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Financing

The Social Innovation Fund Six Years On

social innovation fundThere is an interesting report out today on the effectiveness of the Social Innovation Fund (SIF). Authored by the Social Innovation Research Center (SIRC), a nonpartisan nonprofit research organization, the new report details what has worked and what hasn’t in the six year history of the SIF.

Launched by the Obama administration in 2009, the SIF — a program within the Corporation for National and Community Service — provides significant funding to foundations that follow a venture philanthropy model by regranting that growth capital, along with technical assistance, to evidence-based nonprofits in “youth development, economic opportunity, and healthy futures” areas. In 2014, SIF expanded its efforts to include a portfolio of Pay for Success (social impact bond) grantees.

Now, 6 years on it is interesting to take a look back to understand what, if any, effect SIF has had on the nonprofit sector. The effect of the SIF is also critical given that, as of right now, the House and Senate have both defunded SIF in their respective funding bills.

To date, the SIF portfolio is made up of $241 million of federal investments and $516 million in private matching funds, which was invested in 35 intermediary grantees and 189 subgrantee nonprofits working in 37 states and D.C.

The SIRC report focuses on the current progress of SIF grants made during the first three years of the program (2010-2012). The report finds two clear positive results for the SIF so far. The SIF has:

  1. Added to the nonprofit sector’s evidence base about which programs work, and
  2. Built the capacity of nonprofit subgrantees, especially in the areas of “performance management systems, evaluations, financial management, regulatory compliance systems, and experience with replicating evidence-based models.”

On the negative side, however, the report finds that the SIF put real burdens on funders and nonprofits with its fundraising match requirements and the federal regulatory requirements. The report also finds that the SIF has had little effect on the sector as a whole because the SIF has not very broadly communicated their learnings so far.

To me, of course, most interesting are the report’s finding about capacity building at nonprofit subgrantees. There is such a need for nonprofit capacity building in the sector, and this was a clear goal of the SIF.

The SIF is one of few funders that do more than pay lip service to performance management by actually investing in building the capacity of nonprofits to do it. However, the SIF has been criticized for mostly selecting nonprofits that already had strong capacity. And indeed, the SIRC report finds that the SIF was most successful among those nonprofits that already had high capacity (in performance management, fundraising function, etc.) prior to SIF funding. Indeed, the report found that “poorly-resourced intermediaries working with less well-resourced community based organizations have been at a disadvantage.”

One SIF grantee in particular, The Foundation for a Healthy Kentucky, really struggled to build the capacity of their subgrantees whose starting capacity was so low. As they put it:

During the course of participation, it became clear that…[SIF] was really better suited for replicating existing programs or, at a minimum, investing in well-established programs that had some level of sophistication around organization systems and evaluation.

This mirrors earlier criticism of the SIF that it was set up to grow only those nonprofits that were already doing well, while those nonprofits that struggled with basic capacity issues were left out. The SIF has struggled to determine whether it is funding innovation (new solutions with limited capacity), or proven solutions (with a long track record and the corresponding capacity). It seems the two are mutually exclusive.

What the SIF is trying to do is such tricky business. To identify, fund and and scale solutions that work is really the holy grail in the social change sector. Certainly there are hurdles and missteps, but I think it’s exciting when government gets in the social change game in a big way. Six years is really too soon to tell. So I hope that this brief SIF experiment is allowed to continue, and we can see what a social change public/private partnership of this scale can really do.

To read the full SIRC report go here.

Photo Credit: Obama signs the Serve America Act in 2009, Corporation for National and Community Service

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7 Things Funders Don’t Get About Fundraising

nonprofit fundraisingIn the nonprofit world there is often a disconnect between funders of nonprofits and their understanding of the fundraising activity necessary to secure their gifts. Funders (and board members) rarely understand how critical fundraising is, how it works, and what’s required to do it well.

