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Capacity Building

Creating Honest Conversations Between Nonprofits and Funders: An Interview With Eric Weinheimer

Eric WeinheimerIn today’s Social Velocity blog interview, I’m talking with Eric Weinheimer, President and CEO of Forefront, the only regional association that represents grantmakers, nonprofits, advisors, and social entrepreneurs. With 1,100 members in Illinois, Forefront provides education, advocacy, and research, and mobilizes its members around issues that are important to the nonprofit sector.

Prior to his current role, Eric was the CEO of The Cara Program, a nonprofit that provides comprehensive training, job placement, and support services to individuals who are homeless and struggling in poverty. Eric was selected as a member of the Emerging Leaders Program for the Chicago Council on Global Affairs and as a Chicago Community Trust Fellow. He was also appointed by Illinois Governor Pat Quinn to the Social Innovation, Entrepreneurship, and Enterprise Task Force. He serves on the Advisory Board for the Social Enterprise Initiative at The University of Chicago Booth School of Business and on the Board of Directors for the Oak Park-River Forest Community Foundation.

Nell: Forefront is the only statewide association that has both nonprofit and funder members. How does Forefront deal with the power dynamic that is so often present between grantors and grantees?

Eric: Forefront talks explicitly about the power dynamic in much of our programming and classes, specifically our annual Grantmakers Institute for new program officers. We have candid conversations with these grantmakers and present actual case studies to give them a better understanding of their power and unique position. We also discuss how others perceive them and their roles, and how those perceptions can impact their effectiveness.

Forefront also has a non-solicitation policy that prevents nonprofits and grantmakers from discussing specific requests or proposals with each other when they gather at Forefront. The spirit of that policy also extends to how we bring grantmakers and nonprofits together. When nonprofits and grantmakers meet at Forefront, there is an explicit goal or purpose related to an issue in their fields or in the sector. While the power dynamic still exists, putting the focus on a larger purpose rather than on money helps our members build trust, leading to more genuine and balanced relationships. We also make sure that grantmakers and nonprofits co-chair some of our affinity groups to ensure balanced perspectives.

Nell: One of Forefront’s biggest initiatives is Real Talk about Real Costs, a series of funder and nonprofit convenings (the first in the nation) to talk about funding the full costs of nonprofit organizations. What have you learned through this series both about how to encourage more effective conversations between nonprofits and funders and about how to better support strong nonprofit organizations?

Eric: In the conversation on Real Costs we’ve learned that it’s not about creating another resource or a toolkit. Its not about what grantmakers or nonprofits should or should not do. Rather, it’s about starting an honest conversation. There are so many grantmakers and nonprofits that haven’t had the opportunity to dig in and engage with this work, either independently or with feedback from their counterparts. Our value-add is to catalyze these conversations. Forefront’s role is to create the space for honest dialogue, mobilize our members around this issue, promote best practices, and curate and share the newest research. It’s a slow and gradual process, but it ultimately leads to change in awareness, understanding and behavior.

Nell: How far do you think the national social sector has come in terms of more effectively supporting strong nonprofits and building more transparent and effective funder/nonprofit relationships?

Eric: We’ve certainly made some progress in the last 15 years, but we have a long way to go. It’s encouraging to see more funders express interest in general operating support and capacity building. However, too often, funders’ still feel the need to be in control and prescribe certain solutions rather than engage communities for their feedback and ideas.

Likewise, nonprofits have become more transparent, but they are still too reluctant to admit to challenges or failures because of possible consequences to their funding. Funders could model this practice for the nonprofits much more than they currently do. Funder transparency is only in its infancy.

Nell: Your national counterpart, Independent Sector — a national membership association of nonprofits and funders — had a recent change in leadership with Dan Cardinali taking the helm. What would you like to see Independent Sector doing to move this work forward on the national stage?

Eric: Dan is terrific – smart, experienced, strategic and passionate. He will do a great job. Under his leadership, Independent Sector (IS) has a real opportunity to be the connective tissue for our sector and elevate the good work that is happening around the country. I would encourage Dan to focus on a few of the critical issues facing our sector, both internal and external. Whether it be real costs, transparency, the power dynamic, or policy and advocacy, IS can highlight and amplify where real progress is being achieved and help to transport those examples to other locations. Once new practices take hold in certain geographic locations, other regions will follow suit. Organizations are eager for strong leadership that informs, inspires and mobilizes them to action.

