Today I am continuing my on-going blog series on the 7 Pillars of the Performance Imperative. The Performance Imperative was released last year as a north star for the nonprofit sector by the Leap Ambassadors, of which I am a member. Pillar 4, about sustainable financing, is obviously my favorite since I am arguably obsessed with nonprofit financial sustainability.
You can also read about Pillar 1: Courageous, Adaptive Leadership, and Pillar 2: Disciplined, People-Focused Nonprofit Management, and Pillar 3: Well-Designed and Implemented Programs.
I believe it is absolutely critical that a high-performing nonprofit organization have a smart strategy for attracting and employing money effectively. Because without a sustainable financial model there is nothing else — no mission, no performance, no social change.
You can download the detailed Performance Imperative here, but here are the highlights of Pillar 4: Financial Health and Sustainability. In a nonprofit that exhibits financial health and sustainability, the board and staff:
- Take charge of their organization’s financial destiny. They articulate the value they deliver and develop overall financing strategies, tightly aligned with their mission, to support and sustain it.
- Establish strong systems for financial stewardship and accountability throughout their organization.
- Build and participate in budget processes that are oriented toward achieving results.
- Share their financial results transparently with key stakeholders regularly.
- Treat fund development as a strategic function that requires focus, management, capital, and specialized skill sets.
- Operate with margins that allow them to build their balance sheet.
- Understand their organization’s cost structure.
- Use financial models to make clear and transparent the organization’s financial condition and predict how it will end the year.
In other words, high performing nonprofit leaders understand, embrace and use money as a tool to achieve social change. They create a robust financial model that articulates true costs and creates a strategy to attract enough and the right kinds of money, engage board and staff in making that model a reality, is transparent with outsiders about the model, and above all uses money strategically. In short, a high-performing nonprofit finances, instead of fundraises for, the social change they want to create.
I want to be very clear, however, that financial sustainability does not mean, as some people sometimes confuse it, that a nonprofit moves away from philanthropy and toward earned income, which is somehow more sustainable. This is a fallacy in thinking that nonprofits can somehow be market-driven. Because nonprofits exist to remedy a disequilibrium in the market economy they will always have to be at least somewhat subsidized, by government, philanthropy, or both. Therefore, financial sustainability in the nonprofit world means creating and executing on an overall financial strategy that allows a nonprofit to effectively deliver on outcomes.
FLY (Fresh Lifelines for Youth), a nonprofit that works with teens in the juvenile justice system to break the cycle of violence, crime, and incarceration, is an example of Pillar 4.
Here is their story, as Christa Gannon, FLY’s Chief Executive Officer & Founder explained it to me:
Three years ago we were extremely fortunate to be a grantee of Edna McConnell Clark Foundation’s PropelNext initiative to help organizations prepare for growth and scale. At the same time as a grantee of our local and sophisticated foundation funder Tipping Point we participated in a comprehensive training on ensuring that our financial and development practices were aligned and consistent with best practices.
Through these two initiatives we had the privilege of learning a great deal and working with outstanding consultants who created the space for us to step back and productively ask ourselves what was working and what could work better for us as we grew. We brought these findings to our board, worked with the consultants to update and refine our practices, created new dashboards, and brought consultants to board meetings and committee meetings to help us elevate our line of sight and institute new ways of being.
We began these efforts with the help of a long-time employee who helped lead our financial efforts for over 7 years (now going on 10 years!). We elevated his role (creating a position for a Director of Finance and Operations), had our consultants provide some coaching and guidance and invested in his capacity to learn, grow, and lead. Additionally, during this time we brought on a new COO with a great deal of financial acumen who helped this process a great deal. It allowed me to take a critical step back from finance to allow new approaches to take hold and grow.
We revamped our monthly financials, our CEO dashboard, and our dashboard for the board. Additionally we created a new budget-building process which includes a multi-year budget (expense and revenue) forecast and straw budgets. We also changed our internal practices for how we managed temporarily restricted net assets. In previous years when we received grants/gifts off fiscal year cycle (and many are) we would hold those funds and spend them down in the latter half of their cycle, which often meant the grants spanned two fiscal years. This created a great deal of extra work and challenges for our team. We modified this process, which has resulted in an increase in net unrestricted assets available to us as we grow and scale.
One challenge we’ve realized in this process is that we have been so extremely cost conscious and frugal that we have unintentionally built a financial model that relies on staffing structures that cannot be maintained as we grow and scale while ensuring the highest quality services that our clients and community deserve.
As these challenges became apparent to us, we have taken critical steps such as reducing case-load ratios for line staff, adding critical positions to support talent recruitment and development, finance, fundraising, evaluation and learning, etc.. To support this capacity building we are investing in our fundraising ability, engaging our board even more in their role to help garner financial resources, and allocating more of my time to strategy, fundraising, and board development.
We have always felt incredibly grateful for the opportunity to help steward the generosity and strategic thinking of our investors, foundation and corporate supporters, and government partners into the world. As our systems for how we tackle financial management have changed and improved that attitude of gratitude has remained.
