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Innovators

Financing Not Fundraising: Assess Your Nonprofit’s Financial Model

moneyI am amazed by the reaction of some nonprofit leaders when faced with a budget shortfall. Some simply shake their head in innocent confusion, some blame an “inexperienced” development director or a “checked-out” board, and others throw together a knee-jerk fundraising event in order to stem the tide.

But a much better approach, when you don’t have the money your nonprofit needs, is to step back and assess the viability of your nonprofit’s overall money function, which is the topic of today’s installment in the ongoing Financing Not Fundraising series.

If you want greater, more reliable funding for your nonprofit, you must get strategic. And the first step to any real strategy is analysis.

Instead of viewing the money that flows to your nonprofit as a side note, or worse, a completely uncontrollable force, you must view money as a very necessary and integrated function that is just as important as your nonprofit’s programmatic function. And in order to determine how well your money function operates and how to transform it, you must assess it.

A transformative financial model assessment uncovers how all aspects of the organization contribute to or detract from money flowing through the doors. It analyzes the financial impact of 7 areas of the organization, like this:

  1. Strategy
    Does your nonprofit have a long-term strategy that integrates money, programs and operations? Does your strategy help articulate the value your nonprofit provides the community in order to compel outsiders to invest? Does your strategy include measures for whether that value is actually being created?

  2. Mission and Vision
    Does your nonprofit have clear, compelling vision and mission statements? The two statements are not “nice to have” marketing language, rather they articulate the very essence of why your nonprofit exists. Does your vision paint a bold description of the social change you seek? Does your mission describe the day-to-day work towards that vision?

  3. Board and Staff Leadership
    Does your board have the skills, experience and networks necessary to execute on your strategic plan? Are they engaged and invested? Are they actively connecting the organization to people, resources, partnerships? Does your staff have the knowledge and experience necessary to make money flow? And are they structured and managed effectively?

  4. Program Delivery and Impact
    As a nonprofit you have two sets of “customers.” Those you serve (or your “clients”), and those who fund those services (or your “donors”). Without a compelling and effective delivery of services to clients, donors won’t fund those services. Is your nonprofit strategic about which programs to grow and which to cut? Do you measure the effect of your programs on clients? Are your programs financially viable, or are too many of your programs mission-rich, but cash-poor?

  5. Marketing and Communications
    Do you make a compelling case for your work and for support of it? Once you’ve made the case, are you using the right marketing channels (website, social media, events, email, etc.) to attract and engage your target funders, volunteers, advocates, board members and other supporters?

  6. External Partnerships
    In order to move the mission forward and in order to attract funders, volunteers, advocates you must be strategic about building alliances that make sense. Do you have the necessary external relationships to execute on your strategy? Are you constantly working to strengthen or grow the right partnerships in the right ways?

  7. Financial Model
    And only now do we look specifically at money. Because without all the previous elements (thoughtful strategy, compelling vision and mission, strong leadership) money simply will not follow. Does your funding mix fit well with your mission and core competencies? Are there other revenue streams that make sense to pursue? Are there fundraising activities that are actually costly rather than profitable?

When money isn’t working the way you want it to, don’t stick your head in the sand. Wrest the money sword from the beast of chance by taking a hard look at your nonprofit’s money function.

If you want to learn more about the Financial Model Assessment I provide clients, click here. And if you want to learn more about the Financing Not Fundraising approach, download the newest e-book in the Financing Not Fundraising series, Financing Not Fundraising volume 3.

Photo Credit: Pen Waggener

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Can We Move Beyond the Nonprofit Overhead Myth?

mythEver since last year’s Letter to the Donors of America from GuideStarCharity Navigator, and BBB Wise Giving Alliance there has been a growing movement to debunk the “nonprofit overhead myth,” the notion that donors should evaluate nonprofits based on the percent they spend on “overhead” (fundraising and administrative) costs.

More and more articles (a most recent one here) are cropping up explaining the overhead myth and highlighting donors who overcame it. And even fundraising journal Advancing Philanthropy is devoting their entire Spring issue to the topic.