Photo Credit: Forefront

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The Right Questions to Ask A Potential Board Member

Recently, fundraising maven Kay Sprinkel Grace wrote a post on the GuideStar blog outlining four questions to ask prospective board members when interviewing them for board positions. While I heartily agree with her that nonprofit leaders should institute and follow a rigorous due diligence process in recruiting new board members (rather than just shoving anyone into an empty board seat), I disagree with most of the interview questions she proposes.

In my mind, Sprinkel Grace’s questions for prospective board members focus too much on what’s in it for the potential board member, rather than what value the board member could bring the nonprofit. And in this way, nonprofit leaders are again encouraged to present themselves on bended knee to those from whom they need support or help. I would much rather see nonprofit leaders interview board candidates by confidently asserting the value that their nonprofit creates and determining whether potential board members have something of value that could further that work.

Sprinkel Grace’s first question for prospective board members — “How passionate are you about our cause?”– is absolutely right and helpful in determining whether a prospective member has the requisite amount of interest in the cause they might be helping to lead. But her other three questions (“What personal aspirations of yours could be enhanced by serving on our board?”, “Of what importance to you is social interaction with other board members?,” and “How much time can you give us?”) all put the burden on the nonprofit leader to demonstrate the value a board position will bring to the prospective board member, rather than helping to discern whether the prospective board member will bring value to the nonprofit. For the most part, Sprinkel Grace’s questions are about what the nonprofit can do for the board member, not the other way around.

Instead nonprofit leaders should use questions like these to determine whether or not a prospective board member is a fit for the nonprofit:

In reading through our nonprofit’s strategic plan (or whatever background documents we gave you ahead of time) what things excite you?
This question provides an opportunity for you to judge 1) whether this board member demonstrates enough of an interest in the organization to have done their homework, and 2) whether your work elicits enough intellectual and/or emotional energy from them to fuel their future work on your behalf.

What specific skills, experience or networks do you think you could bring to the table in order to help us move forward on our goals? 
This question makes very clear that you expect something unique and specific from this prospective board member (just as you do with all of your board members), not just a warm body. But more importantly, this question helps you gauge how well this board member understands your work and your plans and how willing they are to get in the game. This question can also help to get the right board member really excited about how their unique contribution right from the start.

How do you think you might go about meeting our give/get requirement?
I know it’s controversial (and I’ve talked about it manymany times before), but I strongly believe that you have to connect every single board member to the financial engine of your nonprofit. If you have a specific give/get requirement for your board (and I hope you do!), then you want to know from the outset how this prospective board member feels about it, and how they might approach it.

If we are going to create strong, effective, sustainable nonprofit organizations, we have to stop begging board members to join. A great board is created when you recruit people who have the specific skills, experience and networks you need to deliver on your mission and you effectively engage them to do the work.

If you want to learn more about creating an effective, engaged board, download the “10 Traits of a Groundbreaking Board” book.

Photo Credit: Ethan

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3 Questions To Regularly Ask Your Development Director

Beyond the mistakes nonprofit leaders often make in staffing their fundraising function, the relationship itself between a nonprofit executive director and the development director (or whatever you call the staff person in charge of bringing money in the door) can often be fraught.

In an ideal world, the executive director and development director have a symbiotic relationship: the development director creates the overall annual financial strategy and regularly updates the executive director on where the organization is on achieving that plan, while the executive director works with higher level money prospects and marshals the board to achieve their fundraising responsibilities.

But we don’t always live in an ideal world. And sometimes, as was the case in a recent coaching session I had with a client, an executive director is in the dark about how the organization is progressing on their money raising efforts.

If that is the case in your nonprofit, here are some key questions to ask your head money raiser:

  1. How does the money we’ve brought in to date compare along each revenue line goal? 
    When you create an annual financing plan for your nonprofit (and if you don’t, get on it), you know how much of each type of revenue (individuals, foundations, corporations, government, and/or earned income) you want to come in this year. Then, at any point during the year (and at the very least monthly) you should be asking your chief money raiser, what the organization has actually raised to date for each of those categories. For example, if you are 25% through your fiscal year, but you’ve only raised 5% of your individual revenue goal for the year, that may be a red flag. At the very least it’s cause for conversation with your development director. Perhaps it’s a timing issue (you have a big fundraising campaign closer to the end of the year), and that’s fine. But as the nonprofit leader, you should be able to ask (and get a clear answer to) where the organization’s revenue raising efforts are at any point in time.

