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nonprofit capacity

Guest Post: Nonprofits Must Be Able to Adapt

antony bugg-levineNote: As you know, I am taking a few weeks away from the blog to relax and reconnect with the world outside of social change. I’ll be back later this week, but I have left you in the incredibly capable hands of a rockstar set of guest bloggers. The last, but certainly not least, is Antony Bugg-Levine. Antony is CEO of Nonprofit Finance Fund, a national nonprofit and financial intermediary that works with philanthropic, private sector and government partners to develop and implement innovative approaches to financing social change. Here is his guest post… 

When we asked nonprofit leaders to identify top challenges as part of Nonprofit Finance Fund’s 2015 State of the Nonprofit Sector Survey, 32% said “achieving long-term sustainability,” by far the most popular response.

What does it take to reach the promised land of sustainability? It may seem counter-intuitive, but one of the best measures of organizational sustainability is not stability but adaptive capacity, the ability to act as circumstances require and opportunities allow. A truly sustainable enterprise must have the capacity to nimbly respond to external conditions. A strong balance sheet must allow for flexibility.

In the nonprofit sector, where pursuit of a mission is paramount, the ability to thoughtfully tack toward progress as funding conditions and community needs change is a hallmark of a success. That does not change the reality that our sector is notorious for restricted funding and hampered by a lack of available enterprise-level investment capital.

So, how do organizations build adaptive capacity?

Here are a few ways that nonprofits can build their adaptive “muscle” and be better prepared to change as the environment demands and opportunities allow.

Know your costs.
Nonprofits must understand the true costs of providing programs in order to make informed decisions about whether grants or contracts are able to cover those full costs, and how much subsidy might be required from other sources to fill the gap.

Many times, we see nonprofits use a grant amount as a starting point, and try to design a program that fits with the award amount. Heights and Hills, which provides services for older adults in Brooklyn and their families, asked us to help them take a different approach. Using customized tools, leadership now understands not only the current costs of running particular programs, but also how those costs change based on a variety of factors.

Like Heights and Hills, nonprofits need to be able to answer questions such as:

  • “Which programs may be too costly if they are not fully supported by direct revenue?”
  • “How do our costs change if we expand a program and need to hire additional staff?”
  • “What if the amount of grant funding changes?”
  • “Where might collaboration with another organization serve us well?”

Just say “no.”
The social sector attracts passionate activists who have a knack for seeing solutions where others see problems, and who are often driven by a deep inclination to say “yes” to those in need. But in order to build and preserve adaptive capacity and to truly remain mission focus, leaders must protect the nonprofit enterprise and its ability to continue its work. The common practice of accepting pennies on the dollar to deliver programs perpetuates unhealthy funding patterns and expectations. Armed with data about true costs makes it easier to say “no” to opportunities that ultimately detract from an organization’s ability to move the needle on mission.

New York’s Committee for Hispanic Children and Families did just that, and declined to pursue a large government contract because it sapped too many “indirect” resources. While at first glance, it seemed that the small allotment for “overhead” was enough, the amount didn’t nearly cover actual costs associated with the time that executive, finance and administrative staff were spending to keep the program afloat.

Saying “no” to a fiscally unhealthy grant preserves the organization’s ability to serve its clients well into the future. If we want to change embedded, unhealthy funding practices — and perhaps even elements of nonprofit culture that fuel these — we must be more willing to say “no.”

Measure outcomes.
Ultimately, the benefit of adaptive capacity is the freedom to pursue what works. Some programs are more easily measured than others, but nonprofits and our funders need to invest in understanding impact. This is especially critical as we move toward an outcomes-based funding environment.

Scenarios USA, a nonprofit that uses storytelling for youth sex education, found a rare partner in the Ford Foundation when it decided to dramatically change its approach. Scenarios was open to asking, “Are our programs working?” and accepted that its core assumptions were inaccurate. With the Ford Foundation’s support, the organization revamped its program to focus on fostering critical thinking, which has tremendous influence on youth behavior.

Evaluating programs, experimenting with new ways of meeting mission and measuring outcomes over time are necessary to positive social change.

