In today’s Social Velocity interview, I’m talking with Lowell Weiss, President of Cascade Philanthropy Advisors, which provides personalized guidance to foundations and individual donors seeking to deepen their impact. Previously, he served in leadership roles at the Bill & Melinda Gates Foundation, the Morino Institute, and in the Clinton White House.
You can read past Social Velocity interviews here.
Nell: Why do the Leap Ambassadors believe now is the right time to introduce the Performance Imperative (PI) to the nonprofit sector? There have been past attempts to move the sector toward outcomes and performance. What makes this effort and this timing different?
Lowell: We don’t know if we’ll break through with this effort. But the 70+ members of the Ambassadors Community are committed to giving it our all, because we believe that performance matters more than ever. The social and public sectors are increasingly steering resources toward efforts that are based on a sound analysis of the problem, grounded assumptions about how an organization’s activities can lead to the desired change, and leadership that embraces continuous improvement.
High performance is all too rare in our sector today. In fact, we don’t even have a commonly accepted definition of the term “high performance.” The PI is our attempt to create that common definition and then start the process of creating guideposts to help nonprofits who are motivated to improve their performance for the clients and causes they serve.
We’re not aware of any other effort devoted to this mission-critical topic that has engaged so many top nonprofit executives, funders, and thought leaders as co-creators. Perhaps even more important, the PI goes beyond the typical focus on helping nonprofit leaders do things right. When leaders do things right, they can achieve strong operational performance but not necessarily meaningful results for beneficiaries. To achieve the results embodied in their mission statements, leaders must go the extra mile, through diligent internal monitoring and external evaluation, to ensure they’re also doing the right things.
Nell: Does the PI apply to any and all nonprofit organizations? Is it a measuring stick that any size and domain area nonprofit should use, or are there certain types of nonprofits for which this really works?
Lowell: We believe the insights in this document are most immediately applicable to nonprofit organizations with budgets of $3 million or more. But many of the basic management principles apply to organizations of any size, just in less-intensive ways. Some of the details have a special focus on organizations that provide direct services. We believe the overarching framework is relevant for organizations of almost any type.
Nell: What will keep the Performance Imperative from becoming a dusty document rather than a movement? What does success look like for this movement and how will you measure whether that happens?
Lowell: Let’s face it: The topic of high performance is not a lightning-fast meme that will spread like a left shark or right-wing conspiracy theory. It’s a slow, complex idea that will require patient, methodical work to advance. Hence the importance of the Leap Ambassadors Community, a group of leaders who care deeply about high performance and are willing to share the gospel with trusted colleagues and peers.
We believe that when leaders with strong beliefs and passion coalesce around a common purpose, they can build a collective power and influence to drive positive change. They can create an infectious enthusiasm to pull other like-minded players into a growing community of action. That can only happen when you take the time to build relationships, trust, quality work, and collective pride in that work. Overall, we’ll judge our success based on a) to what extent the PI becomes an established framework for increasing the understanding and expectation of high performance as a critical pathway to greater societal impact; and b) to what extent the Leap Ambassadors Community demonstrates itself as a thoughtful, knowledgeable, aligned community of leaders and earns respect, collaboration, and support from prominent players in the field.
To be more concrete about how we will know if we’re on the right track, we’ve established metrics for the growth and engagement of the Ambassadors Community as well as for the value of the PI itself. Here a few of the milestones we hope to achieve over the next year:
- 100‐150 ambassadors have jelled as a community and are truly aligned with the community’s purpose.
- At least 25 nonprofits commit to using the PI to assess their strengths and needs; increase the board’s focus on mission effectiveness; improve their professional-development and organization-building efforts; or otherwise use the PI as a North Star to guide their journey toward high performance.
- Three to five foundations adopt the PI for themselves and their grantees, and they begin to apply the PI in their grant decisions and grantee support.
- Three charity ratings or information providers build the PI into their offerings.
- At least two vendors prominently use the PI in their suites of products and services.
