What We Can Learn From Idealist

At the risk of going against the crowd, I’d like to add my perspective to the Idealist crisis.  Idealist.org is a job site for nonprofit organizations that has been around for 10 years.  It’s a great site that brings nonprofit organizations and aspiring nonprofit job seekers together.  It has launched many a great career, including that of Rosetta Thurman, nonprofit consultant and Gen Y leader who is a huge supporter of the site.

Earlier this week Ami Dar, Executive Director of Idealist, sent out an emergency appeal for funding to Idealist supporters.  It seems that the recession has taken a serious toll on the nonprofit organization, and they are desperate for funding to stay afloat.  Ami’s impassioned appeal has made its way around social media sites and raised quite a stir. They are hoping it will bring in some serious donations.  And it seems to be doing that–you can see the running tally of recent donations on their homepage.

I admire what Idealist does and think they serve a real need, but with this campaign they are making a mistake that nonprofits sometimes make when they hit a crisis like this.  An appeal for emergency funding can raise quite a bit of money, for a time, but then what?  What is the long-term plan? How will Idealist overcome the obstacles that got them to this place so that they can emerge stronger, more effective and more financial sustainable in the future?

In his appeal, Ami says that the weak economy got them to this place because of a significant decrease in job posting revenue over the past 16 months.  That is completely understandable.  But over those past 16 months what has Idealist done to diversify their funding model?  What has been the result of those changes?  And what are their plans for the future?  Ami is fairly vague on these points:

Very briefly, here’s what happened. Over the past ten years, most of our funding has come from the small fees we charge organizations for posting their jobs on Idealist. By September 2008, after years of steady growth, these little drops were covering 70% of our budget. Then, in October of that year, the financial crisis exploded, many organizations understandably froze their hiring, and from one week to the next our earned income was cut almost in half, leaving us with a hole of more than $100,000 each month. That was 16 months ago, and since then we’ve survived on faith and fumes, by cutting expenses, and by getting a few large gifts from new and old friends. But now we are about to hit a wall, and this is why I am reaching out to you.

I understand why they are in this position. But what I don’t understand is how they are going to get out of this position after the emergency funds that they are attempting to raise dry up.  According to Ami, their plans for the future are:

If in the next week or two we can reach everyone who’d give us a hand if they knew we are in trouble, I believe we’ll come out of this crisis even stronger than before. I believe this because while this has been a tough stretch, I’ve never been more optimistic about the future. The content on Idealist has never been richer, our traffic is surging, we are building a whole new Idealist.org that will be released later this year, and the potential for connecting people, ideas, and resources around the world has never been more urgent or more exciting. Your contribution will allow us to maintain all our services…and it will also give us some time to diversify our funding. Being able to breathe, recover, and plan ahead for a few months will be an incredible blessing.

If Idealist hasn’t been able to figure out financial sustainability in the last 16 months, why should I think that they will be able to do it in “a few months”?  And scarier still is the fact that economist are predicting that the jobless economic recovery will continue for the foreseeable future.  So I’m not sure “a few months” is really going to change things all that much.

What I would like to see from Idealist is a bold plan for action, a revamped business model that will allow them to continue to provide needed services to the nonprofit community in a financially viable way.  Emergency funding is great, but only if it is a stop gap measure that will get an organization through a very specific, finite period of time and that on the other side of the crisis is a new business model for a viable way forward.

I think the nonprofit sector can learn something from Idealist’s crisis.  There are many other nonprofits in this same position.  And many who are contemplating or have launched an emergency appeal.  But keep in mind, you can only cry wolf once.  So while you are working to stay afloat, you also need to be taking a hard look at how to radically change your approach, your business model, your funding streams. And you need to put those changes into a comprehensive plan and communicate that plan to your funders. In that way, you all will know that you won’t be back here again.

UPDATE: The Tactical Philanthropy Blog hosted a debate between Nell Edgington and Rich Polt from Louder Than Words about the Idealist appeal.  You can read the debate and comments here.  

Tags: Ami Dar, Idealist.org, Rosetta Thurman

Let’s Take a Step Back in the Outcomes Debate

There is a growing discussion among social impact organizations and those who fund them about how to measure impact.  It is indeed a very slippery endeavor.