Seek support for major changes.
Money for programs is far more plentiful than money for enterprise-level change. Our survey found that nearly half of nonprofits report that they can have an open dialogue with funders about expanding programs, but just 6% feel comfortable conversing with funders about flexible capital for organizational growth or change.

There are exceptions. The California Community Foundation has partnered with Nonprofit Finance Fund and several others to offer strategy, management, and financial services aimed at strengthening the region’s nonprofits and building the durability of the sector. New York Community Trust has launched an initiative to help small arts organizations navigate various transformations and milestones such as leadership succession, business model changes, and facility renovations or moves. And New York’s Change Capital Fund is a collaboration of 17 foundations and financial institutions that is funding five New York community development organizations to help them refocus their strategies and develop new business models to address persistent poverty more effectively.

It is time to challenge the notion that funders aren’t willing to talk about money for adaptation and adaptive capacity, and to make the case for the right kinds of support.

It is hard to know what will be required of our sector in the years to come, but a steady trend of increased demand seems to indicate that the answer will be, “more.” Limited resources make doing more of the same nearly impossible. We must change the way we approach the challenges of our day, and organizations with adaptive capacity will lead the way.

 

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The Social Innovation Fund Six Years On

social innovation fundThere is an interesting report out today on the effectiveness of the Social Innovation Fund (SIF). Authored by the Social Innovation Research Center (SIRC), a nonpartisan nonprofit research organization, the new report details what has worked and what hasn’t in the six year history of the SIF.

Launched by the Obama administration in 2009, the SIF — a program within the Corporation for National and Community Service — provides significant funding to foundations that follow a venture philanthropy model by regranting that growth capital, along with technical assistance, to evidence-based nonprofits in “youth development, economic opportunity, and healthy futures” areas. In 2014, SIF expanded its efforts to include a portfolio of Pay for Success (social impact bond) grantees.

Now, 6 years on it is interesting to take a look back to understand what, if any, effect SIF has had on the nonprofit sector. The effect of the SIF is also critical given that, as of right now, the House and Senate have both defunded SIF in their respective funding bills.

To date, the SIF portfolio is made up of $241 million of federal investments and $516 million in private matching funds, which was invested in 35 intermediary grantees and 189 subgrantee nonprofits working in 37 states and D.C.

The SIRC report focuses on the current progress of SIF grants made during the first three years of the program (2010-2012). The report finds two clear positive results for the SIF so far. The SIF has:

  1. Added to the nonprofit sector’s evidence base about which programs work, and
  2. Built the capacity of nonprofit subgrantees, especially in the areas of “performance management systems, evaluations, financial management, regulatory compliance systems, and experience with replicating evidence-based models.”

On the negative side, however, the report finds that the SIF put real burdens on funders and nonprofits with its fundraising match requirements and the federal regulatory requirements. The report also finds that the SIF has had little effect on the sector as a whole because the SIF has not very broadly communicated their learnings so far.

To me, of course, most interesting are the report’s finding about capacity building at nonprofit subgrantees. There is such a need for nonprofit capacity building in the sector, and this was a clear goal of the SIF.

The SIF is one of few funders that do more than pay lip service to performance management by actually investing in building the capacity of nonprofits to do it. However, the SIF has been criticized for mostly selecting nonprofits that already had strong capacity. And indeed, the SIRC report finds that the SIF was most successful among those nonprofits that already had high capacity (in performance management, fundraising function, etc.) prior to SIF funding. Indeed, the report found that “poorly-resourced intermediaries working with less well-resourced community based organizations have been at a disadvantage.”

One SIF grantee in particular, The Foundation for a Healthy Kentucky, really struggled to build the capacity of their subgrantees whose starting capacity was so low. As they put it:

During the course of participation, it became clear that…[SIF] was really better suited for replicating existing programs or, at a minimum, investing in well-established programs that had some level of sophistication around organization systems and evaluation.

This mirrors earlier criticism of the SIF that it was set up to grow only those nonprofits that were already doing well, while those nonprofits that struggled with basic capacity issues were left out. The SIF has struggled to determine whether it is funding innovation (new solutions with limited capacity), or proven solutions (with a long track record and the corresponding capacity). It seems the two are mutually exclusive.

