Note: Fourth in my list of guest bloggers this summer is Jessamyn Lau. Jessamyn is Executive Director of the Peery Foundation, a family foundation that invests in and serves social entrepreneurs. Here is her guest post:
At the Peery Foundation, we’re hungry for insight into what a truly grantee-centric approach to philanthropy looks like. About five months ago we had an idea. What if we could hear regular, brief, unfiltered feedback from our grantees on what we do and how we do it?
We occasionally solicit input from our grantees on delicate questions, like “how should we give feedback to a grant-seeker when we have major concerns about leadership?”. Our grantees have incredible ideas, often helping us solve problems and ensure we incorporate their experience into solutions. But what about capturing their untapped insights into our everyday grant making approach?
This doesn’t generally happen because 1) grantees are rarely asked for their opinions on funder practices, 2) when they are asked, grantee opinions are heavily filtered to prevent potential risk to future funding. We think the Peery Foundation team, and a large proportion of philanthropic professionals, could benefit from regular open feedback from grantees. In a February 2014 Stanford Social Innovation Review article entitled “Assessing Funders’ Performance” Caroline Fiennes suggested listening to grantees as a core part of funder performance assessment. This resonated with our idea of what it means to be truly grantee-centric. So we thought about how we might do that – without reinventing the wheel.
We landed on a very simple anonymous rating tool, similar to the rating systems used by Amazon, Uber, and other service providers. The good folks at Advocate Creative built us a prototype site - which we named, imaginatively, Funder Feedback. It’s a very simple, concise survey that solicits anonymous information from our grantees (or anyone else I interact with), at any time they choose. They rate me out of five stars on three aspects (currently Respectfulness, Consistency, Value), and then leave any feedback for me in a text box. It takes 30 seconds to fill out - 90 seconds if you ponder on what to write in the text box for a minute! Each person on our team has their own survey link, so the results can be used for individual professional development. You can see my survey here.
Over three months the Peery Foundation team and the Tipping Point team piloted the tool, inviting people to give us feedback on our recent interactions. At the end of the pilot our results were delivered to us on a dashboard in aggregate (see below), with no time or date stamps - so unless someone mentioned their organization they are anonymous.
So did it work?
Our team’s response rate ranged from 10 to 40 completed surveys for the pilot. The star rating system yielded average results from 4.7 to 5 stars. Given this clustering it’s clear that the rating system is not a proactive way for us to find out where we need to improve, but could serve as a warning system that will alert us if something needs attention. We could also potentially change the three starred rating topics from values to processes, e.g. “Please rate us out of 5 stars on our due diligence, reporting, and grant making exit processes”. Something to consider down the road.
Over 50% of respondents left us written feedback. The overwhelming majority of feedback was positive and reaffirming. It served as personal affirmation of the aspects of each individual’s approach appreciated by grantees (transparency was mentioned consistently for one team member, another received specific feedback around the value of their preparation for meetings with grantees).
There was also feedback letting us know what we should keep doing as a foundation. For instance, we had several people comment on how valuable warm introductions to other funders had been. This was great to hear because in the past year we’ve allocated significant time to building and maintaining our funder network. We knew this time was useful for us - as we shared pipeline and recommendations with other funders - but knowing that this provides real value to our grantees makes it an even higher priority for us to continue and improve.
What didn’t work?
We would like to receive even more specific and critical feedback. We believe the tool will become truly useful when grantees and others we interact with are clearly invited to give us more constructive opinions. We want to ensure they are comfortable in doing that, which will probably involve tweaking the way we frame the tool, and also building trust that we will truly listen to and implement advice as often as we can.
To solicit distinct feedback, we’ll change the descriptor text on the text box each quarter to give people permission to be specific and critical. For example, next quarter it might say “Please compare the Peery Foundation’s reporting process to that of other foundations you’ve worked with. What can we learn from other processes?”, and the following quarter it might be, “What’s one thing we should keep doing and one thing we should change about the Peery Foundation’s philanthropic approach?”.
Continuing the experiment
At the Peery Foundation we’re accustomed to the process of iteration and, when appropriate, dropping a project that simply isn’t working. We like to experiment. For now, we think we’ve seen enough promise to continue developing the Funder Feedback tool. On an individual level it can help us as philanthropy professionals see where we have room for growth. As a foundation, we know we need insights from our grantees to become truly efficient and effective.
And philanthropy as a field might do well to turn the tables a little, listen regularly to grantees’ insights, and reign in the power imbalance inherent in our work.
So, for now we’ll keep experimenting with the Funder Feedback tool and articulating the changes we’ll make with it to help us become a genuinely grantee-centric foundation.
