What Social Value Do Nonprofits Really Create?

I have a new post up at the Change.org Social Entrepreneurship blog called “What Social Value Do Nonprofits Really Create?” Here is an excerpt:

There is a concept that good entrepreneurs know only too well, but nonprofits could stand to explore. A “value proposition” is the unique value a product or service provides a consumer. Without a value proposition a business has no place in the market. For a nonprofit, a social value proposition is just as critical to success, but often ignored. In an increasingly competitive marketplace, due in part to the growth of for-profit social entrepreneurs, nonprofits must analyze, articulate, and deliver on a social value proposition.

In the past, nonprofits could exist without a value proposition. Donors wouldn’t argue that a library, homeless shelter, food pantry or school provided a necessary service. But as we move further down the road of social innovation, the assumption that money will automatically follow good works is no longer valid…

You can read the entire post here.

Tags: nonprofit, social entrepreneurs, social value proposition

Financing Not Fundraising: The Plan

A few months ago I argued that nonprofits need to stop fundraising and start financing for social impact. As I wrote:

Fundraising in its current form just doesn’t work anymore.  Indeed, traditional fundraising is holding the sector back by keeping nonprofits in the starvation cycle of trying to do more and more with less and less. Really, what the sector needs is a financing strategy, not a fundraising strategy.  By that I mean that nonprofits have to break out of the narrow view that traditional FUNDRAISING (individual donor appeals, events, foundation grants) will completely fund all of their activities.  Instead, nonprofits must work to create a broader approach to securing the overall FINANCING necessary to create social change.

The idea is that nonprofits can no longer work towards social impact on one side and throw a gala event (or send out a direct mail appeal or write a grant) on the other side and think that this disjointed, haphazard way of funding their work is sustainable. To truly achieve social impact, nonprofits need to take a huge step back and figure out how to employ all of the financial tools available to them in an effective, integrated way.  This is how you finance, rather than fundraise for, social impact.

Over the next few months, in an occasional series titled Financing Not Fundraising, I will elaborate on this argument and demonstrate what financing, as opposed to fundraising, for social impact looks like.

Today I will launch the series with the core element of the idea, which is a financial plan. In essence, a financial plan is a key element of, not separate from, a nonprofit’s strategic plan. That means that the goals of the strategic plan are created with the full knowledge of 1) what it will cost to reach those goals and 2) how the money to cover those costs will be secured.

A financial plan differs from a fundraising plan in a number of ways. A financial plan, unlike a fundraising plan:

• Includes ALL activities that bring money in the door (individual donors, foundation grants, earned income, corporate sponsorships, government contracts, loans, etc.) and fully integrates them into an overall strategy and execution plan.
• Supports the short AND long term goals of the organization
• Funds the programs AND infrastructure of the organization. It recognizes the necessity of and supports not only the nonprofit’s direct service activities, but also, the infrastructure, systems, planning and other organization building that will ensure that those services thrive and grow
• Understands the characteristics and uses of different kinds of money (i.e. revenue versus growth capital, loans versus grants) and employs each available financial vehicle in the most effective way
• Employs money-securing activities that are in line with, not opposed to, the core competencies of the organization

What I am suggesting is that nonprofits stop exhausting their boards, staffs, donors, friends, and clients with a series of disjointed activities that are meant to raise money, but actually just end up making poor use of a nonprofit’s already limited resources. Instead, nonprofits need an integrated, thoughtful, strategic financing plan that makes social impact a reality.

Photo Credit: Steve Wampler

Tags: direct mail appeal, financing not fundraising, Fundraising, gala event, growth capital, nonprofit, strategic plan

What’s the Cost of Bad Decisions?

I have a new post up at the Change.org Social Entrepreneurship blog about the cost of making bad decisions in the nonprofit sector. Here is an excerpt:

There is an economic concept that is beautifully profound in its simplicity, but often overlooked in the nonprofit sector. Opportunity costs are the cost (financial, time, resource, other) of what you have given up in making a choice between two or more options. Understanding the opportunity costs of decisions is particularly important when resources are scarce, as is the case in the nonprofit sector. Key to the concept of opportunity costs is that you are consciously analyzing two or more options and what you must give up in choosing one over the others. Because the nonprofit sector is undercapitalized, money is king. A driving motivation in many nonprofits is to preserve money, or go after money, at all costs. So the idea of opportunity costs is often thrown out the window…

You can read the full post here.

