nonprofit capacity building
In today’s Social Velocity interview, I’m talking with Kathy Reich, Director of Organizational Effectiveness Grantmaking at the David and Lucile Packard Foundation. Kathy leads a cross-cutting program to help grantees around the world improve their strategy, leadership, and impact. Her team makes grants on a broad range of organizational development issues, from business planning to social media strategy to network effectiveness.
She also manages the Packard Foundation’s grantmaking to support the philanthropic sector. She has been with the Foundation since 2001, and previously held positions in the Organizational Effectiveness and Children, Families, and Communities programs. Prior to joining the Foundation, she worked in a non-profit, on Capitol Hill, and in state and local government in California.
You can read other interviews in the Social Velocity Interview Series here.
Nell: There is often a chicken or the egg scenario in the nonprofit sector where nonprofit leaders are hesitant to tell funders their real struggles and needs for fear of appearing unworthy of investment, and philanthropists are hesitant to stick their noses in the business of the nonprofits they fund, so organizational capacity needs are not openly discussed or addressed. How does the Packard Foundation uncover the organizational needs of your grantees and what would you advise other funders to do in order to have more open and transformative discussions with their grantees?
Kathy: Well, I try not to tell other people—funders or nonprofit leaders—what to do! But I can tell you what works for us at the Packard Foundation. First, we encourage each of our program officers to learn about the organizational strengths and challenges of their grantees, and to weave capacity building into grantmaking strategies. That’s a big part of the work of the Organizational Effectiveness team here at the Packard Foundation.
But we also have a separate Organizational Effectiveness (OE) program, staffed by its own program officers and with its own budget, to help grantee partners strengthen their fundamentals so they can focus on achieving their missions. Once a non-profit gets a grant from any Packard Foundation program, they’re also eligible to apply for an OE grant. We support a wide range of projects to promote individual and team leadership, organizational planning and development, and the development of healthy networks.
The application process is pretty simple and straightforward. It starts with a letter of inquiry where our grantee partners have to answer just a handful of questions: What are the objectives of your project and what do you expect to accomplish? How will this project support your organization in meeting its goals, and over the long term, enhancing its effectiveness? What special challenges or changes have caused your organization or network to focus on management and organizational issues at this time? How do you propose to use Foundation funds? Who from your organization’s staff and board has made the commitment to lead the project?
Here’s the most important part of our approach: We work very hard to be responsive to the needs of our partners. We never say, “We think you need a strategic plan, and that’s the only thing we’re going to fund.” We listen to the grantee’s assessment of their strengths and challenges, and serve in a coaching role to help them develop the OE project that best meets their needs.
Nell: Leadership development is something that is fairly prevalent in the for-profit sector – it’s understood that good leaders need coaching and support along the way – but leadership development is rarely supported in the nonprofit sector. Why do you think there is that disparity and what do we do to change it?
Kathy: I think you’re right — the lack of investment in leadership development and talent management in the nonprofit sector is a significant issue. We don’t have any shortage of talented, passionate people entering this sector. But I believe that we lose too many of them before they rise to senior-level leadership positions.
Some of that brain drain happens for financial reasons: people are staggering under the weight of educational debt, or they’re lured away by more lucrative career prospects in the private sector. But much of the loss of talent is preventable. People leave because they feel burnt out and undervalued. They can’t forge career pathways and can’t access meaningful professional development. They sometimes have lousy managers. Their jobs don’t offer opportunities for promotion, or sufficient work/life/family balance.
That is all stuff that the nonprofit sector can fix. As a sector, we can even tackle some of the thornier issues around compensation and educational debt. And funders can lead the way. But philanthropy is not doing that. Rusty Stahl at the Talent Philanthropy Project, a Packard Foundation grantee partner, points out that between 1992 and 2011 foundations spent, on average, about 1% of grant dollars on nonprofit talent development. I’m not sure why there’s been a lack of investment in leadership development in the nonprofit sector over time — especially when virtually everyone seems to agree that effective leadership is one of the keys to lasting social change.
I do see some glimmers of hope. In the OE program last year, 21 of the 86 grants we awarded focused on leadership development, including projects that invested in interventions like executive coaching, board development, succession planning, and executive transition at key grantee organizations. And a number of efforts are underway throughout the Foundation to support existing and/or emerging leaders in the issue areas where we work. Clearly, though, much more is needed.
Nell: There has been a concerted effort in the past year to overcome the “Overhead Myth,” the idea that nonprofits should spend as little as possible on “overhead” (administrative and fundraising) expenses. But there is still much work to do before that idea becomes mainstream in the philanthropic sector. How do we change funder (and nonprofit leader) thinking about overhead?