But at the same time we have very obvious examples of the continuing strength of the overhead myth. The latest is nonprofit darling Charity:Water, which is often held up as the gold standard of innovative fundraising and nonprofit strategy, claiming that 100% of their donations go “directly to the field.” And thus the overhead myth lives on.

Will we ever be rid of the idea that nonprofits can somehow achieve a nirvana where very little (or no) money goes to boring things like salaries, technology, infrastructure, fundraising, leadership development, planning, R&D?

I wonder if we could gain more traction by talking less about the negatives of an overhead myth and talking more about the positives of nonprofit organization building.

For example, one of the things that is often considered “overhead” and rarely gets funded is nonprofit leadership development. But in the for-profit sector, leadership development is viewed as an incredibly important and worthy investment. According to a recent article by the Foundation Center, the business sector spent $12 billion on leadership development in 2011, 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.

And leadership development can have such a positive return on investment. A stronger nonprofit leader can:

  • Recruit, train and manage a more productive and effective staff
  • Engage a more invested board of directors
  • Use money and other limited resources more strategically
  • Open a nonprofit to bigger and better networks
  • More effectively manage to outcomes
  • Create an overall more highly performing nonprofit

So what if we refocused the overhead myth discussion on the power of nonprofit organization building? Beyond leadership development, investing in nonprofit organization building means money for things like: talented, effective fundraising staff; smart long-term planning; performance management systems; effective technology.

At the core, organization building is about creating a smart, strategic nonprofit that can actually realize the outcomes it was set up to achieve. Organization building can make the difference between a nonprofit that is just getting by and a nonprofit that is actually solving problems.

If you want to learn more about funding nonprofit organization building, download the Power of Capacity Capital E-book or the Raising Capacity Capital Webinar.

Photo Credit: liquidnight

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10 Great Social Innovation Reads: January 2014

school roomJanuary was all about wealth inequality, all the time. The 50th anniversary of President Johnson’s War on Poverty was an appropriate backdrop to growing unease about the fact that the rich are getting exceedingly richer.

But there is much debate about what the solution is and even how to frame the problem. And where do nonprofits fit in, and what does it all mean for the future? It is an enormous, far-reaching and complex problem.

Below are my picks of the 10 best reads in the world of social innovation in January. But please add to the list in the comments. And if you want more, follow me on Twitter, Facebook, LinkedIn, or Google+.

You can also find the list of past months’ 10 Great Reads here.

  1. This year marks the 50th anniversary of the launch of President Johnson’s War on Poverty. Despite the long attack, wealth inequality is getting worse, not better, and is becoming a very hot topic. But Mark Schmitt, writing in New Republic, takes issue with how the inequality conversation is being framed. He argues that “we need a way to talk and think about inequality that presents it as a system, and then finds the points of intervention that might actually change the system.”

  2. Thomas Piketty’s new book, Capital in the Twenty-First Century, due out in March and reviewed this month by Thomas Edsall in the New York Times, takes reframing the inequality conversation even further. Piketty makes a rather depressing argument that when viewed over history wealth inequality is the rule rather than an anomaly and without huge systemic change (like a global wealth tax) will only get worse.

  3. And where does the nonprofit sector fit in? Mark Rosenman argues that nonprofits should play a pivotal role in advocating for change: “If the United States is again to be a nation where upward mobility applies to more than those already near the top, nonprofits must exercise their moral authority and advocate for economic policies that give a hand up to the poor and advance a vision of the common good that includes all Americans.”

  4. The often employed method to combat poverty – education – may not be the answer anymore. Clay Shirky takes higher education to task for “preserving an arrangement that works well for elites—tenured professors, rich students, endowed institutions—but increasingly badly for everyone else.”

  5. But for David Bornstein, appropriately from the world of solutions journalism, there are still some bright spots to point to in the War on Poverty.

  6. Maybe part of the solution lies in changing our measures of success. This video suggests we move from Gross Domestic Product to a Social Progress Index to measure a country’s success.