  2. How do the numbers and types of gifts we projected compare to what’s actually happening? 
    It’s not enough for a money raiser to have an overall revenue goal for each type of revenue, he also needs to break each of those revenue types down into the number and level of contributed gifts (from individuals), grants (from foundations), or contracts (from government), etc. that will contribute to each revenue line’s overall goal. For example, if your nonprofit has a $250,000 individual donor revenue goal, your development director needs to break that down into the various levels of donors that will make up that $250,000 over the course of the year. You may have both major (one-to-one relationships) and smaller (many-to-one relationships) individual donors. He should project how many donors at each level he will need to hit each part of the individual donor goal. Then he can report to you (again, on at least a monthly basis) how that is progressing. A simple example of such a report (he would fill in the pink areas prior to each update) might look like this:
    And he should create a similar report for the other revenue lines (corporations, government, foundations, etc.) that your nonprofit pursues. The actuals will never completely match what you projected, but this exercise gives you a way to uncover and deal with surprises as they come.

  3. What keeps you up at night?
    Finally, the raw data is not enough. You also want to understand where your development director sees real problems. When you regularly ask this question she may reveal that the board  is not opening enough doors, or her database is inadequate, or the website is not where it needs to be, or her grantwriter needs more help. Then you can strategize together how to overcome those hurdles.

A regular, honest, and data-driven conversation between executive director and development director is the best route to fewer money surprises. And without it, a nonprofit has little hope of achieving financial sustainability .

Photo Credit: Images

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When Nonprofit Collaboration Actually Makes Sense

Let’s talk about nonprofit collaboration for a second. Funders and thought leaders often extol the virtues of collaboration among nonprofit organizations as a way to maximize increasingly limited resources. But pushing nonprofits to blindly collaborate, just for the sake of saving some money (“Can’t you all just work together?”), is really doing no one any favors.

Peter Panepento’s recent article in the Stanford Social Innovation Review, is among the latest of these calls for more collaboration. In fact he explains a sort of magic he sees in collaborations that are forged between quite disparate groups. He argues:

“At a time when nonprofits are getting squeezed by government budget cuts and facing increased need among those they serve, many groups are realizing that they cannot achieve their missions without building new alliances…Interestingly, many of the most successful collaborations have been between groups working on very different missions, or between nonprofits and groups outside the nonprofit field.”

Indeed, innovative collaborations can be very exciting. But we must make sure that when collaboration happens, it follows a thoughtful, strategic approach, otherwise it can come at quite a cost. We can’t just encourage nonprofit leaders to “collaborate more” and call it a day. There are very specific times when, and very specific ways to approach, collaborations that make sense.

First, it’s important to make a distinction between two very different types of collaboration:

  1. Little “c” collaboration where a nonprofit coordinates with other organizations to deliver programs and services and/or share best practices, vs.
  2. Big “C” Collaboration where nonprofit leadership analyzes their external marketplace and forges organization-wide, strategic alliances with other entities that can help move the nonprofit’s social change goals forward.

In their article “The Networked Nonprofit,” Jane Wei-Skillern & Sonia Marciano articulated this difference:

“Many traditional nonprofits form short-term partnerships with superficially similar organizations to execute a single program, exchange a few resources, or attract funding. In contrast, networked nonprofits forge long-term partnerships with trusted peers to tackle their missions on multiple fronts.”

Collaboration with a Big C is a strategic way for nonprofits to operate, but it necessitates that nonprofit leaders have a clear understanding of their individual nonprofit’s core competencies, target audiences, and desired social change outcomes (through a Marketplace Map and Theory of Change), so that they can be very clear about which entities they should Collaborate with in order to move those outcomes forward. And instead of viewing their nonprofit as a single organization, nonprofit leaders can begin to think of their nonprofit’s work as part of a larger network of social change.

So to Collaborate effectively, nonprofit leadership must embark on a 3-part process:

  1. Get clear about the nonprofit’s core competencies (what you do better than anyone else), target populations (who you seek to benefit or influence), and desired social change outcomes (the change you’d like to see in the world). This can be done by creating a Theory of Change.
  2. Map your external marketplace to determine the potential Collaborators out there and where and when it might make sense to forge strategic alliances.
  3. Finally, because these need to be organization-wide alliances, you must engage your board, not just your staff, in creating high-level relationships with those with whom you’d like to Collaborate.

