Nonprofits Assistance Fund
There were some pretty exciting things happening in the world of social innovation last month. From a new fund to make philanthropy more effective, to a new blog series written by funders making the case for investing in nonprofit leadership, to some ideas for making performance measurement more accessible to small nonprofits and arts and culture organizations, to some interesting partnerships between philanthropy and city government.
It all made for a great month of reads. Below is my pick of the 10 best reads in social innovation in September. As always, add what I missed to the comments. And if you want a longer list, follow me on Twitter, Facebook, Google+ or LinkedIn.
You can read past months’ 10 Great Social Innovation Reads lists here.
- The Fund for Shared Insight, a collaboration among seven major foundations, launched in September. The group plans to “pool financial and other resources to make grants to improve philanthropy…to encourage and incorporate feedback from the people we seek to help; understand the connection between feedback and better results; foster more openness between and among foundations and grantees; and share what we learn.” They plan to be very transparent with this entire experiment. I can’t wait to see what develops.
- Another development in the realm of improving philanthropy was the launch of the Stanford Social Innovation Review blog series where foundation leaders discuss why and how they have invested in nonprofit leadership development. As I mentioned earlier, Ira Hirschfield from the Haas Foundation kicked off the series, and Surina Khan from the Women’s Foundation of California was next up. To have such an open dialogue about nonprofit capacity investments, particularly around leadership development, is amazing. Let’s hope it encourages similar conversations outside the blogosphere.
- And the third piece from the world of philanthropic enlightenment, Daniel Stid of the Hewlett Foundation wrote a great post about ending the nonprofit starvation cycle. As he put it, “Effective leaders need to be willing to take the risk of saying something that a funder might not want to hear when their organization’s long run effectiveness is at stake. If they are not, then shame on them. Funders, for our part, should fund the full cost of the work we are asking our grantees to undertake in a way that leaves their overall organization and its finances whole; if we don’t, then shame on us.” Amen!
- There is further evidence that philanthropy as we know it is changing – a new report by The Economist takes a hard look at how Generations X and Y (those born between 1966 and 1994) are transforming philanthropy, particularly around “a strong desire to have a measurable, enduring impact.” This is exciting because if donors increasingly invest based on results, we can shift more money to social change. As the authors of the report put it, “The young generation of givers is focused on data, measurement and demonstrable results. More than any other generation, they want to check facts, know all the information ahead of time and ensure that they are well-informed at every stage of the process.”
- And there was lots to say about measuring performance this month. The Foundation Center and WINGS, a global network of 90 support organizations serving philanthropy in 35 countries, announced the creation of The Global Philanthropy Data Charter to gather and share philanthropy data for public benefit.
- Measuring impact is complex and costly, but Carly Pippin from Measuring Success, offers 4 steps for how small nonprofits can assess impact affordably.
- Measurement is particularly challenging in the arts and culture arena because, as Natasha Bloor of The Old Vic Theatre explains, “There is an understandable reticence within the cultural and creative industries when it comes to proving the social value of art. For many, the arts have an intrinsic worth that cannot be mapped or measured, with the primary benefit found in creative self-expression itself, rather than the longer-term effects experienced afterwards.” But she offers a new approach that they have found very effective.
- And for a completely free way to assess the social value of building low-cost housing, child-care centers, and health clinics there is the Social Impact Calculator, developed by the Low Income Investment Fund. They developed the tool to measure the effect of their own work and then decided to share it.
- Stephanie Jacobs of the Nonprofits Assistance Fund offers some tips to turn your board into the financial leaders they need to be.
- And finally, there were some interesting examples of partnerships between local government and philanthropy aimed at strengthening cities. Rona Jackson from Living Cities described 5 ways philanthropy and local government can work together. And the Kalamazoo Promise, a partnership between local philanthropists and city schools that pays tuition at a Michigan college for any student who graduates from a Kalamazoo school, shows these ideas in action.
Photo Credit: Valerie Everett
A couple of fascinating debates – one about the role of philanthropy in democracy, and one about the value of nonprofit evaluation – were fascinating reads. And I always love a good controversy, so July gladly provided at least two. The much heralded “sharing economy” came under fire and the hype around social impact bonds was called out.
Below are my 10 favorite reads from last month. If you want to see a longer list of great reads, follow me on Twitter, Facebook, LinkedIn or Google+. And you can see past months’ 10 Great Reads lists here.
- There was a really interesting debate on the Markets for Good blog (always a place for thoughtful conversation) between Andrew Means and Patrick Germain about the value of program evaluation and performance measurement in the nonprofit world. Andrew Means kicked it off here and here and Patrick responded here.
- I absolutely love it when someone makes you think about something that you took for granted in a whole new way. Conventional wisdom is that the sharing economy is a democratizing development. But Max Holleran, writing on the OpenDemocracy blog, argues that perhaps it is the complete opposite. As he says, “Our concept of what sharing means has gone from The Gift to the paid-for lift…How we assess public goods has also changed dramatically: urban commons have been ceded to private-public management initiatives.”
