Something pretty exciting is going on. Perhaps I’m an eternal optimist, or I’m suffering from confirmation bias, but it seems to me that more funders are starting to talk about investing in the capacity of nonprofits, particularly around nonprofit leadership development.
The Stanford Social Innovation Review kicked off a new blog series this month focused on the topic. Over the next three months, six foundation leaders will blog about why they have made investments in the leadership development of their nonprofit grantees and what the return on investment has been.
This is phenomenal because the more we talk about and demonstrate the return on investment of nonprofit leadership development, and really of any capacity investments, the more likely we will be to see other funders follow suit.
As Ira Hirschfield, president of the Evelyn and Walter Haas, Jr. Fund, points out in the inaugural post in the new SSIR series, less than 1 percent of overall foundation giving went to leadership development between 1992 and 2011, while the private sector allocates billions of dollars to it.
Why are we not investing in our nonprofit leaders? If we truly want to create change to some of our most pressing social issues don’t we need the strongest, most effective leaders possible?
As Hirschfield puts it so well:
Foundations ask a great deal of the organizations we support…in short, we hope grantees will deliver transformational results for the people and places they serve. So it’s striking how seldom we back that up with funds to help organizations develop and strengthen the ability of their leaders to meet those high expectations. People are not born with everything it takes to manage and motivate a team, build coalitions, and lead change…Leaders who have the opportunity to reflect on their strategies and hone their skills make better choices, develop innovative solutions and forge stronger collaborations. This is what leadership development is about—and to the extent that foundations decide it is important and fund it, then we and our grantees will be better positioned to achieve our goals for impact.
In other words, foundation funding will go further if funders also invest in the leaders of those organizations they fund.
It seems like a no-brainer. And it is a no-brainer in the for-profit world. But as we so often do in the nonprofit sector, we are selling the sector, and its leaders short.
But it is not enough (nor are we anywhere near it anyway) for funders to understand the need for investing in nonprofit leaders. Nonprofit leaders themselves need to stop apologizing and start demanding (in a nice way!) investment in their own capacity. And leadership development is only one of the many areas in which nonprofits need capacity investment. Nonprofits also require fundraising expertise and staffing, program evaluation, technology and systems, and the list goes on.
So if we are to have any hope of moving this topic beyond the blogroll, nonprofit leaders and funders need to start having better conversations about what it will really take to accomplish their joint impact goals. Because if, at the end of the day, we are all looking to achieve more impact, then capacity to deliver on that impact must be part of the conversation.
If you want to learn more about capacity investments from both the nonprofit and funder sides, download the Power of Capacity Capital book, and if you want to learn more about nonprofit leadership, download the Reinventing the Nonprofit Leader book.
Photo Credit: Clinton and Charles Robertson
We spend a lot of time in this country talking about innovation, particularly on the East and West coasts. But I was reminded recently that innovation can happen anywhere, even in the “fly over states” (which is such an obnoxious term, by the way).
I was in South Boston, Virginia last week to deliver a Financial Model Assessment to the Halifax Educational Foundation. They fund the Southern Virginia Higher Education Center (SVHEC), which is a fascinating model of higher education innovation.
Almost 30 years ago community leaders in this tiny, rural town 75 miles from Raleigh, North Carolina realized that their primary industries of tobacco, textiles and furniture were fading fast. In order to revamp their local economy, they decided to create a hybrid higher education institution (part community college, part incubator, part workforce development site, part educational broker) that would prepare the next generation workforce.
The SVHEC renovated two 150-year old abandoned tobacco warehouses (one to LEED certification) into 100,000 square feet of high-tech classrooms and labs featuring advanced machining and simulation technology focused on nursing, advanced manufacturing, 3-D modeling, and the business of art and design. Their goal is “to re-tool southern Virginia’s rural workforce for jobs in the New Economy.”
They have created an example of what innovative higher education can look like. The video below describes the center, which although located in the middle of rural America, rivals most large city higher education institutions:
The SVHEC recognized early the threat that changing times posed to their community and created a solution that not only recycled beautiful old buildings, but more importantly breathed new life into a rural economy on the brink of extinction. Theirs is truly a model for innovative rural economic development.