What the SIF is trying to do is such tricky business. To identify, fund and and scale solutions that work is really the holy grail in the social change sector. Certainly there are hurdles and missteps, but I think it’s exciting when government gets in the social change game in a big way. Six years is really too soon to tell. So I hope that this brief SIF experiment is allowed to continue, and we can see what a social change public/private partnership of this scale can really do.

To read the full SIRC report go here.

Photo Credit: Obama signs the Serve America Act in 2009, Corporation for National and Community Service

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Making the Case for Nonprofit Leaders: An Interview with Linda Wood

Linda WoodIn today’s Social Velocity interview, I’m talking with Linda Wood, Director of the Haas Leadership Initiative. Over the past decade, the Haas, Jr. Fund has invested over $20 million in strengthening the leadership of more than 75 grantees in its key priority areas– immigrant rights, education equity, and gay and lesbian rights—through the Flexible Leadership Awards program. In that time Linda has become a leading voice on the topic of leadership in the nonprofit and philanthropic sectors. Prior to joining the Fund, she advised senior leaders on strategy, organizational performance and change management at Cap Gemini Ernst & Young.

You can read past Social Velocity interviews here.

Nell: The Evelyn and Walter Haas, Jr. Fund has put a lot of investment behind the development of nonprofit leaders, but you are quite an anomaly in the philanthropic world. Support for leadership development is taken as a given in the for-profit world, but rarely recognized, let alone funded, in the nonprofit world. Why do you think there is that discrepancy in leadership development between the nonprofit and for-profit worlds?

Linda: It really is striking to see how differently the business sector and the nonprofit world view the issue of leadership. I went to business school myself, and spent eight years working as a management consultant in the private sector where it’s basic good practice to invest in the people you’re counting on to move the work forward. Strengthening leadership is seen as part and parcel of what it takes to fuel innovation and success.

On the other hand, in the social sector, a lot of foundations think of leadership development as a luxury–a nice-to-have that’s not linked to impact. That’s reflected in recent estimates that less than 1% of total foundation spending is going to strengthen leadership in the nonprofit sector.

Why? Well, I think we’ve got a lot of myths about leadership in our sector.

One myth is that leadership development is simply not a priority for nonprofit leaders because most don’t ask for it. And, when grantees don’t ask, many foundations assume that there’s no need. But we have not yet created a culture in the nonprofit sector that says it’s ok to invest in yourself and in other senior organizational leaders. We place a high value on self-sacrifice. Given the choice, nonprofit leaders will almost always direct general support to critical services and programs. That’s why actually I think it’s important for foundations to earmark funds for supporting leadership.

Another related myth is that leadership is part of overhead, and overhead should be minimized at all costs. From this perspective, investments in the organization’s leadership are cleaved off from the work and seen as wasteful overhead rather than intrinsic to achieving the organization’s goals.

Nell: You recently curated a blog series on the Stanford Social Innovation Review where funders who have supported nonprofit leadership development articulated its value. How helpful do you think that step was in getting the broader philanthropic community to understand the value of leadership investment? And do you have additional plans to help move leadership development forward among your peers?

Linda: Our goal in putting together the SSIR blog series was to help build momentum around the idea of investing in leadership being a core grantmaking strategy that can catalyze diverse programmatic goals and not just a boutique strategy that only some funders can afford. By featuring perspectives from top-level executives from a half dozen foundations of very different sizes and with very different funding priorities, ranging from the Omidyar Network to the Women’s Foundation of California, we hoped to offer examples that would inspire more foundations to see possibilities for their own work.

To be honest, it’s hard to know whether we are moving the needle. But it does seem like there has been mounting attention to philanthropic underinvestment in leadership lately. Just over the past couple of months GEO and then NCRP have both released major reports making the case for more attention to leadership and talent development. And the Talent Philanthropy Project held a meeting in New York in March that attracted over 60 people including nonprofit leaders, funders, consultants, and intermediaries.

I think the real question is whether increased interest will translate into significant increases in investment—the kinds of sustained, strategic investments in leadership that advance the capacity of organizations, networks and movements to achieve better outcomes. The danger is that we foundations will sprinkle a little leadership development funding here and there, perhaps send a handful of our grantee leaders to a training, and call it a day.