- The Hewlett foundation announced a new $50 million initiative to “strengthen representative democracy in the U.S.” And that announcement inspired a thought-provoking back and forth about the role of philanthropy in democracy among Daniel Stid and Larry Kramer (both from Hewlett) and Maribel Morey (assistant professor of history at Clemson University), via a Stanford Social Innovation Review blog post and the subsequent comments to the post. No matter your politics or your views on philanthropy, it is refreshing to see such an open discussion about a foundation’s efforts.
- On a somewhat related note, Amy Schiller argues that we cannot allow philanthropy to be a “workaround” to the “friction of democracy, ” which is necessary for truly solving social problems.
- To get more funders to invest in nonprofit organization building we need more data and case studies on the return on investment. Building the case for funder investment in nonprofit technology capacities, Berta Colón, Cynthia Gibson, Michele Lord, and Geraldine Mannion examine recent data on building nonprofits’ digital reach, and the Knight Foundation provides a case study on how National Public Radio (NPR) built their digital skills.
- I love New York Times food columnist Mark Bittman for his fabulous recipes and views on food, but recently he’s become somewhat of a food activist, and his article on the the true (social) costs of a burger is eye-opening.
- Is there hope for the famously dysfunctional nonprofit board? A new report from Urban Institute suggests we need to raise our expectations of nonprofit boards. Let’s hope!
- I know I’ve been including Steven Pressfield in my round ups lately, but this man really knows how to inspire people to fight the demons that face them in order to create whatever they were put on this earth to create. His recent blog series entitled “Why” does just that. I think social changemakers, more than anyone, need this kind of inspiration.
- Curt Klotz from the Nonprofits Assistance Fund argues that nonprofits must price their services according to value because “there is no virtue in self-imposed austerity that leads to mediocrity in our programs, and constant turmoil in our finances.” Amen to that!
- Writing on the PhilanTopic blog, Laura Callanan pulls back the curtain on some of the hype around social impact bonds and social innovation in general. Instead of falling victim to shiny object syndrom she asks that “we all bring our critical minds – as well as our open hearts – to the job of social change. Let’s celebrate the potential in the new approaches but also integrate them with prior experience and test them with our constituents…Let’s remember that a tool is just a tool.”
What thought-provoking or controversy-inspiring read caught your eye last month?
Photo Credit: Josue Goge
In this month’s Social Velocity blog interview, we’re talking with Kate Barr, Executive Director of Nonprofits Assistance Fund, whose mission is to foster community development and vitality by building financially healthy nonprofit organizations. Kate has led the organization’s growth as a premier resource for training, strategic financial counsel, and financing for nonprofit organizations in Minnesota. Kate enjoys helping nonprofits consider the relationship between their mission and program goals and their financial and organizational strategy. She frequently writes and speaks on nonprofit financial and strategy and is lead blogger for Balancing the Mission Checkbook.
You can read past interviews in our Social Innovation Interview Series here.
Nell: Nonprofits Assistance Fund is all about helping nonprofit leaders become more financially savvy. Why do you think strategic financial management is so important for nonprofit leaders and what holds some nonprofit leaders back from achieving it?
Kate: I think about it this way: if strategic direction in general is important for nonprofit organizations, then strategic financial management is equally important as a component of that direction and vision. When a nonprofit develops a strategic plan they are also adopting a financial strategy. Too often, though, that financial strategy is underdeveloped because the vision and strategic goals don’t incorporate the business model that’s required to support the plan. At Nonprofits Assistance Fund we unpack the financial aspect of a nonprofit business model into four inter-connected components: revenue mix; cost of effective programs; infrastructure; and capital structure. I see the biggest obstacle to understanding financial strategy is the singular focus that many nonprofit leaders place on revenue, revenue, revenue. If we could just raise enough money, they think, it will all work out. In reality the business model is more complex than that. The extreme revenue pressures that many nonprofits have faced over the last few years have uncovered the vulnerability of business models. Fortunately, savvy leaders are stepping back to understand the strengths and weaknesses of their financial strategy and being more intentional about identifying and creating a business model that can work.
Nell: A few months ago you wrote a rebuttal to the Center of Philanthropy’s recent survey that claimed nonprofit managers lack solid financial knowledge. What would you say is the actual extent of financial knowledge among the leaders of the nonprofit sector? And what can we do to improve it?