Photo Credit: Imperial War Museum
A couple of fascinating debates – one about the role of philanthropy in democracy, and one about the value of nonprofit evaluation – were fascinating reads. And I always love a good controversy, so July gladly provided at least two. The much heralded “sharing economy” came under fire and the hype around social impact bonds was called out.
Below are my 10 favorite reads from last month. If you want to see a longer list of great reads, follow me on Twitter, Facebook, LinkedIn or Google+. And you can see past months’ 10 Great Reads lists here.
- There was a really interesting debate on the Markets for Good blog (always a place for thoughtful conversation) between Andrew Means and Patrick Germain about the value of program evaluation and performance measurement in the nonprofit world. Andrew Means kicked it off here and here and Patrick responded here.
- I absolutely love it when someone makes you think about something that you took for granted in a whole new way. Conventional wisdom is that the sharing economy is a democratizing development. But Max Holleran, writing on the OpenDemocracy blog, argues that perhaps it is the complete opposite. As he says, “Our concept of what sharing means has gone from The Gift to the paid-for lift…How we assess public goods has also changed dramatically: urban commons have been ceded to private-public management initiatives.”
- The Hewlett foundation announced a new $50 million initiative to “strengthen representative democracy in the U.S.” And that announcement inspired a thought-provoking back and forth about the role of philanthropy in democracy among Daniel Stid and Larry Kramer (both from Hewlett) and Maribel Morey (assistant professor of history at Clemson University), via a Stanford Social Innovation Review blog post and the subsequent comments to the post. No matter your politics or your views on philanthropy, it is refreshing to see such an open discussion about a foundation’s efforts.
- On a somewhat related note, Amy Schiller argues that we cannot allow philanthropy to be a “workaround” to the “friction of democracy, ” which is necessary for truly solving social problems.
- To get more funders to invest in nonprofit organization building we need more data and case studies on the return on investment. Building the case for funder investment in nonprofit technology capacities, Berta Colón, Cynthia Gibson, Michele Lord, and Geraldine Mannion examine recent data on building nonprofits’ digital reach, and the Knight Foundation provides a case study on how National Public Radio (NPR) built their digital skills.
- I love New York Times food columnist Mark Bittman for his fabulous recipes and views on food, but recently he’s become somewhat of a food activist, and his article on the the true (social) costs of a burger is eye-opening.
- Is there hope for the famously dysfunctional nonprofit board? A new report from Urban Institute suggests we need to raise our expectations of nonprofit boards. Let’s hope!
- I know I’ve been including Steven Pressfield in my round ups lately, but this man really knows how to inspire people to fight the demons that face them in order to create whatever they were put on this earth to create. His recent blog series entitled “Why” does just that. I think social changemakers, more than anyone, need this kind of inspiration.
- Curt Klotz from the Nonprofits Assistance Fund argues that nonprofits must price their services according to value because “there is no virtue in self-imposed austerity that leads to mediocrity in our programs, and constant turmoil in our finances.” Amen to that!
- Writing on the PhilanTopic blog, Laura Callanan pulls back the curtain on some of the hype around social impact bonds and social innovation in general. Instead of falling victim to shiny object syndrom she asks that “we all bring our critical minds – as well as our open hearts – to the job of social change. Let’s celebrate the potential in the new approaches but also integrate them with prior experience and test them with our constituents…Let’s remember that a tool is just a tool.”
What thought-provoking or controversy-inspiring read caught your eye last month?
Photo Credit: Josue Goge
Note: Third in my list of guest bloggers this summer is David Henderson. David’s professional focus is on improving the way social sector organizations use information to address poverty. Here is his guest post:
I was recently turned down for a position at a startup-up big-data company focused on the philanthropic sector because I’m “too pessimistic”. This company initially sought me out since they don’t have any social sector expertise on staff, a likely requisite to make successful nonprofit software. Our courtship turned sour when I expressed my view that we have a lot more social sector initiatives than evidence that those interventions actually work.
My skepticism that social sector initiatives by and large work was wrongly misconstrued as pessimism that social progress is possible. Skepticism is a critical driver of intellectual curiosity. I spent a pretty penny on two degrees that essentially taught me how to critically assess the divide between rhetoric and results. Indeed, the null hypothesis in a statistical model assumes the intended effect is not present. I guess statisticians are just a bunch of pessimists.
