Almost two years ago three nonprofit rating organizations launched the Overhead Myth campaign aimed at eradicating “the false conception that financial ratios are the sole indicator of nonprofit performance.” Call me an optimist, but I think it might be working. I see more nonprofit leaders and funders discussing the radical idea that overhead might not be a bad thing. We still have a long way to go, but perhaps there is progress.
The bad news, however, is that the Overhead Myth is only one of many (way too many) destructive nonprofit myths. So in this new year, let’s look at those additional myths that hold the nonprofit sector back.
As we all know, a myth is a story that everyone believes, but is actually not true. Here are the 5 most egregious myths I see in the nonprofit sector:
- Good Nonprofits Don’t Make a Profit
For some reason it is unseemly for a nonprofit to have more money than they immediately need. The best a nonprofit should hope for is to break even, and if they do run a profit, they should not be fundraising. To the contrary, a nonprofit with operating reserves can invest in a more sustainable organization, conduct evaluations to make sure their solution is the best one, recruit a highly competent staff, and weather economic fluctuations. For a donor it is far better to invest in an organization with the people and systems necessary to effectively tackle a social problem than an organization that is barely getting by. The best nonprofits are those that create a financial model that allows them the money mix (revenue, capital, reserves) necessary to make the best decisions and invest where and when they must.
- There Are Too Many Nonprofits
I’m so tired of the refrain (mostly by funders) that there are “too many” nonprofits. Does anyone complain about how many tech startups there are? This myth comes from the fact that the sector is undercapitalized which causes organizations to compete for scarce resources. So let’s fix that problem instead. To be sure, there are times when it makes sense to bring two nonprofits that address similar needs together in order to save costs, but that’s usually the exception not the rule. The process of merging two organizations is itself incredibly time-intensive and costly, and, honestly, rarely do funders invest the amount of resources required to ensure a successful merger. Every nonprofit should regularly assess their Theory of Change and how they fit into the external market place of social problems and competitors working on similar problems. If a nonprofit finds that they are no longer adding unique value to that marketplace, then they should reorganize, merge, or disband, whichever makes most strategic sense.
- Nonprofits, Unlike Businesses, Are Inefficient
This myth takes many forms: “nonprofits are too slow,” “nonprofits should sell more products or services”, “nonprofits should run more like a startup,” and the list goes on. The underlying assumption is that the for-profit world is inherently smarter, more strategic, more nimble and more effective. But the truth is that all three sectors (business, government, and nonprofit) have their stars (like Apple), their screwups (like Lehman Brothers) and the multitude in between. Inefficiency in the nonprofit sector is merely a symptom of a larger problem, which is the persistent lack of adequate capital to fund enough of the right staff, technology, systems, evaluation, marketing required to address the intractable problems nonprofits are trying to solve. Let’s talk about that instead.
- Nonprofits Are Outside the Economy
This is the myth that nonprofits are “nice to have” and make everyone feel good, but are not a critical component of our lives or our economic system. But the fact is that the nonprofit sector employs 10% of the U.S. workforce and accounts for 5% of GDP. And the number of nonprofits grew 25% from 2001-2011, while the number of businesses only grew by 0.5%. As government continues to slough off services to nonprofits, those numbers will only continue to grow. The nonprofit sector is not tangential to the economy, but rather an instrumental part of it.
- Nonprofits Have No Role In Politics
501(c) 3 organizations have long been told to stay out of politics. The myth is that charity is too noble to be mired in the mess of pushing for political change (Robert Egger has written extensively on this). But the fact is that simply providing services is no longer enough to solve the underlying problems. Nonprofits are increasingly recognizing that they can no longer sit by and watch their client load increase while disequilibrium grows. Nonprofits must (and already are) advocate for changes to the ineffective systems that produce the need for their existence.
Being mired in the demoralizing and debilitating cloak of these myths wears the nonprofit sector down. We must follow the Overhead Myth’s example and start uncovering the other myths that hold the sector back. Because the power of a myth is greatly diminished when we openly admit that the myth is only that — a myth.
