Could it be that philanthropists and nonprofits are starting to have real conversations about what nonprofits need? I was encouraged by GuideStar, Charity Navigator and BBB Wise Giving Alliance‘s open Letter to the Donors of America earlier this week asking donors to stop focusing on nonprofit overhead expenses.
It is so exciting to see a national conversation emerge about what donors can do differently.
To that end, I think there are 3 key things that philanthropists can do to move nonprofits forward:
- Create Financially Sustainable Nonprofits
The majority of nonprofits lack a sustainable financial engine that strategically and effectively supports their mission. Grantmakers could provide nonprofits the runway necessary to find the right financial model for their organizations. Two-phase capacity capital funding could do this. Phase one would be a capacity capital planning grant to analyze a nonprofit’s current money-raising activities and come up with a plan for transforming those into a sustainable financial model. Phase two would be a capacity capital grant to make the investments necessary (staffing, technology, systems) to revamp the nonprofit’s financial model. The end result would be that nonprofits with a great solution to offer suddenly have the ability to grow the solution in a sustainable way.
- Fund Management Expertise
Nonprofit leaders often come to their positions with a passion for the cause and specific program-related expertise, but a lack of critical management experience. As a result, nonprofit leaders often exist in a reactive, as opposed to strategic mode; are challenged by financial decision-making; struggle with poor board engagement; have limited external partnerships; can’t articulate their value proposition; and lack strategic filters to guide decisions about the future. Management coaching is often a given in the for-profit world, but nonprofit management coaching is only starting to be explored, even though it holds tremendous potential for the sector. It can provide desperately needed strategic perspective, problem solving and expertise that can supplement and ultimately build the management abilities of a program expert who would otherwise struggle to bring a great solution to scale. If more funders provided management support dollars, more nonprofit leaders could grow their solutions.
- Seek Real Conversations with Nonprofits
But these two hurdles will never be cleared if the communication impasse between grantors and grantees is not addressed. There is an often unspoken catch-22 in the nonprofit sector where nonprofit leaders are not comfortable asking funders for what they really need, while funders lack enough on-the-ground experience to recognize and address nonprofit challenges. This lack of honest, open conversation holds the sector back from producing effective funding partnerships and prevents grantors and grantees from marshaling resources to their highest and best use. There need to be many more conversations like the Donors Forum, hosted by intermediaries, where nonprofit leaders and philanthropists can come together to talk openly about what the sector really needs.
We suddenly have a real opportunity to address the obstacles standing in the way of more social change. But to get there, donors and nonprofits have to recognize and openly address what holds the sector back. More effective philanthropy stems from more productive partnerships between philanthropic and nonprofit leaders and a willingness to remedy together the hurdles in the way.
Photo Credit: applejan
The nonprofit sector and the philanthropy that funds it have been changing dramatically over the past several years, and there’s plenty more change to come. This month’s Social Velocity webinar, Embracing the Future of the Nonprofit Sector, will help nonprofit leaders and board members understand how the sector is changing and what they can do to keep up.
Here are some of the future trends facing the nonprofit sector that we’ll cover in this webinar:
- More Demand for Outcomes
There is a growing demand for nonprofits to 1) articulate what results they hope their work with achieve and 2) track whether those results are actually happening.
- Decreasing Emphasis on Nonprofit “Overhead”
More and more people are realizing that you can’t just invest in programs without the staff, infrastructure and fundraising to make those programs happen.
- More Advocacy for the Sector
as a Whole
The nonprofit sector has long been a fractured grouping of organizations of various sizes, business models, and issue areas. But that tide is starting to turn. We are starting to see the sector organize, mobilize and build the confidence necessary to claim its rightful place.
- Savvier Donors
Because nonprofits are getting more savvy, donors are as well. In addition to an increasing demand for proof of outcomes, donors are starting to realize that in such a stark economic environment those nonprofits that don’t have adequate infrastructure simply will not survive, let alone be able to adequately address the social problem they were organized to solve.