And it is testament to the fact that social innovation can happen anywhere.
Because social change doesn’t require big names, huge ideas, or deep pocketbooks. It simply demands a confident vision and the leadership and tenacity necessary to execute on it.
Photo Credit: SVHEC, Steve Helber
Note: Fifth and last in my list of guest bloggers this summer is Laura Tomasko. Laura is a network developer at the Council on Foundations, where she follows trends related to private capital for social good. Here is her guest post:
Perhaps like some of you, I dedicate a good portion of my internet reading to blogs like Social Velocity, Re: Philanthropy, and Philanthropy 2173. When I am browsing a blog unrelated to nonprofits, philanthropy, and impact investing, I do a double take when I come across a topic from my professional sphere.
One of those non-work related blogs that I read is Popville, which chronicles activities in Washington, DC neighborhoods. This July and last, two local businesses sought financing through crowdfunding platforms, and reached out to Popville readers for support. Both cited the community focus of their enterprises as reasons to financially support their efforts. What ensued in the comment thread of both posts provides a snapshot into how those outside of the philanthropy and impact investing field understand and discuss crowdfunding, charitable giving, and investing with the intention to generate social and financial returns.
Last year, a local business named Pulp posted to Popville to request “donations” to improve the store and website, including repairs to fixtures, new paint, windows, and other related costs. Even though they said they wanted donations, Pulp actually sought no-interest loans, a distinction clear on their Clovest crowdfunding page but not on Popville. Confusion and opinions swarmed the comments section as people tried to figure out whether Pulp wanted a donation or a loan, and shared their musings on the whole situation.
This July, another local business, Three Little Pigs (TLP), used Popville to promote their Kickstarter campaign, accurately requesting donations for infrastructure improvements to enhance the business that will allow them to build a community space on their third floor. In exchange for donations, TLP offers gifts, like a pound of maple-cured bacon, to donors.
The comments to both posts provide insight into how local residents react to financial requests from community-focused small businesses. Such requests may increase given the passage of the JOBS Act and the Securities and Exchange Commission proposed rules that allow non-accredited investors to get an equity stake in a local business through crowdfunding platforms.
Here are common themes about local businesses raising money on crowdfunding platforms raised by commenters:
- Is This Charity?
While both businesses used words associated with philanthropy to appeal to the charitable sense of local residents, neither provides a charitable tax benefit to the readers. This created confusion and commenters wrote in to ask whether the business would provide a tax benefit or repay the money. One Pulp commenter asked, “Does anyone know what the tax implications are to this approach? I doubt they realize the tax-exemption you typically see with donations to non-profits. Or do they? Could this be an interest free loan as well as a tax-free donation?”Questions such as this one suggest that those using crowdfunding platforms to raise money need to clearly state what they ask of their potential supporters and what they will get in return. For example, they should distinguish between how the funding will benefit the community and whether it is a charitable donation, a donation without a tax benefit, or loan.
- Should You Donate to a For-Profit?
Many commenters bemoan the idea of a for-profit business asking for donations instead of raising the necessary capital through the sale of goods and services. There seems to be an expectation that the business should either flourish or fail based on the value of the good or service, and donations should not supplement either course. While some were happy with the idea of donating to a for-profit, most did not support the concept.
- What About Traditional Financing?
Several wondered why the businesses did not get loans through banks or pay for these expenses using a credit card. Others supported crowdfunding as a way to get around the hurdles of traditional financing. While one TLP commenter in support of traditional financing noted, “There are plenty small business loans and lines of credit they can apply for at the mentioned banks,” one in favor of crowdfunding stated, “If you can’t meet every requirement, the major banks will usually turn you down due to high risk.”
The confusion and concern that arose from these two crowdfunding experiences suggest that language matters and concepts like crowdfunding and impact investing are still new to people accustomed to distinguishing charity, which generates social benefit, from business and investing, which seek to generate financial revenue.