Mario Marino, Chairman of Venture Philanthropy Partners (a venture philanthropy fund in Washington D.C. that makes growth capital investments in nonprofits) has been encouraging nonprofits to measure outcomes for years.  Indeed one of the fundamental characteristics of venture philanthropy is a reliance on metrics and outcomes for investment to happen.  He recently wrote a post arguing that he is “increasingly worried that the vast majority of funders and nonprofits are achieving, at best, marginal benefit from their efforts to implement outcomes thinking.”  He argues that in an zealous pursuit of metrics we have left common sense and “softer” impact behind and encouraged nonprofits to move away from the impact they were working towards.

To add further confusion to the outcome measurement discussion, the Gates Foundation’s Melinda Tuan studied 8 approaches to measuring cost vs. social impact, or the value that nonprofit organizations create versus the cost of their activities.  The results of the study were disheartening; none of the approaches they studied was a magic bullet, all had significant drawbacks, which led them to conclude: “Integrated cost approaches to measuring and/or estimating social value are still in the nascent stages of development due to the lack of maturity in the field of social program evaluation.”

And there are other camps working towards outcome measurement, like those debating about whether randomized control trials (a research methodology where a random group of program participants is tracked and compared to a random group of cohorts who did not participate in the program) are feasible for nonprofits. And on the social business side, the GIIN (Global Impact Investing Network) is developing standards for measuring and communicating the social impact of investments known as The Impact Reporting and Investment Standards (IRIS).  And that’s just a start.

This whole social impact measurement endeavor is incredibly important because if we can figure out a way to measure which social change efforts work, and which don’t, we can allocate resources accordingly and, in theory, get closer to solutions to social problems.

But I think we need to first take a step back.  As is so often the case in efforts to build nonprofit capacity, effectiveness and infrastructure (including, in this case, the ability of nonprofits to evaluate their work) the focus is on the largest, most resourced nonprofit organizations.  Let’s remember that more than 80% of nonprofit organizations have budgets under $1 million (see the Nonprofit Almanac).  Budgets that small leave very little room for funds to support randomized control trials or other kinds of outcome measurements.

But an even bigger roadblock is the fact that many nonprofit organizations have not articulated their theory of change, or their logic model.  Many nonprofit organizations are doing good work, but they don’t necessarily have an articulated strategy around that good work.  A logic model helps an organization understand and articulate how they believe that they translate resources (inputs) into social impact, or change in a community.  This understanding allows the organization to better articulate (to potential funders, volunteers, supporters, partners), and create strategy around, their work.  A potential logic model for an English as a Second Language after-school program could be as follows:

One of the first steps Social Velocity undertakes with clients who want to increase organization capacity, sustainability, revenue, growth, or really any kind of progress, is to create a logic model with the organization.  The majority of nonprofits that I encounter don’t have an articulated logic model or theory of change.  It may seem like an academic exercise, but I would argue that it is absolutely critical to just about anything a nonprofit does.  In order to understand their place in the community, the value that their work adds, how additional inputs (like funding) can increase impact, and their strategy for delivering services, they need to articulate this process.

But the larger debate about outcome measurement ignores the fact that the majority of nonprofit organizations have not completed step 1 in outcome measurement: articulating a strategy for using resources to create outcomes.  Once this is articulated, we can talk about how to measure whether that strategy is actually coming to fruition.

Tags: Gates Foundation, GIIN, IRIS, logic model, Mario Marino, Melinda Tuan, Nonprofit Almanac, outcomes, randomized control trials, social impact, Social Velocity, theory of change, Venture Philanthropy, Venture Philanthropy Partners

Making a Social Impact Market Play

Nonprofits exist in a strange netherworld between market forces and social change. They are trying to create a solution to a social problem, but as much as some might like to deny it, that desired social change exists within a market economy. That means that in order to be successful, nonprofits, just like any business, must continually analyze, understand and create strategies around whatever market forces are at play (competition for funding, clients, partnerships, inputs, results; increased/decreased regulation; changing client/funder demand; changing input costs; changing technology, etc.).

The tendency among some of those working toward social impact is to assume that simply because they are doing good in the world, those market forces can somehow be ignored or dismissed. Good will win out over the market. But it is not a binary system. Organizations that are working toward good are very much subject to market forces and must be strategic about how to address them.

Which brings me to a SWOT analysis, an often misunderstood tool that can help nonprofits do just that.  Most people understand that a SWOT analysis helps an organization break down the internal forces at work (their own strengths and weaknesses) and the external opportunities and threats that face them in the marketplace. But once these are uncovered, the more important step is to translate those realities into strategies that increase the nonprofit’s position in the market, whether that is increased profit, increased social impact, or both.