Kate: Yes, I was critical of the study because the findings were based on an extremely narrow test of knowledge to define financial literacy. As we said in the column, the report did not make a connection between the “lack of financial knowledge” based on the survey and the health and vitality of the nonprofits and their missions in the community. Frankly, the fact that so many nonprofits have been able to respond to huge increases in demand for service without going over the cliff is testament to some pretty remarkable financial skills. The direct answer to the question, though, is that the financial knowledge is mixed. Anyone with financial management responsibility needs to understand the terminology of nonprofit finance and know how to read and make use of financial information. Leaders of nonprofits need to have both technical knowledge – what I would categorize as financial management skills – and leadership capacity to navigate changes to their business models. There has been a lot of progress in building financial management skills as the field has become more professionalized. There are many training opportunities for skill building, both in person workshop and online learning (including Nonprofits Assistance Fund’s training workshops and webinars). Financial leadership capacity requires more than a few classes. It takes experience, knowledge, and guts to align mission, strategic plan, and financial structure in a way that build sustainable community impact. I think the ideal nonprofit leader combines passion for the mission with excitement for the business challenge.
Nell: There is a phenomenon in the nonprofit sector that when business people join a nonprofit board they often leave their financial and business acumen at the door fearing it could muddy the charitable work of the organization. Why do you think this is and what can we do to overcome that tendency?
Kate: I’ve seen two different dynamics when this happens with board members: wishful thinking and misunderstanding. The wishful thinking problem arises when board members believe that nonprofits operate outside of the market and that their good work can be performed with minimal cost and simple revenue streams. The misunderstanding is just another version of the “nonprofits should operate more like businesses” myth. Nonprofits are businesses. This “advice” underestimates the complexity of nonprofits as business enterprises. Board members can’t be effective unless they understand how the enterprise works and what the board’s role is in planning and governing. Overcoming this tendency starts with board leadership and carries through recruiting, orientation, and ongoing board development. The executive director or CEO has an important role to work with the board chair or governance committee to prepare and support board members’ ability to understand and build the business.
Nell: One of the most exciting developments in the last year or so is the growing interest in and experimentation with social impact bonds, or pay for success bonds, a public/private funding vehicle for nonprofits based on outcomes. Minnesota has already begun to experiment with a $10 million pilot. What, if anything, has Minnesota learned so far and what do you see as the future for this new financial vehicle?
Kate: There is a lot going on in efforts to develop models and financial structures to pay for results, including social impact bonds, pay for success contracting, and the Minnesota pay for performance pilot. The Minnesota state legislature approved a $10 million state appropriation bond to test a pay for performance approach for some state funded programs. The Minnesota pilot is the first experiment to use an actual bond offering as the financial structure. The advisory committee started meeting early this year and has just issued a Request for Information for nonprofit service providers in workforce development and supportive housing. What we’ve learned so far in developing the Minnesota pilot is that every question leads to three more questions. Part of the complexity stems from the goals. In each of the models in development there are actually multiple goals: identifying program designs that work; saving the state money; attracting new funds; and sharing or transferring financial risk. Any one of these goals requires capacity to deliver and appropriate measures for success. Combining all four goals, as most of the models do, creates something of a bear to design and evaluate. Some of the open questions in Minnesota include: the methodology for the economic measure of success; the role of evaluator; the time-frame for measuring and valuing ROI to the state; access to the data that will be used for monitoring; the market for the bonds; and the appropriate level of risk for nonprofits to bear. The Minnesota pilot does not transfer the financial risk to the bondholders in the same way as the SIB model so there is also a working capital gap for the service providers. We are assessing what will be needed for our loan fund to help with that. As for the future, while there is great enthusiasm for these ideas and pilot projects we have to keep in mind that this is all still early stage with lots of lessons to be learned before we even know if these can attract significant new funds.
Nell: One of the big debates in the nonprofit sector centers around a distinction between program and administrative (or “overhead”) expenses. Rating agencies are just starting to realize that this distinction is damaging to the nonprofit sector. But how do we really move beyond this and get a majority of funders, regulators and others to recognize the danger of evaluating nonprofits based on how they spend money versus how they achieve results?
Kate: Is this even really a debate anymore? There’s pretty universal agreement that the functional expense ratio doesn’t measure nonprofit effectiveness, efficiency, or accountability. The challenge now is communication and education. This one ratio has so dominated every nonprofit financial measurement that we are forced to try and undo decades of practice. Nonprofits bought into the ratio, too, and reinforced it with pie charts and donor messages about how “every dollar goes to program”. Is it any surprise that donors listened and believed us? It took years to create the “standard” that expense ratio is the most useful measure for nonprofit financial results. Unfortunately it’s going to take time to re-educate. We have to start within the nonprofit field itself. There are still many nonprofits that promote their low overhead ratio in fundraising because, they claim, it helps them to attract and retain donors. It’s easy to calculate and communicate. Rather than battle the monster that we helped to create, I think we need to change gears, replace the ratio with more meaningful information about impact and financial health, and raise expectations for results. I really appreciate that Financial Scan, the new product from Guidestar and Nonprofit Finance Fund, doesn’t even include the functional expense ratio on the financial health dashboard or accompanying analysis reports. None of the other ratios – that are much more useful – are quite as simple, though. We’re going to be having this “debate” for some time to come.