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Foundations

Nonprofit Leaders, Get Outside Your Walls

It amazes me how many nonprofit leaders form their organizational strategy, their fundraising pitch, or their program model inside their nonprofit’s own walls. In order to be successful, you must understand the market in which you operate. And in order to understand it, you must go investigate it.

It is a simple fact that nonprofits must compete for funding, for clients, for volunteers, for staff, for board members, for mindshare, for policymaker will and commitment. So you must understand the market in which you work – what’s happening out there and how you fit in.

Ongoing market research can help you understand how your clients and potential clients think, what your funders want now and in the future, what your competitors and collaborators are doing and where they might be going, and how the very problems you exist to solve might be changing over time.

And there is another huge benefit to this data gathering — it forces you to expand and strengthen your network, because in the very act of finding out what’s happening outside your walls, you will forge new and deeper connections with others out there. So while market research should definitely be part of your long-term strategic planning process, it is also something you should continue to do on at least an annual basis.

Market research is where you test the assumptions baked into your work. You are seeking to find the answers to questions like:

Competitors/Collaborators

  • How are the efforts of other groups in our space changing over time?
  • How are these other groups funded?
  • What are their program delivery models?
  • What are their plans for the future?
  • Where are there opportunities for alliance?
  • How do they define the social problems they are working on?

External Context

  • What other social, technological, economic, demographic, political, regulatory shifts are happening outside our walls that might affect the problem(s) we are working on?

Target Populations

Of those people or groups you are trying to influence or benefit (like your clients) find out:

  • What are the demographic (age, gender, race, ethnicity, income, etc.) characteristics of these groups?
  • What are their psychographic (attitudes, interests, goals, etc.) characteristics?
  • How can we best reach them and change their attitudes and/or behavior?
  • What specific subsets of these populations can we have the greatest impact on?

Funding

  • How might our various funding streams (government, earned income, private donations, etc.) change over time?
  • What might our current or future funders want in the future?
  • What appeals to them about our solution?
  • What appeals to them about alternative solutions?

Before embarking on any market research, think through questions like these and figure out which are most applicable to your situation. This becomes your market research list.

Then determine how you will find the answers to those questions. Very few nonprofits can afford a comprehensive market study, so it will likely be up to your staff to do the digging. This can include activities like:

  • Web research on your competitors, collaborators, funders.
  • One-on-one interviews with current and potential funders, collaborators and competitors, experts in your field.
  • Surveys of your current or potential clients, members, influencers, funders, volunteers.
  • Review of existing research on the social issues on which you work.

And don’t assume that you will do this type of market research only once. Rather, you want to make it a regular part of operations (at least annually, if not more often), so it shouldn’t be overly burdensome. Make it easy and interesting for you and your staff to get beyond your walls and better understand the market in which you work.

Armed with new and ongoing knowledge about your market, you will be better able to design effective programs, attract additional support, articulate your nonprofit’s unique value, grow your network, and much more. So get out there!

Photo Credit: Ministry of Information Photo Division Photographer, Wartime Social Survey

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How Funders Can Help Overcome the Overhead Myth

Note: In April I will be moderating a panel at the Center for Effective Philanthropy Conference about what funders can do to support nonprofit sustainability. To promote that panel and the conference, the Center for Effective Philanthropy asked me to write a post for their blog, which is reprinted below. You can see the original post at the CEP blog here.

 

Among the many myths that pervade the nonprofit sector, the Overhead Myth is perhaps the most destructive. It is the erroneous idea that nonprofits must keep their fundraising and administrative costs cripplingly low, which leads to anemic organizations that are not as effective as they could be.

In fact, the disparity between the nonprofit and for-profit sector in investment in strong organizations is striking. As just one example, research from the Foundation Center found that in 2011, the business sector spent $12 billion on leadership development, whereas the nonprofit sector spent $400 million. Or, viewed another way, businesses spent $120 per employee on leadership development, whereas the nonprofit sector spent $29 per employee.

But the reality is that nonprofit organizations are no different than for-profit organizations in terms of overhead. Last summer a 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).