  7. They say long-form journalism is coming back and let’s hope so if Drew Philp’s piece “Why I Bought A House In Detroit For $500” is an example of the trend. He beautifully describes the process of investing his heart and soul in a house and neighborhood in crumbling Detroit.

  8. And, on a related note, it turns out that “gentrification” may not be a dirty word anymore, according to NPR.

  9. In other news, writing in the Nonprofit Quarterly Eileen Cunniffe provides some interesting examples of how arts nonprofits are reinventing themselves and their relationship to money.

  10. Finally, the Nonprofit Tech For Good blog rounds up 19 really interesting social media and fundraising infographics for nonprofits.

Photo Credit: University of Iowa Libraries, 1960

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5 Ways Great Strategy Can Transform a Nonprofit

Nonprofit StrategyI’ve been working with several clients lately to create a strategic plan, and I love the moment when the real value of the strategic plan and the process of creating one becomes blatantly obvious.

It’s the point at which board, staff, funders start to see the possibility that the plan holds for the nonprofit and the social change they seek. They get really excited about bringing that future to fruition.

But that only happens when you create a really smart, thoughtful strategy — a good strategic plan, instead of a poor one.

Smart nonprofit strategy can completely transform an organization, in at least 5 fundamental ways. It will:

  1. Create Momentum
    It’s not the final plan that energizes people, rather it’s the process of analyzing the external environment in which a nonprofit operates, making some hard decisions about where to focus resources, articulating the value the nonprofit provides, connecting the dots between individual actors and the larger vision. If done well, the work done during the strategic planning process really energizes board and staff. And when they start talking with people outside the organization (funders, volunteers, stakeholders) about the plan, those outsiders become energized too. To really tap into people’s potential you must inspire them to larger heights and help them understand their role in reaching those heights. A great strategic planning process does that.

  2. Attract Deeper Funding
    The difference between a nonprofit just scraping by and a nonprofit with a sustainable future is strategy. If you want to attract larger, longer-term funding, particularly from major donors, you simply must have a future strategy in place. People and organizations that make large gifts to a nonprofit are in effect investing in the future of that organization. And if you can’t articulate your future plans in a thoughtful, compelling way, funders won’t make that larger investment.

  3. Filter Future Decisions
    If you create your strategic plan correctly it becomes a tool for analyzing and making decisions about future opportunities. Most nonprofits are regularly fielding new opportunities (new funding streams, new programs to develop, new alliances to forge), but without an overall strategy it’s difficult to know which opportunities to pursue. A great strategic plan doesn’t tie an organization’s hands, rather it becomes a tool — a lens — through which you can thoughtfully analyze future decisions and make the best moves for your organization. One of my clients uses growth criteria we developed during their strategic planning process to determine when and where to add new sites. These criteria ensure that they are growing in a strategic, not reactive, way.

  4. Become a Management Tool
    When done right, a strategic plan can drive the operations of the organization and the activities of the board and staff. At the board level, you can regularly track progress on the goals and objectives of the strategic plan through a dashboard (like the one at top of this post). At the staff level, you can monitor the activities and deliverables of the plan through an operational plan. An effective strategic plan doesn’t sit on the shelf, but rather is a living, breathing guide to the daily work and decisions of the organization. It’s not a final product, it’s a way of life.

  5. Realize More Change
    At the end of the day you operate your nonprofit in order to address a social issue, to see some sort of change to a social problem. But the only way you will truly create that change is if you have a strategy that puts all of your limited resources (money, staff, board, volunteers) to their highest, best, most focused use. A great strategic planning process forces you to do the analysis, conduct the research, make the hard decisions, and track your progress so that at the end of the day you actually are making a difference.

Honestly, I don’t know how you operate a nonprofit without a strategy in place. In an increasingly competitive, resource-strapped world great strategy is less a luxury and increasingly a necessity.

If you want to learn more about what a strategic planning process looks like, check out my Strategic Planning page.

