure innovative experimentation is needed in philanthropy.
In the recent Aspen Philanthropy Letter, director Alan Abramsom points to a chapter in Mapping the New World of American Philanthropy where Susan Raymond argues that every foundation should allocate 10% of their resources to “intellectual risk”. So in a world where it is difficult to even identify existing high impact nonprofits, how can innovative new projects be found? One model to examine is Slingshot:
Slingshot is a Zagats-like guidebook that compiles annually the 50 most innovative Jewish non-profits in North America. It was originally conceived of and developed by a group of young Jewish funders called the Grand Street Network, which Sharna Goldseker oversees through her work at 21/64 (a division of the Andrea and Charles Bronfman Philanthropies). The Grand Street funders felt that Jewish Foundations did not have a way to identify and vet the growing number of young, exciting, and under-capitalized Jewish projects emerging across North America.
More recently, a select group of young Jewish Funders (many from Grand Street) launched the Slingshot Fund, designed to highlight, encourage and provide support for a subset of the undercapitalized organizations featured in the Slingshot guidebook each year. This year, they announced their first round of grants to 8 of the organizations listed in the book.
Maybe we don’t need to rate every charity in existence. Maybe we just need to find ways to help the best bubble to the surface.
During the Center for Effective Philanthropy presentation that I wrote about yesterday, Phil Buchanan and Kevin Bolduc admitted their preference for a Total Strategist approach to philanthropy. Certainly, the approach that Total Strategists use in their philanthropy fits the views that I’ve expressed myself. But I wonder if the Charitable Bankers are getting shortchanged.
If you examine the description of the four types of givers (visit the excellent website set up to explain the study), you’ll see the four groups can also be broken into two groups. Charitable Bankers exhibit no strategic approach to their giving, while Perpetual Adjusters, Partial Strategists and Total Strategists all use some degree of strategy. Rather than a single spectrum running from Charitable Banker to Total Strategist, I think another way to understand donors is to see a spectrum running from Perpetual Adjusters to Total Strategists with Charitable Bankers existing as a separate giving model.
Bankers and investors use different business models. Both are needed. Investors provide risk capital to companies that the investors judge have enough potential to justify the risk. Bankers are risk adverse. They provide capital to companies who can prove they are not very risky and take no steps to examine the company’s future potential.
The bank’s job is to make as few mistakes as possible. The investor’s job is to make as many smart judgments as possible. Banks tend to fund “sure things” (companies whose prospects are so secure that they can borrow at will and do not need to convince investors to provide them capital) and “long shots” (startups whose prospects are so unclear or downright awful that no investor will finance them). The thing is we need Sure Things and Long Shots. In the nonprofit world, Sure Things like the Red Cross might not get philanthropic investors’ hearts racing, but they are critical players in the nonprofit ecosystem. Long Shots are also important, because some of the best ideas come out of nowhere.
In the entertainment world, Disney is an investor. During the 1990’s they launched the Mickey Mouse Club to cultivate talented stars. Disney proved to be a smart investor (a Total Strategist you might argue) and managed to discover Britney Spears, Christina Aguilera, Justin Timberlake and a number of other stars (Matt Damon and Jessica Simpson were both finalists, but didn’t make the cut). However, Disney and every other “investor” turned their nose up at Kevin Smith, the eventual director of many highly successful movies. So how did Smith get the capital he needed to create his first film (Clerks)? According to Wikipedia:
The film is in black-and-white and roughly edited due to a very modest budget of US$27,575. To acquire the funds for the film, Smith sold a large amount of his extensive comic book collection in 1993, maxed out eight to ten credit cards with $2000 limits, dipped into a portion of funds set aside for his college education and spent insurance money awarded for a car he and Jason Mewes lost in a flood.
Smith was an unknown working at a Quick Stop convenience store when he made the film. Neither Disney nor any smart investor would fund him. So, via his credit cards, he accessed the majority of the cash he needed from the banking system. The banks didn’t want to hear about Smith’s movie aspirations, they didn’t care. They just wanted to be paid back.
