Next Generation of High Engagagement Philanthropy: An Interview with Carol Thompson Cole

In this month’s Social Velocity blog interview, we’re talking with Carol Thompson Cole. Carol is President & CEO of Venture Philanthropy Partners (VPP), a philanthropic investment organization (co-founded by Mario Morino) that helps great leaders build strong, high-performing nonprofit institutions. She has over thirty years of management experience in the public, private, and nonprofit sectors. She served as Special Advisor to President Clinton on the District of Columbia and was the Vice President for Government and Environmental Affairs at RJR Nabisco.

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

Nell: This year marks Venture Philanthropy Partners’ 10 year anniversary. And in fact, venture philanthropy itself is only a little bit older. How has the concept of venture philanthropy changed since it first came on the scene?

Carol: People began talking about “venture philanthropy” about 11-12 years ago. Back then, it meant many different things, depending on who was speaking. Today, it still means many different things, but those organizations that work within this philanthropic mindset, like Venture Philanthropy Partners, have learned some important lessons along the way and share some common characteristics like a focus on performance, long-term financial commitments, investing in capacity and building infrastructure, and bringing resources in addition to capital to the table, to name a few.

At VPP, we actually moved away from using the term “venture philanthropy” a number of years ago as we realized that our approach was not a strictly “venture” approach. We are much more about blending some of the ways private equity firms approach their financial investments with many of the lessons learned and techniques developed by philanthropists through the years. We usually call ourselves a “philanthropic investment organization,” and we work to maximize all available resources, including capital, time, the skills and experience of our team, and the power of our network, to improve the lives of low-income children and youth in the National Capital Region.

Venture philanthropy arose out of the tech boom in the late 1990s, when many young entrepreneurs making their fortunes online decided to shift their resources into philanthropy. They saw a real opportunity to apply their business and management knowledge to nonprofits to create real, sustainable change for our society. These entrepreneurs decided to take the principles of venture capital that helped them become successful and shift that over into philanthropy.

Of course, the main strategies of venture philanthropy have been used, in some form or another, by grantmakers long before the late 90s. Venture philanthropists focus on high-engagement approaches to their grants, work to build capacity of organizations to scale their programs, and seek measured and proven outcomes as a result of their investment. Above all else, venture philanthropists use high-engagement techniques to bring more than just money to their partnership with nonprofits. Different grantmakers have refined their own ways of implementing these strategies, but they remain at the core of venture philanthropy, even a decade later.

Nell: When venture philanthropy started in the late 1990s it was thought to be a true innovation that could transform the nonprofit and philanthropic sectors. Has it lived up to those original ideas?

Carol: Venture philanthropy is a true innovation, but the nonprofit and philanthropic sectors are large and complicated systems. Venture philanthropy is an effective tool that has helped us deliver strong results for the children and youth in the National Capital Region. VPP is focused on identifying outstanding nonprofit leaders with strong programs and bold ambitions to grow. We give them growth capital to build their infrastructure and scale their organizations through serving more children and youth, by increasing their outcomes and impact, or through influence – making systemic change that ultimately allows for many more lives to be changed. Our first fund has grown to serve an additional 16,000 youth.

Clearly, venture philanthropy has worked for us, but it is not the only answer for the nonprofit sector. It can be a useful tool to deliver results, but creating those results is more important than the way those results are created.

Nell: Venture philanthropy was in many ways the precursor to what has now become the social innovation movement. How do you think venture philanthropy fits into these new worlds of social investing, for-profit social entrepreneurship, and other areas where the public, private and nonprofit sectors are converging?

Carol: Again, venture philanthropy is a tool to be deployed in grantmaking. At VPP, we are focused on bringing a high-engagement model to our nonprofit partners and delivering results for the children and youth of the region. Social investing, social entrepreneurship, and other innovations coming out of the convergence of sectors are examples of similar tools to drive results. At the Harvard Social Enterprise Conference in March, where I spoke along side Paul Carttar of the Social Innovation Fund, there was a lot of discussion about what type of organizational structure is best to create social change and what type of funding an organization should seek out to achieve its mission. What became clear is that people need to focus on goals and strategy, not methods. Venture philanthropy complements programmatic sources of funding because it can help some organizations scale very effectively to help those who need it.

Nell: The federal government took a step into the world of social innovation last year with the Social Innovation Fund, which was based largely on the venture philanthropy model. What do you think of the SIF and how do you see government’s role (at both the local and federal levels) evolving from this?

Carol: VPP is a member of the inaugural portfolio of the Social Innovation Fund, and we are honored to be included among the other intermediary funders. We applied to SIF because the challenges in our community are too big and complex to be met by a single funder, a single nonprofit, or a single sector. What we need now is a “network” of nonprofits, funders, corporations, local governments, and the federal government working together to solve our most intractable problems.

SIF represents the first step towards that new form of collaboration. Speaking at the Harvard conference, Paul Carttar said that SIF was about much more than money, and it would be a success if the public-private partnership model was adopted by others across the country. In these lean times for funding, it is important that we work together to encourage social innovation where it is needed. SIF, as well as the other public-private innovations launched by the Obama administration, like Investing in Innovation and Race to the Top, are developments that should be encouraged. If we can continue to push local and federal government to take on this role as collaborator, we will be able to achieve much higher levels of impact in our communities.