Fundamentally, I believe the company I interviewed with was mirroring the widespread lack of intellectual curiosity that plagues the social sector and impedes real progress. Too many nonprofits are terrified of having their claims of social impact investigated, lest their effects are discovered to be more modest than claimed. And I don’t blame them. The funding community’s emphasis on investing in “what works” has resulted in a proliferation of noise as every nonprofit steadfastly argues their interventions cure everything. It’s no wonder evaluators are seen as Angels of Death.
I generally don’t favor taking cues from the for-profit world, but venture capital and angel investors’ practice of investing in people and teams over ideas is far more conducive to intellectual honesty in product (and social intervention) development. The basic premise of this investment strategy is that initial product ideas are generally wrong, but smart people will investigate, iterate, and innovate.
Compare that philosophy to the social sector, where the expectation is that nonprofits already have the answers, they just need money to scale them up. This assumption is largely incorrect, but by making funding contingent on the perception of effectiveness, the nonprofit sector is incentivized to not question the efficacy of its own work. In this model, continued funding depends on a lack of intellectual curiosity at best, and intellectual dishonesty at worst.
A better alternative is for nonprofits to embrace intellectual curiosity, and to be the first to question their own results. Under this model, nonprofits would invest in their capacity to intelligently probe the effectiveness of their own interventions, by staffing those with the capacity to sift through outcomes data and investing in the growing list of tools that are democratizing evaluation. Of course, this would require a shift in the funding community away from “investing in what works” to more humbly “investigating what works”.
A shift toward intellectual curiosity would create more space for the sector to solicit beneficiary feedback in the design of social interventions, as organizations would no longer be incentivized to defensively “prove” existing approaches work, and instead would be rewarded for proactively evolving practices to achieve better results. It is this very intellectual curiosity that led organizations like GiveDirectly and the Family Independence Initiative to invest in the poor directly, a departure from long-standing anti-poverty practices that the evidence suggests might actually work. It’s a shame that organizations imbued with a mission of experimentation deviate so far from the norm.
I don’t consider it pessimistic to question whether the sector is achieving its intended social impact. To the contrary, it’s rather cynical to set aside what should be the critical question for any nonprofit organization in the name of self-preservation. In order to achieve social progress, the sector needs to expel anti-intellectual policies and actors in favor of a healthy skepticism that questions everything, and is willing to try anything.
Photo Credit: NASA
In today’s Social Velocity interview, I’m talking with Kathy Reich, Director of Organizational Effectiveness Grantmaking at the David and Lucile Packard Foundation. Kathy leads a cross-cutting program to help grantees around the world improve their strategy, leadership, and impact. Her team makes grants on a broad range of organizational development issues, from business planning to social media strategy to network effectiveness.
She also manages the Packard Foundation’s grantmaking to support the philanthropic sector. She has been with the Foundation since 2001, and previously held positions in the Organizational Effectiveness and Children, Families, and Communities programs. Prior to joining the Foundation, she worked in a non-profit, on Capitol Hill, and in state and local government in California.
You can read other interviews in the Social Velocity Interview Series here.
Nell: There is often a chicken or the egg scenario in the nonprofit sector where nonprofit leaders are hesitant to tell funders their real struggles and needs for fear of appearing unworthy of investment, and philanthropists are hesitant to stick their noses in the business of the nonprofits they fund, so organizational capacity needs are not openly discussed or addressed. How does the Packard Foundation uncover the organizational needs of your grantees and what would you advise other funders to do in order to have more open and transformative discussions with their grantees?
Kathy: Well, I try not to tell other people—funders or nonprofit leaders—what to do! But I can tell you what works for us at the Packard Foundation. First, we encourage each of our program officers to learn about the organizational strengths and challenges of their grantees, and to weave capacity building into grantmaking strategies. That’s a big part of the work of the Organizational Effectiveness team here at the Packard Foundation.
But we also have a separate Organizational Effectiveness (OE) program, staffed by its own program officers and with its own budget, to help grantee partners strengthen their fundamentals so they can focus on achieving their missions. Once a non-profit gets a grant from any Packard Foundation program, they’re also eligible to apply for an OE grant. We support a wide range of projects to promote individual and team leadership, organizational planning and development, and the development of healthy networks.
The application process is pretty simple and straightforward. It starts with a letter of inquiry where our grantee partners have to answer just a handful of questions: What are the objectives of your project and what do you expect to accomplish? How will this project support your organization in meeting its goals, and over the long term, enhancing its effectiveness? What special challenges or changes have caused your organization or network to focus on management and organizational issues at this time? How do you propose to use Foundation funds? Who from your organization’s staff and board has made the commitment to lead the project?