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Financing Not Fundraising: Moving Beyond Nonprofit Startup Mode

staircaseI get a similar question a lot, “We really want to move our nonprofit out of startup mode but don’t know what the right first steps are.”

Although the definition of a “startup” is an organization that has been around for only a few years, there are many nonprofits that are still in startup mode despite their 20+ years of existence.

But the good news is that you don’t have to wait around for a knight in shining armor to save you from the endless startup existence, which is the topic of today’s installment in the ongoing Financing Not Fundraising series.

The power to begin scaling the startup wall is actually in your hands. Here are the steps to begin:

  1. Create Your Business Plan
    Probably a big part of the reason that you are still struggling as a startup (more than) several years in is that you haven’t strategically connected operations and financing to your mission. A business plan that answers questions like “How will you finance the business?” and “Who are your target customers (clients AND funders)?” and “What’s the right staffing structure?” and “What are the goals of the business?” and much more. Just because the profits from your business enterprise go back into the organization (nonprofit) instead of into the pockets of the owner or stakeholders (for-profit) doesn’t mean you don’t need a business plan. Figuring out how to align money, mission and operations is the first step to a stronger future.

  2. Grow Your List of Champions
    If your nonprofit’s inner circle consists of a founder and a few friends you will never grow. You have to convince people beyond those who already love you to internalize the work of the organization and become actively involved as board members, advisors, fundraisers. But you cannot target anyone and everyone. You have to identify people whose values connect with your work and your mission. And they have to have some specific skills, experience and networks that will help your organization move forward. But if you’ve only ever had your friends behind you, how do you convince outsiders to become champions and board members? Keep reading…

  3. Develop a Value Proposition
    If you are unable to articulate among internal board and staff what your nonprofit is hoping to accomplish and the value it provides the community, how can you possibly convince others to become involved? The first step in really taking things to the next level is to develop that value position, or a Theory of Change. A Theory of Change is basically an argument for why your nonprofit exists — how you take community resources (inputs) and create changes to program participants’ lives (outcomes). To move from merely getting by to really making strides, you must create this argument.

  4. Convince Others to Give
    Once you have your Theory of Change in place you need to make a compelling argument for how more inputs (funding) will help you create more outcomes. A case for investment is a logical, reasoned argument that helps you to make this case convincingly. Once completed, pieces of your case for investment can be used in fundraising appeals, on your website, in thank you letters, in marketing campaigns and much more. It is the fundamental building block to attracting more dollars to your nonprofit.

It doesn’t have to be a rule that the vast majority of nonprofits subsist in an endless startup mode. If you need some help finding your way out of startup mode, download the Nonprofit Startup Tool Bundle.

Photo Credit: Chad K

 

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Why Do Nonprofit Leaders Get in Their Own Way?

men hurdlesCan we talk about crazy for a minute?

I’ve recently witnessed some behavior from nonprofit leaders that made my jaw drop:

  • A board chairman convinced the rest of his board to turn away a donor who wanted to give the nonprofit a significant amount of money to fund organizational capacity (strategic planning, coaching, fundraising training) because he felt the nonprofit already knew how to do the work internally for free.

  • An executive director who was really struggling with wrangling her board and developing a strong financial model bravely asked a close foundation donor for advice and support. When the foundation offered to fund some leadership coaching, the executive director rejected the offer for fear her board would think she didn’t know how to do her job.

  • A board charged their nonprofit’s Development Director with increasing revenue in a single year by 30%. When she asked for a donor database to help more effectively recruit new and renew current donors the board said “No” because they felt she should already be able to do that without the aid of new technology.

More often than not it is nonprofit donors who hold back efforts to build stronger, more sustainable nonprofits by not providing enough capacity capital. I talk about that all the time (like here, here and here).

But sometimes, and more shockingly, nonprofit staffs and boards stand in their own way.