Photo Credit: We Shall Overcome, Rowland Scherman, National Archives
There was a bit of a dust up in the (social change) Twitterverse yesterday. Ryan Seashore from CodeNow wrote a post on TechCrunch arguing that the majority of nonprofits are “broken,” and should act more like for-profit startups in order to create impact. The post follows a similar line of other arguments over the years (most recently Carrie Rich’s argument that nonprofits should all become social enterprises) that the nonprofit form is so dysfunctional that it should be tossed out. But there is a real danger to this idea of abandoning the nonprofit sector.
Debates like these are crucial not because of the entertainment value (although I do love good drama), but because they force us to uncover and analyze our underlying assumptions. Yesterday’s debate, and others like it, which take the nonprofit sector to task for being inefficient, broken, unbusinesslike, lay bare some false and destructive assumptions about nonprofits and about social change in general.
Ryan sees nonprofits as aging dinosaurs with “too much overhead, too much bureaucracy, and a lack of focus on impact. Everything feels slow.” But for real change to happen you have to integrate the institutions that already exist with the networks, or “startups,” that want change, as I discussed in an earlier post. The two (institutions and networks) must work together. Ryan’s argument that nonprofits need to be more like startups is fundamentally flawed because if everything were a startup, change wouldn’t happen.
To quote David Brooks from a recent The New York Times piece, “Post-Internet, many people assume that big problems can be solved by swarms of small, loosely networked…social entrepreneurs. Big hierarchical organizations are dinosaurs…[but] this is misguided…Public and nonprofit management, the stuff that gets derided as ‘overhead,’ really matters. It’s as important to attract talent to health ministries as it is to spend money on specific medicines.”
To be sure, in his blog post Ryan outlines some areas where many nonprofits could improve (becoming more focused, continually innovating, diversifying revenue sources, thinking big), but these are best practices that any organization (startup or established institution, for-profit or nonprofit) should embrace. It is simplistic and misguided to think, as Ryan writes, that “the nonprofit world must embrace the nimble ways of successful startups to become more effective, and do better.” I know its not sexy, but real social change is much more complex than startup versus institution.
So let’s move on from this either/or mentality. Effective social change requires institutions AND networks, it requires Millennials AND Boomers, it requires startups AND established organizations, it requires public AND private money (and lots of it), and it requires for-profit and nonprofit solutions. We are wasting our time (and our keystrokes) by creating false dichotomies. Let’s work together toward strategic, sustainable social change.
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
Today I’m focusing on social change books. I know, books are so over. We have become a society that is about fewer and fewer words, or really, fewer and fewer characters. But there is something to be said for spending 200+ pages really diving into a topic, exploring it and letting it change your point of view. Below are my favorite books in the social change realm.
I have reviewed some of these books on the blog, some I have not. Some are really old, others are brand new. And some are not about social change at all, yet I included them because I think they hold value for social changemakers.
Each of these books has helped me see my work and the work of social change in new ways, even if that was far from what the author intended. Perhaps you will think so too.
Here are my favorite social change books:
- The War of Art (my review is here)
- Leap of Reason: Managing to Outcomes in an Era of Scarcity (my review is here)
- Working Hard & Working Well (my review is here)
- Lean In (my review is here)
- Social Media for Social Good (my review is here)
- How to Change the World: Social Entrepreneurs and the Power of New Ideas
- Beyond Fundraising: New Strategies for Nonprofit Innovation and Investment
- Work on Purpose (my review is here)
- Real Change Leaders
- Quiet: The Power of Introverts in a World That Can’t Stop Talking (my review is here)
- The Mesh: Why The Future of Business is Sharing
- The Big Enough Company (my review is here)
- The Networked Nonprofit
- Measuring the Networked Nonprofit
- Social Change Anytime Everywhere
- Good to Great and the Social Sectors
- Making Good (my review is here)
What are your favorite social change books? Please add to the list in the comments below.
