I love this time of year. Not just because of the approaching space for relaxation, friends and family, and great food, but more importantly because it is a time for reflection. The end of the year offers a natural analytic marker between what was and what is yet to come.
And as is my end of the year tradition on the blog, it’s a time to look ahead to what the coming year might bring for the nonprofit sector. I’ve always said when I create my Trends to Watch lists that I am less clairvoyant and more optimist. I am always hopeful that the nonprofit sector is growing more effective, more sustainable, more able to create lasting social change. That’s the trajectory that (I freely admit) I am predisposed to see.
So here are 5 things I’m really hopeful about the nonprofit sector as we head into the new year.
- Growth of the Sharing Economy
The emerging “sharing economy,” where a good or service is shared by many instead of consumed by one and managed largely through the use of social technologies (think AirBNB, Netflix, TaskRabbit and countless others), will have wide implications for the social change sector. The sector that employed “sharing” long before it was cool will need to understand this changing environment and the implications for their work. Nonprofits should figure out how to navigate this growing interest (and increasing for-profit competition) in the realms of community and goodwill. It will be fascinating to watch.
- More Focus on Crowdfunding
One element borne out of the sharing economy is crowdfunding, and there is no doubt that it is everywhere. I have written before about my skepticism. But my hope is that crowdfunding will move away from ALS Ice Bucket Challenge-like hype and become another financing tool that nonprofits can use strategically. We need to get smarter about what crowdfuding is, and what it isn’t. A Kickstarter campaign makes sense for startup and other capital needs, but not for ongoing revenue. And while Giving Days are exciting, I’d like to see more analysis of what’s new money and what is cannibalized money. There is no doubt that crowdfunding is a force to be reckoned with, I just hope we turn it into a useful, strategic tool that contributes to — not detracts from — sustainable social change financing.
- Decreasing Power of the Overhead Myth
The Overhead Myth, the destructive idea that nonprofits should spend as little as possible on “overhead” expenses (like infrastructure, fundraising, and administrative costs) was laid bare in 2013 when GuideStar, CharityNavigator and BBB Wise Giving Alliance wrote their famous Letter to the Donors of America. This year they wrote a follow up Letter to the Nonprofits of America, arguing that both nonprofit leaders and donors must stop judging nonprofits by their overhead rate and instead focus on a nonprofit’s outcomes. It’s exciting to see this most detrimental of nonprofit myths beginning to crumble, but there is still much work to be done. Not least of which is helping nonprofits articulate and measure their outcomes so that they have a more effective measure with which to replace the overhead rate.
- Growing Emphasis on High Performance
Which brings me to the growing movement for creating more high performing nonprofits. Over the past several years there has been an emerging effort to move nonprofits toward this outcomes approach to their work. The idea is that if nonprofits can better articulate and measure the social change they seek, more resources, sustainability and ultimately more change will follow. In the coming year, a group of social sector leaders (of which I am a member) will release a framework for what practices constitute a high performing nonprofit. But that is just one example of a growing emphasis in the social change sector on results.
- Greater Investment in Nonprofit Leadership
Nonprofit leaders have long traveled a lonely road with inadequate support and resources. Funders and board members often assume that a leader should go it alone, even while for-profit leaders benefit from on-going coaching, training and development. But that is starting to change. A few savvy foundations have invested in nonprofit leadership, and they are beginning to trumpet the benefits of such investments. As more funders understand why investing in the leaders of the nonprofits they fund makes sense, I am hopeful that nonprofit leadership support will become less of an anomaly. And with stronger, more effective and supported leaders comes — I firmly believe — more social change.
Photo Credit: slorenlaboy
I have to be honest. I am so sick of hearing about the ice bucket challenge that I am loathe to write about it. But I wonder if many in the nonprofit and philanthropic sector are falling victim, yet again, to shiny object syndrome, so I feel compelled to say something.
To me the ice bucket challenge is yet another example of what happens so often in the world of fundraising. Nonprofit board members and staff hate fundraising, so they desperately search for a magic bullet to make it all go away.
Sometimes that magic bullet is “an endowment,” sometimes its “earned income,” more recently it has been “crowdfunding.” This month it’s a form of crowdfunding taken to the extreme, the ice bucket challenge. Some have been so swept up in the hype that they have gone as far to say that the challenge is “rewriting the charity model.”
The reality is that if you want to create social change you need to develop a sustainable financial model that aligns with your long-term goals. It’s not sexy, it’s not easy, and I’m probably one of the few people on this planet who thinks it’s fun. But there it is.
While many nonprofits are scrambling to figure out how to create their own ice bucket challenge, and some thought leaders are offering tips along the way, maybe we should all just take a step back.
Let’s be very clear. ALS’s close to $100 million windfall is not a revenue stream. It is a one-time infusion of money. Yes, ALS may try to replicate the ice bucket challenge on a regular basis, but the stars will never align in quite the same way, people will move on to the next shiny object, and the money will eventually fade.
Because this pile of money is not a revenue stream, ALS can’t and shouldn’t add long-term staffing or programming because the money won’t be there next year. At the same time, they probably can’t create an endowment because the donors’ intent was not for the money to sit in a bank account. Regranting the money is also tricky, again because donor intent was for it to go specifically to ALS. In all of this ALS will be under the microscope, because as Ken Berger of CharityNavigator cautioned, a year from now everyone will be asking where the money went.
