What Creates an Environment for Social Innovation?

I’ve been thinking about it a lot.  Indeed, the very reason I created Social Velocity was to spur, or grow the movement for social innovation here in Austin and the Southwest region.  There is a reason (or reasons) why our region has not yet caught the wave of social innovation that has been sweeping the two coasts of the country in the last 10 years or so.  We certainly have examples of social innovation (earned income enterprises, capacity-building grants) but we don’t have venture philanthropy funds, social investment vehicles, social enterprise incubators, or plentiful growth capital that other cities like San Francisco, Boston, Portland, Seattle, DC and others have.

I recently posed the question to my Tweeps (followers on Twitter).  And the initial response back was that those East and West coast cities that I mentioned all have an encouraging environment for tech startups.  That’s true, but so does Austin.  We are the third largest venture capital city in the country AND the vast majority of that money is invested in tech companies.  Aren’t we dubbed Silicon Hills?  So that’s not the answer.

I posed this question to the many people I’ve met with over the past 18 months as I was envisioning and refining what Social Velocity would later become.  And I got various answers, such as:

• Austin is basically a middle-class city with no real pressing social needs.  Innovation comes from necessity and without that necessity or deep need, social innovation cannot flourish.
• Austin’s philanthropy is young.  Other cities have had 70+ years of philanthropy to evolve and begin to look at newer models, like venture philanthropy and social investing.
• Texas, and Austin by extension, is very independent-minded.  The individual tends to be emphasized over the collective and therefore large investments in community-wide efforts are harder to come by.
• Our nonprofit sector is more grassroots.  60% of Austin’s nonprofits have a budget of $25K or less.  Some of these new models require a certain level of infrastructure in order to implement them.
• Austin is a very heterogeneous population in terms of viewpoints.  Coming to consensus on anything (from public transportation to urban development to creating an infrastructure that fosters social innovation) is difficult.

That’s just a sampling of responses I’ve received.  I’m sure there are many more reasons.  But where do we go from here?  How do we foster an environment for social innovation here?  How do we get people excited about investing capital in social enterprises?  How do we encourage social enterprise incubators to form?  How do we create a pool of social investment capital?  How do we pilot social entrepreneurial models and demonstrate and scale their success?

I think the answer lies in infrastructure.  We have to create an ecosystem that encourages and invests in social innovation.  Perhaps a breakdown of that infrastructure can be seen in my colleague Jessica Shortall’s earlier post about what created London’s social innovation environment.  She saw 5 elements:

• Public sector: A cabinet-level “Minister for the Third Sector” who focuses much of his time on social enterprise.
• Foundations: Make grants to test out ideas for social change, invest in social innovation-based businesses, talk as a group about innovations in social finance and share deal flow.
• Social Investors: Innovative funds provide new nonprofit and social enterprise finance tools such as loan guarantees for charities to access debt and quasi-equity deals to social enterprises, as well as providing networks, advice, and entrepreneurial knowledge.
• Academia: Centers for research on social entrepreneurship at several academic institutions in the area.
• Big and small ideas: Events, gatherings, workshops, think tanks and other activities that help social entrepreneurship and innovation bubble up.

I would say, broadly, that the infrastructure elements necessary include:  adequate funding, space (incubators), expertise, research, and buy in (both in words and in resources) from all three sectors (government, private, nonprofit).

As Jessica says, it’s the overall environment that creates social innovation:

It’s an ecosystem approach, where things swirl and evolve over time, with different players watching for patterns; making connections; providing physical, social, intellectual capital; and taking risks.

What can we do to create that ecosystem in Austin?

Tags: Social Enterprise, social innovation, social investment capital, Twitter, Venture Philanthropy

Reinvent Austin’s Social Sector

There is much talk lately about what the fallout of our deepening recession will be for the nonprofit sector.  Paul Light gives four future scenarios for the sector, others are pinning their hopes on the new Obama administration, a new economic stimulus plan, and/or the Serve America Act to revitalize and strengthen the sector.  Who really knows what the future will bring.  However, I firmly believe that if we realize the opportunity in these unknowns, we can fundamentally transform a fairly broken sector.  And let’s be honest, the sector is fairly broken:

• The sector is sorely undercapitalized.  It is very difficult to find capital to scale successful organizations, to take out an expansion loan, or to build capacity.  Nonprofits are forced into a continuous fundraising cycle that is difficult at best and nearly impossible in times like these.  And we tend to reward those organizations that keep their “administrative costs,” the very costs that will help them be more effective at what they do, to an absolute minimum.
• Because nonprofit organizations are undercapitalized they cannot pay competitive salaries to attract or keep top talent in their organizations.  That’s not to say there is not top talent in the sector, to the contrary there are incredibly talented people, but they are working much too hard, with very little resources (including adequate staffs) and are burning themselves out.
• Nonprofit boards of directors, the stewards of these organizations, are often not trained in their duties and are too strapped for time to help organizations achieve their missions, grow, and become financially stable.
• The process for becoming a 501(c) 3 is too easy and somewhat unregulated, creating incredible competition for very scarce resources.
• The high-dollar philanthropic funding for the sector comes from individuals and foundations who often have their own theories of change.  Grants tend to be direct-service, not infrastructure, focused and put too many strings on the money.
• Governments who contract with nonprofits increasingly push them to deliver the same or increased level of services for less and less money, creating a move towards rock-bottom priced services.
• There are no rewards in the sector for innovation or risk-taking, in fact innovation is disincentivized.

So, how could we seize the opportunity that the changing economic, social and political climate affords the social sector? What could we in Austin do to innovate out of this situation:

• Our city government could partner with local businesses and venture capital firms to fund a local version of the proposed federal social investment fund.  A pooled fund of government and private money could be invested to grow and build the capacity of nonprofits and social enterprises that deliver great solutions to our community.
• Philanthropists, both individuals and foundations, could make a commitment to fund the capacity and infrastructure of those nonprofit organizations that are demonstrating real results.  These investments would not be direct-service program investments, but rather investments in the high-quality capacity and infrastructure (technology, staff, consulting, etc.) these organizations need to be successful.
• Nonprofits could talk about the social return on investment they offer investors and how they are providing real solutions to the problems we face.  They could encourage their board members and funders to understand what it really costs to provide the high quality services they provide (both direct and indirect costs) and what it would really take to grow to meet the increasing need.

And finally, we could all start to recognize that we can no longer leave nonprofits alone to figure out how to serve more people with fewer resources while the problems that affect all of us get bigger and more complex. We need to recognize that things are changing.  Our economy is changing fundamentally; the government, private and nonprofit sectors are converging; a movement for social innovation is going on nationally.  There is real opportunity for Austin to get involved in, profit from (socially and economically), and potentially lead this movement.  Let’s start that conversation.

Tags: Austin, capacity, Obama, Paul Light, Serve America Act, social investment fund

Asking for Money in a Recession

In difficult economic times like these it can seem impossible and exhausting to raise money.  It may appear that everyone is saying no, and raising enough to keep your nonprofit going is nearly impossible.  You may grow angry at those who have wealth, but are unwilling to part with it because of fear and uncertainty.

In times like these it can be helpful to remember why people give and what motivates and demotivates giving.  It is important to take a bigger picture view of what you are asking for.  You are NOT asking for donors to keep your organization from shutting down.  You are NOT asking them to save a sinking ship.  You are NOT asking them to fix a deficit in your organization.

It has to be a much larger conversation.  You are asking them to seize the opportunity to invest in a solution to a serious problem their community faces.  You are asking them to make another person’s life better and by doing so they will make their own and their community’s lives better.

The Nonprofiteer, a blog on nonprofit issues, responded recently to a nonprofit Executive Director’s frustration at trying to raise money in this climate.  The ED is fed up with the wealthy individuals she is trying to raise money from:

Here’s my problem: whenever I tell donors how desperate we are, I get a sob story about how desperate THEY are.  (The next person who tells me he simply doesn’t read his 401K statement is getting a swift kick in the pants.) It’s obvious these people have money; they just don’t want to share it with us.  What’s your advice?

The Nonprofiteer shows no pity for this ED and in fact demonstrates how wrong her approach is.  Rather than viewing donors as selfish and out of touch with the needs of her organization, the ED needs to change the conversation and convince the donor how her organization is providing solutions.  She needs to demonstrate that an investment from that donor will make a real impact in their community:

People don’t give to agencies they think are desperate; they give to agencies they think are successful…It may be accurate to say, “Without your $100, we won’t be able to house our clients tonight.”  But it’s just as accurate, and twice as effective, to say, “With your $100, tonight Charles and David will have a place to sleep and access first thing tomorrow morning to telephones and computers to continue their search for a job.”