Strengths are the resources, capabilities, core competencies, and experience that could be used to develop a competitive advantage, or a better position in the marketplace than their competitors, such as:

• Brand name
• Funder/investor retention
• Access to clients/customers
• Access to inputs required to create the desired social impact
• Cash reserves
• Demonstrated social impact
• Use/understanding of critical technology

Weaknesses are things that the nonprofit should possess in order to create a competitive advantage, but happen to lack. They can also be the flip side of a strength, such as a nonprofit that has a large staff (strength) but whose large staff makes it difficult to be flexible towards changing program requirements (weakness). Some examples:

• Lack of staff talent/expertise
• Limited network/relationships/alliances
• Low funder/investor retention rates
• Limited access to inputs required to create social impact
• Lack of demonstrated results

The External Analysis exposes the situation in the marketplace and how that situation positively (opportunities) or negatively (threats) could affect the organization. Opportunities are external realities that could result in greater social impact, profit and growth for the organization:

• Growing social need/customer demand
• New technologies that could decrease costs to deliver programs/products/services
• Relaxation of government regulations for addressing the social challenge
• Declining competitors for funding or program delivery

Threats are situations that have the potential to diminish the organization’s social impact/profitability/growth. For example:

• Increasing competitors
• Stricter regulations
• Increasing cost of inputs
• Diminishing client/customer demand
• Changing technology

But this analysis gets you nowhere if you don’t take the most important next step, which is to craft strategies from the results. The various strategies for the organization going forward fall into four categories:

1. Strength-Opportunity Strategies that use the organization’s strengths to go after external opportunities. For example when a nonprofit uses their strong brand name (strength) to expand into a newly emerging client need (opportunity). Teach for America has recently decided to take a version of their teacher recruitment program to schools outside of America.
2. Weakness-Opportunity Strategies that overcome a nonprofit’s weaknesses in order to go after external opportunities. For example when Kiva recently decided to give their loaners whose demand outstripped loanee supply (weakness) an opportunity to make loans to American entrepreneurs whose demand for loans due to the bank crisis and the recession were growing (opportunity).
3. Strength-Threat Strategies that harness a nonprofit’s strengths in order to overcome its vulnerability to external threats. For example a nonprofit that harnesses its well-connected board (strength) to strengthen their relationships with foundations and individual donors who are being bombarded by an increasing number of nonprofits (threat).
4. Weakness-Threat Strategies that create a defensive plan for preventing the nonprofit’s weaknesses from making it susceptible to external threats. For example when a nonprofit decides to go through the patent process to guard its unprotected results-achieving curriculum (weakness) from growing competitors (threat).

Creating and then employing these strategies allows a social impact organization to be proactive and opportunistic about market dynamics–market dynamics which very much play into whether the solution they seek will come to fruition.

Tags: Kiva, nonprofit, social impact, SWOT Analysis, Teach for America

Don’t Go Blindly Into That Social Media World

Seth Godin has gotten everyone talking (some are even yelling) about his latest post that chastises nonprofits for not embracing change and getting on the social media bandwagon. Godin is irritated at nonprofits for not embracing these new tools to “focus attention and galvanize action” around their cause.  And the overwhelming amount of debate about the post  (Beth Kanter, Chronicle of Philanthropy, Tom Watson, to name a few) , has focused on whether or not nonprofits have embraced social media, whether they are “deer in the headlights,” whether they are risk averse, whether they “blow people away,” and so on.

This is a good debate, to be sure, but what interests me in all of this is a bigger question about the role of social media in a nonprofit’s overall resource engine. Social media is just marketing, right?  Some organizations have figured out how to tap into social media to spread the word, build a following and so on.  Some businesses have even seen a spike in sales.  That’s great.   But marketing through social media, just like any kind of marketing, has to have a bigger goal in mind.  You don’t market for marketing sake, and you don’t Tweet just because it’s cool and “everyone” is doing it.  Rather, you have to understand how that marketing activity (whether it is “free” or not, it still takes resources) is going to contribute to, or perhaps detract from, your bigger goal, which for nonprofits is to raise resources to execute on their mission.  So, in essence, nonprofits should be using social media to build donors, volunteers, advocates, supporters, right?  And as such, their use of social media has to be part of a larger resource plan.  Social media is another channel for the distribution of your message. You should not just go blindly into the social media world.  But don’t sit on your hands either, I get it.