Nell: You recently announced a new initiative to seek solutions to the challenges, which you uncovered in your 2013 UnderDeveloped study with CompassPoint, facing nonprofit fundraising. What are your long-term plans with this initiative and what do you hope to find?

Linda: The UnderDeveloped report caused such a stir across the country. I have heard from so many people—funders, grantees, consultants, board members, etc.—that the report gave voice to concerns they’ve held for a long time. It clearly hit a pain point. And the big question it begs is what to do about it?

At the Haas, Jr. Fund, we’ve decided our next step is to try and refine concrete strategies that will help our grantees, and hopefully others, achieve breakthroughs in their fundraising.

One of our goals is to help organizations be more strategic about their approach to fund development. There’s so much out there. The nonprofit fundraising industry is full of consultants, speakers, large trade associations and technology providers. They offer costly, sometimes contradictory advice, patented approaches, one-off success stories, and a dizzying array of technology tools and platforms for raising money. As a result, our work in fundraising may be less about innovating and more about separating the wheat from the chaff, helping grantees chart a coherent, fruitful course through the thicket of possibilities.

Right now, we’re in the R & D phase. Here are some of the questions we’re exploring:

  • What fundraising success stories can be replicated by our grantees? To answer this question, we will conduct “bright spots” research focused on small- to medium-sized organizations who have had sustained success with individual fundraising.
  • How can we address the fundraising talent gap? To answer this question, we are conducting a scan of fundraising training and exploring the feasibility of a “fundraising fellowship.”
  • One fund development approach that’s attracting attention is developing a “culture of philanthropy.” But what does that mean? And what difference does it make?
  • Are there ways to help an entire field of grantees? To identify potential investments that might help a field of grantees, we are testing whether and how donor research can help LGBT grantees with fundraising.

As we tackle these questions, we are sharing what we’re learning along the way through a series of blogs on our website. And we’d love to hear from other people. What questions are missing? What can a foundation’s role be in supporting fundraising capacity?

Ultimately, this isn’t just an intellectual exercise. Our goal is to get better at supporting grantees around fund development, and to that end, we anticipate beginning to pilot some new strategies starting in 2016.

You asked what we hope to achieve with this work over the long term. I think if I could fast forward a couple of years, I would hope we will have made a dent in strengthening the talent pipeline for development directors, and that we are helping organizations bring more skill, focus and success to their fundraising, especially in tapping individual donors.

Nell: Philanthropy has traditionally been less interested in funding capacity building (like leadership development and fundraising). Do you think that’s changing? And/or do you think we will have more hope of changing that as generational shifts take hold in philanthropy?

Linda: Yes, I often feel like there’s a real divide between the folks in philanthropy who are focused on the what and those who are focused on the how.

Obviously, we’re all in this work for the what—to help create a more just and sustainable world. But often in philanthropy, conversations about things like capacity and leadership are disconnected from the conversations about the content of the work. We hold separate conferences; we belong to different affinity groups; we read different articles…

So, as someone who’s a member of the how club (as we sometimes jokingly refer to it among ourselves) I think we need to keep strengthening the connection between building leadership and capacity and delivering programmatic wins. No matter what a given foundation seeks to achieve programmatically–whether that’s community health, environmental justice or education equity–it’s important to ask how they will get from where they are today to where they want to be. What is our responsibility as funders to support the people and organizations who are advancing this work? What kind of staff, board and community leadership will be needed to get where we all want to go? And how can we transmit in words and in concrete actions that we are in this together and that we want to provide them with the resources to do their best work.

Photo Credit: Evelyn & Walter Haas Jr. Fund

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10 Great Social Innovation Reads: February 2015

reading by fire ipadFebruary was a pretty cold month around the country, but on the positive side that made it a great month to stay inside and read. I really struggled to cull the list of great reads to 10 this month because there was so much thought-provoking stuff out there. But below is my valiant effort.

From Afghan women, to political engagement, to nonprofit burnout and capacity building, to economic development and net neutrality, there was lots to read and think about.

