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Venture Philanthropy

Why Social Entrepreneurship Shouldn’t Abandon the Nonprofit Sector

socent-bubble1Note: I was asked by UnSectored, a community platform for rethinking social change, to write a post as part of their month-long conversation leading up to the William James Foundation’s Annual Gathering about how we sustain social enterprise. Below is that post. It originally appeared on the UnSectored blog where you can see the other posts in the conversation.

 

There is an awful lot of hype around the social entrepreneurship movement. Don’t get me wrong, I’m excited about the growing focus and energy around social change. But I think we need to take a step back and recognize that nonprofits have been working on social change for a really long time.

Often nonprofits get less airtime in the social innovation movement than their for-profit, social change counterparts. Perhaps that’s because the for-profit form of social change is new, so it seems more interesting, sexier, apt to create more change. And, of course, the idea that business can be reworked to address public goods is incredibly compelling.

But among the glorified world of social entrepreneurship, some are beginning to question the hype. Like Liam Black (“Letter to a Young Social Entrepreneur”) and Daniel Ben-Horin (“Between the Quick Exit and the Long Sojurn”)

Real social change is hard, long, exhausting work. As Daniel Ben-Horin says “This ‘making a difference’ stuff can be a real grind, as it turns out.”

And amid the hype around social entrepreneurship there is a tendency to dismiss those who were working on the long haul of social change before it was cool: the nonprofit sector.

The current hype around for-profit social entrepreneurship sometimes reminds me of the dot.com bubble, or the sub-prime mortgage speculation. We have to be careful of the hubris that accompanies new trends.

The nonprofit sector is an enormous part of our economy and has a long history of working towards social change. If we were to cast it aside completely, we’d lose the tremendous resources (money, people, mind-share) that are being invested in that sector every day. Without its oldest component, the broader movement to solve social problems is doomed. So instead of tossing it aside, let’s remake it, re-envision, restructure and reinvent it.

What does that mean? It means that the best and the brightest in the social innovation field need to figure out how to innovate in the nonprofit as well as for-profit sector. It means that the emerging social capital market creating financial vehicles for budding social businesses should also support social entrepreneurs in the nonprofit space. It means philanthropists should share investor prospects with impact investors, and vice-versa.

What’s more, innovation requires that investors interested in a social return own portfolios that include not only social businesses, but also nonprofit deals. Many more foundations should explore mission-related investing so that their money can go to both nonprofit and for-profit social change efforts. Nonprofits interested in growth should have access to capital and management expertise to scale. And a nonprofit that’s solving social problems should get just as many resources, respect and mind-share as a social business that’s doing the same.

In essence, we need an “unsectored” approach to social change.

Which means a shift in attitudes, laws, accounting standards so that social entrepreneurs are not restricted by outdated structures and incentives.

There’s no magic bullet for social change. But by focusing all of our energy on only one piece of the social innovation puzzle, we run the risk of less change — or none at all.

Photo Credit: unsectored.net

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Who Should I Interview Next?

Robert EggersI’ve been doing the monthly Social Velocity Blog Interview for 2 1/2 years now and have talked with more than thirty inspiring leaders in the world of social innovation. But now I need your help.

Over the last few years, I’ve interviewed

And many, many more.

It’s been amazing to hear from these leaders about where we’re going in the world of social change and where they hope to take us. You can see all of the past interviews here.

But now I’d like your ideas for who I should interview next. What all of these interviewees have in common is that they are people who are pushing boundaries, asking hard questions, creating new realities, making real social change. Who’s next?

So help me add to the list. If you have a suggestion for who I should interview next, leave a comment below or email me at info@socialvelocity.net. Thanks for your help!

 

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10 Great Social Innovation Reads: December 2012

reading winterAs the end of 2012 drew near, December brought the usual looking forward and looking back. It was a time to reflect on where we’d been and where we (might) be going. It was also a time to salve the pain of disaster and tragedy with hope and innovation.

Below are my top 10 reads in December in social innovation. But please add what I missed to the comments. And if you want to see an expanded list, follow me on Twitter, Facebook, LinkedIn, Pinterest or ScoopIt.

