I love this time of year. Not just because of the approaching space for relaxation, friends and family, and great food, but more importantly because it is a time for reflection. The end of the year offers a natural analytic marker between what was and what is yet to come.
And as is my end of the year tradition on the blog, it’s a time to look ahead to what the coming year might bring for the nonprofit sector. I’ve always said when I create my Trends to Watch lists that I am less clairvoyant and more optimist. I am always hopeful that the nonprofit sector is growing more effective, more sustainable, more able to create lasting social change. That’s the trajectory that (I freely admit) I am predisposed to see.
So here are 5 things I’m really hopeful about the nonprofit sector as we head into the new year.
- Growth of the Sharing Economy
The emerging “sharing economy,” where a good or service is shared by many instead of consumed by one and managed largely through the use of social technologies (think AirBNB, Netflix, TaskRabbit and countless others), will have wide implications for the social change sector. The sector that employed “sharing” long before it was cool will need to understand this changing environment and the implications for their work. Nonprofits should figure out how to navigate this growing interest (and increasing for-profit competition) in the realms of community and goodwill. It will be fascinating to watch.
- More Focus on Crowdfunding
One element borne out of the sharing economy is crowdfunding, and there is no doubt that it is everywhere. I have written before about my skepticism. But my hope is that crowdfunding will move away from ALS Ice Bucket Challenge-like hype and become another financing tool that nonprofits can use strategically. We need to get smarter about what crowdfuding is, and what it isn’t. A Kickstarter campaign makes sense for startup and other capital needs, but not for ongoing revenue. And while Giving Days are exciting, I’d like to see more analysis of what’s new money and what is cannibalized money. There is no doubt that crowdfunding is a force to be reckoned with, I just hope we turn it into a useful, strategic tool that contributes to — not detracts from — sustainable social change financing.
- Decreasing Power of the Overhead Myth
The Overhead Myth, the destructive idea that nonprofits should spend as little as possible on “overhead” expenses (like infrastructure, fundraising, and administrative costs) was laid bare in 2013 when GuideStar, CharityNavigator and BBB Wise Giving Alliance wrote their famous Letter to the Donors of America. This year they wrote a follow up Letter to the Nonprofits of America, arguing that both nonprofit leaders and donors must stop judging nonprofits by their overhead rate and instead focus on a nonprofit’s outcomes. It’s exciting to see this most detrimental of nonprofit myths beginning to crumble, but there is still much work to be done. Not least of which is helping nonprofits articulate and measure their outcomes so that they have a more effective measure with which to replace the overhead rate.
- Growing Emphasis on High Performance
Which brings me to the growing movement for creating more high performing nonprofits. Over the past several years there has been an emerging effort to move nonprofits toward this outcomes approach to their work. The idea is that if nonprofits can better articulate and measure the social change they seek, more resources, sustainability and ultimately more change will follow. In the coming year, a group of social sector leaders (of which I am a member) will release a framework for what practices constitute a high performing nonprofit. But that is just one example of a growing emphasis in the social change sector on results.
- Greater Investment in Nonprofit Leadership
Nonprofit leaders have long traveled a lonely road with inadequate support and resources. Funders and board members often assume that a leader should go it alone, even while for-profit leaders benefit from on-going coaching, training and development. But that is starting to change. A few savvy foundations have invested in nonprofit leadership, and they are beginning to trumpet the benefits of such investments. As more funders understand why investing in the leaders of the nonprofits they fund makes sense, I am hopeful that nonprofit leadership support will become less of an anomaly. And with stronger, more effective and supported leaders comes — I firmly believe — more social change.
Photo Credit: slorenlaboy
In today’s Social Velocity blog interview I’m talking with Albert Ruesga. Albert is the President and CEO of the Greater New Orleans Foundation, known for its leadership in the region after Hurricane Katrina. He serves as chair of Grantmakers for Effective Organizations (GEO) and sits on the Philanthropy for Social Justice and Peace steering committee. He earned his Ph.D. at MIT and taught philosophy at Gettysburg College before entering the world of philanthropy. An accomplished writer, his articles have appeared in the Oxford Handbook of Civil Society, Social Theory and Practice, and other publications.
You can read other interviews in the Social Velocity Interview Series here.
Nell: As President & CEO of the Greater New Orleans Foundation you were deeply involved with the rebuilding efforts after hurricane Katrina and the attempts to use Katrina as an opportunity to kickstart social innovation. Looking back, how successful do you think efforts were to use the aftermath of the storm as an opportunity to create social change?