Kathy: I’m a fan of so many leaders and organizations who have spoken out on this issue, including Packard Foundation grantee partners like Guidestar, California Association of Nonprofits, and Grantmakers for Effective Organizations. They’ve done a great job of making a research-based case that arbitrary, low overhead rates don’t capture the true cost of delivering non-profit programs and services. I think that there are a couple of common-sense things that funders and nonprofit leaders can do to keep this debate at the forefront of people’s minds.
First, prepare real budgets. If the funder tells you, “You can only have $25,000 for this project,” that’s fine. That’s their budget. But submit a budget for the full cost of the project, including your personnel, facilities, and other costs of doing business. Let them see what their funding covers, and what it does not. Be honest if you do not know where the rest of the money will come from. At least it will spark a good conversation with your funder about the gap, and about your real costs. Most funders do not penalize honesty. If the funder does penalize honesty, their money probably is not worth your trouble.
Second, define what goes into your overhead rate, and stick with it. Many funders have a “rule” about acceptable overhead; 15 percent, 10 percent, even 5 percent. But most do not have a standard definition for what’s included in that rate. You should have one. Define it, calculate it, and then defend it.
Nell: Philanthropy is a very personal and values-driven thing, but at the same time we need to funnel more philanthropic money towards the most effective solutions. Do you think it’s possible to get more philanthropists to give based on results rather than interests and values, or can we somehow better combine the two drives?
Kathy: I think combining values and a focus on results is not just desirable — it’s essential. None of us goes into social change work with a completely cool, dispassionate lens. We go in with passion. We want to make a difference. We bring our whole selves to this work. That’s what makes it wonderful, and that’s why we stay in it.
At the same time, resources are limited — money, people, time — and we have to be sure they’re being well-spent. Ideally, we want to make sure those resources are being better-spent than they could be on other endeavors.
At the Packard Foundation, we try to craft a balance. Our mission—to improve the lives of children, families, and communities, and to restore and protect our planet—derives directly from the values and beliefs of our founders. The way we go about that work is deeply rooted in five core values, which also come from our founding family — integrity, respect for all people, belief in individual leadership, commitment to effectiveness, and the capacity to think big. But we also are committed to scientific rigor, evaluation, and most importantly, learning. We care not only about what grant funds accomplish, but also about how we do that grantmaking, engage with grantees and improve over time. You can read about some of what we’ve accomplished over the years on our new digital timeline.
Photo Credit: Packard Foundation
I’ve been working with several clients lately to create a strategic plan, and I love the moment when the real value of the strategic plan and the process of creating one becomes blatantly obvious.
It’s the point at which board, staff, funders start to see the possibility that the plan holds for the nonprofit and the social change they seek. They get really excited about bringing that future to fruition.
But that only happens when you create a really smart, thoughtful strategy — a good strategic plan, instead of a poor one.
Smart nonprofit strategy can completely transform an organization, in at least 5 fundamental ways. It will:
- Create Momentum
It’s not the final plan that energizes people, rather it’s the process of analyzing the external environment in which a nonprofit operates, making some hard decisions about where to focus resources, articulating the value the nonprofit provides, connecting the dots between individual actors and the larger vision. If done well, the work done during the strategic planning process really energizes board and staff. And when they start talking with people outside the organization (funders, volunteers, stakeholders) about the plan, those outsiders become energized too. To really tap into people’s potential you must inspire them to larger heights and help them understand their role in reaching those heights. A great strategic planning process does that.
- Attract Deeper Funding
The difference between a nonprofit just scraping by and a nonprofit with a sustainable future is strategy. If you want to attract larger, longer-term funding, particularly from major donors, you simply must have a future strategy in place. People and organizations that make large gifts to a nonprofit are in effect investing in the future of that organization. And if you can’t articulate your future plans in a thoughtful, compelling way, funders won’t make that larger investment.
- Filter Future Decisions
If you create your strategic plan correctly it becomes a tool for analyzing and making decisions about future opportunities. Most nonprofits are regularly fielding new opportunities (new funding streams, new programs to develop, new alliances to forge), but without an overall strategy it’s difficult to know which opportunities to pursue. A great strategic plan doesn’t tie an organization’s hands, rather it becomes a tool — a lens — through which you can thoughtfully analyze future decisions and make the best moves for your organization. One of my clients uses growth criteria we developed during their strategic planning process to determine when and where to add new sites. These criteria ensure that they are growing in a strategic, not reactive, way.
