Making Change the New Norm

It occurred to me in two conversations I had this morning that small change can create large change, but how exactly does that happen?

My first conversation was a phone call with George Overholser, from the Nonprofit Finance Fund and a leading thinker around new kinds of capital for nonprofit organizations.  I was getting some background from him on the whole movement to make growth capital (money necessary to build organizations rather than simply buy services) a reality for nonprofit organizations in preparation for my session later this week at the Social Capital Markets conference.

At the Nonprofit Finance Fund they have launched several exciting programs to help nonprofits secure the money necessary to scale great programs, such as the SEGUE program that takes the traditional nonprofit capital campaign approach and turns it on its head raising money not for a building, but rather for the patient capital required to pay the bills while a nonprofit figures out how to grow and make sustainable their business model.

My big question to George, however, was: How do we get these great new ideas, like patient capital (which is normal and accepted in the for profit world) prevalent and accepted in the nonprofit and philanthropic worlds?  The number of nonprofits and donors currently participating in growth capital deals is very small.

George’s response was that these new ideas don’t have to be widely accepted or embraced.  The end game is not to get all of the “mom and pop” nonprofits and donors to embrace these concepts.  Rather, he looks forward to the day when there are ten $20 million growth capital deals out in the marketplace, that that alone will create tremendous change.  He gave the example of Teach for America.  If they can grow their successful program throughout the country, there would be tremendous change in the education landscape as a result .  The end goal is to secure capital for a select few nonprofits that are uniquely poised to grow. He compared it to Apple, which is a company that makes billions of dollars, but has grown to that stage with only a few tens of millions, say $50 million, in growth capital. And Apple has transformed not only its industry, but really, how we all communicate, interact with data and live. That’s a pretty impressive impact for a $50 million investment in growth capital.  He argues that the same is possible in the nonprofit world.  We could have a handful of nonprofit growth capital deals and transform not only the nonprofit sector, but some enormous social problems.

An interesting hypothesis, but I don’t know if I buy it.  Which brings me to my second conversation of the morning, with Sean Stannard-Stockton of the Tactical Philanthropy blog.  Sean has been known for the past three years as a leading-edge thinker about how to make philanthropy more effective at delivering social impact.  He announced this morning that he is launching a new philanthropic advisory fund called Tactical Philanthropy Advisors.  The firm will advise high-net worth philanthropists (accounts of $1 million or more) on “the social impact of their financial investments, and work with their investment advisors to align their financial portfolios with their philanthropic goals.”

They are seeking to elevate philanthropic advising to the respect, time and resources that overall financial advising has enjoyed.  In this new firm, philanthropic advising is no longer an add-on service that a wealth management company offers its clients.  And their fee structure has them paid by a percentage of the overall portfolio an investor holds with them.  So, in essence, they are paid as a traditional financial advisor is paid, based on the performance of the overall portfolio, but in this case the portfolio return is a social, not a financial one.  They are also interesting because they are a for-profit company, with a social purpose and are applying to become a B Corp.  So the firm is and of itself a social business; they are social entrepreneurs charting this new landscape along with the rest of us.

You only need to read a few entries in Sean’s 3-year old Tactical Philanthropy blog to understand how this new firm could revolutionize how the philanthropic sector, and thus the nonprofit sector, operates.  Sean understands and believes in philanthropic equity, mission-related investing, scaling nonprofits, organization-building, and so on.  He understands these new ideas that George and others promote and could be a critical partner in helping philanthropists understand how to use their money more effectively to drive change in a sector that is undercapitalized and dysfunctional.

However, Sean and his firm will probably only work with a small group of the countless philanthropists out there, so again, what change does this signify?  And how do we bring along other philanthropists who cannot or will not be touched by Tactical Philanthropy Advisors?

It all comes down to the single question: How does change happen?

