Today I am in Sacramento (it’s a busy travel month) speaking at the Nonprofit Resource Center’s 2015 Conference “Building a Mission Focused Community.” I am honored to share the stage with amazing nonprofit sector visionaries like Jan Masaoka from the California Association of Nonprofits and Blue Avocado, Jeanne Bell from CompassPoint, and Robert Egger from LA Kitchen (and past Social Velocity interviewee and guest blogger).
My topic for today’s conference is “Reinventing the Nonprofit Leader.” Amid growing competition, decreased funding sources, and more and increasingly complex social challenges, nonprofit leaders must reinvent themselves. They must unlock the charity shackles, embrace strategy and impact, use money as a tool, refuse to play nice, and demand real help. We need a new kind of nonprofit leader.
Below is a Slideshare synopsis of my talk today, and it joins the growing library of Social Velocity Slideshare presentations.
I so often hear from nonprofit leaders about how difficult it is to convince a donor to give to their organization. They will complain that it seems almost any other cause has an easier time attracting support. For example, the head of an arts organizations once told me how hard he found fundraising because he isn’t “selling cute puppies and kittens.”
But the fact is not that some causes are inherently easier to sell, but rather that some nonprofits are savvier about articulating why someone should give. A nonprofit leader will be most successful at generating support (money, ambassadors, board members, advocates) when she finds donors who share her organization’s specific values and makes a compelling case to them for investment.
So the first step in creating your nonprofit’s message of impact is a Theory of Change — an argument for why your nonprofit exists. A Theory of Change forces a nonprofit’s board and staff to articulate what work they do and what they hope the result of that work will be. In a Theory of Change you answer questions like:
- Who is your target population of clients?
- What core mission-related activities are you engaged it?
- What outcomes are you hoping to achieve from those activities?
You must articulate what social change you are seeking if you want to attract partners in that work.
The second step in your message of impact is to create a Case for Investment that lays out a logical argument for why you need support for that change work. A case for investment includes an articulation of:
- The community need that you are trying to address
- Your nonprofit’s unique solution to that need
- The impact (or results) you are achieving
- Your financial model
- The strategic direction of your organization, and
- The resources required to bring your plans to fruition
And the third step is making sure that you are talking to the right potential donors. You must find people (individual donors, foundation officers, corporate heads) who recognize and are passionate about solving the same community need which your nonprofit is uniquely positioned, because of your core competencies, to solve. Like this:
In other words, your fundraising target is NOT anyone and everyone, but rather a very specific group of people who share your nonprofit’s view of a community problem.
Once you create a Theory of Change and a Case for Investment and identify the prospects who might be predisposed to support your work, you are sufficiently armed to present your pitch. With a clear argument and a target list of prospects you can more effectively gather partners.
If you want to learn more about creating a message of impact for your nonprofit, download the Design a Theory of Change and the Craft a Case for Investment guides. And if you want to learn how to find the right donors, download the Attract Major Donors guide. Good luck!
Photo Credit: Settergren
There was an historic victory last month in the battle to rid the nonprofit sector of the Overhead Myth. The federal Office of Management and Budget adopted new Uniform Guidance rules that when any local, state or federal agency contracts with a nonprofit at least 10% of the contract must fund the nonprofit’s administrative costs (what the government calls “indirect costs”).
This is huge because nonprofit leaders report (here and here) that government contracts rarely fund even 10% of indirect costs and many times closer to 0%. While this is a big step forward, there is still much work to do in getting nonprofits the money they need to fund the full costs of their work.
The sector is so underfunded largely because we have taught nonprofit leaders that they should keep their indirect costs as low as possible. This is such a ridiculous shackle to put on the sector.
So nonprofits and funders must move to a place where we are funding the full costs of effective operations. But that won’t happen overnight. In fact, it requires that nonprofit leaders do four key things:
- Calculate the Full Costs of Each Program
In order to tell funders and government contractors exactly how much a program costs, you need to first understand those costs yourself. And the full costs of a program include BOTH 1)the direct costs (like the program director’s salary, program materials), and 2) the indirect costs (like the percent of the executive director’s salary spent on the program, office rent and utilities devoted to the program). Bridgespan created a really nice guide to figuring out the full (direct and indirect) costs of each of your programs.
