Change is Here

One of the criticisms of an otherwise very well received speech last night by President Obama was that it was “too ambitious.”  Last night he vowed to take on healthcare and education reform, the recession, global warming, 2 wars, among other things.  That is ambitious, but does he have a choice?  Do we have a choice?  You could actually argue that it wasn’t ambitious enough.

Our world is changing so quickly and the problems are becoming larger and more complex.  This complexity requires, and indeed demands, a completely different, and by previous standards “ambitious,” approach.  The very ways in which we live, work, play, communicate are all changing, and exponentially.  Take social media and the flood of information it provides; we’re all trying to figure out how to keep up.

Lucy Bernholz, president of Blueprint Research & Design (a philanthropy consulting firm) and a philanthropic thought leader, argued recently that what we are experiencing is not a recession, but a complete restructuring of our world.  Our institutions are crumbling, our environmental resources diminishing, our economy melting down.  We are charting completely new territory:

It doesn’t make sense to think of this as a dip in an otherwise upward trend. It is more like a turn off onto a different path. People born since 1990, all over the globe, have fundamentally different assumptions than those born before that year about where information lives, who controls it, where and how work gets done, what the “proper” role of government might be, where their friends live, how much personal privacy they have, want or value, what kind of resources will be needed to fuel their futures, what kind of innovation might fuel the economies in which they will live, and what their individual relationships to others – proximal and far away – are, could be, or might be.

And she suggests many ways in which this restructuring could take place.  Several on her list point to a growing convergence among public, private and nonprofit approaches (which I’ve talked about before):

Social enterprise begins to morph the philanthropic giving that exists to its left and the commercial enterprise that exists to its right (on a spectrum from giving to investing

Individuals’ daily contributions and activities are a deliberate and recognized mix of paid and unpaid – and successful enterprises build themselves to catalyze those inside/outside, professional/volunteer, expert/amateur, user/producer contributions

Philanthropic giving is really asked (read: required by regulators or purchased: in a marketplace) to prove its value in the funding food chain of producing social good. So are social investing, social enterprise, and socially responsible investing.

Enterprises and activities that generate economic, social and environmental benefits move from marginal to the middle – and innovation shifts elsewhere

We will no longer assume that nonprofit = social good, commercial enterprise = profit, rather we will think about what we need as a society (investigative reporters, an independent media, universal literacy, human rights) and figure out new forms of delivering those things

So financing, once separated into private and nonprofit buckets, merges into a results bucket that combines social impact and financial profit.  Problems are no longer addressed from a profit or nonprofit position, but rather from a solution position, which draws on both.  Activity that provides a blending of profit and social good is no longer marginalized, but is actually revered and becomes the norm.

What we are already seeing, and will continue to see more and more, is a convergence of private, public and nonprofit money; private and nonprofit operating principles; private, public and nonprofit goals and reasons for being; private, nonprofit and government approaches to problems.  We no longer exist in neat categories that inform our activity, funding, thought, approach, world-view.

The social entrepreneurship movement has taken off so dramatically in recent years in large part because of this growing convergence.  People are recognizing that the old separations no longer make sense or work.

Convergence is real and is happening everywhere.  Those who are not “ambitious” enough and continue to view the world in stale and unbending categories will be left behind.

Tags: Convergence, Lucy Bernholz, nonprofit, Obama, Philanthropy, Social Enterprise, Social Entrepreneurship

Changing Nonprofit Finance: The Other Side of the Story

Continuing my argument from previous posts here and here about how nonprofit finance must change, today I want to focus on the other side of the story: how nonprofit organizations themselves can be smarter about funding.  I want to explore a couple of ways that nonprofits are inefficient in generating revenue.