Here is my view of the 10 best reads in the world of social change in February. But as always, add to the list in the comments. And if you want my unedited list of picks, follow me on Twitter, Facebook, LinkedIn, or Google+.

You can see past 10 Great Reads lists here.

  1. February saw the end of Andrew Sullivan’s long-time blog, The Dish. But before he left, he wrote this beautiful piece about how quickly the state-by-state legalization of gay marriage happened, and more broadly, how social change happens: “[The legalization of gay marriage] is a sign and a proof that the deepest darkness can be turned to light. And that reason and love and argument and the truth will win … in the end.”

  2. In a fascinating interview, NPR Morning Edition host Renee Montagne talks with Afghanistan’s First Lady, Rula Ghani about her role as the first politically active first lady and the plight of Afghan women.

  3. Writing in the Washingtonian, Andrew Beaujon describes how 2015 may be the “Year of Quality” in political reporting since Politico and Gawker, among others, are moving their measure of success from number of clicks to quality of reader engagement. Let’s hope this is part of a larger trend away from click-bait and toward thoughtful political journalism.

  4. And speaking of better informed politics, the Knight Foundation joins with other democracy funders to issue a $3 million challenge to identify ideas that can “better inform voters and increase civic participation before, during, and after elections.” Entries to the challenge will be accepted until March 19th.

  5. An anonymous former nonprofit staffer writing in The Guardian (which, by the way, launched an interesting new blog focused on the nonprofit sector called Nonprofit Chronicles in February) describes why she suffered burnout and why the nonprofit sector needs more support: “Burnout [doesn’t]  just occur in a vacuum. My experiences were intensified by the increasing frustration of carrying out support work in the context of austerity measures.” Amen!

  6. But perhaps help is on the way. Beth Kanter reviews two new reports (one from the Foundation Center and one from Grantmakers for Effective Organizations) about funder efforts to build the capacity of the nonprofit sector. And Paul Shoemaker from Seattle Social Venture Partners makes the case for funders making 100% of their funding unrestricted.

  7. February saw a decisive victory in the effort to preserve an open Internet (“Net Neutrality”) when the FCC ruled that “America’s broadband networks must be fast, free, and open.” Lucy Bernholz breaks down what the ruling means for digital civil society.

  8. Aaron Hurst writes a compelling piece about how investing in businesses that create jobs is not true social change: “If we want to see more Americans gainfully employed—not in jobs, but with living-wage careers—we need to invest more in the nonprofit sector and in government programs. While these investments don’t create the short-term gains that business leaders have been trained to seek, they are what will matter at the end of the day. They will create the supply of talent needed for our economy and society to thrive.”

  9. Nonprofit With Balls blogger Vu Le argues that nonprofits should drop “accountability” as an organizational value and instead embrace values “Where people act not out of fear of punishment but out of a drive to build a strong and just community.”

  10. Finally, the Philantopic blog offers 5 Ways to Improve Your Digital Strategy for Older Donors.

Photo Credit: Lois Le Meur

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Wednesday, March 4th, 2015 Innovators No Comments

5 Nonprofit Trends to Watch in 2015

5 Nonprofit Trends to WatchI 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.

You can also read past Nonprofit Trends to Watch Lists for 2011, 2012, 2013 and 2014.

  1. 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.

  2. 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.

  3. 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.

  4. 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.

  5. 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

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How to Create Capacity Builders on Your Board

Nonprofit capacitySomething really interesting happened the other day to an executive director I know.

A couple of board members approached her to ask what she needed to continue to move forward. They wanted her to be blunt about the obstacles in her way. She was equally honest, telling them she could really benefit from leadership coaching on how to manage a staff, grow an organization, continue to develop the board, build financial sustainability. The board didn’t bat an eye. They told her to figure out how much it would cost so they could foot the bill.

How amazing is that?

A group of board members not only recognized that their executive director might have challenges that she wasn’t expressing, but also listened to those challenges and invested in their solutions. What a dream scenario!

How great would it be if more board members, and even some donors, did that?

There is some hope. A small subset of funders are recognizing and investing in the tremendous need for leadership development in the nonprofit sector.