I would argue that it is not enough to have single examples in the largest nonprofits or among the largest philanthropists.  The Nonprofit Finance Fund, Teach for America, Sea Change Capital, Tactical Philanthropy Advisors and all the other cutting-edge thinkers and examples of how we can do things better are great and absolutely necessary.  Without innovation we have nothing.

But let’s not forget stage two, whenever it may come, that involves making these great examples the norm.  The day when all, or most, nonprofits understand and have access to the power of patient capital and capacity capital, when all or most philanthropists understand the power of investments rather than gifts and how to truly support social change. Ten deals are great, but they are just a start.  True change must be systemic, must be ingrained, must become the norm.  It can’t exist just on the East and West coasts.  It can’t just be in the understanding and practice of the largest, most resourced organizations. That’s why I started Social Velocity; I wanted to bring these cutting-edge ideas and practices to places, organizations and philanthropists that weren’t in the top 10, but were still instrumental to creating social change.  To really be transformative, these new ideas have to become common practice. As David Bornstein has put it:

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.

I applaud people like Sean and George and the countless others who are working to change mindsets, organizations, systems and structures.  Let’s build on the innovation they have started and make those powerful ideas and examples the new norm.

Tags: B Corp, David Bornstein, George Overholser, growth capital, nonprofit, Nonprofit Finance Fund, Philanthropy, Sean Stannard-Stockton, SEGUE program, Social Capital Markets conference, Tactical Philanthropy, Teach for America

A Philanthropic Experiment in Collaboration and Capacity Building

I mentioned earlier that a group of Austin philanthropists is working on a collaboration around building the capacity of local arts education organizations.  I now have more information on the project, and as an example of philanthropic collaboration and capacity building it’s pretty interesting.  The project, called Mind Pop, is a $225,000+ collaboration among Still Water Foundation, Webber Family Foundation, Applied Materials, Tapestry Foundation, the Education Foundation of America and additional funders who they are still working to secure. The leaders of Mind POP hope to improve the unequal access Austin students have to high quality arts education and the lack of capacity and collaboration among arts education organizations in town.

Their goals for the project are to:

• Establish a baseline for measuring improvements in access and quality
• Pinpoint inequities in the community to design targeted solutions
• Strengthen relationships between key community partners
• Fund four pilot projects designed by the key partners to address systemic change
• Improve the capacities of 25-40 arts education orgs and provide seed funding to strengthen their programs
• Act collaboratively, laying a foundation for ongoing coordination and potential  national funding going forward

The project has three phases over the next year.  Phase One is an analysis to understand gaps in resources in the current arts education landscape.  Phase Two is a series of professional development sessions for arts education organization leaders to address the four most critical barriers to capacity that they see. These two phases will happen concurrently. Then, Phase Three will be the distribution of $150,000 in grants to the arts organizations that participated in the capacity building sessions. This money is comprised of four systemic change grants at $25,000 each and 40 mini-grants at $1,000-2,500 for organizational change projects.

The details, partnerships and funders are still being worked out, so this is all subject to change, but I imagine the basic overall design of the project will stay the same.

Although the scope and dollar amount of the collaboration and capacity building project is relatively small, it is impressive for two reasons.  First of all, I like to see philanthropists pooling resources for greater leverage.  Particularly in Austin, where our foundation assets are small compared to the foundation assets of other cities, collaboration is crucial to achieve broader and deeper social impact.  So the fact that these family and corporate foundations are creating a pooled fund of money means a greater amount of capital working for the same goal, which hopefully means a greater chance that the goals are realized.  And secondly, this project is interesting because it seeks to understand AND remedy problems of capacity within the nonprofit sector.  I have talked at length about the need for greater capital to fund organization building in the sector.  Philanthropists are often hesitant to see their money go anywhere other than direct program services.  But when philanthropists like those in Mind POP recognize how important capacity and organization building is to addressing the root cause of social problems (like unequal access to arts education) they are moving the sector forward.  They are recognizing and demonstrating to their colleagues that capacity can and should be supported.

It will be interesting to see how this project progresses and the outcomes it achieves.  I’ll keep you posted.