What has changed for us, however, is a desire and intention to simplify how we think about and manage our funds such that our processes are clear, straight forward, and understandable by all involved without undue explanation or re-education in meeting after meeting (both board and staff). Our efforts to be cost-conscious, thoughtful, and prudent inadvertently led to systems and processes that made our work more complicated and time consuming than it needed to be. In part this reflected my mindset and efforts as founder. It required me to let go and not white-knuckle our financial approach; trust the team, systems, and consultants; and realize that the approach that got us to this point in the organization’s history would not be the best approach to get us to the next milestone.
We are very mindful that the work we do and the population of young people we serve is not a top priority for many philanthropists. As a result, we take every investment very seriously and are very clear that it means a kid gets a chance to become so much more than their past mistakes.
For us, financial investments are life changing for our clients. We may be the only chance they get, so we want to ensure we deploy each resource to its highest and best use.
Photo Credit: FLY
What is it about June and social change? Last June was the landmark ruling by the Supreme Court legalizing gay marriage, a huge victory after decades of social change work. This June, while perhaps not as pivotal, offered some clear glimpses of impending social change.
The horrible tragedy in Orlando stirred Democrats in the U.S. House and Senate to stage protests calling for votes on gun legislation. And the United Kingdom’s vote to leave the European Union sent shockwaves around the world. Add to that some fascinating data (about civil rights and education, charitable giving, and the refugee crisis), some strong words about tech philanthropists, and a distaste for the term “nonprofit,” and it made for an interesting month in the world of social change.
Below are my picks of the 10 best reads, but if you want a longer list, follow me on Twitter @nedgington.
And if you want to see past months’ great reads lists go here.
- In the wake of the brutal killing of 49 people at the Pulse nightclub in Orlando, the U.S. Congress temporarily ground to a halt with a Democratic filibuster in the Senate and then a Democratic sit-in in the House, all in the name of forcing Republicans to take a vote on gun control legislation. While neither effort was successful in passing gun legislation, change may be coming, due in part to a new and growing gun control group.
- June also saw the shocking vote by the United Kingdom to leave the European Union (“Brexit”), a move that many argue will have a huge impact on the global economy. Much was written about the implications of the vote, but most interesting (and most related to social change) were Spencer Wells’ fascinating look at the fundamental economic, demographic and political shifts behind the vote, and Jake Hayman’s view on what philanthropy can learn from it. As he put it: “The future of philanthropy and the future of politics have to lie in something beyond the economic. Indeed it will be the ones that invite those they wish to serve into the heart of decision-making and dedicate themselves to reforming systems – rather than propping them up – that will come to thrive.”
- One of the reasons some in the United Kingdom voted for Brexit may be fear about the refugee crisis. Ever relevant to the issues of the day, Pew Research offers some key facts about the world’s refugees.
- And speaking of votes, in the November U.S. presidential election Millennials (because of their sheer numbers) stand to have a real impact. Derrick Feldmann from Achieve discusses some new research about Millennials’ particular approaches to civic engagement and how they might play out in the presidential election.
- Writing in The New York Review of Books, Lewis B. Cullman and Ray Madoff express “grave concern” about a fundamental shift they see in the funding of the nonprofit sector due to the increasing popularity of donor advised funds (DAFs). Donors receive an immediate tax benefit when setting up a DAF, but the donation may not find its way to the nonprofit sector for years to come. As they put it, “Donor-advised funds have been a bad deal for American society. They have produced too many private benefits for the financial services industry, at too great a cost to the taxpaying public, and they have provided too few benefits for society at large. When we consider their overall effect, we see that rather than supporting working charities and the beneficiaries they serve, they have undermined them.”
- One of the smartest philanthropic thinkers, by far, is Clara Miller president of the F.B. Heron Foundation. She offers a two part treatise (part 1 and part 2) on what the foundation of the 21st century should look like. She writes that foundations must learn to adapt their approach and business model: “While permanence may be a key mission requirement for some…fossilized thinking cannot be. We simply can’t succeed in a vacuum, especially when the pace and nature of the gaps we are called upon to fill have become larger and more frequent, the problems more intertwined and the needs more urgent.” Amen!
- Never one to pull punches, blogger Vu Le has some strong words for a particular type of philanthropist, those coming from tech companies thinking they know how to fix nonprofits. As he tells them, “Don’t think for a moment that just because you’re great at one thing, it means you have the legitimacy to give advice in an area that you have little experience and training in. I don’t go around telling you how to design apps or wifi-enabled smart light switches. If you want to truly partner to solve entrenched issues our community members are facing, then great. But first, get rid of your assumptions and ego. Otherwise, let’s agree to swipe left.”
- Another favorite truth teller, Phil Buchanan from the Center for Effective Philanthropy clearly articulates why the term “nonprofit” is critical and necessary: “Sometimes, nonprofits need to be the voice of opposition to those whose motivation is profit.” Yep.
- Giving USA released their annual data on giving in the nonprofit sector. And if you are hungry for even more data about the nonprofit sector, thanks to a a federal court order the IRS is now providing machine-readable nonprofit Form 990s from 2011 to the present.
- And speaking of fascinating data, the Department of Education released their annual civil rights data, which has been gathered every year since 1968 in order to assess enforcement of civil rights laws. NPR highlights some jaw-dropping findings.
