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Nonprofit Leaders Have the Power to Create Capacity Funding

nonprofit capacity capitalI was in a meeting with a group of nonprofit leaders the other day, and one of them voiced an often-heard complaint: “There just aren’t many foundations funding nonprofit capacity building.”

I was instantly reminded of my mother’s admonishment when I would come home from school with complaints about a classroom rule or a frustrating teacher. She would say, “Well, you have a mouth on you, don’t you?” Her quip was intended to encourage me to stop complaining about an inadequacy (however small, in my case) and do something to change it.

While I am the first to bemoan the lack of adequate resources in the nonprofit sector, nonprofit leaders themselves do have some agency to turn the tide and find funding to create more effective and sustainable organizations.

Rather than searching for donors who already express an interest in funding nonprofit capacity (like fundraising staff and systems, program evaluation, technology), it is actually more effective if a nonprofit leader takes it upon herself to create her own capacity funders.

But that requires a process, like this:

Move From Scarcity to Abundance Thinking
You can’t hope to solve your capacity challenges without thinking that they are, in fact, solvable. Many nonprofit leaders are so used to going without that they don’t allow themselves and their staffs to envision what could make things better. So start by brainstorming with your staff the hurdles standing in your way (lack of fundraising staff, inadequate technology, poor long-term planning, disengaged board of directors). Then list the kinds of investments you could make to solve those challenges (new staff positions, new technology and systems, strategic planning, board training) without constraining those potential solutions due to their costs.

Create a Capacity Building Plan
Once you have articulated what is standing in your way and the potential solutions to those hurdles, create a plan for overcoming your nonprofit’s challenges. Because funders often see capacity funding as more “risky” than traditional programming support, a nonprofit leader interested in securing capacity building funds must put together a clear plan for the need, solutions, costs and execution plan for capacity support. Clearly articulate what capacity changes you need to make, why, what those changes will help you accomplish, and over what timeframe.

Create a Capacity Building Budget
Attached to your capacity building plan must be the dollars necessary to implement the plan. What would it cost for a new donor database, a program evaluation, or your other needed capacity investments? Do the research and then create the capital requirements, over an adequate timeframe (2-3 years), for the capacity building needs you have. Now you know how much capacity capital you need to raise.

Brainstorm Capacity Donors
Just as you would with a traditional capital campaign, create a list of potential donors to whom you will pitch this “capacity capital campaign.” This is where the real magic happens — when you turn traditional donors into capacity building donors, perhaps without them even knowing it. A good capacity building donor is someone (a major individual donor, board member, or foundation funder) who is already a donor to your nonprofit and can be convinced (through your excellent persuasion skills) that an investment in your capacity building plan (above) will actually help your organization do even more of the things they love.

Work the Prospect List
Just as you would in a major donor campaign, begin meeting one-on-one with these prospective capacity building donors to share your capacity building plan and articulate how critically important these capacity building investments are to the future of your work together. Make a clear, compelling argument about how greater organizational capacity will help you further the mission that these donors love. Connect greater effectiveness and sustainability directly to more programming, more people served, more outcomes achieved.

Demonstrate the Return on Their Investment
Once you’ve secured them, provide those donors who become capacity builders a regular update on the progress of your capacity building efforts. And I have seen tremendous results that nonprofits can report on these types of capacity investments. One of my clients was able to translate $65,000 worth of capacity building investments in strategic planning, board development, fundraising training and leader coaching into 300% growth in the number of people they reached with their services. Another client turned $350,000 worth of capacity building investments in a new donor database, fundraising staff and training, and donor research into a $1.4 million annual increase in fundraising. If you make enough and the right kind of capacity investments, you can see gains in programming, efficiency, and fundraising effectiveness, so share those wins with those who invested in them. And believe me, your capacity donors will be hungry for more.

Instead of continuing to complain about a lack of capacity funding in the nonprofit sector, let’s fix it. A big part of the solution lies in nonprofit leaders planning for and initiating capacity building conversations with their current donors. And in so doing, nonprofit leaders themselves can change philanthropy for the better.

To learn more about turning your donors into capacity funders, download the Launch a Capacity Capital Campaign Step-by-Step Guide.