Tags: Applied Materials, Austin, Capacity Building, Education Foundation of America, Mind POP, philanthopists, Still Water Foundation, Tapestry Foundation, Webber Family Foundation

5 Things Board Members Can Do To Build Organizations

I’ve discussed before how important boards of directors are to the effectiveness of the nonprofit sector. But I think they are particularly critical to overcoming the bias against nonprofit capacity.  Boards of directors are a largely untapped resource available to nonprofits.  If nonprofits could figure out how to tap into the expertise, networks, knowledge and resources that board members bring to the table it could be a new day for the nonprofit sector.

But, really, the burden for change lies with the board members themselves.  Board members must take a larger, more strategic role in the organizations that they serve.  And this could be particularly effective in the area of organizational capacity. Board members need to help their nonprofit organizations uncover, plan for and fund the staffing, technology, expertise and systems required to make the nonprofit more effective at creating social impact.

In  my work helping nonprofit organizations to build their capacity and infrastructure in order to grow their social impact, it is board members who sometimes stand in the way of that growth.  Board members tend to like to see most of the dollars that a nonprofit raises go back into programs, not organization building.  But if a nonprofit’s own board of directors doesn’t understand what a losing battle it is to continually starve nonprofits out of the most necessary kind of resources, capacity-building resources, then how will donors ever understand it?  And how will nonprofits ever be able to get better at tracking their results, communicating with staff and volunteers, increasing their fundraising function, marketing to their constituents, etc.?

I am encouraged by some of the organizations I meet with who have been able to convince their boards and major donors to make an investment in capacity and growth planning, but we definitely need to see more. We cannot simply leave it up to beleaguered, exhausted Executive Directors to push organization-building forward. The EDs are often the ones balancing organization needs against funders and board members who have no interest in those needs.

Therefore, I challenge board members to start putting their time, effort and resources behind organization building.  And here are five things they can start doing today:

1. Determine the True and Full Costs of Effectively Running The Organization. Stop asking nonprofit staffs to get by with less and less.  Stop telling an Executive Director to lower the salary they can offer a talented Development Director.  Stop telling EDs they shouldn’t be spending money on technology, that they should use a free database instead of buying a more effective database. Stop encouraging nonprofit staffs who lack expertise in a certain area (fundraising, evaluation, strategic planning) to use volunteers instead of consultants to help them.
2. Encourage the Organization to Create a Capacity-Building Plan. Nonprofit EDs are often so caught up in the day to day that they don’t have the luxury of stepping back and figuring out what is required to make the organization more effective.  Ask your ED to spend some time coming up with a capacity building plan that will take the organization to the next level.
3. Make a Significant, Personal Financial Investment in the Organization’s Capacity. Stop asking that your annual gift to the organization go to your favorite program.  Organization building dollars are very difficult to find.  So those closest to the organization should be the first to step up and invest in capacity.  And don’t just give the required amount.  Make an investment that is significant to you.  If you truly believe in this organization, take out your checkbook and make it hurt.
4. Convince Your Fellow Board Members to Follow Suit. Boards are often led by a vocal few who convince the rest to go along with their plans. If you can be that vocal member who can articulate the need for organization building, how it will result in greater social impact over time, and how the board must be the champion of and seed investor in organization building, you can marshal the organization’s greatest resource (its board) toward becoming a strengthened, healthier nonprofit.
5. Tap Into Your Network to Find Organization-Building Dollars. Think strategically about who you could convince to join you in strengthening the capacity of this organization you serve. Then pitch them and get them to invest with you in the capacity plan.  Make the case for why a Development Director, or a strategic plan, or an evaluation study or new technology will expand the social impact that your organization is making. One of the reasons there aren’t more capacity-building investments made in the sector is because board members are not making a compelling case to their friends and colleagues about the importance of capacity and how those dollars can actually provide much greater impact down the road than a direct service grant can today.