Photo Credit: Kyle Pearce
In today’s Social Velocity interview, I’m talking with Melinda Tuan, project manager for Fund for Shared Insight (Shared Insight), a collaborative effort among funders to make grants that improve philanthropy. In that capacity, Melinda plays a key role in guiding and facilitating Shared Insight’s activities including operations, communication, grantmaking, and evaluation.
Melinda is an independent consultant who works with the senior leadership of philanthropic organizations to develop strategies for effective philanthropy. Prior to starting her consulting practice in 2003, Melinda was managing director of REDF (formerly The Roberts Enterprise Development Fund) – a social venture capital fund she co-founded.
You can read interviews with other social change leaders here.
Nell: One of the reasons the Fund for Shared Insight was established was to encourage more foundation transparency. Recent research from the Center for Effective Philanthropy (CEP) demonstrated that there is still much work to do to make foundations more transparent, particularly about their strategies and impact. How do you think we get more foundations to be more open about these things?
Melinda: We would offer an amendment to the question, as we at the Fund for Shared Insight don’t use the word “transparency” in reference to our overall work. Rather, we prefer to talk about increasing foundation “openness.” Here’s why.
To us, transparency, while important, describes a one-way sharing out of information. As indicated in the CEP research, foundations need to be more open to sharing information – particularly about how they assess their own work, and what they’ve learned about what is and is not successful. However, in addition to sharing more information out, we believe foundations need to be more open to listening and taking in information from grantees and the people we all seek to help, and acting on what we learn to inform our own practices to be more effective.
This very question of how to encourage foundation openness and increase the two-way exchange of information is what we are trying to address throughout our work. The good news is, based on the CEP research which we had the privilege of funding in our first year, foundation CEOs believe being more transparent – sharing more information out – will help them be more effective. Additionally, both foundations and nonprofits agree on the definition of and importance of transparency. This is welcomed news because transparency is an important part of increasing openness.
Building on that, our next phase of work will focus on enabling and inspiring foundations to adopt a variety of approaches to be more open in service of effectiveness. We issued an open request for proposals in May for increasing foundation openness and are currently reviewing 31 proposals for various initiatives such as building networks, providing training, and creating technology platforms among others. We are excited to announce which projects we’ll be funding by the end of July.
Nell: One of the hurdles to more openness among both nonprofits and foundations is the power imbalance between nonprofits and their funders. How do you think we work to overcome that imbalance, or can we? And how do you deal with these power dynamics in the work of the Fund for Shared Insight?
Melinda: While there is no quick fix solution, we believe building trust between foundations and nonprofit partners is a key way to diffuse this power dynamic. There are so many ways we can build – and break – trust, and much of this comes down to how we relate to each other as people. We build trust when we follow-through with what we say we will do in a timely manner, offer support in times of challenge and crisis, listen before speaking, ask good questions, and are curious learners. We break trust when we do the opposite – when we don’t follow through on our commitments, dole out punishment when we hear bad news, talk first and too often, and don’t enter into this work with a spirit of inquiry and wanting to learn for improvement. If foundations are as open with nonprofits as they would like their grantees to be with them, we believe we can work together and make great progress towards building the trusting relationships that can lead to greater overall effectiveness.
At Shared Insight we try to be mindful of the power dynamics in our own interactions and communications with the nonprofits we fund in both formal and informal ways. On the formal side, we have commissioned the Grantee Perception Report (GPR) and are looking forward to sharing what we’ve learned from our nonprofit partners who provided feedback via the GPR in the fall of 2016. On the informal side, we find simply making time to check in with individuals at the beginning of every meeting or call helps to build our personal relationships and establish a baseline of genuine interest in each other’s lives in addition to the work we are doing together. We also try to uphold a high standard of responsiveness and clarity about how we make and communicate our funding decisions – we have to walk our own talk.
As a funder collaborative now 35 foundations strong, we are in the unique position of being both a grantor and a grantee. It’s been fascinating to on one hand have conversations with our nonprofit partners and try to minimize the power imbalance in our interactions, and on the other hand experience the supplicant perspective as we seek funds from our core funders, additional funders and Listen for Good co-funders. We think this dual role helps us be extra-aware of the power dynamic and informs our understanding of helpful practices as the giver and receiver of grant dollars. We’ve learned a lot of useful lessons about these dynamics and relationships since our launch. Chris Cardona from the Ford Foundation, one of our eight core funders, highlighted many of these important lessons in a blog post for Transparency Talk. We know that we’ll continue to learn and grow as we move forward and these relationships progress.
Nell: Your approach somewhat assumes a desire among philanthropists to move to a more evidence-based approach to giving. But some research, like the Money for Good reports, has found that donors as a whole are not that interested in results and impact. Do you believe that much of philanthropy can move toward an evidence-based approach? And if so, how do we get there?
Melinda: The Money for Good research you reference was focused on individual donor decision-making, and found that individual donors are less interested in results and impact. In contrast, our work at the Fund for Shared Insight focuses on staffed foundations in the U.S. Research, at least on the larger foundations, has shown that many foundations are interested in results and impact. For example, the number of foundations belonging to Grantmakers for Effective Organizations (GEO) reporting that they conducted evaluations of their work went from around 20% in 2008 to more than 70% in 2011, and has only continued to grow.