But in the hope that greater understanding leads to better actions, I’d like to offer 7 of the most important things funders (and really the sector as a whole) should understand about fundraising:

  1. Nonprofits Must Fundraise or Perish 
    It seems so obvious, but so many in the nonprofit sector act as if fundraising can be ignored or shuffled to the side. Board members hate to do it, and foundations refuse to fund it. But let’s be clear. Without a strategic, sophisticated mechanism for bringing regular revenue in the door there is no organization and certainly no social change. Fundraising must happen, and it must happen effectively in order for a nonprofit to survive and thrive. So funders (and board members) do not have the luxury of saying they don’t want to talk about, think about, or fund fundraising efforts.

  2. There is a Sector-wide Lack of Fundraising Knowledge
    Because fundraising has for so long been ignored or sidelined, most nonprofit leaders and their board members don’t have sufficient fundraising experience or training. And neither do funders. There hasn’t been enough research into the fundraising discipline broadly and little investment in educating nonprofit leaders about how to do it well. The end result is that few people know how to crack the fundraising nut.

  3. Every Nonprofit Has Two Customers
    Part of the solution to cracking that nut is understanding that unlike for-profit entities, nonprofits have two (not just one) set of customers. Nonprofits provide products and/or services to the first customer (“Clients”), but “sell” those services to the second customer (“Funders”). Therefore “sales” in the nonprofit world is much more complex than it is in the for-profit world. Yet for-profit businesses can spend much more money on their sales and marketing staff, training, systems and materials than a nonprofit is allowed to spend on fundraising.

  4. It Takes Money to Make Money
    So in order to do fundraising well nonprofits must invest in their fundraising function (planning, staff, training, systems, materials). Those nonprofits that develop a strategic financial model that is fully integrated with their mission and core competencies will be more sustainable and more effective at creating social change. So nonprofit leaders must start asking for the money necessary to build effective financial models.

  5. Sustainability is a Funder’s Problem Too
    And funders must start providing it. Funders often want a nonprofit to demonstrate financial sustainability, but those same funders won’t invest in the capacity necessary to create that sustainability. Instead of just pointing out the sustainability problem, funders must become part of the solution. Funders should step up to the plate to help nonprofits create a capacity building plan and then provide capacity capital (along with other fellow funders) to build a more sustainable organization that will survive once a funder is gone.

  6. Earned Income is Not a Solution
    But a more sustainable organization does not mean one based on earned income, or selling a product or service. Nonprofits will always be subsidized, at least in part, by private and/or public contributions. By definition, nonprofits exist to address a failing in the market economy (i.e. not enough food or jobs). Thus, those failings will never be overcome purely by market forces. So while earned income is something every nonprofit should explore, it is not right for every organization and will never become 100% of a nonprofit’s revenue model. So don’t confuse sustainability, which means a longterm financial model, with earned income.

  7. Nonprofit Leaders Fear Funders
    Let’s just be honest. A funder is providing much needed resources to a nonprofit and that automatically creates a power imbalance. Until we figure out a way around that inherent dynamic, funders must limit the hurdles they put in the way of nonprofit leaders and instead give them the financial runway to make their social change vision happen.

Let’s face it, without money there is no social change. But the knowledge, experience and infrastructure necessary to generate enough money is woefully short in the nonprofit sector. That could change if funders lead the way toward more investment in strategic, sustainable financial models.

Photo Credit: 401K Calculator

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10 Great Social Innovation Reads: May 2015

social change readingMay was another busy month in the world of social change. For a start there was: a behavioral economics approach to social change, continued focus on civic tech, a tool for calculating a nonprofit’s true costs, new definitions of membership in the digital age, the evolving public library, digital sabbaticals, and much more.

Below are my 10 favorite reads in the world of social change in May, but feel free to add to the list in the comments. And if you want a longer list, follow me on Twitter, LinkedIn, Google+, or Facebook.

You can also read 10 Great Reads lists from past months here.