The nonprofit sector is struggling, as are many of our institutions and systems.  So things have got to change.  Board members can be an instrumental driver of the change that results in stronger, healthier, more effective nonprofit organizations creating real, successful solutions for the problems we face.  But in order to get there, board members have to understand and embrace the power of organization-building.

Tags: Board of Directors, Capacity Building, capacity plan, nonprofit, nonprofit capacity, organization-building

Overcoming the Bias Against Nonprofit Capacity

It amazes me how much the funder, government, and even sometimes nonprofit leadership, bias against nonprofit capacity building holds the sector back. It seems like such a simple thing: in order to get more results you need to devote time, energy and resources to organization building.  In order to find the resources required to deliver programs, you need to invest in fantastic fundraisers.  In order to track program results, you need a system which includes technology and staff. In order to have a fantastically talented staff, you need a human resources function that takes the time to vet great candidates. A nonprofit cannot exist on direct program dollars alone.

The idea that the vast majority of nonprofit funding should go to direct program expenses is ludicrous.  Why is there even a distinction between program and non-program expenses?  Doesn’t a nonprofit exist to deliver programs?  And doesn’t that mean that everything they do helps to make those programs better, stronger, bigger, more effective?  Why is capacity such a dirty word?

I met with a nonprofit Development Director earlier this month who has had a really hard time convincing their CEO and board to let them spend money on a donor database and some fundraising materials. Yet, at the same time the Development Director is expected to raise millions of dollars in revenue. That sounds completely crazy, doesn’t it?  But in the world in which I work that is often the rule rather than the exception. Infrastructure, capacity, fundraising, marketing, and operations dollars are somehow bad, dirty, not necessary, dismissed.

Which is why the recent article in the Stanford Social Innovation Review by Bridgespan Group’s Ann Goggins Gregory & Don Howard was such a breath of sanity-infested fresh air. If you are nonprofit staffer, board member, donor, or volunteer, I really encourage you to read the whole article.  They have studied what they call the “Nonprofit Starvation Cycle”–nonprofit organizations’ continual drive to do more and more with less and less– and come up with a path out of the insanity.

What seems like such an obvious statement, its almost a truism–”Organizations that build robust infrastructure—which includes sturdy information technology systems, financial systems, skills training, fundraising processes, and other essential overhead—are more likely to succeed than those that do not”–is so often overlooked by nonprofit organizations.   But I think most nonprofit leaders would tell you that they would love to spend money on infrastructure, that they absolutely understand the return on investment, but funders and board members have a hard time allocating money to those projects.

In their work with nonprofits at Bridgespan Group, Gregory and Howard uncovered three reasons for this inability to build capacity in the nonprofit world:

• Funders have unrealistic expectations about how much it costs to run a nonprofit
• Nonprofits need to conform to these unrealistic expectations in order to receive funding
• Nonprofits underreport infrastructure expenditures on tax forms and in fundraising materials

The end result is a vicious circle where few fund or spend money on infrastructure in the nonprofit space: “This underspending and underreporting in turn perpetuates funders’ unrealistic expectations. Over time, funders expect grantees to do more and more with less and less—a cycle that slowly starves nonprofits.”

The solution, Gregory and Howard argue, is to begin at the source of this vicious cycle: the funders.  They argue if funders can be educated about the true costs and infrastructure necessary to build organizations to solve social problems, then we can break out of this destructive cycle. I strongly agree with that. It is difficult for nonprofits to turn to the hand that feeds them and tell them that they need more in order to do more, but such conversations are absolutely critical if we are to get beyond the starvation cycle.

But funders aren’t the sole impediment. Gregory and Howard argue that nonprofits play a part in this dysfunctional view of capacity, and there are a number of things that they can do to turn things around.  Nonprofit leaders should analyze their real overhead costs and infrastructure needs, educate their boards about these real needs and then engage their board in communicating these needs with funders.  And board members are just as culpable. They must encourage nonprofit leaders to develop strategies to address their true infrastructure needs and then take responsibility for encouraging funders (often board members’ friends and colleagues) to be realistic about what is required to make the nonprofit highly functioning.