- Become a Management Tool
When done right, a strategic plan can drive the operations of the organization and the activities of the board and staff. At the board level, you can regularly track progress on the goals and objectives of the strategic plan through a dashboard (like the one at top of this post). At the staff level, you can monitor the activities and deliverables of the plan through an operational plan. An effective strategic plan doesn’t sit on the shelf, but rather is a living, breathing guide to the daily work and decisions of the organization. It’s not a final product, it’s a way of life.
- Realize More Change
At the end of the day you operate your nonprofit in order to address a social issue, to see some sort of change to a social problem. But the only way you will truly create that change is if you have a strategy that puts all of your limited resources (money, staff, board, volunteers) to their highest, best, most focused use. A great strategic planning process forces you to do the analysis, conduct the research, make the hard decisions, and track your progress so that at the end of the day you actually are making a difference.
Honestly, I don’t know how you operate a nonprofit without a strategy in place. In an increasingly competitive, resource-strapped world great strategy is less a luxury and increasingly a necessity.
If you want to learn more about what a strategic planning process looks like, check out my Strategic Planning page.
I’ve recently witnessed some behavior from nonprofit leaders that made my jaw drop:
- A board chairman convinced the rest of his board to turn away a donor who wanted to give the nonprofit a significant amount of money to fund organizational capacity (strategic planning, coaching, fundraising training) because he felt the nonprofit already knew how to do the work internally for free.
- An executive director who was really struggling with wrangling her board and developing a strong financial model bravely asked a close foundation donor for advice and support. When the foundation offered to fund some leadership coaching, the executive director rejected the offer for fear her board would think she didn’t know how to do her job.
- A board charged their nonprofit’s Development Director with increasing revenue in a single year by 30%. When she asked for a donor database to help more effectively recruit new and renew current donors the board said “No” because they felt she should already be able to do that without the aid of new technology.
More often than not it is nonprofit donors who hold back efforts to build stronger, more sustainable nonprofits by not providing enough capacity capital. I talk about that all the time (like here, here and here).
But sometimes, and more shockingly, nonprofit staffs and boards stand in their own way.
It takes courage for a nonprofit leader to admit that she doesn’t know how to do something and needs help. I am reminded of a fascinating interview I heard on NPR earlier this fall with Leah Hager Cohen who recently wrote the book, In Praise of Admitting Ignorance. She describes the freedom that comes from admitting when you simply don’t know how to do something. That moment of honesty can lead to transformation, as she says, “I think those words can be so incredibly liberating…They can just make your shoulders drop with relief. Once you finally own up to what you don’t know, then you can begin to have honest interactions with the people around you.”
I would love to see nonprofit leaders take this advice to heart. Once you have the courage to admit (to your board, to your donors, to your staff) that you don’t know how to do everything, you just might finally get the help you so desperately need.
Nonprofit leaders have been given the Herculean task of: developing and managing effective programs, managing a diverse and underpaid staff, crafting a bold strategic direction, creating a sustainable financial model, wrangling a group of board members with often competing interests, and recruiting and appeasing a disparate donor base. All with little support along the way. It is easy to see why the position of nonprofit leader is such a lonely one.
So instead of continuing to bear that enormous burden, take a step back and admit that you simply don’t know how to do it all. You need help, guidance, advice, support, organization building. If you are lucky enough to have funders, board members or others outside the organization that want to help, admit (to yourself, to your board, to your donors) that you need that help. And don’t let anyone (including, and especially, yourself) stand in your way.
If you’d like to learn more about the leadership coaching I provide nonprofit boards and staff click here, and if you’d like to schedule a time to talk about how I might help move your organization forward, let me know.
Photo Credit: Wikimedia
Board members sometimes stand in the way of a what their nonprofit needs most. I’ve talked before about the meaningless at best and destructive at worst distinction between “overhead” and “program” dollars. And board members often are as bad as donors at forcing nonprofits to ignore the very real costs of the work they do and their very real need for organization building dollars.
But board members could break this pattern by helping their nonprofit uncover, plan for and fund the staffing, technology, expertise and systems required to make the organization more effective at creating change.
Board members need to put their weight behind organization building. And they can start by giving their nonprofit these five priceless gifts:
- Permission to Talk About Real Costs. Stop asking your nonprofit staff to get by with less and less. Stop telling your Executive Director to lower the salary they can offer a talented Development Director, not to spend money on technology, or to use volunteers when they need experts. Instead, start asking what the real costs of the work are and how much you truly need to raise to accomplish your ambitious organizational goals.