One of our primary research questions regarding feedback loops is whether perceptual feedback from program participants today can serve as leading indicators of future outcomes for those same participants. In education, for example, students who answer in the affirmative to the question “I feel there is a teacher at school who cares about me” have been shown to achieve more positive educational outcomes. We are hoping our grant to Innovations for Poverty Action will help us analyze the relationship, if any, between perceptual feedback and outcomes in randomized controlled trials of programs in developing countries, and we hope to fund a similar project here in the U.S. If we are able to find these linkages between perceptual feedback and ultimate outcomes, this information will go a long way toward helping nonprofits and foundations improve programs in real-time without having to wait 2-3 years for the evidence of outcomes to be demonstrated.
We at Shared Insight are committed to measuring the results of our own work and sharing what we learn, and have devoted an entire section of our website to sharing how we are evaluating our progress toward improving philanthropy. All of our work is focused on learning for improvement, whether through evidence-based approaches to giving, feedback loops, or other ways to understanding the effectiveness of philanthropic investments.
Nell: Recently 22 philanthropic infrastructure organizations (like Guidestar, Nonprofit Finance Fund, Grantmakers for Effective Organizations) signed a letter asking foundations to commit 1% of their grantmaking budgets to supporting the infrastructure of the nonprofit sector as a whole. The Fund for Shared Insight is arguably a piece of this infrastructure, so what do you make of their argument and can you see foundations agreeing to this goal?
Melinda: The Fund for Shared Insight emerged out of a desire among a number of funders to improve the philanthropic sector, especially by strengthening infrastructure and the process of collecting and sharing feedback.
One of the great things about the Fund for Shared Insight is that we are a collaborative. Each of the foundations involved with Shared Insight supports infrastructure in different ways. For instance, Fay Twersky and Lindsay Louie of the William and Flora Hewlett Foundation (a core funder) recently co-wrote an op-ed in the Stanford Social Innovation Review in support of this letter, noting:
“Funders who believe in learning to improve have some obligation to invest at least a small portion of their grantmaking to infrastructure support. Supporting infrastructure doesn’t take away from other giving; it amplifies it. It unites all of us as funders—whether you fund in your local community, focus on a particular issue or multiple issues, or take a policy or research approach. Givers of all stripes can use and benefit from the infrastructure that supports us all.”
Photo Credit: Fund for Shared Insight
Lest you think we’ve made headway on overcoming the Overhead Myth (the false notion that nonprofits must keep their fundraising and administrative costs cripplingly low) you need only look as far as a recent Forbes article, “5 Nonprofit Leaders Share How to Keep Overhead Costs to a Minimum.” And this is perhaps even worse because it is nonprofit leaders themselves, not philanthropists or business leaders, telling nonprofit leaders that overhead is bad.
The Forbes Nonprofit Council made up of “top nonprofit execs [who] offer insights on nonprofit leadership & trends” compiled these 5 “tips” for keeping nonprofit overhead low. And the tips are as insidious as you might think. I know I should take the high road and just ignore this ridiculous article, but I simply can’t. In fact, it boggles my mind that overhead (to borrow a phrase from the brilliant John Oliver) is still a thing.
The Forbes article neglects to point out that the concept of “nonprofit overhead” has undergone a real transformation in the past few years. It assumes that “overhead” is still a dirty word, but anyone who has been paying attention knows that that is no longer a given.
There has been a movement among nonprofits and their philanthropic and government funders to evaluate nonprofits based on their results, rather than just their overhead rate. The federal government and some local governments have moved to increase the indirect costs paid to nonprofits. And just last month a new Bridgespan study analyzed the indirect costs of 20 different nonprofit organizations and found, not surprisingly, that overhead rates vary greatly depending on the business model and industry of a given organization (just as it does in the for-profit sector).
So for the Forbes article to simply encourage nonprofits to keep their overhead as low as possible ignores the changes that have occurred in the sector and the very real fact that different organizations, business models and issue areas might require very different administrative and fundraising costs.
But beyond those huge oversights, the Forbes article does a further disservice to the nonprofit sector by providing 5 ridiculous and crippling “tips” for keeping overhead low. Here’s why each one is so wrong:
- “Look for Low-Cost IT Options”
To the contrary, I would say that many nonprofits don’t spend enough on IT. So often nonprofit leaders are using outdated technology and systems, or worse, not gathering data at all because they simply don’t have the funds. Nonprofits need to spend more, not less, on IT.
- “Don’t Overwork Your Team”
Seriously? Isn’t overwork simply a given in the nonprofit sector? Because nonprofit leaders often don’t have the funds to hire enough staff, they ask the staff they do have to wear too many hats. The solution is not to tell nonprofit leaders to stop overworking their team. Rather nonprofit leaders must raise the funds necessary to fully staff the work. And that means we need more money in the sector for capacity building.
