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
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
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
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
There is an article in Forbes this month that bothered me. Carrie Rich, co-founder and CEO of The Global Good Fund, argues that more nonprofits should move from a “donor-driven organization” to a “revenue-producing social enterprise.” Instead of “relying on donor funding” more organizations should “create revenue-producing services.” In essence she is encouraging more nonprofits to figure out how to sell their services.
The problem with her argument, though, is that it encourages nonprofits to think one-dimensionally about funding sources instead of developing an overall financial strategy that may or may not include earned income.
Rich’s argument is that earned income, or what she calls “revenue-producing social enterprise” is a more sustainable and impactful way to create social change. She goes on to list all sorts of reasons (10 actually) that revenue generation (or earned income) is better than contributed income. These reasons include that revenue generation allows nonprofits to be “more responsive to change,” “attract employees who seek growth,” “accelerate growth and impact,” “become more financially sustainable and mature,” and the list goes on.
Rich is echoing a repeated dichotomy in the social change space between traditional, broken nonprofit approaches, and new, more sustainable and impactful social entrepreneurship approaches. Her line of argument stems from a distaste for fundraising done badly.
Believe me, I get it. Fundraising is broken. But just because traditional fundraising is flawed doesn’t mean we should eschew all contributed income.Yes there is deep dysfunction within the nonprofit sector – I talk about it all the time. But the answer is not to simply dismiss the sector and all of its trappings (and revenue sources).
Let’s remember that a nonprofit organization is often created to provide a public good that is not offered by the market. In other words, nonprofits are selling what someone is unable to purchase.
Thus, nonprofits typically have two customers:
- Those who benefit from the services (“Clients”), and
- Those who buy the services (“Donors”)
When social change organizations are able to conflate the two – when the client becomes the buyer – a social enterprise is born. And while that is great, it is rarely the case. Therefore, market-based solutions will never provide all the social change we need.
Every social change organization must analyze their overall strategy and develop a financial model that best delivers on that strategy. That financial model may have earned income elements, contributed income (individual, corporate and foundation grants) elements, government funding or, most likely, some combination of all of these. And every nonprofit should at least analyze whether earned income is right for their financial model. But social enterprise will never be right for all nonprofits, or even a majority of them.
Instead of completely throwing out “traditional charity models,” let’s make them better. Rich argues that one of the many reasons earned income is better is that it allows organizations to “afford the best technologies to help them succeed.” If social change organizations need more capital investments for technology (which they definitely do) then let’s make capacity capital ubiquitous in the sector. But let’s not erroneously assume that more earned income equates to more capital investment.
Let’s move past these social enterprise vs. charity debates and instead focus on helping social change organizations develop smart, sustainable financial engines that include the right revenue (and capital) mix.
Photo Credit: Yoel Ben-Avraham
My hope in creating the growing library of Social Velocity videos is that nonprofit leaders will use the topics as a jumping off point for honest discussions with boards and donors. It can often be intimidating for a nonprofit leader to raise a controversial question like:
- “Should all board members be required to fundraise?”
- “Should we stop worrying about program vs. overhead expenses?”
- “How do we get our board more engaged?“
A nonprofit leader could set aside 30 minutes in a board meeting agenda for a discussion kicked off by a 2-minute video. Play a video, and then simply ask “What do you think?” Or you could show a video to a donor when you meet and ask for their opinion.
Some will disagree vehemently with what I have to say, but others might agree, or at least be open to thinking in new ways. An interesting, thought-provoking conversation might ensue. From that discussion you might start to plant seeds for change.
So to add to the library of conversation starters, today I offer this video on What Nonprofits Really Need From Their Donors. And if you want to see other videos in the series go to the Social Velocity YouTube channel. Good luck!
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