Even the largest philanthropic investments are dwarfed by public funding and are often deeply effected by availability of public funding as well as how and when it is allocated. Not every partnership needs to be as formal as SIF, but I would urge all philanthropic and nonprofit organizations to look for ways to seek alignment with local, state, and federal government efforts.

Nell: What’s next for venture philanthropy? Where does it go from here? How do you continue to reinvigorate or adapt the model?

Carol: I strongly believe that SIF represents the next step for VPP, and for all of venture philanthropy. We feel our model of philanthropy works and our first investments were successful, but we also feel like there is potential to dramatically improve the lives of the most vulnerable children and youth in our regions through intense and intentional collaboration. Because of this, we applied to SIF.

Our SIF initiative, youthCONNECT, represents the next phase of our work. Instead of single investments, we are investing in a network of high-performing nonprofits that provide a number of different services to young people from low-income families to help them thrive in adulthood. All the nonprofits in the network share the goal of bringing education, job training, and social services to at least 20,000 low-income youth, ages 14-24, in our region over 5 years. As we demonstrate success, this approach can be replicated or adapted by others around the region and the country. We will still make high-impact, long-term investments in single organizations, but we are exploring the transformative power of a network approach.

It is too early to tell the effectiveness of youthCONNECT and SIF, but I think these developments are pushing us into the next generation of high-engagement philanthropy. At VPP, we are committed to evaluation, sharing, and transparency so we can learn from each other as we work in these unexplored areas.

Nell: One of the criticisms of venture philanthropy is that it is only accessible to the largest and most successful of nonprofits. Do you see smaller nonprofits being able to access the ideas of growth capital? And if so, how will this evolve?

Carol: VPP focuses on organizations with strong leaders that deliver results. We have historically focused on organizations with budgets of $3-$50 million, but in our youthCONNECT initiative we have invested in organizations that fall below that monetary requirement but still have a proven track record in the area. Investing in smaller organizations is a different approach than some venture philanthropists have used, but these smaller nonprofits should have opportunities to access growth capital. What is most important to VPP is that an organization, regardless of size, can deliver lasting and meaningful results for children and youth in our region. Change in the lives of those who need it most will always remain our priority.

Tags: Carol Thompson Cole, grantmakers, growth capital, Investing in Innovation, Mario Morino, nonprofit, nonprofit growth capital, Paul Carttar, Philanthropy, Race to the Top, social entrepreneurs, Social Innovation Fund, Venture Philanthropy, Venture Philanthropy Partners, youthCONNECT

A New Kind of Money for the Arts: An Interview with Rebecca Thomas

In this month’s Social Velocity blog interview, we’re talking with Rebecca Thomas. Rebecca Thomas is Vice President of Strategy & Innovation at the Nonprofit Finance Fund, a national leader in nonprofit, philanthropic and social enterprise finance. She has strategic responsibility for national initiatives, funder partnerships and new online and next-generation services that advance the organization’s profitability, visibility and impact.  Rebecca serves as a spokesperson and advocate for NFF regionally and nationally, and is the co-author of Case for Change Capital in the Arts and Financial Reporting Done Right, part of a larger publication series on capitalization in the arts.

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

Nell: Your “change capital” project works with 10 arts organizations to help them raise capital to transform their organizations. Why did you decide to focus on arts organizations? What is unique about their need for change capital?

Rebecca: Through the Leading for the Future Initiative, NFF is investing $1 million of change capital in each of ten performing arts organizations that are adapting their programs, operations and finances in ways that contribute to long-term health and vibrancy (click here for the list of participating organizations). The source of this capital is the Doris Duke Charitable Foundation, which partnered with us in 2007 to develop the program as a way of responding to the tectonic shifts taking place in the artistic landscape. These shifts (in demographics, technology, and audience expectations, to name a few) were underway in the arts sector well before the economy went south and jeopardized arts philanthropy and public funding. Because business as usual is no longer an option for this sector, the need for change capital to fund creative re-alignment is particularly pronounced.

Arts sector aside, the majority of nonprofit organizations are mis-capitalized, meaning they lack enough of the right kinds of financial resources to adapt to changes taking place in their external and internal environments. The field often focuses on the lack of capital—certainly a reality for many organizations—but capital is equally often misplaced. Consider the organization with an aging facility and permanently restricted endowment but only two weeks of cash. It may not be undercapitalized but it is certainly mis-capitalized!

The arts sector has, more than many other sectors, suffered from an institutional mindset that equates success with the accumulation of fixed assets, often at the expense of liquidity and flexible capital. The result is that too many organizations are in a starvation cycle, unable to fully pay for their current programs and infrastructure, let alone to invest in meaningful and lasting change.

Nell: Do you have plans to expand to other types of nonprofit organizations with this project?

Rebecca: Our program, which runs through 2013, is limited to the 10 current participants, which were chosen through a multi-phased application and selection process. Given the nature of capital, programs like LFF are expensive and require one or more funders who are willing and able to commit sizable sums of money. The field is fortunate that the Doris Duke Charitable Foundation had the resources and vision to create this program with us. The principles of this program certainly apply to every sector, and we aim to do similar innovative initiatives with funders and nonprofits in other fields (for example, healthcare and charter schools) that we think would benefit from an investment of change capital.