And I would take it even further.  An investment in this organization will work towards getting Charles and David into successful jobs and housing so that they become self-sufficient and are no longer a burden on the community’s safety net.  You as a donor will not just be helping them get a good night’s sleep you will be setting them and people like them on a path towards becoming fully contributing members of our community.  And then their beds will be free for others to start their journey along the same path.  In essence, you are investing in a trajectory where there are fewer burdens on our society, more contributing members and a stronger, healthier community.

The conversation completely changes from one about a narrow, short-sighted mentality, to one about investing in dramatic changes in our community and our society that inspire passion and commitment, energy and enthusiasm.

Sean Stannard-Stockton wrote earlier this year in the Stanford Social Innovation Review about why people give.  He echoes this argument that people give from a desire to connect to and have impact on their communities:

I believe that giving is motivated by humans’ deeply held need to find meaning in life. For most people, meaning is deeply intertwined with community connections (defining community as narrowly as family and as broadly as the full community of life). Humans want to feel a sense of connection and a sense of purpose to life. Giving (time, money, and energy) is a central way that we strive to find meaning.

The more that nonprofit leaders, board members and Development Directors can demonstrate how an investment in their organization creates significant and meaningful change in the world and community around a donor, the more success nonprofits will have.  People need to be excited, engaged, energized, passionate and committed in order to give in a significant way.  To get to that you need to broaden the conversation.

Tags: donors, Fundraising, Nonprofiteer, recession

Adding Equity to the Nonprofit Balance Sheet

Expanding on the argument for equity holders in the nonprofit sector, there has been a call for restructuring nonprofit accounting standards (FASB) to introduce equity capital.  The idea, proposed by Sean Stannard-Stockton, from Tactical Philanthropy, and George Overholser of the Nonprofit Finance Fund, is that we make a distinction in nonprofit accounting between revenue used to buy services (nonprofit operating revenue) and revenue used to build the nonprofit organization (philanthropic equity).  For too long nonprofits have been forced to carve out a piece of their ongoing operating revenue to build the infrastructure necessary to do their work.  That means that the infrastructure is ultimately lacking and the sector is undercapitalized.

In order for nonprofit organizations to become sustainable we must provide them the capital necessary to build their capacity and their infrastructure.  A nonprofit organization should not have to scrape together operating revenue in order to hire a Development Director, or forgo an earned income venture because they can’t find the initial investment required to make a go of the business, or not grow to scale because they don’t have the infrastructure to ensure that the program quality will survive growth.

The idea is simple, yet profound.  If we make a simple distinction on the balance sheets of our nonprofit organizations, we begin to recognize and have the ability to analyze the strength of the organization that is delivering the service.  In addition, nonprofits gain the ability to fundraise for philanthropic equity, or capacity capital (as I discussed in an earlier post), to build a stronger organization instead of apologizing for the “administrative costs” of the organization.

Once we make such a simple change we can start to understand which organizations are effective and which aren’t, which require further investment and which do not.  We start to create a structure and a system around which we move away from the increasingly dangerous position of taping together our social benefit delivery system and move to a much stronger position of well-capitalized, fully functioning, efficient organizations that are effectively delivering critical services to our society.

Tags: capacity capital, Nonprofit Finance Fund, philanthropic equity, Tactical Philanthropy

An Historic Day

Changing Administration

Today marks the much-anticipated inauguration of our next President.  And to a country in the middle of two wars and a deepening recession, it is a moment of hope.  There is much speculation about what this new President will do for our country.  Particularly in the nonprofit sector, which always bears the brunt of any economic downturn, there is much anticipation about what tomorrow will bring for the sector.  As we watch the ceremony and festivities today, here are some thoughts about what the new administration might mean for the social sector.