Tags: Change.org, nonprofit, opportunity costs, Social Entrepreneurship

The Social Capital Markets Conference 3.0

I just registered for this year’s Social Capital Markets Conference held in San Francisco in October. It is my favorite conference in the social innovation space for a number of reasons, and I think this year’s conference (the third) may just be even better.

The Social Capital Markets Conference brings together social entrepreneurs (both for-profit and nonprofit, although the latter have gotten less airtime in past years) and those who invest, or would like to, in them.  Last year it really felt as if the conference and the incredibly talented and visionary people attending it were at the beginning of something pretty amazing, new ways of providing sufficient capital to social solutions.

This year promises to go much broader and deeper exploring the financial tools and vehicles that social entrepreneurs need and how we create them. For starters, Sean Stannard-Stockton of Tactical Philanthropy is addressing the conference’s tendency in past years to downplay nonprofits and philanthropy at the conference by leading a new “Tactical Philanthropy Track” that will, as Sean has said:

Bring more donors and nonprofits to the “social capital markets table.” To that end, we’re building a series of panel sessions that examine the way in which philanthropy is an integrated part of the social capital markets, not a separate activity. Our sessions will give donors, nonprofits, investors and for-profits the opportunity to examine together the role that philanthropy plays in social capital markets.

Secondly, representatives from the Bill and Melinda Gates Foundation will be at the conference to discuss their decision to put $400 million behind their new Program Related Investments program, which I’ve discussed before as a watershed for the social capital market. The SoCap conference website explains what the Gates session will do:

Gates foundation will discuss the foundation’s PRI initiative including the rationale for charitable investment, the value of investment partners to leverage expertise and capital, and the foundation’s hopes for philanthropy in the social capital market. Remarks will be followed by a deep dive into their experience putting this PRI approach to work with Root Capital.

The Gates Foundation decision to put 1% of their capital into a fund to provide risk capital to social entrepreneurs has the potential to encourage other foundations to similarly experiment with new tools for investing in social entrepreneurs, which ultimately means more dollars in the social capital market.

It’s exciting to see what started three years ago as a small conference of less than 600 (a number achieved only at the last minute by a deluge of laid off investment bankers from the financial collapse) becoming arguably the most important conference in the social innovation space. I hope to see you there!

Tags: nonprofit, Philanthropy, Social Capital Markets conference, social entrepreneur, Social Investing, Tactical Philanthropy

What Nonprofits Can Learn From Social Entrepreneurs

It seems that the social entrepreneurship movement is taking the world by storm. In recent years tremendous energy, new ideas, and (we hope) resources are moving toward solving social problems. Saving the world has suddenly become cool.

But, as I’ve written before, we can’t forget the sector that was working on saving the world long before it was cool–the nonprofit sector.  And in fact, there is much that the social entrepreneurship movement can offer to rethink, reinvigorate, and remake the nonprofit sector.

To that end, Social Velocity has just released a new white paper, “What Nonprofits Can Learn From Social Entrepreneurs,” detailing what nonprofits can borrow from the movement in terms of financing, articulating, planning and thinking about their work. Here’s an excerpt:

Social entrepreneurship is not a panacea. But there are things to be learned from a movement that is re-envisioning the future, finding new ways to finance social impact, working towards BIG goals and turning the status quo on its head. The social innovation movement provides an opportunity for the nonprofit sector to see things in a new way and move the best ideas forward. And in doing so, the nonprofit sector–the people, organizations, and resources it encompasses–could revolutionize social change in this country. But becoming more innovative involves some dramatic changes in a nonprofit’s mindset, goals, and approach to funding.

Nonprofits need to think bigger–much, much bigger. One thing that all social entrepreneurs have in common is their predilection toward bold thinking. What if nonprofit organizations took a new approach and became bold? Really BOLD. This change in perspective, in goals can revolutionize an organization. No longer are the board, staff and funders content to add a few sites each year with no end goal. Rather, they understand and rally around their long-term goal, which is to solve a problem. And they see every effort they make, every meeting they come to, every investment they secure as getting them that much closer to that solution. It can transform an organization, and ultimately solve a problem…

You can download the white paper here.

Photo Credit: SI Camp

Tags: nonprofit, Social Entrepreneurship, Social Velocity

We Need an Ecosystem for The Bottom 80%

In response to my post last week on the Change.org blog about the Social Innovation Fund, Sean Stannard-Stockton, of the Tactical Philanthropy blog, wrote a comment that really got me thinking.