First, foundation funding.  The Foundation Center has been compiling a detailed list of various foundations’ responses to the economic downturn.  This is interesting and helpful to a point.  But the vast majority of nonprofit organizations probably will never receive a grant from any of these foundations anyway.  In fact, according to Giving USA’s annual survey of nonprofit charitable contributions, foundation funding made up only about 12% of the $306 billion that nonprofits received in charitable contributions in 2007.  And if you look at the overall sources of revenue for the nonprofit sector, earned income and government funding make up a much larger piece of the overall revenue picture than charitable contributions.

Foundation funding is a small piece of the entire nonprofit revenue landscape.  So I’m not sure why some nonprofit organizations spend so much time and money hiring grantwriters, going after long-shot grants and worrying about the state of the foundation community.  Nonprofits would be better served to take a more holistic view of their revenue engine and opportunities for growth.  Is earned income a possibility?  Can they tap into more individual giving, which makes up 82% of the charitable giving pie?  Instead of hiring a grantwriter, how about hiring a seasoned revenue generator who has experience and results in all aspects of revenue creation, who could take a look at the assets (relationships, donor base, mission, services, etc.) a nonprofit has and how they could be translated into a more diversified and sustainable funding mix.  Such a person would cost more than a grantwriter, but the return on the investment would be far superior.

Which brings me to one of the favorite and lowest ROI fundraising activities in the sector:  events.  Galas, fun runs, parties seem to be a staple of the nonprofit sector, but are they really generating much net revenue?  Indeed, the net revenue of nonprofit events is often not calculated.  That is to say, when you factor in the direct (food, band, decorations) and indirect (staff time, value of board/other volunteer time, etc.) costs of the event, what is the true profit?  I think most nonprofit fundraisers would be surprised.  And there are two other drawbacks to events.  First, there is an increasingly competitive landscape for events.  Each weekend in my city there are several nonprofit fundraisers.  How many invitations must philanthropists get per month?  Surely they are exhausted by it.

But secondly, and even more disturbing, is that events move a nonprofit away from their core mission, their reason for being and thus their reason for raising funds. Instead, the nonprofit asks their donors to focus on the party and what’s in it for the attendees.  Through a gala, a nonprofit teaches its donors not about the important change the organization is creating, but rather that the organization exists to provide them a good time.

In order to transform how nonprofits are financed and thus to increase our effectiveness and productivity at solving problems, two things have to change.  First, the legal and financial structures that hold nonprofits back from innovating, growing and becoming sustainable must change.  And second, nonprofits themselves have to be smarter about using the tools they do have more effectively.  They must calculate the return on investment of the revenue generating activities they undertake and discard those that are no longer productive.

Tags: earned income, events, Fundraising, gala, Giving USA, grantwriter, nonprofit, return on investment

The Power of an Accounting Convergence

One of the most exciting things happening in recent years is a “convergence” of the three sectors:  government, business and nonprofit.  Some private businesses now include a social mission in their business model (a solar energy company); nonprofits are using business models to create sustainable organizations; the federal government is thinking about an office of social innovation.  The old, separate sectors are being swept aside by a new idea that each sector has something to offer and by combining the social focus of the nonprofit sector; the business acumen, wealth, and innovation of the private sector; and the tremendous resources of the public sector you have a palpable ability to solve the challenges we face.

One area where I think convergence could be particularly powerful is in accounting practices.  I’ve talked before about the ideas of adding equity to the nonprofit balance sheet, nonprofits raising growth capital like businesses can, and moving nonprofits towards the for-profit understanding of necessary and justified costs.

All of these ideas demonstrate how currently the nonprofit sector is put at a disadvantage by not having access to powerful financial tools that the for-profit sector is well versed in:  growth capital, justified costs, equity.  On the flip side, nonprofits are also hindered by strings and restrictions on the money they do receive.  Take government grants for example.  There was a fascinating New York Times Op-Ed this week by two University of Texas at Austin accounting professors arguing that banks receiving TARP money should be held to the same requirements that nonprofits are when they receive federal aid.  They argue that TARP banks should be required to practice “fund accounting,” where a separate set of books is kept for funds given to a specific project or activity, just as nonprofits are.

