In this month’s Social Velocity interview we are talking with Anna Land, founder of Heart House, a nonprofit after-school program for low-income children with some pretty impressive results and big plans for growth.
Anna and her board are looking to expand Heart House to 5 Texas cities and increase the number of kids served by almost 20 times in the next 10 years. She is currently shopping her growth plan around to philanthropists. Anna has some interesting insights about raising nonprofit growth capital, particularly from philanthropists who have never heard of the concept. Full disclosure: Social Velocity helped Anna put together her growth capital pitch to prospective funders last year.
You can read our past Social Velocity interviews here.
Nell: You started Heart House several years ago and had great success in Austin and Dallas, serving 500 children each year. What made you suddenly think about going statewide and growing the program to 9,000 children by 2020?
Anna: The leadership has been thinking about this since 2004 when we were at our 4 year mark and felt that we had some compelling, consistent data that indicated that we were on to something, and perhaps should begin working on replicating and scaling to serve more children.
In 2005 I was selected for the Community Sabbatical Research Leave Program, created and administered by the Humanities Institute at The University of Texas, which provided time, resources and faculty advisors in order to study effective growth strategies of successful nonprofits. I was fortunate to be paired with the perfect mentor, Dr. Sarah Jane Rehnborg of the LBJ School of Public Affairs. We interviewed 10 regional and national organizations at both the headquarters and local levels to discover best practices and essential infrastructure elements.
Next, the staff of Heart House articulated our core values, our vision for the future, and a set of minimum quality standards. We also began the ever-expanding work of codifying our model. We plan to complete our “Heart House in a Box” in time for our 3 new centers scheduled to open in 2011. We also created the Gateway database which allows us to track weekly data across multiple sites. The Webber Family Foundation, the Michael and Susan Dell Foundation, and the KLE Foundation funded this early capacity work.
Next, in 2008, the KDK-Harman Foundation convened four organizations to develop their growth plans in a peer group environment. It was fabulous to work alongside Maile Broccoli-Hickey from English at Work, Melanie Moore from Badgerdog Publishing, and Kathrin Brewer from Austin Partners in Education.
And that’s the point in time where I met you, Nell. The KDK-Harman Foundation paired Heart House with Social Velocity, and you worked with me to turn our growth plan into a growth pitch. My mentor, Gregg Burt, serial entrepreneur and CEO, agreed to chair the statewide expansion initiative.
Nell: You are currently out raising growth capital, which is a pretty foreign concept to most philanthropists. How are you faring? Is the concept gaining some traction?
Anna: It’s certainly true that growth capital is still a new concept in Central Texas but I’m hearing more and more these days about the need for this investment – that’s encouraging to me. I think this evolution is thanks to influence from two sectors: 1) emerging philanthropic funding models from the East and West coasts, and 2) the vibrant VC community in Austin.
In his Stanford Social Innovation Review article, “Money to Grow On,” William Foster suggests that grantmakers follow the approach of venture capitalists when making investments: high performing organizations with proven success should be rewarded with funds needed for ramp-up and to achieve long-term social change. It may feel that Central Texas is slow to embrace this philosophy, but when I consider the relatively young age of Central Texas foundations, operating with little or no staff, we have some true thought leaders who are actually evolving rapidly in “foundation time.”
So, how are we faring? Pretty good – we have 40% of the investment needed to get us to the point where the model no longer needs outside investment to support expansion efforts. We believe we can fill the gap with a small group of investors.
Nell: What do you do to overcome discouragement when you meet with potential funders who don’t understand what you are trying to do? How do you motivate yourself to continue to go out there day after day to raise growth capital?
Anna: I believe that this growth is meant to be. I believe there are plenty of funds available for Heart House to serve 18x+ more children. I believe our expansion is a vision and a promise that God has put in our hearts. And I believe that we can achieve what we can conceive.
The visualization I keep front of mind is that of walking across a vast ocean. When I and my team walk forward with confidence, the stones rise up in front of us to form the next steps of the bridge. When we stop walking due to fear, the stones stop rising. Efforts to monkey around with the walk too far ahead of us also are unsuccessful. We have a clear sense of direction and purpose, but we do not have to control every element and form the path takes because we know that it will all work out the way it is supposed to.