- “Reward Innovation”
The Forbes article advises nonprofit leaders to “create a culture that rewards innovation and encourages employees to be scrappy.” Certainly on this point nonprofits already win in spades — nonprofits are nothing if not scrappy. But I’m not sure scrappiness and innovation go hand in hand. It’s hard to be innovative when you are worried the doors may close tomorrow. Innovation comes with more capacity capital — once nonprofits have the tools, systems and people they need, innovation can follow.
- “Maintain a Clear Business Methodology”
And here’s where Forbes falls back on the old stand by — nonprofits need to act more like businesses. But what clear business methodology advises undercutting the sales function (fundraising in the nonprofit sector), systems, and staffing? Why do we choose only some of the ways we want nonprofits to “be like businesses,” but ignore others? No successful business leader will tell you that is a smart strategy.
- “Invest in Community Leaders”
The Forbes “experts” encourage nonprofit leaders to hire more volunteers, students and interns in order to save on staff costs. NOOOOOO! If we are truly going to solve the challenges we face, we need more experts, not fewer. While volunteers and students are great for rote tasks, that only gets you so far. Nonprofits need expert fundraisers, brilliant program people, IT geniuses and more. We don’t encourage Silicon Valley to hire more volunteers and interns to create the next tech solution, so why tell nonprofit leaders to hire more volunteers and interns to create the next social solution?
Can we please, please, please move beyond this broken and damaging view of nonprofits? We would never ask the makers of the next shiny widget to cut their sales, staff and systems to the bone. So let’s not demand that of those working to save the world.
Instead, let’s have a smarter conversation about how social change leaders must ask for (and receive!) the tools they really need to make our world a better place.
Photo Credit: Adrian
May offered some interesting insights into the world of social change. From a plea by nonprofit infrastructure groups for more funding, to some criticisms of philanthropy’s unwillingness to invest in rural economies or provide a realistic runway to nonprofits, to digital’s impact on journalism, to the evolving sharing economy, to a call for more nonprofit board resignations, to a way to break the nonprofit starvation cycle, there was a lot to read.
Below are my picks of the 10 best reads in the world of social change in May. But you can always follow me on Twitter (@nedgington) for a longer list.
And if you are interested in past months’ 10 Great Reads lists, go here.
- Perhaps the biggest news of the month was the letter written by 22 groups, which provide support to the entire sector (like the National Council of Nonprofits, the Nonprofit Finance Fund, and GuideStar), asking foundations to provide more funding for the nonprofit ecosystem. GuideStar CEO Jacob Harold (here) and National Council of Nonprofits CEO Tim Delaney (here and here) explain why this issue is so important. But Pablo Eisenberg disagrees.
- National Committee for Responsive Philanthropy Executive Director Aaron Dorfman takes philanthropy to task for not investing enough in rural communities, where change is needed most. As he puts it: “The philanthropic sector continues to neglect rural communities. A changing national economy, entrenched racial inequity and foundations’ reliance on a strict interpretation of strategic philanthropy has meant philanthropic resources for rural communities are few and far between, just when the opportunities for change are most urgent. This has to change if we want to see progress on the issues we all care about.”
- Piling on to the criticism of philanthropy, Laurie Michaels and Maya Winkelstein from Open Road Alliance, encourage their fellow philanthropists to help nonprofits deal with risk and disruption. As they put it: “Most grant budgets are designed with zero cushion even when the nonprofit is working in tough conditions that can turn the simplest obstacle into an unmanageable issue…any unexpected but inevitable change or deviation in the budget is potentially catastrophic. The nonprofit’s inability to fluidly adapt the budget to manage these roadblocks, however minor, can jeopardize even the largest of undertakings…Risks alone are threatening, but when the concept of risk goes unacknowledged, undiscussed, and unaddressed, those risks are more likely to become realities. All this adds up to lower impact, turning manageable events into liabilities.”
- Maybe female philanthropists can turn the tide. The Lilly Family School of Philanthropy released some fascinating new research about how women are changing philanthropy. And Megan O’Neil, writing in The Chronicle of Philanthropy, explains how nonprofits must adapt in order to tap into this growing philanthropic force.
- Journalism is changing rapidly, due in part to the growth of digital. Research shows that different social media platforms connect people to news in different ways, and long-form journalism is seeing a resurgence thanks to mobile.
- And it’s not just journalism that digital is changing. The Nonprofit Tech for Good blog offers 16 Must-Know Stats About Online Fundraising and Social Media and 5 Ways the Internet of Things Will Transform Fundraising.
- The growth of the “sharing economy”, where consumers rent or borrow goods and services rather than buy them, has huge implications for the social change sector. Pew Research outlines 8 key findings about how Americans relate to the sharing economy and interviews NYU professor Arun Sundararajan about how the sharing economy is evolving.
- Nonprofit Law blogger Gene Takagi pulls no punches in offering 12 Reasons Why You Should Gracefully Resign from a Nonprofit Board. Yes, yes, yes, to more accountability, honest conversations, and clear expectations on nonprofit boards.