- At least two prominent nonprofit management and leadership programs incorporate the PI as a core staple in their products and services.
- At least one institution creates a prominent award aligned with the PI or adapts an existing award.
Nell: Where do funders and regulators fit into this push for higher performance in the sector? One of the things that holds nonprofits back from high performance is an inability to spend the money it takes to achieve high performance (money for infrastructure, evaluation, staff, etc.). How do we fix that and where does fixing that fit into the movement’s plans?
Lowell: Funders and regulators can and must play a role. Right now, I’m helping a multiservice agency transition from providing compassionate care to ensuring that its clients achieve meaningful, measurable, sustainable life outcomes. The agency is trying to live the PI. But here’s the sad reality: The journey toward high performance is making the organization’s development challenges harder, on net. That’s because there are so few funders who understand the value of high performance—and even fewer who reward it.
To make the leap to high performance, nonprofits need creative funders willing to think big with them—not just ask for more information on results. They need funders who understand that making the leap requires more than program funding and more than the typical “capacity-building” grant. They need funders who make multi-year investments in helping nonprofit leaders strengthen their management muscle and rigor.
That’s why we’re so supportive of the work of Results for America and the Coalition for Evidence-Based Policy, organizations that are helping governments to base funding decisions on evidence and results. And that’s why the Ambassadors Community is developing the case for high performance that we can start bringing directly to funders. Bridgespan Group Co-Founder and former Social Innovation Fund Director Paul Carttar and Center for Effective Philanthropy President Phil Buchanan are co-leading a working group of ambassadors to build the case for funders. They are planning to convene a dozen+ foundation leaders to help flesh out the most effective arguments and evidence we can assemble to persuade funders that they have a better chance of accomplishing their missions if they support their grantees’ pursuit of performance.
Photo Credit: Cascade Philanthropy Advisors
I’m really excited to announce today’s launch of the Performance Imperative. The Performance Imperative is a detailed definition, created by a community of nonprofit thought leaders, of a high-performance nonprofit. The hope is with a clear definition of high-performance we can strengthen nonprofit efforts to achieve social change.
As we all know, we are living in a time of growing wealth inequality, crumbling institutions, political divides, and the list of social challenges goes on. The burden of finding solutions to these challenges increasingly falls to the nonprofit sector. So “good work” is no longer enough. We need to understand — through rigor and evidence — which solutions are working and which are not.
The Performance Imperative was created by the Leap Ambassadors Community, a network of 70+ nonprofit thought leaders and practitioners of which I am a member. The group emerged from the 2013 After the Leap conference, which brought nonprofit, philanthropic and government leaders together to create a higher-performing nonprofit sector. The group is determined to lead the fundamental, and critical, shift towards a more effective nonprofit sector.
The Performance Imperative defines nonprofit high performance as “the ability to deliver—over a prolonged period of time—meaningful, measurable, and financially sustainable results for the people or causes the nonprofit is in existence to serve.”
The Performance Imperative further describes seven organizational pillars that lead to high performance:
- Courageous, adaptive executive and board leadership
- Disciplined, people-focused management
- Well-designed and well-implemented programs and strategies
- Financial health and sustainability
- A culture that values learning
- Internal monitoring for continuous improvement
- External evaluation for mission effectiveness.
Each one of these 7 pillars is fully explained in the Performance Imperative.
Over the next several months I will write a blog series that digs into each of these 7 pillars to understand what each one means for a nonprofit organization and to examine case studies of how other nonprofit leaders have approached the pillars. And next week on the blog I’ll interview one of the founders of this movement toward high performance.
Although the Performance Imperative is targeted toward $3M+ nonprofits, it can also be a benchmark upon which any social change nonprofit can measure itself. Nonprofit boards and staffs can use the Performance Imperative as a north star to guide their journey toward higher performance.
The critical necessity of a high performing nonprofit sector is clear. We no longer have the luxury of benevolent good works that sit aside the business of our country. Now is the time to find solutions that really work and develop the leadership and sustainability to spread them far and wide.