You can see the 10 Great Reads lists from past months here.

  1. First we took a look back. Lucy Bernholz, queen of social sector predictions, reviews the ten year predictions that she made in 2010 to see how she’s doing so far. PhilanTopic offers an infographic that demonstrates how effective online and social media fundraising was in 2012.

  2. Then we look ahead. Writing on the Nonprofit Quarterly blog, Rick Cohen provides a wrap up of various social sector leaders’ predictions for how the nonprofit sector will change in the coming year. And Twitter’s Manager For Social Innovation describes how social media is shaping the future of nonprofits. And on the Stanford Social Innovation Review blog Mark Tobias offers nonprofits Ten Technology Trends to Watch in 2013.

  3. Amidst the season of giving, Caroline Fiennes and Phil Buchanan explain (on the Freakeconomics blog) why giving to fewer charities is actually better.

  4. In a very interesting thought piece Kenneth Rogoff, economics professor at Harvard, takes issue with those who argue that our current economic troubles stem from a long-term innovation crisis.

  5. Building on a growing movement to get the nonprofit sector to stand up for itself, Johns Hopkins University released the results of a nonprofit sector survey that found a widespread consensus that seven values lie at the core of the nonprofit sector. But they also found that nonprofit leaders believe the sector must better articulate these values to the media, government, and general public.

  6. In his usual fashion, Seth Godin likes to pronounce on the nonprofit sector, a sector which he doesn’t quite understand. His post Non-profits Have a Charter to be Innovators drew some fire, but raised some interesting questions. And echoing that interest in seeing more nonprofit innovation, Google shifts their philanthropic focus in an interesting way. 

  7. And not to be left behind, philanthropy is getting into the innovation game too with more foundations exploring design thinking.

  8. After the horror of the Newtown tragedy on December 14th, this collection of 26 photos from 2012 helped restore our faith in humanity and was a much needed salve.

  9. The Red Cross provided a great case study on how pull (instead of push) marketing can work in the nonprofit world.

  10. Something really interesting came out of hurricane Sandy: crowdfunding disaster relief. No longer is disaster response the sole responsibility of government and large nonprofits, individuals set up their own relief efforts via social media.

Photo Credit: Svenstorm

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Taking Philanthropic Risks: An Interview with Chris Earthman

Chris EarthmanIn this month’s Social Velocity blog interview, we’re talking with Chris Earthman, Executive Director for the Aragona Family Foundation. For the last 8 years Chris has also worked for Austin Ventures, the largest venture capital firm in the Southwestern US. Chris has over 15 years of experience at the intersection of nonprofit and for-profit enterprises, including helping to establish the Micron Technology Foundation (NYSE: MU), the corporate social responsibility vehicle for the largest private employer in Idaho.

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

Nell: As head of a regional family foundation, how do you and your board view some of the innovations happening in the social sector like impact investing, social entrepreneurship, etc.?

Chris: I find it refreshing that innovation is happening in our sector, though I’m a little surprised at the slow rate of uptake among funders. The family foundation I currently run is a spend-down foundation, and that’s a decision our trustees made consciously in order to see the fruits of social investments now vs. spending significantly less in order to maintain a corpus indefinitely. There is ample discussion out there among funders, but (and I’m as guilty as anyone) very rarely much action to back it up. We’re trying to selectively dip our toe into the water in terms of funding social innovations, infrastructure, ecosystem improving organizations, selective M&A activity among our grantees and discussing the idea of mission-related investing.

Nell: Speaking of mission-related investing (where a foundation invests part of their corpus into for-profit social enterprises that give both a social and financial return to the foundation), it’s a pretty radical concept for most foundations. What do you think it would take for the idea of mission-related investing to take off for smaller foundations across the country?