- Writing in the Stanford Social Innovation Review, Jeri Eckhart-Queenan, Michael Etzel, and Sridhar Prasad discuss the findings of a new Bridgespan Group study that analyzed the indirect costs of 20 different nonprofit organizations. What they found, not surprisingly, is that indirect rates vary greatly depending on the business model and industry of a given organization (just as it does in the for-profit sector). The authors argue that if more nonprofits understand and report their true costs, nonprofits could break the starvation cycle: “It’s clear that philanthropy’s prevailing 15 percent indirect cost reimbursement policy does not take into account the wide variation in costs from segment to segment. Doing so would have far-reaching effects on philanthropy and grantees. If nonprofits committed to understanding their true cost of operations and funders shifted to paying grantees what it takes to get the job done, the starvation cycle would end.”
- A nonprofit dashboard is a good way to monitor and report on a nonprofit’s effectiveness and sustainability over time. Hilda Polanco, CEO of FMA, explains how to create a great one.
Photo Credit: Omarfaruquepro
As much as we might like to deny it, nonprofits exist in a market economy, which means that nonprofits, like everything else, must compete for customers and resources. Therefore it is critical that you understand where your nonprofit fits in the market.
While a business has one customer, a nonprofit has at least two distinct customer groups:
- Those who benefit from a nonprofit’s work (clients), and
- Those who fund that work (donors, government contractors, etc).
So it is absolutely critical that nonprofit leaders understand what unique value their work brings to these customers. This can be done through a Marketplace Map, which is one of the first exercises (along with a Theory of Change) that I help nonprofit leaders create during a strategic planning process.
A nonprofit organization is best positioned to create social change in a sustainable way when their core competencies (what the organization does better than anyone else) intersects with a community need (or set of social problems) apart from their competitors or collaborators, like this:
But don’t get me wrong. I am not saying that a nonprofit shouldn’t collaborate.
On the contrary, nonprofit leaders must forge strategic alliances that help move the social change they envision forward. However, when they create those alliances, they must be crystal clear about what their organization brings to the table, versus what a potential ally brings to the table. Thus, a marketplace mapping exercise is absolutely critical to charting a way forward.
In order to create their marketplace map, a nonprofit’s board and staff must answer these three key questions:
- Core Competencies: What superior assets (expertise, relationships, etc.) do we possess as an organization that are not easily replicable?
- Community Needs: What community needs/social problems are we attempting to address?
- Competitors/Collaborators: What other entities are working on some/all of those same problems?
The social change sector has become increasingly competitive in recent years. Now more than ever, nonprofits need to understand this external marketplace of competitors/collaborators against their own core competencies in order to understand the unique value that their nonprofit can contribute.
From this marketplace mapping exercise, some key strategic questions will emerge for the nonprofit, such as:
- Where do our core competencies and activities end, and where do others’ begin?
- Is our nonprofit better positioned than other entities to conduct all of the activities (from our Theory of Change) that we currently do? Should some activities be left to those who do it better?
- Are there core competencies that we must develop in order to better address the community needs we’ve identified?
- Are there collaborators/competitors that we should be more strategic about aligning with?
Creating a Marketplace Map, much like creating a Theory of Change, is an incredibly useful exercise that gets your board and staff thinking in bigger, more strategic ways about your work. And those more strategic conversations can help lead to a more effective and sustainable path forward.
If you want to learn more about how I work with clients to develop their strategic plan, download the Strategic Plan benefit sheet.
In today’s Social Velocity interview, I’m talking with Isaac Castillo, Director of Outcomes, Assessment, and Learning at Venture Philanthropy Partners, where he leads VPP’s approach to data collection, data reporting, and outcome measurement.
Prior to coming to VPP, Isaac served as the Deputy Director for the DC Promise Neighborhood Initiative (DCPNI). At DCPNI, Isaac led efforts to improve outcomes in the Kenilworth-Parkside community in Ward 7 of the District of Columbia through the strategic coordination of programmatic solutions and research-based strategies. Prior to his time at DCPNI, Isaac served as a Senior Research Scientist at Child Trends where he worked with nonprofits throughout the United States on the development and modification of performance management systems and evaluation designs. In addition, Isaac was also the Director of Learning and Evaluation for the Latin American Youth Center (LAYC) where he led the organization’s evaluation and performance management work.
You can read interviews with other social change leaders here.
Nell: You have spent your career using data to improve the performance of the nonprofits for which you worked. Why do you think performance management is so important for nonprofits? Do you think all nonprofits should pursue performance management? When does it make sense and when doesn’t it?
Isaac: I believe that every nonprofit should pursue some form of performance management because they owe it to the clients they serve. Most nonprofits will assume that they are making a positive difference in people’s lives, but in the vast majority of cases they are just guessing. Using some form of performance management will allow every nonprofit organization to confirm this thinking and to identify areas that can and should be improved so that the next cohort of participants can get better services than the last.
Unfortunately, one of the greatest challenges preventing a nonprofit from implementing some form of performance management isn’t a lack of resources, expertise, or time. It is fear. The fear that they will find out that their work isn’t having a positive effect. This fear is what nonprofit leaders need to overcome, not for the benefit of themselves or their organization, but because they owe it to the clients they serve today and the clients they will serve in the future. I believe that every nonprofit should strive to serve tomorrow’s clients better than today’s clients, and one of the only ways to ensure that this happens is the sustained use of performance management.