In addition to local businesses on crowdfunding platforms, mainstream media use language associated with charity to describe impact investing activities. An interesting example is coverage of the bridge loan that Laura and John Arnold made to the National Head Start Association during the 2013 government shutdown. Covering the story, the New York Times uses the headline, “$10 Million Gift to Help Head Start Through Shutdown” and Politico writes, “Philanthropists pledge $10 million to restore 7,000 Head Start seats.”
Tucked within both articles, after terms like “donation” and “gift,” are brief mentions that the money might be paid back as a no-interest loan if government restores funding after the shutdown. However, to those scanning headlines and not reading the entire article, it is not clear that the Arnolds have made an impact investment in the form of a bridge loan to the Association.
With increased interest in social entrepreneurship and impact investing, many use charitable language to describe financial transactions ranging from donations to impact investments. Until the concept of impact investing becomes as mainstream as charitable giving, taking the time to distinguish between the two could increase awareness, and eventually adoption, of both traditional and untraditional forms of financing for social good.
Language matters and those raising capital from local residents, as well as those in the media writing about these transactions, should differentiate between the desired financial transaction and its charitably-minded purpose. Crowdfunding may bring impact investing to new audiences, and let’s make sure that the message gets there clearly and accurately.
Photo Credit: zeh fernando
If you want to get your nonprofit out of the (all too common) starvation cycle of never having enough money to achieve your goals, you must raise capacity capital. Capacity capital is not the day-to-day revenue you need to keep your doors open. Rather, capacity capital is a one-time infusion of significant money that can help you grow or strengthen your nonprofit. It is money for things like: technology, revenue-generating staff, systems, a program evaluation.
This Slideshare helps you understand capacity capital and how to raise it. And if you want some additional guidance for launching your own capacity capital campaign, download the Launch a Capacity Capital Campaign Step-by-Step Guide.
You can see the growing library of Social Velocity Slideshare presentations here.
In today’s Social Velocity blog interview, I’m talking with Jacob Harold, CEO of GuideStar, the clearinghouse of information on nonprofits. Jacob came to GuideStar from the Hewlett Foundation, where he led grantmaking for the Philanthropy Program. Between 2006 and 2012, he oversaw $30 million in grants that, together, aimed to build a 21st-century infrastructure for smart giving. Jacob was just named to the 2014 NonProfit Times’ Power and Influence Top 50.
You can read other interviews in the Social Velocity Interview Series here.
Nell: It has been over a year since the Letter to the Donors of America about the overhead myth. Where are we today in getting donors (and board members) to understand that overhead is a destructive mindset?
Jacob: I’m glad to report that the response to the first overhead myth letter far exceeded our expectations. Hundreds of articles have been written about the letter. It comes up almost every time I hold a meeting or give a talk. For at least a few people, I think it’s been a deep affirmation of something they’ve known a long time. And, indeed, many others in the field have been working on this: the Donors Forum, Bridgespan, the National Council on Nonprofits, and others.
But we also know that we have a long road ahead of us. The overhead myth is deeply ingrained in the culture and systems of the nonprofit sector. It will take years of concerted effort for us to fully move past such a narrow view of nonprofit performance to something that reflects the complexity of the world around us. But it’s essential if we want to ensure we have a nonprofit sector capable of tackling the great challenges of our time.
Nell: The Letter to the Donors of America was obviously focused on the donor side of the problem, but how do we also change the mindset of those nonprofit leaders who perpetuate the Overhead Myth in their reporting, conversations with donors and board members, etc.?
Jacob: This is a critical aspect of the challenge. Every year nonprofits send out something like one billion pieces of direct mail to donors that prominently display their organization’s overhead ratio. It’s no wonder that donors think that’s a proxy for performance—we’ve trained donors to think so!