Chris: Let me preface my comments with the fact that we are a spend-down foundation and therefore have not made a meaningful investment allocation to mission-related investing, so I’m by no means an expert here. However, I think there need to be more visible intermediaries and investment products targeting the social impact market. We’ve seen some great progress over the last few years with groups like Sonen Capital, but it’s still a very nascent industry. One of the biggest barriers we’ve come across is the difficulty in quantifying the social return in a format that is comprehensible to trustees. That is starting to change with ratings intermediaries like GIIRS, but recognition and uptake are essentially non-existent among most of the foundations that I interact with. I know that you and many others have opined on the progress here, but it’s still not something that is on many regional/ smaller Foundation’s radars. It may take a few forward thinking Foundation trustees to step up and take a chance to show others that it’s ok to think outside of the endowment model mindset.

Nell: Much of your non-Foundation time is spent working for a venture capital firm where the idea of Mergers and Acquisitions is second nature; however this is a fairly uncommon concept in the nonprofit world. Do we want to see more of it in the nonprofit sector and if so, how do we make that happen?

Chris: Given the fragmentation of the nonprofit ecosystem across the country and the large proportion of small organizations , I think there is certainly an opportunity for more instances of Mergers and Acquisitions (M&A), particularly in cases where organizations need to grow above the $500K/ yr threshold. However, my experience is that TRUE collaboration—the accretive kind where you can quantify cost savings and/or program growth and ultimately better outcomes/ social change—is very rare in the nonprofit world simply because there are few external catalysts to get the discussion started and ultimately finished.

We’ve funded a few different M&A efforts over the last couple of years and my takeaway is that the M’s work much better than the A’s. I hate to keep pointing the finger back at myself and fellow funders, but there is a certain level of risk aversion where we’d rather ensure a successful purchase of additional direct services vs. really giving organizations what they need to grow. I’ve seen too many truly innovative nonprofits unable to successfully scale past the $300-500K/yr revenue threshold because of the required organizational capital required to make that pivot.

But I’m by no means idealistic here. While M&As sound sexy, there are many times where poor execution, interpersonal dynamics, Board conflicts, bad timing, or any number of external factors out of your control result in an outcome that may actually harm the organizations seeking to gain efficiencies through scale and collaboration. There are integration costs, donor overlap, brand/ identity battles, etc. that always take much more time, effort, and money before you see any of the accretive results that initially drove the decision to bring the organizations together. The same goes for the appetite of funders to backstop Executive Director salaries and/or fund transaction costs related to a merger discussion. In my opinion, lack of funder appetite is probably one of the biggest barriers to more M&A in our sector.

Nell: As a rule foundations are less interested in making capital investments in nonprofit organizations (funding things like infrastructure, systems, technology, evaluation). Why do you think that is and what can help move philanthropists to understand the need for capacity capital?

Chris: I think there are two reasons:

  1. The idea of “expressive philanthropy” is fairly well ingrained and many folks start out their philanthropy work wanting to “put their stamp” on a particular cause or portfolio of organizations. The challenge is that many foundations knee jerk into a risk-averse grants process that may or may not fit with their place in the ecosystem. Part of this is based on the endowment model of funding, which more often than not results in a formal, tedious grant application process. This may not be the best way to identify and screen potential grantees!

    Let me acknowledge that I spent the first few years of my career as a grant writer, so I completely understand the time and effort that go into these proposals. This experience informs (or biases) my “anti-process” grantmaking strategy wherein we prefer to put the “search cost” onus on myself as a funder and try to respect the time and effort of the ever lean development dollars being spent by grant seeking organizations. It may sound like an arrogant “don’t call us, we’ll call you” approach to grantmaking, but I’ve found that making the grant process donor-centric vs. grantee centric allows the system to operate more efficiently.

  2. While philanthropic dollars should be fungible, the ability to restrict funds creates a tiered system of revenue for grantees. It always strikes me as a little odd that funders get so hung up about funding direct services vs. infrastructure and overhead and restrict their funding to such a degree. Ask any VC how their portfolio companies use their investments and you’ll find more often than not it pays for the critical growth functions like Sales and Marketing. You can’t grow without infrastructure, and unfortunately our current giving culture is much less amenable to that. I’d even go so far as to say the framework/ process that most funders use to select their grantees are, by their very nature, skewed towards less risk and greater restriction. Therein lies one of the structural problems in our industry. Even something as simple as separating the motivation of our giving (“we really like your yy program initiative…”) from the structure of our giving (“…so here’s an unrestricted grant to spend where you feel it is most needed”) makes a huge difference for the lives of our grantees. It also shows the Executive Director that you value their ability as a manager to make decisions from the inside.