Doing our part is an important part of this philosophy. We must remain abundance-minded, we must work hard every day to keep the trust of the donors and the families we serve, and we have to inspire and influence all that we come in contact with.
Naturally, as a human, I have days where I am discouraged, tired or fearful, but when I stay in abundance, finding this capital becomes a combination of a hunt and a matchmaking game. When a donor says no, I mentally thank them for being one more no that puts me one step closer on the path to the perfect donor. And when I feel particularly sorry for myself, I reread the biography of someone like Elizabeth I or John Adams. What do I have to fear compared to the challenges they faced? I am lucky to be able to do this fun and engaging work alongside such talented and inspiring cohorts.
Nell: What do you think holds other nonprofits with a great model back from undertaking dramatic growth?
Anna: Fear is the biggest growth inhibitor. If it has been determined that growth is a sound strategy, but the leadership does not want to undertake that growth, I would say that that leadership believes that the risks of growth– real or perceived – outweigh the reward. The larger your vision, the larger your exposure to failure – sometimes very public failure. An organization has to be ready for grand success as well as some skinned knees.
Other growth inhibitors can be broadly categorized as lack of financial capital or human capital. Specific to the Heart House model we have:
- Lack of available space that meets our minimum clubhouse location standards
- Lack of efficient and scalable infrastructure — To date, Heart House has put 85% of its policies, procedures, and practices into our “Heart House in a Box” implementation kit. However, we still must refine and tighten the remaining infrastructure elements by end of 2011.
- Lack of funding specifically for growth groundwork, quality control, and other central services, often thought of as “overhead” by philanthropic funders (but not business funders)
Nell: What does it take to prepare an organization for growth? What are the elements required to scale?
- Leadership with vision, accountability and integrity
- Commitment to and resources devoted to maintaining the highest quality across the organization
- Repeatable processes and procedures
- Efficient and scalable infrastructure that supports dramatic growth
- Broad, diverse and sustainable funds for growth
- Recognizable and influential brand presence
Nell: How do you balance the day-to-day running of your nonprofit with your other full time job of planning, raising money for and executing growth?
Anna: I tried that for a while, and it was unmanageable. We now have city leaders (known locally as executive directors) that report to me directly, and manage the day-to-day operations and fundraising, while I and a small staff plan, raise money for, and execute on the critical elements listed above.
Nell: What needs to change in the nonprofit sector and in the philanthropy that funds it in order for more growth of successful solutions to happen?
Anna: Putting in place the strategy, infrastructure, funding, and, above all else, the leadership required successfully scale organizations. Why is the investment in growth seen as “overhead” for nonprofits, but a no-brainer for for-profit companies? As Nancy Roob and Jeffrey Bradach point out in their article, “Scaling What Works”, the effect of this bias is “an organizational form of chronic fatigue syndrome that burns out nonprofit leaders and compromises their ability to address social problems…There is no more powerful way to address many of society’s most important challenges than to harness what we now know works and make sure those solutions reach those who need them.”
var _gaq = _gaq || ; _gaq.push(['_setAccount', 'UA-6524244-1']); _gaq.push(['_trackPageview']);
One of my favorite organizations and a critical player in the creation of a well-capitalized nonprofit sector, the Nonprofit Finance Fund, is seeking feedback. NFF is a community-development fund that makes millions of dollars in loans to nonprofits and pushes for fundamental improvement in how money is given and used in the sector. Last March they published the results of a survey about how the recession is affecting the nonprofit sector. They plan to conduct a similar survey this spring, and, in a bow to crowd-sourcing and transparency, are soliciting feedback on questions to ask in this year’s survey. They are soliciting this feedback through comments left at the Tactical Philanthropy blog.
Last year’s survey was a good one, but a key element was missing. The survey focused solely on the challenges that the recession brought. Question after question had a similar pessimistic, constraint-filled theme. For example the only options available to a survey respondent in the question “To successfully weather the current economy, please check all actions below that you have taken in the last 12 months or are planning to take in the next 12 months” were negative. The options assumed that the recession provided only challenges, not opportunities, to nonprofits. The possible responses were:
- Develop a ‘worst case scenario’ contingency budget
- Reduce staff or salaries
- Freeze all hires and current staff salaries
- Reduce staff hours (short weeks, furloughs, etc.)