The type of performance management that each nonprofit should pursue should vary by the size and scope of their work. At a minimum, small nonprofits should be tracking basic demographic and attendance information on their participants, and hopefully at least one meaningful output or outcome. Whether this occurs in a computerized system or in a spiral paper notebook is up to the nonprofit. But it doesn’t have to be costly, and it doesn’t take expertise. It only takes the will and desire to improve as a nonprofit.
Nell: In the nonprofits in which you’ve worked how have you been able to secure resources to fund performance management? What is the case you and your colleagues have made to funders and what do you think it will take to get more funders investing in performance management?
Isaac: Raising funding for performance management work usually takes a mix of several different strategies and approaches for potential and existing funders.
First, I strongly encourage nonprofits to include some percentage (1 to 5 percent – possibly more) of funding in each grant submission or proposal dedicated to supporting performance management and outcome measurement work. By placing this small percentage into each proposal, a nonprofit can begin to raise funds for internal evaluation and performance management activities. It may not seem like a lot, but it can add up, and eventually generate enough funds for a half-time or full-time position to support in-house performance management work.
Second, I also strongly encourage nonprofits to engage in regular ‘funder education’ – where a nonprofit proactively meets with their funders to have ongoing conversations about outcome measurement and evaluation. This allows both the funder and the nonprofit to come to agreement on measurement expectations and to ensure that both groups are focused on the same concepts. I often suggest that the first of these types of meetings focuses on each group’s definitions of three commonly misunderstood terms: outputs, outcomes, and impact.
Finally, I would recommend that the nonprofit and funder have an honest discussion regarding expectations of results and the funding necessary to support the related evaluation work. If a funder is expecting an random control trial (RCT) to be completed to determine ‘impact,’ then the nonprofit should be willing to push the funder to support a large investment to pay for a high quality evaluation. If the funder is only willing to support a small amount for outcome measurement, then the nonprofit should clearly articulate what is possible.
Nell: Ken Berger and Caroline Fiennes recently argued that we may have gone too far by asking nonprofits to produce research about their own outcomes. What’s your response to that argument?
Isaac: I fully support Ken and Caroline in their argument that most nonprofits should stay away from trying to produce impact research. The desire for ‘impact’ is something that has been (and continues to be) pushed unfairly (and without financial support) by the funding community.
I honestly think a lot of confusion in this space comes from inconsistent use and understanding of the term ‘impact’. The term ‘impact’ has a precise definition among researchers but is often used in a much broader context among funders, nonprofits, and the general public. In the research and evaluation world, impact is used to describe the effectiveness of a program while eliminating as many potential confounding factors as possible. That is why the use of random control trials (RCTs) is usually the cornerstone of impact research – RCTs are the easiest way to control for and eliminate confounding factors.
When most non-researchers use the term ‘impact’ however, they are usually just asking if the program or organization works and if it is making a difference for its intended service population. That is a much lower bar to set, and yet it is a critical distinction in this discussion. If you are thinking about ‘impact’ as a researcher, you will need a large amount of resources and expertise to determine ‘impact,’ which usually means completing one or more formal evaluations. If you are thinking about ‘impact’ in the more general sense and less strict way, then pursuing some form of performance management system will allow a nonprofit to determine if their efforts have been successful.
I do think every nonprofit should pursue some form of performance management to ensure that their work is having a positive effect as a complement to existing research that others have done. Relying only on the use of others’ research does not guarantee that a nonprofit will provide effective services and achieve positive outcomes. This type of research is a like a recipe – it shows what has worked in the past and provides a guide for the nonprofit – but a recipe can still be ruined with poor implementation or planning.
Every nonprofit has an obligation to the people they serve (and not to their funders) to ensure that their programming is having a positive effect (or at the very least not causing harm). Without some form of performance management system in place (even one that just uses paper and pencil), a nonprofit will never know if they have strayed too far from the recipe provided by previous research.
I also think there are a growing number of very sophisticated nonprofits that should be using AND producing research on effective programs. Every year, I see more and more nonprofits that hire talented and unbiased researchers dedicated to internal evaluation and outcome measurement work. These individuals are just as talented and unbiased as their colleagues working in traditional research and evaluation organizations. They can, and should, produce original research that can help inform the nonprofit field. The real challenge comes in nonprofit organizations finding the resources to support the hiring and retention of these individuals. Not every nonprofit will have the resources or capacity to hire one or more of these individuals – but those that do should absolutely be trying to produce original outcome and impact research to provide ‘recipes’ for effective programming that nonprofits with fewer resources can use in the future.
Nell: Your former organization, DC Promise Neighborhoods, is part of the national Promise Neighborhoods Initiative launched by the US Department of Education in 2010 and modeled after the famous Harlem Children’s Zone. How successful has this national replication of a successful local model been? Have you been able to replicate outcomes? And what hurdles, if any, have you and other replication sites found?
Isaac: I think that there has been some initial success among the Promise Neighborhoods. Part of the challenge that all the Promise Neighborhoods face is that the Harlem Children’s Zone did not achieve their success overnight. They have been working in Harlem for decades, so it would be unrealistic to believe that the Promise Neighborhoods would be able to create large scale change in a matter of a few years.