As Mario Morino, founder of the Leap Ambassador Community has said, “If we don’t figure out how to build high performing nonprofits, nothing else matters. This is the last mile. Our nation depends on it.”
In today’s Social Velocity interview, I’m talking with Josh Silver, Director of Represent.US, an organization building a movement to pass tough anti-corruption laws in cities and states across America. His local approach to political and social change is a fascinating model. Josh is a veteran election and media reform executive and served as the campaign manager for the successful 1998 Arizona Clean Elections ballot initiative campaign. He is also the co-founder and former CEO of Free Press, a leading media and technology reform advocacy organization. He also served as the Director of Development for the cultural arm of the Smithsonian Institution.
If you want to read past interviews in the Social Velocity interview series go here.
Nell: With Represent.Us you take a city-by-city or state-by-state approach to political reform, instead of a nationwide approach. Why do you think a local approach holds more promise?
Josh: It’s all about momentum. Every poll available has shown that Americans of all political affiliations — conservatives, progressives, and independents alike — support tough, new anti-corruption laws. But, as with so many other issues, these wildly popular reforms are going nowhere fast in today’s Washington.
If we want to break the gridlock at the national level, we need to be pragmatic about where we focus our efforts. Rather than throw ourselves at a brick wall in Congress, we’re taking this fight to the thousands of cities and 27 states where we can use the ballot initiative process to bypass compromised local legislatures and put tough, new anti-corruption laws directly to a public vote.
Focusing on city and state initiatives is both good policy and good politics. In policy terms, many state and local anti-corruption laws are even more out of date than federal law and in significant need of reform. We can and should do everything in our power to make the exchange of money and favors for political influence illegal at every level of government.
In political terms, using a local ballot initiative strategy will allow us to start racking up wins immediately, showing an understandably cynical public that change is possible and building momentum for national reform. While self-interested politicians might be reluctant to change the system that got them elected, the public will overwhelmingly vote for a local Anti-Corruption Act if given the opportunity.
Advocates of marriage equality and marijuana legalization have seen huge success with the same strategy. 20 years ago, both issues faced seemingly insurmountable odds in Washington. By picking smart targets at the state and local level, they’ve managed to redraw the political map and set their campaigns on the path to national victory.
We’re running the same playbook, and it’s already working. On November 4, 2014, Tallahassee, Florida passed the first municipal Anti-Corruption Act in the United States by a two to one margin. Now, campaigns for new Anti-Corruption Acts are already in the works for twelve cities and two states in 2015 and 2016.
Nell: As you mentioned, your approach is part of a larger state-by-state reform trend, with movements like the state-by-state legalization of gay marriage and of marijuana. Why does the state-by-state approach work now and will we ever go back to federal level reform?
Josh: The state-by-state approach works because it allows Americans to take matters into their own hands when politicians refuse to act. Instead of worrying about local politicians carving out loopholes for themselves and their parties, the People can craft their own comprehensive reform plan, gather the signatures necessary to place it on the ballot, and put their local Anti-Corruption Act directly to a public vote. Given the popularity of the reforms we’re talking about, these local Acts are very likely to pass, building the movement from the ground up and creating a domino effect which will spread from state to state and eventually Washington, DC.
Passing a statewide ballot initiative can fundamentally change a state’s political culture. It sends a clear message to every elected official in the state, including that state’s federal delegation. Every time we pass a statewide anti-corruption act, it makes it possible for federal candidates in that state to run for Congress and win without the backing of big money special interests. So, every state we win means more members of Congress who support comprehensive nationwide reform. Once we’ve attained a critical mass of support in the states, federal level reform is inevitable.
Nell: A big part of what you do involves creating coalitions of strange bedfellows, for example Tea Party loyalists and progressives. How do you circumvent our current environment of the dismissive or openly hostile discourse between opposing viewpoints and get people to find some common ground and work together?