- Reduce staff benefits
- Reduce or eliminate programs
- Collaborate with another organization to provide programs
- Collaborate with another organization to reduce administrative expenses
- Merge with another organization
- Reduce or refinance occupancy costs
- Sell assets such as a building or securities
- Use reserve funds
- Delay payments to vendors
- Speed up the collection of receivables
- Engage more closely with your board through more frequent reports and meetings when necessary
- Hold conversations with funders to explain your situation and projections and/or to discuss the use of currently restricted grants
19% of respondents said “none of these” or “other.” I’m curious about those respondents. Is anything innovative going on there? Maybe, maybe not, but is anybody asking?
In the business world, examples abound of companies that capitalized on a recession to gain market share, snap up talented employees from their competitors, create a new product or service, and so on. Are there really no examples of innovation in the face of adversity in the nonprofit sector? Or are we so mired in the charity mindset to think that innovation in the nonprofit world is not possible, particularly when economic times are tough.
I understand that this survey was primarily intended to uncover the financial situation of the nonprofit sector, but was there really no room to understand any potential opportunities the recession afforded and how nonprofits might be capitalizing on those opportunities? I don’t mean to be a Pollyanna in the midst of a dire situation, but if we continually throw pessimism and constraint at the nonprofit sector doesn’t it make sense that they will continue to feel constrained and pessimistic? Is there a possibility that some innovation exists out there? Perhaps there are examples of nonprofits who bucked the trend and took the recession head on, revamping their approach to the social problem they are working on, or the funding of their operations, or the delivery of their services, or their response to competitors.
Let’s uncover the Southwest Airlines (creator of the “Grab Your Bag, It’s On” anti-recession ad campaign) of the nonprofit world who are taking the recession by the throat, making some bold moves, and innovating amid constraint.
We’ve seen it here at Social Velocity. One of our clients, Heart House, an after-school program for at-risk children, decided last year to kick their vision for growth into gear, despite the recession. The program, currently serving 500 kids in Austin and Dallas, knows they have a great, scalable model, so they put together a growth plan to go statewide. Social Velocity helped them refine the plan and create an investor pitch around it, and they went out to raise $1.5 million in growth funding, recession be damned. A few months into their campaign they’ve already raised a third of the money. They don’t sit around talking about constraint and the horrible economy, yet they are feeling the pinch just like the rest of us. They seized the opportunity: when funders have nonprofit after nonprofit coming to them begging for money to get by, Heart House talks about something completely different. They are talking about big plans, a grand vision, results and a way to scale those results, a way to solve Texas’ afterschool problem. And funders are intrigued.
Let’s uncover those stories. Let’s hold them up as an example of how constraint can breed innovation. That’s inspiring. That’s encouraging. That’s bold.
The “starvation cycle” of nonprofit organizations doing more and more with less and less has to end. But how can nonprofit organizations break out of this cycle when donors won’t fund nonprofit capacity?
The news last week that the Boston Foundation will shift the majority of their competitive grants to unrestricted operating support, which in reality means capacity building, is fantastic. The Boston Foundation is one of the few foundations that understands that strengthening nonprofit organizations, through money to support technology, infrastructure, fundraising, top talent, management expertise, strategic planning, evaluation, research and development, is absolutely key to making social change possible.
But the Boston Foundation is just one in a sea of foundations and individual philanthropists who have yet to understand the importance of money to build nonprofit organizations.
But perhaps there is hope. Social Velocity has helped many nonprofits convince foundations and individual donors, who previously may have only provided direct service funding, to become organization builders.
I have discussed before Social Velocity’s work to help Heart House, an after-school program for at-risk kids in Austin and Dallas, strengthen their plan to grow statewide and create a pitch for growth capital. Heart House could not pay for this planning work through their operating budget, so they went to a foundation that was already supporting their program and asked them to invest in this growth planning. When the foundation understood that a small investment in organization building would help this organization that they love improve the lives of even more children, they were happy to invest.
Another example is Social Velocity’s client, English at Work, a nonprofit that teaches ESL classes to the employees of restaurants and hotels. English at Work is a subsidized social enterprise where the hotels and restaurants pay them a fee to run these classes. The nonprofit is demonstrating great results and has real potential to replicate the model. First, however, they need to strengthen their overall revenue function to position them for growth, which is where Social Velocity came in.
