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Donors Forum

Making Nonprofit Giving Smarter: An Interview With Jacob Harold

Jacob HaroldIn today’s Social Velocity blog interview, I’m talking with Jacob Harold, CEO of GuideStar, the clearinghouse of information on nonprofits. Jacob came to GuideStar from the Hewlett Foundation, where he led grantmaking for the Philanthropy Program. Between 2006 and 2012, he oversaw $30 million in grants that, together, aimed to build a 21st-century infrastructure for smart giving. Jacob was just named to the 2014  NonProfit Times’ Power and Influence Top 50.

You can read other interviews in the Social Velocity Interview Series here.

Nell: It has been over a year since the Letter to the Donors of America about the overhead myth. Where are we today in getting donors (and board members) to understand that overhead is a destructive mindset? 

Jacob: I’m glad to report that the response to the first overhead myth letter far exceeded our expectations. Hundreds of articles have been written about the letter. It comes up almost every time I hold a meeting or give a talk. For at least a few people, I think it’s been a deep affirmation of something they’ve known a long time. And, indeed, many others in the field have been working on this: the Donors Forum, Bridgespan, the National Council on Nonprofits, and others.

But we also know that we have a long road ahead of us. The overhead myth is deeply ingrained in the culture and systems of the nonprofit sector. It will take years of concerted effort for us to fully move past such a narrow view of nonprofit performance to something that reflects the complexity of the world around us. But it’s essential if we want to ensure we have a nonprofit sector capable of tackling the great challenges of our time.

Nell: The Letter to the Donors of America was obviously focused on the donor side of the problem, but how do we also change the mindset of those nonprofit leaders who perpetuate the Overhead Myth in their reporting, conversations with donors and board members, etc.?

Jacob: This is a critical aspect of the challenge. Every year nonprofits send out something like one billion pieces of direct mail to donors that prominently display their organization’s overhead ratio. It’s no wonder that donors think that’s a proxy for performance—we’ve trained donors to think so!

That’s why the CEOs of Charity Navigator and BBB Wise Giving Alliance and I are currently working on a second overhead myth letter—this one to the nonprofits of America. We’re still finalizing the text, but in it we will be calling on nonprofits to be more proactive about communicating the story of their programmatic work, their governance structures, and the real costs of achieving results. And, more, we want to recruit nonprofits to help us retrain donors to pay attention to what matters: results. In the end, that means that nonprofits have to cut the pie charts showing overhead versus program—and instead step up to the much more important challenge of communicating how you track progress against your mission.

Nell: At the Social Impact Exchange Conference you announced some pretty exciting plans with the GuideStar Exchange to, in essence, create a marketplace of information about nonprofits so that the best nonprofits receive more resources. Talk a little about your plans for the Exchange, and most importantly, how you plan to bring nonprofits and donors there.

Jacob: The GuideStar Exchange is our mechanism for collecting data directly from nonprofits. By going straight to nonprofits we can build on the data we already have from the IRS Form 990. The 990 is a regulatory document, it’s not meant to offer a comprehensive view of nonprofits and their programs—that’s what we’re trying to do with the Exchange. And it also lets us get information much more quickly!

So far we’ve had great success. More than 100,000 nonprofits have shared data with us through the GuideStar Exchange and more than 38,000 have reached one of what we call our participation levels—Bronze, Silver, or Gold. But we have a long way to go if we want to approach a comprehensive view of the marketplace. So we’re adding new incentives for nonprofits to share data through the Exchange, building new ways to distribute that data through other channels and improving the user interface to make the process easier. Right now we’re collecting quantitative financial data and qualitative programmatic data but later this year we’re going to release a tool for collecting quantitative programmatic data, too.

This comes back to the overhead myth campaign. If we’re going to ask donors to go beyond the overhead ratio when considering nonprofits, we have to offer an alternative. GuideStar Exchange is a critical part of that alternative: a chance for nonprofits to tell their story in a structured way that forces them to articulate in clear terms what they’re trying to accomplish, how they’ll get there, and how they’ll measure progress along the way.