Here’s the most important part of our approach: We work very hard to be responsive to the needs of our partners. We never say, “We think you need a strategic plan, and that’s the only thing we’re going to fund.” We listen to the grantee’s assessment of their strengths and challenges, and serve in a coaching role to help them develop the OE project that best meets their needs.
Nell: Leadership development is something that is fairly prevalent in the for-profit sector – it’s understood that good leaders need coaching and support along the way – but leadership development is rarely supported in the nonprofit sector. Why do you think there is that disparity and what do we do to change it?
Kathy: I think you’re right — the lack of investment in leadership development and talent management in the nonprofit sector is a significant issue. We don’t have any shortage of talented, passionate people entering this sector. But I believe that we lose too many of them before they rise to senior-level leadership positions.
Some of that brain drain happens for financial reasons: people are staggering under the weight of educational debt, or they’re lured away by more lucrative career prospects in the private sector. But much of the loss of talent is preventable. People leave because they feel burnt out and undervalued. They can’t forge career pathways and can’t access meaningful professional development. They sometimes have lousy managers. Their jobs don’t offer opportunities for promotion, or sufficient work/life/family balance.
That is all stuff that the nonprofit sector can fix. As a sector, we can even tackle some of the thornier issues around compensation and educational debt. And funders can lead the way. But philanthropy is not doing that. Rusty Stahl at the Talent Philanthropy Project, a Packard Foundation grantee partner, points out that between 1992 and 2011 foundations spent, on average, about 1% of grant dollars on nonprofit talent development. I’m not sure why there’s been a lack of investment in leadership development in the nonprofit sector over time — especially when virtually everyone seems to agree that effective leadership is one of the keys to lasting social change.
I do see some glimmers of hope. In the OE program last year, 21 of the 86 grants we awarded focused on leadership development, including projects that invested in interventions like executive coaching, board development, succession planning, and executive transition at key grantee organizations. And a number of efforts are underway throughout the Foundation to support existing and/or emerging leaders in the issue areas where we work. Clearly, though, much more is needed.
Nell: There has been a concerted effort in the past year to overcome the “Overhead Myth,” the idea that nonprofits should spend as little as possible on “overhead” (administrative and fundraising) expenses. But there is still much work to do before that idea becomes mainstream in the philanthropic sector. How do we change funder (and nonprofit leader) thinking about overhead?
Kathy: I’m a fan of so many leaders and organizations who have spoken out on this issue, including Packard Foundation grantee partners like Guidestar, California Association of Nonprofits, and Grantmakers for Effective Organizations. They’ve done a great job of making a research-based case that arbitrary, low overhead rates don’t capture the true cost of delivering non-profit programs and services. I think that there are a couple of common-sense things that funders and nonprofit leaders can do to keep this debate at the forefront of people’s minds.
First, prepare real budgets. If the funder tells you, “You can only have $25,000 for this project,” that’s fine. That’s their budget. But submit a budget for the full cost of the project, including your personnel, facilities, and other costs of doing business. Let them see what their funding covers, and what it does not. Be honest if you do not know where the rest of the money will come from. At least it will spark a good conversation with your funder about the gap, and about your real costs. Most funders do not penalize honesty. If the funder does penalize honesty, their money probably is not worth your trouble.
Second, define what goes into your overhead rate, and stick with it. Many funders have a “rule” about acceptable overhead; 15 percent, 10 percent, even 5 percent. But most do not have a standard definition for what’s included in that rate. You should have one. Define it, calculate it, and then defend it.
Nell: Philanthropy is a very personal and values-driven thing, but at the same time we need to funnel more philanthropic money towards the most effective solutions. Do you think it’s possible to get more philanthropists to give based on results rather than interests and values, or can we somehow better combine the two drives?
Kathy: I think combining values and a focus on results is not just desirable — it’s essential. None of us goes into social change work with a completely cool, dispassionate lens. We go in with passion. We want to make a difference. We bring our whole selves to this work. That’s what makes it wonderful, and that’s why we stay in it.
At the same time, resources are limited — money, people, time — and we have to be sure they’re being well-spent. Ideally, we want to make sure those resources are being better-spent than they could be on other endeavors.
At the Packard Foundation, we try to craft a balance. Our mission—to improve the lives of children, families, and communities, and to restore and protect our planet—derives directly from the values and beliefs of our founders. The way we go about that work is deeply rooted in five core values, which also come from our founding family — integrity, respect for all people, belief in individual leadership, commitment to effectiveness, and the capacity to think big. But we also are committed to scientific rigor, evaluation, and most importantly, learning. We care not only about what grant funds accomplish, but also about how we do that grantmaking, engage with grantees and improve over time. You can read about some of what we’ve accomplished over the years on our new digital timeline.