I think we need Charitable Bankers. I’m willing to bet that while many game changing nonprofits with obvious potential would benefit greatly from a robust network of philanthropic investors, we will always need a charitable banking system to provide capital to startups that appear to have no potential to outside investors.
All that being said, philanthropy suffers from far too many charitable bankers and far too few philanthropic investors. Banking plays a critical role in finance, but the Second Great Wave of Philanthropy needs a capital markets system of philanthropic investors to provide risk capital.
I’m on vacation this week. This post originally appeared on March 3, 2007. I wrote this well before the Some Nonprofits Just Suck debate exploded. The fact that this post has been so widely read and a debate on the subject recently raged for two weeks shows that as a community, we have some important principals we need to hash out.
Nonprofits vs. For Profits
Employees of nonprofits, who toil away at below market rate pay scales (a scandal), must get really tired of the “new donors” who are demanding that they act more like for profit businesses and treat them like they aren’t very smart.
I think that the trend towards venture philanthropy, social enterprise and market-based solutions is very positive and should be encouraged. I think that it is terribly exciting that the Silicon Valley tech elite and the New York centered, “masters of the universe” financial wizards have turned their attention to philanthropy. At the heart of the technology and financial revolutions that have taken place over the past few decades is a focus on innovation. Applying this same innovation to improving the state of the world is going to have a dramatic impact.
But before we get carried away and start assuming that Google knows more about global warming than the Environmental Defense Fund, that Bill Gates knows more about vaccines than the World Health Organization, or that the founder of an online auction company knows more about the poor of India than Mother Theresa, let’s make sure these new donors know that nonprofits function differently than for profit businesses for a reason:
Nonprofits are paid by one customer (the donor) and deliver products and services to another customer (the cause there are advancing). This makes things tremendously complicated. I advocated recently that nonprofits need to remember that “the customer is always right” (See The Agitator’s post on when this isn’t true, which I completely agree with). But what happens when one half of the customer base is demanding something that hurts the nonprofits ability to serve the other half? Nonprofits do not exist to serve donors; they exist to serve a cause. The new donors need to understand that nonprofits will almost always know more about what is best for the cause than the donor does. So cut them some slack and don’t tell them to change until you’ve really done your homework.
Administrative expenses are not evil. There is such a thing as waste in both for profit and nonprofit financial statements. But the administrative expense by itself is not going to tell you that. I would venture that The Four Seasons hotel has higher administrative expenses than Motel 6. Does that mean Motel 6 is a better hotel? Sometimes great businesses have to spend more money to produce their product or service than their lesser competitors do.
Market based solutions are great when they are appropriate, but they aren’t always appropriate. Innovations like carbon trading are great alternatives to scolding people to think more about the environment. But the nonprofit sector exists because there are things people want that for profit businesses don’t deliver.
Markets are great when society is fine with whatever outcome is generated. If markets decided that athletic shoes are going to cost $120, you might think that is too high, but few people will believe it is “wrong”. But if society is unwilling to accept a market outcome (for example, electricity prices so high that elderly people can’t afford to heat their homes and die as a result), than you must impose some sort of modification to the market system. You can’t ask the “free market” to pick the most efficient quantity and price if you are unwilling to accept the outcome.
Markets are great when all costs associated with a product or service is borne by the trading partners. But markets cease to function when third parties have to pay. Cigarette smoking is the classic example. Since we know that smoking creates costs that people other than the tobacco company or the smoker pay (for instance health care costs generated by second hand smoke), than we know that the “correct” price and quantity of cigarettes will be miscalculated by a free market.
Markets are great when all benefits associated with a product or service is enjoyed by the trading partners. But when third parties enjoy the outcome, markets also cease to function. For example, the more people around you are vaccinated against a disease, the less likely you will be to get it. Therefore, people who do not pay for a vaccination derive benefit from people who do. Under these conditions, the market is generating incorrect prices and quantities, since the cost of the product does not reflect the value being gained by third parties.