Josh: Americans self-identify as roughly one-third Conservative, one-third Progressive and one-third Independent. Maintaining a fiercely cross-partisan campaign is critical to our long-term success — winning national reform is impossible with only one-third of the country behind you.
We’ve found that the people fighting at the grassroots are sick of the gridlock in Washington, and much more willing to work across partisan lines than their members of Congress. While our supporters might not agree on everything, they’re united behind the fundamental belief that government — no matter how large or how small — must put the needs of the People first. Public policy decisions should be made based on merit, not lobbyists and campaign contributions. Our supporters are willing to put their partisan differences aside and work together to make that happen.
The effort behind the Tallahassee Anti-Corruption Act is a perfect example of this principle in action. It was spearheaded by the chair of the Florida Tea Party Network, the former president of the Florida League of Women Voters, the chairman of Florida Common Cause, and a leader of Integrity Florida, an independent state ethics watchdog. This politically diverse coalition played an enormous role in the Tallahassee victory. As the editorial board of the Tallahassee Democrat, the local paper of record, put it: “When you have representatives of the League of Women Voters, Common Cause, Integrity Florida and the state Tea Party Network all aligned against you, it might be time to reassess your position.”
Nell: You just won your first victory by passing an anti-corruption code in the city of Tallahassee, FL. Let’s be idealistic for a second. What if you are able to log victories like Tallahassee’s in cities and states across the country. Is there a critical number of places before the movement becomes truly national? And then do you look at federal reforms? Or is the end goal every city and every state?
Josh: There is no “magic number” — Each state-level win makes national reform more likely. Every statewide victory means more Congressional delegations from states with an Anti-Corruption Act, and more public pressure on politicians to get on the right side of this issue or risk losing their seats.
While winning a federal Anti-Corruption Act is a major goal, bringing reform to every city and state is just as important. This movement is bigger than any one law — it’s about fundamentally changing the political culture of the United States. It’s about demonstrating that Americans will not tolerate laws putting self-interest before the public good, and ensuring a government committed to serving the People at every level.
It’s not a question of idealism. This movement is real, and has no plans of slowing down. We’re planning to bring local Anti-Corruption acts to 12 cities and 2 states in 2015 and 2016. We are already working with local law firms, political strategists and grassroots activists to make it happen.
If you’d like to be part of it, visit represent.us to learn more and join the campaign.
Recent studies of nonprofit donors have found that the majority aren’t interested in impact. But what if that current reality isn’t also future reality but rather an opportunity? What if just as Apple created a market for smartphones where one didn’t exist, we could create a market for social change funding where one currently doesn’t exist?
As I mentioned in my 10 Great Reads list for January, data wonk Caroline Fiennes reviewed recent studies on donor behavior and found that donors don’t increase their donations when shown nonprofit performance data. And Caroline is not alone, others have also argued that donors just don’t care about performance.
This could be depressing because if donors aren’t interested in the effectiveness of a nonprofit they won’t shift their money to the nonprofits more effective at creating social change. In other words, we have no hope of solving social problems if we can’t channel money to those entities that are actually solving those problems.
Apple is probably the most obvious example of a market maker, creating consumer demand where there was none. They have continually created innovative products for swooning consumers who previously had no idea they needed those products. Before creating the first iPhone prototype in 2006 Steve Jobs didn’t survey consumers to ask if they wanted their phone to surf the web, send emails, and take pictures. A majority of consumers would probably have said no. Rather, Apple saw a need that consumers didn’t yet know they had (what marketers call a “latent need”) and built a huge consumer base from scratch.
They were market makers, as Fred Vogelstein described in the New York Times Magazine:
Apple’s innovations have set off an entire rethinking of how humans interact with machines. It’s not simply that we use our fingers now instead of a mouse. Smartphones, in particular, have become extensions of our brains…Its technology is changing the way we learn in school, the way doctors treat patients, the way we travel and explore. Entertainment and media are accessed and experienced in entirely new ways.