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6 Steps to Operationalize a Nonprofit Strategic Plan

gearsOne of the biggest complaints about nonprofit strategic plans is that once created, they just sit on a shelf. A strategic plan is completely wasted effort if you neglect the final step of operationalizing it.

And by that I mean creating an annual tactical plan and monitoring process that directly tie to the larger strategy. In fact, lack of the operational part of your strategic plan is one of the 3 biggest problems with nonprofit strategic planning.

It does absolutely no good to have big goals that you want to accomplish and a larger future direction for your nonprofit’s work if you don’t have a way to connect that to your day-to-day operations.

So here are the 6 steps to do just that:

1. Create the Strategy
Start with the broad goals and objectives of your strategic plan. Typically, I recommend a nonprofit have 3-6 broad goals over a future (say 3 years or so) period. These should always tie to your longer term Theory of Change, and each goal should be broken down into the 5-10 objectives necessary to get there. And it goes without saying, but you have to create this strategy through a defined strategic planning process.

2. Create Annual Milestones
Once the board has approved those broad goals and objectives, staff needs to create a milestone table that articulates a lead person responsible (“Lead”) and a deliverable for each objective at the end of each year of the strategic plan (“Milestone”), like this:


milestone table











3. Create a Year One Operational Plan

Once you have that milestone table, you can pull out the milestones for the first year and develop your Year 1 operational plan (below), which lists monthly or quarterly checkpoints for each objective’s milestone for that year. This will helps you monitor (step #4 below) whether the plan is coming to fruition.

operational plan











4. Monitor Monthly at Staff Level

This operational plan should be reviewed on at least a monthly basis, where the staff comes together to analyze their checkpoints and report on what’s working, what’s not, and where they need to make adjustments.

5. Monitor Regularly at Board Level
Whether your board meets monthly, quarterly or (yikes!) less, you need to report to them on the progress of your strategic plan at every meeting. Since the board is ultimately responsible for the strategic direction of the organization, they need to understand how it is going. Using the operational plan above, you can easily highlight where: things are moving smoothly (green), things need discussion or action (yellow), and serious problems or hurdles (red) lie.

6. Adjust Accordingly
On at least an annual basis, the full board should review the organization’s Theory of Change and goals and objectives of the strategic plan to determine if any revisions (due to changes in internal and/or external circumstances) need to be made.

I believe that a huge reason for the distaste nonprofit leaders have for strategic planning comes from the poor operationalization of those plans. You simply cannot hope to execute on a strategic plan without tactics to get there.

You can learn more about what a strategic planning process looks like here.

Photo Credit: Kevin Utting


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5 Conversations the Nonprofit Sector Should Have

douglas fairbanksChange is certainly happening within the nonprofit sector and the philanthropy that funds it. From efforts to make philanthropy better at addressing inequity, to movement away from the overhead myth (and other myths), we are witnessing important shifts in how we tackle (and fund that tackling of) social challenges.

But I’m hungry for more.

And more could emerge from honest and transparent conversations about what is holding the social change sector back. There are some key hurdles facing the sector, and we have no hope of finding solutions to those challenges unless we start some no holds barred conversations, like:

  1. What keeps nonprofits from creating more sustainable business models?
    Everyone understands that nonprofits are sorely under-resourced and struggle to find sustainable financing for their work. But few are trying to really understand how we change this reality sector-wide. A few funders have commissioned research on the state of money in the sector, but it’s not nearly enough. I would love to see a real, solutions-oriented conversation about a problem that everyone (nonprofit leaders, boards, funders) knows exists.

  2. Why do we hold nonprofits to a different standard than for-profits?
    Because the nonprofit sector was borne out of the charitable impulse, we continue to see it as more holy than and separate from the for-profit sector. Therefore we are uncomfortable with nonprofits being too political, raising too much money, or spending too much on infrastructure. As a stark example, the nonprofits working for reform to our fairly dysfunctional political system have many fewer resources for and many more restrictions on their efforts than the for-profit lobbyists that the nonprofit reformers are fighting.

