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The Fundamental Flaws in How We Finance the Nonprofit Sector

NFF SurveyToday the Nonprofit Finance Fund (NFF) released the results of their sixth annual State of the Nonprofit Sector survey and the data underlines a growing crisis in the financial sustainability of our nonprofit sector.

56% of nonprofit leader respondents reported that they were unable to meet demand for their services in 2013, this is the highest rate since the survey’s inception six years ago. And the scary part is that this inability to meet demand is not because of a temporary down period in the economy, but rather because of deeper dysfunctions in how we funnel money to the sector. As Antony Bugg-Levine, CEO of NFF put it, “The struggles nonprofits face are not the short-term result of an economic cycle, they are the results of fundamental flaws in the way we finance social good.”

The survey gathered responses from more than 5,000 leaders from U.S. nonprofits of all sizes, domain areas, and geographies.

The top challenge by far for nonprofit leaders, with 41% of them reporting it, is “achieving long-term financial stability.” And this is evidenced in several ways:

  • More than half of nonprofits (55%) have 3 months or less cash-on-hand.
  • 28% ended their 2013 fiscal year with a deficit.
  • Only 9% can have an open dialogue with funders about developing reserves for operating

These struggles with financial sustainability stem in large part from a lack of understanding among funders of the true costs of social change work. Roughly 53% of nonprofit respondents’ funders rarely or never fund the full costs of the programs they support. And for approximately 24% of respondents their government indirect cost rate (the amount government allows for indirect, or “overhead” expenses) declined over the last 5 years, while about 47% of respondents are subject to a government indirect rate of 9% or less. That is nearly impossible.

For the first time, the survey included questions about impact measurement, a growing interest among funders, ratings agencies and others in the sector. But these questions just further underline the financial Catch-22 in which nonprofit leaders find themselves. 70% of nonprofit leaders report that half to all of their funders want to see proof of the impact of their programs, but 71% of nonprofit leaders also report that funders rarely or never fund the costs of impact measurement.

At the end of the day, government and private funders are putting greater demands on nonprofits whose services are increasingly needed, all while funding is becoming more difficult to secure. It’s a vicious downward spiral.

More than ever this survey demonstrates a need for the nonprofit sector and those who fund it to take a hard look at how the social sector is financed. We are not sustainably financing the social change work we so desperately need. And if we don’t address that, the downward spiral will simply continue.

Here are some fundamental changes to the financing of the nonprofit sector that I’d like to see:

  • Government must move to a more reasonable indirect rate. No one can deliver an effective program with only 9% allocated to administration and other “overhead” costs.
  • Funders who want to see impact measures need to step up and fund the work and systems necessary to make it happen.
  • Nonprofit leaders and funders need to have more open and honest conversations about the hurdles standing in the way of the work.
  • Nonprofit leaders need help figuring out sustainable financial models.

In the six years of NFF’s comprehensive and unparalleled view into the world of nonprofit leaders the story is not getting better. Let’s hope this data serves as a wake up call for the social sector. We must collectively realize that if we really want social change we have to figure out how to finance it effectively and sustainably.

 

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10 Great Social Innovation Reads: March 2014

reading catCould it be that the nonprofit sector is coming into its own? Increasing prominence in the economy coupled with a growing (we hope) recognition of the need for stronger organizations, the nonprofit sector may be hitting its stride. Add to that some interesting discussions about the effect of crowdfunding and a “revitalizing” Detroit and you have a pretty good month of reading in the world of social innovation.

Below are my 10 favorite reads from March. But add what I missed in the comments. And if you want to see more of what I’m reading, follow me on Twitter, Facebook, LinkedIn, or Google+.

You can also see my favorites from past months here.

  1. It appears that the nonprofit sector is beginning to take center stage in a new economy. The rise of the “sharing economy,” where products and services are shared by many rather than owned by one (think Netflix, Car2Go, HomeAway), apparently holds tremendous opportunity for the nonprofit sector. So says Jeremy Rifkin in the New York Times, “We are…entering a world partly beyond markets, where we are learning how to live together in an increasingly interdependent, collaborative, global commons.” Erin Morgan Gore (writing in the Stanford Social Innovation Review) would agree.

