Determining Best Use of Resources for Sustainable Social Impact

There is a very useful and widely used matrix in the business world called the “BCG Matrix” that helps a company analyze their product lines to determine which to further invest in, which to liquidate, which to expand, etc.  This is where the term “cash cow,” a product whose positive cash flows pay for the other products of a company, comes from.  Each product line is placed in the matrix, which measures the relative position of the product line in the market (low to high market share) against the rate of growth of the business (low to high).  Depending on where the product line falls along those two matrices, you can determine what strategy to take with the product (invest further, liquidate, etc.).

Back in the early 1980s Robert Gruber and Mary Mohr (“Strategic Management for Multiprogram Nonprofit Organizations”) adapted this matrix for nonprofits to enable them to plot their programs according to social and financial returns.  This allowed a nonprofit organization to take a hard look at their programs to determine a strategy for each.

I would argue that the tool could be used by social entrepreneurs (both for profit and nonprofit) to analyze their programs/activities/products/services to see which are worth investing and growing, which are worth sustaining, which should be divested from, etc.  The matrix looks like this:

A social entrepreneur could plot their activities in the matrix according to each activity’s social impact (low to high) and financial return (low to high).  So, let’s take a fictitious K-12 education nonprofit that has four main activities:

1. An after-school program during the school year for low-income kids
2. A summer camp for a broad cross section of kids on a sliding scale fee
3. A book store for the general public
4. A backpack program where donations from local stores are gathered, assembled and given to children in the program.

The after-school program for at-risk kids has a high social impact (their results are great) but it is very expensive to the organization.  This would be a “Worthwhile” program in the matrix.  The summer school is “Beneficial” because they make some money off of it, and it has social impact.  The book store would be a “Sustaining” program because it provides them a high financial return, but little social impact.  Finally, the backpack program, which provides each child a couple of notebooks and some pens and pencils, has little social impact and no financial return, is a “Detrimental” program.

Once each program is plotted on the matrix, the organization can make some difficult decisions.  The strategy, according to the matrix, would be to “carefully nurture” the after-school program, “cautiously expand” the summer school program, “sustain” the book store, and “cut” the backpack program.

However, there are always shades of gray, and any good tool needs to allow for that. Perhaps the summer school program provides some social impact, but not enough because it is a 50-50 mix of at-risk and low-risk kids.  So an expansion of that model might detract from the overall social impact of the organization.  The organization might want to grow the social impact side of the program (enroll more at-risk kids) while growing the book store revenues or increasing the price for low-risk kids to subsidize that growth.  The point is that by analyzing each program/activity/product/service of a social enterprise the organization can make strategic decisions about growth, maintenance, pruning and ultimately where best to funnel limited resources in order to create sustainable social impact.

Tags: BCG Matrix, Mary Mohr, Nonprofits, Robert Gruber, social entrepreneurs

What About Boards?

Key to the needed restructuring of the nonprofit and philanthropic sectors is significant change to nonprofit boards of directors.  Indeed, change at the board level can provide some significant improvement to the effectiveness of the sector.

Too often board members are one of two things.  They are disengaged (bored, not invested, only in it to benefit themselves or their career, or simply missing in action) or overly engaged (micromanaging the nonprofit staff, clamoring to move the organization towards their own personal gain).  I have seen boards of directors that buck this trend and are engaged, invested, committed to making the organization better, stronger, more successful.  They give significant financial gifts, devote many hours to the work of the organization, and leave the Executive Director and her staff to handle the day-to-day operations unobstructed.  But this is the exception, not the rule.