That’s why the CEOs of Charity Navigator and BBB Wise Giving Alliance and I are currently working on a second overhead myth letter—this one to the nonprofits of America. We’re still finalizing the text, but in it we will be calling on nonprofits to be more proactive about communicating the story of their programmatic work, their governance structures, and the real costs of achieving results. And, more, we want to recruit nonprofits to help us retrain donors to pay attention to what matters: results. In the end, that means that nonprofits have to cut the pie charts showing overhead versus program—and instead step up to the much more important challenge of communicating how you track progress against your mission.
Nell: At the Social Impact Exchange Conference you announced some pretty exciting plans with the GuideStar Exchange to, in essence, create a marketplace of information about nonprofits so that the best nonprofits receive more resources. Talk a little about your plans for the Exchange, and most importantly, how you plan to bring nonprofits and donors there.
Jacob: The GuideStar Exchange is our mechanism for collecting data directly from nonprofits. By going straight to nonprofits we can build on the data we already have from the IRS Form 990. The 990 is a regulatory document, it’s not meant to offer a comprehensive view of nonprofits and their programs—that’s what we’re trying to do with the Exchange. And it also lets us get information much more quickly!
So far we’ve had great success. More than 100,000 nonprofits have shared data with us through the GuideStar Exchange and more than 38,000 have reached one of what we call our participation levels—Bronze, Silver, or Gold. But we have a long way to go if we want to approach a comprehensive view of the marketplace. So we’re adding new incentives for nonprofits to share data through the Exchange, building new ways to distribute that data through other channels and improving the user interface to make the process easier. Right now we’re collecting quantitative financial data and qualitative programmatic data but later this year we’re going to release a tool for collecting quantitative programmatic data, too.
This comes back to the overhead myth campaign. If we’re going to ask donors to go beyond the overhead ratio when considering nonprofits, we have to offer an alternative. GuideStar Exchange is a critical part of that alternative: a chance for nonprofits to tell their story in a structured way that forces them to articulate in clear terms what they’re trying to accomplish, how they’ll get there, and how they’ll measure progress along the way.
Nell: The Money for Good reports that came out a couple of years ago rather discouragingly found that the majority of donors don’t give based on nonprofit results. With the GuideStar Exchange you obviously think that is changeable, so how do we go about changing donor interest and behavior?
Jacob: Well, I had a different read of that data. It is absolutely true that the Money for Good research showed that most donors don’t give based on nonprofit results. But it also showed that a significant portion—about 15%, depending on how you cut the data—do. That may not seem like much, but that represents 30 million people responsible for close to $40 billion in annual giving. So there’s already a huge unserved market, even if it represents a small portion of the entire system of philanthropy.
And at GuideStar we see this every day. We have 7 million unique users a year. And that’s just on our website, our data was used another 22 million times on other platforms last year through just one of our distribution mechanisms. So people want data. And as we get more and more programmatic data—data that is oriented towards results against mission—I’m absolutely confident that we’re going to unlock new behaviors among donors, nonprofit executives, journalists, and others. The nonprofit sector is about to enter a new phase, and I think it’s going to be remarkable.
Photo Credit: GuideStar
Note: Fourth in my list of guest bloggers this summer is Jessamyn Lau. Jessamyn is Executive Director of the Peery Foundation, a family foundation that invests in and serves social entrepreneurs. Here is her guest post:
At the Peery Foundation, we’re hungry for insight into what a truly grantee-centric approach to philanthropy looks like. About five months ago we had an idea. What if we could hear regular, brief, unfiltered feedback from our grantees on what we do and how we do it?
We occasionally solicit input from our grantees on delicate questions, like “how should we give feedback to a grant-seeker when we have major concerns about leadership?”. Our grantees have incredible ideas, often helping us solve problems and ensure we incorporate their experience into solutions. But what about capturing their untapped insights into our everyday grant making approach?
This doesn’t generally happen because 1) grantees are rarely asked for their opinions on funder practices, 2) when they are asked, grantee opinions are heavily filtered to prevent potential risk to future funding. We think the Peery Foundation team, and a large proportion of philanthropic professionals, could benefit from regular open feedback from grantees. In a February 2014 Stanford Social Innovation Review article entitled “Assessing Funders’ Performance” Caroline Fiennes suggested listening to grantees as a core part of funder performance assessment. This resonated with our idea of what it means to be truly grantee-centric. So we thought about how we might do that – without reinventing the wheel.