We’ve found that education about the relationship among mission, capacity and financial health is often a precursor to the establishment of a capital initiative of this kind. NFF partners frequently with foundation program staff and nonprofit leaders to introduce the concepts of change capital, reliable revenue and liquid, adaptable balance sheets. From efforts like these have arisen deeper partnerships. For example, we have capital-investment programs with the Kresge and Andrew W Mellon Foundations that, respectively, provide financing for cash reserves and working capital. Change capital is just one of several forms of flexible capital that organizations need, for purposes ranging from risk management to rapid scale to stabilization.

Nell: As part of this project you are demonstrating how nonprofits can adjust their financial reporting to allow for a very necessary distinction between revenue and capital. Do you see nonprofits adopting this fairly significant change? What will it take to change accounting standards to recognize this distinction across the sector?

Rebecca: One of the things we learned early on in this work is that changing the financial reporting—to separate capital flows from recurring revenue—would not be an easy sell, for understandable reasons. Executive directors are reluctant to take a chance presenting new formats to donors who don’t understand the technique, and many board members aren’t inclined to re-learn nonprofit accounting principles. Moreover, NFF’s suggested methodology is not required by the Financial Accounting Standards Board, and auditors don’t always feel comfortable suggesting novel formats, even when they provide heightened clarity.

Notwithstanding these challenges, nonprofits that periodically raise and deploy capital—whether for investing in fixed assets, building a reserve, or implementing a change strategy—should take the straightforward step of separating capital from ongoing operating revenue and expenses, at least in managerial reporting. Financial Reporting Done Right explains in greater detail how this is done, but suffice it to say that when capital and revenue are conflated, an organization’s reports do not present a realistic view of operating performance. Unintentionally misleading information can lead to poor planning and decision making by nonprofit leaders, boards and funders.

Longer term, it will take aggressive education and advocacy efforts to convince nonprofit executives, board members and funders of the value of producing transparent financial reports and audits that reveal business model economics separate from capital infusions. Nonprofits will need to be convinced that they won’t be penalized for producing statements that may, at times, show temporary weakness in operating results during a change or growth period.

Nell: What can and should funders do to make change capital a reality for more nonprofit organizations?

Rebecca: Funders can start by encouraging their grantees’ efforts to adapt in the face of shifting environmental and internal realities. Nonprofits need to know that their supporters view these efforts as important, recognize the risks involved in attempting change, and are willing to provide flexible funding without judgment.

Also, funders can provide support for the development of a rigorous strategy and financial roadmap for change, both of which should be in place before a sizable investment of change capital is made. This planning should include the preparation of financial projections for the period of change and program and financial metrics (identified by the grantee!) to measure progress and guide course corrections. Because change takes time and can be costly, funders should consider aggregating their resources to support a grantees’ change strategy – and any funder “pool” should embrace one standard of reporting.

I want to stress that not every organization is a good candidate for change capital. Many are too financially fragile to invest in transformative efforts and first need capital to recover from previous setbacks. Some characteristics of “change capital-ready” organizations include: an enterprise perspective that sees the organization as more than the sum of its programs; a strong, stable and collaborative management team and board; a commitment to strategic planning, self-reflection, and continued learning; a culture of risk-taking and adaptation in the face of obstacles and new information; a track record of surplus performance and adequate liquidity; and a continuous focus on results and the use of data to inform decision making.

Nell: How open do you think philanthropists are to the idea of building versus buying services? Is the idea catching on for funders? What will it take to make the idea widespread?

Rebecca: The importance of role clarity can’t be understated. Both individual donors and institutional funders need to be clearer about whether they are investors in nonprofit enterprise health (“builders”), annual supporters of nonprofit services (“buyers”), or both. Among venture philanthropists and their ilk, this concept has gained much momentum in recent years. NFF Capital Partners collaborates with such investors in their efforts to scale high-performing nonprofit organizations. Through NFF’s grantmaker training programs, which reach a broader audience, we are also seeing a deeper understanding of this concept, although its application remains uneven. Ben Cameron, Program Director of the Arts at the Doris Duke Charitable Foundation also deserves a lot of credit for understanding and embracing this concept, and then stepping forward to be the learning example for an entire sector.

Time, education, and openness to change will be required for field-wide change. More stories about how nonprofits are successfully (and not so successfully) deploying capital to scale, change or restructure their operations would also help.

But let’s remember that not every philanthropist can or should be a builder. The field would benefit greatly from more buyers who provide (or partner with others to provide) unrestricted support that covers the full costs of program delivery, rather than limited program support or expansion at the margins.

Nell: What challenges are your change capital clients finding during this journey? Are they successfully raising change capital across the board, or are some faring better than others? Why?

Rebecca: Several of our clients have sought to raise change capital outside of this program as they seek to fully realize ambitions that carry a price tag larger than $1 million. A few have raised funds that serve a similar purpose without calling these dollars “change capital.” What we’ve heard from many of our clients is that foundations and boards either don’t have the resources to provide capital at this scale or don’t fully understand the concept. While grantmakers are increasingly embracing other improvements in practice –such as supporting reserve-building efforts, encouraging surplus management, and providing general operating support – few are yet providing flexible capital to be invested in implementing and sustaining enterprise-level change.