My post argued that the $50 million federal Social Innovation Fund is only one small piece of the capital the nonprofit sector needs. The fund will help the top nonprofit organizations, but will not remedy the lack of capital available to the smaller, less sophisticated nonprofits that make up the majority (80%) of the sector. Sean rightly pointed out that like the business sector, the vast majority of nonprofits are small, and as we have done with businesses, we need to create different expectations for different kinds of nonprofits.  I would take Sean’s comments even further and argue that we actually need to create a similar ecosystem of funding and expertise for the nonprofit sector, as we have done for businesses.

Sean writes:

One thing I think that people need to keep in mind when they point to how many nonprofits are small is that the same is true in business. While good revenue numbers are hard to find, did you know that 73% of for-profits have less than 10 employees and 54% have less than 4 employees? It seems to me that as a field we need to do a better job of segmenting the nonprofit market and having very different expectations for nonprofits which are “small businesses” vs those that are “public companies.”

Sean makes a critical point. The vast nonprofit sector is often lumped together as one. When in reality, the sector is incredibly diverse. And although over the past 10 years there have been some innovative strides made in providing capital, expertise, and other resources to the top 20% of the nonprofit sector (such as venture philanthropy funds like New Profit and Venture Philanthropy Partners and management expertise from consulting companies like Monitor and Bridgespan) the fact remains that the “bottom” 80% of the nonprofit sector is still very much alone.

This is one of the reasons I started Social Velocity. I saw a real hole in the marketplace in terms of capital and management expertise to the bottom 80% of the nonprofit market. A $500,000 nonprofit organization can’t engage a Monitor or Bridgespan group, and a venture philanthropy fund wouldn’t be interested in scaling them since no one will fund evaluation to prove their results.  These organizations are stuck within the vicious starvation cycle and cannot get out.

We need to do a better job, as Sean says, of segmenting the nonprofit sector and creating appropriate expectations for those different segments, but we need to go much further. We have to create an ecosystem of expertise and funding for the smaller, less sophisticated segments of the sector, which includes:

• Educating smaller, less sophisticated philanthropists that creating solutions requires funding for less sexy things like capacity, organization building, evaluation
• Providing significant capacity capital to build out revenue functions, attract and retain top talent, articulate a value add, message effectively
• Supplying growth capital to nonprofits who have a great solution and the desire to scale
• Creating realistic and cost-effective evaluation tools so that smaller organizations can prove their impact along with the big guys
• Securing management expertise to help smaller nonprofits create strategic and growth plans, articulate their impact and value add to potential investors, develop comprehensive financial strategies, etc.

I think it’s fabulous that there is a growing understanding that nonprofits can’t do it alone anymore. And I’m so pleased to see new funding vehicles like the Social Innovation Fund that are helping to take social innovation to the next level. But let’s not forget that there are many other innovative nonprofit organizations that will never catch the eye of the Social Innovation Fund, or their funding and consulting counterparts.

Over the past 200+ years America has established a fairly advanced ecosystem that supports (albeit not perfectly) the growth and success of entrepreneurs at every stage of the game.  We are starting to recognize the need for a similar ecosystem in the nonprofit sector.  But there is still much work to be done. Let’s not forget the smaller, less sophisticated nonprofits that may have tremendous solutions to contribute, but who just can’t get past the many hurdles in their way.

Tags: Bridgespan, growth capital, Monitor, New Profit, nonprofit, nonprofit starvation cycle, philanthropists, Sean Stannard-Stockton, Social Innovation Fund, Social Velocity, Tactical Philanthropy, Venture Philanthropy Partners

7 Things Board Members Can Do To Raise More Money

I am often asked by exhausted board members and executive directors what the board can do to raise more money. My answer, let me tell you right away, is NEVER to launch a new event.  Don’t get me started on my anti-events rant, that’s another post.

But there are other things that board members can do to raise significantly more money for their organization, in a much more effective way.  Here are 7 to get you started:

1. Invest. Make a significant financial investment in the organization.  This is so obvious, yet rarely does a nonprofit organization enjoy 100% giving from their board.  And those that do, often have several board members who are only making “token” gifts.  If the nonprofit on whose board you serve isn’t on the list of your top 3 nonprofits and you aren’t allocating your philanthropic dollars accordingly, then get off the board.