In other words, in order to move your mission forward through Collaboration, you must better understand both your nonprofit and your external environment. By figuring out exactly what your nonprofit brings to the table that is different from and additive to what potential Collaborators bring to the table, you can more successfully develop partnerships with more high-level decision-makers in the nonprofit, government, and/or private industries that affect the social change you seek. And isn’t that what it is ultimately all about?

I’m all for Collaboration — when it makes strategic sense. But the only way Collaboration works is when a nonprofit gets very clear about what change they want and which entities out there can help achieve it.

Photo Credit: Joseph Stalin, Franklin D. Roosevelt, and Winston Churchill on the portico of the Russian Embassy during the Tehran Conference to discuss the European Theatre in 1943, Wikimedia.

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Planning for Nonprofit Success: An Interview With David Grant

In this month’s Social Velocity interview, I’m talking with David Grant.

David is the former President and CEO of the Geraldine R. Dodge Foundation and past chair of the Council of New Jersey Grantmakers. He now consults nationally with nonprofits, foundations, and schools and is the author of The Social Profit Handbook: The Essential Guide to Setting Goals, Assessing Outcomes, and Achieving Success for Mission-Driven Organizations.

He is also a member of the Leap Ambassadors, a 100+ community of nonprofit thought leaders, progressive funders, policy makers, and instigators who believe “performance matters.”

You can read other interviews in the Social Velocity interview series here.

Nell: Your book, The Social Profit Handbook, is about assessment, but your central chapter is titled “Mission Time.” Is this akin to the time spent on research and development in for-profit companies?

David: Yes, it is. I would compare it to any time set aside for strategic thinking and reflection on what we are learning from experience. I invoke Steven Covey’s famous Urgent/Important matrix and equate mission time with “Quadrant II,” where we deal with important matters when they are not urgent.

Effective nonprofit leaders often think strategically. The case I make for mission time in my book is that this should be an ongoing collective exercise. I believe there should be more time set aside for staffs and boards, singly and together, to be much more specific about what success will look like for their organization, so they can plan backwards from that shared vision.

I think it’s the most important practice nonprofit organizations can adopt if they are serious about getting better at what they do – which is creating social profit. At its best, I think mission time also includes the voices and perspectives of the people being served by a nonprofit organization. Can you imagine a company conducting R&D without checking in with clients and customers?

Nell: “Planning backwards” is another phrase you use frequently in the book. Is that what you are saying should happen during mission time? And if this practice is as important as R&D is in the for-profit sector, why don’t we see more of it in the social sector?

David: Those are great questions. Let me start with “planning backwards.” I see this phrase as critical to the practice of formative assessment – the kind of assessment whose purpose is to improve performance, not audit it or judge it. I think too many of us view assessment as summative; we think it comes at the end and that somebody gives us a grade. The central argument of my book is that when an organization takes assessment into its own hands, embraces its formative purpose, makes time for it and gets good at planning backwards, they not only improve their workplace culture, they go much further towards fulfilling their mission. In short, they create more social profit.

But here’s where the challenges of assessing and measuring success come in. If you describe what matters most to you – things like increasing a young person’s sense of hope and confidence; improving relationships and building trust between former adversaries; inducing an aesthetic response through great art; inspiring a long-term commitment to equity or a healthy environmental – people say, “You can’t measure that.”

What they are really saying is, “there is no standard unit of measure that applies to that.” Ok, fair enough – that’s why we need to get good at qualitative assessment. We need to be able to respond with confidence, “If you can describe it, you can measure it.” That’s why I spend so much time in my book talking about qualitative assessment rubrics as effective tools for this process. The rubric invites us to describe as specifically as possible along a spectrum what we mean by success, in relation to our criteria for success. It is as if we were creating the test we want to give ourselves a year from now, and we can plan backwards from how we want to score on that test. You can see how that can’t happen without mission time.

Your other question about why we don’t see more mission time, more planning backwards, and more rubrics in the nonprofit sector is one I think about a lot. I don’t think there is a single answer. Part of it is mindset – we tend to focus on programs and direct mission-based actions in the world instead of on building strong organizations and internal practices. Part of it is resources – we are stretched so thin that it is hard to get out of a mode of urgency. Part of it is our habits – we are used to certain kinds of meetings that often don’t make enough room for group education, reflection, and decision-making. Part of it is funding patterns – donors prefer program support to general operating or infrastructure support.