Nell: How do we get funders to get take more risk with their investments and be willing to fund things that have a higher risk, like growth capital, mergers, research & development, but could result in huge social payoff?

Chris: Similar to my earlier comments about impact investing and grant processes, I think funders need to see more celebrated instances of both success AND failure. Another solution is using less restrictive grant processes that are a better fit with the size and scope of your particular foundation. The fact that you can restrict grants does not automatically mean that you should. Until we embrace the idea that its ok to take a risk with our funding (and have a process that embraces this), even if it doesn’t turn out the way we planned, we’ll be much closer to creating an environment ripe for some of the larger social change that motivates our philanthropic giving in the first place.

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Creating UnSectored Social Innovation: An Interview with Jeff Raderstrong

In this month’s Social Velocity blog interview, we’re talking with Jeff Raderstrong, founder and editor of UnSectored, an online platform for people interested in developing collaborative efforts to create social change. In addition to the online platform, the UnSectored community uses offline events and activities to identify intersections, facilitate discussions, encourage cross-sector collaboration, and promote cross-sector change efforts. Jeff is also a community engagement consultant and has worked for Venture Philanthropy Partners, among other organizations on the front lines of social innovation.

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

Nell: You and some friends started the UnSectored blog a year ago to encourage the nonprofit, public and private sectors to break down their walls and work together on social change. How has it worked so far? What are you seeing?

Jeff: The blog was a first step in changing the conversation around social change to focus not on individual components—social enterprise, nonprofit, corporation social responsibility, government innovation, etc—but to consider the entire ecosystem. Social change is a complex task and, to us, it seemed silly to have all these conversations separately, with people not really paying attention to what those with similar (or identical) goals were doing.

In that way, the blog has been successful in providing that space. The response we received was way more positive than we were expecting, because our core message is a pretty simple one—that social change is the responsibility of all individuals, organizations, and sectors, and that everyone should work together. But there had not been a place for discussion around that idea, so it resonated with people.

There’s still a lot more work to do, obviously, and UnSectored can’t do all of it. We are providing the platform for the community that believes in this idea—what’s next is up to the people who join that community.

Nell: Your fellow bloggers at UnSectored are all part of the Millennial generation. Do you think the notion of “unsectoredness” (is that a word?) is a particularly Millennial one?

Jeff: Answer to first question: Yes! You just put it on the internet, so it’s now a word!

Second question: I do not think there is anything inherent about the ideas behind UnSectored that make it explicitly a millennial endeavor. The work on UnSectored has been done primarily by millennials, but I think that’s just a function of the people I reached out to (my peers) rather than who the idea resonates with most. We have gotten response on this from people of all ages and backgrounds—I think it’s a universal idea.

That being said, I do think it’s a relatively new idea, born out of the more collaborative and connected nature of the brave new world we live in. The new tools available to people make it much more easier now than ever before to work together. For millennials, this isn’t “new,” this is the way we were raised. Because of that, we get it a little quicker than others, but I don’t think that makes it “ours” at all.

Nell: In addition to the blog you are also doing UnSectored Talks and Working Group Actions. What are these and what are you hoping they will accomplish?

Jeff: We have four components to UnSectored: Blog, Talks, Actions, Campaigns. The blog is relatively straightforward, as are the Talks: Both are ways to engage with open and intentional conversations around social change. The Talks are offline, the blog is online.

The other two components are trying to leverage the power of the UnSectored community to move from discussion to action. The Actions are the offline, coordinated version of this, and the Campaigns leverage the online platform of UnSectored. By giving people the option to engage in discussion and action, both online and offline, we hope to meet people where they are and get them to engage the best they can.

Nell: How geographic is your movement? Is it growing beyond the D.C. Metro area?

Jeff: It’s centered on DC, but we’ve been talking to people around the country. Because we aren’t funded and rely on volunteer time, it’s hard for us to have events in other places. But, we are looking for creative ways to partner with other organizations around the country. If you have some ideas, let us know!