Photo Credit: CBS Television
We spend a lot of time in this country talking about innovation, particularly on the East and West coasts. But I was reminded recently that innovation can happen anywhere, even in the “fly over states” (which is such an obnoxious term, by the way).
I was in South Boston, Virginia last week to deliver a Financial Model Assessment to the Halifax Educational Foundation. They fund the Southern Virginia Higher Education Center (SVHEC), which is a fascinating model of higher education innovation.
Almost 30 years ago community leaders in this tiny, rural town 75 miles from Raleigh, North Carolina realized that their primary industries of tobacco, textiles and furniture were fading fast. In order to revamp their local economy, they decided to create a hybrid higher education institution (part community college, part incubator, part workforce development site, part educational broker) that would prepare the next generation workforce.
The SVHEC renovated two 150-year old abandoned tobacco warehouses (one to LEED certification) into 100,000 square feet of high-tech classrooms and labs featuring advanced machining and simulation technology focused on nursing, advanced manufacturing, 3-D modeling, and the business of art and design. Their goal is “to re-tool southern Virginia’s rural workforce for jobs in the New Economy.”
They have created an example of what innovative higher education can look like. The video below describes the center, which although located in the middle of rural America, rivals most large city higher education institutions:
The SVHEC recognized early the threat that changing times posed to their community and created a solution that not only recycled beautiful old buildings, but more importantly breathed new life into a rural economy on the brink of extinction. Theirs is truly a model for innovative rural economic development.
And it is testament to the fact that social innovation can happen anywhere.
Because social change doesn’t require big names, huge ideas, or deep pocketbooks. It simply demands a confident vision and the leadership and tenacity necessary to execute on it.
Photo Credit: SVHEC, Steve Helber
Between my own time away from social media in August, the general end of summer quiet, and of course, the glut of posts about the Ice Bucket challenge (of which I have already said my piece), my list of great reads in August is admittedly slim.
But there was some interesting debate, most notably about “strategic philanthropy” and about ratings agency Philanthropedia. Also, calls for more nonprofit leadership development and for nonprofit leaders to get out of their own way by taking the Overhead Pledge. Throw in a little Mark Twain, some sharing economy, and a dash of Millennial analysis and you have a pretty good month in the world of social change.
So below is my pick of the 10 best reads in the world of social innovation in August. For an expanded list you can follow me on Twitter, Facebook, LinkedIn or Google+. And you can see past months’ 10 Great Reads lists here.
- Leadership development is a woefully underfunded need in the nonprofit sector. Indeed from 1992-2011 only $3.5 billion of the nearly $287 billion dollars granted by foundations went to support leadership. In order to get more foundations investing in leadership development, Rusty Stahl offers case studies of 9 foundations who already do.
- In the summer issue of Stanford Social Innovation Review, the lead article “Strategic Philanthropy for a Complex World” caused quite a stir in the philanthropy world with many arguing that there is not much new there. In August, Alliance Magazine ran a series of editorials by philanthropy leaders as counterpoints. Most interesting among them was Avila Kilmurray’s, former director of the Community Foundation of Northern Ireland, response, in which she said “Can we not just recognize that when any funder sets her/himself the task of addressing complex issues…there needs to be provision for continuous consultation, practice, reflection and change?”
- An interesting article in the New York Times paints the Millennial generation as a very communal-minded one, where “the highest value isn’t self-promotion, but its opposite, empathy — an open-minded and -hearted connection to others.” From working, to eating, to shopping it seems Millennials bake social into everything they do. How will the world be different if that holds true as they age?
- Writing in Forbes, Tom Watson asks whether nonprofits should participate in GivingTuesday. As he puts it, “Is #GivingTuesday a well-meaning marketing promotion – or is it a real, organic movement for change?…[Does it] seek to increase U.S. giving from 2% of GDP (where it’s been stuck for two generations) to some higher point?” Amen to that!