Albert: I came to New Orleans at the beginning of 2009, three years after New Orleanians had cleared their streets of rubble and buried and mourned their dead. It was also two years after the Greater New Orleans Foundation had launched its very successful Community Revitalization Fund that helped rehabilitate and construct affordable housing for 9,500 families. Certainly some good things have happened under my watch–at least I hope other people will judge this to be true–but it’s worth remembering the substantial good that came before, thanks to the sacrifices of so many.
The term “social change” is as slippery as a fresh Louisiana oyster. How do we measure it? One model that springs immediately to mind is the New Testament story of the sheep and the goats in which God says to those on his right, ‘Come, you who are blessed … ; take your inheritance, the kingdom prepared for you since the creation of the world. For I was hungry and you gave me something to eat, I was thirsty and you gave me something to drink, I was a stranger and you invited me in, I needed clothes and you clothed me, I was sick and you looked after me, I was in prison and you came to visit me.’ You may recall that God had some very choice words for those on his left.
There are many good people in New Orleans who understand and abide by these words. These people–and there are many–continue to be the hope of our city. As individuals or through their foundations, they give generously to help the hungry, the sick, the imprisoned.
We need to remember also that what drew the attention of the world to New Orleans was not a powerful hurricane–powerful storms are by now a commonplace. What drew their attention was the fact that so many people needed to be rescued from their rooftops. What shocked the world were the appalling disparities between New Orleans’s poor, largely black, population and those who were better off. If you judge social change in these terms, I don’t think it’s an exaggeration to say that, metaphorically at least, many New Orleanians are still running for their attics. While there has been progress in some domains, we have not adequately addressed the cultural, structural, and spiritual causes of these disparities.
And before we start pointing fingers at New Orleans, let’s not forget that these same kinds of disparities exist in every metropolitan area in the United States.
Nell: On the White Courtesy Telephone blog you sometimes take philanthropy to task (for being too theoretical, for chasing shiny objects, etc.). Is there something fundamentally wrong with philanthropy? Does the power imbalance between funder and recipient create a dysfunctional relationship that stands in the way of social change?
Albert: There is nothing fundamentally wrong about philanthropy when understood as generosity, as the giving of time and treasure to help others, as giving for the sake of the common good. On the contrary, philanthropy is hands down our greatest achievement as a species.
As for “organized philanthropy,” “professionalized philanthropy,” the philanthropy practiced by foundations large and small — that’s another matter. The problems with organized philanthropy, in my view, go far beyond power imbalances. Several years ago, I tried to summarize philanthropy’s shortcomings in “Twenty-Five Theses”. I still believe these are essentially accurate.
I’m constantly amazed at what our field marginalizes and what it deems important. There’s currently a good deal of discussion about the differences between strategic and emergent models of philanthropy. Highly compensated consultants will make fortunes helping befuddled foundation CEOs like me sort out the differences. But it’s not the model that will make or break our efforts at social change: it’s us; in most cases, we will be the reason our best models will not work. We simply cannot make good omelets out of bad eggs.
We philanthropoids chase the new model, the new technology, the new structure — the “shiny object,” as you call it — because we’re a deeply insecure tribe, lacking the self-awareness we need to admit to ourselves and others that affecting the dynamics of social change is beyond our powers, and that, as a consequence, we really don’t know what the heck we’re doing. Either that, or we do in fact understand how social change works — at least intuitively — and we fear that a frank discussion of the subject will cost us our jobs. Both of these possibilities constitute what I’ve called “philanthropy in bad faith.” I’m not immune to these criticisms; I too am guilty as charged. If my understanding of the field’s shortcomings is at all accurate, it’s because I embody so many of them. Every morning my next blog post stares at me from the bathroom mirror.
Nell: You have written about your hope that the next generation of philanthropists will make some significant changes to philanthropy. And studies have claimed that Millennial philanthropists will be different (although some disagree). How much do you think Millennial philanthropists will actually change philanthropy and in what ways?
Albert: My generation has left a terrible mess for the Millennials to clean up: a huge gap between the haves and have-nots; unthinkable gender and racial inequality; an insecure world; a despoiled environment; the illusion of democracy in our own country; and much more besides. My great hope is that the Millennials will realize that philanthropy-as-usual simply will not get the job done. We need to discourage them as much as possible from thinking and behaving like their predecessors.