Jobs and his team created a completely different marketplace, set of cultural norms, and way of interacting with the world around us.
In the world of social change we need a completely different marketplace, set of cultural norms, and way of channeling money. So we need to create the market.
We need to show funders that the current flow of money to social change efforts is not sufficient or efficient. If we truly want solutions to our social challenges, we must create an effective financial market for those solutions.
I believe that funders can be inspired to change their behavior. They have a latent desire to see their dollars actually achieve something. They have been so used to the lowest common denominator of giving based solely on reciprocity or emotion, but that can change.
As Harvard Business Review blogger Umair Haque explains, Apple’s success comes from their ability to rise above the common denominator and create something people love and truly (though they may not yet know it) want:
Most companies…don’t care about what they make. They merely care about what they sell. And so they…offer the people they call consumers the lowest common denominator designed by focus-group led committees at the everyday low price in malls full of stores full of shelves full of…other lowest common denominators designed by committee at the everyday low price. Nobody ever loved anybody who was merely trying to sell them something. Especially not the lowest common denominator. People love people—and organizations—that make their lives better. Even when those things are as simple as phones.
The data and the focus groups may say that donors don’t want impact. Yet. So its up to us to create the market. It is up to us to get donors to love the impact that makes clients’ lives, donors’ lives, and ultimately our communities better. It’s up to us to create demand for funding real social change.
Photo Credit: Matthew Yohe
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
Wow, November was a great month for writing about social change. I had a harder than normal time narrowing my list down to 10. From the election, to philanthropy’s role in Ferguson, to saving Detroit, to giving to the fight against Ebola, to speculation about Giving Tuesday (which is today, by the way), it was a busy month.
Below is my pick of the 10 best reads in social innovation in November. As always, add what I missed to the comments. And if you want a longer list, follow me on Twitter, Facebook, Google+ or LinkedIn.
You can read past months’ 10 Great Social Innovation Reads lists here.
- November saw elections across the country, and social media perhaps helped to get out the vote. But a chilling Princeton study found that America is no longer an actual democracy, we have become an oligarchy ruled by wealthy elites.
- But there is hope, some political reform is happening at the state level, like the amazing success of state-by-state legalization of gay marriage. I think we will be analyzing this movement as a social change case study for years to come. In fact they have been so successful that marriage equality nonprofits and donors must now figure out what’s next.
- Writing in the New York Times, Nicholas Kristof offers a thought-provoking 5-part series about racism in America, touched off by the situation in Ferguson. He argues for a national conversation akin to South Africa’s Truth and Reconciliation Commission to “examine race in America.”
- Detroit has finally exited bankruptcy, but Rick Cohen sees many hurdles still facing the city. And Jacqueline Pfeffer Merrill worries that the philanthropists who helped get Detroit out of bankruptcy don’t really have a vision for a revitalized city.
- The philanthropic response to the Ebola crisis has been much slower than is usual for disaster response philanthropy. Vicky Hausman and Sylvia Warren suggest some reasons for this. And Google works to remedy the situation with their first foray into converting visitors into philanthropists. It will be fascinating to watch what else Google does in this philanthropy realm.
- Writing in the Harvard Business Review, Jeremy Heimans and Henry Timms take a fascinating look at what they see as a fundamental shift in power. “Old Power” is “closed, inaccessible and leader-driven,” but “New Power” is “open, participatory, and peer-driven.” As they see it, New Power is fundamentally changing how people and institutions interact, but it isn’t necessarily all positive: “New power offers real opportunities to enfranchise and empower, but there’s a fine line between democratizing participation and a mob mentality. This is especially the case for self-organized networks that lack formal protections.”
- Today is Giving Tuesday, the annual day of philanthropy launched in 2012. Many have questioned the efficacy of the movement to get more Americans giving, including Tom Watson, who now sees some promise.
- The Pew Research Center’s Social Networking Fact Sheet offers a great glimpse into how social media use is evolving.