- Articulate Those Costs to Funders
Once you’ve figured out the full costs of each of your programs, you must articulate those full costs to funders (individuals, foundations, government contractors) interested in supporting your programs. Explain how you came up with the full costs of each program, why you included both direct and indirect costs, and why you need support for ALL of those costs in order to effectively run the program. If a funder balks at supporting indirect costs, explain that a program without space, leadership, evaluation, or systems would not function, let alone function as effectively as it does.
- Analyze Your Overall Program Mix
But don’t stop there. Turn this new knowledge about the financial impact of each of your programs into a strategic tool. Once you figure out what each individual program fully costs, you can compare the financial and social impact (how well it contributes to your mission) of each program to each other, like this in order to understand how well your entire program portfolio contributes to the money and mission of your nonprofit. Through this analysis you can determine what programs you should expand, which you should continue, and which you may need to cut.
- Stop Selling Your Nonprofit Short
Once you’ve figured all of this out, stop accepting less than what your nonprofit really needs. When you allow a funder to haggle their way to receiving the full product without paying the full price you are undermining your organization and your mission. If a funder can’t or won’t pay the full costs then find someone else who will, or scale back on your programs until you do. Nonprofit leaders must break out of the nonprofit starvation cycle of agreeing to do more and more for less and less. You must stop running programs, or worse, adding new programs when they are not fully funded. Be honest with your board, your staff, your funders, and yourself about what each program really costs and whether or not you have the funding to continue (or grow) those programs.
I believe the Overhead tide is really turning. Nonprofits and their funders are starting to recognize that great programs take real money. But to truly take advantage of that trend nonprofit leaders must figure out the full cost of their programs and have the confidence to ask for, and receive, the funding to cover those costs.
Photo Credit: Dave Dugdale
Almost two years ago three nonprofit rating organizations launched the Overhead Myth campaign aimed at eradicating “the false conception that financial ratios are the sole indicator of nonprofit performance.” Call me an optimist, but I think it might be working. I see more nonprofit leaders and funders discussing the radical idea that overhead might not be a bad thing. We still have a long way to go, but perhaps there is progress.
The bad news, however, is that the Overhead Myth is only one of many (way too many) destructive nonprofit myths. So in this new year, let’s look at those additional myths that hold the nonprofit sector back.
As we all know, a myth is a story that everyone believes, but is actually not true. Here are the 5 most egregious myths I see in the nonprofit sector:
- Good Nonprofits Don’t Make a Profit
For some reason it is unseemly for a nonprofit to have more money than they immediately need. The best a nonprofit should hope for is to break even, and if they do run a profit, they should not be fundraising. To the contrary, a nonprofit with operating reserves can invest in a more sustainable organization, conduct evaluations to make sure their solution is the best one, recruit a highly competent staff, and weather economic fluctuations. For a donor it is far better to invest in an organization with the people and systems necessary to effectively tackle a social problem than an organization that is barely getting by. The best nonprofits are those that create a financial model that allows them the money mix (revenue, capital, reserves) necessary to make the best decisions and invest where and when they must.
- There Are Too Many Nonprofits
I’m so tired of the refrain (mostly by funders) that there are “too many” nonprofits. Does anyone complain about how many tech startups there are? This myth comes from the fact that the sector is undercapitalized which causes organizations to compete for scarce resources. So let’s fix that problem instead. To be sure, there are times when it makes sense to bring two nonprofits that address similar needs together in order to save costs, but that’s usually the exception not the rule. The process of merging two organizations is itself incredibly time-intensive and costly, and, honestly, rarely do funders invest the amount of resources required to ensure a successful merger. Every nonprofit should regularly assess their Theory of Change and how they fit into the external market place of social problems and competitors working on similar problems. If a nonprofit finds that they are no longer adding unique value to that marketplace, then they should reorganize, merge, or disband, whichever makes most strategic sense.