I actually think that funders are much more receptive to these capacity conversations than some nonprofits give them credit for.  My work at Social Velocity is all about organization building, and I often encourage nonprofit leaders to tell their board members and their closest donors what they really need to succeed.  I have found that those donors who really believe in an organization will understand when a compelling case that it takes resources to take an organization to the next level is put before them.

I think the bottomline is that we have to stop playing games. Stop underreporting infrastructure costs, stop telling funders its ok to ask nonprofits to do more with less, stop telling the public that direct program costs are better than indirect program costs, stop telling boards of directors that its ok to ignore infrastructure needs. It’s a difficult conversation, there is no doubt, but what’s the alternative? We all know how a starvation cycle ends.

Tags: Board of Directors, Bridgespan Group, Capacity Building, Fundraising, infrastructure, nonprofit, program expenses, Stanford Social Innovation Review

Two Weeks to SoCap

Two weeks from today the 2nd annual Social Capital Markets Conference kicks off in San Francisco.  I’m pretty excited about it because I think one of the biggest things standing in the way of social innovation is a social capital market–the financial tools and vehicles necessary to adequately capitalize social innovation.  The speaker’s list for the conference reads like a Who’s Who of the social innovation world.  There are some incredible sessions, too many to choose from.  I wish the conference were longer than 3 days.  I’ll be tweeting (as much as my multi-tasking challenged brain can handle) and blogging from the conference.

Just a few of the topics to be discussed at this year’s conference include:

• The Social Capital Movement Across the Globe
• Social venture funds’ prominent role in the new economy
• The sophistication of social investing pioneers
• Raising money for impact investing in a downturn economy
• The Obama Administration’s focus on social innovation
• Creating effective collaboration between the private sector and development agencies
• Moving beyond Microfinance
• Market based solutions for the base of the pyramid
• New corporate structures, including hybrid businesses and L3C organizations
• Creating metrics and value around social change
• Mobile technology platforms worthy of investment

Are you excited yet?

One of the things I’m particularly excited about at this year’s conference is a movement toward including nonprofits and philanthropy in more of the conference.  Last year’s conference tended to focus a bit more on blended value investing (investing in social impact organizations that provide a social AND a financial return). But we don’t want to neglect those social entrepreneurs that employ a nonprofit model to create their desired social impact.

To that end, SoCap this year has a host of sessions about nonprofit social entrepreneurs  and a social capital market for them.  I am moderating one of these sessions, Growth Capital for Nonprofit Social Entrepreneurs on Wednesday, September 2nd at 1:30pm.  Darell Hammond of KaBoom!, Greg Baldwin of VolunteerMatch and Kelly Ward from America Forward/New Profit will discuss the growth capital that was used to bring some impressive nonprofit organization’s to scale.

If you are going to attend only one conference in the social innovation space this year, I would highly recommend SoCap.  Hope to see you there!

Growth Capital for Nonprofit Social Entrepreneurs

Date: Wednesday, September 2nd
Time: 1:30pm

Moderator: Nell Edgington, Social Velocity
Greg Baldwin, VolunteerMatch
Darell Hammond, KaBOOM!
Kelly Ward, New Profit and America Forward

Nonprofit social entrepreneurs like Volunteer Match and KaBoom! have become, over the past decade, very successful, national, multi-million dollar nonprofit organizations working to solve critical social problems. They’ve achieved this impressive scale through growth capital from individuals, foundations and venture philanthropy funds. Greg Baldwin from Volunteer Match and Darell Hammond from Kaboom will be joined by Kelly Ward from America Forward and New Profit, a pioneer venture philanthropy fund in Boston, to discuss the various financial tools available and necessary to scale nonprofit social entrepreneurs.

Tags: America Forward, KaBoom!, microfinance, New Profit, nonprofit, scale, SoCap, social capital market, social entrepreneurs, Venture Philanthropy, Volunteer Match