But again, English at Work didn’t have the operating revenue to pay for that outside expertise. So they approached a foundation in their fold and made the case for how a strengthened revenue function would put English at Work in a position to start planning for replication. And that replication would mean that their results-achieving model could provide more people with stronger English language skills. Stronger English language skills mean better, higher paying jobs, less stress on the social safety net and a stronger, healthier community. And what English at Work helped their donor understand is that to get to that positive outcome, English at Work as an organization has to be more effective. They have to learn how to create a stronger, more sustainable revenue function that can support a larger organization over the long term. And figuring that out costs money.
Nonprofit organizations need to start approaching the donors and board members who are already supporting their programs and make the case, in an articulate, reasoned, but passionate way that for more results, they have to invest in organization building. And they need those closest to the organization to make those investments. It is a process of educating those nearest and dearest to the organization about the power of a stronger internal organization. It’s a new conversation, but an important, and potentially game-changing, one.
Something pretty interesting is happening in Austin around growth, social entrepreneurship and investment capital. The KDK Harman Foundation, launched in 2004 by Janet Harman with a $26 million endowment, is spearheading an effort to get the social sector here talking about and thinking about how to grow and replicate successful nonprofit models. The mission of the KDK Harman Foundation is two-fold: “To break the cycle of poverty through education while promoting a culture of giving excellence.” While the first part of the mission is admirable and necessary, it’s the second part that really excites me. In 2008, when the foundation was only 4 years old, they decided to modify their mission to include the giving excellence piece because, per their website:
Janet [had a] desire to assist Central Texas in creating a culture of giving excellence. The Foundation is actively involved in the community through its role as a host and convener of community stakeholders interested in education and philanthropy. The Foundation also offers opportunities to share information about grantmaking with newly formed foundations as part of its Foundation 101 trainings. KDK-Harman Foundation is committed to funding and celebrating excellence; excellence in programming, excellence in nonprofit management, and excellence in grantmaking.
To that end, the KDK Harman Foundation launched what they call the “Growth Learning Collaborative” last year. The Growth Learning Collaborative is a social innovation project that brings together various Austin-based nonprofit Executive Directors to discuss and analyze various growth models. The group wanted to talk with and learn from experts and peers about options for growing organizations. These nonprofits are social entrepreneurs with great organizations that want to figure out how to scale. I presented to the group in December about the process an organization that is thinking about growth should go through.
One member of the Collaborative is well on their way towards scale. Heart House is a daily afterschool program for school-age children in neighborhoods known for high crime and high unemployment in Austin and Dallas. The program has achieved some pretty impressive results for these kids, including:
- 90% of Heart House children improved their reading level by at least one level.
- Teachers report that 96% of Heart House children have improved their math skills.
- Teachers believe 85% of Heart House children have shown an improvement in behavior with adults and other children at school.
- 0% of Heart House children were victims of violent crime or engaged in juvenile delinquency.
Heart House has plans to grow to 25 sites throughout Texas. They have a great growth plan, and I’m helping them refine it and create an investor pitch for the growth capital they will need to make it a reality. The founder of Heart House, Anna Land, helped KDK Harman launch the Growth Learning Collaborative because she wanted to learn with others how best to replicate, as she explains:
The idea of the Growth Learning Collaborative has been more than simply expanding our organizations. I wanted us to meet to discuss and plan implementation of best-practice techniques to help grow and — more fundamentally — replicate our organizations. In our case, children across Texas need a resource like Heart House. To that end, we focus on how we can naturally nurture and maintain our sense of organizational culture, our enactment of our missions and values, through cycles of leadership and volunteers across Heart House hubs.
These are relatively new ideas for Austin and Central Texas. Austin doesn’t tend to grow homegrown nonprofit organizations state- or nation-wide. By bringing local nonprofits with a vision for growth together and giving them the space and expertise to envision growth and make it a reality, KDK Harman is providing an invaluable service. It will be exciting to watch how this momentum grows and whether other local foundations and philanthropists follow their lead. I’d like to see more philanthropists both here and across the country take the lead in encouraging scale, best practices, innovative use of funds and so on. They are a key player in the movement for social innovation, and they have the resources to make a real difference in the success of the movement.