If I could give the Millennials one piece of advice it would be this: pay close attention to the frame. While you’re focusing on the content (hunger, homelessness, global warming), the frame you’ve internalized — the frame we’ve all internalized — is keeping us from seeing and understanding the larger picture. What happens locally, pretty much everywhere in the world, is shaped by simple rules of human behavior that have over time led to a global economic order that needs to be made transparent. This awareness, I hope, will be the legacy of the Millennials and their successors.
Nell: One of the areas that the Greater New Orleans Foundation funds is capacity building. Is it possible to convince a critical mass of funders to start investing in nonprofit capacity building?
It’s certainly worth a try, isn’t it? Short of launching a capacity building program, as we did, grantmakers can start by providing general operating support whenever possible (although multi-year support is better), providing grants for capacity building, providing capital for operating reserves, and awarding larger grants. Foundations can teach their program officers to look and listen for cues that a nonprofit needs special assistance. There are so many ways in to the capacity building “space,” ways that cost so very little. The payoffs, in our experience, are substantial.
Photo Credit: Greater New Orleans Foundation
Note: In October I interviewed Kathleen Enright, CEO of Grantmakers for Effective Organizations (GEO), on the blog. In the course of that interview, she mentioned GEO’s upcoming study of staffed grantmaking institutions. That study was released a few weeks ago, and I asked Kathleen to provide some perspective here on what the results mean. Her guest post is below.
A few weeks ago GEO released our latest field study, Is Grantmaking Getting Smarter? We conduct this national study of staffed foundations in the United States every three years to better understand how and whether grantmaker attitudes and practices are changing in ways that help nonprofits make faster progress on their missions. In our 2014 survey, we endeavored to understand how funders support and engage in collaboration.
We were anxious to make meaning of the results related to collaboration in part because it was a key theme across the nonprofit listening sessions we conducted last year. Leaders touted the value of funders connecting them with each other and building peer networks. They recommended funders create more opportunities for nonprofit leaders to share ideas and allow collaboration to be an organic outcome of these peer exchanges. In addition, they made a strong case for funding collaborative work. As one listening session participant noted about collaborating, “It is expensive to undertake and not really fully funded.” Hopefully these results will provide an opportunity for funders to look carefully at their own practices to make sure that they are doing what they can to help productive collaboration flourish.
Collaboration in the context of philanthropy has many dimensions (you can find a description of the many forms and uses for collaboration here). In this survey we attempted to learn more about the extent to which grantmakers:
- Fund nonprofit collaboration
- Collaborate with one another
- Create an enabling environment that supports collaboration
The findings in Is Grantmaking Getting Smarter? were mixed on this issue.
Fund nonprofit collaboration. Anyone who has participated in collaborative initiatives knows the truism that they take longer and cost more than you think at the beginning. It follows that successful collaborative initiatives hinge on nonprofits having sufficient bandwidth to meaningfully engage in them. This is why it’s encouraging that multiyear support has rebounded to pre-recession levels and general operating support is on the rise. General operating support increased in terms of share of total grantmaking dollars from 20% to 25%.
Our past two surveys also sought to understand if grantmakers directly support the costs necessary for nonprofits to collaborate. The 2014 findings suggest that grantmakers are now less likely than in 2011 to fund the costs of collaboration or managing strategic relationships among grantees. In 2011, 38% of respondents reported never or rarely funding the costs of collaboration or managing strategic relationship among grantees. In 2014, it got even worse—53% said they never or rarely provide this kind of support.
As the drum beat for collaboration has grown louder, it’s surprising (and a bit worrisome) that direct philanthropic support for collaboration appears to be in decline. Our research partners at Harder+Company hypothesized that improving economic conditions may play a role. Foundations may have seen collaboration as a way to make limited resources go farther in order to withstand the tough economic conditions. Given the rebounding economy, maybe funders see this kind of support as less important.
It is also interesting that general operating and multiyear support are going up at the same time that support for collaboration is going down. Might funders be increasingly providing organizations with flexible, long-term grants as a strategy to support the collaborative work they need to do? If so, that’s a positive instinct. Regardless, if funders expect their grantees to collaborate, they have to be willing to underwrite the costs of doing so. Otherwise it’s an unfunded mandate that is unlikely to succeed.
For the first time this year, we asked a question about what kinds of support funders were providing to enable collaboration. The most common approach is to organize collaborative meetings or events for grantees. Nonprofits who participated in our listening sessions appreciated when grantmakers do this work well.