- Rating nonprofit effectiveness is such a tricky challenge. Philanthropedia, one rating system that is driven by crowdsourced feedback from experts, comes under fire from the clean water space for being just “a popularity contest.” But others claim it’s an improvement over previous evaluations.
- Writing in the Chronicle of Philanthropy Nicole Wallace shows the value of sharing data by profiling Crisis Text Line, which gives other nonprofits, researchers and government agencies access to their data of 60,000 counseling sessions with teens in crisis to use in their own programs. It begs the question whether other social change data could be shared and how we make that easier to do.
- Sue Dorsey from Water for People was among a group of nonprofit leaders at the InsideNGO conference who took the Overhead Pledge in August, vowing to fully disclose the true costs of their nonprofits. And she encourages other nonprofit leaders to follow suit. This is exciting because it is not enough for funders to get over the overhead myth, nonprofit leaders must as well.
- I am always a sucker for connecting literature and/or history to social change, and even better both, so David Bonbright’s post about how Mark Twain would have viewed recent trends in business is fascinating. Bonbright argues that Twain wanted American business to fully integrate profit and community. And we are beginning to witness this trend again where companies are “embracing the full implications of what they are – what they mean for the environment, for communities, for the most marginalized people affected by their supply chains…[because] this is best way to remain competitive and successful over time.” Let’s hope!
- The new “sharing” economy is not all good, but not all bad either, as Daniel Ben-Horin argues that “there are enormous opportunities for the social sector to engage with the values-driven segment of the sharing economy.”
- Finally, some guidance on making your nonprofit email marketing more mobile friendly and your website better able to connect people to your cause. It’s all about responsive, engaging design.
Photo Credit: Seth Anderson
One of the things I love most about what I do is the opportunity to speak around the country to nonprofit and philanthropic leaders about new approaches. The nonprofit sector and the philanthropy that funds it are changing dramatically, which can be unsettling, but can also be an incredible opportunity for nonprofit leaders to find a better way to reach their goals.
This Fall I’m particularly excited about some great speaking opportunities I have coming up. If you will be at any of these events, please let me know, I’d love to connect there.
And if you’d like to learn more about having me come speak at your event, or to your board, staff or donors, check out the Social Velocity Speaking page.
Here are my upcoming engagements:
August 1st, Portland, Oregon
I’m delighted to have such a groundbreaking nonprofit, Ecotrust (which inspires more resilient communities, economies, and ecosystems around the world) hosting me at a lunch event for Portland nonprofit leaders. I’ll be speaking to the group about new ways to finance their work. I’ll describe how clarifying the work their nonprofit does and connecting that to a robust financial model can transform their organizations’ financial sustainability and ability to create social change.
October 10th, Seattle
I’ll be kicking off the symposium with a talk on “Moving From Fundraising to Financing,” where I’ll show nonprofit leaders a new, more effective way to fund their work. As donors shift from a “charity” mindset to an impact and investment view, nonprofit leaders must articulate the social change they seek, develop a robust and sustainable financial model for their mission, and make their donors partners in the work. We’ll discuss how to uncover the most important building blocks of creating an integrated approach to engaging people in the mission.
November 5th-7th, Phoenix
At this year’s annual conference of grantmakers, I’ll be serving on a panel titled “The Power of Investing in Nonprofit Capacity.” Ellen Solowey, Program Officer at the Virginia G. Piper Charitable Trust; Darryl Tocker, Executive Director of the Tocker Foundation; and I will discuss foundations that make capacity investments in nonprofits. We will explore how funders can collectively address nonprofit capacity constraints such as financial instability, disengaged boards, lack of funding for professional development, and the need for long-term planning.
January 22, 2015, Hailey, Idaho
At this gathering of nonprofit leaders I’ll be leading a session titled “Messaging Impact.” More and more donors are interested in funding organizations that can demonstrate impact, or change to a social problem, as opposed to organizations that only talk about their needs. If a nonprofit leader can create a message of impact, she will be able to raise more money over a longer period of time. I’ll explain how to create a message of impact to encourage more donors to invest in the long-term work of a nonprofit.