I wonder if many of the struggles the nonprofit sector faces stem from the fact that the staff reports to a group of volunteers who have other, higher priorities in their lives.  I’m not sure if there is an answer to that reality. But if a board of directors can become more engaged, more energized, invested and committed to the organization, the nonprofit can expand its network, increase its revenue, strengthen and expand its programs, and ultimately provide more social return.  There are some things that a nonprofit Executive Director can do to make their board more effective:

• Determine what kind of board you want. Don’t leave board recruitment up to the board.  Create a board matrix that analyzes what skills, experience, networks the current board has and where the holes are.  Then actively  work with the nominating committee of the board (another must) to research and network with good potential board candidates who fill these holes.  Provide a thorough vetting process (interviews, reference checks, etc.) before putting them in front of the full board.  And be honest and up front with the candidates about the time and resource requirements of a board position.
• Create and enforce roles and responsibilities. Create a roles/responsibilities document for each individual board member that they agree to and sign.  This document should make it crystal clear what the staff and board expect each member to contribute, from meeting attendance, to fundraising, to serving and contributing to committee work, and so on.  If a board member is not delivering on their roles and responsibilities, the board chair should give them a warning and then ask them to resign.
• Create and enforce a stretch give/get requirement.  If a nonprofit’s board is not giving or fundraising in a significant way (let alone at all) then how can an organization expect any other donor to make an investment?  The board of directors should be a nonprofit’s closest friend and staunchest supporter.  They must demonstrate this support through financial means in order for the organization to have any hope for financial sustainability. Some nonprofit organizations argue that they want some board members from their client community and sometimes those board members can’t afford to make an investment.  First, anyone can afford to contribute $1, which simply says I believe in this organization and am putting whatever I can into it.  Second, a client board member would be an excellent fundraiser.  Take them on major donor fundraising visits and have them passionately explain the impact the organization is having.
• Engage the board in strategic, not tactical, activities.  Not every board is at a stage where they have the luxury of being strategic.  A startup board is by necessity tactical, they are just trying to make the organization viable.  But as soon as possible a board should leave the day-to-day operations to the staff and take on the big picture, strategic, visionary questions of the organization:  should we expand our operations, should we start a new program, should we launch a new business venture, where do we want to be in 5 years?  These are the questions for the board. A nonprofit ED can move the board in a more strategic direction by working with the board chair to set an agenda that focuses on strategic issues.  And a good board will become energized and engaged by the bigger picture questions.
• Constantly remind them of the impact of the organization.  Just as you want to focus your messaging to donors on impact, you want to focus your board members, at every meeting, on the impact the organization is having.  This reinforces why they got involved and how they are helping to make change in their community.
• Use them wisely in fundraising. Don’t have your board pick decorations for your next fundraising event.  Rather, use them to open doors to major donor asks.  One of the key things a board of directors provides is access to a desirable network of people in the community that have resources.  Use them to connect you to those people.  Don’t squander that resource on things your staff could be doing.
• Effectively train them.  Many boards of directors focus on the tactical because they are afraid or don’t know how to tap into their network.  So train them.  Find a good fundraising trainer to educate the board on the importance of their role and make it easy and exciting for them to open doors to the organization.  You also need to provide a board orientation when they first join the board to give them an in-depth understanding of the organization’s programs, finances, operations, activities, history, mission, vision, etc.  Then, pair them with a seasoned member of the board to meet with on a regular basis that can bring them up to speed.  Finally, provide the entire board at least annual trainings in fundraising and their role in the organization.

The board is one of the most important, and typically ineffectively used, resources a nonprofit organization has.  An effective board provides a nonprofit a broad network, financial strength, long-term vision, and all important strategy for on-going success.

Tags: Board of Directors, Fundraising, nonprofit

Foundations Can Lead the Charge Toward a New Philanthropy

The news in the philanthropy world this week is not good.  It seems that our fears about the effect of the economic downturn on philanthropy are being confirmed in spades.  The Ford Foundation and Robert Wood Johnson Foundations, two of the largest in the country, are both reducing their staffs by 30%+ and making other cuts in expenses in order to maintain previous years’ giving levels.  The report on 2008 charitable giving released by Giving USA last week shows the largest percentage decline on record, although as Sean Stannard-Stockton of the Tactical Philanthropy blog wisely points  out:

Charitable giving behaved more or less as it normally does when the economy sours. This is, by most measures, the worst recession in a very long time and so we’re seeing charitable giving get hit. But it is only declining in line with the way it normally behaves. Things are tough, but there was no apocalypse.