Collaborate with one another. Most grantmakers (69%, which was the same in 2011) reported developing strategic relationships with other grantmakers. Those who are cultivating such relationships are overwhelmingly motived by achieving greater impact, followed by an interest in tapping the expertise of other grantmakers. The least common reason for collaborating with fellow grantmakers was to minimize burden on grantees.
That such a strong percentage of grantmakers recognize both the importance of and motivations for collaborating with one another is a promising result. However, this further highlights the divide between what grantmakers are willing to support for themselves and what they are willing to fund for their grantees. As more grantmakers engage in collaborative partnerships hopefully the case for supporting similar work for their grantees will grow stronger.
Create an enabling environment for collaboration. In addition to directly supporting nonprofit collaboration and engaging in collaboration themselves, we were also curious about whether grantmakers are doing what they can to create an environment conducive to successful collaboration.
- By seeking and using input. Asking for and using feedback from key stakeholders lays the foundation for collaboration. At last, the majority of staffed foundations in the US are asking for grantee feedback. Additionally, grantmakers have become more likely over time to engage external voices in decision-making and strategy setting. They were most likely to seek external perspectives on foundation strategy (63% do so sometimes, often or always) and the majority of respondents now seek advice from a grantee advisory committee about policies, practices and program areas (52% up from 42% in 2011). This is good news.
- In how they engage with grantees. Survey participants were asked how important certain funding practices were to their success. Fully 92% of respondents indicated that it is important that staff build relationships with grantees so that grantees can be open about their challenges. A slightly lower but still substantial percentage (89%) indicated that it’s important to provide opportunities for staff members to spend time outside the office with representatives of recipient communities or grantees. Given that strong and trusting relationships are an important ingredient to successful collaboration, this sense of priority is encouraging. However only 63% thought it was important to their success to have staff with experience working at nonprofits like those they fund. Nothing really beats having walked in someone else’s shoes, so it is my hope that more and more foundations will recognize the importance of hiring program officers with nonprofit leadership experience in the years ahead.
I’m curious what you make of these survey findings, so please let us know what you think:
- Do you have ideas for why philanthropic support for collaboration might be declining? Do you think there’s any relationship to the increases in multiyear and general operating support?
- For grantmakers: To what extent are you creating an environment that enables collaboration inside your organization? How are your practices smoothing the way for your grantees to collaborate more effectively?
- For nonprofits: Are you talking with funders about what it takes to collaborate and what your real needs are?
Photo Credit: GEO
Wow, November was a great month for writing about social change. I had a harder than normal time narrowing my list down to 10. From the election, to philanthropy’s role in Ferguson, to saving Detroit, to giving to the fight against Ebola, to speculation about Giving Tuesday (which is today, by the way), it was a busy month.
Below is my pick of the 10 best reads in social innovation in November. As always, add what I missed to the comments. And if you want a longer list, follow me on Twitter, Facebook, Google+ or LinkedIn.
You can read past months’ 10 Great Social Innovation Reads lists here.
- November saw elections across the country, and social media perhaps helped to get out the vote. But a chilling Princeton study found that America is no longer an actual democracy, we have become an oligarchy ruled by wealthy elites.
- But there is hope, some political reform is happening at the state level, like the amazing success of state-by-state legalization of gay marriage. I think we will be analyzing this movement as a social change case study for years to come. In fact they have been so successful that marriage equality nonprofits and donors must now figure out what’s next.
- Writing in the New York Times, Nicholas Kristof offers a thought-provoking 5-part series about racism in America, touched off by the situation in Ferguson. He argues for a national conversation akin to South Africa’s Truth and Reconciliation Commission to “examine race in America.”
- Detroit has finally exited bankruptcy, but Rick Cohen sees many hurdles still facing the city. And Jacqueline Pfeffer Merrill worries that the philanthropists who helped get Detroit out of bankruptcy don’t really have a vision for a revitalized city.
- The philanthropic response to the Ebola crisis has been much slower than is usual for disaster response philanthropy. Vicky Hausman and Sylvia Warren suggest some reasons for this. And Google works to remedy the situation with their first foray into converting visitors into philanthropists. It will be fascinating to watch what else Google does in this philanthropy realm.