For profit business models aren’t perfect. Neither are nonprofits. I don’t think the solution to the world’s ills is for nonprofits to act more “business-like”, instead I see a future where the line between the for profit and nonprofit business model begins to break down. Where for profit business recognize that doing “social good” does not have to be at odds with profits. And where nonprofits recognize that doing “social good” does not mean ignoring the lessons of the business world.
I’ve tallied the answers to my questionnaire from yesterday and here’s the results.
Do you believe that nonprofits that provide free services to other nonprofits should decline to provide those services to nonprofits that are bad at what they do (poor at achieving their mission)?
This came back 50% saying yes, 30% saying no and 20% saying it needed to be decided on a case by case basis. In for-profit investing (my area of expertise), money flows to companies with the best future prospects. When you buy publicly traded stock, your money does not go to the company and therefore does not change their future prospects. Philanthropic donations do affect a nonprofit’s future prospects, so the funders ability to help a nonprofit improve is an important part of the equation. Nonetheless, I think this difference in mindset is a critical dividing element of this debate.
Do you believe that philanthropic funders should focus their resources on the highest performing nonprofits (the ones that have the best record or prospects for mission achievement)?
This one came back 70% yes, 10% no and 20% saying it depends. One person pointed out that small start up nonprofits should not be excluded due to lack of track record. Frankly, I was a little lazy in composing the question. Historical success is not the only measure of future performance. Startups should clearly receive funding, so I should have used language that pointed to predicted future performance.
Do you think that earned income strategies are preferable to philanthropic funding strategies?
Only one person answered yes to this question; a nonprofit employee. While Dave Chakrabarti is correct that many NetSquared judges did seem to prefer earned income strategies, the participants in this discussion don’t seem to hold that view.
Do you think it is inappropriate, at a nonprofit competition for philanthropic resources, for a moderator to say, “Some nonprofits just suck”?
80% of people said no. Dave Chakrabarti, who was on the receiving end of Mike Brown’s comment and Daniel Ben-Horin, founder of CompuMentor/TechSoup and a fellow board member of Mike Brown, both thought the comment was inappropriate. Appropriate or not, I’m amazed at the massive response that the comment sparked. Would we all be debating this topic if Mike had said “Some nonprofit just don’t do a good job”? Mike admitted in an early comment that he was engaging in hyperbole. It sure was effective.
Will you keep participating in these types of cross-disciplinary conversations as new issues develop on this blog?
Everyone answered yes to this question. In my mind, the most groundbreaking aspect of blog technology is the ease with which it allows two-way communication between the “speaker” and the “audience”. Because this blog has attracted readers with very diverse backgrounds, I think we have an opportunity break through the silo effect that grips much of philanthropy.
Mike’s use of the impolite term “suck” may have been more important than you might think. It may have even been a vital factor in facilitating communication as Susan Herr suggested recently while writing about a Stanford Social Innovation Review article that was critical of microfinance:
This sort of article, which debunks the silver bullet of the year, does far more than question a social change strategy achieving massive investment on both the profit and for-profit side. It also elevates the concept of philanthropic strategy, and the recognition made by discerning donors, that some dollars are spent more effectively than others. I’m not saying great philanthropists always bet on the right horse, but I’d like to believe the very best engage naysayers and rabble-rousers who can help them think outside the box. Unfortunately, that’s really hard to do in the all-too-polite club of American philanthropy.
More blogs weigh in on the for-profit vs. nonprofit war of words, here, here, here and here.
One of the posts quotes an email from Dave Chakrabarti, a major contributor to the debate on this blog, encouraging his network to weigh in on the debate:
Coming under fire for offering services for free, by nonprofit funders who do not seem to understand the difference between “mission-driven” and “profit-driven”, forces me to suggest that we, as a sector, need to develop stronger language regarding these issues. Most of all, we need to work towards a different model of sustainability, so that we can pose alternate definitions when a potential funder equates “sustainability” with a system based on marginal returns for services offered…
…Responses appreciated. Backup on Tactical Phil would be awesome (I think I’m outnumbered).