Nell: The Money for Good reports that came out a couple of years ago rather discouragingly found that the majority of donors don’t give based on nonprofit results. With the GuideStar Exchange you obviously think that is changeable, so how do we go about changing donor interest and behavior?

Jacob: Well, I had a different read of that data. It is absolutely true that the Money for Good research showed that most donors don’t give based on nonprofit results. But it also showed that a significant portion—about 15%, depending on how you cut the data—do. That may not seem like much, but that represents 30 million people responsible for close to $40 billion in annual giving. So there’s already a huge unserved market, even if it represents a small portion of the entire system of philanthropy.

And at GuideStar we see this every day. We have 7 million unique users a year. And that’s just on our website, our data was used another 22 million times on other platforms last year through just one of our distribution mechanisms. So people want data. And as we get more and more programmatic data—data that is oriented towards results against mission—I’m absolutely confident that we’re going to unlock new behaviors among donors, nonprofit executives, journalists, and others. The nonprofit sector is about to enter a new phase, and I think it’s going to be remarkable.

Photo Credit: GuideStar

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Debunking the Nonprofit Overhead Myth: An Interview with Laura Zumdahl

Laura ZumdahlIn this month’s Social Velocity blog interview, I’m talking with Laura Zumdahl, Vice President of Nonprofit Services at Donors Forum. Donors Forum provides networking, education, leadership and advocacy for philanthropists and nonprofits in Illinois. Laura provides leadership to Donors Forum’s efforts to strengthen nonprofits. I wanted to talk to Laura and Donors Forum primarily because of their innovative work bringing nonprofits and philanthropists together to talk about the real costs (including administrative costs) of creating social change through their Real Talk about Real Costs effort I highlighted earlier this year.

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

Nell: What was the impetus for Real Talk about Real Costs and what is your ultimate goal with the project?

Laura: We’ve long known “overhead” has been a challenge in the nonprofit sector. Over the past few years, we’ve been engaged in some conversations and education about overhead and the “starvation cycle” that encumbers nonprofits, but it had been in fits and spurts.

In 2012 Donors Forum decided we needed to do more to directly address the issue with our membership and see what kind of change we could make locally on this tough issue. So we launched a “Community of Practice” focused on bringing together a group of dedicated funders and nonprofit leaders to tackle the issue over the course of a year through education, sharing of stories, and collective action to move the needle on funding nonprofit overhead.

Ultimately, we want to see change in the sector related to funding the full cost of service delivery. We want nonprofits to be able to understand and articulate their true costs of delivering their missions, and we want funders to understand those costs and fund organizations accordingly. We want funders to invest in the impact they can have with their dollars, not just a limited portion of a program that doesn’t include the real costs. For nonprofits to have a greater impact, they need to have their mission fully-funded.

Nell: The underlying assumption behind Real Talk about Real Costs is that it is possible to get nonprofits and funders to talk openly and honestly with each other. But that is something that rarely occurs in the sector because of the power imbalance between grantor and grantee. How do you overcome that imbalance and get to open, honest, productive conversation?

Laura: The power dynamic you articulated is often a huge barrier for authentic, productive conversations between grantors and grantees. We recognize that as part of the challenge of this work and know that we are only going to make change by helping people to shift that in their own work and experience so they can understand the perspective of the “other”.

When we first started this effort we formed a community of practice comprised of about 30 leaders – half grantors and half grantees. This community spent a year coming together every six weeks or so to learn more about overhead cost issues, hear each others’ stories about the challenges related to their work, and develop relationships. We intentionally focused on helping them to create a trusting and safe space where they could understand and learn from each other. It’s not easy to get to open and honest conversation when power dynamics are at play, but we saw this happen when we were deliberate about getting a commitment from participants to engage in this way and create a space for them to develop relationships and trust to allow these conversations to take place.