Nell: Many of your fellow bloggers work for high-profile organizations within the social sector space (Venture Philanthropy Partners, Calvert Foundation, Council on Foundations, etc.). Do you find that your employers buy into the UnSectored idea and if so what are they doing to make it a reality?

Jeff: They definitely do. I think we all get inspiration for UnSectored from our other work. More and more, people at all types of organizations—high profile or not—are beginning to see how working together can produce better outcomes and create more transformative change. Personally, I’ve worked on the Social Innovation Fund initiative from the Obama administration, a great example of “unsectoredness” at work: The federal government partnering with funders and service providers to better leverage resources and encourage innovation. This initiative, which many of your readers are probably familiar with, is a great example of UnSectored’s core principle: That by working together, we can do much more than working alone.

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5 Things Nonprofit Donors Can Do to Transform the Sector

Nonprofit donors, particularly foundations and wealthy individuals, have an enormous amount of power in the sector. Sometimes they use that power for good and sometimes (often unknowingly) they use it for ill. And because of the power imbalance between funder and fundee, it is unusual that anyone ever tells nonprofit donors what they could do to really help the sector and the organizations they love.

So here are the five things I would LOVE to see more nonprofit donors do. And if they did, it might just transform the sector.

  1. Take Risks
    The higher the risk, the higher the potential payoff. A nonprofit organization may not be able to guarantee the outcomes or numbers that they are projecting, but you can’t realize big numbers and outcomes without taking risks. What if instead of always taking the safe route of investing in well-proven programs, you took a chance every once in awhile and funded a new innovative solution? What if you set aside a portion of your giving to invest in those crazy, bold, awesome new ideas? Because the complex problems we are facing require completely new solutions, and those require risk.

  2. Provide Capital
    I know I sound like a broken record sometimes but a nonprofit can not survive on revenue alone. Every once in awhile a nonprofit organization needs money to build or strengthen their organization. Money for technology, systems, staffing, evaluation. You may not think these things are sexy, but they are incredibly necessary. Because how in the world can you have an effective, efficient program if you have no mechanism for tracking data, or evaluating results, or streamlining systems?

  3. Provide Patient Capital
    If you make an investment in something risky or in building an organization, that investment takes time to pay off. You cannot expect a nonprofit to execute on a change plan in a couple of weeks or months. The bigger the investment and change you seek, the longer it takes to see results. Take a deep breath and let your investments pay off, over time.

  4. Leave Your Ego at the Door
    Oh please, please, please don’t assume that just because you have money you have all the answers. Most nonprofit leaders are program experts who have been working on their particular social problem for some time. They may not have all the answers, but they probably know more than you do. They live in the trenches. That’s not to say they shouldn’t be open to new ideas, questions and insights, they absolutely should. But at the end of the day, invest in them and get out of the way so that they can do what they do best.

  5. Support the Sales Function
    We all understand that in the for-profit world a business can’t exist if it doesn’t have a process for selling the products it creates. And that process takes money. Whether you hire a sales team, or do advertising, or shout from a megaphone you must have a way to encourage people to buy your product. The same is true in the nonprofit sector. The only difference is that “sales” is called “fundraising.” Nonprofits must have a process for bringing money in the door in order to keep providing programs. And that process has costs–a Development Director, a donor database, materials. Don’t thumb your nose at the sales function. It is absolutely critical to the success of the organization. So help fund it once in awhile.

God love them, but sometimes nonprofit donors drive me nuts. Their hearts are in the right place, there is no doubt. But if we could encourage them to provide more risky, patient, self-less capital it could transform the sector.

Photo Credit: yellowmeansgo

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Chatting About Social Entrepreneurship

As I announced in an earlier post, yesterday I participated in a Live Chat organized by the Foundation Center about social entrepreneurship. Abby Chroman from Ashoka joined me as a fellow panelist, along with The Foundation Center’s Katie Artzner who moderated.

We took questions from the audience about social entrepreneurship, social change, where nonprofits fit in the social innovation movement, social return on investment, measuring outcomes, fundraising and much more. It was a fast and furious hour with great discussion and great questions. This was a fun format because there was no audio, only text chatting.