I want to make one last point. We set up the Leading for the Future program to enable our 10 participants to embrace innovation and experimentation as they adapt their business models in response to new challenges and opportunities. But programs like this one are not about change for change’s sake. Change capital is not the same as an “innovation grant.” The capital is meant to be deployed in ways that lead to more reliable net revenue (read: surpluses) to sustain each change strategy once the capital is fully spent.

And, at the end of the day, it’s worth remembering that financial stability is only a means to the end of greater nonprofit effectiveness and impact.

Tags: Andrew W Mellon Foundation, builders vs. buyers, Doris Duke Charitable Foundation, FASB, Kresge Foundation, nonprofit arts, nonprofit capacity building, nonprofit change capital, Nonprofit Finance Fund, nonprofit financial reporting, nonprofit fundraising, Rebecca Thomas

Raising Money to Grow On: Creating The Plan

In May I launched a new ongoing blog series that profiles Social Velocity’s work with Charlotte Chamber Music, a small performing arts organization that has a big vision, but lacks the capital to get there. Charlotte Chamber Music enlisted Social Velocity’s help last Spring to create a strategic plan and a capacity capital pitch to raise the money to execute on that plan. You can read the first post in this series that details what gave Charlotte Chamber Music the desire to raise capacity capital.

Today I describe how we developed a strategic plan for Charlotte Chamber Music, which is the very necessary first step in raising capacity capital.

But first, let’s review. Capacity capital (or “philanthropic equity”) is the money so many nonprofits desperately need. Capacity capital is dramatically different from the day-to-day operating revenue that nonprofits are always fundraising for. Capacity capital doesn’t fund delivery of nonprofit services (beds for a homeless shelter, new productions in an opera house, books for an after-school program). Rather, capacity capital builds the organizational infrastructure of the nonprofit (technology, system, administrative or fundraising staff, materials) that allows the organization to become more effective or grow. The vast majority of nonprofit organizations don’t have access to this kind of money because:

1. Funders are hesitant to fund “overhead,” and
2. Nonprofits don’t know how to make the case for why this kind of money is so critical to their ability to deliver impact.

But you cannot simply go out and ask for capacity capital. First, you must develop a compelling, inspiring, actionable and measurable plan for what you would do with the capacity capital. And this is where we started with Charlotte Chamber Music.

Over a period of almost 6 months, Elaine Spallone, the Charlotte Chamber Music Executive Director, and I went through the strategic planning process:

Analyze the Internal Situation: We developed SWOT (Strengths, Weaknesses, Opportunities, Threats)  and core competency analyses. We also created an organization logic model, which helps the organization articulate how they take community resources ($, people, artists) and turn them into social change. Then Elaine took those 3 elements and “shopped them around” to board members, funders, staff, and other constituents to refine what we had developed.

Analyze the External Environment: Elaine and her board and staff then researched their competitors (those providing similar services in the community) and consumers (funders and clients) in order to understand trends, how their core competencies related to community needs, and the competing forces working to address those needs.

Refine Vision and Mission: Several month prior to working with Social Velocity CM had created a new vision and mission statements. But they were very internally focused.  Now, with all of the above data, analysis and feedback in hand, Elaine, her staff and board reviewed their current vision and mission and refined them to better reflect their new understanding of the value CCM brings the Charlotte community. As Elaine observed:

Working with Nell on the mission and vision was critical. We as an organization had in fact addressed them several months earlier and created something we felt good about. But Nell helped us understand that we created something that talked about us as an organization, and not about the way we were going to change our community. It is a critical distinction. It made all the difference and paved the way for our “aha” moment.

So, their new and improved vision and mission statements became:

• New Vision: Charlotte becomes the cultural center of the Southeast through the vibrant engagement of its citizens, connected to their humanity, history and each other.
• New Mission: To stimulate, animate and connect Carolinians to each other and their region through the presentation of curated chamber music performances.

Develop Goals and Objectives: With their new vision and mission statements as the guiding elements and filters of the strategic plan, CCM developed a strategic direction. What was really interesting about defining their strategic direction is that the final direction was much different than what they had thought it would be. Before our strategic planning process started, Elaine and her board thought their ultimate goal was “to become a top tier arts organization,” in essence to mirror the largest, most successful, most well-funded performing arts organizations in the city.

However, what they realized in a key “a-ha” moment was that that direction didn’t fit with their core competencies or their place in the external environment. There are countless arts organizations vying to be “top tier.” But CCM’s strength is it’s scrappiness–it’s ability to easily adapt to the changing environment and experiment because they don’t have an expensive staff or infrastructure that needs to be slowly moved. Thus, CCM came up with this strategic direction:

By 2020, through an expansion of venues and channels, Charlotte Chamber Music becomes a new model for engaging people in broader and deeper ways with the cultural arts community

CCM made a very strategic decision: they want to be a new, innovative model that connects people in their community through the cultural arts. They want to draw on their assets of ingenuity, flexibility, innovation and the inherent qualities in chamber music that are so good at connecting people to each other in its intimacy, engagement and accessibility. With their new strategic direction in place, they developed 5 broad goals, and the objectives to get to each of them, for the next 3 years.