- The Support of the Board. Once you start talking about real costs, you need to marshal the rest of the board to support organization building. Boards are often led by a vocal few who convince the rest to go along with their plans. If you can be that vocal member who articulates the need for organization building, how it will result in greater results over time, and how the board must be the champion of and seed investor in organization building, you can create a stronger, healthier nonprofit.
- A Capacity Plan. With the board in support of organization building, it’s time to put an organization-building plan in place. Ask the head of your nonprofit to spend some time coming up with a capacity building plan that will take the organization to the next level. Then present that plan at the next board meeting for a substantive conversation about what is truly holding the organization back and what it would take to move forward.
- An Organization Building Investment. Instead of asking that your annual donation go to your favorite program, be the lead investor in this new capacity building plan. Organization building dollars are very difficult to find. So those closest to the organization should be the first to step up and invest in capacity. And don’t just give the required amount. Make an investment that is significant to you. If you truly believe in this organization, take out your checkbook and make it hurt.
- Access to More Building Dollars. But don’t just stop there. Think strategically about who you could convince to join you in strengthening the capacity of the organization. Then make the case for why a Development Director, or a strategic plan, or an evaluation study, or new technology will grow the results your nonprofit is achieving. If board members start making a compelling case to their friends and colleagues about the importance of capacity building dollars, the sector could be transformed.
Board members can be an instrumental driver of stronger, healthier, more effective nonprofit organizations. But in order to get there, board members have to understand and embrace their leadership role in making organization building a reality.
If you want a roadmap for making your board more effective, download our How to Build a Groundbreaking Board webinar.
Photo credit: asenat29
There was a really interesting interview last week in the Nonprofit Quarterly with Bill Ryan, author of Governance as Leadership, who recently led a study on coaching in the nonprofit sector. Coaching is a form of management consulting where a leader is given one-on-one strategic guidance.
An executive director can be coached to grow an organization, to build a stronger board, to revamp their financial model. Or as Ryan puts it, coaching answers the question: “If my organization wants to get to Point X, what do I, as a leader, need to do to build on my strengths and manage my weaknesses to help it get there?”
The concept of coaching is fascinating to me because, as Ryan points out, in corporate America coaching is much more commonplace than in the nonprofit world. If a CEO needs management counsel, they are encouraged to find a coach, whereas coaching for nonprofit leaders is often deemed a luxury. But, I think coaching is even more necessary in the nonprofit world. Nonprofit leaders, unlike their for-profit counterparts, often lack a management background having made their way to the top through program expertise.
The reality is that coaching for a nonprofit executive director can be absolutely transformative. It can make the difference between a program that is just getting by and a program that becomes financially sustainable and grows dramatically, with an engaged, committed board behind it.
Such is the case with ACE: A Community for Education, a nonprofit early childhood tutoring program. I have coached ACE Executive Director, Mary Ellen Isaacs for over a year since we completed an ambitious strategic planning process. They are now working to triple the number of students they serve and diversify and grow their financial model.
Here’s what Mary Ellen has to say about the coaching experience (or if you are reading this in an email click here to watch):
I believe coaching can be hugely transformative for nonprofit organizations, helping their leaders build the skills they need to grow their solutions far and wide. If you’d like to learn more about how I coach nonprofit leaders, check out the Coaching page of the website.
Photo Credit: wikimedia
I believe very strongly that in order to fix a broken nonprofit sector we must change how things are done. But it is not enough to change only the larger structures of the nonprofit sector (IRS regulations, public perceptions about “overhead expenses,” funder requirements). Individual nonprofit organizations must also change how they operate in order to survive in this dramatically changing environment.
At Social Velocity, the nonprofits I provide consulting to have all reached some sort of inflection point. They have realized, for whatever reason, that they can no longer continue on the way that they always have. They have decided they must revamp their financial model, restructure their board, dramatically grow their services, or chart a new strategic direction in order to stay relevant and achieve their missions.
But it’s not enough to want change, or for just a couple of people within a nonprofit organization to want it. Over the many years I have been working with nonprofits, I have realized that in order for change to really happen, there must be some key building blocks in place:
- A Champion. There must be someone in a leadership position in a nonprofit who is a cheerleader for change. It could be the executive director, the board chair, or a board member. And that person must have the respect and trust of a majority of the organization. If the champion for change is a sidelined board member, an executive director on their way out, or a disgruntled staff member, the effort for change will go nowhere.