Obama made many plans and promises about national service and social innovation during his campaign.  I wrote about that here.  Basically his ideas were:

1. Growth of current national service programs like AmeriCorps and the Peace Corps
2. $4,000 tax credits to college students in exchange for 100 hours of community service
3. Expanded programs for engaging retirees in community service
4. 50 hours of required community service from middle and high school students each year
5. Expansion of YouthBuild
6. Allocation of 25% of college work study funds to community service projects

And, indeed, many of these ideas are contained in the economic stimulus package currently in front of Congress.  The Chronicle of Philanthropy gives a great summary of the implications of that plan on the nonprofit sector.  But in essence, the plan includes:

• $200 million to expand AmeriCorps by 16,000 members
• $50 million to the National Endowment for the Arts for grants to arts groups
• $50 million to Youth Build USA, a social entrepreneurial organization putting low-income young people to work building affordable housing.  You can see a video clip about this organization here.
• $87 billion to temporarily increase the federal portion of Medicaid
• $2.1 billion to Head Start to serve 110,000 additional children and create 50,000 jobs
• $1 billion for Community Services Block Grants, and $1 billion for Community Development Block Grants which help states provide social services and housing to low-income residents
• $1 billion for Child Care and Development Block Grants
• $1 billion to the Low-Income Home Energy Assistance Program
• $1 billion to help community health centers renovate their facilities, and $500-million to help them provide care to uninsured and underinsured patients
• $120 million to the Community Service Employment for Older Americans program, which would allow charities and other groups to add 24,000 participants
• $100 million to the Compassion Capital Fund, which provides grants to religious and other charities to provide social services

However, these changes don’t go as far as many in the sector would like.  A coalition of several social entreprenurial groups, including America Forward, America’s Promise Alliance, Be the Change, and Citizen Schools, are urging Obama to create a “nonprofit stimulus package.”  The package would include a Social Investment Fund Network, a government and private venture philanthropy fund that invests growth capital in social entrepreneurs.

But before Obama has even been inaugurated, he has made a grand gesture towards the sector. Yesterday Colin Powell, founder of America’s Promise Alliance, lead Obama’s Renew America Together Initiative where unprecedented numbers of Americans spent MLK Day doing volunteer service.  Obama has pledged to make service a key part of his plan for getting America back on track.

This is an historic, exciting time.

Tags: America Forward, America's Promise Alliance, AmeriCorps, Be the Change, Citizen Schools, Colin Powell, Head Start, Obama, Renew America Together, social entrepreneur, YouthBuild

Social Innovation Jobs, Part 2

As promised, another of my clients is hiring.  ACTIVE Life (formerly Youth InterACTIVE) works to fight the national obesity epidemic by driving demand for healthy, ACTIVE lifestyles and making these lifestyles more accessible.

They are looking for a Vice President of Business Development to grow revenue from corporate, individual, foundation and earned revenue sources. This is the first time ACTIVE Life has had a position like this.  It is an exciting opportunity to help this social media organization build their social enterprise and philanthropic revenue.

You can see the full job description here.

Tags: ACTIVE Life, social media

Social Media for Nonprofits: How and Why

If you are a nonprofit manager struggling with social media (what it is, how to use it, whether its a good idea for your organization or not) read this great post by Amy Southerland, a communications consultant for nonprofits. Social media is Internet and mobile applications for sharing information and ideas.  It includes blogs, Twitter, LinkedIn, Facebook, MySpace, etc.  I’ve written about social media and fundraising before.  But Amy gives a great, easily understood overview of what social media is, why nonprofits need to jump in and how they can get started.  She also includes a couple of examples of nonprofits that have really used social media effectively.

Tags: Facebook, LinkedIn, MySpace, social media, Twitter

A Call for Equity Holders in the Nonprofit Sector

Clara Miller, CEO of the Nonprofit Finance Fund, which is a leader in working to adequately capitalize the nonprofit sector, wrote a great post in the Chronicle of Philanthropy about how the sorely inadequate way the nonprofit sector is funded has got to change.  She argues that the current recession is the potential nail in the coffin for a sector that has struggled to do more with less since 2001.  In fact she sees the crumbling infrastructure of the nonprofit sector as the biggest risk facing America today: “the greatest risk to America’s social fabric is that we continue with business as usual and fail to recognize that investing in the unseen infrastructure of the nonprofit world is arguably just as important, if not more so, as investing in other public works.”

We can no longer be content to have nonprofit organizations that provide critical “public works” to our country scrape by:

No longer can Americans expect social problems to get solved by Band-Aid solutions, emergency grants, below-cost reimbursement rates and project grants with multiple strings attached.