Photo Credit: Packard Foundation
Note: Fellow nonprofit consultant Cindy Gibson and I were asked to write an opinion piece for Alliance Magazine this month answering the question, “Should Consultants Be Thought Leaders?” There is no doubt that there is a preponderance of consultants in the social sector, some who help move the sector forward, and some who don’t. Cindy and I offer some thoughts about how to distinguish what has value and what does not. Text from the piece is below, and you can also read the piece in the June issue of Alliance.
From strategic and business planning to marketing and fundraising, there seems to be no shortage of consultants ready to help nonprofits meet all kinds of needs. But should they be thought leaders too? Because they are removed from the day-to-day experience of the average non-proﬁt or foundation and have a breadth of perspective that comes from working with different types of organization, consultants can provide important insights to the larger sector.
But when is that thought leadership adding value to the sector and when is it just a means for hawking a consultant’s wares?
At a recent conference, a consulting ﬁrm president suggested his shop’s model was the only way to achieve social change, which caused some participants to shift in their seats. As one participant put it, ‘It’s because they’re consultants. If there’s only one solution and that’s the one they offer consulting on, that’s the approach they promote.’ There is, after all, a difference between introducing ideas to spark new thinking and marketing particular frameworks to build a consultant’s brand. At the end of the day, it all comes down to value.
Is a consultant adding value by introducing new approaches, raising hard questions, highlighting important trends, or suggesting necessary changes to systems and structure, the hallmarks of thought leadership? Or are they using ideas to package what they’re selling? Here are some key questions that might help us to make that distinction:
- Is what the consultant is presenting really new or just something old with new packaging?
We’ve all fallen victim to shiny object syndrome. The next new thing can seem so appealing that it’s easy to believe the hype, but it isn’t necessarily applicable for many organizations. Before embracing a new approach, it’s important to determine whether it actually applies to the specific situation at hand.
- Has the consultant’s new framework been tested?
If the new idea is really worthy of broad adoption, there should be evidence of its value. Consultants need to be transparent about whether they have this evidence and, if so, how it was collected. Was it a randomly sampled population or a few focus groups of satisﬁed clients? Consultants, like other thought leaders, sometimes ignore the fact that the big ideas they’ve envisioned may not work on the ground.
- Does what the consultant is proposing embrace the complexity of the situation?
Social challenges are inherently difficult to resolve because change takes time and requires grappling with the messiness of ‘wicked problems’, which don’t usually respond to one best practice or even a set of discrete interventions. Wicked problems don’t come from somewhere; they come from somewheres. And so do the solutions. True thought leadership emerges from understanding and integrating a problem’s inherent complexity into a potential resolution.
- Is the consultant willing to engage in thoughtful debate about their ideas with those who may disagree?
Thought leaders who are genuinely interested in moving a ﬁeld invite feedback, including criticism, because they know open and honest discussion can strengthen the original idea. They’re also eager to make their ideas broadly accessible so that they become part of the larger ﬁeld.
- Are influential people hailing the new idea as definitive when there may be little hard evidence to suggest that it is?
While it’s nice to have the endorsement of influential people, this can sometimes be a shield against real critique. It can also suggest an echo chamber at work, where the hype around the idea is bigger than the actual value of the idea itself.
There’s no question that it’s difficult, if not impossible, to separate good marketing – which every consultant must do to survive financially – from real thought leadership. We think that consultants can and should have opportunities to stand away from their business and share what they’re learning and observing. Like other thought leaders, they can lift us out of our individual circumstances and move us to see a bigger picture.
That isn’t always easy, especially when consultants’ thought leadership is controversial. But good thinking that has the potential to transform minds and entire fields, even when it may be inimical to a brand, can sometimes lead to impact that may not be easily achieved by focusing only on clients’ individual needs. The key is knowing when and where that kind of thought leadership will add value.
Photo Credit: Eugene Atget
In today’s Social Velocity interview, I’m talking with Fay Twersky. Fay, an expert on philanthropy and the nonprofit sector, serves as the Director of the Effective Philanthropy Group at the William and Flora Hewlett Foundation. In that capacity, she oversees five functions including cross-foundation support, evaluation and organizational learning as well as grantmaking in support of organizational effectiveness and a strong philanthropic sector. Prior to Hewlett, Twersky was at the Bill & Melinda Gates Foundation, designing and developing their Impact Planning & Improvement division.
You can read other interviews in the Social Velocity Interview Series here.