  1. Perhaps some solutions to social problems lie in behavioral economics. Writing in The New York Times, economists Erez Yoeli and Syon Bhanot and psychologists Gordon Kraft-Todd and David Rand argue that the opinion of others, in this case regarding the preservation of natural resources, is a strong social change motivator.

  2. Civic tech, (the use of new technology to better engage citizens in democracy) has become quite the buzzword lately. But how do we know which civic tech solutions are actually creating change? Anne Whatley from Network Impact offers some tools for assessment in that arena.

  3. And another nonprofit tool comes from Kate Barr of the Nonprofits Assistance Fund. She provides a great tool to help nonprofits calculate and then articulate to funders the full costs of their work.

  4. Daniel Stid from the Hewlett Foundation writes a thoughtful piece on what separates good strategic planning from bad, because as he puts it “The real benefit of planning is not the final document but rather the discipline the process imposes, the new information it generates, the working relationships it fosters, and the conversations, insights, and commitments it sparks.” Amen to that!

  5. In this age of social media and technological connectedness, how do we create more formal structures for belonging to institutions? Melody Kramer, formerly of National Public Radio, is a Knight Visiting Nieman Fellow working on that very question, and she offers some beginning thoughts on the project, including, “Imagine if public radio stations functioned as Main Streets…or in the same way that local public libraries do? It would transform the way people could interact — and participate — in the local news process, and would enhance the stories stations put out on air.” Fascinating.

  6. Speaking of libraries, NPR writer Linton Weeks provides a history of the public library and how it continues to (and must) evolve in the digital age.

  7. Great philanthropic futurist Lucy Bernholz has been offline for a bit, and it turns out she took a digital sabbatical. She reports that “without the addictive stimulation and distractions of digital life it feels like my brain grew three sizes.” What a great (and necessary) idea!

  8. Writing on the UnSectored blog, Marie Mainil describes the importance of building and supporting social movements to create global social change. As she puts it “Collecting data on the dynamics of local, regional, national, and international social change campaigns is the next frontier of organizing for social change. With a visual multi-level collection of ladders of engagement from across the world, social change actors would be able to better plan and coordinate tactics and actions at scale, thereby increasing their chances of success.”

  9. In May the Center for Effective Philanthropy held their biennial conference. Ethan McCoy provides great roundups of day one and day two. I almost feel like I was there!

  10. Never one to put things lightly, William Schambra cautions against what he sees as the hubris of tech philanthropists and his fear that they desire to “fundamentally…reshape the social sector in their own image, based on their supreme faith in advanced technology.”

Photo Credit: Erin Kelly

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What’s Your Nonprofit’s Theory of Change?

Theory of Change GuideOver the past few years I’ve developed a Social Velocity library of books, step-by-step guides, and webinars. My hope is that these tools can make the concepts I use with my consulting clients accessible to smaller and start up nonprofits who aren’t ready for or interested in a customized approach.

The tools follow the methods I develop in my consulting practice (like creating a financing plan, growing the board of directors, designing a theory of change) so when my consulting approach changes over time, the tools must change as well.

Which brings me to the Design a Theory of Change Guide. I created this guide a couple of years ago, but I recently changed the Theory of Change framework I use with my clients. I used to follow a more traditional logic model approach, but over time I’ve come to realize that there are really five specific and complex questions that make up a Theory of Change.

And those are:

  1. What is the target population or populations you are seeking to benefit or influence?
  2. What relevant trends in or changes to the external environment are occurring?
  3. How and where are your core competencies employed?
  4. What changed conditions do you believe will result from your activities?
  5. What evidence do you have that this theory will actually result in change?

The completely revised Design a Theory of Change Guide walks you step-by-step through answering these questions and creating your nonprofit’s own Theory of Change.

A Theory of Change is a fundamental building block to everything that your nonprofit does. Because without a Theory of Change, you won’t know what you are trying to accomplish, how you will get there, or whether you are moving towards it, and you certainly won’t attract the funding necessary to get there.