Some nonprofit, philanthropic, and government leaders are recognizing that we must move beyond the Overhead Myth and start building stronger nonprofit organizations. This is partly due to the Overhead Myth campaign, launched in 2014 by GuideStar, CharityNavigator, and BBB Wise Giving Alliance with their famous “Letter to the Donors of America” and follow up “Letter to the Nonprofits of America,” which argue that nonprofit leaders and funders must stop judging nonprofits by their overhead rate — and instead focus on a nonprofit’s results. So the idea is that instead of evaluating the effectiveness of a nonprofit organization based on how it spends money, funders would move to evaluate the effectiveness of a nonprofit based on the results it achieves.

This campaign has gained some traction. The federal government and some local governments have moved to increase the indirect costs paid to nonprofits, which means more money for things beyond direct program costs.

But unfortunately, we are far from overcoming the Overhead Myth. An article just this month in Philanthropy Daily extoled the virtues of the Salvation Army because “the most effective nonprofits are those with lean management. The Salvation Army is a constructive example of an effective charity with very low overhead.” And a recent article in Forbes profiled five nonprofit leaders advising other nonprofit leaders about how to keep overhead costs low.

There is still much work to be done in recognizing the need for and investing in strong, effective nonprofit organizations.

Which is where progressive funders, like those who will be attending the 2017 CEP Conference in Boston in April, come in. If a critical mass of funders could start supporting nonprofits to create strong and effective organizations, we could perhaps overcome the Overhead Myth once and for all.

But what does that look like? In my mind, funders can lead the effort to eradicate the Overhead Myth by:

  • Working with their nonprofit grantees to uncover the full costs of their work. Instead of hiding or severely limiting non-program costs, nonprofit leaders must fully analyze, report on, and fund ALL of the expenses necessary to achieve results.
  • Uncovering the capacity constraints that impact their grantees. Funders must actively work with their grantees to determine what is standing in the way of building stronger, more effective organizations — and then fund the solutions to those hurdles.
  • Moving from program-specific funding to unrestricted, general operating support of the organization.
  • Investing in the revenue-generating functions of their grantees. It takes money to create mission, so we need more investments in sustainable financial models, which includes (among other things) smart plan development, recruitment of effective revenue-generating staff, and training of board members on their role in the financial model.

The good news is that there are already funders who are doing these things. For example, there is the collaboration of California grantmakers who lead the Real Cost Project aimed at helping grantmakers understand “what it would take to fund the real costs of the organizations they support — that is all of the necessary investments for a nonprofit organization to deliver on mission and to be sustainable over the long term.”

So to help move this conversation and work further, I will be moderating a breakout session at the 2017 CEP Conference titled “Supporting Nonprofit Sustainability,” where Jacob Harold, president and CEO of GuideStar, Vu Le, nonprofit blogger and executive director of Rainier Valley Corps, and Pia Infante, co-executive director of The Whitman Institute, will be discussing how foundations can start advocating for and investing in stronger, more effective nonprofit organizations.

If nonprofits and those who fund them could overcome the Overhead Myth once and for all, it could be a watershed moment for social change.  It would be the point at which we move from a nonprofit sector that is just trying to get by to a nonprofit sector that is armed with the people, infrastructure, and systems necessary to deliver on lasting social change.

I hope you’ll join us for what promises to be an exciting conversation.

Photo Credit: Mike Baird

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Is Your Nonprofit Stuck In A Rut?

The other day I was talking with a nonprofit leader and was suddenly struck by how much his story echoed so many of the stories I hear from nonprofit leaders.

See if your nonprofit fits some or all aspects of the scenario he faces:

  • His board is passionate about the mission and wants to be helpful, but they don’t really contribute much to the financial model.
  • His staff and board want to expand services, but they can’t grow their budget past where it has been for years.
  • Their funding is fairly dependent on just a couple of sources.
  • Their funders support specific projects, rather than the organization or mission as a whole.
  • Their strategic plan hasn’t been updated in 5 years.
  • The board worries whether some of what the nonprofit does duplicates other efforts out there.
  • Board and staff don’t have a common way to articulate what the nonprofit is and does.
  • Their nonprofit is just barely getting by and has no cash reserves.

They, like so many nonprofits, are stuck in a rut.

They want to accomplish something much bigger and better but continue to spin their wheels against what they have always done. It’s really a chicken or the egg scenario. A nonprofit is unable to grow their services, their board, and their supporters because the organization has limited resources. And so they keep soldiering on, same as it ever was.

But let’s face it folks, in times like these, the status quo just isn’t going to work anymore.

Luckily, there is a way out.