Nell: What are your plans, or do you have any plans, to take these conversations to a national level? How do we encourage these conversations beyond Illinois?

Laura: We do! We are continuing to work with our national partner, The Bridgespan Group, on the ongoing conversations at the local level in Illinois. We plan to launch another community of practice later this year, which will continue this work that has evolved over the past few years. We also are working with other great national partners, such as Guidestar and Grantmakers for Effective Organizations (GEO), to take the conversations to a national level and encourage change in other locations, not just Illinois.

We need to encourage these conversations across the country – and that happens when people take the risk to build relationships that enable authentic conversations so stories can be shared and nonprofits and funders can work together to make change on how we address the issue of overhead costs in the sector.

Nell: What do you make of Guidestar, Charity Navigator and BBB Wise Giving Alliance’s recent Pledge Against the Overhead Myth? How do you think their efforts will affect donor actions?

Laura: We were thrilled to see Guidestar, Charity Navigator, and BBB Wise Giving Alliance make such a strong statement to the donors of America. Their recognition of how overhead rates can be wrongly used as a measure of effectiveness helps to raise awareness about this misconception and the importance of donors investing in impact.

Their leadership on this issue and the pledge that they’ve asked donors to commit to is an important step in helping to clarify the myths that have long surrounded overhead costs. They are looked to by many donors for signs of what to consider when selecting nonprofits to invest in, and their plea to donors to consider the real cost of outcomes and impact of an organization – not just a ratio that doesn’t tell the whole story – is a clear directive that we hope will affect both individual and institutional donors substantially.

Nell: What do you think it will take to really move the needle and get a majority of donors to recognize and invest in real nonprofit costs?

Laura: Change is hard when you are trying to affect behavior in a whole sector, so it’s not going to happen overnight. It’s a long process of affecting change in some areas that can build and eventually influence others to reconsider how they invest in real costs. We believe that if we can take the lead on making change in Illinois and share that experience with others, it’ll eventually help to influence behavior in other geographic areas across the country – hopefully leading to a wide-spread sector shift somewhere.

Several years ago nonprofits and funders weren’t talking about this issue together – and now, in some small pockets – they are. That’s a step in the right direction. And those of us in the sector need to support this work by making a personal commitment to address the myths around overhead whenever we can so we are part of making change happen.

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Getting Real About Nonprofit Overhead Costs

Getting Real About Nonprofit Overhead CostsThere is something pretty interesting going on in Illinois around nonprofit overhead costs. I have written many times (here and here for example) about how the distinction between “overhead” and “program” costs in the nonprofit sector is meaningless at best, and destructive at worst.

I’m really excited to see that the Donors Forum in Illinois is starting to host real conversations between nonprofits and philanthropists about the Real Costs (including administrative costs) necessary to create effective social change.

With the help of the Bridgespan Group, in March the Donors Forum brought nonprofits and philanthropists together for a one-day discussion about real costs in the nonprofit sector. They want funders to understand that it is not enough to fund only nonprofit programs. In order to create effective social change, nonprofits must also be able to fund the infrastructure, staffing, space, tools, and research costs of their work.

The image above is a graphic facilitation of the March session. The Donors Forum has also developed a great website with resources for nonprofits and philanthropists about real costs, including Ann Goggins Gregory and Don Howard’s seminal article in the 2009 Stanford Social Innovation Review “The Nonprofit Starvation Cycle,” reports and resources about nonprofit fiscal fitness, Grantmakers for Effective Organization’s study on how philanthropy is changing, and much more.

As part of their efforts, the Donors Forum has also put together this video that helps to explain, in very clear terms, the critical importance of funding ALL of a nonprofit’s costs:

I’m excited to see where this conversation goes and whether more nonprofits and philanthropists start having open, honest conversations about what it really takes to create lasting social change. I’m hoping to interview Valerie Lies, President and CEO of the Donors Forum, later this year about this initiative and where they hope to go from here. So stay tuned.

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