Any nonprofit accountant, executive director or development director will tell you that fund accounting can be a nightmare.  Indeed as the professors point out:

Executives of banks that have received TARP cash have said that it is too hard to account separately for how they spend their federal dollars. Money is fungible, they argue, and therefore they cannot readily distinguish between outlays of their own resources and those provided by the government. But that’s the type of doublespeak that would get the head of a town’s homeless shelter thrown in jail. If bankers are unable to segregate cash by source and specifically account for expenditures, why are they in charge of banks in the first place?

The underlying assumption of nonprofit fund accounting is that nonprofits can’t be trusted to effectively and honestly use the money they have been given.  The banks that have received TARP money have already demonstrated their inability to use the money as it was intended, so fund accounting going forward might be the answer.

But what the op-ed unintentionally demonstrates is how crazy the strictures we put on nonprofits are.  Why is the assumption that for-profit businesses can be trusted to spend government money correctly, but nonprofits cannot?  Does it stem from an assumption that nonprofits tend not to know what they are doing when it comes to the business side of things?  Or is it an assumption that nonprofit work must have more safeguards in place?

What ends up happening is that we are weakening the financial position, and thus the productivity, of a key sector.  We are limiting the tools at their disposal and making those resources we do give them cumbersome and costly to use.

What underlies this mistrust of the nonprofit sector?  And how do we change these rules and structures so that nonprofits are given the capital, without the strings, that will allow them to successfully address issues?  We need to move towards a convergence of accounting practices whereby nonprofits are given more of the tools the for-profit sector enjoys and the for-profit sector is called to account in a more meaningful way for the resources they receive.

Tags: accounting, Convergence, fund accounting, Nonprofits, TARP

Growing the Austin Social Innovation Ecosystem

As part of my effort to encourage the growth of a vibrant social enterprise and social entrepreneurship ecosystem in Austin, I am leading two RISE sessions in early March. If you are interested in understanding what social enterprise is and seeing some great examples of it, attend Startups with Social Impact (co-lead by my colleague Jessica Shortall guest blogger of the Across the Pond: Perspectivess on Social Innovation in London post). If you are a social entrepreneur interested in finding growth or capacity capital to build your organization, attend my Growth Capital for Social Entrepreneurs session. Details and links to sign up are below. Hope to see you there!

Startups with Social Impact
Tuesday, March 3, 2009
2:00-3:30pm
This session will provide working definitions for social enterprise and social business and case studies along the spectrum of social impact and profit motivation. A panel of entrepreneurs will discuss their ventures, how they operate, how social impact fits into the business model, and the challenges they face, including raising capital. The session will end with a discussion on steps to make Austin a leader in startups with social impact.

Part of the Social Entrepreneurship series sponsored by The Silverton Foundation.

Click Here to Register

Growth Capital for Social Entrepreneurs
Wednesday, March 4, 2009
2:00-3:30pm

Social entrepreneurs and nonprofits that are interested in scaling their programs or strengthening their capacity have few opportunities to find investment capital. But with a strong plan, creative tools, and a new way to talk to potential investors, you can find the capital you need to grow. This session will take participants through the definition of growth capital for the social sector, provide case studies and develop a strategy for securing investments.

Part of the Social Entrepreneurship series sponsored by The Silverton Foundation.

Click Here to Register

Tags: Austin, growth capital, RISE, Social Enterprise, Social Entrepreneurship

Here Comes Some Real Education Reform

As President Obama signs the economic stimulus bill into law today it is interesting to analyze what this means for nonprofits, social entrepreneurs, and crumbling American institutions like our education system.  I have written many times before about the opportunity that this financial crisis offers.  When systems are crumbling the time is right to build something stronger, better, more effective.  So it is today, particularly in the realm of American education.