When I encounter a nonprofit leader like the one above who has a real desire to break out of this pattern, I suggest a Financial Model Assessment. A Financial Model Assessment analyzes every aspect of the organization (Mission, Vision, Strategy, Program Delivery and Impact, Staffing, Board, Marketing, External Partnerships) in order to understand how each element helps or hurts their financial sustainability and their ability to achieve results. It then analyzes all current and potential revenue streams to find opportunities for sustainable growth. Finally, the Assessment gives very detailed recommendations for creating a more effective and sustainable organization.

I am a firm believer in a holistic approach. You simply cannot bemoan a lack of financial resources and call it a day. You must dig deep and figure out how everything you do contributes to or detracts from your current reality.

But because nonprofit leaders are usually consumed by putting out fires and worrying when the next check will come, they don’t have the ability to take a big step back and figure out how all of the pieces can and should fit together. So a Financial Model Assessment allows a nonprofit board and staff to understand what is holding their organization back from becoming financially sustainable AND achieving more mission-related results.

Once I’ve written my final Assessment, I lead a change discussion among board and staff. We delve into the Assessment and discuss how and why I came to the conclusions I did. This is often a galvanizing moment for the nonprofit — a moment when board and staff finally understand together a way forward that can allow them to be smarter, more strategic, more sustainable and ultimately achieve more results.

If you are interested in big change and need help navigating how to get there, download the Financial Model Assessment Benefit Sheet that describes the process in more detail. And if you’d like to read about other nonprofits who undertook a change process, check out these case studies.

Photo Credit: Public domain via Wikimedia

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5 Questions Nonprofit Leaders Should Ask About Money

One of my predicted “5 Nonprofit Trends to Watch in 2017” is that we will see “More Analysis of What Nonprofit Financial Sustainability Requires.” In other words, I think (hope) in this new year that nonprofit leaders and their funders will work to figure out how to make nonprofits more financial sustainable.

Financial sustainability means that both the way money comes in the door (revenue) and the way money goes out the door (expenses) happen in a smart, strategic way. When they do, you have a robust financial model.

In my mind, one of the first steps toward that sustainability is for nonprofit leaders to look inward. While there are many reasons for the financial instability that plagues the nonprofit sector — from the Overhead Myth, to restricted funding, to lack of financial training —  nonprofit leaders sometimes perpetuate the dysfunction themselves with an unhealthy attitude toward money.

Nonprofit leaders must embrace money as a tool — rather than a scourge — that can help them better achieve their mission.

So in this new year, in order to get closer to financial sustainability in your own nonprofit, I challenge you to ask yourself these questions about  money:

  1. Do I embrace money as a tool to achieve our mission?
    As the ultimate cheerleader of your nonprofit’s board and staff, you must ask whether you yourself fully embrace money. Money has long been viewed as a necessary evil in the nonprofit sector. We don’t want too much of it (for fear of scaring off donors); we don’t want to ask people for it (for fear of rejection); we don’t want to make our board go out and get it (for fear they will bolt). But it is your role as leader of your nonprofit to eschew those outdated notions and instead recognize that a smart, well-executed money strategy can be instrumental to achieving your mission.

  2. Do we know our actual costs?
    Not just the full costs to run each of your programs (which is important), but the overall costs of executing on your strategic plan. I can’t tell you how many nonprofit leaders I meet who a) don’t have a strategic plan in place or b) if they do, they haven’t tied it to money. You simply will not accomplish anything if you don’t analyze and plan for what it will truly cost to accomplish your goals as an organization. So start by using this Bridgespan tool to figure out the full costs of your programs and then add to that the other organizational and infrastructure costs necessary to achieve your overall strategic goals.

  3. Do we have a financial model?
    So that’s how money flows out of the organization, but to fully flesh out your financial model you need to plan for how money will flow into the organization. The funny thing about money is that if you are smarter and more strategic about it, you will attract more of it. So instead of hoping and praying that enough money will show up at your doorstep, create an overall financial strategy that includes your tactics for how you will attract each applicable revenue line (individuals, foundations, corporations, government, and/or earned income) that flows into your financial model.

  4. Does our board understand and contribute to our financial model?
    Once you’ve figured out your financial model, you must get your board fully involved in it. A nonprofit will never be financially sustainable if money is left solely to the staff to figure out.  That means the board needs to understand revenue and expenses, over the long-term, and how they apply to the overall strategy of the organization. And it is not enough for them just to understand it, they must contribute (in many and various ways) to the successful implementation of that financial model.