Nell: As head of the Effective Philanthropy group at Hewlett you obviously think a lot about how nonprofits and philanthropy can work better together. There is a very real power imbalance between those doing the work (nonprofits) and those funding that work (philanthropists). How can we overcome that power imbalance so that there are fewer hurdles standing in the way of the work?
Fay: If we are being totally honest, I am not sure that we ever fully overcome the power imbalance. But, the first step is, simply to be more honest. Candor and openness can go a long way. One the funder side, if funders are more open and candid about what we can and cannot do with respect to funding, if we clearly communicate about our priorities, strategies, goals, and funding criteria, that will help a lot. If we listen to nonprofits with open ears and keep an open mind, that will help build more productive relationships. If our funding is fair and flexible, and we recognize through our support that nonprofits need overhead to run a high performing organization, our grantees might experience us as more respectful and fair.
On the nonprofit side, I think it is also essential to be more honest. Actually, what I really mean here is to be more realistic – more realistic about expected results, about timeframes and what it takes to run an effective organization. In addition to saving lives, reducing carbon emissions, or improving reading skills, nonprofits also have to pay the rent and buy computers. Be honest with yourselves and your funders about what is required to run a top notch nonprofit. We need to know. We also need to know if we are making the wrong assumptions or ill-conceived decisions.
Nonprofits are often complicit in the funding game of over-promising and under-delivering. It may be that funders have more power to change that expectation, and we should, but nonprofits can also do their part by regularly educating us on the art of the possible.
The truth is, we need each other in order to create the change we seek in the world.
Nell: One of the goals of the Effective Philanthropy group is to improve the overall effectiveness of the philanthropic sector. That is a big undertaking. How do you go about that?
Fay: Not alone!
The philanthropic sector is growing at a tremendous rate. In 1990, there were 32,000 foundations in the United States. Today, there are 115,000. And, that number is likely to continue to grow. And those foundations are dedicated to a huge diversity of needs. The Hewlett Foundation views our philanthropy grantmaking as a highly leveraged way to improve all of philanthropy—so that the many areas of need are funded and supported in smart and sustainable ways.
We have a modest budget for grantmaking to improve the sector, and we pursue two strategies to achieve that goal. Our first strategy focuses on producing and disseminating knowledge about how to do philanthropy well. Our grantees in this portfolio include groups like the Stanford Social Innovation Review, Grantmakers for Effective Organizations and the Foundation Center. We are hosting a convening of our knowledge grantees this month to seek their input into our strategy going forward and any changes we should consider. Our second strategy is brand new and currently in development. One of our primary goals with this new strategy is to pursue grantmaking collectively with other funders. The strategy will likely focus on ways to promote more openness among foundations. More on that later in 2014 as it develops.
Nell: Another aspect of your work is to make grants to nonprofits for organizational effectiveness, or in other words, capacity building. But few foundations recognize the need to invest in stronger, more effective nonprofit organizations. What is Hewlett doing to convince more philanthropists to invest in organizational effectiveness?
Fay: We think it is essential to support nonprofits to be high performing organizations, and not projects for hire. We do this by providing flexible general operating support when we can and also through organizational effectiveness grants – grants that are explicitly targeting improvements to the strategic and operational aspects of an organizations. These are typically smaller grants, but, according to our grantee perception report survey results, they are greatly appreciated by our grantees. A lot of the credit for our program really goes to the Packard Foundation, on whose program ours is modeled.
We regularly consult with colleagues in philanthropy about how we approach our work and sing the praises of our OE grants, but we know that there is still a long way to go among foundations overall. I don’t know the numbers, but I am hopeful that we are seeing a positive trend as there does seem to me to be more interest in supporting organizational capacity. This year, we are conducting our first ever comprehensive evaluation of our organizational effectiveness grantmaking program, and we are committed to widely sharing the results and any resulting refinements to our approach.
Nell: There is a growing push to encourage nonprofits to evaluate their work. But there is a chicken or the egg situation where nonprofits can’t find the funding to create performance management systems, and so they can’t demonstrate the value of their work in order to secure more funding. How do we solve that?
Fay: There is so much I could say about this topic having worked on all sides of this equation–in a nonprofit, as an evaluation consultant and as a funder. But, I will limit myself to a couple of points.
First is funding. Foundations need to provide funding for measurement. Nonprofits must build it in as a line item in every budget. Measurement is not a nice to have. It is a need to have. Just like rent.
Second is mindset. Measurement is not for punishment, but for learning. Funders need to approach it this way too. This is related to your first question, about removing hurdles in the funder/grantee relationship. If funders want to have more honest relationships with our grantees, we have to encourage the sharing of news about disappointing results and be prepared to provide continued support for course correction. Not every time of course.