Instead, she argues, board members and donors must become “equity holders” in the nonprofit organizations they support, concerned with the long-term gains of a strong, sustainable organization as opposed to merely buyers of the cheapest services:

In the nonprofit world, board members’ ideal role is to look out for the interests of the ultimate equity holders — the public — protecting the nonprofit enterprise so it can fulfill its mission, sometimes over many years…But the ethos in today’s nonprofit world encourages everyone to do just the opposite. Board members, managers, grant makers, and government officials are so determined to ensure that nonprofit organizations deliver more for less that they regularly lose sight of their role as protectors of the organization’s capacity to deliver quality services as long as the need for them exists, and to get the highest-quality results that will have the largest social payoff to the public.

Hers is a call for a complete restructuring of the nonprofit financial system.  The end result would be a stronger, more effective sector ready and able to address the many problems our country faces head on.

Let’s make 2009 the year when we recognize that nonprofit organizations — like all healthy enterprises — need capital investment, reliable and adequate revenue, and operations that can draw on working capital, reserves, and reinvestment to sustain good results.

What a powerful idea.

Tags: equity holders, Nonprofit Finance Fund

Education Reform vs. the Social Entrepreneur

Isn’t creating significant change in society what the social sector (nonprofits and the philanthropists who fund them) is all about?  A person starts a nonprofit organization when they recognize some disequilibrium (poverty, homelessness, failing schools) and they have a theory of change that will result in righting that disequilibrium.

I think at times, however, the structures that we create in the social sector get us away from that fundamental goal.  It’s interesting to take a step back and evaluate whether or not activity within the social sector is significantly changing broken systems.

Marc S. Tucker, president of the National Center on Education and the Economy, in Washington, DC, wrote a thought-provoking and controversial opinion piece at the Chronicle of Philanthropy about how social entrepreneurial programs like Teach for America, Green Dot and KIPP are not really solving the problem of the crumbling American school system.  He argues that these programs, which are beloved by funders and proponents of social entrepreneurship, “don’t have a prayer of dealing with the problem at the scale that is needed.”  It is not the quality of the innovative programs or the ability to get results that he is at odds with.  Rather, it is the lack of scale of these programs.  They just can’t address the entire system:

But as exemplary as they are, small programs like these are not equal to the task. Teach for America accounts for just two-tenths of 1 percent of the new teachers entering our schools every year. The entire enrollment of the Green Dot schools is no larger than the enrollment of one typical high school in the Los Angeles Unified School District. KIPP schools, the object of enormous attention in the national news media, has an enrollment equal to three-hundredths of 1 percent of the 92,000 public schools in the United States.

He argues that instead of funding these “handful of small, disruptive interventions” we need to emulate the most successful countries’ educational systems by:

• Recruiting teachers from the top one-third to one-fifth of college graduates by paying them as much as the other professions they could just as easily choose to go into: medicine, law, architecture, accounting, engineering.
• Giving them the same kind of control over the way their services are delivered to their clients as the other professions have over theirs…turning virtually all of the decisions as to how the schools are run over to them.
• Adopting high-quality board examinations like those the most successful countries use, which can measure a student’s grasp of the concepts underlying the subject, the student’s creativity and capacity for innovation, as well as the student’s knowledge and ability to apply what he or she has learned to real-world problems.
• Shifting the school financing system away from a reliance on the local property tax and toward a system that makes sure each and every student has the resources needed to get to internationally benchmarked standards.

He recommends a complete overhaul of the American education system at a cost of $60 billion a year in initial investments.  These costs would eventually be offset by expenses saved.

He argues that to get this kind of systemic change donors to educational programs must “shift their attention from financing cameo programs to putting their money into groups that influence public policy. That’s where the payoff is.”

It is an interesting, bold idea.  I’m not sure, however, that I completely agree.  I think we’ve seen over the past several decades that education policy is broken.  There are so many special interests in the field of education policy, it’s unclear to me where we would pour the money.  Perhaps we needed social entrepreneurs like Teach for America and others to point out the problems within the system and offer a theory of change.  Now that they have demonstrated that there are programs that work and new ways to do things, we can now create policy around those ideas.  And with a new administration and a new Secretary of Education, Arne Duncan, who has a history of reforming the Chicago Public Schools and implementing new models like Teach for America, perhaps policy reform has a chance.  It will be interesting to watch.

Tags: Arne Duncan, Chicago Public Schools, Green Dot, KIPP, Social Entrepreneurship, Teach for America