  5. Do we ask funders to support the effective execution of our financial model?
    You can’t just have a great financial strategy on paper, you also need to invest in the structure and systems necessary to execute on that strategy. That means you have to hire talented money-raising staff, acquire functional technology, develop capable donor systems, create compelling marketing and communications. Those elements make up your money-raising function, and in order to make it effective you have to invest in those elements. So figure out what that will cost and convince some funders to pay for it.

It’s time to get over your money issues. You will not achieve financial sustainability unless you fully embrace money as a critical conduit to the social change you seek.

Photo Credit: Daniel Borman

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Now is The Time for Bold Nonprofit Leaders

Nonprofit leaders tend to err on the side of caution. But these times call for something quite different. These times demand that you overcome the fear and risk-aversion that sometimes cripple your work.

You no longer have the luxury of sitting by and waiting for “permission” to do what you have to do. This is the time to be bold.

As Greg Oliphant, President of The Heinz Endowments, wrote recently:

“Why speak? Especially when to speak is potentially to be seen as partisan, as taking sides, which is anathema in a field proscribed from politics and deeply fearful of controversy…There are truths that need to be spoken now, spoken out loud and unapologetically by people who know them to be true. Spoken with love, yes, but also fierce conviction—truths about the validity of science, the perils of climate change, the nature and price of injustice, the insanity of racism and all the other isms creeping out from beneath their ill-concealed rocks, the importance of civil and human rights and why they matter for all of us, how worsening poverty hurts everyone, the opportunities before us to create and innovate our way to a better future. These are not partisan truths but rather human truths…They are where we as a sector…must find our voice, in holding them out not as criticism but as the True North we still must point towards, the star we still see and hold steady in our gaze despite attempts to obscure it.”

Yes, that is the role you play, nonprofit leaders, to speak up and be bold about the change you seek. And it may go against what is comfortable, what you are used to, what you think you are “allowed” to do as nonprofit leaders, but you must stop waiting for permission. You must start pushing yourself, your staff, your board to be less fearful and more bold.

What does that look like?

Think Bigger, Much Bigger
The time for incremental is over. These times call for big, bold, game-changing solutions to the problems we face. You must ask yourselves and your board and staff, “Are we doing enough? Are we really creating change, or are we just perpetuating the status quo?” If the answer is the latter, take a big step back and figure out what you can do bigger to create change.

Embrace Advocacy
And in answering those questions you may find that the methods you are using are too timid. I cannot say this enough, but nonprofit leaders have got to stop being afraid to connect their social change work to the policy arena. While there are some restrictions on what 501(c)3 organizations can do, I assure you they are far less than you or your board may think. If you truly want to see change in the world, it may not be enough to just address the symptoms of the problem. You may need to address the systems that perpetuate those problems, and advocacy might be just the tool to use.

Find New Paths to Social Change
But it may also be that at the federal level there is not much support for your social change agenda right now, so look for other paths. Much social change is happening at the state and local levels (from climate change, to civil rights, to political reform). Instead of continuing to beat your head against an immovable wall, think about other ways forward. Get outside your comfort zone of always approaching your mission in a single way and think bigger and bolder.

Make Your Board Meetings Real
But in order to move forward in bigger, bolder ways you need to bring your board along. So stop having friendly, meaningless, information-dumping board meetings and instead engage your board in real conversations. Start by asking “What do these times demand of us and our work? What are we afraid of, and how do we overcome it? How can be be more bold?” And when you come up against board fear (of doing more, moving into advocacy, building bigger networks), be very clear that it is a brave new world and you simply cannot put your heads in the sand.

Get Tough With Your Funders
But it doesn’t end with your board. You can no longer have tepid conversations with your funders or bow to their whims. You know what you need and what it takes to accomplish your big goals (or if you don’t, you better figure it out). So be open and real with your funders. Tell them what’s holding you back from accomplishing real change and ask for the amount and type of money you really need to get there.

As President Franklin Roosevelt argued in his first inaugural address, lack of action is a far greater risk than anything we might face:

This is preeminently the time to speak the truth, the whole truth, frankly and boldly. Nor need we shrink from honestly facing conditions in our country today. This great Nation will endure as it has endured, will revive and will prosper. So, first of all, let me assert my firm belief that the only thing we have to fear is fear itself—nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance.