But a nonprofit leader who is really struggling doesn’t have the luxury of waiting for her board (or donors) to wise up and ask her about the challenges she is facing. So in lieu of a truly enlightened board of directors, here is what you can do to encourage your board (and close donors) to become capacity builders:

Identify a Few Allies
As executive director you probably have at least one or two board members, and perhaps a couple of donors, who are very supportive of what you do. They strongly believe in the work of your organization and your ability to effectively lead that work. Meet with them one-on-one to discuss the challenges you are facing – not in order to vent your frustrations, but rather to explore proactive solutions.

Describe the Capacity Challenges
Really analyze what is holding you and your organization back. Where do you struggle? Why are you hitting your head against the wall? Describe in an honest (but not whining) way the capacity constraints (lack of adequate staff, effective technology, long-term planning, verified program results) and how those issues keep you from delivering more social change.

Quantify the Capacity Building Solutions
Figure out what it would take to clear those hurdles. How much would a Development Director cost? Or an evaluation program? Or a strategic plan? Then break those costs into investable amounts. A single board member or donor may not be able to fully fund a $50,000 evaluation program or a $75,000 Development Director. But if 3-5 board members made their own investments and then identified a couple of other people who could also invest, you would quickly get there. Show your allies how achievable, with their (capacity capital) support,  the solution is.

Create Champions in the Cause
But don’t let them off the hook when they write that check. Enlist their help in convincing others inside and outside the organization why you need to invest in capacity building. Have them articulate to others how important this next step is and the potential return on investment to the organization, and the social change you all seek. Create an army of champions who will advocate for your capacity building cause.

The challenges you face as a nonprofit leader are very real. But they won’t get any better unless you become proactive. Find partners among your board and donors to help you remove those obstacles standing in your way.

If you want to learn more about the leadership coaching I provide nonprofit leaders, click here, and if you want to learn more about raising capacity capital, download the Launch a Capacity Capital Campaign guide.

Photo Credit: Paul Keheler

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Flipping the Default Setting on Philanthropy: An Interview With Kathleen Enright

KE1_websiteIn today’s Social Velocity blog interview, I’m talking with Kathleen Enright, founding president and CEO of Grantmakers for Effective Organizations (GEO). GEO is a diverse community of more than 450 grantmakers working to reshape the way philanthropy operates and advance smarter grantmaking practices that enable nonprofits to grow stronger and achieve better results.

Prior to GEO, Kathleen was at BoardSource, where she was responsible for building public awareness of the importance of strong nonprofit boards. Prior to joining BoardSource, Kathleen was a project manager for the National Association of Development Organizations Research Foundation where she directed a Ford Foundation funded project to encourage collaboration between nonprofits and local governments.

Kathleen speaks and writes regularly on issues of nonprofit and grantmaker effectiveness at national and regional gatherings of executives and trustees and in various publications including Investing in Leadership: Inspiration and Ideas from Philanthropy’s Latest Frontier and Funding Effectiveness: Lessons in Building Nonprofit Capacity. She is also a contributing blogger for The Huffington Post.

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

Nell: GEO has been around for 15 years working to “advance smarter grantmaking practices that enable nonprofits to achieve better results.” In that time, has the work gotten harder or easier? Is the foundation community more effectively contributing to nonprofit results?

Kathleen: We have some new data on that exact question. GEO’s fourth national study of staffed grantmaking organizations is due out next month. The headline is that while the field is moving in the right direction on many fronts, we still have a long way to go.

We appear to have reached a “tipping point” on a few issues. At long last, the majority of staffed foundations in the US report seeking and using grantee feedback to inform their work. As good practices like this one become more common — even expected — it’ll become harder and harder for holdouts to justify the status quo. Similarly, on general operating support — one practice that has stubbornly held steady for years — we’re finally seeing movement in the right direction.

The reality is that there’s a lot of work still to be done. In our last survey we learned that during the economic downturn — when nonprofits needed flexible, reliable, long-term dollars the most — many foundations backpedaled on things like funding multiyear grants. That the new survey shows we’re back to pre-recession levels is a positive step, but we have a long way to go until we’re able to flip the default setting in philanthropy. Achieving this goal means making it so that multi-year, general operating support is the assumption and program officers and grantees need to make a specific case for why a program-restricted or short-term grant makes sense.