One of the interesting attributes of this debate has been the way it has spun off in a couple different directions at once. Currently there are actually three different arguments being waged, 1) Are nonprofits that use earned income strategies better than donation based nonprofits? Does “sustainable” mean not relying on donations? 2) Is it appropriate to tell a group of nonprofits that some of them “suck” or is doing so counter-productive? 3) Should funders avoid wasting time with underperforming nonprofits and allocate capital to top performers? Should nonprofits that provide subsidized services/products to other nonprofits only deliver those services/products to effective nonprofits or any that ask for them?
It is the third question that Mike Brown was discussing when he made his now infamous comment. But I think the splintering of the discussion showcases the lack of shared language between the for-profit and nonprofit mindsets. Rather than call for reinforcements and retreat to our respective corners to refine our side’s language to better “win” the debate, I think we need to cross the great divide and create a shared Vocabulary of Philanthropy.
The “shorelines” and “international borders” that I’ve referred to are places of great turmoil where various forces push against each other. It is in these zones that people feel a need to protect themselves and so quickly fall into line with their side’s “official party line”. People feel safer in groups. But if this cross-disciplinary conversation is going to produce something new and not just be a spectacle, we need more people to drop their defenses and wade out into the middle ground and see what we can find.
For the record, I believe that “earned income” strategies have nothing to do with nonprofit sustainability. Philanthropic donations are a perfectly acceptable way to attain sustainability. The question is do you have a way to finance the service that you plan to offer. Philanthropic donations are just a way for one group to bear the cost of another group’s needs. There is nothing about charging the recipient of a service that makes a nonprofit more sustainable that “charging” another group (i.e. soliciting donations).
Today’s podcast marks a new chapter in my evolving attempt to facilitate cross-disciplinary conversations in the field of philanthropy. As I announced yesterday, interviewees will now be expected to participate in a discussion of the podcast topics in the days after each release. However, for this to be successful I need your help. My readers have already shown a great interest in posting comments and emailing me their thoughts. Now is your opportunity to do the same with the thought leaders who are featured in the podcast. So leave your comments and questions and check back often to watch the discussion unfold.
Kicking off the new format is Paul Shoemaker of Social Venture Partners (SVP). SVP is like a giving circle on steroids. Using a venture capital model, SVP makes grants but also provides their grantees with knowledge, skills and valuable contacts. If you want more context about Paul and SVP check out info here, here and here.
As you develop your questions for Paul, I would encourage you to think about the following topics that we’ve already discussed: giving circles, measuring impact and outcomes, venture philanthropy, the impact of high tech entrepreneurs entering philanthropy for the first time, and “new” vs. “old” philanthropy.
Paul defends the venture capital concept, criticizes “big mouthed”, arrogant individuals for diluting the term “venture philanthropy”, tells us why he thinks there really is a “new donor” today, and talks about the rise of giving circles. Let Paul know what you think. Leave a comment at the end of this post or email me any thoughts or questions. I have Bill Schambra lined up to try this new format and a major foundation CEO considering giving it a try. Help me make this work and I think this venue will attract important leaders and spark a lively conversation. Thanks so much to everyone who has been participating in the discussion here. It has been my great honor and pleasure to watch the debate unfold.
Expand this post using the link below to read the transcript.
Congrats to the winning projects of the NetSquared Conference:
Mike Brown, a venture capitalist, moderating an Economic Sustainability track at the NetSquared Conference:
Some nonprofits just suck!
He got some hesitant applause and a few nervous laughs. But why is that such a shocking statement? Doesn’t everyone agree that some for-profit companies “just suck”? Why should nonprofits be any different? In a world with limited resources, we need to get comfortable with the idea that nonprofits that are trying hard and have lots of passion — but aren’t cutting it — don’t need a pat on the back. They need to be ignored and we need to let them go out of business.