We must fight the urge to retreat. As social change leaders you cannot allow your fear to paralyze you. These times call for bold advance.

Photo Credit: Andy Spearing

 

 

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10 Great Social Innovation Reads: Dec 2016

Let’s be honest, December was about just trying to make it through the end of 2016.

But where there is darkness there is also light. And many of the discussions and posts in December actually uncovered a lot of bright spots in an otherwise very trying year. From the success of the Dakota Access Pipeline protests, to a surge in donations to nonprofit journalism, to potential progress on climate change, to the future of philanthropy, there was much promise. Perhaps I was just looking for it,  but I saw lots of hope in December.

Below is my pick of the 10 best reads in the world of social change in December, but please add to the list in the comments. And if you want a longer list, follow me on Twitter @nedgington.

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

  1. In perhaps the best blog post title ever, “8 Reasons Why 2016 Wasn’t a Total Garbage Fire” Marie Solis reminds us that there was actually some exciting progress in 2016.

  2. For example, the Standing Rock Sioux protests against the Dakota Access Oil Pipeline found success when the US Army Corps of Engineers decided not to approve an easement to allow construction of the pipeline under Lake Oahe. And Tate Williams, writing on Inside Philanthropy, finds lessons for philanthropy in this social movement: “Supporting movements like Standing Rock likely means challenging grantmaking norms, loosening up requirements, taking chances, and moving much faster than foundations may be accustomed to.”

  3. December also saw a glut of donations to nonprofit journalism outlets, like ProPublica and the Center for Public Integrity, to name a few.  And indeed, in the wake of the Trump election, funders like the Omidyar Network are increasing support for civic technology, solutions aimed at getting people more civically engaged.

  4. It looks like despite the new administration’s anti-environmental leanings, clean energy will continue to grow. Backing this trend, the Breakthrough Energy Coalition led by Bill Gates, announced a $1 billion fund to finance zero-carbon clean-energy technologies. And David Roberts writing in Vox argues that cities, rather than the federal government, may actually need to lead the clean energy effort: “Now that the US federal government is getting out of the climate protection business, at least for four years, [cities] are more important than ever…Cities generate most of the world’s economic activity, innovation, and cultural ferment. They also generate a growing share of its carbon emissions…Urban areas are also first in line to feel the effects of climate change…If they hope to avoid worse to come, cities will need to almost entirely rid themselves of carbon over the next few decades.”

  5. Writers at The New York Times offer two ways to move on from 2016, start small and lift up those around you.

  6. The Hewlett Foundation celebrated their 50 year birthday with a symposium on the history of philanthropy. In addition to the interesting #Hewlett50 Twitter feed, the foundation commissioned this very interesting paper from Benjamin Soskis and Stanley Katz  (of HistPhil blog fame) on the past 50 years of philanthropy.

  7. Aaron Dorfman, President of the National Committee for Responsive Philanthropy, offers a call to action for philanthropists in the Trump era.

  8. A new report from The Women’s Philanthropy Institute at the Indiana University Lilly Family School of Philanthropy reveals that Generation X and Millennial donors are giving less than their Boomer and Silent Generation counterparts did at their age, but women’s influence on philanthropic decisions is growing.

  9. And a small, but very positive thing that came out of the presidential election is that it has brought philanthropic thought leader and curmudgeon Albert Ruesga out of his writing retirement. His latest post on the need for philanthropy to recognize class divides is particularly enlightening. As he puts it: “To introduce and champion class consciousness is to acknowledge that the ‘structures’ we seek to change—if we’re enlightened grantmakers—are often structures put in place to serve the purposes of an economically defined class…So while we might wish to remain class-neutral, the structures that keep people in poverty unfortunately will not. How do we bring the lived experience of the poor and working poor into institutions that, in spite of our best intentions, perpetuate class privilege? How do we incorporate class-talk into nonprofit work in a way that doesn’t elide hundreds of years of racial oppression? I don’t deny these challenges, but I’m convinced that ignoring the effects of class is acting in bad faith. It’s treading water while strong currents continue to carry us and our neighbors further downstream.”

  10. Finally, if you are looking for an actual book to read in the new year, Michiko Kakutani reviews reporter David Sax’s new book The Revenge of Analog which chronicles the rise in popularity of pen, paper, books, records and all things non-digital. Sign me up!