- A Need for Change. The champion for change must be able to describe the need for change. There has to be some urgency and a described end goal in order to rally others to the cause for change. It may be that a major funding source is going away, or board members are resigning, or client need is dramatically increasing. The champion for change must make a case to the rest of the organization about why change must happen, and why now.
- Critical Mass. Once a key champion starts pushing for change they must rally enough board and staff members behind the idea. There must be enough people who also want to see significant change in the organization in order to force it out of inertia.
- Funders of Change. A nonprofit could have an entire board and staff ready and willing to change, but without at least a few funders who also believe in that change and are willing to invest in a process for making it a reality (a new financial plan, a growth plan, a board recruitment process) they won’t get very far. You need to identify a few funders who love what your nonprofit does and can be made to understand the need for change now.
- A Navigator. I’m probably biased, but I believe that you need someone to guide the organization through significant change so that it doesn’t collapse in the middle. Without an outsider who understands the change that needs to happen and how to lead the organization there, a nonprofit can easily fall back into their normal ways of doing things. If a nonprofit is really committed to making a serious change, then they need to invest in a competent guide to get them there.
The convergence of the public, private and nonprofit sectors, an economic restructuring, and increasing competition for dollars, among other things, have combined to make change in the nonprofit sector a necessity. Those nonprofits that realize that business as usual just won’t cut it anymore and begin the work of changing their organizations to meet these new challenges are the ones that will survive and thrive.
To find out more about how I help nonprofits navigate change, check out my consulting services.
Photo Credit: Best and Worst Ever
There is a revolutionary concept that could dramatically transform the nonprofit sector, if only every nonprofit leader knew about it: capacity capital. Capacity capital is the money nonprofits so desperately need to strengthen and grow their organizations. Happily,the Financing Not Fundraising webinar “Raising Capacity Capital” will show nonprofit leaders how to raise this critical kind of money.
Capacity capital is the money that every nonprofit needs, but most find so hard to raise. Capacity capital can help your nonprofit to:
- Hire a development director
- Launch an earned-income stream
- Expand your programs
- Evaluate your impact
- Train your staff
It is money for infrastructure and organization building. If you want to move your organization out of the starvation cycle, you have to learn how to raise capacity capital.
I have worked with a number of small to medium sized nonprofits to create a pitch for capital to strengthen revenue functions, grow programs and otherwise build organizations.
Let me give you an example.
Elaine Spallone, executive director of Charlotte Chamber Music, felt that they were 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.
I worked with Elaine and her board to create a long-term strategic vision, a plan to get there, and a funding pitch for capital to build the organization. You can read the on-going case study about this work to raise philanthropic equity at a small nonprofit here. Charlotte Chamber Music is now actively raising capacity capital, and it’s very exciting.
It’s incredibly powerful to think about the implications of this concept for the entire nonprofit sector. If a nonprofit that provides a solution to a social problem was no longer impeded by a lack of capital, it could be revolutionary.
We’d no longer see great programs wither on the vine. The best and the brightest ideas could travel all over the country, indeed, all over the world. All it takes is the right kind of money, invested in the right place at the right time, and the solution can take off.
If you are interested in raising capital for your nonprofit, the “Raising Capacity Capital” webinar will show you how to:
- Talk about the importance of capacity capital to your donors and board
- Create a budget for the capacity dollars you need
- Develop a campaign goal
- Break the goal into donor ask amounts
- Identify prospective donors
- Give your board a role in the campaign
- Gain the confidence to start asking for the money you really need
Raising Capacity Capital Webinar Details:
The registration fee will get you:
- A link to a recording of the webinar, which you can watch as many times as you like
- The PowerPoint slides from the webinar
- The ability to ask additional follow-up questions after the webinar
Photo Credit: gfpeck
Last Thursday I was a guest on Michael Chatman’s The Giving Show, a weekly radio show about philanthropy. I was delighted to talk with Michael and his listeners about how nonprofits need to rethink the ways they bring money in the door. If you missed the show, you can still listen to the podcast here.
Michael and I talk about:
- How nonprofits need to finance, not fundraise for, their social impact
- The difference between revenue and capital, and why it’s such an important distinction for nonprofits
- When earned income is right for a nonprofit
- The opportunity the recession poses for nonprofits
- Why nonprofits must let go of the status quo
- How to educate donors to be organization builders
- Where innovation is happening in the nonprofit sector
- The convergence of the nonprofit, for-profit and government sectors
- Why overhead is NOT a dirty word
And much more. You can listen here.