  2. But at the same time, NPR describes a growing individualism in America and an emerging “Opt-Out Society.”

  3. And lest you forget why we do this social change work, Robert Samuelson, writing in the Washington Post, describes some “menacing mega-trends” facing America and our political system’s inability to keep up.

  4. We continue to be fascinated by the Millennial generation and this infographic very nicely puts to rest some myths about them.

  5. Writing in the Huffington Post, Ashley Woods questions whether the recent focus on revitalizing Detroit is helping or hurting long-time residents.

  6. Crowdfunding is increasingly gaining interest, but can it actually increase money flowing to social change? A new infographic by Craig Newmark, founder of Craig’s List, describes some recent crowdfunding results for nonprofits. And Beth Kanter digs deeper into the data.

  7. The CEO of The California Endowment, Dr. Robert Ross makes a compelling argument for why foundations need to move beyond funding new solutions and instead get into the advocacy and community organizing game: “Philanthropy has to recognize that community power, voice, and advocacy are, to use a football analogy, the blocking and tackling of winning social change.”

  8. Are funders beginning to understand the need to invest in nonprofit capacity building? Some recent research by The Center for Effective Philanthropy shows that, not surprisingly, nonprofit leaders think funders don’t understand their need for help with sustainability. But some new data from Grantmakers for Effective Organizations finds that funder appetite for capacity building might be growing.  And Rodney Christopher from the F.B. Heron Foundation makes the case for support of capacity building, “Failing to pay attention to nonprofits as enterprises will undermine impact over time.”

  9. But Kate Barr from the Nonprofits Assistance Fund places a big part of the burden of overcoming the nonprofit overhead myth squarely on the shoulders of nonprofit leaders themselves.

  10. Albert Ruesga, head of the Greater New Orleans Foundation and contributor to the White Courtesy Telephone blog, very thoughtfully breaks down how to understand philanthropy’s relationship to social change. Well worth the read.

Photo Credit: Alfred Hermida

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Leading a High Performing Nonprofit: An Interview with Pat Lawler

In today’s SPat Lawlerocial Velocity interview I’m talking with Pat Lawler. Pat is the CEO of Youth Villages, a national nonprofit dedicated to helping emotionally and behaviorally troubled children and their families live successfully. Youth Villages is often heralded as a model for high performing nonprofit organizations. In 2006, Lawler was recognized as one of “America’s Best Leaders” by U.S. News & World Report.

You can read past interviews in the Social Innovation Interview Series here.

Nell: In 34 years of your tenure at Youth Villages you’ve grown the organization from serving 25 youth to now serving 22,000 families. Very few nonprofits are able to grow to that level, let alone sustain it. What are the factors that make nonprofit growth attainable and what holds more nonprofits back from achieving it?

Pat: First, an organization must have a clear mission and defined values. When we started Youth Villages, we knew who we were. We didn’t just want to respond to RFPs; we wanted to do what was best for kids. No more of the status quo, instead we used our expertise and created best practices. We built our leadership team and our culture around a clear mission and set of values. Our culture is a big part of who we are and what we’ve done over the years. We’ve also been willing to change directions. We’re willing to do different things based on the needs of kids and families. At one time, we only provided residential treatment services, but now residential services comprise only about 35 percent of our work. Don’t anticipate the future, create it.

As an organization, we were also careful not to grow too fast. We were constantly assessing what was best and reevaluating. We also implemented a feedback system to learn what was working and what was not so we could improve our outcomes.

It’s easy for nonprofits, especially those focused on social services, to make decisions with our hearts instead of our heads, but we must still maintain a strong focus on the business aspect of our work. After we got through our first 12-13 years, when we were just trying to survive as an organization, we began thinking about strengthening our financial reserves because we were responsible for more children and families, as well as our staff and their families. So we really started trying to build a stronger financial foundation that would help us successfully transition through turbulent times.