Arne Duncan has taken over as Secretary of Education.  He is a young, bright, energetic innovative former superintendent of Chicago Public Schools.  He’s seen as a consensus-builder with a similar governing style to Obama’s, which has allowed him to push through some key reforms while keeping teacher’s unions happy.  In his 7+ years as CEO of CPS he:

• Increased elementary test scores in Chicago from 38 percent of students meeting the standards to 67 percent
• Increased the graduation rate by 6%
• Increased the number of master teachers who’ve completed a rigorous national certification process from 11 to 1,200
• Spearheaded merit-pay incentives rewarding school leaders and teachers for gains in student achievement
• Championed good charter schools
• Shut down failing schools and replaced their entire staffs
• Opened 53 new schools

Another less talked about thing that Arne Duncan has done is to encourage the success of the Chicago Public Education Fund.  This corporate-backed venture philanthropy fund is in its 9th year and has invested over $25 million in innovative programs in Chicago’s public schools.

The Fund invests significant capital and management expertise in a limited number of well-managed, high-impact programs that improve school leadership, drive policy change and make system-wide impact. The Fund has invested in programs like Teach for America and New Leaders for New Schools and only invests if Chicago Public Schools signs on as a co-investor.

It’s a fascinating model, much like a city-sized, education-focused version of the social investment fund that America Forward, the Obama administration and others have been discussing where government and private dollars are pooled and invested in high-impact social innovations.

So Duncan brings to the table success in education reform paired with an understanding and experience with new models of social innovation (both social entrepreneurship and venture philanthropy). Now, add to that the $100 billion in emergency aid for public schools that he will have at his fingertips with the stimulus plan, and you have a pretty exciting combination of factors that could mean a transformation of the public school system based on social innovation.  $54 billion of this money is largely at Duncan’s disposal. According to a New York Times article, Duncan said he intends to reward:

• “Islands of Excellence:” school districts, charter schools and nonprofit organizations that demonstrate success at raising student achievement
• Programs that tie teacher pay to classroom performance
• Training efforts that pair new instructors with veteran mentors
• After-school and weekend tutoring programs

So, perhaps what we are starting to see is the large-scale education reform that Marc Tucker, president of the National Center on Education and the Economy, argued last month wasn’t happening with social entrepreneurs.  As I argued in response to him,

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.

Yes it will.

Tags: American Forward, Arne Duncan, charter schools, Chicago Public Education Fund, Chicago Public Schools, Obama, Social Entrepreneurship, social innovation fund network, Venture Philanthropy

What’s Wrong with Fundraising?

One of the things I’m really excited about is the potential for the financial crisis and restructuring we’re experiencing to completely transform how nonprofits are financed.  I’ve written before about how we need to move away from the notion that “overhead” funding is bad, and how we need to restructure nonprofit accounting principles in order to allow equity capital (or money that allows us to build organizations rather than just buy services) into the equation.  We also need to make government funding easier to come by and with less strings attached.  And philanthropy needs to begin to emphasize equity and growth capital as opposed to program-only funding.  The entire way that we fund the nonprofit sector has got to change.

Which brings me to an interesting letter that Hildy Gottlieb’s “Creating the Future” blog received recently.  A fundraiser argues that focusing on a donor’s interests keeps a nonprofit from working on the larger problem they are trying to solve:

I work in fundraising, and I feel like we’re not only merely addressing the symptoms, but we’re actually exploiting the symptoms…To me, my organization exists to address the needs of the population we serve, not the needs of donors…we miss the big picture, the opportunity to solve core problems, when our primary focus is on making the donors feel good about giving…we neglect the big picture, the real solutions when we fundraise to the donors’ fears and egos…our community suffers when we fragment it by each individual’s personal motivation to give rather than unifying it to address the whole picture, and to perhaps finally solve those greater problems…the way we (and most other non-profits) fundraise might be counterproductive to actually creating solutions. So what can I do? How can I advocate for real, big-picture change when our fundraising is entrenched so deeply in its individualized, donor-centric philosophy?