- Nonprofits, Unlike Businesses, Are Inefficient
This myth takes many forms: “nonprofits are too slow,” “nonprofits should sell more products or services”, “nonprofits should run more like a startup,” and the list goes on. The underlying assumption is that the for-profit world is inherently smarter, more strategic, more nimble and more effective. But the truth is that all three sectors (business, government, and nonprofit) have their stars (like Apple), their screwups (like Lehman Brothers) and the multitude in between. Inefficiency in the nonprofit sector is merely a symptom of a larger problem, which is the persistent lack of adequate capital to fund enough of the right staff, technology, systems, evaluation, marketing required to address the intractable problems nonprofits are trying to solve. Let’s talk about that instead.
- Nonprofits Are Outside the Economy
This is the myth that nonprofits are “nice to have” and make everyone feel good, but are not a critical component of our lives or our economic system. But the fact is that the nonprofit sector employs 10% of the U.S. workforce and accounts for 5% of GDP. And the number of nonprofits grew 25% from 2001-2011, while the number of businesses only grew by 0.5%. As government continues to slough off services to nonprofits, those numbers will only continue to grow. The nonprofit sector is not tangential to the economy, but rather an instrumental part of it.
- Nonprofits Have No Role In Politics
501(c) 3 organizations have long been told to stay out of politics. The myth is that charity is too noble to be mired in the mess of pushing for political change (Robert Egger has written extensively on this). But the fact is that simply providing services is no longer enough to solve the underlying problems. Nonprofits are increasingly recognizing that they can no longer sit by and watch their client load increase while disequilibrium grows. Nonprofits must (and already are) advocate for changes to the ineffective systems that produce the need for their existence.
Being mired in the demoralizing and debilitating cloak of these myths wears the nonprofit sector down. We must follow the Overhead Myth’s example and start uncovering the other myths that hold the sector back. Because the power of a myth is greatly diminished when we openly admit that the myth is only that — a myth.
Photo Credit: We Shall Overcome, Rowland Scherman, National Archives
December is often a fairly quiet month in the world of social change writing because of the holidays and time off, but there was still some great stuff to read. From Giving Tuesday, to Teach for America’s 25th anniversary, to philanthropy buzzwords, to social media trends to watch, to a critique of Charity Navigator’s naughty and nice list, there was a good bit to think about in the world of social change.
You can read past months’ 10 Great Social Innovation Reads lists here.
- Writing in the Harvard Business Review, Umair Haque provides a scathing critique of American politicians and pundits and the dirty little secrets they are harboring about our economy. As he puts it: “We don’t live the lives we were meant to by merrily shoving Artificially Fried Chicken Flavored Dorito Slurpees down our gullets while watching our societies crumble. We live them when we build things. Great things. Worthy things. Noble things. And the greatest, worthiest, and noblest of all things that mankind has ever built are not apps, drones, corporations, or profits. They are societies in which every life counts. In which every life is truly, fully lived.” Wow.
- And speaking of the disparities in our economy, there is growing concern that wealth inequality is making its way into philanthropy. The super rich are disproportionately making up American giving and are supporting their own self interests (i.e. their alma maters, donor advised funds that provide personal tax benefits but no social benefits) as opposed to a redistribution of wealth to the poor.
- Teach For America, the often heralded nonprofit that sends recent college graduates into challenged schools to teach for 2 years, marks its 25th anniversary this year. NPR reports on the challenges the organization faces, including a “self-described TFA resistance movement [with] former corps members [who] say their youthful idealism was cynically co-opted by a group that, in the big picture, acts to the detriment of public education.” Yikes.
- Amazing blogger David Henderson from Full Contact Philanthropy took a writing hiatus earlier this year, but he’s back with a vengeance, and I am loving every one of his posts, especially December’s critique of Charity Navigator’s “naughty and nice list”.
- As is her annual tradition, Lucy Bernholz offers her 2015 philanthropy buzzwords. My personal favorite are “artivists” and “citizen science.”