Photo Credit: Sebastien Wiertz

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10 Most Popular Posts of 2016

As the year draws to a close, it’s time for all of us to take some time off to relax, be with friends and family, and most importantly rest up for the year ahead.

2016 was rough, folks. So now it is critical that you take some time off to reconnect with your core.

But before I head out myself for some time off, I want to leave you with a list of the 10 most popular Social Velocity posts from this year, in case you missed any of them. And, if you are so inclined, you can also read the 10 most popular posts from 201120122013, 2014 and 2015.

I so appreciate you, dear readers. You are an amazing group of social change leaders who inspire me and give me hope for the future. Indeed, when it is darkest you help me see the light. We need you now more than ever, social change leaders, so please take good care of yourselves and come back to 2017 ready to get to work.

Happy Holidays!

The 10 most popular Social Velocity blog posts of 2016 were:

  1. Is Your Nonprofit Board Avoiding Their Money Role?
  2. 5 Fundraising Mistakes Nonprofits Make
  3. Why Some Nonprofits Aren’t Ready for a Strategic Plan (Yet)
  4. Why Nonprofit Boards and Fundraising Must Mix
  5. How is Nonprofit Overhead Still a Thing?
  6. 5 Benefits of a Nonprofit Theory of Change [Slideshare]
  7. Social Change Requires a New Nonprofit Leader
  8. A Nonprofit Culture of Philanthropy Is Not Enough
  9. 5 Conversations the Nonprofit Sector Should Have
  10. The Network as Social Change Tool: An Interview with Anna Muoio

Photo Credit: nicoleleec

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Investing in Stronger Nonprofits: An Interview with Linda Baker

linda-baker-524x643In this month’s Social Velocity interview, I’m talking with Linda Baker. Linda is the Director of Organizational Effectiveness at the David and Lucile Packard Foundation.

In this role, she leads the Organizational Effectiveness (OE) team as they invest in grantees to build their core strengths and maximize their impact. Through these investments, the OE team aims to build healthier, better connected organizations and networks ready to bring about greater change in the areas the foundation cares most about. The OE team works in collaboration with the four program grantmaking areas of the foundation, and also engages with the broader field on capacity building and good philanthropic practice.

Linda has also served the foundation as program officer in the Local Grantmaking and Children, Families and Communities programs, and as an analyst and associate editor in the Center for the Future of Children.

If you want to read interviews with other social changemakers in the Social Velocity interview series go here.

Nell: You recently took over leadership of the Packard Foundation’s Organizational Effectiveness program. What are your plans for the future of this program? Where do you see opportunities for change or growth in the work Packard does to build stronger nonprofits?

Linda: It is an incredible honor to lead the Organizational Effectiveness (OE) team. I’m proud to be a part of a foundation that actively embraces a commitment to effectiveness by helping our nonprofits partners strengthen their fundamentals so they can better achieve their missions.

The best capacity-building grantmaking happens in open and authentic conversation with nonprofits. At the Packard Foundation, this means that changes in OE funding are driven through continuous listening to our nonprofit colleagues about where they are strong and where they would like to grow – as leaders, organizations, and networks. While many of the funding requests remain similar to the past (like support for strategic planning and fund development planning), a few topics have recently become more prevalent. For example, as nonprofits and leaders focus on movement building and their ability to be flexible and strategic in an ever-changing environment, we are hearing more requests for funding on leadership development and diversity, equity and inclusion. We have also seen an increase in interest in projects that focus on nonprofits better understanding their financial situation and increasing their financial resilience.

I’m also excited about our participation in the Fund for Shared Insight, a funder collaborative that supports nonprofits in seeking systematic and benchmarkable feedback from the people they seek to help. This collaborative believes that foundations will be more effective and make an even bigger difference in the world if we are more open—if we share what we are learning and are open to what others want to share with us, including our nonprofit partners and the people we seek to help. It is early days, but the possibilities are promising.

Nell: The Packard Foundation is way ahead of the pack in terms of actively investing in stronger nonprofit organizations. What do you think holds other foundations back from providing capacity building support (like planning, leadership development, evaluation, etc.)? And what can be done to get more foundations funding in these areas?