This fundraiser doesn’t understand that nonprofit organizations exist within a market economy.  A nonprofit’s work, their mission, must be in alignment with their core competencies and their revenue engine.  A nonprofit cannot merely “exist to to address the needs of the population we serve, not the needs of donors.”  A nonprofit organization exists to create change in the world, hopefully rectify a disequilibrium, by channeling resources (money, talent, expertise) into a proven theory of change.  The resource piece is critical.  Some in the nonprofit sector would, I think, argue that they should just be left alone to do their “good work” and not have to worry about fundraising (see my previous post about another fundraiser who complained about her self-interested donors) .  But fundraising is an integral and critical element to the work nonprofits are doing.  A nonprofit connects a community to its needs and harnesses the resources of that community to address, and hopefully solve, those needs.  A nonprofit is part of its community and is funded by donors who make up that community.

Fundraising is not a dirty word.  Fundraising, when done right, is about connecting those with resources to the results and impact an organization is creating.  The impact should generate the revenue.  When the mission of the organization is operationalized through the organization’s core competencies, revenue should follow.  Mission, core competencies and revenue are in alignment.

That is not to say, however, that the system works perfectly.  Far from it.  As I’ve said many times, the nonprofit sector is sorely undercapitalized.  We have got to find ways to get more and better capital into the sector, capital that follows results and impact and encourages smart replication of proven solutions.  Philanthropy has to recognize this and change how they invest, accounting standards have to change in order to allow better capital to flow, IRS requirements have to change, many of the systems have to change.  But in order for those structures to change the nonprofit sector has to understand that fundraising is absolutely critical to their work.  It is not dirty, and it does not detract (if raised effectively) from a mission, but rather is part of the mission.  We have got to start being smarter about how we finance the nonprofit sector.  And to do that we have to recognize how critical aligning revenue with the mission and core competencies of an organization is.

Tags: core competencies, equity, Fundraising, growth capital, mission, overhead, Philanthropy

Austin the Social Startup Capital of the World?

One of the things I talk and write about (possibly ad nauseam) is how well positioned Austin is to lead in the social innovation movement.  Our rank as the 3rd largest venture capital city in the country, our entrepreneurial spirit, our tech focus, our passion for green living and our tremendous wealth all make us uniquely positioned to capitalize (both financially and socially) on the growing movement for innovation and enterprise around social impact.

I’ve written here and here about what elements of a city’s infrastructure are necessary to catalyze social innovation.  And I was particularly excited when Nathaniel Whittemore, Director of the Center for Global Engagement at Northwestern University, described in a recent blog an ideal environment to stimulate successful social enterprise:

So here is what I’d like to see. Someone combines The Hub model of collaborative working space for social entrepreneurs with the Y-Combinator model of funding low-cost tech startups [provide promising startups small amounts of seed capital and intense mentorship and networking in anticipation of further investment ]. In this model, which is geared toward social enterprise, the Y-Combinator style investment would be focused on tech startups that are building services useful for other businesses and social startups (things like Yammer, which is great for keeping a team of volunteers or employees connected to one another). In addition to the cash investment, the tech startups get to work (and maybe even live?) in the Hub space. In return, they give up equity – but also a small chunk of their developer time (25%? 10 hpw?) to pro-bono or reduced cost projects for the nonprofit social entrepreneurs who are part of the same Hub community. This combines the density, talent and energy of the tech startup world with the mission focus of the social enterprise world. All it would take are the right partners. Sounds like a pretty good combination to me…

This sounds just like Austin.  And, in fact, we have these kind of incubators on the pure business side.  For example, Capital Factory is an Austin-based seed stage mentoring program for startups that provides a small amount of seed capital and weekly mentoring sessions by entrepreneurs who have founded successful companies.  What if there were a Capital Factory for social enterprises and social businesses?  I’m not aware of anything like that anywhere else in the country.  Couldn’t Austin pave the way in social enterprise by taking something we already do very well (venture capital, angel investing, start up incubators, entrepreneurial mentoring, etc.) and put a social spin on it? That would be truly innovative and get us out ahead of the curve of what is shaping up to be a huge movement.  And there is financial and social profit to be made.  Don’t we want a piece of that?  It seems such a natural thing to me.  What is stopping it?  And how do we overcome those roadblocks?