2. Open Doors. Open up your network to the organization. We all have friends, colleagues, co-workers, family members, neighbors.  They may not all be $10,000+ level givers, but you would be surprised at the capacity that probably does exist there.  If you really believe in the organization, then spread the word about your involvement to your network and encourage them to become involved.  If you’re uncomfortable doing this then perhaps you need to rethink how committed you are to the organization.




3. Get Strategic. Demand that your nonprofit create a strategic plan. Without an articulated direction and a strategy for getting there how are you going to get donors to invest? So many nonprofit organizations operate without a plan, and that’s probably why they struggle to raise funds. People donate to a cause, but they invest in a executable strategy for impact.  The former results in small gifts, the latter brings big dollars.




4. Expand the Revenue Model. Often nonprofit organizations take a narrow approach to thinking about bringing money in the door.  They may have a direct mail campaign, get some government and foundation grants and call it a day. Instead, take a bigger picture view of the business that you are in and the various ways you could finance, not fundraise for, the end goal. Executive and development directors are often so caught up in the day-to-day of funding operations that they don’t have the luxury of taking this big picture view, but that’s where the board can step in.




5. Fund Revenue-Generating Capacity. Make sure the organization invests in sufficient development capacity. Budget for and find a top-notch development director. Secure outside expertise to create a solid, executable development plan. Train the board on their role in fundraising. Don’t ask the organization to cut corners on development expenses, because you will just pay the price later.




6. Articulate Why Someone Should Give. It’s so obvious to you why you are involved in your nonprofit. But can you articulate that to others in a compelling way? Can you demonstrate how a significant community problem is being solved by your organization? Can you do it in 2 minutes? Can the other board members and the staff do it? If not, then you need to create a case for support.




7. Get the Board on Board. Once you’ve done all of these things, get your fellow board members on the boat. The nonprofit sector is structured to be led by consensus. So it isn’t enough for you as a sole board member to “see the light.”  You have a responsibility to convince your fellow board members that they can’t think small anymore. They have to invest, get strategic, open doors, and so on.  Once you are all on the same page, you will be a force to be reckoned with.

I promise you, there is an answer. It doesn’t have to be so hard. Board members can help their struggling nonprofits to find a path toward financial sustainability.

Tags: Board of Directors, case for support, development director, nonprofit, nonprofit events, raise more money

The Change.org Social Entrepreneurship Blog

I am delighted to announce that I’ve been asked by the Change.org Social Entrepreneurship blog to become a regular contributor.  It’s a real honor to be part of this phenomenal blog, so I hope that you will check it out and join the conversation.

I will still write for the Social Velocity blog as often as I have been, but if you’re interested in my additional posts, check them out there.  My first post “The Danger of Abandoning the Nonprofit Sector” is up today, and here’s an excerpt:

With all the excitement and energy around social entrepreneurship, there’s a tendency to dismiss the sector that was working on social impact long before it was cool: the nonprofit world.  These days, nonprofits get far less airtime in the social innovation movement than their for-profit, social entrepreneur counterparts…Again and again, I’ve heard that innovation will never become part of the nonprofit system — that nonprofits are too set in their ways. Or that the sector is too broken to emerge anew. That attitude, though, is unacceptable. There’s great danger in dismissing the sector. Sure, it’s inefficient, dysfunctional and broken. Yet it has tremendous potential for innovation. Indeed, without innovation in the nonprofit sector, the broader movement to solve social problems is doomed…

Tags: Change.org Social Entrepreneurship blog, nonprofit, Social Entrepreneurship

Can PRIs Support Fundraising and Capacity Building?

Lucy Bernholz is hosting a great conversation on her Blueprint Research and Design website called “What Capital When?” As part of their work with the John D. and Catherine T. MacArthur Foundation in their Digital Media & Learning initiative, Blueprint is hosting this online conversation around the theories and strategies of program-related and mission investing to advance knowledge and research in the field. They asked that I do a guest post on using PRIs (program related investments) to improve the fundraising effectiveness of nonprofit organizations. Below is that post. You can also read the post on their What Capital When site here, and you can read the whole series here.

I think there is a tremendous opportunity that most foundations and nonprofits are missing.  PRIs (program-related investments) are an under-used tool that could provide much needed capital for nonprofits to transform how they finance social impact.