If you missed it, you can still view the chat on the Foundation Center’s website here. And below is an excerpt from the discussion just to give you a taste.

_______________________________

Foundation Center’s Grant Space Live Chat

Comment From Dan:

How do you deal with accountability in the social entrepreneurship sector? Should social entrepreneurs be democratically accountable to those whose lives they seek to impact?

2:38
Katie:

How about we start with Nell.

2:38
Nell Edgington:

Dan, I’m not sure what you mean by “democratically accountable,” but they should absolutely should be accountable to their theory of change. Any social change org should have a theory of change (argument for how they are using community resources to create positive change). Once they have a theory of change they must measure whether that change is actually occurring.

2:38
Abby:

Accountability is a huge part of social entrepreneurship. It’s why we take a person’s “ethical fiber” as a very very serious part of our selection criteria for leading social entrepreneurs.

2:39
Katie:

“ethical fiber”? Can you explain?

2:39
Abby:

Yes, this is the level of trust we invest in our Ashoka Fellows that they will not only solve the social problem but that they will be accountable for their impact.

2:40
Abby:

It sounds odd, but imagine if you would stand on the edge of a cliff with someone…

2:40
Abby:

Do you trust them 100%?

2:40
Katie:

Depends!

2:40
Nell Edgington:

Can I jump in here for a second?

2:40
Katie:

Absolutely, Nell

2:40
Abby:

If no, why not? That’s the kind of rhetorical question we’d ask.

2:41
Nell Edgington:

That’s a really interesting concept to me. To me, social change is a very complex combination of people, money, ideas, structures, etc.

2:41
Nell Edgington:

It can never be dependent on just one person. So how can you know whether a single actor is actually going to make change happen?

2:42
Abby:

The person is will catalyze the change, but you’re right – it involves whole systems. So we’re back to systems!

You can see the whole live chat here.

Photo Credit: AlexDixon

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The Rapid Evolution of the Nonprofit Sector: A Podcast

I’m delighted to announce that I was interviewed last week for Georgetown University’s Social Strategist series. The Social Strategist: A Conversation on Cause Based Communication is an audio project of Georgetown University’s Center for Social Impact Communication that aims to create a dialogue on effective cause based communication while showcasing best practices of the most successful organizations, companies and people working in the field today. The series aims to ultimately answer the question: what are the traits of an effective social strategist? Past interviewees include Jane Goodall, Beth Kanter, Katya Andreson, to name a few.

I am honored to be part of this exciting series. In my podcast, John Trybus (series curator) and I discuss the current state of the nonprofit sector, what social innovation really means, financing social change, the future of social impact and much more.

Here’s John’s preview of our podcast discussion:

  • The rapid evolution of the nonprofit sector is happening now. “Our economy is going under a fundamental restructuring and that’s affecting nonprofits as well,” Nell explains. “If [nonprofits] don’t dramatically change the way they do business they’re not going to be able to survive and thrive.” The status quo where nonprofits can hide behind the benevolent shield of charity no longer exists. Nonprofits “have to make some significant changes if they want to survive in this new reality,” she adds.
  • A new type of ROI is fundamental to prove value. Forget the traditional ROI and think about a social return on investment. Says Nell: “It’s not enough to say we are doing good work and we’re helping people. You now need to start to prove that. That’s a real movement in the sector and I think that’s exciting.”
  • Financing and not fundraising is necessary to ensure sustainability. The hamster wheel of galas, dinners and other traditional forms of raising money for good causes no longer works. “The system is broken,” Nell proclaims. To truly create sustainable sources of funding “it starts with taking a much bigger picture view and creating an overall financing strategy,” she adds. “So it’s starting with ‘what do we want to accomplish in the world?’ and how do we create a financial model to do that?” 

So what does the future hold for social innovation?

“I think we are at a critical point where so many people want to see social change and they’re willing to change structures and systems [to make that happen],” Nell says. “This kind of momentum is really exciting. It remains to be seen where it’s going to take us but it’s going to be an exciting ride.”

You can listen to the podcast here.

Photo Credit: faungg

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