Nell: According to the most recent State of the Sector Survey by the Nonprofit Finance Fund, 41% of nonprofit leaders cite long-term financial stability as a top challenge, yet only 9% of them feel they can have an open conversation with funders about operating reserves. How do we bridge that gap and make it easier for nonprofit leaders and funders to talk openly about and invest effectively in financial stability? Do you think foundations’ appetites for capacity investments are growing, or waning, and how do we make capacity investing more appealing to funders?

Kathleen: Our field study will expand on this point as well, but the perception gap is huge. Funders declare themselves willing to talk about financial health, but grantees still don’t feel safe to do so. My takeaway here is that foundations need to do much more to signal to grantees that they are open to having such a discussion. Closing this perception gap won’t happen in one go. We need to find ways to normalize these conversations, including the questions or fears a grantee might have.  We need to be conscious that sometimes our funding practices act as nonverbal cues that close down conversations about financial stability. It’s hard to believe a funder is earnest about discussing financial health if they aren’t already doing the basics, like offering flexible, long-term support. Ensuring that nonprofits feel empowered to have these conversations will only happen through word and deed.

It really comes down to a fundamental shift in how many funders think about nonprofits. When a funder thinks about grantees as merely suppliers who offer what amounts to an appealing product that leads to a bit of tunnel vision. However, when grantees are seen as crucial actors in efforts to create lasting change on the complex social challenges a funder cares about, they are much more likely to take a broader, long-term perspective.

In terms of the appetite for capacity investments, we held a series of “listening sessions” with nonprofit leaders last year to learn more about their experiences with capacity-building. Most staffed foundations in the US do provide some sort of capacity building support, so some of what we wanted to uncover is how to make the most of those investments. Based on those sessions and 15 years of experience on this question, we believe that by taking an approach that is contextual (tailored to the unique needs of the grantee), continuous (taking the long view), and collective (considering how the parts add up), grantmakers will be well positioned to provide capacity building support in ways that effectively support nonprofits to achieve lasting impact.

Nell: In recent years there have been studies and efforts aimed at getting more donors to channel donations to nonprofits that can prove results. How optimistic are you that we can change donor, particularly foundation, behavior toward funding based on results? And what will it take to get there?

Kathleen: It’s reasonable for foundations to want to make sure their funding leads to impact. And with technology making data collection easier, it’s natural that there’s a lot of buzz in the field about evidence and results. But it’s complicated terrain.

Not only do we lack a shared agreement on what proof or evidence means, most grantmakers and their nonprofit partners are focused on complex social problems with no easy answers. There was an excellent article in Forbes on the limitations of what the authors call “moneyball philanthropy,” where too great on an emphasis is placed on a clear or measurable cause and effect between the work and the impact. The bottom line is that if foundations only fund those things with “proven” results, they’ll miss opportunities to support important work on systems that has the potential to be game-changing.

Job number one in our view is to understand what’s working, what’s not and how we can continuously learn and improve. It often means taking risks and understanding what went wrong. The reality is that many nonprofits are ill-equipped to build the appropriate information infrastructure or conduct evaluations because they haven’t received the financial support to enable them to build that capacity.

So before we move too far in the direction of funding only based on results, grantmakers must consider how we can help grantees build their sophistication around evaluation. It’s a first step — and an incredibly powerful one — to help nonprofits grow their impact. This may mean providing flexible funding or tailored funding to support the development of evaluation plans, staff training or paying for third party evaluators. GEO members like the Bruner Foundation, Hartford Foundation for Public Giving, and Mile High United Way have worked diligently over many years to strengthen nonprofit capacity for evaluation. Their work suggests that such investments often have much farther-reaching positive effects on the organizations they support. We produced a short video on the Hartford Foundation’s work to build grantee evaluation capacity (which actually draws from the Bruner Foundation’s impressive body of work) that you can find here.

Nell: Foundation money only accounts for about 2% of all the money flowing to the nonprofit sector, which is a fairly small piece of the funding pie. Is there a role, and if so what is it, for foundation leaders to lead other larger sources of funding in the sector (government, individual) toward more effective giving?