We landed on a very simple anonymous rating tool, similar to the rating systems used by Amazon, Uber, and other service providers. The good folks at Advocate Creative built us a prototype site – which we named, imaginatively, Funder Feedback. It’s a very simple, concise survey that solicits anonymous information from our grantees (or anyone else I interact with), at any time they choose. They rate me out of five stars on three aspects (currently Respectfulness, Consistency, Value), and then leave any feedback for me in a text box. It takes 30 seconds to fill out – 90 seconds if you ponder on what to write in the text box for a minute! Each person on our team has their own survey link, so the results can be used for individual professional development. You can see my survey here.
Over three months the Peery Foundation team and the Tipping Point team piloted the tool, inviting people to give us feedback on our recent interactions. At the end of the pilot our results were delivered to us on a dashboard in aggregate (see below), with no time or date stamps – so unless someone mentioned their organization they are anonymous.
So did it work?
Our team’s response rate ranged from 10 to 40 completed surveys for the pilot. The star rating system yielded average results from 4.7 to 5 stars. Given this clustering it’s clear that the rating system is not a proactive way for us to find out where we need to improve, but could serve as a warning system that will alert us if something needs attention. We could also potentially change the three starred rating topics from values to processes, e.g. “Please rate us out of 5 stars on our due diligence, reporting, and grant making exit processes”. Something to consider down the road.
Over 50% of respondents left us written feedback. The overwhelming majority of feedback was positive and reaffirming. It served as personal affirmation of the aspects of each individual’s approach appreciated by grantees (transparency was mentioned consistently for one team member, another received specific feedback around the value of their preparation for meetings with grantees).
There was also feedback letting us know what we should keep doing as a foundation. For instance, we had several people comment on how valuable warm introductions to other funders had been. This was great to hear because in the past year we’ve allocated significant time to building and maintaining our funder network. We knew this time was useful for us – as we shared pipeline and recommendations with other funders – but knowing that this provides real value to our grantees makes it an even higher priority for us to continue and improve.
What didn’t work?
We would like to receive even more specific and critical feedback. We believe the tool will become truly useful when grantees and others we interact with are clearly invited to give us more constructive opinions. We want to ensure they are comfortable in doing that, which will probably involve tweaking the way we frame the tool, and also building trust that we will truly listen to and implement advice as often as we can.
To solicit distinct feedback, we’ll change the descriptor text on the text box each quarter to give people permission to be specific and critical. For example, next quarter it might say “Please compare the Peery Foundation’s reporting process to that of other foundations you’ve worked with. What can we learn from other processes?”, and the following quarter it might be, “What’s one thing we should keep doing and one thing we should change about the Peery Foundation’s philanthropic approach?”.
Continuing the experiment
At the Peery Foundation we’re accustomed to the process of iteration and, when appropriate, dropping a project that simply isn’t working. We like to experiment. For now, we think we’ve seen enough promise to continue developing the Funder Feedback tool. On an individual level it can help us as philanthropy professionals see where we have room for growth. As a foundation, we know we need insights from our grantees to become truly efficient and effective.
And philanthropy as a field might do well to turn the tables a little, listen regularly to grantees’ insights, and reign in the power imbalance inherent in our work.
So, for now we’ll keep experimenting with the Funder Feedback tool and articulating the changes we’ll make with it to help us become a genuinely grantee-centric foundation.
Photo Credit: Imperial War Museum
I get a little tired of the social media noise sometimes. Don’t get me wrong, I love social media for finding new information and making connections. But sometimes it replaces thoughtful conversation with increasingly shortened sound bites (more on that later). And when I hear people claim that 140 characters are better than long-form articles and blog posts, I get depressed.
Call me old fashioned, but I love to spend the necessary time processing thought-provoking, controversy-encouraging written words. Social change is incredibly complex work, so we desperately need people and spaces where we can have difficult, thoughtful, and game-changing conversations. And I think great blogs are one of those spaces.