With this exciting new strategic plan in hand, Elaine remarked:

A year ago, before we met Social Velocity, we held an informal board and staff retreat. At one point, the board chair called on each board member to share what they felt was the most critical issue we faced as an organization. Overwhelmingly the response was: “What are the measurements for our mission and vision, what are the goals?” and “No clear understanding of where we are going”. I am excited a year later to know all these questions have been answered, and we have a completely new  trajectory in which we have set ourselves upon!

CCM’s new strategic plan has begun to dramatically shift the culture of the organization. CCM now has an exciting, compelling long-term vision (and a detailed plan to execute toward that vision) that is getting staff, board and funders excited for the future.

In the next post in this series, we’ll talk about how we created the day-to-day operational plan to execute on this strategic direction, the 3-year budget to get there, and a system for monitoring the plan going forward.

Photo Credit: laura padgett

Tags: Charlotte Chamber Music, nonprofit capacity building, nonprofit case study, nonprofit growth capital, nonprofit strategic plan, nonprofit vision and mission, philanthropic equity

Sparking a Movement Toward Outcomes: An Interview with Mario Morino

In this month’s Social Velocity blog interview, we’re talking with Mario Morino. Mario is co-founder and chairman of Venture Philanthropy Partners, one of the oldest venture philanthropy funds, and chairman of the Morino Institute, a nonprofit focused on technology for social change. His career spans more than 45 years as entrepreneur, technologist, and civic and business leader. He also recently wrote Leap of Reason: Managing to Outcomes in an Era of Scarcity, which I recently reviewed here on the blog.

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

Nell: In your book Leap of Reason, you tell the leaders of the nonprofit sector that they need to make a fundamental shift in how they conduct business. Have you gotten any push back from nonprofits or philanthropists? Or has all of the response to the book been positive?

Mario: We are pushing for some hard changes, so we expected some hard reactions. But to our surprise, the response from nonprofit, for-profit, and public-sector leaders alike has been overwhelmingly positive.

We’ve asked ourselves why we’re not getting more push back. There are probably several factors at work. For one thing, the people who have taken the time to read the book are probably those who are more inclined to be receptive to this message. Those who are natural critics—for instance, those who believe mission and metrics are mutually exclusive or that discipline inhibits charismatic, entrepreneurial leadership—may not have read it. And so that shoe may drop at some point. The more we push beyond those already singing in the choir, the more constructive push back we’ll get.

I’d like to think that another factor is the way we presented the case. We made a forceful case, but we weren’t strident in our tone. We have a strong appreciation for the reasons why these management approaches have not been more widely adopted in the social sector. We sought to focus on what to do versus placing blame.

Nell: Do you think the majority of nonprofits will adopt an outcomes-management approach? And if so, when? What will be the tipping point?

Mario: Even when you take into account all of the work on outcomes, accountability, and mission-effectiveness over the past 15+ years, only a small slice of nonprofits (or government agencies, for that matter) have adopted an outcomes-management approach. So I fear that we’re in for only incremental adoption, unless our sector finds a way to seize the opportunity in this era of scarcity. This funding crisis can enervate or energize us. I really hope it’s the latter. In other words, I really hope this crisis will lead people to look much harder at what they do and how they can do it more efficiently and effectively. I hope it will cause them to go beyond incremental improvement and fine-tuning to rework fundamentally what it is they do.

Nell: It seems that this is a charge you are very much willing to lead. Beyond writing the book, what are you doing to lead the effort to create this fundamental shift in the nonprofit sector?

Mario: I would certainly like to join others in advancing this shift in the social sector and even lead in some areas. But I don’t think I’ve earned the stature to be the leader of a movement of this type. Even with 15+ years in the social sector, some still see me as a newbie!

As I said in the book, to help kick things off I would welcome helping to convene a select group of early adopters who have “been there and done that” and those most instrumental in helping them. I hope that a collective leadership will emerge and offer the beginning of an effort that could put our sector on a different and much more rapid trajectory.

As others began to follow their example, the network effect might well start to take hold. Imagine universities incorporating the outcomes-management mindset and discipline into nonprofit leadership curricula. Imagine funders offering outcomes-management grants to nonprofit leaders who show a real predisposition to use information well, and hiring seasoned staff members who have the expertise to provide strategic counsel and assistance to grantees. Imagine nonprofit leaders and staff joining together in peer-learning networks to share, learn, and push one another. Imagine government funders encouraging and rewarding successful outcomes management through new types of contracts and awards. A cadre of leaders and doers could help spark all of these things—and in doing so, spark a real movement.

Nell: What role can and should philanthropists, both foundations and individual donors, play in the effort to shift the nonprofit sector toward an outcomes approach?

Mario: Funders generally don’t provide the kind of financial support and strategic assistance that nonprofits need to make the leap to the outcomes-management discipline. While a lack of funding is by no means the only barrier, I know many nonprofit leaders who would take up the challenge in a heartbeat if funding, advice, and encouragement were available. The hard truth is that far too many funders have been conditioned to insist that every dollar “support the cause” through funding for programs. They don’t want “overhead” to dilute their grants.

To make the leap to outcomes management, nonprofits need creative funders, like the Edna McConnell Clark Foundation, that are willing to help them manage smarter through greater use of information on performance and impact—rather than forcing them to meet myriad evaluation and reporting requirements that too often do little to help the organization learn and improve. They need funders who understand that making the leap requires more than program funding, and more than the typical “capacity-building” grant. They need funders who are willing to make multi-year investments and offer strategic assistance to help nonprofit leaders strengthen their management muscle and rigor.