Ironically, I believe mission time and planning backwards make their own cases. But we have to take the time first in order for the case to be made.

Nell: In your previous role as CEO of the Geraldine R. Dodge Foundation, you launched a capacity building initiative for your grantees. What results did you see from doing so and what do you think holds other foundations back from doing something similar?

David: It’s interesting you should ask that this week, because even though I’ve been gone from the Dodge Foundation for seven years, I just saw something I would attribute, at least in part, to those capacity building efforts. I was working with a national gathering of arts service organizations, and we were examining several of their strategic plans to see how they addressed the concept of sustainability. The first two defined it narrowly as financial stability. But then a New Jersey-based organization, a long-time Dodge grantee, defined it holistically, citing elements of governance, human resources, assessment systems, and ongoing capacity building as critical to sustainability, in addition to maintaining financial vitality. I don’t think it was a coincidence that this organization, alone among this national group, had just completed a successful, million dollar capital campaign.

I remember when I was still reading proposals that the groups that participated in our capacity building workshops were much clearer about what they were trying to do, more straightforward about the challenges they faced, and more cognizant of their own needs as a vehicle that carried the pursuit of their mission over time.

What holds foundations back from capacity building? Well, I imagine some might feel it is too indirect as a social investment; others might worry this kind of support carries with it a promise of ongoing funding. All I can say is that I think Dodge got more bang for our bucks in this part of our funding portfolio than in any other.

Nell: One of the projects you are working on is Artists Thrive, which is about developing assessment tools for the arts. What are the goals of this project and how could it be a model for other social issue areas?

David: The Artists Thrive project is the brainchild of the Emily Hall Tremaine Foundation in New Haven, CT and its grantees. It started with creating an assessment tool for those who work with artists – essentially the grantees in Tremaine’s program called “Marketplace Empowerment of Artists.” But it quickly expanded to consider a much larger system and asked: “What would it look like to have thriving artists in thriving communities?” and “Who would need to do what to achieve that vision?”

A group of six arts leaders have been running with these questions for over a year, with me in a support role. We have launched a series of rubrics, with the spectrum of success defined from bottom to top as “Artists Give Up,” “Artists Struggle,” “Artists Survive,” and “Artists Thrive.” The initial rubric, as I said, looked at the mental models and the actions of those who work with artists. The second looked at the range of attitudes and actions of artists themselves. The third will be for funders, describing how different philanthropic practices affect artists and their communities. Those are the front-line players, so to speak, but we plan to look at how others can contribute to the realization of the thriving artists/thriving communities vision as well – mayors, corporate leaders, planning commissions, educators, etc.

As far as models go, I think we already have some fantastic models of rubrics that deal with issues on a national scale, like the Whole Measures for Community Food Systems, which I describe in my book, or more recently, the Whole Measures for Urban Conservation (2017), which is described on The Nature Conservancy’s website..

Nell: Our country is currently divided along many lines, however in your work as a consultant you often lead groups made up of people that bridge these divides in order to create change in their communities. What are some examples of change you have seen recently in your work? And more broadly, what gives you hope in these challenging times?

David: I wish I were doing more of the kind of work you mention. In fact, I had this fantasy during the 2016 primary election cycle that one of the candidates would brandish my book on stage during a debate and say, “What this country needs is a good rubric!”

But I did see an exercise in cooperation recently that I found really heartening. It was in Delaware, where members of the Delaware Alliance for Nonprofit Advancement (DANA) and the Delaware Grantmakers Association (DGA) created a working group to write a rubric titled, “Grantmaker and Nonprofit Relationship for Creating Community Impact.” The title identifies their shared purpose — why their relationship matters.

The DANA/DGA draft rubric evokes a spectrum of performance (the columns of the rubric) in four short words: “Transactional,” “Engaged,” “Partnership,” and “Transformative.” As far as criteria to be measured along that spectrum (the rows of the rubric), the task force went to the critical dimensions of the relationship: the Alignment of beliefs in the purpose of the relationship; the Mutuality of feeling about its importance; the levels of Trust and Transparency in their interactions; and the quality of their Communication. Given that structure, it is no surprise that the draft rubric is both honest about disappointments and aspirational in its description of the possible.