PRIs are loans that foundations make to nonprofits at low, or no interest.  At the end of the loan period (typically 3-7 years) the loan is repaid, or forgiven.  PRIs are usually used for capital projects or land purchases in the nonprofit world.  But they could also be used to increase the fundraising capacity of a nonprofit organization, through increased fundraising knowledge, planning, tools and staffing.  The current economic climate seems like the perfect opportunity for this new use of PRIs when foundations are trying to hold on to their dwindling corpus while maintaining their past level of community support.

A nonprofit could use a PRI to improve their fundraising infrastructure in several ways:

• Create a strategic development plan. Many nonprofits don’t have the expertise or time to put together a strategy for how they will bring money in the door.  With funding to hire an outside consultant to put together such a plan, the nonprofit would have a much better chance of increasing their fundraising revenue.
• Get fundraising training for their staff and board. If a nonprofit staff and board have the tools and expertise for successfully raising money, they will be more likely to do so.
• Hire a seasoned Development Director. Many nonprofit organizations can only afford to pay the bare minimum for a Development Director, which means that they are often forced to hire someone with little experience who must learn on the job.  If instead they had enough funding to pay a market rate salary for a seasoned fundraiser, they could hit the ground running, increasing the likelihood of fundraising success.
• Purchase a new donor database. A key element to success in individual donor fundraising is an organization’s ability to capture and use data about donors and prospects.  A good donor database makes this effort easier and more successful.
• Upgrade their website, email marketing, social media efforts. As direct mail appeals (a nonprofit fundraiser’s traditional standby) continues to become less and less effective, nonprofits need to move effectively into the online world.  Funds for technology upgrades and staff could help them do this.
• Launch a major gifts campaign. The vast majority of private funding in the nonprofit sector comes from individuals (80+%), so to stay competitive nonprofits need to move into the world of major gift solicitation.  But that takes expertise, staff, collateral and other infrastructure elements.

These are just a few examples of how nonprofits could make investments to strengthen their fundraising efforts. But currently it is difficult to find funding to support things like this.

But a PRI could provide an initial investment that sets the nonprofit on a path toward more diversified, more sustainable fundraising for the social impact they are working to create.

There are tremendous benefits to a PRI program like this.  First, for the foundation:

• Increases their ability to meet past levels of giving, despite any losses they might have found in the market, because the loaned money will eventually come back to them.
• Encourages their nonprofit grantees to be proactive in creating fundraising streams that will make them more sustainable.  Thus, increasing the likelihood that their nonprofit grantees a) won’t have to come back to them year after year for ongoing support and b) will become more sustainable and thus achieve greater social impact.
• Stretches their capacity-building dollars further. Because PRI money eventually comes back to the foundation, they can increase their level of impact by helping more nonprofits improve their capacity than they could with grants alone.
• Increases the level of accountability among nonprofit recipients because of the expectation of repayment.

And second, for the nonprofit:

• More diversified and sustainable fundraising streams.
• Increased fundraising knowledge and experience.
• Increased ability to work towards social impact.

Although PRIs used in this new way seems, at least to me, to be an obvious win-win, very few foundations are doing it.  PRIs in general are used (according to the Foundation Center) by only a few hundred of the thousands of grantmaking foundations in the country.  And I know of only one example of a foundation using a PRI to upgrade the fundraisng capacity of a nonprofit (the KDK Harman Foundation in Austin just launched a program like this last Fall, but does not yet have any participants).

So what is holding foundations back from launching a PRI program like this?  A number of things:

1. Nonprofits lack the expertise to put a plan together and pitch it to foundations. This is where Social Velocity comes in to help nonprofits create a plan to upgrade their revenue function and pitch that plan to foundations and other funders.
2. Most foundations  have an aversion to capacity building funding and prefer that their money go to direct program service.  However, as more nonprofits can demonstrate to funders that capacity building actually results in even more impact, this aversion can be alleviated.
3. Foundations lack awareness of or experience with PRIs.  However, this is changing, especially in the last year when the poor economy has made foundations increasingly interested in finding alternative ways to maintain community investment levels.
4. Foundations that are experienced with PRIs are not aware of using them to improve a nonprofit’s fundraising function.

So there is a disconnect.  But I am optimistic that as nonprofits learn to put a plan together to upgrade their fundraising function and articulate to funders how PRI’s could finance it, more examples of this new use of PRIs will surface.

Tags: Blueprint Research and Design, Development, Foundation Center, Fundraising, John D. and Catherine T. MacArthur Foundation, KDK Harman Foundation, Lucy Bernholz, nonprofit, PRIs, program-related investments, What Capital When