Still, the news is troubling.

Although foundation giving makes up only 13% of the charitable giving pie, their reaction to an economic crisis can have a dramatic impact on charitable giving overall.  Foundations are in some ways viewed as the philanthropic experts and can set trends that can transform the impact of philanthropy. Take the Gates Foundation for example.  Last year they received $10.4 million in unsolicited donations simply because other philanthropists think that Gates is a philanthropic leader.

So now is the time for foundations to lead the way towards more effective philanthropy–philanthropy that builds and scales organizations rather than buys services, as Michael Selzer, writer, educator, nonprofit leader and PhilanTopic contributor, points out in his recent post.  Michael argues that the economic crisis provides a natural impetus to foundations to become builders of organizations rather than buyers of services, and in fact he poses a provocative question:

A growing number of foundations are beginning to think of themselves as “builders” rather than “buyers”…buyers award grants with an eye to achieving specific programmatic outcomes, while builders, always mindful of outcomes, seek to help grantees strengthen their organizational capacity so as to achieve greater impact in the future. To the extent that “buying” is limited to a relatively short-term transaction rather than a longer-term interest in the organizational well-being of the grantee, it is not an especially productive activity. Which leads me to ask: What foundation would want to be a buyer rather than a builder in today’s environment?

Michael goes on to somewhat equate “building” funds with general operating support, pointing out that only 20% of all grants go to operating, whereas 50% of all grants go to specific programs or projects.  He offers a list of ways for foundations to increase their “builder” funding while still supporting specific programs. His list includes giving grantees the latitude to adequately account for indirect costs, expediting grant approval processes, expanding grant periods to more than a year, and sharing responsibility with grantees for securing remaining program costs if the foundation is only funding part of the program. Michael calls these “extraordinary measures” for “building the capacity of the nonprofit sector for the long haul.”

I disagree.  Nothing in his list seems extraordinary to me.  The economic crisis and the resulting effects on philanthropy and the nonprofit sector does call for extraordinary measures, a resetting of both realms: the nonprofits and the philanthropists who fund them.  And because foundations lead the charge in the philanthropic realm they have an obligation to take a hard look at how they do things and try some truly extraordinary measures.  A list of truly extraordinary measures that foundations could take includes:

• Increasing the use of program-related investments (PRIs) to include capacity building projects like upgraded nonprofit fundraising functions.
• Exploring mission-related investing, investing part of a foundation’s corpus in social businesses that meet the foundation’s mission, to a much larger extent as a way to expand the reach and impact of the foundation.
• Increasing the percentage of capacity building and unrestricted grants that the foundation makes. Instead of 20%, let’s bump that number up to 40%.
• Exploring becoming a spend-down foundation that doesn’t exist in perpetuity, but rather spends their corpus in order to have a larger impact on social problems in this generation.
• Increasing growth capital investments–large ($500K+), 3-5 year investments that pay for the infrastructure required for a proven nonprofit to scale.
• Reducing the strings and reporting requirements placed on nonprofit grantees.
• Decreasing the push towards funding of new programs and investing more money and time in the infrastructure of proven programs that could grow to serve more people.

That’s not to say that there aren’t foundations out there that are doing these things.  There absolutely are, but they are in the minority. Foundations as a group could help transform philanthropy by becoming builders more often than buyers. These are challenging, demanding, restructuring times.  They call for bold, risky, extraordinary action.  Foundations can lead that charge.

Tags: Ford Foundation, Foundations, Gates Foundation, Giving USA, growth capital, mission related investing, Nonprofits, Philanthropy, PRIs, Robert Wood Johnson Foundation

The Social Capital Markets Conference

In the emerging field of social innovation there are a plethora of conferences here and abroad.  Some are better than others.  One that I am particularly looking forward to is September’s Social Capital Markets conference in San Francisco.  This is only the second year of the conference, which brings together social investors, foundations, social entrepreneurs, social venture funds and others interested in expanding the capital available to social entrepreneurs.