It takes courage for a nonprofit leader to admit that she doesn’t know how to do something and needs help. I am reminded of a fascinating interview I heard on NPR earlier this fall with Leah Hager Cohen who recently wrote the book, In Praise of Admitting Ignorance. She describes the freedom that comes from admitting when you simply don’t know how to do something. That moment of honesty can lead to transformation, as she says, “I think those words can be so incredibly liberating…They can just make your shoulders drop with relief. Once you finally own up to what you don’t know, then you can begin to have honest interactions with the people around you.”

I would love to see nonprofit leaders take this advice to heart. Once you have the courage to admit (to your board, to your donors, to your staff) that you don’t know how to do everything, you just might finally get the help you so desperately need.

Nonprofit leaders have been given the Herculean task of: developing and managing effective programs, managing a diverse and underpaid staff, crafting a bold strategic direction, creating a sustainable financial model, wrangling a group of board members with often competing interests, and recruiting and appeasing a disparate donor base. All with little support along the way. It is easy to see why the position of nonprofit leader is such a lonely one.

So instead of continuing to bear that enormous burden, take a step back and admit that you simply don’t know how to do it all. You need help, guidance, advice, support, organization building. If you are lucky enough to have funders, board members or others outside the organization that want to help, admit (to yourself, to your board, to your donors) that you need that help. And don’t let anyone (including, and especially, yourself) stand in your way.

If you’d like to learn more about the leadership coaching I provide nonprofit boards and staff click here, and if you’d like to schedule a time to talk about how I might help move your organization forward, let me know.

Photo Credit: Wikimedia

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10 Great Social Innovation Reads: December 2013

Town2In my eyes, December was about three main things: the After the Leap conference about moving nonprofits to manage to outcomes, predictions about how the social sector will evolve in 2014, and the impact of the second annual Giving Tuesday. Added to the mix were some demonstrations of the growing wealth inequality (a prediction for 2014 from many) and a dash of controversy about the beloved TED Talks. It all made for a very interesting month.

Below are my picks of the 10 best reads in the world of social innovation in December. But please add to the list in the comments.And if you want to see more of what catches my eye, follow me on Twitter, Facebook, LinkedIn, or Google+.

You can also find the list of past months’ 10 Great Reads here.

  1. I already linked to several people’s great 2014 prediction pieces in my 5 Nonprofit Trends to Watch in 2014 post, but Tom Watson’s Trends and Collisions That Will Challenge the Social Sector in 2014 in Forbes is particularly thought-provoking. He takes what he calls a “meta approach” by analyzing themes from big social sector thinkers and “adding a few morsels to the stew.”

  2. One of the predictions on both my and Tom’s list was that the growing wealth inequality will become increasingly obvious. Robert Reich helps this trend by providing a scathing critique of modern philanthropy, arguing that it is becoming less about solving wealth inequality and more about reinforcing it: “Fancy museums and elite schools…aren’t really charities…They’re often investments in the life-styles the wealthy already enjoy and want their children to have as well.” And Peter Capelli, writing on the Harvard Business Review blog, seems to agree, but on the corporate side. He takes issue with “companies that pay poverty-level wages or thereabouts to their employees [while] spend[ing] a good deal of effort to be good corporate citizens in other areas.”

  3. Some people claim the second annual Giving Tuesday was a great success with a 90% increase in day-of online donations over last year, but others, like Michael Rosen, argue that Giving Tuesday is not actually channeling new money to the sector.

  4. The first-ever After the Leap conference in December promoted nonprofit performance management. Perhaps the high point of the conference was Nancy Roob’s (head of the Edna McConnell Clark Foundation) stirring keynote pushing both foundations to fund outcomes management and nonprofits to demand it. The Stanford Social Innovation Review did a great interview with her where she makes many of the same points, and an interview with Mario Morino, the main organizer of the conference.

  5. Writing in The Guardian, Paula Goldman from Omidyar Network discusses how, with impact investing, the blending of social and profit motives is really starting to take hold: “Fifteen years from now…We’ll look back on a host of innovations benefitting millions of disadvantaged people – in education, in healthcare,…in solar lighting—and will have a hard time remembering the day when people viewed charity and business as working towards opposite goals.”