- I would love to see more nonprofits (and foundations) getting into the advocacy game. Rick Anderson, writing on the Markets for Good blog, provides a really interesting case study of how Washington Nonprofits, the state association for the 58,000+ charitable organizations in Washington State, has been using data to better coordinate with state agencies, elected officials, other nonprofits and foundations.
- December marked the third annual Giving Tuesday, and it was the most profitable yet, raising over $45 Million. Perhaps we have a movement?
- The Wild Apricot blog offers 5 Social Media Trends That Could Impact Nonprofits in 2015.
- Kate Barr from the Nonprofits Assistance Fund encourages nonprofit leaders to stop fearing money. As she puts it, “Let’s eliminate the fear of finance from the nonprofit sector. It doesn’t serve us personally or organizationally. Why? Because nonprofits with strong financial leadership are better equipped to deliver on their promises to the community, explore new territories and foster innovation.” Amen to that!
- The fundraising anomaly of last summer’s ALS Ice Bucket Challenge left a lot of outstanding questions. Not least of which is whether ALS would be able to retain any of those new donors. Beth Kanter talks to ALS CEO Barb Newhouse about exactly that question.
Photo Credit: US Department of Agriculture
The year is winding down, and I will be taking some time off to enjoy friends and family (as I hope you are too). But before I go, I want to leave you with a list of the 10 most popular posts on the blog this year, in case you missed any of them.
I feel incredibly lucky to be able to work with you amazing social change leaders. I am grateful for the amazing work you are doing to create a better world. And I appreciate you being part of the Social Velocity community.
I wish you all a happy, relaxing holiday season, and a wonderful new year. I’ll see you in 2015!
- Can We Move Beyond the Nonprofit Overhead Myth?
- 7 Rules For Brilliant Nonprofit Leaders
- How to Move Your Nonprofit Board From Fundraising to Financing
- Why Nonprofits Must Stop Being So Grateful
- 5 Questions Every Nonprofit Leader Should Ask
- Why Do Nonprofit Leaders Get In Their Own Way?
- 3 Questions to Get Your Nonprofit Board Engaged
- 5 Ways Great Strategy Can Transform a Nonprofit
- Does Your Nonprofit Know How To Attract Big Donors?
- It’s Time to Reinvent the Nonprofit Leader
Photo Credit: Steven Depolo
I love this time of year. Not just because of the approaching space for relaxation, friends and family, and great food, but more importantly because it is a time for reflection. The end of the year offers a natural analytic marker between what was and what is yet to come.
And as is my end of the year tradition on the blog, it’s a time to look ahead to what the coming year might bring for the nonprofit sector. I’ve always said when I create my Trends to Watch lists that I am less clairvoyant and more optimist. I am always hopeful that the nonprofit sector is growing more effective, more sustainable, more able to create lasting social change. That’s the trajectory that (I freely admit) I am predisposed to see.
So here are 5 things I’m really hopeful about the nonprofit sector as we head into the new year.
- Growth of the Sharing Economy
The emerging “sharing economy,” where a good or service is shared by many instead of consumed by one and managed largely through the use of social technologies (think AirBNB, Netflix, TaskRabbit and countless others), will have wide implications for the social change sector. The sector that employed “sharing” long before it was cool will need to understand this changing environment and the implications for their work. Nonprofits should figure out how to navigate this growing interest (and increasing for-profit competition) in the realms of community and goodwill. It will be fascinating to watch.
- More Focus on Crowdfunding
One element borne out of the sharing economy is crowdfunding, and there is no doubt that it is everywhere. I have written before about my skepticism. But my hope is that crowdfunding will move away from ALS Ice Bucket Challenge-like hype and become another financing tool that nonprofits can use strategically. We need to get smarter about what crowdfuding is, and what it isn’t. A Kickstarter campaign makes sense for startup and other capital needs, but not for ongoing revenue. And while Giving Days are exciting, I’d like to see more analysis of what’s new money and what is cannibalized money. There is no doubt that crowdfunding is a force to be reckoned with, I just hope we turn it into a useful, strategic tool that contributes to — not detracts from — sustainable social change financing.
