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

The Fundraising Payback of Social Media

There’s much talk lately about social media (Facebook, MySpace, Twitter, blogs, etc.).  In fact it can at times feel like the beginning of a cult.  And there is increasing pressure on nonprofits, in the midst of an increasingly difficult fundraising climate, to jump on the social media bandwagon.  Blogs and journals are riddled with articles about how to dip your nonprofit foot into the social media space.  And there are some good tips.  But the bottom line of all of them is just to try something, jump on Twitter, set up a Facebook page, start a blog.  You don’t need to do it all, just pick something.

But in the middle of everything else a nonprofit staff is working on, with tapped out resources, an increase in demand for their services, and doubled efforts in fundraising it can seem that social media is just something for which there is no time or resources.  And what is the payoff anyway?

Well, Roger Craver, a fundraising consultant with The Agitator, has done some pretty interesting calculations on what the fundraising payoff to experimenting with social media could be.  For an organization with 100,000 donors, a social media fundraising campaign, asking donors to reach out to their networks and fundraise for you, could raise over $500,000.  The nonprofit provides a social media tool, for example a Facebook, Twitter or other tool that their donors can use to encourage their friends and family to contribute.

Craver has some interesting math, but basically the idea is that 2.5% of a donor base could raise $210 each.  So, for an organization with 100,000 donors that translates to $525,000 per campaign.  He doesn’t extrapolate this to smaller organizations and really all of this is projection anyway, but what if?  Take an organization with a donor base of 10,000 people.  2.5% of those people raising $210 each would be $52,500.  This is for one campaign that probably cost the organization nothing, beyond minimal staff time.  That’s pretty impressive.  That could replace the revenue from a time-intensive and expensive gala.

But how does an organization get started?  There are two simple solutions that have been generated here in Austin.  First, Charity Dynamics created a Facebook application that allows nonprofits to do this very thing.  And Kimbia helps you create a very easy online fundraising widget that people can send out to their networks.  There are also some Twitter applications, like Twitpay that allows people to donate to organizations via a PayPal-like extension of Twitter.  Donors simply Tweet their donation amount to their intended recipient, in any amount under $50.  And new applications are being developed every day.

So don’t be afraid.  Just get out there and try it.  Despite the many social media “experts” out there, this space is new for all of us.  All of it is an experiment.  There’s no such thing as failure.

Tags: Charity Dynamics, Facebook, Kimbia, MySpace, social media, Twitpay, Twitter

Overcoming the Anti-Overhead Mindset

As I described in previous posts here, here and here, one of the ways in which the nonprofit sector is broken is that it is undercapitalized.  It is not able to generate an adequate amount of capital in order to scale and solve the problems it seeks to address.

This undercapitalization comes not from a lack of program-related fundraising, funds that go directly to the services being created, but rather from a lack of infrastructure or administrative capital.  The distinction is between funds raised to BUY services versus funds raised to BUILD organizations.  The latter is very hard to come by in our current state.  Donors and foundations tend to shy away from funding “administrative” or “overhead” costs.  And many nonprofit rating systems reward nonprofits that keep their administrative and fundraising costs as low as possible.  The end goal seems to be nonprofit organizations who plow 100% of their revenue into their programs, with no infrastructure (staffing, fundraising, technology, buildings, accounting, planning, training, professional development) to make the programs successful.

Paul Brest, president of The William and Flora Hewlett Foundation, recently wrote an attack on the notion that administrative costs in the nonprofit sector are somehow unnecessary or unworthy.  As he points out, the end goal of any organization (profit or nonprofit) is to optimize costs, not minimize them.  Costs are appropriate and necessary when they increase an organization’s ability to achieve its mission, or, in other words, provide a net increase to the impact the organization is creating.  Costs in and of themselves are not bad.  Rather, those costs that contribute to an organization being more effective and reaching more people are actually very good.  He argues that in the for profit sector the idea of necessary and justified costs is well understood and that the same principles should be applied to the nonprofit sector:

To use an example from the business sector, assume that a widget manufacturer’s only mission is to make a profit for its owners. Then, an additional administrative expense of 1¢ is justified if it is likely to produce an additional 2¢ of profit. The underlying idea is not different for nonprofits. Their missions are to achieve particular social, environmental, educational, religious, health, etc. goals. And an incremental expense is justified to the extent it has the potential to increase the organization’s net social value.

It is a simple concept, but one that nonprofits and the philanthropists who fund them are only beginning to discuss.  The assumption that nonprofits have to be as cheap as possible, no matter the other “costs” (inefficiency, fewer people served, diminished impact), is outdated. It is a holdover from a time when the nonprofit sector was referred to as “charity,” and philanthropy as “benevolence.”  It was our duty to ameliorate the symptoms of social problems (feed the hungry, clothe the needy, provide shelter to the homeless).  But now we are all realizing that that isn’t enough.  We have to resolve the underlying issues that are causing these problems and that requires whole systems and infrastructure to change.  And for that kind of change to happen it requires well-thought out plans, technology, top talent, clear understanding and management of our financial resources, and significant capital.

I believe this discussion is all part of a growing sophistication in the sector.  Nonprofit leaders are no longer content to scrape by with hopelessly inadequate resources, and philanthropists are beginning to realize that the very principles that created their own wealth need to be applied to the sector which they are trying to support.

I’m glad to see that these conversations are beginning and that people like Paul Brest are leading them.  But the discussions need to move beyond the blogs and journals and into the boardrooms of the nonprofits, foundations, and businesses that are working to solve the very issues the social sector was set up to address.

Tags: capital, Foundations, Hewlett Foundation, Nonprofits, overhead, Paul Brest, philanthropists