- Increased Efforts to Rate and Compare Nonprofits
We are increasingly evaluating nonprofits based on the results they achieve, not on how they spend their money. And to do that a whole infrastructure for evaluating and rating nonprofits is emerging and will continue to evolve as we get smarter about focusing resources on the most effective nonprofits.
These are exciting times for the nonprofit sector. This webinar will help you understand and embrace these trends.
Embracing the Future of the Nonprofit Sector
A Social Velocity On Demand Webinar
Photo Credit: Adolf de Meyer
April was all data, all the time. From big data, to performance data, to how donors use data to improve programs, to whether donors even care about data. It’s enough to make your head spin. But many people were cautioning to keep the end goal in mind. Data is only data, its ultimate use is to create social change.
Below are my 10 favorite social innovation reads in April. But let me know in the comments what I missed. And if you want to see my expanded list, follow me on Twitter, Facebook, LinkedIn, or my newest addition, Google+.
You can see the 10 Great Reads lists from past months here.
- Writing on the Full Contact Philanthropy blog, David Henderson argues that we must understand the limitations of data, as he says “Decisions we make should be informed by data, but data does not make decisions for us.”
- Daryn McKeever from the Gates Foundation seems to agree arguing that we need to move from Big Data to Big Wisdom, using data to make better decisions. And David Brooks writing in the New York Times seems to fall into the same camp.
- The Stanford Social Innovation Review is celebrating their 10 year anniversary and as part of the festivities are running a series of essays about how social innovation has evolved and where it’s going. Part of that series is Tim Ogden’s controversial (I think) post claiming that contrary to growing belief donors don’t care about impact any more than they ever did.
- As a counterpoint, the recent NextGen study from the Johnson Center on Philanthropy found some pretty significant changes in how the newest donors, Millennials, do philanthropy. Michael Moody and Sharna Goldseker, authors of the report, break down how they think donors are changing.
- And adding to the conversation about whether donors care about outcomes, a debate raged between William Schambra from the Hudson Institute and Ken Berger from Charity Navigator. William argues that moving the nonprofit sector to outcomes measurement would lose other, more important and less tangible benefits (civic engagement, social bonds) that the sector promotes. But Ken argues that measuring outcomes is absolutely critical to helping the nonprofit sector create more change.
- During April’s annual Skoll World Forum a new Social Progress Index launched, a measure for comparing different countries abilities’ to “provide for the social and environmental needs of their citizens.” The hope is that the index will help guide social investment decisions. It will be interesting to watch how it evolves.
- For a really interesting case study on use of data, The National Center for Arts Research interviews Kate Levin, Commissioner of the New York City Department of Cultural Affairs about how they use data to make the case for investments in culture.
- I have been fascinated to watch New Orleans’ renaissance via social innovation in the years following Katrina. Two recent articles (here and here) highlight exactly how the city is coming back and the role social innovation is playing in that comeback.
- Albert Ruesga, Chair of Grantmakers for Effective Organizations and editor of the White Courtesy Telephone blog, writes a fairly scathing (but in a nice way) post about how philanthropists need to start having more difficult, honest conversations in order to move the sector forward. His post was in response to Caroline Preston’s February Chronicle of Philanthropy article in a similar vein and the impetus for a panel discussion in DC along the same lines. They promise to keep this conversation going. Let’s hope, because we need more cruelty, or at least honesty, in the sector.
- As I said last month, crowdfunding is apparently the next new shiny thing. And April continued the drumbeat with many more articles, the most interesting of which was Dowser’s list of 10 New Platforms for Crowdfunding.
Photo Credit: o5com
A big topic of conversation lately has been whether donors really care about impact, or whether they simply just give based on less scientific things like their emotions, or their friends recommendations. Which is why I’m excited to announce that I’ll be participating in a Google Hangout April 30th about using data to attract donors.