This is an example of what gives me hope whenever I see it – systems thinking. As David Peter Stroh writes, “In conventional thinking, in order to optimize the whole, we must optimize the parts. In systems thinking, in order to optimize the whole, we must improve the relationships among the parts.” It strikes me that at the highest level of the DNA/DGA rubric, it will not be just a relationship that has been transformed; it will be the State of Delaware. All from carving out the mission time and learning how to use it!

Photo Credit: Social Profit Handbook

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3 Mistakes Nonprofits Make in Fundraising Staff

Before a nonprofit can achieve financial sustainability, the nonprofit leader has to figure out how to staff their money raising function effectively. When I conduct a Financial Model Assessment for a client, one of the sections of my final report is always focused on the nonprofit’s staffing structure and how that contributes to or detracts from the nonprofit’s ability to attract money. More often than not, a nonprofit that is struggling to bring enough money in the door is not thinking effectively about how they staff the money function.

And it typically boils down to three particular mistakes that a nonprofit’s leadership is making. These are:

1. There Is No Financing Strategy
You can’t expect to effectively staff your money raising function if you are not thinking about money in a strategic and holistic way. The very first step in structuring an effective money-raising staff is for a nonprofit’s leadership to figure out their organization’s financial model — how money should flow into and out of the organization. First you must assess what money-raising strategies fit best with your mission and core competencies. And then you need to develop a long-term financing strategy that is directly tied to the goals of your strategic plan. You can’t expect to hire people who will magically make money appear. Effective fundraisers must be driven by a smart money plan.

2. No Single Person Is In Charge of Money
Once you figure out your long-term financing strategy, you need to find (or promote from within) a person to oversee the entire money function of the organization. To truly use money as a tool, you can’t hire someone who can just write foundation grants, or someone who can just work with individual donors, or someone who can just secure government contracts. You need a single person who is thinking 100% of the time about all the ways money flows to your nonprofit. And make sure you offer enough salary to attract and retain a rockstar. It amazes me how many nonprofits expect to entice a great fundraiser by offering a salary that is comparable to someone with only a few years of experience. If you don’t have the current budget to pay a market rate, raise capacity capital to fund the first 1-2 years of the position. Once you have a great money raiser up and running, he will not only raise his own salary, but also grow your nonprofit’s overall financial engine.

3. Money Doesn’t Pervade Everyone and Everything
Finally, once you have a financing strategy and the right person to lead that strategy, then you need get everyone in the organization bought into and contributing (even in a small way) to its success — this is sometimes called creating a “culture of philanthropy.” But I would instead call it creating a “culture of mission financing,” which means every single person in the organization embraces the fact that in order to succeed in your mission, you must effectively finance that mission.  Money troubles often happen when nonprofit leadership offloads all money-raising responsibility to the Development Director. You must make sure that everyone in the organization (board and staff) understand their role in bringing money in the door. Create a culture where a staff member who doesn’t have dollar goals in her job description understands that giving donor tours, providing program outcome data, or writing thank you notes are critical to keeping the organization going. And make sure your board is trained in fundraising, has countless ideas for how each of them can contribute to the financial engine, meets a give/get requirement, and achieves specific individual and full board money goals.

How you staff your nonprofit’s money-raising function is directly tied to how much money you will bring in the door. Therefore you must create a smart financing strategy, hire a staff leader to execute on that strategy, and create a culture of mission financing that ensures everyone plays a role in the financial engine.

If you need help figuring out what’s holding your nonprofit back from financial sustainability, check out the Financial Model Assessment I provide my clients.

Photo Credit: Tax Credits

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Understanding The Full Costs of Nonprofits: An Interview with Michael Etzel

In this month’s Social Velocity interview, I’m talking with Michael Etzel. Michael is a partner in The Bridgespan Group, a global nonprofit organization that consults to nonprofits and philanthropists, provides leadership development support, and develops and shares insights — all with the goal of scaling social impact.

Since joining Bridgespan in 2006, Michael has focused on effectiveness across the full spectrum of social innovation financing, advising corporate, institutional, and family philanthropists and investors. Much of Michael’s work explores what it takes to use tools of innovative finance and impact investing to solve pressing social problems. His work and research in philanthropy also focuses on the question of what it takes to deliver results as a new approach to ending the nonprofit starvation cycle.

You can read other interviews in the Social Velocity interview series here.