I have had several different experiences that relate to mindset. One was as a funder with a reluctant nonprofit. This was a situation where I had questions and concerns about a particular program we were funding and suggested to the CEO that they conduct a formative evaluation of the program and that we would fund the full costs of the evaluation. He was reluctant and protective of his program. He in a sense fell in love with the program instead of its purpose. After several conversations, he was still unwilling to engage in an evaluation and given that circumstance, which I experienced as a lack of openness to learn, we stopped funding that program. It is essential for all of us to have the courage to learn and change.
I have had many more wonderful experiences with supporting nonprofits to measure results. The best of these do not just deliver good news. They are evaluations that produce information for nonprofits to learn from, to be challenged by and to catalyze improvement. And, when nonprofits share those lessons with us, we get smarter. Because most of the knowledge out there is within reach of the nonprofit organizations. And, as they say, knowledge is power. Perhaps the secret to this funder grantee relationship is recognizing that true power imbalance should rightly tip in the nonprofit’s favor.
Photo Credit: William and Flora Hewlett Foundation
Today the Nonprofit Finance Fund (NFF) released the results of their sixth annual State of the Nonprofit Sector survey and the data underlines a growing crisis in the financial sustainability of our nonprofit sector.
56% of nonprofit leader respondents reported that they were unable to meet demand for their services in 2013, this is the highest rate since the survey’s inception six years ago. And the scary part is that this inability to meet demand is not because of a temporary down period in the economy, but rather because of deeper dysfunctions in how we funnel money to the sector. As Antony Bugg-Levine, CEO of NFF put it, “The struggles nonprofits face are not the short-term result of an economic cycle, they are the results of fundamental flaws in the way we finance social good.”
The survey gathered responses from more than 5,000 leaders from U.S. nonprofits of all sizes, domain areas, and geographies.
The top challenge by far for nonprofit leaders, with 41% of them reporting it, is “achieving long-term financial stability.” And this is evidenced in several ways:
- More than half of nonprofits (55%) have 3 months or less cash-on-hand.
- 28% ended their 2013 fiscal year with a deficit.
- Only 9% can have an open dialogue with funders about developing reserves for operating
These struggles with financial sustainability stem in large part from a lack of understanding among funders of the true costs of social change work. Roughly 53% of nonprofit respondents’ funders rarely or never fund the full costs of the programs they support. And for approximately 24% of respondents their government indirect cost rate (the amount government allows for indirect, or “overhead” expenses) declined over the last 5 years, while about 47% of respondents are subject to a government indirect rate of 9% or less. That is nearly impossible.
For the first time, the survey included questions about impact measurement, a growing interest among funders, ratings agencies and others in the sector. But these questions just further underline the financial Catch-22 in which nonprofit leaders find themselves. 70% of nonprofit leaders report that half to all of their funders want to see proof of the impact of their programs, but 71% of nonprofit leaders also report that funders rarely or never fund the costs of impact measurement.
At the end of the day, government and private funders are putting greater demands on nonprofits whose services are increasingly needed, all while funding is becoming more difficult to secure. It’s a vicious downward spiral.
More than ever this survey demonstrates a need for the nonprofit sector and those who fund it to take a hard look at how the social sector is financed. We are not sustainably financing the social change work we so desperately need. And if we don’t address that, the downward spiral will simply continue.
Here are some fundamental changes to the financing of the nonprofit sector that I’d like to see:
- Government must move to a more reasonable indirect rate. No one can deliver an effective program with only 9% allocated to administration and other “overhead” costs.
- Funders who want to see impact measures need to step up and fund the work and systems necessary to make it happen.
- Nonprofit leaders and funders need to have more open and honest conversations about the hurdles standing in the way of the work.
- Nonprofit leaders need help figuring out sustainable financial models.
In the six years of NFF’s comprehensive and unparalleled view into the world of nonprofit leaders the story is not getting better. Let’s hope this data serves as a wake up call for the social sector. We must collectively realize that if we really want social change we have to figure out how to finance it effectively and sustainably.
In today’s Social Velocity interview I’m talking with Pat Lawler. Pat is the CEO of Youth Villages, a national nonprofit dedicated to helping emotionally and behaviorally troubled children and their families live successfully. Youth Villages is often heralded as a model for high performing nonprofit organizations. In 2006, Lawler was recognized as one of “America’s Best Leaders” by U.S. News & World Report.
You can read past interviews in the Social Innovation Interview Series here.