- October saw a stinging two-part ProPublica/NPR series about the American Red Cross’ handing of Hurricane Sandy disaster relief. It turns out that the story was helped by crowdsourced information. And David Henderson, Full Contact Philanthropy blogger, sees the tension in the Red Cross story that every nonprofit faces between running programs and fundraising for them: “The market realities of running a nonprofit create adverse incentives, driving organizations to raise funds at the expense of what their stated core missions are.”
- Always there to inspire creative entrepreneurs, Steven Pressfield writes about the importance of aspiration, “As artists and entrepreneurs…the content of our personal culture starts with us. We set the level of aspiration. The crew—meaning ourselves—follows us.” Amen!
Photo Credit: Karoly Czifra
I’ve been thinking a lot lately about how networks and institutions must work together to create social change. As I mentioned earlier, social change happens when networks (loose connections of people and groups) organize themselves enough to pressure outdated institutions to adapt (like in the civil rights movement, global democracy movements, and the state-by-state legalization of gay marriage).
But when networks and institutions don’t connect, social change doesn’t happen (like in the Occupy movement). So networks must organize enough to influence institutions, and institutions must open themselves enough to let networks in. Social change requires that the two work in tandem.
David Brooks captured this theme in his recent New York Times column when he talked about the death of the “Organization Man.” He claims that we are witnessing “a failure of governance around the world” because networks are being valued over institutions, as he puts it:
A few generations ago, people grew up in and were comfortable with big organizations — the army, corporations and agencies. They organized huge construction projects in the 1930s, gigantic industrial mobilization during World War II, highway construction and corporate growth during the 1950s. Institutional stewardship, the care and reform of big organizations, was more prestigious. Now nobody wants to be an Organization Man. We like start-ups, disrupters and rebels. Creativity is honored more than the administrative execution. Post-Internet, many people assume that big problems can be solved by swarms of small, loosely networked nonprofits and social entrepreneurs. Big hierarchical organizations are dinosaurs.
Networks are king and institutions are left by the wayside, resulting in chaos. Effective social change happens when networks infiltrate institutions enough to help them adapt.
This is echoed in Jane Wei-Skillern & Sonia Marciano’s groundbreaking Stanford Social Innovation Review article in 2008, “The Networked Nonprofit.” They argued that nonprofit institutions must connect to and become more like networks in order to effectively create social change:
Most social issues dwarf even the most well-resourced, well-managed nonprofit. And so it is wrongheaded for nonprofit leaders simply to build their organizations…By mobilizing resources outside their immediate control, networked nonprofits achieve their missions far more efficiently, effectively, and sustainably than they could have by working alone…Unlike traditional nonprofit leaders who think of their organizations as hubs and their partners as spokes, networked nonprofit leaders think of their organizations as nodes within a broad constellation that revolves around shared missions and values…According to our research, nonprofits that pursue their missions through networks of long-term, trust-based partnerships consistently achieve more sustainable mission impact with fewer resources than do monolithic organizations that try to do everything by themselves.
But it is not just a one-way street. For social change to take hold, institutions must connect to networks and networks must connect to institutions. The Occupy movement is a great example of what happens when a network doesn’t connect to institutions. The movement eventually died because, as The Economist put it, the Occupy Movement “did not become the sort of mass movement that could deliver legislative and regulatory change.”
For real change to happen we need networks and institutions to work together. Networks are fluid, innovative, energetic and quick-moving, while institutions are well-resourced, legitimate, and powerful. So the challenge for social change leaders is to get outside your four walls, figure out where the networks and institutions lie, and forge real connections.
Photo Credit: Berlin Wall, RIAN Archive
In today’s Social Velocity blog interview, I’m talking with Ann Goggins Gregory, Chief Operating Officer at Habitat for Humanity Greater San Francisco where she oversees programs, the social enterprise called the ReStore, HR and Operations.