  3. Why won’t we treat nonprofits as equal partners in the economy?
    Related to this, because the nonprofit sector emerged as a side-note to the business-driven economy, nonprofits have always been viewed as secondary to, and thus less valuable and important than, the private sector. But you simply cannot have one without the other. The nonprofit sector often provides the research and development, worker support, quality of life and other services that fuel the success and profits of the private sector. Without the nonprofit sector there would be less profit and a weaker economy. So we have to recognize the critical (and equal) role that nonprofits play in creating a strong economy. And we have to begin investing equally in the success of those nonprofits.

  4. Why are nonprofit boards largely ineffective?
    Another truism of the nonprofit sector is that boards just don’t work. I have yet to meet a nonprofit leader who doesn’t have at least some frustration with her board and many are resigned to their board’s deep dysfunction. It is extremely difficult to corral a group of volunteers, to be sure, but instead of accepting that challenge as a rule, let’s figure out how to fix it. Perhaps greater standards and regulations, perhaps compensation for their efforts — I don’t know what the right answer is, but let’s analyze the root causes of this inefficiency and change it.

  5. How do we direct more money to efforts that result in social change?
    There is much debate about whether donors want to give based on the results a nonprofit creates. But if the government is going to continue to off-load social interventions to the nonprofit sector, we don’t have the luxury of letting the funders of those nonprofits give solely based on emotion, reciprocity, or duty. You may not believe in “effective altruism” (the idea that philanthropy should flow to the most effective social interventions), but the fact remains that with mounting social problems and a resource-constrained and gridlocked government, a growing burden for addressing social challenges is falling to the nonprofit sector. Nonprofits will only be able to rise to this challenge if the solutions that work have enough resources to actually work. So let’s recognize the tension among increasing social problems, less government involvement, and lack of money and figure out how to fix it.

It’s time for bigger conversations. We have to openly face the challenges standing in the way of social change and figure out a way forward together.

Photo Credit: Paul Thompson

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What is the Value of a Nonprofit Leader’s Time?

clockIt never ceases to amaze me how often nonprofit leaders give away their expertise and their time – for free.

Here’s just the most recent example I’ve encountered.

A leader of an education nonprofit, let’s call her “Amy,” was approached by a group of funders who wanted to start a similar program in a different city. They had already identified a potential leader of the effort, but this leader, let’s call him “Mark,” was pretty inexperienced in working with school districts and in managing a large scale nonprofit effort.

So the group of funders asked if Amy would be willing to help Mark. This would involve Amy sitting in on some community meetings and providing one-on-one coaching on a regular basis to Mark.

Because Amy’s nonprofit also received funding from some of these funders, she felt obligated to comply. And let me be clear, Amy was offered absolutely no compensation for her time, effort and expertise.

There are several things wrong with this situation.

First, although this group of funders found tremendous value in Amy’s expertise, they did not assign any financial value to that expertise. They sought her out, and indeed already determined that their effort would be hampered without Amy’s guidance. However, they also assumed (perhaps subconsciously) that this nonprofit leader was so passionate about the education space, that she would be more than willing to donate her time.

Second, Amy herself did not assign a financial value to her time. She was complicit in the funders’ assumption that, while her time has huge social change value, it has no financial value. But the two must correlate. Amy’s time is a limited resource. And thus she must calculate the financial value of that resource.

But, third, nonprofit leaders don’t necessarily have the tools to calculate the value of their time.

In the hopes that other nonprofit leaders don’t get caught in Amy’s predicament, here’s a quick three-step process for calculating the financial value of your time as a social change expert, based on the financial value your organization assigns to your time.

  1. Determine Your Annual Cost: Take your annual salary and add the monetary value of your annual benefits (healthcare contribution, social security contribution, etc.). Typically benefits are calculated at an additional 25% of your salary. So, if your annual salary is $85,000 you would multiply that by 1.25 to get the total of your salary plus your annual benefits: $85,000 x 1.25 = $106,250.

  2. Determine Your Hourly Cost: Then, divide that salary + benefits number by the average number of working hours in a full-time position (so 52 weeks a year at 40 hours per week is 2,080 hours per year). I know you probably work more than 2,080 hours in a year, but this is just a general full-time number of hours. So, in this example, your hourly rate would be $106,250 / 2,080 = $51.08. Or $51 per hour, just to make it easy.