- Writing in the Harvard Business Review, Jeremy Heimans and Henry Timms take a fascinating look at what they see as a fundamental shift in power. “Old Power” is “closed, inaccessible and leader-driven,” but “New Power” is “open, participatory, and peer-driven.” As they see it, New Power is fundamentally changing how people and institutions interact, but it isn’t necessarily all positive: “New power offers real opportunities to enfranchise and empower, but there’s a fine line between democratizing participation and a mob mentality. This is especially the case for self-organized networks that lack formal protections.”
- Today is Giving Tuesday, the annual day of philanthropy launched in 2012. Many have questioned the efficacy of the movement to get more Americans giving, including Tom Watson, who now sees some promise.
- The Pew Research Center’s Social Networking Fact Sheet offers a great glimpse into how social media use is evolving.
- October saw a stinging two-part ProPublica/NPR series about the American Red Cross’ handing of Hurricane Sandy disaster relief. It turns out that the story was helped by crowdsourced information. And David Henderson, Full Contact Philanthropy blogger, sees the tension in the Red Cross story that every nonprofit faces between running programs and fundraising for them: “The market realities of running a nonprofit create adverse incentives, driving organizations to raise funds at the expense of what their stated core missions are.”
- Always there to inspire creative entrepreneurs, Steven Pressfield writes about the importance of aspiration, “As artists and entrepreneurs…the content of our personal culture starts with us. We set the level of aspiration. The crew—meaning ourselves—follows us.” Amen!
Photo Credit: Karoly Czifra
One of the most difficult decisions a nonprofit leader faces is whether to cut a program. The program might be draining staff and offering few results to clients, but once a nonprofit launches a program it becomes almost instantly institutionalized. Even if the program eventually no longer makes strategic sense, it is almost impossible to convince board, staff and donors to end it.
But for a nonprofit to be most effective, its leaders must understand the financial and social impact of all of its programs and make strategic decisions accordingly. And the way to do that is with a Program Analysis Matrix.
Nonprofit leaders are driven by the desire to provide as many services as possible, so to shut down an established program seems so wrong. But nonprofit leaders must regularly analyze their portfolio of programs in order to understand how well each program contributes to the organization’s mission and financial sustainability.
When I assess a client’s financial model, one of the first things I employ is a Program Analysis Matrix that analyzes the social and financial impact of their entire portfolio of programs. I chart all programs and activities comparing each program’s ability to:
- Contribute to the social change the nonprofit is working toward (“Social Impact” on the x axis), and
- Add or subtract financial resources to/from the organization (“Financial Returns” on the y axis).
A Program Analysis Matrix looks like this:
Each program that a nonprofit operates is placed in one of the four boxes depending on how well that program contributes to the social impact (or mission) the nonprofit is working towards and the financial sustainability of the organization. The four options are:
- Sustaining: the program has low social impact (it doesn’t appreciably contribute to the nonprofit’s ability to create social change), but does provide financial resources to the organization.
- Beneficial: the program has high social impact and provides financial resources to the organization—this is the best of both worlds.
- Detrimental: the program provides low social impact and drains financial resources from the organization—this is the worst of both worlds.
- Worthwhile: the program provides high social impact but drains financial resources.
This Program Analysis Matrix helps to surface issues that a nonprofit must address, for example when some programs are providing no benefits, or there are too many mission-related programs that don’t attract funding. Typically, a nonprofit has an abundance of “Worthwhile” programs that are integral to the mission and provide important social impact but are financially draining to the organization. In a situation like that, board and staff need to get strategic about developing programs that are “Sustaining” or “Beneficial” and provide a positive financial return.
Board and staff should work together to plot all current programs in the matrix. Once completed, the matrix can help make the appropriate strategic decisions (labeled as “Strategy” above) about which programs to “cut,” “maintain,” “nurture,” or “expand.”
This analysis can help a nonprofit take a hard look at everything they are doing and start to make some hard decisions. A conversation about cutting programs is always incredibly difficult, but with the right data behind it, the conversation can be a logical, as opposed to emotional, one.
Photo Credit: Bart van de Biezen
I’ve been thinking a lot lately about how networks and institutions must work together to create social change. As I mentioned earlier, social change happens when networks (loose connections of people and groups) organize themselves enough to pressure outdated institutions to adapt (like in the civil rights movement, global democracy movements, and the state-by-state legalization of gay marriage).
But when networks and institutions don’t connect, social change doesn’t happen (like in the Occupy movement). So networks must organize enough to influence institutions, and institutions must open themselves enough to let networks in. Social change requires that the two work in tandem.