In the inaugural conference last year, 600 people from 26 countries attended.  In fact, there was a last minute rush of conference registrations shortly after the financial market collapse, painting an interesting picture of traditional finance migrating to social finance.

The purpose of the conference is to create “a new kind of capital market, a new way of doing business that takes into account people, planet and profit.”  In essence they are attempting to build momentum and action around creating a capital marketplace for social good–financial vehicles for social entrepreneurs both profit and nonprofit.

Whereas last year’s conference focused mainly on for profit social entrepreneurs, this year’s conference is adding some sessions on what conference founder Kevin Jones calls “our nonprofit cousins.”  For example, the opening keynote address will be about how the Obama Administration and its Office of Social Innovation is working to scale high-functioning non-profit organizations to create change. And I’m even getting into the game by moderating a panel about some of the capital tools nonprofit social entrepreneurs have used to go to scale.

I think SoCap provides an excellent venue for bringing all of those working towards expanding the capital available to social entrepreneurs together.  My hope is that this conference goes beyond great examples and great networking and actually helps make more money available to social entrepreneurs, whether they are creating profit or not.

If you are interested in the social capital market space, you don’t want to miss this conference.

Tags: Kevin Jones, Obama Administration, Office of Social Innovation, SoCap, Social Capital Markets conference, social entrepreneurs, Social Finance

Transforming the Nonprofit Fundraising Function

I see it a lot.  A nonprofit organization is struggling to raise enough revenue.  Their fundraising function, everything that goes into their fundraising effort (development staff, database, website, messaging, collateral, board assistance, etc.), is hobbling along, barely generating enough to keep the organization going.  And especially in times like these when the economy is so poor, fundraising efforts are stretched to the breaking point, held together by band-aid solutions (an Excel spreadsheet instead of a functional donor database, an inexperienced fundraising staff, weak collateral, poor-performing events, need-based messaging instead of impact messaging, and the list goes on).

Nonprofits in this situation might complain  that they would like to do more, they would like to upgrade their fundraising function (who wouldn’t?) but there just isn’t a way to do it.  So they continue on this vicious treadmill of killing themselves just to raise enough to survive.  This reality of financially struggling nonprofits is a result of the fact that the sector is undercapitalized.  It would be wonderful if one day we all woke up and suddenly individuals gave 5% of their income to the nonprofit sector, foundations grew 100 fold, corporations began integrating their giving program into their business model and thus gave significantly more money, and the list goes on.  That probably isn’t going to happen any time soon.

But there is a solution.  Nonprofit organizations can raise “capacity capital.”  Capacity capital is the money required to upgrade the organization’s capacity, or in this case, their fundraising function.  By putting together a plan for how they might upgrade their fundraising infrastructure (hire additional staff, revamp their website, purchase a donor database, upgrade their messaging and collateral, etc.) and then securing investors in that plan they can revolutionize how they raise money and dramatically improve their fundraising results.

But where do these investors come from, especially in times like these?  Right in your backyard.  I have yet to meet a nonprofit organization that doesn’t have at least a handful of people who are passionately committed to the organization.  And those people, when convinced in a compelling way of what it is going to take to increase the organization’s infrastructure and thus their sustainability, are more than likely to want to invest themselves, or connect the organization to people in their network that can invest.

Let me give you an example. When I joined KLRU, Austin’s PBS station, in 2005, their revenue picture was bleak.  Individual donors were declining, much as they were at PBS stations across the country.  At the same time, the number of days KLRU interrupted programming to fundraise on-air had grown to an all-time high, and among the highest in the country.  Online giving was almost non-existent and there were few major or foundation donors. I put together a fundraising function upgrade plan which cost $350,000 over 3 years and included a new donor database and online giving software, a Webmaster, staff training, and market research.  We secured a handful of foundation and individual donors (who were already KLRU donors) to fund the project. The result at the end of 3 years was an increase of $1.6 million in annual operating revenue per year.