Writing in the Stanford Social Innovation Review, Tim Ogden claims that donors have never really been interested in impact. And Ken Berger from Charity Navigator and William Schambra of the Hudson Institute debate (here and here) whether moving the nonprofit sector toward performance management helps or hurts social change efforts.
To add to this conversation, David Henderson and I are hosting a Google Hangout, “How to Use Real Performance Data to Raise More Money,” on Tuesday, April 30th at 2pm Eastern. David is a super smart guy who runs Idealistics, a consultancy that helps nonprofits learn from their outcomes data, increase impact, and demonstrate results to funders and stakeholders. David’s professional focus is on improving the way social sector organizations use information to implement higher impact poverty interventions. He has been quoted in the Chronicle of Philanthropy and has written for Change.org and the Huffington Post. You can read my interview with him from a year and a half ago here.
David and I thought it would be interesting to host a conversation with nonprofit leaders about how nonprofits can use real performance data to raise more money. We’ll kick off the hour-long conversation with a couple of points and a case study or two of nonprofits that are using data to raise more money, but then we’ll open it up to you for questions. You can send us your questions ahead of time (via email to email@example.com or firstname.lastname@example.org) or simply post them to the Google Hangout here as you watch.
I hope you’ll join us!
How to Use Real Performance Data to Raise More Money
A Google Hangout with David Henderson and Nell Edgington
Tuesday, April 30th, 2013
Can nonprofits that use real performance data to raise more money? Are donor increasingly interested in impact data? How can nonprofits communicate their program data to donors? And how should nonprofits respond to questionable performance claims by other organizations? Join David Henderson from Idealistics and Nell Edgington from Social Velocity in a Google Hangout on Tuesday, April 30th at 2pm Eastern to discuss these and many more questions about how nonprofits can use real data to raise more money. We’d love to have you participate in the discussion, so send your questions ahead of time to Nell or David, or leave a comment at the Google Hangout here.
Photo Credit: 401(K) 2013
The other day I met with a nonprofit leader (let’s call her June) who has a great idea for an earned income venture that fits directly with her mission, but she doesn’t have the start-up capital to launch. When she explained this to me, she threw up her hands as if to say, “I’m powerless to move forward.”
But from my vantage point she has all the pieces necessary to raise the start-up capital and launch, she just isn’t putting them together. It’s a common refrain — nonprofit leaders complain about being in a catch-22 of not having enough money to raise enough money. But the answer is often right in front of you. To break free from the starvation cycle, assemble the assets you already have in order to raise capacity capital, which is the topic of today’s post in the ongoing Financing Not Fundraising blog series.
The nonprofit starvation cycle is one nonprofit leaders know only to well. Nonprofit organizations rarely have the technology, staff, and systems to function effectively. So they scrape by trying to wring one more drop out of a completely dry rock. But instead of waiting for funders to fix the situation, it is up to nonprofit leaders themselves to break free. And you break free by raising capacity capital.
Capacity capital is a one-time investment of significant money that can help build or strengthen a nonprofit organization so that it can create more social change. Capacity capital funds things like technology, systems, a program evaluation, revenue-generating staff, start-up costs for an earned income business. It is money that strengthens the organization so that it can do more.
But often nonprofit leaders, like June above, don’t recognize that everything they need to raise capacity capital and break free from the starvation cycle is in right in front of them. Here are the necessary pieces:
A Plan. You know what you need in order to do more, so put together a change plan and figure out what elements you need (technology, systems, staffing) and what they will cost. Do your homework so you can speak intelligently about what it will take to get you from point A to point B. June has a great business plan for her venture and knows exactly how much she needs in start-up costs.
Donors Who Love You. When raising capacity capital you want to go after donors who already love what you are doing and want to see more. You must convince them that a one-time investment of capacity capital will enable you to do even more of what they already love. June has a great network of long-time donors, which she could convince to become capacity capital donors.