If you’re interested in exploring this topic more, join me and Jessica Shortall for our RISE session on March 3rd:  Start Ups with Social Impact where we’ll talk with Austin-based social enterprises and discuss what is required to make Austin a leader in this space.

Tags: Austin, Capital Factory, Center for Global Engagement, incubator, social business, Social Enterprise, social innovation, The Hub, venture capital, Y-Combinator

A Strategic Path Out

Although most nonprofit fundraisers are feeling as pessimistic as ever about their prospects for raising money in 2009, all hope is not lost.  There is good news to be found:

• The majority of corporations and corporate foundations expect their giving in 2009 to stay level or grow, according to a new study by LBG Research Institute.
• The LBG Research Institute is projecting that any decrease in overall corporate giving will be less than the 12.1% decline in the 2001 recession.
• 80% of corporate givers say their giving this year will be more strategic and more closely tied to their corporate goals.
• The most recent research on high-net worth individual giving from Indiana University’s Center on Philanthropy found that the main objective for the biggest individual gifts in 2007 was to provide general support and make a long-term investment in the organization.
• Also according to the Center on Philanthropy study, individual giving reflects the values and goals of the giver.

It appears, then, that fundraisers must redouble their efforts to make a clear connection between the impact their organizations are having and a donor’s values and goals.  As I discussed in a previous post, the ask cannot be about an organization’s need.  It has to be about empowering a donor, through your organization, to make a positive impact in an area of the community that meets their values.  This is a critical distinction.

So fundraisers can make an opportunity out of a difficult fundraising climate by being smarter and more strategic, but at the same time philanthropists need to change as well.  There has been a lot of talk about how foundations should be responding during this difficult time.  I did an earlier post on that topic here.  There are a couple of interesting ideas floating around.  One, that foundations be required to bump their payout requirement from 5% to 10%.  Martin Kearns makes this argument in a recent post:

Today without raising taxes, or impacting our deficits, the new administration could stimulate a massive amount of activity by forcing the hands of these foundations. Many…foundations are already spending down. They are stepping up to help in this economic crisis well above the minimum IRS allocation. However, for those that wish to sit out (and sit on assets) at such a time when our society and the nonprofit sector need them so much seems unacceptable. A small change in a regulatory rule affecting so few and benefiting so many seems in order…this forced move would inject real horsepower into nonprofit organizations at a time when they could create the most change.

And Nathaniel Whittemore, in his Social Entrepreneurship blog, had some great ideas for the Gates Foundation, arguably the largest and most influential foundation.  Nathaniel would like to see three things from Gates, which if adopted, could really set the tone for a much more strategic philanthropic sector:

1. Create a social investment fund of $150 million to invest in social enterprises.
2. Focus on education policy to scale solutions.  Move away from simply funding charter schools and invest in policy reform that will take the lessons learned into wide scale approaches to education reform.
3. Create an innovative bottom-up program measurement approach that collects data from those to be impacted by the program.

If the Gates Foundation took on even one of these new approaches it could have tremendous ripple effects through the foundation community and within philanthropy as a whole.

Just as fundraisers need to become more strategic, philanthropists do as well.  We have fewer resources and more complex problems.  Thoughtful, strategic approaches are the only answer.

Tags: Foundations, Fundraising, Gates Foundation, Indiana University Center on Philanthropy, LBG Research Institute

Thoughts on Social Innovation

The United Way Capital Area recently asked to interview me about social innovation for their blog.  It was a lot of fun, and they asked great questions.  You can check out the interview here.  Or read the text of it below.