Nell: In 34 years of your tenure at Youth Villages you’ve grown the organization from serving 25 youth to now serving 22,000 families. Very few nonprofits are able to grow to that level, let alone sustain it. What are the factors that make nonprofit growth attainable and what holds more nonprofits back from achieving it?
Pat: First, an organization must have a clear mission and defined values. When we started Youth Villages, we knew who we were. We didn’t just want to respond to RFPs; we wanted to do what was best for kids. No more of the status quo, instead we used our expertise and created best practices. We built our leadership team and our culture around a clear mission and set of values. Our culture is a big part of who we are and what we’ve done over the years. We’ve also been willing to change directions. We’re willing to do different things based on the needs of kids and families. At one time, we only provided residential treatment services, but now residential services comprise only about 35 percent of our work. Don’t anticipate the future, create it.
As an organization, we were also careful not to grow too fast. We were constantly assessing what was best and reevaluating. We also implemented a feedback system to learn what was working and what was not so we could improve our outcomes.
It’s easy for nonprofits, especially those focused on social services, to make decisions with our hearts instead of our heads, but we must still maintain a strong focus on the business aspect of our work. After we got through our first 12-13 years, when we were just trying to survive as an organization, we began thinking about strengthening our financial reserves because we were responsible for more children and families, as well as our staff and their families. So we really started trying to build a stronger financial foundation that would help us successfully transition through turbulent times.
Nell: Often when a nonprofit becomes very large finding on-going sustainable funding sources can be difficult. The majority of your funding comes from state contracts. Is government the ultimate answer to long-term funding for large nonprofits? Or are there other ways?
Pat: It depends, but in general, I think it’s important for organizations to have a diverse set of funders to achieve maximum stability. Having at least three or four funding sources and a relative balance among those sources is a good way to go. If government is a major funding source, you want to make sure that’s diversified among different programs, geographies, etc. and not all one contract.
Nell: Youth Villages is also unusual in that you have a robust performance management system and are considered one of the leading nonprofits in the country in that arena. Why did you make the decision many years back to invest in performance management and what do you think the return on that investment has been?
Pat: Youth Villages’ goal has always been to provide the best services for children and families. That’s one of the reasons why we started collecting data, using measurement, benchmarking and total quality improvement. It was all about getting better outcomes for kids. We didn’t realize how valuable our data could be until the mid-‘90s when some of our state funding was at risk. Using our data, we were able to convince the state to spend money for in-home services and develop a continuum of care — because we had really good data to show them what worked and how much more cost-effective it was. Throughout the years, we started trying to convince other states and funders. A few were pretty enthusiastic about our data and outcomes. When the Edna McConnell Clark Foundation met with us nine years ago, they were very interested in our data and outcomes, and that was the first indication that the private sector was becoming interested in doing what works.
Even today, we’re asking ourselves where is the best place to put our resources, and more often, we’re finding it’s better to serve a larger number of children through community-based services rather than in a residential setting. You can make such a greater impact in the community serving a large number of youth, rather than serving a small number with the greatest needs. We’re trying to do both. But we’re asking ourselves what’s the biggest return on our investment so we can have the greatest impact on our community?
Nell: Funders and nonprofits themselves are often reluctant to invest in nonprofit leadership development. How do we solve this need and how did you grow your leadership skills over the course of your career? What role do you think funders should or could play in leadership development for the sector?
Pat: I read a lot, and I’ve been very fortunate throughout my career to have worked with great boards of directors and mentors to shape my leadership skills. At Youth Villages, we have an outstanding leadership team filled with better leaders than I am. Together, we make a strong team. Any of us independently might not be as good. I know I wouldn’t be at all. At all levels of this organization, we have very bright people and that is what makes the difference here.
If I had to start over at the beginning, rather than asking foundations for money for programs and services, I would have asked for funds to put toward business planning, professional coaches, leadership development and communications to help with the things I didn’t know about. I’d have asked for money to help build a stronger organization, while at the same time maybe a little money for programs and services. I believe it’s a waste of money for governments, foundations or anyone to spend money on an organization that doesn’t have the necessary skills, organizational structure, leadership and business planning to achieve the goals of their program. It just makes no sense.
From the time an organization is created, I think they have to ask the questions: Do we have the right people in place? Do we have the right business plan and strategy to execute? Do we have the support of the community and board of directors? I firmly believe every foundation should put a significant portion of their funding toward strengthening the organization versus funding some programs and services. If you don’t have the right people in place to execute the strategy then it’s not going to happen. It’s also important for foundations to give organizations time. It takes time for leaders to develop, they get better as they encounter and overcome problems, and it’s important to stick with those organizations for extended periods of time.
Photo Credit: Youth Villages
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