Nell: In your research and writing you have focused a lot on what you call “Pay-What-It-Takes-Philanthropy,” the radical idea that different nonprofit solutions have different business models and thus require different costs and investments. This concept is so accepted in the for-profit world that it is a truism, but why is it a radical idea for nonprofit and philanthropic leaders?

Michael: It’s worth pausing for a moment to reflect on why business models and capabilities matter. Every nonprofit operates with an underlying business model and set of capabilities critical for program delivery. Failure to understand an organization’s business model frequently leads to underinvestment in core capabilities, and, as one program officer put it, “a hollowing out of civil society institutions.” We can’t have resilient, durable civil society organizations that deliver successful programs unless they operate from a position of financial strength.

As you highlight, segmentation and analysis of comparable performance data is common practice in the for-profit world. Leaders like Clara Miller, president of The Heron Foundation and former CEO of the Nonprofit Finance Fund, have long called for this kind of thinking in the social sector. But this type of comparison requires transparent and consistent data, something hard to come by. As one nonprofit executive reminded me, “If you think you can analyze a nonprofit through IRS 990 filings, you are in outer space.”

Yet, I wouldn’t say this a radical idea. Organizations like DataArts and CoMetrics show how this is possible. For example, DataArts gathers a variety of comparable revenue, cost, and performance data for arts and cultural organizations, and provides tools for reviewing that data. This provides grantees and grant makers with actionable data to inform management or funding decisions with an eye to effectiveness and efficiency. CoMetrics addresses a more diverse set of enterprises, providing software platforms and tools that enable those enterprises to collect, display, and compare financial, operational, and impact data against their peers. This bottom-up approach gathers data across organizations running the same type of business in the same field to form groups relevant for comparative assessment and learning.

Bridgespan’s preliminary analysis to date has shown that different types of nonprofit organizations have different cost structures based on their business model. Segmenting nonprofits by business model can help us compare similar organizations. When it comes to indirect costs, for example, nonprofit research labs have a median indirect cost rate of 63%, nearly two and a half times the 25% median rate of direct service organizations.

We plan to push ahead this year to refine and deepen our understanding of segmentation and how it applies to nonprofit cost structures and capital needs. Having this information will benefit funders and grantees alike when it comes to funding discussions.

Nell: You work with both nonprofit and philanthropic leaders, so you likely see both sides of this dysfunction. What do you think it will take to move the field to a place where those with potential solutions to social problems have enough and the right kinds of money to see their solutions come to fruition?

Michael: Nonprofits exist in a complicated marketplace, seeking capital from a broad range of funders. As in any marketplace, some influential market makers set the rules. The practice of setting limits on indirect costs in project grants to nonprofits/NGOs has its antecedents in the US government’s approach to funding R&D at universities during the post-World War II era. The federal government has changed practice dramatically since 1958, embracing the “fair share” approach—that federal agencies pay their fair share of true costs, including indirect costs.

Among private foundations, indirect cost rate policies have been common for decades. A RAND report from the 1980s captured the variety of policies at that time: “many foundations customarily pay full indirect cost as budgeted in a proposal. Other foundations may pay only a portion of… or specify a cap on the support of indirect costs.” More recently, our research has shown that many large foundations set a cap of 15% or lower on indirect costs. Yet, among the 20 large nonprofits we sampled, indirect costs comprised between 21% and 89% of total costs, with the median at 40%.

I offer this history because I see the indirect cost conversation changing. For decades, much of this conversation has been driven by nonprofit and NGO leaders’ concerns about caps on indirect cost reimbursement. But funders have begun to engage more deeply in this conversation over the last several years. In 2013, Forefront (formerly Donors Forum) convened a cross section of staff from smaller Midwest foundations to discuss barriers and potential solutions to funding indirect costs. In 2015, the three California Regional Associations of Grantmakers launched the Real Cost Project (now the Full Cost Project) with the dual goals of increasing the number of funders providing real-cost funding and building the skills and capacity of grantmakers.

Having philanthropic leaders at the table is important to overcoming the reality of power dynamics. In the same breath, it’s also important to see this issue for what it is—a complex systems issue. Acknowledging this complexity helps approach this issue from a place of empathy for funders that want to do the right thing, and nonprofits that want to own and manage the costs of delivering impact.