  6. Leon Neyfakh writes a fascinating expose in the Boston Globe about donor advised funds, which he claims is “where charity goes to wait.” $45 billion—more than the endowment of the Bill and Melinda Gates Foundation – currently sits idle in donor advised funds and that amount is growing fast. A huge financial opportunity for the sector.

  7. The Center for Effective Philanthropy released a new study about how much impact foundation CEOs think their philanthropy has had. Philanthropy heavyweights Paul Brest and Lucy Bernholz each give their take on the study’s findings.

  8. I have loved writer Steven Pressfield since I read his fabulous The War of Art last summer. His blog about the creative process is a fount of knowledge and inspiration. His post in December about envisioning and embracing the future in your industry applies to nonprofits too.

  9. The idea of networked approaches to social change has been around for several years and is gaining momentum. Writing in the Nonprofit Quarterly, Mark Leach and Laurie Mazur describe “the power and promise of networked approaches to social change…creat[ing] a force larger than the sum of their parts.” Definitely a trend to watch.

  10. And finally, I love it when someone steps back and asks some hard questions about something that everyone else assumes is amazing. Benjamin Bratton does just that about the beloved TED Talks, which he claims “dumb-down the future.”

Photo Credit: Imperial War Museums

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Funding Stronger Nonprofits: An Interview with Denise Zeman

Denise ZemanIn today’s Social Velocity interview, I’m talking with Denise San Antonio Zeman. Denise has been President and CEO of Saint Luke’s Foundation of Cleveland, Ohio since 2000. A lifelong Clevelander, Denise’s career has spanned higher education, human services, healthcare and philanthropy.  Now in its 17th year of grantmaking, Saint Luke’s provides leadership and support to improve and transform health and well-being of individuals, families and communities of Greater Cleveland.

You can read past interviews in the Social Innovation Interview Series here.

Nell: Saint Luke’s Foundation is different than most foundations in that you have made a conscious commitment to funding the capacity of nonprofit grantees in areas such as leadership development and outcomes measurement. Why did the foundation decide to put an emphasis on capacity funding and what have you learned from those investments?  

Denise: Just over two years ago, our Foundation board and staff held a retreat. An important topic was our frustration over the reality that the recent economic downturn had produced tremendous need in our community and volatility in our grant budget.  Specifically, this downturn highlighted for us that we were spending more when the economy was good and less when the community needed us most. These concerns were analyzed, and the culprit was determined to be our spending policy, for although we knew we could not control the world economy, we realized that we could control the way we responded to it.

We had employed a traditional 5% payout since our inception in 1997, and decided to investigate spending policies that might provide us a higher, more predictable level of spending going forward. With much trepidation, the board approved a bold new spending policy that provides for a “floor” with certain tolerance limits. We increased our spending by about $4 million and established a spending range between 5 and 7%. For the past two years our spending has been very close to 7%.

With this came a strong commitment to working with our grantees and philanthropic colleagues to move toward funding what works in order to advance a smaller set of priorities. The new priorities more narrowly define our previously broad definition of “health” to focus on three specific strategy areas: Healthy People, Strong Communities and Resilient Families.

The role of our senior program officers also shifted from a focus on managing a set of grants to a commitment to advancing a strategy. We agreed upon long and short-term outcomes that guide our grantmaking decisions, and the program team now manages their portfolios of grants in a more entrepreneurial way. In addition to making grants, their due diligence includes an in-depth analysis of the grantees’ capacity to be successful.

A thorough analysis of the literature, conversations with colleagues and focus groups with grantees revealed six strengths that the highest performing nonprofits have in common. These include strong financial management, investment in leadership, a commitment to outcomes and learning, a spirit of collaboration, excellent communications, and advocacy for good public policy.