Nell: What does an outcomes approach look like for a social service nonprofit with an annual budget of $100,000?  How does this approach apply across the sector?

Mario: It’s hard to adopt this approach if you’re in an organization that small. It would be folly to expect a nonprofit with that budget to have formal outcomes systems, metrics, and the like. That said, I’ve never thought quality and “goodness” were functions of size. Shouldn’t every nonprofit, regardless of its size and infrastructure, have a clear sense of what it’s trying to accomplish, a thoughtful strategy for how it’s going to do so, and some sense of how it will know if it gets there? It’s perfectly understandable that such a small organization may never have crafted a “theory of change” in a formal way, but the organization’s leader needs to have this framework embedded in his or her mind. If not, what’s the rationale for asking others to contribute time and money to support the nonprofit’s work? What’s the basis for asking intended beneficiaries to put faith and trust in the nonprofit’s services?

Nell: What do you think will happen to nonprofit organizations that don’t adopt a managing to outcomes approach? What does the future look like for them?

Mario: They will continue on as they have—at least for a while.

The fiasco with Greg Mortenson and the Central Asia Institute is a cautionary tale. Mortenson had a great story, and for a while his donors took it on faith that his organization was delivering on his grand promises in Afghanistan and Pakistan. Sadly, it appears the organization turned out to be better at fattening Mortenson’s book royalties than building quality programs.

I don’t mean to suggest that all nonprofits are like Mortenson’s! Far from it. But I do mean to suggest that in an era of scarcity, there will be more pressure on nonprofits to show that they are delivering on their promises. More public and private funders will finally look under the hood and ensure things are working well.

Tags: Central Asia Institute, Edna McConnell Clark Foundation, Greg Mortenson, Leap of Reason, logic model, Mario Morino, nonprofit evaluation, nonprofit management, nonprofit outcomes, nonprofit outcomes management, nonprofit overhead, philanthropists, Social Velocity blog interview, theory of change, Venture Philanthropy, Venture Philanthropy Partners

Changing the Nonprofit Sector

One of the big reasons I launched Social Velocity a few years ago was that I saw the potential for the social entrepreneurship movement to leave the nonprofit sector behind. The nonprofit sector is undercapitalized, struggling and at times inefficient, to be sure. But we cannot abandon it. Social Velocity exists to help remake, rework and re-envision our great nonprofit sector. To help it become more effective and sustainable at creating the large scale social change required to solve the mounting list of problems facing our country and our world.

But that kind of change, like any significant change, requires convincing others that there is a better way. To that end, I am often invited to speak to nonprofit boards, staff, associations, conferences, donors about new ways of doing things in the nonprofit sector. I speak on a variety of topics, many of the same topics I cover in the Social Velocity blog.

Some of the topics I can and do speak about are listed below.

I love convincing nonprofit leaders, volunteers and funders that there is a better way, that organizations and their ability to create change can be transformed. Indeed, the future of our country and our world very much depends on the ability of our social change sector to find and execute on effective solutions to social problems. If they aren’t able to perform, then ultimately we are doomed.

If you would like some help convincing your board, staff, donors, colleagues that there is a better way for the nonprofit sector, you can invite me to come speak. It’s one of my favorite parts of my job. Check out more information on our Speaking Engagements, or send an email to info@socialvelocity.net to find out more.

Speaking Topics:

Financing not Fundraising for Social Impact
Based on our popular blog series, Financing Not Fundraising, this topic shows nonprofits a new, more effective way to fund their work. The nonprofit fundraising cycle is a vicious one. Nonprofit staff and boards are worn out with countless events, direct mail letters and grants. There is a better way. This session will explain how to finance, not fundraise for, the social impact your organization wants to achieve. Participants will learn about concrete ways to move their efforts to raise money in a totally new direction, resulting in more money flowing through the doors, a more engaged and effective board, a more energized and integrated staff and ultimately more achievement of the mission of the organization.

Getting Your Board on Board with Fundraising
A nonprofit’s board of directors is often not doing as much as they could to bring money in the door. This interactive session gives board members and nonprofit staff an understanding of how fundraising works in the nonprofit sector, where boards can be most effective, how to get the board excited and engaged in fundraising, and the concrete steps to get them moving.

An Overview of Social Innovation for Nonprofits
This session will give participants an overview of the social innovation movement and the innovative people, organizations and funding vehicles that are solving social problems in new, exciting ways. This session is full of case studies and examples that will give nonprofits a great understanding of this new movement and ideas for how they can approach their work in new ways.

Creating a Successful Fundraising Plan
Without a plan it is very difficult to raise enough money to meet your goals. This session gives participants a roadmap for creating a realistic, achievable, tactical plan for raising the money the organization needs to operate. Participants will learn the steps and begin the process for creating their own annual fundraising plan that they can take back to their board and staff.

Raising Dollars from Individuals
Individual donors are an untapped opportunity for many nonprofit organizations. Individual dollars make up 80% of the private money flowing into the sector, yet many nonprofits don’t have an active individual donor program. This session will give participants a roadmap for finding and cultivating individual donors, communicating effectively with them, engaging them in the work of the organization, and ultimately keeping them invested for the future.