Nell: Often when a nonprofit becomes very large finding on-going sustainable funding sources can be difficult. The majority of your funding comes from state contracts. Is government the ultimate answer to long-term funding for large nonprofits? Or are there other ways?

Pat: It depends, but in general, I think it’s important for organizations to have a diverse set of funders to achieve maximum stability. Having at least three or four funding sources and a relative balance among those sources is a good way to go. If government is a major funding source, you want to make sure that’s diversified among different programs, geographies, etc. and not all one contract.

Nell: Youth Villages is also unusual in that you have a robust performance management system and are considered one of the leading nonprofits in the country in that arena. Why did you make the decision many years back to invest in performance management and what do you think the return on that investment has been?

Pat: Youth Villages’ goal has always been to provide the best services for children and families. That’s one of the reasons why we started collecting data, using measurement, benchmarking and total quality improvement. It was all about getting better outcomes for kids. We didn’t realize how valuable our data could be until the mid-‘90s when some of our state funding was at risk. Using our data, we were able to convince the state to spend money for in-home services and develop a continuum of care — because we had really good data to show them what worked and how much more cost-effective it was. Throughout the years, we started trying to convince other states and funders. A few were pretty enthusiastic about our data and outcomes. When the Edna McConnell Clark Foundation met with us nine years ago, they were very interested in our data and outcomes, and that was the first indication that the private sector was becoming interested in doing what works.

Even today, we’re asking ourselves where is the best place to put our resources, and more often, we’re finding it’s better to serve a larger number of children through community-based services rather than in a residential setting. You can make such a greater impact in the community serving a large number of youth, rather than serving a small number with the greatest needs. We’re trying to do both. But we’re asking ourselves what’s the biggest return on our investment so we can have the greatest impact on our community?

Nell: Funders and nonprofits themselves are often reluctant to invest in nonprofit leadership development. How do we solve this need and how did you grow your leadership skills over the course of your career? What role do you think funders should or could play in leadership development for the sector?

Pat: I read a lot, and I’ve been very fortunate throughout my career to have worked with great boards of directors and mentors to shape my leadership skills. At Youth Villages, we have an outstanding leadership team filled with better leaders than I am. Together, we make a strong team. Any of us independently might not be as good. I know I wouldn’t be at all. At all levels of this organization, we have very bright people and that is what makes the difference here.

If I had to start over at the beginning, rather than asking foundations for money for programs and services, I would have asked for funds to put toward business planning, professional coaches, leadership development and communications to help with the things I didn’t know about. I’d have asked for money to help build a stronger organization, while at the same time maybe a little money for programs and services. I believe it’s a waste of money for governments, foundations or anyone to spend money on an organization that doesn’t have the necessary skills, organizational structure, leadership and business planning to achieve the goals of their program. It just makes no sense.

From the time an organization is created, I think they have to ask the questions: Do we have the right people in place? Do we have the right business plan and strategy to execute? Do we have the support of the community and board of directors? I firmly believe every foundation should put a significant portion of their funding toward strengthening the organization versus funding some programs and services. If you don’t have the right people in place to execute the strategy then it’s not going to happen. It’s also important for foundations to give organizations time. It takes time for leaders to develop, they get better as they encounter and overcome problems, and it’s important to stick with those organizations for extended periods of time.

Photo Credit: Youth Villages

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10 Great Social Innovation Reads: February 2014

readingFebruary witnessed some dissatisfaction with the current state of funding for social change, but also some trailblazers playing with new financial vehicles. I always wonder whether true change to money for social good will come with the next generation. Do Millennials hold the key to fundamental shifts in how we finance social change efforts? We shall see.

Below is my list of the 10 best reads in the world of social innovation in February. But, as usual, please add what I missed in the comments. If you’d like to see an expanded list, follow me on Twitter, Facebook, LinkedIn, or Google+.

You can also find the list of past months’ 10 Great Reads here.