We support and encourage our grantees to develop these capacities in a variety of ways. In our formal and informal interactions, we encourage them to think about their approach to building these capacities and we provide support to assist them in this process. We ask probing questions such as “What keeps you up at night?” in order to nurture lines of communication, demonstrate our concern for their growth and development, and most importantly, learn. And we work with our regional association, Philanthropy Ohio, to bring national content experts to our region for programs and seminars on relevant topics. We also host meetings ourselves during which we invite thought leaders such as Geoffrey Canada (Harlem Children’s Zone), Dan Heath (Made to Stick and Switch), Fay Twersky (Beneficiary Voice), and Phil Buchanan (Center for Effective Philanthropy) to challenge the status quo and help us focus our efforts to build a stronger nonprofit and philanthropic sector.

In order to be able to deliver on their promise to the community, nonprofits must have a solid financial base. Our scrutiny of financial statements has increased, and with that has come a commitment to working with our grantees to improve their financial planning, monitoring, operations and governance. The Nonprofit Finance Fund and Financial Management Associates, LLC have provided local strategic financial management seminars to increase knowledge and inspire motivation to build financial capacities.

We also know that strong leaders produce great results. We therefore encourage and support comprehensive leadership development for our grantees, and we support efforts to implement leadership development practices that ensure good governance and empower professional staff to be leaders of change.

We are committed to tapping into the power of outcomes measurement as a way to support continuous learning and encourage performance improvement, and we work with our grantees to support their efforts to collect and use data to improve their outcomes for their clients. We have learned first-hand how challenging measuring impact in the social sector can be.  But we have also learned that unless we measure and move toward specific, measurable outcomes, we run the risk of spinning our wheels at best, and actually doing harm at worst. The works of Mario Morino (Leap of Reason) and David Hunter (Working Hard and Working Well) provide nonprofit and philanthropic leaders with the rationale and roadmap for making a measurable, meaningful and lasting difference for the people they serve, and we strongly encourage our grantees and colleagues to join us in embracing their approaches.

We have also learned the importance of supporting the capacity of our grantees to work with others.  We live in a nonprofit community that was built for a population of over one million people, and yet the last census revealed that our community has contracted by more than half. Our government and philanthropic resources have diminished, yet the need in our community has grown. We therefore work in partnership with our grantees and philanthropic partners to support collaboration in practice and in learning, and we have embraced the concepts of Collective Impact (Foundation Strategy Group) to inform our work.

Communication is also an area of focus for us. Borrowing from what we learned from Chip and Dan Heath in Made to Stick, we support strategic communications that help our grantees leverage outcomes and tell effective stories to advance their missions. This is not storytelling for the sake of storytelling; rather, it is using the power of outcomes to demonstrate effectiveness and impact.

While philanthropic support for health and human services is important, it is miniscule compared to government spending. We therefore support efforts to educate policymakers on relevant issues and influence institutions, systems and community and/or individual behaviors within the funding guidelines for private foundations.

Quite simply, we believe that strong nonprofits produce the strongest results, and as funders of impact, we believe it is our role to support our grantees to be the strongest they can be.

Nell: Leadership development is a particular area of interest for the foundation. What do you think nonprofit leaders need most to become more effective and what role can philanthropists play in that?  

Denise: We view strong, resilient leadership as one of the most effective tools for achieving superior results. In our work with grantees, we have learned that organizations that take an intentional, focused approach to leadership development achieve better outcomes for the people they serve. Nonprofit leaders need boards that are uncompromising on quality and results, and these boards must both challenge and support executive leadership to drive innovation and strategic performance.

As noted in Independent Sector’s Leadership Initiative, nonprofit leaders need “time, attention and resources to engage in high-quality leadership development programming that equips them to deliver significant results.” Leaders cannot be so “in the weeds” that they lose sight of their role as keepers of the promise. We encourage our grantees to use some of our general operating support to focus on leadership development, and to extend that focus to developing the “next generation” of leaders as well.

We also provide funds for nonprofit leaders to participate in high quality leadership development programs locally and nationally. Additionally, we support an individual professional development program for each member of our foundation staff to ensure that they continue to develop their own potential as leaders.