Growing Nonprofit Organizations
As part of the social innovation movement there is a desire among philanthropists to grow what works. Nonprofits are beginning to look at factoral, as opposed to incremental, growth of their programs. But in order to replicate their programs, a nonprofit needs to understand what growth in the nonprofit sector looks like. This session will explore nonprofit growth case studies, discuss how you fund significant growth, and what a growth plan needs to look like.

How to Raise Growth and Capacity Capital
Growth and capacity capital are just fancy terms for the money that is often so hard for nonprofits to find: money to build their organizations. Funders traditionally like to pay for programs and direct services, rather than salaries, infrastructure, technology and systems. However, with a good funding pitch and a strategy for finding funders interested in building an organization, nonprofits can break out of the starvation cycle and start raising money to strengthen their staff, organization and infrastructure. This session will help participants do just that.

Messaging Impact
Philanthropy is changing. More and more donors are interested in funding organizations that can demonstrate impact, as opposed to those that simply talk about organizational needs. If a nonprofit can figure out how to message the impact they are having in the community, they will be much more successful attracting donor investors. This session will explore how to message impact and give concrete ways to more effectively communicate with potential investors.

Photo Credit: project_eastward

What Social Entrepreneurs Can Teach The Nonprofit Sector

I’ve written before that with the excitement around the social entrepreneurship movement there is a danger that we are abandoning the nonprofit sector. Indeed, there is sometimes a tendency to dismiss the sector that was working on social change long before it was “cool”. Often the older nonprofit sector is left behind, partly because the sector tends to be risk- and change-averse. Again and again, I’ve heard that innovation will never become part of the nonprofit system — that nonprofits are too set in their ways. Or that the sector is too broken to emerge anew.

That attitude, though, is unacceptable. 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. The nonprofit sector has tremendous potential for innovation. Indeed, without innovation in the nonprofit sector, 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.

To that end, Social Velocity is hosting a webinar on July 12th, titled “What Nonprofits Can Learn From Social Entrepreneurs,” which will help nonprofit leaders understand the new models, funding approaches, messaging, systems that social entrepreneurs are employing to create social change. If nonprofit leaders can understand this new movement and integrate some of the ideas into their work, they can achieve more social change.

This webinar will help nonprofit leaders understand the social entrepreneurship movement and the innovative people, organizations and funding vehicles that are solving social problems in new, exciting ways. It will help nonprofit leaders understand what they can do to keep up, and how to make their own organizations more innovative, attract new kinds of funding, and achieve their social change goals more effectively.

The webinar will include:

• Case studies of nonprofit and for-profit social entrepreneurs
• Examples of philanthropists and social investors who are funding social change in new ways
• How social entrepreneurs are becoming more effective at making a case for support
• What the social capital market is and how it’s evolving
• What new foundation funding vehicles like “mission-related” and “program-related” invesments are
• What “venture philanthropy,” “philanthropic equity,” and “growth capital” are and how to organizations are using them to grow their organizations
• New models nonprofit growth
• New legal structures for social change organizations
• Inspiration for taking your organization to the next level

What Nonprofits Can Learn From Social Entrepreneurs
A Social Velocity Webinar
Tuesday, July 12, 2011
12 noon – 1:00 pm (EST)
Registration Fee: $40

Register Now

I hope to see you there!

Photo Credit: katrinalopez

Tags: abandoning the nonprofit sector, innovation in nonprofit sector, nonprofit growth capital, nonprofit learning from social entrepreneurs, philanthropic equity, social capital market, Social Entrepreneurship, social innovation, Social Investing, Social Velocity webinar, Venture Philanthropy

10 Great Social Innovation Reads: May

In our ongoing blog series, 10 Great Social Innovation Reads, below are my top 10 picks for the best reads in the world of social innovation in May.

But I’m sure I missed some great stuff, so please add your favorites from the past month in the comments.

1. Three new books released recently argue in various ways that philanthropists need to get better at giving money away. The Economist gives us the skinny: Giving for Results.
2. News organizations are having to reinvent their funding models, some of their innovative ideas for bringing money in the door could spark some thinking in the nonprofit world: Going beyond grants: Eight new ways news nonprofits are raising revenue.
3. The Dowser blog argues that recent efforts to re-imagine the great American city aren’t bold enough: Creating the Sustainable City: Are Imagination and Leadership Enough
4. Newsweek investigates the philanthropic investments billionaires have made in American public schools and claims that the results of those investments have come up quite short: Back to School for the Billionaires
5. New Google research on people’s use of smartphones holds some interesting lessons for nonprofits.
6. Any entrepreneur, social or not, has to fight moments of depression on the road to social change, the A Smart Bear blog tells us how to Fight Mini-Burn Out.
7. From Amy Sample Ward, nonprofit social media maven, comes a great post about crowdsourcing versus community-sourcing and how and when nonprofits should take advantage of each.
8. In a recent interview, Robert Egger, founder of DC Central Kitchen, argues that nonprofits need to rethink how they position themselves in order to really “move the needle”
9. Nonprofit Tech 2.0 gives us Six Online Fundraising Tools You May Never Have Heard Of
10. The Nonprofit Finance Fund is doing something pretty exciting with capital. They are directing $10 million in “change capital” to 10 performing arts organizations to help them “prepare for future growth and make changes to the way they operate.” NFF has a special page with resources and case studies about what they are doing: The Case for Change Capital in the Arts.