  3. Determine Your Hourly Value: If you are feeling bold, you can add a profit margin to this number, just as anyone who is paid to offer their expertise (lawyer, consultant, doctor) does. The idea here is that if someone pays you $51 for an hour of your expertise, you are only breaking even. But if you actually want to make a bit of profit that you can plow back into your organization, you could add in a little margin. So perhaps you round up to $65 per hour.

Now, you have a number you can use.

If Amy had been armed with such a calculation, when the group of funders came to her, she could have estimated the number of hours required (including community meetings, coaching, etc.) and then presented it to the funders. Perhaps the hours totaled 50 over the course of a 12-month period. This would have a financial value then of 50 x $65 per hour = $3,250, which I would argue is still a very conservative valuation.

So that group of funders would need to make a payment to Amy’s nonprofit (above their normal contributions) of $3,250 in order for her to agree to their request.

(And now that you have a way to calculate the hourly value of your time, you can also use it to determine the value of your time spent on other things — for example, fundraising activities like this.)

I can hear nonprofit leaders and funders gasping, “How dare you suggest that a nonprofit leader ‘charge’ a funder for her time.” And others might worry that funders would be offended by the request and end their other contributions to Amy’s nonprofit.

But shouldn’t nonprofit leaders be aware of (and transparent about) the costs embedded in how they are spending (and being asked to spend) their time? Nonprofit leaders and funders could then have a more illuminating conversation. Perhaps Amy’s group of funders won’t want to invest $3,250 in starting up Mark’s new nonprofit. If that is the case, then they probably weren’t very committed to the new effort in the first place. Far better to know that up front rather than after Amy sunk 50 hours into something that has nothing to do with her organization.

It’s time for nonprofit leaders (and their funders) to recognize the financial value of the social change expertise those leaders possess and invest accordingly.

Photo Credit: David Lofink

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The Future of the Nonprofit Sector [Slideshare]

I’m excited to be heading to Pennsylvania next month to speak at the 2016 Nonprofit Day Conference. My keynote address for the conference will be “The Future of the Nonprofit Sector.” I wanted to share an abbreviated version of the speech with you here via the Social Velocity Slideshare library.

In my mind, there are some fundamental shifts happening in the sector that will be important to watch. They include:

  • Increasing competition in the space
  • A greater demand for results and social change
  • An increased use of advocacy to achieve that change
  • A move to more “networked” approaches
  • Less “starving” nonprofits of their operational needs
  • And (of course) a move from fundraising to financing

These are interesting times, and they hold tremendous opportunity, I think, for the social change sector.

If you want to see other Social Velocity Slideshares go here. And if you want to learn more about inviting me to come speak to your group or event, check out my Speaking page.

The Future of the Nonprofit Sector from Nell Edgington

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What Unique Value Can a Foundation Create?

philanthropyI’ve started working in a new area of the social change space that I’m really excited about. Recently I’ve been helping some foundations figure out what market they are (and should be) in. Because if a foundation can be smarter and more strategic about figuring out where they should focus their efforts within a particular social problem, they will see a higher social return on their investment.

As I’ve said countless times, you cannot develop or execute on a strategy without really understanding the market in which you work. Although we might like to deny it, nonprofits (and foundations) exist in a market economy, which means that they (like everything else) must compete amid the other actors and entities in the space. So it is absolutely critical that leaders understand what unique value their work brings to the space. This can be done through a Marketplace Map, which is one of the first exercises (along with a Theory of Change) that I help nonprofit leaders create during a strategic planning process.

An organization is best positioned to create social change in a sustainable way when their core competencies (what the organization does better than anyone else) intersects with a set of social problems apart from potential competitors or collaborators. This is not at all to say that you shouldn’t collaborate. But when you do, you must clearly understand what you bring to the table that is distinct from and additive to what your competitors bring to the table. In mapping their marketplace, an organization can much more clearly understand and articulate their value proposition and can direct their resources more effectively to the realization of that value proposition.

And the same is true for foundations. I am ever optimistic that just as nonprofit leaders are getting smarter and more strategic about the work they do, foundation leaders are as well. I would love to see more foundations taking a step back and really analyzing the social change marketplace in which they operate and determining how they can bring unique value to that marketplace.