Nell: One of the arguments some philanthropists make against providing funding for building nonprofit organizations is that it is harder to demonstrate the return from a capacity building investment than a program investment. How do you respond to that argument?  

Denise: I agree…it is hard, but we have never been an organization that avoids hard! In our work with the TCC Group last year, we learned more about what it takes to be a learning organization. We made a commitment to learning from everything we do, and we are committed to learning more about how to measure the impact of capacity building investments.

And while we are still learning, we have some specific examples that demonstrate the return on our investments in building capacity. We know, for example, that our support for outcomes and learning has helped some of our grantees build the capacity to reflect their success by implementing outcomes management software and producing results-oriented dashboards. Eight of the organizations we helped form strategic alliances have merged into four, and are serving more people with fewer resources. We also know that some of the communications-related grants we have made have enabled grantees to extend their reach in innovative ways such as electronic case management programs. And we know that policy-focused grants have allowed some of our safety net providers to come together to provide patient-centered medical homes for some of our most vulnerable citizens in advance of Medicaid expansion. While these results might be viewed as anecdotal, we believe they are building our own capacity to make a strong case for capacity building.

Nell: Funders are becoming increasingly interested in nonprofit outcomes measurement, yet few funders are willing to fund evaluations. How do we solve that chicken or the egg scenario?

Denise: I was recently invited to participate on a panel called “Do Funders Get It?” at a national conference called After the Leap. The panel responded to Nancy Roob’s stirring plenary session in which she described the phenomenal work of the Edna McConnell Clark Foundation in supporting youth development organizations across the country to be more effective.

We posed the question “Do funders understand the resources and support nonprofits require to scale impact?” to the audience, and not surprisingly, the response affirmed the reality that most of us do not. The truth that funders want results but are reluctant to fund evaluations has been confirmed by the Center for Effective Philanthropy, Grantmakers for Effective Organizations, and the National Committee for Responsive Philanthropy, to name just a few.

So how do we solve this dichotomy? As with any attempt at true and lasting change, there is no single silver bullet that will suddenly convince funders to change their traditional ways of grantmaking. But I do believe there is a growing receptivity to the concept of  funding for impact, and there is a role for philanthropic affinity groups and regional associations to educate their membership with concrete suggestions that funders can use with their boards, professional staffs and grantees.

Government funders are beginning to understand the importance of funding what works, and this will raise the stakes for nonprofits that rely heavily on public support. They will have to demonstrate impact or they will not receive support. This will raise the evaluation imperative to standard operating procedure, and funders that care at all about their grantees will be compelled to support building evidence that their approaches do, in fact, achieve sustainable results.

Nell: Although Saint Luke’s Foundation is a real trail blazer in the philanthropic world, philanthropy overall is rather slow to change, particularly when it comes to funding in new ways. What do you think it will take to get more funders to understand that stronger nonprofit leaders and organizations can equal more impact?

Denise: Thank you for your kind words. Our change in spending policy and approach was largely informed by Mario Morino’s admonition to “rethink, redesign and reinvent the why, what and how of our work in every arena.” He went on to suggest that we “need to be much clearer about our aspirations, more intentional in defining our approaches, more rigorous in gauging our progress, more willing to admit mistakes, more capable of quickly adapting and improving – all with an unrelenting focus and passion for improving lives.” When put that way, who could argue?

Foundations and nonprofits are about the business of improving lives. The Foundation’s role is not to DO the work…our job is to support those who DO. And unless we are willing to provide sufficient support to enable our grantees to build systems to assess the impact of their practice, we will fail. We must be bold in challenging and supporting one another to disrupt the sector in unprecedented ways. We at Saint Luke’s Foundation have changed our approaches from spending to strategy to portfolio management, but we have stayed true to our original mission statement to improve and transform health and well-being in our community. I suppose it is fair to say that our very mission implies that we will fund what improves and transforms…and therefore we see it as being true to our mission to build highly effective provider organizations.

Photo Credit: Saint Luke’s Foundation

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