  1. As we work toward social change, its important to embrace the gray areas. Writing in the New York Times Simon Critchley takes us back to the 1970s BBC documentary series “The Ascent of Man” to make a point about the importance of uncertainty in our search for solutions. As he puts it, “Insisting on certainty…leads ineluctably to arrogance and dogma based on ignorance.” And Fay Twersky seems to agree when it comes to strategic philanthropy, arguing in the Stanford Social Innovation Review that “we need to challenge the certainty creeping into [philanthropy].”

  2. And speaking of changing philanthropy yet another study of Millennial philanthropists claims that this new generation of donors will be quite different than their predecessors. As Phil DeMuth writing in Forbes puts it, these new donors “are no longer interested in providing an annuity to some tax-deductible charity organization.” They want to see results, and they want to get in and get out.

  3. But Lucy Bernholz is frustrated by the pace of change, at least in how little the financial vehicles philanthropists use are changing. She argues that in this year’s list of the top 50 philanthropists  “the financial vehicles for philanthropy…look not unlike [those] in 1954 or 1914.”

  4. Tris Lumley from New Philanthropy Capital voices frustration as well, but with the general state of nonprofit finance. He puts forward a new model for the social sector that removes the “funder-centricity” of the “anti-social sector.”  Because, as he argues, “the result of this funder-centricity at its worst is that the social sector exists not for those it’s supposed to help, but in fact for those who work in it, volunteer in it, and give money to it.”

  5. There are some bright spots, at least in the United Kingdom. The country leads the way in the social impact bond trend.  Emma Tomkinson provides a map of social impact bond activity in the UK versus the rest of the world and the UK Centre for Social Impact Bonds provides a great site of resources on the new tool.

  6. And even here at home there are some trend setters, particularly the F.B. Heron Foundation, led by the visionary Clara Miller who also founded and led the trailblazing Nonprofit Finance Fund for 25 years. Clara has announced the F.B. Heron Foundation will account for the mission return of 100% of its assets. Unheard of and definitely interesting to watch.

  7. There is a constant tension in the nonprofit sector between funding new ideas and funding the growth of proven ideas.  Writing in the Chronicle of Philanthropy, Alex Neuhoff, Laura Burkhauser, and Bradley Seeman fall squarely on the side of growing proven solutions, arguing that in order to reach a higher performing nonprofit sector we must “follow the “recipes” that earned proven programs their stellar ratings.”

  8. There was much for Millennial changemakers to chew on this month. First, there is a growing drumbeat questioning the relevance and value of college. Does the higher education model really work anymore? It’s a fascinating question to contemplate. And Naomi Schaefer Riley does so in the “College Tuition Bubble.

  9. I’ve been on a real Steven Pressfield (author of The War of Art) kick lately. His worldview is that each individual was put on earth to create some specific greater good, but Resistance constantly fights to keep us from achieving it. If you need inspiration to overcome Resistance, read his post “How Resistance Proves the Existence of God.” Love it.

  10. And for those who are pursuing a life of social change despite the lure of a more traditional path, look to Thoreau for inspiration. For as Maureen Corrigan explains in her NPR review of a new biography of the man, “Thoreau’s youth seemed aimless to himself and others because there were no available roadmaps for what he was drawn to be…If Thoreau had committed to a professional career right after Harvard, his parents might have rested easier, but the world would have been poorer.”

Photo Credit: beggs

 

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Philanthropy, Government, and Nonprofit Excellence: An Interview with Daniel Stid

Daniel StidIn today’s Social Velocity interview I’m talking with Daniel Stid, Senior Fellow at the William and Flora Hewlett Foundation. Daniel serves as an advisor to Foundation president, Larry Kramer, leading the exploration of a potential Foundation initiative to support and improve the health of democracy in the US. Before joining the Foundation, Daniel was a longtime consultant and strategist to governments, nonprofits, and for-profit organizations, including as a partner in The Bridgespan Group’s San Francisco office, where he co-led the organization’s performance measurement practice.

You can read past interviews in the Social Innovation Interview Series here.

Nell: You moderated a panel at the recent After the Leap conference about government and performance management. Government has a long history in the outcomes space, but there was some controversy at the conference about whether government can really lead this new movement. What role should government play in this new push toward nonprofit performance management?