David Brooks captured this theme in his recent New York Times column when he talked about the death of the “Organization Man.” He claims that we are witnessing “a failure of governance around the world” because networks are being valued over institutions, as he puts it:
A few generations ago, people grew up in and were comfortable with big organizations — the army, corporations and agencies. They organized huge construction projects in the 1930s, gigantic industrial mobilization during World War II, highway construction and corporate growth during the 1950s. Institutional stewardship, the care and reform of big organizations, was more prestigious. Now nobody wants to be an Organization Man. We like start-ups, disrupters and rebels. Creativity is honored more than the administrative execution. Post-Internet, many people assume that big problems can be solved by swarms of small, loosely networked nonprofits and social entrepreneurs. Big hierarchical organizations are dinosaurs.
Networks are king and institutions are left by the wayside, resulting in chaos. Effective social change happens when networks infiltrate institutions enough to help them adapt.
This is echoed in Jane Wei-Skillern & Sonia Marciano’s groundbreaking Stanford Social Innovation Review article in 2008, “The Networked Nonprofit.” They argued that nonprofit institutions must connect to and become more like networks in order to effectively create social change:
Most social issues dwarf even the most well-resourced, well-managed nonprofit. And so it is wrongheaded for nonprofit leaders simply to build their organizations…By mobilizing resources outside their immediate control, networked nonprofits achieve their missions far more efficiently, effectively, and sustainably than they could have by working alone…Unlike traditional nonprofit leaders who think of their organizations as hubs and their partners as spokes, networked nonprofit leaders think of their organizations as nodes within a broad constellation that revolves around shared missions and values…According to our research, nonprofits that pursue their missions through networks of long-term, trust-based partnerships consistently achieve more sustainable mission impact with fewer resources than do monolithic organizations that try to do everything by themselves.
But it is not just a one-way street. For social change to take hold, institutions must connect to networks and networks must connect to institutions. The Occupy movement is a great example of what happens when a network doesn’t connect to institutions. The movement eventually died because, as The Economist put it, the Occupy Movement “did not become the sort of mass movement that could deliver legislative and regulatory change.”
For real change to happen we need networks and institutions to work together. Networks are fluid, innovative, energetic and quick-moving, while institutions are well-resourced, legitimate, and powerful. So the challenge for social change leaders is to get outside your four walls, figure out where the networks and institutions lie, and forge real connections.
Photo Credit: Berlin Wall, RIAN Archive
In today’s Social Velocity blog interview, I’m talking with Ann Goggins Gregory, Chief Operating Officer at Habitat for Humanity Greater San Francisco where she oversees programs, the social enterprise called the ReStore, HR and Operations.
Previously, Ann was a Senior Director at the Bridgespan Group, where she led the organization’s work on organizational learning; managed consulting engagements with human services, education, and youth-serving nonprofits; and spearheaded research efforts on a variety of nonprofit management topics. She remains a Senior Advisor to Bridgespan on issues related to the starvation cycle.
You can read other interviews in the Social Velocity Interview Series here.
Nell: You and your colleague Don Howard are in some ways the catalysts behind the Overhead Myth campaign because of your seminal article, The Nonprofit Starvation Cycle in the Stanford Social Innovation Review back in 2009. How far have we come since that article? How prevalent is the starvation cycle today and what can we do to move beyond it?
Ann: “The Nonprofit Starvation Cycle” names what I consider to be a fundamental truth: “Organizations that build robust infrastructure…are more likely to succeed than those that do not. This is not news, and nonprofits are no exception to the rule.” For decades, researchers and practitioners have argued that low overhead does not equate with efficiency and efficiency, in turn, does not equate with effectiveness.
We are seeing (productive) focus and movement now versus five or ten years ago, yet that starvation cycle is still an entrenched issue. On a positive note, the Overhead Myth campaign has been critical in communicating with donors directly and empowering nonprofits to communicate with “back up.” Though I have mixed feelings about some of the messages in Dan Pallotta’s video, it elevated paradoxes of how costs are treated in the social sector. We’ve also seen targeted efforts to help funders and nonprofits address cost-related issues together. Even the federal government is trying to shift practice: the Office of Management and Budget issued guidance requiring that nonprofits receiving federal funding receive a minimum of 10% indirect rate, or they can negotiate a rate. If this guidance is followed, it will be a major policy win.