A Theory of Change can strengthen your nonprofit in many ways:

  • Guides your strategic planning process. If you understand your nonprofit’s overall Theory of Change and what you exist to do, it is much easier to chart a future course.

  • Helps revise the vision and mission of your organization, making them stronger and more compelling.

  • Gives a framework to prove whether you are actually achieving results and creating real social change.

  • Provides a filter for new opportunities as they arise. Do new opportunities fit within your Theory of Change?

  • Engages board members and other volunteers, friends and supporters in your work. If people understand the bigger picture, they will be more inclined to give more time, energy, and other resources to the work.

  • Allows staff to understand how their individual roles and responsibilities fit into the larger vision of the organization. This can increase staff morale, productivity, communication and overall commitment to the organization.

  • Provides the basic argument for a case for investment or other fundraising messaging. With a Theory of Change, you can articulate what you are working to achieve, in a compelling way.

A Theory of Change is so fundamental because you cannot chart a strategic direction if you don’t know what you are trying to change. And you can’t prove that you’ve changed something unless you have articulated what it is that you want to change in the first place. And you certainly can’t convince funders, volunteers, and key decision makers to support you if you can’t tell them what you are trying to change and whether you are actually doing it.

So to truly create long-term social change you must start with a Theory of Change, which is why I encourage every nonprofit engaged in social change to create one.

You can learn more about the Design a Theory of Change Guide and download a copy of it. If you downloaded the previous Theory of Change Guide and would like the newly revised version free of charge, let me know, and we’ll send it to you.

As always, you can see all of the Social Velocity books, guides and webinars available for download on the Social Velocity Tools page.

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Building a Sustainable Nonprofit: A Case Study

nonprofit strategyI consider myself incredibly lucky because I get to work one-on-one with some amazing social change leaders.

One of the clients I’m working with right now is the Muslim Public Affairs Council (MPAC). This is a group of incredibly smart and passionate people who are committed to improving public understanding and policies that impact American Muslims by engaging the government, media, and communities.

The challenges they face as a nonprofit organization are not unique. So I’d like to share their story as a case study.

I met MPAC in 2013. While they had been around for 25 years and aspired to be a truly national organization, MPAC struggled to build a diversified financial model and a donor base beyond southern California. At the same time the organization lacked a coherent strategy for their future work. They wanted to expand their national presence, grow their networks and influence, strengthen and diversify their funding sources, and ultimately increase their impact on a vibrant American Muslim community, but they didn’t know how to get there.

MPAC hired Social Velocity to conduct a Financial Model Assessment to determine what was holding the organization back from growing their revenue and diversifying their funding sources. I interviewed board and staff members and some external constituents to uncover what was holding MPAC back. I also analyzed MPAC’s past financial history, board and staff structure, marketing materials, fundraising activities and more to understand what was working and what was not. I delivered to board and staff a 30+ page assessment that described how MPAC could strengthen their financial sustainability.

One of the biggest things holding MPAC back financially was the lack of a future organizational strategy around which they could rally donors. Upon hearing my findings, the board voted unanimously to undertake a strategic planning process to chart a focused future direction. We then worked over the next 6+ months to develop a 3-year strategic plan to increase MPAC’s impact and financial sustainability.

Because of the new strategic plan we created, MPAC has focused their efforts and resources and are now working to implement the strategic plan and financial model recommendations. They are working to identify outside investors to help fund a growth campaign, expand the board, hire a Development Director, and streamline operations. Board and staff are excited about the new direction and are actively working to bring it to fruition. And to help MPAC in this critical change and growth phase I am coaching staff and board on how to implement the plan and set the organization up for success.