One of the few paths that I see for ALS is to treat the money like capacity capital. This could be an opportunity to invest some of the windfall in building a stronger organization by investing in technology, infrastructure, and systems. And they could do the same for their affiliates. They could require capacity building plans and budgets and invest in those plans accordingly. They could, in essence, create a $100 million capacity capital investment fund for the ALS system.
But the point is that far from being a great thing that all nonprofits should strive to emulate, the ice bucket challenge creates a complex and potentially damaging problem.
So instead of spending board and staff time trying to dream up the next ice bucket challenge, please, please, please spend that time and those resources building your financial model, by creating a long-term financial strategy, raising capacity capital to build your revenue-generating function, developing a compelling strategic plan in which people will want to invest, and growing and educating your board.
These are the ingredients for a robust, sustainable financial model. Not a bucket of water, a video camera, and a social media stream.
Photo Credit: StoiKNA
In this month’s Social Velocity blog interview, we’re talking with Craig Newmark, the founder of craigslist, the web-based platform that has fundamentally changed classified advertising. In early 2011, Craig launched craigconnects, his initiative to link everyone on the planet using the Internet in order to bear witness to good efforts and encourage the same behavior in others.
You can read past interviews in our Social Innovation Interview Series here.
Nell: You seem to be a different breed from other high-tech philanthropists. What is your philosophy about philanthropy? For you, what’s the best way to do it?
Craig: I’m a nerd, and can be somewhat simplistic. If there’s some area where I can help, I should to that. My broad theme is “technology for good”, where people work together using social media for the common good. So, I proceed on that basis, finding groups who are good at something, usually using tech, at least using social media for outreach, fundraising and more.
Nell: Why is Craigslist Foundation winding down? How and why did you come to that decision?
Craig: I’m not really a part of CLF, and I think the consensus was that it had run its course, and had accomplished a lot.
Nell: With Likeminded and craigconnects you obviously have an interest in making the social sector more transparent and integrated. Do you think that is happening? Are those working on social change (nonprofits, foundations, social entrepreneurs, social investors) getting better at sharing information and what will encourage that?
Craig: I feel that people in the social sector are starting to work together in more and better ways, but it requires folks like me to nudge them together. In particular, I’m chatting with nonprofits about promoting each other in social media, with little success so far.
Nell: A big part of craigconnects is to get nonprofits to collaborate more effectively. Collaboration is often a tricky concept in a sector where the reality of scarce resources breeds constant competition. How do you reconcile collaboration and competition in the space?
Craig: I don’t know yet, but will figure it out, with lots of help.
Nell: Part of the craigconnects model is that you vet the nonprofits that you showcase there based on ratings services like CharityNavigator and GuideStar, so what do you make of recent efforts to move nonprofit ratings systems to outcomes as opposed to use of funds? What are your thoughts on how we create meaningful ways to evaluate nonprofits?
Craig: I think that real measures of nonprofits will involve their effectiveness, but the means of doing so are still under development. Charity Navigator, GuideStar and GreatNonprofits are making real progress.
There were lots of great discussions and developments in the world of social innovation in September. So much so, that I had a really hard time narrowing down to ten. But alas, here are my top 10 of the last month. As always, please add what I missed to the comments. If you’d like to see the expanded list of what catches my eye, follow me on Twitter @nedgington.
You can also read the lists of Great Reads from previous months here.
- Two really interesting divergent reports on the results of social change work. First, a $1 million, 6-year study of nonprofit After School Matters shows that the program doesn’t really change lives.
- And a year after Facebook founder, Mark Zuckerberg’s $100 million grant to Newark public schools, some positive results are trickling in.
- After the August resignation of Steve Jobs from Apple due to health reasons, people came out in droves to criticize him for his poor philanthropic record. Dan Pallotta rose to his defense, arguing, in a thought-provoking way, that Jobs’ contributions to the world at large make him the World’s Greatest Philanthropist.
- In an exciting move to kick-start social impact bonds (a government bond that allows private investors to invest capital in nonprofits and then gain a return if the nonprofit achieves promised outcomes), the Rockefeller Foundation granted Social Finance $500K to develop the social impact bond market in the US.
- September was the month of the 4th annual Social Capital Markets Conference that brings social entrepreneurs and the funders of social entrepreneurs together. Over the course of the four SoCap conferences there has been a recurring tension between philanthropy and impact investing. Adin Miller reported from SoCap that the great convergence between philanthropy and impact investing has disappointingly not yet happened.
- The Washington Post shows us the devastating impact of the economic crisis in five charts.
- At long last, CharityNavigator, one of the best known nonprofit rating systems, unveils their Charity Navigator 2.0, an expanded rating system that includes financial health, accountability, and transparency measures. Every nonprofit should understand this important change and what it means for their organization.
- Lucy Bernholz discusses a fascinating distinction between problems and difficulties and the implications for social change efforts. “Problems have solutions; solve them and problems go away. Difficulties don’t have solutions; they require continual address.”
- On the Harvard Business Review blog Lucy Marcus argues In Troubled Times, Boards Must Step Up.
- In a similar vein, Mario Morino from Venture Philanthropy Partners argues that Board Members Cannot Check Their Courage at the Door.
Photo Credit: MMcQuade