I would argue that social media must be one component of a larger overall resource plan for a nonprofit, that brings dollars, volunteers, advocates, etc. in the door.  But first we need to take a step back to understand that resource plan.  Which brings me to a misunderstanding of fundraising in the nonprofit world and to my usual hero Dan Pallotta.  Pallotta’s blog posts are wonderful, and usually I read them while silent “Right Ons” and “Amens” stream through my head.  But his recent post on fundraising left me frustrated that Pallotta wasn’t stepping far enough out on the limb that he usually does.

Pallotta argues that fundraising is a dirty word in the nonprofit sector and organizations work as hard as possible to spend as little as possible on it:

Fundraising is the black sheep of the nonprofit sector. Charities spend as little as they possibly can on it. They talk as much as they possibly can about how little they spend on it. The watchdogs, the IRS, and donors deduct goody-two-shoes points from nonprofits in direct correlation to every dollar they spend on it. Institutional funders penalize charities for spending on it… By extension, fundraisers are the black sheep of the sector’s workforce; second-class citizens to the program staff who are in the trenches every day doing the real work of social change.

He laments this reality and suggests that we better integrate fundraising into the costs of the programs that nonprofits operate:

This is ass-backwards. Without fundraising there are no programs. The less we spend on it the less money there is for programs…We should make fundraising a program domain in and of itself — every bit as important as the medical research, social services, advocacy, and everything else it makes possible. We should consider all spending on it to be a critical “program” expense. Instead of disdaining it, we should invest in understanding and developing it, because unless we do, we’ll never have anywhere near the money we need to address the massive social problems we confront.

These are all valid points, but then I lose him at the end when he claims:

Institutional funders should take the lead…Fundraising should be every bit as prevalent on the lists of their program interests as health, human rights, and global poverty. And when they are, they won’t need to be giving program grants to health, human rights, or global poverty anymore, because the fundraising arms of the organizations they support will be able to fund them on their own.

Huh?  I agree with Pallotta that there needs to be more risk and experimentation with fundraising.  But I would take this much further.  Fundraising isn’t just a “necessary expense,” rather a nonprofit’s resource engine must be fully integrated with and equal to its programs and operations.  We have to move away from the term “fundraising,” which has come to mean galas, direct mail campaigns (which Godin abhors), and foundation grants that are conducted in a vaccuum completely separate from and organization’s programs and operations.  Fundraising has become akin to a gerbil on a treadmill where nonprofits go from grant to grant, direct mail response to direct mail response, email campaign to email campaign, working their fundraisers to the bone trying to make the dollars coming in the door equal the dollars going out the door to run their programs.

That is “ass-backwards.”  The only effective way for a nonprofit to achieve its mission, and ultimately social impact, is to fully integrate their programs (the social impact they are trying to achieve) with their core competencies (what they do better than anyone else) and their overall resource engine.  This overall resource engine must be a diverse combination of activities that generate support for and work with, not detract from, the mission of the organization and the organization’s core competencies, like this:

I’ve written about this critical alignment before, and it seems to me that this integration of the three core activities of a nonprofit are rarely integrated effectively, or even recognized by those commenting on the sector, like Pallotta and Godin.  Any marketing or revenue-generating activities that a nonprofit embarks on must be chosen and invested in–with resources like money, staff, board and volunteer time–in accordance with the organization’s mission and core competencies.  And the marketing and revenue-generating activities from which a nonprofit can choose include things such as: individual donor cultivation, solicitation and stewardship; direct mail acquisition; online fundraising; foundation grants; earned income businesses; and yes, even social media.  Just as nonprofits should not shy away from social media because they are afraid of risk and change, they also shouldn’t run towards it if it doesn’t make sense in the overall picture of how they can effectively integrate their mission and core competencies to create a sustainable resource engine.

Nonprofits shouldn’t fear social media, nor any other technological, social, or financial shift in our world.  Nonprofits, just like any other entity, need to be aware of their environment and adapt their business to survive and thrive in that changing environment.  But it all has to be based on an integrated strategy.  Yes, be open to new things like social media and experiment to see how this new development might enhance or contribute to your mission, and your resource engine, while working with your core competencies.  But don’t blindly go there without understanding how it fits.

The bottomline is that the pace of change is speeding up for all of us.  Nonprofits have to be more open to change, yes, but any change still has to be digested and made part of an overall strategy that integrates mission, competency and resources.  I think Godin would be the first to agree that we are nothing without an integrated strategy.  So don’t jump on that bandwagon without one, just because Godin tells you that you are “paralyzed in fear.”

Tags: Beth Kanter, Chronicle of Philanthropy, Dan Pallotta, Fundraising, Marketing, nonprofit, Seth Godin, social media, Tom Watson