Outside guidance is sometimes critical to moving an organization forward. As Salam Al-Marayati, MPAC’s President and CEO put it:

Nell’s assessment illustrated how we were wasting resources and not connecting prospective donors with a clear message. After the board and staff read the report, we all decided to proceed with a strategic planning process. That exercise, which spanned over 6 months, opened everyone’s eyes. We now have buy-in from our most important stakeholders in the organization – the board – for change. We realized that in order to achieve growth, we have to change internally. Nell helped us to navigate the road to becoming a national organization by changing how we operate internally. Nell’s experience in nonprofit management and fundraising proved to be invaluable in our planning process. We are now beginning to implement the strategic plan are excited about this new era for the organization.

It doesn’t have to be so hard. The mission your board and staff are so passionate about can be achieved in a sustainable way.

You can learn more about how I work with nonprofits on my Consulting page, and you can read more case studies on the Clients page. If you’d like to discuss how I might work with your nonprofit, let me know.

Photo Credit: Evelyn Simak

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5 Fundraising Delusions Nonprofits Suffer

fundraisingFundraising is, for the most part, a fundamentally misunderstood activity. There are a lot of misconceptions, among nonprofit leaders, board members — even donors — about effective ways to bring money in the door.

Here are are a few of the worst delusions about fundraising that persist in the sector:

  1. Events Are Fundraisers
    Very few nonprofit events generate a net income after you factor in the direct (food, venue, invitations, entertainment) and indirect (board and staff time) costs that go into them. They simply are not profit-generating activities. If you are looking to your events to bring in a profit, calculate the cost to raise a dollar to see if they actually are. Some nonprofit leaders argue that events generate value beyond profit, vague terms like “awareness” or “goodwill.” That may be, but unless you follow-up with individual event attendees to turn that increased “awareness” or “goodwill” into money, there is little financial value to events. Turn your energies instead to low-cost, mission-focused cultivation and stewardship events for your major donors and major donor prospects, then you might have something.

  2. Crowdfunding Creates Revenue
    Nope, it doesn’t. Revenue is the on-going money you need to keep your doors open and your operations running. A crowdfunding campaign, by definition, is a one-time deal. It is organized around a specific need or timeframe. Therefore the money it generates is not easily or regularly repeated. Crowdfunding could make sense for a nonprofit hoping to raise startup, growth or capacity capital (all one-time infusions of money). But that Kickstarter campaign is not going to keep the lights on, so look elsewhere (like a financing plan) for sustainable revenue.

  3. Major Donors Can Be Recruited En Masse
    Major donors are secured through a long-term, systematic, one-on-one process. There is no quick way to bring large donors on board. My issue with mass major donor fundraising programs (like the Benevon model) is that when you ask people as a group to pull out their checkbooks, you are leaving money on the table. The check someone feels compelled to write after watching a 20-minute presentation with their friends pales in comparison to the one they will write after you’ve built a one-on-one relationship with them over time. Put together a strategic major donor campaign, along with the infrastructure and systems to execute on it, and you will create a long-term major donor base (and its corresponding revenue stream) for years to come.

  4. Skimping on Fundraising Staff and Systems Saves Money
    While you may save a few thousand dollars in salary by hiring a novice fundraiser (instead of an experienced one), you will cost the organization hundreds of thousands of dollars in missed revenue. The same is true with cheap fundraising systems like an ineffective donor database, an unresponsive website, a cumbersome email marketing system, or a poor (or non-existent) marketing strategy. Figure out what it will really cost to build the fundraising team and systems you need and then raise the capacity capital to get there.

  5. Endowments Solve Money Woes
    Let’s face it, an endowment makes sense for very few nonprofits. Even if you were able to convince donors to let their money just sit in a bank account (which is a big “if”), that money won’t really impact your bottomline. Even if you raise an endowment of $1 million, it will only generate $50,000 (assuming a 5% return) of operating revenue each year. Instead raise a much smaller amount of capacity capital which you could use to strengthen your fundraising infrastructure (more staff, better technology). Those improvements could increase your annual revenue by many times more than $50,000.

It’s time to face the facts. There are smart ways to raise money and there are delusional ways to (not) do it. Embrace the power of money and use it as a tool to create a more effective, sustainable organization.