A Connection Between Capital and More Impact. Make a convincing argument to those donors that capacity capital will create more of what they already love. For example, having a great Development Director in place can bring hundreds of thousands of new dollars each year which means many more people will be touched by your organization. Or explain how an evaluation of your program will allow you to focus your resources on highest impact activities. June could describe how a profitable earned income venture could increase financial sustainability while delivering more impact.
June has all of these pieces. She has a great plan for an earned income business that could significantly contribute to a more sustainable financial engine and thus allow her nonprofit to reach more people, a clear articulation of how much capital she needs and for what, and a committed group of donors who love the organization. For her, and for most nonprofits, it is simply a question of connecting the dots.
If you want to learn more about the power of capacity capital, download the Enormous Opportunity of Capacity Capital e-book, the Creating a Capacity Capital step-by-step guide or the Raising Capacity Capital webinar.
Photo Credit: PublicDomainPictures
Note: While I’m off during the holidays I wanted to provide some archive blog posts that you might enjoy. A version of this post originally appeared on the Social Velocity blog in November 2011.
It’s that time of year when donors make key decisions about their end of year giving. But a post on the Social Earth blog advising donors about questions they should ask nonprofits perpetuates thinking that actually hurts, rather than helps the nonprofit sector. The author asks “How do you know where your charitable dollars are going? Are they going to the cause you want to support or are they going to administrative and fundraising expenses?” In reinforcing old, and destructive binary thinking about program vs. overhead expenses, the author is doing nonprofits and their donors a real disservice.
The author lists 4 key questions she thinks every donor should ask of the nonprofits they consider donating to:
As various charities vie for your charitable donations, there are many questions you can ask them directly, including:
- How much goes to the cause? How high are their expenses?
- How efficient is their fundraising? What is their cost-per-fundraised-dollar ratio?
- Is the charity run properly? How efficient and effective is their human capital? Management team?
- Do they even need your money? Will your money just be lying around in their reserve?
I think questions #2 and #3 are excellent, but questions #1 and #4 perpetuate thinking that holds the nonprofit sector back.
Let’s start with Question #1: “How much goes to the cause? How high are their expenses?”
As I’ve written before, the distinction between program (or “cause”) and administrative expenses is meaningless at best, and destructive at worst. If a nonprofit organization is creating change, then everything they do is in support of that change. How can a program run if there is no financial engine (fundraising) to fund it? If there is no building or space to house it? If there is no financial management or regular audits? If there is no regular evaluation of whether the program is making a difference? How can you possibly separate “program” from “overhead?” We must move beyond this distinction and encourage nonprofits to raise (and donors to give) more capacity capital, or the money that nonprofits so desperately need to create effective and efficient organizations.
Question #4 “Do they even need your money? Will your money just be lying around in their reserve?” is equally troublesome.
This question reinforces the backward notion that nonprofits should not have a reserve fund. As I (and others) have written before, we have to get away from the nonprofit taboo that operating reserves are wrong. Nonprofits cannot plan for the future, have a sustainable financial model, experiment with program changes, take risks, or any of the other things that are absolutely necessary to creating social change, without some operating reserves. If nonprofits are continually forced to go month to month without any cushion they will never emerge as strong, sustainable organizations capable of creating lasting change.
We must move away from thinking that encourages nonprofits to scrape by without the tools and infrastructure they desperately need. We must stop measuring nonprofit performance with meaningless financial metrics and instead evaluate nonprofits on their ability to deliver change. If a nonprofit is creating real change, does the minutia of how they spend money really matter?
There comes a time at every nonprofit when a difficult conversation must happen. A conversation, which if avoided, could really cripple the organization and its work. It could be saying “No” to a donor who wants to take the organization away from its mission, or telling a board member they need to start performing, or being honest with a staff member who is not a good fit for their position.