Linda: This work is incredibly important. People are the engine of change, and they need appropriate training, tools and support to get their work done. The good news is that momentum seems to be building. Last year we talked with twenty foundations who reached out to us on this work—and we are always happy to provide insight to our peers in this way. I’m also encouraged by the standing-room-only crowds at Grantmakers for Effective Organizations (GEO) conferences, which often focus directly on the importance of capacity building.

An increasing number of our peers have embraced this approach to grantmaking. Both the Hewlett Foundation and the Meyer Foundation have OE programs similar to ours. The Ford Foundation’s BUILD program works to support institutional strengthening in a big way. Many others support the capacity of leaders – we particularly admire the work of the Haas Jr. Fund in this area.

JPMorgan Chase and the Aspen Institute recently issued a report discussing roles and opportunities for business in nonprofit capacity building. And the 2016 GEO publication on capacity building is full of examples of foundations providing capacity building support to nonprofit partners.

For any foundations on the fence, we will soon be releasing our 2016 Grantee Perception Report data that shows that our grantees who receive OE support rate the foundation as more responsive and a better partner. Data from our evaluation last year shows that one to two years after their OE support ended, nearly 80% of grantees reported significant increases in capacity and 90% reported continued investments in capacity building a year after grant completion. We are confident that these investments build lasting change.

Another bright spot is the feedback work of the Fund for Shared Insight that I mentioned earlier, which is investing in stronger nonprofit organizations through experimenting with investments in feedback loops. Shared Insight provides grants to nonprofit organizations to encourage and incorporate feedback from the people we seek to help; understand the connection between feedback and better results; foster more openness between and among foundations and grantees; and share what we learn.

Nell: You have been actively involved in the Real Costs effort to get funders and nonprofits to understand and articulate the full costs (program, operating, working capital, fixed assets, reserves, debt) of the work nonprofits do. How do you see that movement progressing? Are minds changing? Are we, or when will we, reach a critical mass of nonprofits and funders embracing full costs?

Linda: As you and your readers know, this question is fundamentally about the relationship between funders and nonprofits. Nonprofits that have trusting relationships with their funders and an understanding of what it takes to run their organization can talk with funders about what it truly costs to deliver outcomes over the long term. In response, funders with a nuanced understanding of a nonprofit’s financial requirements will be able to structure grants more effectively to achieve those outcomes.

The move for funders to understand the financial resources nonprofits require for impact is gaining steam. I’ve been encouraged by the level of interest and conversation in California alone, and I know conversations are happening nationally too. The Real Cost Project in California is gearing up for the next phase, and we are pleased to be supporting that work and to be thinking about these ideas at the Packard Foundation. I am hopeful that California funders will continue to embrace the conversation and consider how funders can strip away unnecessary processes and promote transparent dialogue about how to best support the work of nonprofits.

One part of the challenge is that we are going up against misguided notions that good nonprofits should not invest in their infrastructure or their people. These ideas are embedded in our culture, and it takes time to change perspectives. If we can get a critical mass of foundations to join the conversation and consider what they can do to improve, and ensure that nonprofits have the tools to understand the financial requirements needed to get to outcomes, that will be progress.

Nell: You and your team at Packard OE have created a great Organizational Effectiveness Knowledge Center website with a deep set of resources for building stronger nonprofit organizations. Foundations are sometimes hesitant to offer resources (beyond money) to nonprofits, but you have made a conscious choice to move in this direction. Why and what could other foundations learn from your experiences here?

Linda: Thank you! We created the Knowledge Center to share our perspective and resources about improving organizational and network effectiveness with the goal of helping nonprofits, our consulting partners, and other funders make their work even stronger. The Knowledge Center is a place for us to share our perspective on a number of topics from network development to leadership and coaching to evaluation, and discuss the latest in the field from conferences and publications.

In addition to providing grantmaking support, we believe that sharing this information will increase our impact on the nonprofit sector and advance the capacity building field. Change does not happen in silos, and we don’t want our nonprofit partners to spend time reinventing the wheel. So, we decided to create a space to exchange what we’re learning and the resources available to help support organizations in this work.

We hope that the Knowledge Center will be a place to exchange learning and reflections, and we encourage users to engage with us by commenting on your experience with these topics or submitting resources that you would like us to consider sharing. And, while you’re there, leave us a comment to let us know what you think of the Knowledge Center and how we can improve.

Photo Credit: David and Lucile Packard Foundation

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