It’s going to be a great Fall. I hope to see you at one of these events!
Photo Credit: Social Velocity
Note: As I mentioned in an earlier post, I have several fantastic guest bloggers contributing to the blog this summer. First up is Robert Egger, founder of DC Central Kitchen and LA Kitchen, as well as the nonprofit sector advocacy group, CForward. He is a tireless advocate for the nonprofit sector, encouraging nonprofits to take their rightful seat at the table. He is always pushing us to think bigger and smarter about social change.
Here is Robert’s post:
For you old school Trekkies out there, you may remember the 1969 episode titled “Let That Be Your Last Battlefield” that featured the great Frank Gorshin as Commissioner Bele. The plot is built on a particularly brilliant metaphor of two alien beings – Bele and Loki – all but identical to the crew of the Enterprise, but who loathe each other because they represented a mirror image of the other.
This comes to mind because lately I’ve encountered quite a few fellow, older “leaders” who have a seemingly uniform concern about the Millenials, and their “we’re ready to run the show” attitude.
Similarly, I’ve also been speaking with lots of young “up-and-comers” who are all but ready to push the founder of their organization out the closest window, due to their inability to embrace new ideas or cede some of the decision making to those who sweat and toil on the front lines.
I totally get the friction, but I also know that our generations have lots of common ground to build upon. And for this blog, I’d like to suggest that we must avoid the inter-generational battle that many talking heads would stoke, so that we can take advantage of what will be, in my opinion, one of the greatest opportunities to change the world in centuries.
Yeah…I said centuries!
Think about it. Our generations represent two of the biggest, most educated, freest and richest generations in the history of the world. We’ll outlive our predecessors by decades, and remain healthy and productive much longer than any previous peoples. On top of that, at the push of a button, we can connect with tens of thousands of our peers; locally, nationally and internationally.
And as far-fetched as it might sound…from two divergent ends of the life spectrum, we actually are careening towards the same destination, and looking for many of the same things.
Together, we could be a social, political and economic juggernaut that could re-wire the world, explore new forms of capitalism, re-invigorate politics and reaffirm the incredible power of community.
Now…if you have already rolled your eyes, I can dig your skepticism. You have every right to laugh…but hang with me for a few more moments.
Every morning, 10,000 Baby Boomers wake up, walk into the bathroom, look in the mirror, and see a birthday boy or girl who just turned 67…and that will happen everyday for the next 20 years. You have to figure that a big ass hunk of them let out a looooong sigh, and wonder how they got so lost, tricked and hoodwinked into thinking money and stuff would buy them happiness. THEY are primed to join the ranks of those who would look for deeper meaning and purpose out of life. Heaven knows…they may even get humble, and seek to make amends by reaching to help younger men and women climb a different ladder.
Similarly, an even bigger number of Millenials do the same thing everyday, but they are turning 25…and they are looking in the mirror, and saying “I NEVER want to live my life the way they did.” Who knows…maybe some of them would like to learn how to avoid the pitfalls of possessions, and would value rich conversations with older leaders on how to re-examine the meaning of “rich”.
Do you get where I’m coming from? As weird as it sounds, more and more people everyday are waking up and wondering…is there a different way to live, be happy, judge success, value life, be a neighbor and make a difference?
Sure, one generation might be looking for redemption, while the other a different path, but we really are on the same road…we just haven’t realized it yet.
So…please…rather than buy into the whole “I hate you right back” shtick…realize that if our generations fight, we loose. If we unite, we can make things really right.
You may say I’m a dreamer…but I’m not the only one.
Photo Credit: Wikipedia
- Download a free Financing
Not Fundraising e-book
when you sign up for email
updates from Social Velocity.
Sign Up Here
- Tired of begging your
board to raise money?
Learn how to
Build a Fundraising Board
in this month's
Social Velocity webinar.