Previously, Ann was a Senior Director at the Bridgespan Group, where she led the organization’s work on organizational learning; managed consulting engagements with human services, education, and youth-serving nonprofits; and spearheaded research efforts on a variety of nonprofit management topics. She remains a Senior Advisor to Bridgespan on issues related to the starvation cycle.
You can read other interviews in the Social Velocity Interview Series here.
Nell: You and your colleague Don Howard are in some ways the catalysts behind the Overhead Myth campaign because of your seminal article, The Nonprofit Starvation Cycle in the Stanford Social Innovation Review back in 2009. How far have we come since that article? How prevalent is the starvation cycle today and what can we do to move beyond it?
Ann: “The Nonprofit Starvation Cycle” names what I consider to be a fundamental truth: “Organizations that build robust infrastructure…are more likely to succeed than those that do not. This is not news, and nonprofits are no exception to the rule.” For decades, researchers and practitioners have argued that low overhead does not equate with efficiency and efficiency, in turn, does not equate with effectiveness.
We are seeing (productive) focus and movement now versus five or ten years ago, yet that starvation cycle is still an entrenched issue. On a positive note, the Overhead Myth campaign has been critical in communicating with donors directly and empowering nonprofits to communicate with “back up.” Though I have mixed feelings about some of the messages in Dan Pallotta’s video, it elevated paradoxes of how costs are treated in the social sector. We’ve also seen targeted efforts to help funders and nonprofits address cost-related issues together. Even the federal government is trying to shift practice: the Office of Management and Budget issued guidance requiring that nonprofits receiving federal funding receive a minimum of 10% indirect rate, or they can negotiate a rate. If this guidance is followed, it will be a major policy win.
Yet we have a long way to go. Talking about terminology isn’t scintillating, but it’s critical to breaking the starvation cycle. Overhead costs aren’t the same as indirect, yet we conflate them. General operating support and capacity building—often seen as ways to help break the cycle—aren’t the same thing. Many nonprofits do not know the full costs associated with their programs, and many funders don’t understand nonprofit finance. Bridging the skill gap on both sides of the equation is critical.
Moreover, a single figure like the overhead rate is appealing because it makes comparison easy. Until nonprofits have better ways to communicate outcomes, we will continue to battle against the simplicity of a ratio. Finally, power dynamics between funders and nonprofits inhibit change; candidly, there aren’t strong forces pushing on philanthropy and government to change their practice. In the absence of such change, nonprofits are understandably worried about shifting their stance on overhead if their competitors do not (I do think there are steps that any nonprofit can take, though).
Nell: Part of what keeps the starvation cycle alive is that it is being fed, as you so clearly point out in your SSIR article, by both funders and nonprofit leaders. One of the things you were working on at Bridgespan was the Real Talk About Real Costs series of nonprofit leader and funder conversations. How effective was it to bring nonprofits and funders together to talk about these issues? And is that potential solution to the starvation cycle scalable?
Ann: Real Talk about Real Costs, sponsored by the Donors Forum with Bridgespan as a partner, brought together 300 leaders from nonprofits and philanthropy to wrestle with what good outcomes really cost. The event built upon a nine-month Community of Practice focused on “tackling the overhead challenge.” This interview has more about how Donors Forum decided to put the cost issue front and center. Another such effort is slated to begin in California in 2015.
In watching funder-nonprofit “mixed company” interactions, I was struck by how many funders expressed dissatisfaction with the grant-making status quo, yet frustrated that foundation trustees did not feel the same way. And I noticed how uncomfortable both funders and nonprofits were about having a tough conversation about full costs. At the event, we gave participants a role-reversal case study where a fictitious grantee and grant-maker had to discuss the terms of a grant; nonprofit attendees acted the part of the program officer and vice versa. In feedback surveys, the majority of comments focused on the discomfort and lack of knowledge they felt in talking about costs. Finding more ways for nonprofits and funders to wrestle with cost issues together would go a long way to building empathy and skills.