Photo Credit: TaxCredits

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Speaking With Social Change Leaders

Nell EdgingtonOne of the things I love about my job is that I get to travel to different parts of the country talking with groups of social change leaders about how to think about their work in new ways. I speak to nonprofit and philanthropic conferences, events, groups, even boards about trends in the nonprofit sector and how social change leaders must adapt.

Recently I have spoken to groups in Portland, Seattle, Sacramento, Dallas, and Idaho. You can see a video of me speaking to the Seattle Association of Fundraising Professionals Conference below (or click here) where I was talking about one of my most popular topics, How to Move From Fundraising to Financing.

I speak about any of the topics covered in the Social Velocity blog, but here is a general list of topics:

  • Speaking Engagements One SheetMoving From Fundraising to Financing
  • The Future of the Nonprofit Sector
  • Overcoming Nonprofit Myths
  • Reinventing the Nonprofit Leader
  • The Power of a Theory of Change
  • Getting Your Board to Fundraise
  • How To Raise Capacity Capital
  • Creating a Sustainable Financial Model
  • Messaging Impact
  • Creating a Succession Plan
  • Honest Conversations Between Funders and Nonprofits
  • The Critical Connection Between Mission and Money

If you want to learn more about having me come speak to your event or group, download the Social Velocity Speaking One Sheet, or visit the Speaking page to learn more.

Photo Credit: Social Velocity

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The State of the Nonprofit Sector in 2015

nonprofit sector surveyEarlier this week the Nonprofit Finance Fund released the results of their 7th annual State of the Sector survey about the financial health of the American nonprofit sector. This on-going survey, now in its 7th year, has become a fascinating marker to gauge how the nonprofit sector is evolving amid a changing economic climate.

The Nonprofit Finance Fund launched the survey in 2008, when the economic crisis was just beginning. This year results from 5,451 respondents show some positive signs of adaptation and growth, but also recurring challenges that continue to face the sector.

You can see the full results of the survey here and slice and dice the data yourself with their Survey Analyzer Tool here. But here are some of the key findings of this year’s survey.

Nonprofits are unable to meet a growing demand for their services:

  • 76% of nonprofits reported an increase in demand for services – the 7th year that a majority have reported increases.
  • 52% couldn’t meet demand, the third year in a row that more than half of nonprofits couldn’t meet demand.
  • Of those who reported that they could not meet demand, 71% said that client needs go unmet when they can’t provide services.

Nonprofits still (not surprisingly) struggle to make ends meet. While some nonprofits are achieving financial sustainability (47% ended 2014 with a surplus, the highest in the history of the survey), many still face real challenges:

  • 53% report three months or less of cash-on-hand.
  • 32% find achieving long-term sustainability a top challenge.
  • 25% struggle to be able to offer competitive pay and/or retain staff.
  • 19% can’t raise funding to cover their full costs.

And these financial challenges are due in large part to the catch-22 funders place nonprofits in by routinely covering only a portion of the full costs of the programs they intend to support:

  • 70% of survey respondents receiving Federal funding report that the government never or rarely pays for the full costs of delivering services.
  • 68% of respondents who receive state funding say the state government never or rarely pays for the full costs of delivering services.
  • 47% of respondents who secure foundation funding report that foundations never or rarely cover their full costs.
  • While 89% of nonprofits are asked to collect data to capture the effectiveness of programming, 68% of funders rarely or never cover the costs associated with measuring program outputs or outcomes.

So we still have a long way to go.

But those nonprofits who are faring well in this environment are those being strategic. As one human services nonprofit leader put it:

“Sustainable funding continues to be our greatest challenge. Our actions to address this challenge include developing and adhering to a strong and dynamic strategic plan; diversifying our program funding streams as much as possible; developing and communicating a strong community impact statement for our programs; and focusing on increased donor engagement in order to increase fundraising dollars.”

You can dig further into the data from this and past years’ surveys here.

Photo Credit: Nonprofit Finance Fund

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