Let’s say for example a funder is really passionate about addressing climate change. But there are many moving parts in the marketplace of that social problem. There are scientists and researchers and other experts who have views on the problem and the efficacy of potential solutions. There are many nonprofits in many different categories working on various aspects of the larger problem. There are policies and policymakers who are addressing the issue in various ways. There are other foundations and philanthropists who are investing in different solutions. It can be overwhelming for any particular funder to know where they specifically can have an impact on a very complex climate change marketplace.

So I help the foundation analyze these various elements, where and how effectively each is operating, where trends effecting the social problem are moving, and where the particular funder can add unique value.

While I spend a good deal of time on this blog giving voice to the challenges of the nonprofit sector, there is no doubt that the philanthropy that funds the sector has room to grow as well. And in my mind, part of that growth involves foundations getting more strategic about exactly where they can create the most value with their dollars. Because if both nonprofits and the philanthropists that fund them can be smarter about the marketplace of social problems, we just might get closer to solving them.

Photo Credit: ribosomis

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10 Great Social Innovation Reads: July & Aug 2016

social changeSince I was on vacation in late July and early August, I’m combining the last two months of great reads into one. The summer of 2016 certainly was a dark one. From continuing police violence against black men, to the shootings of police officers in Dallas and Baton Rouge, it seemed we were becoming a nation truly divided. And tremendous flooding and devastation in Louisiana that was largely ignored by the media was heartbreaking to watch.

But, there were also moments of hope. From new research showing that donors are increasingly interested in investing in what works; to philanthropic leaders calling for better partnerships among the public, private and nonprofit sectors; to a way to move the conversation away from “overhead,” the summer months made for some very interesting reads.

Below are my picks of the 10 best reads in the world of social change in July and August. But let me know in the comments what else I missed while I was out.

If you want a longer list of reads, follow me on Twitter @nedgington. And you can read previous months’ 10 Great Reads lists here.

  1. More police violence against black men and the shootings of police officers in Dallas and Baton Rouge arguably broke the country’s heart in July. Ira David Socol traced Americans’ growing fear of “the other” over the past few decades and how it has contributed to where we are today. And Pew Research offered some data about how Americans see the Black Lives Matter movement. While Heinz Endowment President Grant Oliphant called for an end to the violence, in an incredibly moving series of blog posts where he wrote:  “We are called — by everything our diverse faiths teach us, by everything we believe about ourselves and our country — to come together as one people, whether we bravely wear the blue or have come to fear those who do. We are called by all that is good in our hearts to see ourselves in all the fallen, all the lives lost, all the families grieving, all the communities struggling to make sense of their brokenness. We are better than this violence. Deep down in our souls we know this. We are so, so much better than this.” And President Obama gave an incredibly moving speech at the funerals for the Dallas police officers, where he encouraged us all to, “With an open heart…worry less about which side has been wronged, and worry more about joining sides to do right.”

  2. But the Black Lives Matter Movement is not just aimed at addressing police violence, the Movement recently released a K-12 education platform designed to fix “a U.S. public-school system…so broken that college is never an option for many young people of color.”

  3. Amid these deepening divides and a growing wealth inequality, Andy Carroll from Exponent Philanthropy argues that philanthropy can no longer be expected to solve everything. Rather, we need partnerships among the public, business and nonprofit sectors to address our growing challenges.

  4. And then there was the tremendous flooding and devastation in Louisiana. Despite the fact that it was the largest natural disaster since Hurricane Sandy in 2012, the media and philanthropy largely ignored the disaster.

  5. Curtis Klotz from the Nonprofits Assistance Fund offers a phenomenal graphic to use in changing the conversation from “nonprofit overhead” to “core mission support” at your nonprofit.

  6. And speaking of how nonprofits use money, FASB (the Financial Accounting Standards Board) just released some significant updates to their standards for nonprofit accounting. The changes impact net asset classes, investment returns, expenses, liquidity and availability of resources, and presentation of operating cash flows. Every nonprofit leader should understand these important changes.

  7. Founder of Family Independence Initiative, Mauricio Lim Miller argues that just as businesses constantly use technology to understand consumer behavior, nonprofits should tap into technology to “let the people they serve dictate what works best.” And Melissa Chadburn might agree with Mauricio’s premise that fighting poverty requires a better understanding of the causes of that poverty given her scathing piece, “How Well-Meaning Nonprofits Perpetuate Poverty.”