- Decreasing Power of the Overhead Myth
The Overhead Myth, the destructive idea that nonprofits should spend as little as possible on “overhead” expenses (like infrastructure, fundraising, and administrative costs) was laid bare in 2013 when GuideStar, CharityNavigator and BBB Wise Giving Alliance wrote their famous Letter to the Donors of America. This year they wrote a follow up Letter to the Nonprofits of America, arguing that both nonprofit leaders and donors must stop judging nonprofits by their overhead rate and instead focus on a nonprofit’s outcomes. It’s exciting to see this most detrimental of nonprofit myths beginning to crumble, but there is still much work to be done. Not least of which is helping nonprofits articulate and measure their outcomes so that they have a more effective measure with which to replace the overhead rate.
- Growing Emphasis on High Performance
Which brings me to the growing movement for creating more high performing nonprofits. Over the past several years there has been an emerging effort to move nonprofits toward this outcomes approach to their work. The idea is that if nonprofits can better articulate and measure the social change they seek, more resources, sustainability and ultimately more change will follow. In the coming year, a group of social sector leaders (of which I am a member) will release a framework for what practices constitute a high performing nonprofit. But that is just one example of a growing emphasis in the social change sector on results.
- Greater Investment in Nonprofit Leadership
Nonprofit leaders have long traveled a lonely road with inadequate support and resources. Funders and board members often assume that a leader should go it alone, even while for-profit leaders benefit from on-going coaching, training and development. But that is starting to change. A few savvy foundations have invested in nonprofit leadership, and they are beginning to trumpet the benefits of such investments. As more funders understand why investing in the leaders of the nonprofits they fund makes sense, I am hopeful that nonprofit leadership support will become less of an anomaly. And with stronger, more effective and supported leaders comes — I firmly believe — more social change.
Photo Credit: slorenlaboy
In today’s Social Velocity blog interview I’m talking with Albert Ruesga. Albert is the President and CEO of the Greater New Orleans Foundation, known for its leadership in the region after Hurricane Katrina. He serves as chair of Grantmakers for Effective Organizations (GEO) and sits on the Philanthropy for Social Justice and Peace steering committee. He earned his Ph.D. at MIT and taught philosophy at Gettysburg College before entering the world of philanthropy. An accomplished writer, his articles have appeared in the Oxford Handbook of Civil Society, Social Theory and Practice, and other publications.
You can read other interviews in the Social Velocity Interview Series here.
Nell: As President & CEO of the Greater New Orleans Foundation you were deeply involved with the rebuilding efforts after hurricane Katrina and the attempts to use Katrina as an opportunity to kickstart social innovation. Looking back, how successful do you think efforts were to use the aftermath of the storm as an opportunity to create social change?
Albert: I came to New Orleans at the beginning of 2009, three years after New Orleanians had cleared their streets of rubble and buried and mourned their dead. It was also two years after the Greater New Orleans Foundation had launched its very successful Community Revitalization Fund that helped rehabilitate and construct affordable housing for 9,500 families. Certainly some good things have happened under my watch–at least I hope other people will judge this to be true–but it’s worth remembering the substantial good that came before, thanks to the sacrifices of so many.
The term “social change” is as slippery as a fresh Louisiana oyster. How do we measure it? One model that springs immediately to mind is the New Testament story of the sheep and the goats in which God says to those on his right, ‘Come, you who are blessed … ; take your inheritance, the kingdom prepared for you since the creation of the world. For I was hungry and you gave me something to eat, I was thirsty and you gave me something to drink, I was a stranger and you invited me in, I needed clothes and you clothed me, I was sick and you looked after me, I was in prison and you came to visit me.’ You may recall that God had some very choice words for those on his left.
There are many good people in New Orleans who understand and abide by these words. These people–and there are many–continue to be the hope of our city. As individuals or through their foundations, they give generously to help the hungry, the sick, the imprisoned.