However, there are signs of progress across all of the Promise Neighborhoods. Each of the Promise Neighborhoods started to address a few outcomes with the initial round of funding, and these outcomes varied. Some focused on math and reading proficiency for students, some focused on obtaining medical homes for young children, and others sought to increase the amount of healthy food consumed by residents. In DC, we focused on improving school attendance.
I do think that most of the 12 Promise Neighborhood Implementation grantees were able to make progress on the outcomes they identified as initial focus areas. However, the very nature of the work (creating community level change) doesn’t lend itself to the rapid accomplishment of multiple outcomes in a short period of time. Each of the Promise Neighborhoods had to prioritize certain outcomes for their respective communities, and only several years later are they able to claim success and begin to identify the next set of outcomes to be addressed. So while certain outcomes haven’t necessarily been replicated across all the Promise Neighborhoods, that is due to the differences in priorities and community conditions rather than any problem with the model itself.
Photo Credit: Venture Philanthropy Partners
I’m a little late on my 10 great reads list this month because the GEO conference kept me busy, but there was lots going on in April. From the most pressing issues facing foundation leaders, to what history can tell us about new philanthropy and combatting xenophobia, to how nonprofits create economic value, to Millennials and social change, to state lawmakers attacking nonprofits, it was not a slow month.
Below are my 10 favorite reads from the month of April.
- If you read only one thing on this list, let it be Ruth McCambridge’s fascinating interview with media theorist Douglas Rushkoff. He argues that a nonprofit (or benefit corporation) business model is far better at creating value than a corporate model that operates under a “scorched earth policy.” He argues that corporations transfer value only to their shareholders, instead of the economy as a whole. As he puts it:
“Unlike the for-profit sector, the nonprofit company can’t sell itself, and it doesn’t have shares that go up in value…the way you make money is not by making your share price more valuable and then selling those to other people…the investment that you put in the company stays in the company. You can’t extract that when you leave. So, it’s much more like a family business, and if you look at the data, family businesses do better than shareholder-owned businesses in pretty much every single metric, and they last a whole lot longer. You’re building a company not because you want to take value out of it and then use that money to bequeath an inheritance to your grandchildren, but rather you’re building a company that you hope will still be around when your grandchildren need a job, to circulate wealth when you die. That’s why I’m trying to convince Internet startups to be benefit corporations, multipurpose corporations, or best of all, nonprofits.”
- And if you only have time to read two things on this list, let the second thing be Phil Buchanan’s essay on the five most pressing issues facing foundation leaders, “Big Issues, Many Questions.” A thought-provoking read.
- Pew Research provides a cool interactive graphic of the ebbs and flows of political polarization over the last 20+ years.
- While we are talking about change over time, I have always thought there are great parallels to be drawn between the philanthropists born of today’s digital age and the Gilded Age philanthropists. Nellie Bowles writing in The Guardian seems to agree in her piece about the “Digital Gilded Age.”
- And speaking of the history of philanthropy, Alfred Perkins, writing on the HistPhil blog, sees parallels between our current xenophobic political environment and the anti-Japanese sentiment in World War Two. But back then Rockefeller Foundation philanthropist Edwin Embree fought it. And perhaps there is a lesson there for philanthropy today: “By moving boldly beyond the customary boundaries of organized philanthropy, Embree was able to challenge deeply-held prejudices, demand justice for a vulnerable minority, and extend the impact of the monies he disbursed. This pioneer of his profession would not have voiced the idea, but implicit in his words and actions is the notion that foundation executives might on occasion serve as the nation’s conscience. In these less stringent times, his example might provide useful lessons for his contemporary successors—to the benefit of the philanthropic enterprise, and the nation as a whole.”
- So what will the future of social change be? All eyes are on Millennials, from how they turn out to vote, to how they donate, to what they think of capitalism, to how they find housing.
- A recent conference focusing on “maintainers” rather than the overly popular “innovators” aimed to uncover how critical the role of those maintaining the world in which we live are. As one of the conference organizers, Lee Vinsel (assistant professor of science and technology at the Stevens Institute of Technology) put it, “The vast majority of technologies that surround us and underpin our lives are not innovations. And the vast majority of labor in our culture is not focused on introducing or adopting new things, but on keeping things going.”
- Nonprofits have been under fire lately by state lawmakers who are trying to make it even harder for nonprofits to do their work. Tim Delaney from the National Council of Nonprofits provides an overview on what’s happening and what we can do about it. And Erin Bradrick delves into a proposed California bill that didn’t make it out of committee but sets a dangerous precedent on legislating nonprofit overhead rate disclosure in fundraising.
- Particularly during an election cycle, the struggle of the modern news media becomes more evident. The Knight Foundation released a troubling report that the news media has grown less able to defend their First Amendment rights in court. And French economist Julia Cage argues in her new book that the news media should embrace a nonprofit business model in order to reflect better its social role of bolstering our democracy.
- Hanh Le from Exponent Philanthropy and Rusty Stahl from Talent Philanthropy make a very convincing case about why funders should invest in nonprofit talent. Let’s hope this helps turn the tide.
Photo Credit: Stepan Lianozyan via Wikimedia Commons