  8. Penelope Burk’s annual fundraising study revealed that more donors are interested in results than ever before. Five years ago, only 16% of donors surveyed gave based on a nonprofit’s results vs. a whopping 41% this year.  And research from MobileCause shows that Millennials and GenXers are now the vast majority of the U.S. workforce so if you want to reach them as donors you better be online and mobile.

  9. Ever the trailblazers in foundations interested in building nonprofit capacity, the David and Lucile Packard Foundation unveiled a fabulous new online Knowledge Center with tons of resources for improving nonprofit organizational effectiveness.

  10. Jim Schaffer questions how “philanthropic” the digital giants Amazon, Facebook and Google actually are. And Lucy Bernholz warns nonprofits of the dangers of trusting Facebook’s new fundraising offerings.

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Forcing Nonprofits and Their Funders to Talk About Real Costs

nonprofit real costsSomething really interesting could emerge out of new federal rules about overtime pay. My hope is these new rules force a better conversation between nonprofits and their funders about the real costs of creating social change.

This coming December new Department of Labor rules will go into effect doubling the salary threshold for guaranteed overtime pay, from about $23,000 to $47,476 so that employees (in any sector) who make less than that threshold will be guaranteed overtime pay whenever they work over 40 hours a week.

This new rule has a potentially enormous impact on nonprofits, which (because of their resource-constrained nature) often underpay and overwork their employees. Many have pointed out what a burden this will place on an already strapped nonprofit sector, which often tries to squeeze ever more productivity out of staffs that are already working well over capacity.

As the National Council of Nonprofits argues, nonprofits receiving government contracts signed prior to this new ruling will be forced to deliver the same services at a higher cost:

“Nonprofits with government grants and contracts at any level of government (local, state, tribal, or federal) will now be put in the position of having to comply with new federal requirements that impose new costs not known when those grants and contracts were signed. Unlike businesses that can raise prices, or governments that can raise taxes or curtail public services, nonprofits with government grants and contracts may find themselves contractually bound to maintain services at increased costs that may not be expressly covered by existing written agreements.”

Certainly in the short-term this new overtime rule puts nonprofits in a really difficult position.

But I wonder if in the long-term this new rule could shine a light on the impossible situation in which many funders put nonprofits. With a new ceiling on just how many staff hours a nonprofit can get out of a dollar, I wonder if nonprofit leaders will be forced to stand up and say “Enough is enough!”

Writing in The Atlantic about the potential impact of the overtime rule change on nonprofits, Jonathan Timm seems to think the solution is for nonprofits to simply charge funders more for their services, as he put it:

“If nonprofits truly care about the well-being of their staffs, one easy place to start is simply to write higher salaries into budget proposals. Likewise, government and philanthropic funders could be a lot wiser in how they dole out money: Scarce public-service dollars can impose a state of financial stress on the people who put them to use.”

Ahhhh, if only it were that easy…

But at its core, that is the problem. Nonprofit leaders are wary of calculating and articulating the full costs (including all staff costs) of their programs, and government and philanthropic funders are unaware of and unwilling to pay those full costs. But with growing demands on a nonprofit sector already stretched to the brink, something has to give. Perhaps this new reality will force a conversation about what it really costs to address the social challenges we face, and how we must effectively and adequately support the nonprofit sector we have charged with addressing many of those challenges.

The problem has always been that nonprofit leaders are so committed to the work they do and so empathetic towards their clients that when budgets and staff are tight, those leaders simply work longer and harder and ask their employees to do the same. But with these new rules that can no longer be the case.

Program budgets will have to grow to reflect the real costs of those programs (including all of the countless staff hours previously hidden by free overtime). And funders who want more and more services at lower and lower costs will be forced to reckon with the actual costs of the programs in which they want to invest. These new overtime rules will force the “real costs” conversation that many in the nonprofit sector have been encouraging, where nonprofits calculate and report the full costs (including the actual cost of staff time to deliver the work) of the work that they do. 

So instead of being a negative change, perhaps these new overtime rules could actually serve to propel nonprofits and their funders toward calculating, articulating and investing in what it really takes to create social change. Call me an optimist.

Photo Credit: Dave Dugdale

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