Not every nonprofit has access to potential donors with $350K to give, but this same scenario could easily be played out on a smaller, or larger, scale. If you’re interested in learning how to create a plan to upgrade your nonprofit’s fundraising function, check out Social Velocity’s upcoming seminar:

June 23, 2009
8:30am-12 noon

Click Here to Register

Tags: capacity capital, Fundraising, KLRU, nonprofit, PBS

Leadership as Creating Change

Leadership is a nebulous, mysterious, misunderstood element of an organization’s success.  But if we can re-frame successful leadership as a way to create social change, then perhaps there is something to be gained for social entrepreneurs.

What really is leadership?  What can it do and how does it function effectively to help a company or organization achieve its goals?  Many people are familiar with Jim Collins’ landmark book on the most successful American companies Good to Great. He discovered that “Great” companies all had a leader with “Level 5 leadership” during their pivotal transition from being a good company to becoming a great one.  He defines a Level 5 leader as “an individual who blends extreme personal humility with intense professional will.”   The Level 5 leader is the final rung on a ladder  of increasingly advanced leadership styles:

The Level 5 leader is a humble one that has “ferocious resolve, an almost stoic determination to do whatever needs to be done to make the company great.”  This leader moves beyond simply managing people and projects, and even beyond getting people behind a common vision, to ensuring that the group, organization, or company becomes exceptional.

But I think people are probably less familiar with Ronald Heifetz’s study of leadership, Leadership Without Easy Answers, several years before.  Heifetz provides a framework  for understanding what leadership is and how it can be practiced effectively to create social change.  And I think his model, because it is about social change, could be very useful to social entrepreneurs.

He defines leadership as “mobilizing people to tackle tough problems.”   Leadership, for him, is about getting a group of people (a community, or society) to make the adaptations necessary in order to survive and thrive.  Indeed, Heifetz argues that the “most valuable task of leadership may be advancing goals and designing strategy that promote adaptive work.”   “Tackling tough problems—problems that often require an evolution of values—is the end of leadership; getting that work done is its essence.”

He makes a distinction between two types of situations and their appropriate leadership responses.  A technical situation is when the problem facing a group is recognizable and can be solved with a response that has worked in the past.  In this case the leadership response should be authoritative; if the problem is recognizable, the leader simply demands that the group employ the solution that has worked before.  For example, a city manager will ask city departments to cut their budgets by 10% when there is a budget shortfall.

However, in an adaptive situation, progress on the problem requires changes in the group’s values, attitudes, or habits.  Therefore, the leadership response cannot be authoritative–a leader cannot simply tell people to change.  Rather in the adaptive situation the leader must help the social system “learn its way forward.”  The leader helps guide this new learning, and thus helps guide the group towards change. For example, a mayor facing rising city crime rates cannot simply demand that crime go down.  Rather, a skilled mayor would analyze the problem and help the entire community (homeowners, business owners, police, schools) work together to create a new solution to the problem, which would, no doubt, involve changes in behaviors, attitudes and habits.

I think there is much to be learned here for social entrepreneurs.  Aren’t the most successful social entrepreneurs  ultimately adaptive leaders?  Social entrepreneurs are trying to help a system “learn its way forward.”  They identify some sort of disequilibrium and then work tirelessly to help people within a community change their values, attitudes, habits, behaviors in order to solve the disequilibrium.  As David Bornstein, author of How to Change the World: Social Entrepreneurs and the Power of New Ideas, says:

An important social change frequently begins with a single entrepreneurial author: one obsessive individual who sees a problem and envisions a new solution, who takes the initiative to act on that vision, who gathers resources and builds organizations to protect and market that vision, who provides the energy and sustained focus to overcome the inevitable resistance and who – decade after decade – keeps improving, strengthening, and broadening that vision until what was once a marginal idea has become a new norm.

So a true social entrepreneur is really just a very successful adaptive leader.  Perhaps Heifetz’s model of leadership could be instructive to the many burgeoning social entrepreneurs throughout the world.

Tags: Good to Great, Jim Collins, leadership, Leadership Without Easy Answers, Ronald Heifetz, social entrepreneurs