Kathleen: Institutional philanthropy has incredible insights and wisdom that could be enormously helpful to help steer other dollars intended for the public good.  One of our newest board members, Peter Long, President and CEO of the Blue Shield of California Foundation, is an advocate for creating more “open source philanthropy”. His idea is that, as a field, we’ll be able to make faster progress if we’re generous with our thinking. What if every funder interested in improving health outcomes could benefit from the Robert Wood Johnson Foundation’s wealth of knowledge? This is especially important for newcomers, as building this open knowledge base both gives them a place to start from as well as gives them an opportunity to build our collective knowledge. Being “experts” in philanthropy is a role that foundations can — and should! — embrace.

Another way foundations can show leadership is by pooling resources to address complex issues. The Washington Families Fund is an example of just how powerful it is when foundations come together and work with public entities. As a public-private partnership, the Fund is capitalizing on the resources of foundations — including GEO members like the Campion Foundation, Bill and Melinda Gates Foundation, Medina Foundation, Meyer Memorial Trust, and Seattle Foundation — coupled with the on-the-ground capacity of government entities like the Washington State Department of Commerce to reduce homelessness in their region by 50 percent by 2020. Examples like these demonstrate just how powerful public-private partnerships can be.

Photo Credit: GEO

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How Do We Fund Nonprofit Leadership Development?

LeadershipSomething pretty exciting is going on. Perhaps I’m an eternal optimist, or I’m suffering from confirmation bias, but it seems to me that more funders are starting to talk about investing in the capacity of nonprofits, particularly around nonprofit leadership development.

The Stanford Social Innovation Review kicked off a new blog series this month focused on the topic. Over the next three months, six foundation leaders will blog about why they have made investments in the leadership development of their nonprofit grantees and what the return on investment has been.

This is phenomenal because the more we talk about and demonstrate the return on investment of nonprofit leadership development, and really of any capacity investments, the more likely we will be to see other funders follow suit.

As Ira Hirschfield, president of the Evelyn and Walter Haas, Jr. Fund, points out in the inaugural post in the new SSIR series, less than 1 percent of overall foundation giving went to leadership development between 1992 and 2011, while the private sector allocates billions of dollars to it.

Why are we not investing in our nonprofit leaders? If we truly want to create change to some of our most pressing social issues don’t we need the strongest, most effective leaders possible?

As Hirschfield puts it so well:

Foundations ask a great deal of the organizations we support…in short, we hope grantees will deliver transformational results for the people and places they serve. So it’s striking how seldom we back that up with funds to help organizations develop and strengthen the ability of their leaders to meet those high expectations. People are not born with everything it takes to manage and motivate a team, build coalitions, and lead change…Leaders who have the opportunity to reflect on their strategies and hone their skills make better choices, develop innovative solutions and forge stronger collaborations. This is what leadership development is about—and to the extent that foundations decide it is important and fund it, then we and our grantees will be better positioned to achieve our goals for impact.

In other words, foundation funding will go further if funders also invest in the leaders of those organizations they fund.

It seems like a no-brainer. And it is a no-brainer in the for-profit world. But as we so often do in the nonprofit sector, we are selling the sector, and its leaders short.

But it is not enough (nor are we anywhere near it anyway) for funders to understand the need for investing in nonprofit leaders. Nonprofit leaders themselves need to stop apologizing and start demanding (in a nice way!) investment in their own capacity. And leadership development is only one of the many areas in which nonprofits need capacity investment. Nonprofits also require fundraising expertise and staffing, program evaluation, technology and systems, and the list goes on.

So if we are to have any hope of moving this topic beyond the blogroll, nonprofit leaders and funders need to start having better conversations about what it will really take to accomplish their joint impact goals. Because if, at the end of the day, we are all looking to achieve more impact, then capacity to deliver on that impact must be part of the conversation.

If you want to learn more about capacity investments from both the nonprofit and funder sides, download the Power of Capacity Capital book, and if you want to learn more about nonprofit leadership, download the Reinventing the Nonprofit Leader book.

Photo Credit: Clinton and Charles Robertson

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