Funders have the opportunity to ask grantees their true costs of programs and to be prepared to pay their fair share of the operational and financial support it takes to deliver those programs. Meanwhile nonprofits can focus on knowing their costs and advocating for them. Funders cannot pay their fair share if grantees don’t tell them what it is!

Nell: Beyond researching and consulting on these topics, you also serve on the board of two nonprofit organizations. What has been your on-the-ground experience as a board member trying to put these concepts to practice?

Michael: Creating space for a conversation among peer board members has been important in establishing a shared understanding of the issues—and why sometimes the executive director very rightly chooses to say “no” to a grant that doesn’t cover true costs.

The reality of this “complex marketplace” also hits home—there is no one-size-fits-all solution. That puts a big burden on the executive director and finance team to effectively report and manage costs.

Photo Credit: The Bridgespan Group

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10 Great Social Innovation Reads: April 2017

April saw a debate about whether or not crowdfunding is transforming philanthropy, critiques of Harvard Business School, a report on the lack of philanthropy in the Deep South, a first-person account of the effects of founder’s syndrome, and tools to help more funders engage in advocacy. Add to that a new Supreme Court Justice, some new data about fundraising, and two fascinating new books, and April was a very interesting month in the world of social change.

Below are my 10 favorite reads about nonprofits and philanthropy in April, but feel free to add to the list in the comments. And, as always, for a longer list, follow me on Twitter @nedgington.

You can also see past months’ 10 Great Reads lists here.

  1. The dramatic growth of person-to-person crowdfunding efforts may be fundamentally transforming philanthropy argued Ben Paynter in an interesting long read in FastCompany. As he puts it: “[This] vast pool of money [is] fundamentally shifting who is funding charitable work and how that work gets done.” But Eduardo Andino would seem to disagree. Writing in Philanthropy Daily he argues that crowdfunding is not all that different or disruptive: “As has always been the case, Americans give money when they see an organization with a mission they believe in or a person whose need moves them. GoFundMe simply allows more Americans to encounter more people in need of immediate assistance than ever before.”

  2. A new report on the state of philanthropy in the Deep South showed the dramatic discrepancy in per capita funding there versus other areas of the country. As Ruth McCambridge from The Nonprofit Quarterly described the findings of the report: “Funders do not invest in homegrown power-building efforts in the Black Belt because they are not drawn in the image of the more-built-up grantees they know well and favor.”

  3. Now is definitely the time for more philanthropists to engage in advocacy, and to help in that effort The Foundation Center released a suite of tools for funders interested in advocacy collaborations.

  4. Two new (and diametrically opposed) books came out in April. First, Duff McDonald’s The Golden Passport (reviewed by Andrew Ross Sorkin of The New York Times) took a hard look at Harvard Business School, which McDonald argued bred a greedy generation of corporate leaders. And for a completely opposite worldview, check out the new edition of The Power of Kindness: The Unexpected Benefits of Leading a Compassionate Life by Piero Ferrucci (reviewed by Mirielle Clifford on the PhilanTopic blog), which could be a balm for our divisive times.

  5. Linda Wood, Senior Director of Leadership Initiatives at the Haas Jr. Fund, encouraged other foundations to invest in the capacity not just of individual organizations, but also larger social movements. As she put it: “We need to be more attentive to the interplay between the strength and agility of leaders and organizations and the dynamics of their broader movements.” And Patrick Guerriero discussed the evolution of the social movement that resulted in marriage equality.

  6. I think I could probably very happily spend hours digging into Pew Research data. It is fascinating stuff, especially their recent 10 demographic trends shaping the U.S. and the world in 2017.

  7. Speaking of data, there was new fundraising data on donor retention and how more effective an in-person (versus email) solicitation is.

  8. An anonymous nonprofit staff member in the United Kingdom wrote a scathing critique in The Guardian of their nonprofit’s founder who has stayed at the organization too long.

  9. April saw the nomination, confirmation, and swearing in of a new Justice on the Supreme Court, and Michael Wyland provided an analysis of what the implications of a court with Justice Gorsuch could mean for the nonprofit sector.

  10. And finally, if you are feeling a bit overwhelmed by these challenging times, look no further than Steven Pressfield who wrote: “You were born for adversity. It’s in your DNA as much as it’s in the DNA of a shark or an eagle or a lion…Our stubby little ancestors left us not just the ability to endure adversity, but the capacity to thrive under conditions of adversity.” Yes!

Photo Credit: Andy Roberts

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