Yet we have a long way to go. Talking about terminology isn’t scintillating, but it’s critical to breaking the starvation cycle. Overhead costs aren’t the same as indirect, yet we conflate them. General operating support and capacity building—often seen as ways to help break the cycle—aren’t the same thing. Many nonprofits do not know the full costs associated with their programs, and many funders don’t understand nonprofit finance. Bridging the skill gap on both sides of the equation is critical.
Moreover, a single figure like the overhead rate is appealing because it makes comparison easy. Until nonprofits have better ways to communicate outcomes, we will continue to battle against the simplicity of a ratio. Finally, power dynamics between funders and nonprofits inhibit change; candidly, there aren’t strong forces pushing on philanthropy and government to change their practice. In the absence of such change, nonprofits are understandably worried about shifting their stance on overhead if their competitors do not (I do think there are steps that any nonprofit can take, though).
Nell: Part of what keeps the starvation cycle alive is that it is being fed, as you so clearly point out in your SSIR article, by both funders and nonprofit leaders. One of the things you were working on at Bridgespan was the Real Talk About Real Costs series of nonprofit leader and funder conversations. How effective was it to bring nonprofits and funders together to talk about these issues? And is that potential solution to the starvation cycle scalable?
Ann: Real Talk about Real Costs, sponsored by the Donors Forum with Bridgespan as a partner, brought together 300 leaders from nonprofits and philanthropy to wrestle with what good outcomes really cost. The event built upon a nine-month Community of Practice focused on “tackling the overhead challenge.” This interview has more about how Donors Forum decided to put the cost issue front and center. Another such effort is slated to begin in California in 2015.
In watching funder-nonprofit “mixed company” interactions, I was struck by how many funders expressed dissatisfaction with the grant-making status quo, yet frustrated that foundation trustees did not feel the same way. And I noticed how uncomfortable both funders and nonprofits were about having a tough conversation about full costs. At the event, we gave participants a role-reversal case study where a fictitious grantee and grant-maker had to discuss the terms of a grant; nonprofit attendees acted the part of the program officer and vice versa. In feedback surveys, the majority of comments focused on the discomfort and lack of knowledge they felt in talking about costs. Finding more ways for nonprofits and funders to wrestle with cost issues together would go a long way to building empathy and skills.
I don’t see a single scalable solution, but what feels most scalable as a starting point is a fundamentally different approach to communicating about costs: on websites, in collateral, and in conversations between nonprofit and funder. I believe that most funders can still make restricted grants without making unrealistic demands about how the funds are spent. For instance, what if funders asked “what type of capacity will you need to deliver on this grant?” vs. “what is the overhead for this project?” What if funders moved away from prescribed budget templates that don’t align with how nonprofits think about their resources? Even these seemingly small steps would go a long way to empowering nonprofits to communicate differently. Below I share a few specific ways I think nonprofits can help break the cycle.
Nell: The starvation cycle is just one example of the many ways we hold the nonprofit sector to a higher standard than we do the for-profit sector (costs for R&D, marketing, infrastructure, technology are taken as a given in the business world). Why does that discrepancy exist and how do we overcome it?
Ann: Overhead in the for-profit world—sales, general and administrative costs as a percentage of total sales—is 25% across all industries and 34% for service industries. The cruel irony of holding nonprofits to a much tougher standard is that donors often say that they do this because nonprofits ought to “run more efficiently, like a business.” Most people don’t know the overhead of businesses because profitability matters more.
Unlike businesses, nonprofits can’t report results in a single figure that makes apples-to-apples comparisons easy. One way to overcome this challenge is to move toward highlighting outcomes. I don’t mean standardizing outcomes (although efforts like Perform Well are very powerful), and I don’t mean doing away with financial indicators entirely. I mean moving from touting our overhead to sharing our program results. In an ideal world, nonprofits would be able to share not only their outcomes but also the costs associated with producing them.
I know this doesn’t happen overnight. Starting immediately, I would love to see more funders speak out in support of—and actually fund—these investments. And nonprofits have a role to play in shifting the conversation: by sharing for-profit overhead as a way to challenge assumptions; by taking down the overhead pie chart and other “we’re lean!” messaging from websites; and using systems like the Guidestar Exchange to share our goals and strategies in our own words.
Nell: You recently left the consulting/thought leader side of the sector (as a senior director at The Bridgespan Group) to work in the nonprofit trenches as COO of Habitat for Humanity Greater San Francisco. What are you learning as you work to turn theory about overcoming the starvation cycle into action inside a nonprofit organization?