Q: Your bio says you’ve been in the social sector for over 13 years. Tell us what things were like for you when you first got involved with the non-profit world. How were they different from today’s imperative to develop entrepreneurial models in the non-profit sector?

A: I don’t know that things were fundamentally all that different when I got started.  Nonprofits have always been entrepreneurial, if you think about it.  They are created because someone sees a disequilibrium, or “market opportunity” (inadequate schools, poor housing, lack of cultural arts) so they create an organization, with great risk and few resources, to fix that disequilibrium.  This is not so different from a business entrepreneur, aside from the social motive versus profit motive.

I think what has changed over the past decade or so is a convergence among the public, private and nonprofit sectors.  A decade or so ago the three sectors remained relatively separate.  A nonprofit might receive corporate philanthropic dollars or federal dollars, or government might contract with a nonprofit to provide public services, but the three sectors stayed separate and had their own unique characteristics.  Now you see a merging of the three sectors into what some call a “fourth sector.”  Some private businesses now include a social mission in their business model (a solar energy company), nonprofits are using business models to create sustainable organizations, the federal government is thinking about an office of social innovation.  The old, separate sectors are being swept aside by a new idea that each sector has something to offer and by borrowing the best from each we can move towards solving the mounting problems we face.
Q: What is an example of a fundraising lesson you’ve learned during your career that helped you make KLRU’s transformation so successful–either a mistake made, or a surprising success you were able to apply again?

A: When I started at KLRU in 2005 there was a tremendous lack of fundraising infrastructure (technology, staffing, planning), and we needed a significant financial investment to build that infrastructure.  But my experience had been that funders weren’t interested in supporting infrastructure.  However, my boss several years earlier at the Oregon Children’s Foundation, who was an expert fundraiser, always said that if you can clearly articulate the impact that an investment can make you can convince someone to invest.

Armed with that idea, I created a compelling case for investing in a complete transformation of KLRU’s fundraising function, along with a demonstration of the return on investment an investor would get.  This plan to revamp KLRU’s fundraising function (everything from new database software, website, staff, messaging, collateral) was ambitious and expensive for donors who were not used to supporting infrastructure. But because the case was so compelling (their investment would allow KLRU to become more self-sustaining, generate more revenue, spend more time on programming, and spend less money over the long term) we easily secured the money needed.  People always talk about the importance of relationships in fundraising.  Relationships are definitely important, however, I would say that even more important is a compelling, articulate ask that demonstrates impact and social return on investment.  Donors want to make a difference.  If you can clearly demonstrate how they will make a significant difference, not in your organization, but in the broader community through your organization, you will gain their investment.

Q: In your recent article, “Social Innovation Provides Hope in the Uncertainty”, you mention an approach that entails “uncovering the root causes of the social problem and addressing those head on with new ideas and models, instead of attempting to ameliorate the symptoms of a social problem”–tell us why such an approach is so important, especially right here and now in Central Texas?

A: Because the problems that we as a city, region and nation face are so large and so complex and the resources available to address them are becoming scarcer.  We have to be smarter about how we solve problems; we no longer have the luxury of just addressing the symptoms.  That’s not to say that every nonprofit organization must solve problems.  There are some problems that unfortunately will probably never be solved completely, for example hunger and homelessness.  But, there are many problems where the conversation can change from “How do we serve more people in need?” to “How do we change the system so the need no longer exists?”  I don’t suppose to have the answers to the problems facing our region, but what I am arguing is that we examine the issues we are working on and ask hard questions about the root cause of the problems and how we could creatively find solutions.  Again, not every problem has a solution, but every problem deserves a critical analysis of the systems and structures feeding it and whether those could be changed.  It is sometimes a difficult conversation to have because root cause work involves changing long-held beliefs or entrenched systems, but the end result could be more lives saved in the long run.  And I would argue that in some cases investing in solutions, or changed systems, is a far better long-term investment than simply continuing to provide services.