Because nonprofits are so resource-constrained it is critical that they put every resource to its highest and best use. And in order to do that, sometimes you must lead a difficult conversation.
The Social Velocity On Demand webinar “Leading Difficult Conversations with Funders, Board Members and Employees” will give you the tools to approach those conversations with confidence and skill so that you can do what’s best for your nonprofit.
Some of the scenarios covered include when:
- A board member is not raising money
- A donor wants to launch a program that doesn’t fit your strategy or mission
- A board member should be asked to resign
- A staff member is not performing effectively
This webinar will give you:
- Concrete language to use with funders, board members, staff
- A strategy to best approach a challenging negotiation
- Case studies and examples of difficult situations
- A process for thinking through future scenarios and focusing on what’s best for your nonprofit
- A forum for putting your toughest situations to the test
- The opportunity to hear what challenges other nonprofit leaders face
Leading Difficult Conversations with Funders, Board Members and Employees
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
So if you struggle with telling donors, board members and staff what they need to hear, try our on demand webinar.
And if you want to learn how to create an overall financing plan for your nonprofit, join us for that webinar on April 24th. Click here to register
Photo Credit: www.geograph.org.uk
Nonprofit donors, particularly foundations and wealthy individuals, have an enormous amount of power in the sector. Sometimes they use that power for good and sometimes (often unknowingly) they use it for ill. And because of the power imbalance between funder and fundee, it is unusual that anyone ever tells nonprofit donors what they could do to really help the sector and the organizations they love.
So here are the five things I would LOVE to see more nonprofit donors do. And if they did, it might just transform the sector.
- Take Risks
The higher the risk, the higher the potential payoff. A nonprofit organization may not be able to guarantee the outcomes or numbers that they are projecting, but you can’t realize big numbers and outcomes without taking risks. What if instead of always taking the safe route of investing in well-proven programs, you took a chance every once in awhile and funded a new innovative solution? What if you set aside a portion of your giving to invest in those crazy, bold, awesome new ideas? Because the complex problems we are facing require completely new solutions, and those require risk.
- Provide Capital
I know I sound like a broken record sometimes but a nonprofit can not survive on revenue alone. Every once in awhile a nonprofit organization needs money to build or strengthen their organization. Money for technology, systems, staffing, evaluation. You may not think these things are sexy, but they are incredibly necessary. Because how in the world can you have an effective, efficient program if you have no mechanism for tracking data, or evaluating results, or streamlining systems?
- Provide Patient Capital
If you make an investment in something risky or in building an organization, that investment takes time to pay off. You cannot expect a nonprofit to execute on a change plan in a couple of weeks or months. The bigger the investment and change you seek, the longer it takes to see results. Take a deep breath and let your investments pay off, over time.
- Leave Your Ego at the Door
Oh please, please, please don’t assume that just because you have money you have all the answers. Most nonprofit leaders are program experts who have been working on their particular social problem for some time. They may not have all the answers, but they probably know more than you do. They live in the trenches. That’s not to say they shouldn’t be open to new ideas, questions and insights, they absolutely should. But at the end of the day, invest in them and get out of the way so that they can do what they do best.
- Support the Sales Function
We all understand that in the for-profit world a business can’t exist if it doesn’t have a process for selling the products it creates. And that process takes money. Whether you hire a sales team, or do advertising, or shout from a megaphone you must have a way to encourage people to buy your product. The same is true in the nonprofit sector. The only difference is that “sales” is called “fundraising.” Nonprofits must have a process for bringing money in the door in order to keep providing programs. And that process has costs–a Development Director, a donor database, materials. Don’t thumb your nose at the sales function. It is absolutely critical to the success of the organization. So help fund it once in awhile.
God love them, but sometimes nonprofit donors drive me nuts. Their hearts are in the right place, there is no doubt. But if we could encourage them to provide more risky, patient, self-less capital it could transform the sector.
Photo Credit: yellowmeansgo
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