Ann: I am learning that it is doable and reminded that it is hard. In the last few months, we have taken down the efficiency statement on our website (“87 cents of every dollar goes to helping families…”) and will soon to replace it with statements of outcomes we see for Habitat homeowners. We walked away from a $100K+ funding opportunity because the grant would have allowed a maximum of 10% for indirect costs, and we estimated that the compliance costs alone would have been 2-3 times that. The grant’s focus aligned well with a nascent program, so it was a tough decision.
Under our finance team’s leadership, we also implemented a time tracking system. We now have better information on how people spend their time and can compare actual versus what was allocated in the budget. We learned, for instance, that in the last quarter we spent more time on G&A than we’d projected. This makes sense: this summer a small team of board and staff, including myself, negotiated a lease for a new office space, then transitioned to managing the move out- and move-in process. I don’t think anyone would say that was a waste of time; finding a space that met our budget in the San Francisco real estate market has been a challenging but important task.
Next on the list is an internal conversation about Charity Navigator and the way we promote our four-star rating on our website. It will be a healthy debate. On the one hand, I appreciate the focus on accountability and transparency, and I’d be naïve if I thought we hadn’t received donations from donors who use these ratings. On the other hand, I have deep reservations about Charity Navigator’s financial health methodology, particularly in that it penalizes nonprofits with higher overhead regardless of context. If we invest to support our growth—spending time finding a new office in a tough market, or upgrading our HR systems to find and retrain the best staff—we ought not to feel embarrassed about that, nor be penalized for it.
I am fortunate to work with a board and staff who are open to these changes and debates. My hope is that our experiences can serve to keep my perspective about the starvation cycle grounded and productive.
Photo Credit: Habitat for Humanity Greater San Francisco
There is a fundamental error that nonprofit leaders make when recruiting new board members. And that is to be vague about the kind of board members they need. Nonprofit leaders often think in very general terms about the makeup of their board while ignoring their nonprofit’s specific needs. It then becomes almost impossible to get new recruits (let alone old board members) active or engaged because they are unclear about the unique role they should play in the organization.
A board matrix is a tool that many nonprofits use to analyze what traits their current board has and where the holes lie. Often the traits used include very general things like:
- Gender diversity
- Racial diversity
- Geographic representation (for national and regional organizations)
- General sought-after skills like marketing and fundraising expertise
- Access to vague networks, like “connections to people with deep pockets”
But this is the wrong way to think about who your board members should be.
To recruit the board you really need, you have to connect the skills, experience, and networks of your board to the specific goals of your long-term strategy.
Here are the steps to get there:
- Divide Your Strategic Plan Into Board Vs. Staff Roles
Take a hard look at each goal of your strategic plan and ask what the board needs to do versus what the staff needs to do to make that goal a reality. For example, if your nonprofit runs an in-school literacy program and your first goal is to grow the number of students by 50%, you probably need your board to open doors to school district decision-makers so that you can grow to additional schools and secure more district support. So at least one or two of your board members must have connections to school district leaders.
- Analyze Current Board Members
Once you’ve made a list of what you need from your board for each of your goals, add those elements to the top of your new board matrix. Make sure these are very specific skills, expertise areas, and networks. So for the example above, they would include things like: “Connections to School District Decision-Makers,” “Experience Growing Organizations,” and “Ability to Understand and Articulate Literacy Data.” At the end of the process, you should have 10-15 skills, expertise areas, or networks that your board must possess. Now list all of your current board members along the left side of the matrix and mark the characteristics that each member has.
- Recruit To Fill The Specific Holes
Once you’ve completed the matrix, you may see areas where your board falls short. Now you know exactly what kinds of board members you need on your board. Give this list of missing skills, expertise, and networks to your Board Recruitment Committee so they can find the specific people necessary to fill those holes.
- Give Each Board Member a Unique Job
Once you are clear about what you need from your board to deliver on your strategic plan, give each board member (current members and new recruits) a unique role to play. People function best when they are very clear about their specific role. If each individual member knows exactly what piece of the strategic plan is theirs to carry out, they will be much more engaged and active. So get specific: “We need you to secure meetings with district-level staff,” or “We need you to look at our growth model and ask hard questions.”
If you want a board that works for you, get specific about the kind of board you really need. To learn more about building a groundbreaking board, download the 10 Traits of a Groundbreaking Board book, or the How to Build a Groundbreaking Board webinar.
Photo Credit: Library of Congress
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