We need to remember also that what drew the attention of the world to New Orleans was not a powerful hurricane–powerful storms are by now a commonplace. What drew their attention was the fact that so many people needed to be rescued from their rooftops. What shocked the world were the appalling disparities between New Orleans’s poor, largely black, population and those who were better off. If you judge social change in these terms, I don’t think it’s an exaggeration to say that, metaphorically at least, many New Orleanians are still running for their attics. While there has been progress in some domains, we have not adequately addressed the cultural, structural, and spiritual causes of these disparities.
And before we start pointing fingers at New Orleans, let’s not forget that these same kinds of disparities exist in every metropolitan area in the United States.
Nell: On the White Courtesy Telephone blog you sometimes take philanthropy to task (for being too theoretical, for chasing shiny objects, etc.). Is there something fundamentally wrong with philanthropy? Does the power imbalance between funder and recipient create a dysfunctional relationship that stands in the way of social change?
Albert: There is nothing fundamentally wrong about philanthropy when understood as generosity, as the giving of time and treasure to help others, as giving for the sake of the common good. On the contrary, philanthropy is hands down our greatest achievement as a species.
As for “organized philanthropy,” “professionalized philanthropy,” the philanthropy practiced by foundations large and small — that’s another matter. The problems with organized philanthropy, in my view, go far beyond power imbalances. Several years ago, I tried to summarize philanthropy’s shortcomings in “Twenty-Five Theses”. I still believe these are essentially accurate.
I’m constantly amazed at what our field marginalizes and what it deems important. There’s currently a good deal of discussion about the differences between strategic and emergent models of philanthropy. Highly compensated consultants will make fortunes helping befuddled foundation CEOs like me sort out the differences. But it’s not the model that will make or break our efforts at social change: it’s us; in most cases, we will be the reason our best models will not work. We simply cannot make good omelets out of bad eggs.
We philanthropoids chase the new model, the new technology, the new structure — the “shiny object,” as you call it — because we’re a deeply insecure tribe, lacking the self-awareness we need to admit to ourselves and others that affecting the dynamics of social change is beyond our powers, and that, as a consequence, we really don’t know what the heck we’re doing. Either that, or we do in fact understand how social change works — at least intuitively — and we fear that a frank discussion of the subject will cost us our jobs. Both of these possibilities constitute what I’ve called “philanthropy in bad faith.” I’m not immune to these criticisms; I too am guilty as charged. If my understanding of the field’s shortcomings is at all accurate, it’s because I embody so many of them. Every morning my next blog post stares at me from the bathroom mirror.
Nell: You have written about your hope that the next generation of philanthropists will make some significant changes to philanthropy. And studies have claimed that Millennial philanthropists will be different (although some disagree). How much do you think Millennial philanthropists will actually change philanthropy and in what ways?
Albert: My generation has left a terrible mess for the Millennials to clean up: a huge gap between the haves and have-nots; unthinkable gender and racial inequality; an insecure world; a despoiled environment; the illusion of democracy in our own country; and much more besides. My great hope is that the Millennials will realize that philanthropy-as-usual simply will not get the job done. We need to discourage them as much as possible from thinking and behaving like their predecessors.
If I could give the Millennials one piece of advice it would be this: pay close attention to the frame. While you’re focusing on the content (hunger, homelessness, global warming), the frame you’ve internalized — the frame we’ve all internalized — is keeping us from seeing and understanding the larger picture. What happens locally, pretty much everywhere in the world, is shaped by simple rules of human behavior that have over time led to a global economic order that needs to be made transparent. This awareness, I hope, will be the legacy of the Millennials and their successors.
Nell: One of the areas that the Greater New Orleans Foundation funds is capacity building. Is it possible to convince a critical mass of funders to start investing in nonprofit capacity building?
It’s certainly worth a try, isn’t it? Short of launching a capacity building program, as we did, grantmakers can start by providing general operating support whenever possible (although multi-year support is better), providing grants for capacity building, providing capital for operating reserves, and awarding larger grants. Foundations can teach their program officers to look and listen for cues that a nonprofit needs special assistance. There are so many ways in to the capacity building “space,” ways that cost so very little. The payoffs, in our experience, are substantial.
Photo Credit: Greater New Orleans Foundation
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