I don’t see a single scalable solution, but what feels most scalable as a starting point is a fundamentally different approach to communicating about costs: on websites, in collateral, and in conversations between nonprofit and funder. I believe that most funders can still make restricted grants without making unrealistic demands about how the funds are spent. For instance, what if funders asked “what type of capacity will you need to deliver on this grant?” vs. “what is the overhead for this project?” What if funders moved away from prescribed budget templates that don’t align with how nonprofits think about their resources? Even these seemingly small steps would go a long way to empowering nonprofits to communicate differently. Below I share a few specific ways I think nonprofits can help break the cycle.
Nell: The starvation cycle is just one example of the many ways we hold the nonprofit sector to a higher standard than we do the for-profit sector (costs for R&D, marketing, infrastructure, technology are taken as a given in the business world). Why does that discrepancy exist and how do we overcome it?
Ann: Overhead in the for-profit world—sales, general and administrative costs as a percentage of total sales—is 25% across all industries and 34% for service industries. The cruel irony of holding nonprofits to a much tougher standard is that donors often say that they do this because nonprofits ought to “run more efficiently, like a business.” Most people don’t know the overhead of businesses because profitability matters more.
Unlike businesses, nonprofits can’t report results in a single figure that makes apples-to-apples comparisons easy. One way to overcome this challenge is to move toward highlighting outcomes. I don’t mean standardizing outcomes (although efforts like Perform Well are very powerful), and I don’t mean doing away with financial indicators entirely. I mean moving from touting our overhead to sharing our program results. In an ideal world, nonprofits would be able to share not only their outcomes but also the costs associated with producing them.
I know this doesn’t happen overnight. Starting immediately, I would love to see more funders speak out in support of—and actually fund—these investments. And nonprofits have a role to play in shifting the conversation: by sharing for-profit overhead as a way to challenge assumptions; by taking down the overhead pie chart and other “we’re lean!” messaging from websites; and using systems like the Guidestar Exchange to share our goals and strategies in our own words.
Nell: You recently left the consulting/thought leader side of the sector (as a senior director at The Bridgespan Group) to work in the nonprofit trenches as COO of Habitat for Humanity Greater San Francisco. What are you learning as you work to turn theory about overcoming the starvation cycle into action inside a nonprofit organization?
Ann: I am learning that it is doable and reminded that it is hard. In the last few months, we have taken down the efficiency statement on our website (“87 cents of every dollar goes to helping families…”) and will soon to replace it with statements of outcomes we see for Habitat homeowners. We walked away from a $100K+ funding opportunity because the grant would have allowed a maximum of 10% for indirect costs, and we estimated that the compliance costs alone would have been 2-3 times that. The grant’s focus aligned well with a nascent program, so it was a tough decision.
Under our finance team’s leadership, we also implemented a time tracking system. We now have better information on how people spend their time and can compare actual versus what was allocated in the budget. We learned, for instance, that in the last quarter we spent more time on G&A than we’d projected. This makes sense: this summer a small team of board and staff, including myself, negotiated a lease for a new office space, then transitioned to managing the move out- and move-in process. I don’t think anyone would say that was a waste of time; finding a space that met our budget in the San Francisco real estate market has been a challenging but important task.
Next on the list is an internal conversation about Charity Navigator and the way we promote our four-star rating on our website. It will be a healthy debate. On the one hand, I appreciate the focus on accountability and transparency, and I’d be naïve if I thought we hadn’t received donations from donors who use these ratings. On the other hand, I have deep reservations about Charity Navigator’s financial health methodology, particularly in that it penalizes nonprofits with higher overhead regardless of context. If we invest to support our growth—spending time finding a new office in a tough market, or upgrading our HR systems to find and retrain the best staff—we ought not to feel embarrassed about that, nor be penalized for it.
I am fortunate to work with a board and staff who are open to these changes and debates. My hope is that our experiences can serve to keep my perspective about the starvation cycle grounded and productive.
Photo Credit: Habitat for Humanity Greater San Francisco
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