Photo Credit: Robby van Moor

Tags: 10 Great Social Innovation Reads, American cities, Amy Sample Ward, DC Central Kitchen, funding for arts organizations, new ways to fundraise, nonprofit change capital, nonprofit crowdsourcing, Nonprofit Finance Fund, nonprofit growth capital, nonprofit use of mobile, online fundraising tools, philanthropists, Philanthropy, Robert Egger

A Case Study in Raising Money to Grow On

Last fall I wrote a blog post arguing that small nonprofits need access to philanthropic equity (money to build their organizations) just as much as larger, more sophisticated nonprofits do. My post was in response to George Overholser’s Social Velocity blog interview where he argued that philanthropic equity (or growth capital) campaigns, where a nonprofit is raising money to build the infrastructure of the organization, are not feasible for small nonprofits. George’s argument and my subsequent post set off a chain of events that led Social Velocity to work with Charlotte Chamber Music to plan and prepare for a philanthropic equity campaign. Over the course of the next several months I will give you an insider’s view of our work with CCM in order (I hope!) to prove my argument that philanthropic equity campaigns can and should be accessible to any nonprofit that has a vision for something bigger and the determination to put that vision to action. Today is the first post in this Raising Money to Grow On series.

In George Overholser’s September 2010 Social Velocity interview he argued that philanthropic equity campaigns just aren’t feasible for small nonprofits:

What about the small organizations that DO aspire to undergo a big transformation?…I believe that it is absolutely vital that we come up with a way to better capitalize these smaller organizations. Sadly, though, at this stage of capital market evolution, it is still quite expensive to prepare for a successful nonprofit equity campaign. Unless several million is being raised [the costs are] prohibitively high. This constrains us to campaigns of $5 million or more, which, in turn, constrains us to organizations that are already pretty large.

A Social Velocity blog reader, Elaine Spallone, Executive Director of Charlotte Chamber Music took issue with George’s argument and responded in the comments:

As the ED for a very small nonprofit (<$300K) I am greatly disheartened to essentially read “yes, we can cure the large guys, but for the rest of you -80% – well good luck! No answers for you yet.” WOW…Really is education and awareness for buyers to support the whole organization vs. its programs enough? (Although I agree wholeheartedly, a needed step.) I believe there has to be a way to “create compelling ‘asks’ for equity capital” that is less expensive. There has to be way to finance a small organization’s desire to meet the needs of the community, which could mean doubling their impact. We are asked to relearn, redo, change our practices to support (finance) the organization’s mission to change the world, but is no one considering the relearning, redoing or changing the expensive processes/methods so all nonprofits can benefit?

Since that is exactly why I launched Social Velocity, to help smaller nonprofits benefit from new ideas like philanthropic equity, Elaine and I began to talk about the challenges that Charlotte Chamber Music was facing.

Elaine felt that CCM was stuck. As a small, but beloved arts organization they had a great product, but they couldn’t get beyond the vicious cycle of never having enough money, never being able to expand their presence and impact. They had a solid board, and a great vision for the future, but lacked philanthropic equity to build the organization to achieve that vision. They had been talking to consultants about conducting a capital campaign to raise money for a permanent artistic director and a new or refurbished building. As Elaine recalls:

At first, we thought we had to launch a major campaign to raise funds for an Artistic Director- that was our major missing piece, and we seemed lost as to how to make that leap in securing significant funds. That is where we were stuck — for over a year.

But I counseled Elaine that they couldn’t get unstuck until they created a strategic direction and plan to get there that included the various infrastructure elements they needed to get to the next step. Again, Elaine recounts:

What Nell helped to clarify in the beginning is that investing in infrastructure will change our picture. It’s not just about one person [an artistic director]. We were a step ahead of ourselves. To get there, we needed to create the compelling plan for philanthropic equity…we were missing a huge step by not having a detailed plan for our future.

I suggested that they launch a philanthropic equity campaign, to raise money for an artistic director, fundraising infrastructure, technology, systems, all the things they needed to build a more effective, sustainable organization. But, before they think about a philanthropic equity campaign, they needed a compelling strategic direction and a plan for getting there. Because people don’t invest significant money in an idea, they invest in a coherent, compelling, executable, exciting, measurable plan for the future.

We put together a proposal for how Social Velocity could help Charlotte Chamber Music create

1. A compelling, investable strategic plan, and
2. A pitch and prospect strategy to raise the philanthropic equity needed to execute on that plan.

Elaine then went to her board and a few key major donors to make the case that in order to get out of the vicious starvation cycle, expand their impact, and become the top-tier arts organization they knew they could be, they had to invest in an organization-building process. A couple of key donors stepped up to make the investment to hire Social Velocity.

In the next post in this series, I’ll discuss how we went about creating a compelling, investable strategic plan and the pivotal moment when Charlotte Chamber Music realized that they had a tremendous opportunity to develop a new model for the 21st century arts organization.

Photo Credit: naitokz

Tags: build vs. buy, building nonprofit capacity, Charlotte Chamber Music, funding for arts organizations, fundraising for capacity, fundraising for growth, George Overholser, nonprofit growth capital, nonprofit starvation cycle, philanthropic equity, raising growth capital, Social Velocity blog interview, strategic planning for nonprofits