So I offer here my current list of favorite blogs. These are spaces where I think really valuable points of view are being expressed. That’s not to say that I don’t read or enjoy blogs beyond this list. These are just the top of the heap for me right now:
- White Courtesy Telephone
- Balancing the Mission Checkbook
- Nonprofit Finance Fund Social Currency
- Work in Progress: The Hewlett Foundation Blog
- The Center for Effective Philanthropy Blog
- Steven Pressfield Online
- Full Contact Philanthropy
- Markets for Good
- Stanford Social Innovation Review Blog
- Beth’s Blog
- Philanthropy 2173
But I LOVE to find new writers and spaces, so what are the places you have found for a good, thought-provoking read?
Photo Credit: Wikipedia
Note: Third in my list of guest bloggers this summer is David Henderson. David’s professional focus is on improving the way social sector organizations use information to address poverty. Here is his guest post:
I was recently turned down for a position at a startup-up big-data company focused on the philanthropic sector because I’m “too pessimistic”. This company initially sought me out since they don’t have any social sector expertise on staff, a likely requisite to make successful nonprofit software. Our courtship turned sour when I expressed my view that we have a lot more social sector initiatives than evidence that those interventions actually work.
My skepticism that social sector initiatives by and large work was wrongly misconstrued as pessimism that social progress is possible. Skepticism is a critical driver of intellectual curiosity. I spent a pretty penny on two degrees that essentially taught me how to critically assess the divide between rhetoric and results. Indeed, the null hypothesis in a statistical model assumes the intended effect is not present. I guess statisticians are just a bunch of pessimists.
Fundamentally, I believe the company I interviewed with was mirroring the widespread lack of intellectual curiosity that plagues the social sector and impedes real progress. Too many nonprofits are terrified of having their claims of social impact investigated, lest their effects are discovered to be more modest than claimed. And I don’t blame them. The funding community’s emphasis on investing in “what works” has resulted in a proliferation of noise as every nonprofit steadfastly argues their interventions cure everything. It’s no wonder evaluators are seen as Angels of Death.
I generally don’t favor taking cues from the for-profit world, but venture capital and angel investors’ practice of investing in people and teams over ideas is far more conducive to intellectual honesty in product (and social intervention) development. The basic premise of this investment strategy is that initial product ideas are generally wrong, but smart people will investigate, iterate, and innovate.
Compare that philosophy to the social sector, where the expectation is that nonprofits already have the answers, they just need money to scale them up. This assumption is largely incorrect, but by making funding contingent on the perception of effectiveness, the nonprofit sector is incentivized to not question the efficacy of its own work. In this model, continued funding depends on a lack of intellectual curiosity at best, and intellectual dishonesty at worst.
A better alternative is for nonprofits to embrace intellectual curiosity, and to be the first to question their own results. Under this model, nonprofits would invest in their capacity to intelligently probe the effectiveness of their own interventions, by staffing those with the capacity to sift through outcomes data and investing in the growing list of tools that are democratizing evaluation. Of course, this would require a shift in the funding community away from “investing in what works” to more humbly “investigating what works”.
A shift toward intellectual curiosity would create more space for the sector to solicit beneficiary feedback in the design of social interventions, as organizations would no longer be incentivized to defensively “prove” existing approaches work, and instead would be rewarded for proactively evolving practices to achieve better results. It is this very intellectual curiosity that led organizations like GiveDirectly and the Family Independence Initiative to invest in the poor directly, a departure from long-standing anti-poverty practices that the evidence suggests might actually work. It’s a shame that organizations imbued with a mission of experimentation deviate so far from the norm.
I don’t consider it pessimistic to question whether the sector is achieving its intended social impact. To the contrary, it’s rather cynical to set aside what should be the critical question for any nonprofit organization in the name of self-preservation. In order to achieve social progress, the sector needs to expel anti-intellectual policies and actors in favor of a healthy skepticism that questions everything, and is willing to try anything.
Photo Credit: NASA
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