Q: How do you see the non-profit landscape in Central Texas changing or evolving in 2009?

A: The economy will most certainly play a role. It will be harder to find resources, and so organizations will have to get smarter, more efficient and more strategic about fundraising, and that means making an investment up front in planning, messaging, strategy, technology.  These don’t have to be large investments, but it can’t just be business as usual.  Difficult times call for better strategy.  I think nonprofits will have to become more social media and Internet savvy.  There are cheaper, better ways to raise money, but you’ve got to be willing to take a risk and make an initial investment.  It takes money to make money in the nonprofit world just as in the business world.

I also think there will be larger conversations among the nonprofit and philanthropic communities about our level of investment in the nonprofit sector.  Clara Miller, CEO of the Nonprofit Finance Fund, wrote an interesting piece recently about how the nonprofit sector has been sorely undercapitalized for years and is near the breaking point.  She argues that we can no longer allow this critical sector to scrape by with band-aid infrastructure.  I think there will be a growing realization that we have to invest in the infrastructure and capacity of this sector. We can’t just buy programs, we have to build the organizations that we are relying on to provide our social safety net and solve the many problems facing us.  And that means nonprofits have to ask for and funders have to invest in technology, top talent, strategic planning.  We can’t bootstrap our critical services any more.  If we want our nonprofit sector to survive and thrive and continue to solve problems, we have to make adequate investment there.

Q: What is your take on the importance of collaboration, between government, private and social sector organizations to provide socially innovative solutions?

A: Absolutely critical, and I would go even further to say that the three sectors are not just collaborating, but actually converging, which, as I mentioned earlier, is a really exciting and powerful development.  The three sectors have been collaborating for years.  What is happening, and where I think the tremendous opportunity lies, is in the convergence of the sectors.  By combining the social focus of the nonprofit sector; the business acumen, wealth, and innovation of the private sector; and the tremendous resources of the public sector you have a palpable ability to solve the challenges we face.  Take the idea of a federal social innovation fund that is being discussed among the Obama administration and social entrepreneurs.  The idea is that the federal government and private investors would pool a significant amount of money that would be invested in social entrepreneurs, along with management assistance similar to what a venture capital fund provides its investments.  This social innovation fund would combine the wealth and resources of the government and private sectors to provide adequate growth capital to nonprofits and social businesses.  That’s a pretty exciting idea.

We all know that Austin has such an entrepreneurial, innovative private sector, a committed nonprofit sector and a strong government sector.  We are ripe for social innovation and for a convergence of the sectors.  Other cities similar to Austin, such as Portland, Denver, San Francisco, Seattle, Boston, are heavily involved in social innovation, with venture philanthropy funds, blooming social enterprises, and investors in social businesses.  Although Austin has some activity, it is nothing like these other cities.  Our city has a tremendous opportunity to benefit from this convergence and face the future with a new economy that combines social and financial profit.  I’d love to see that happen here.

Q: Thank you for your time, is there anything else you would like to add?

A: Although I know people are wary and uncertain in this economic climate, I would argue that this is also a time of tremendous opportunity. We all know that the nonprofit sector has been sorely undercapitalized for years, if not decades.  We can’t go on like that.  We also know that our problems (poverty, inadequate schools, depleted natural resources) are getting worse, not better.  Because of this mounting pressure I see lawmakers, philanthropists, nonprofit leaders, CEOs and others standing up and saying enough is enough.  We can’t go on like this.  Something has got to change.  The entire financial system of the nonprofit sector has got to change.  We need to invest in infrastructure, we need to create strong, sustainable nonprofit organizations, we need all three sectors to work together, we need to address root causes, and we need to look to others for innovative models.  I am very confident that out of this pain and uncertainty our social sector will emerge stronger, better resourced and better equipped to solve the problems we face.  Because, in essence, there isn’t another option.

Tags: Central Texas, Convergence, Nonprofits, root causes, Social Entrepreneurship, social innovation, United Way Capital Area