Daniel: Yes, my Twitter feed was blowing up during that session with people adamantly saying that government couldn’t lead this push, it had to be nonprofits! To my mind this controversy misses the point. It presumes a hierarchy – that leadership is lodged in one place, and that it is exercised in one direction. The fact is that if we are going to make this “leap” happen, we need distributed leadership in multiple places: in government agencies, in operating nonprofits, in foundations, among researchers and program developers.

A great example is the Teen Pregnancy Prevention program administered by the Office of Adolescent Health in the federal department of Health and Human Services, the implementation of which I recently wrote about with some former colleagues at The Bridgespan Group. The Office of Adolescent Health administrators demonstrated leadership in conceiving and developing a bold and thoughtful program; the researchers and purveyors involved demonstrated leadership in creating evidence-based solutions and effectively supporting their implementation; and front line agencies demonstrated leadership in implementing these interventions with fidelity. What makes this program so compelling is that it has been animated by multiple forms of leadership that are networked and reinforcing each other across sector lines. I believe this same pattern occurs in most other situations where social change is happening at a large scale.

Nell: Your charge as a senior fellow at the Hewlett Foundation is to help explore how the foundation can “support and improve the health of democracy in the United States.” There have been some criticisms lately that philanthropy has moved away from supporting democracy and instead sometimes enhances wealth inequality. What are your thoughts?

Daniel: Insofar as this occurs, I believe this an inadvertent effect from the standpoint of individual donors. Most people want to give to something they can point to and/or that they can have affiliation with – hence the contributions of many donors to hospitals and arts organizations and universities, or to the schools that their children attend. This is straightforward and understandable. You can readily see and appreciate and be associated with what you are getting for your contributions. And it is philanthropy. We shouldn’t presume that all philanthropy can or should be geared toward reducing inequality. That is not the point of philanthropy in a free society. (Now whether all philanthropy needs to be and should be subsidized by the tax code is another question; I am on the record as saying it is high time to revisit the charitable deduction.)

The kinds of interventions that stand a chance of alleviating inequality – e.g., support for high quality early education, or effective teen pregnancy prevention – entail large-scale systems change and diffuse and uncertain impact for people typically living in very different communities from the philanthropists who are in a financial position to support them. They are for that reason a riskier philanthropic proposition. But many individual donors and foundations are making these investments anyway, and I bet we will see more of them do so as the evidence-base supporting solutions to inequality continues to be solidified.

Nell: Moving nonprofits to a performance management system will be costly. Do you think government can and should foot that bill, or can philanthropy? How do we create and fund the infrastructure necessary for this movement to truly succeed?

Daniel: Really good question! I don’t think that we can count on government to do it – for all of government’s resources relative to those of philanthropy, it is extremely rare that a government program will have the political and policy degrees of freedom, let alone the budget, to invest in nonprofit capacity in any sustained way. And the age of austerity we are in will only worsen this shortfall. To me this is a critical role for philanthropy to play. Just a portion of the billions that philanthropy puts to work in the service of education, health and human services, youth development, etc. could help assess and put to much better use the hundreds of billions that federal, state and local governments do across these areas.

Typically foundations see their role as scaling up initiatives that government can then “take out” and fund directly, freeing up the foundations to move on and fund their next ventures. Foundations should stay engaged rather than moving on and, by investing in the infrastructure and measurement capacity that government cannot pay for, help society get the most out of the far greater levels of government spending. Rather than seeking to “leverage” other foundations, to use some jargon, foundations should in effect be seeking to “leverage” government funding by increasing its impact.

Nell: Should every nonprofit work towards articulating and measuring outcomes, or does it primarily apply only to social service and education nonprofits? Is there a way for arts and cultural organizations, for example, to move toward outcomes management?

Daniel: I think every enterprise – whether it be a profit-seeking business, a government agency, or a nonprofit, whether it is producing cars and trucks, health and human services, or  arts and culture — should seek to get better at what it does. I found Jim Collins very persuasive on this point in his “Good to Great in the Social Sector.”

The desire to improve, to get better at things, is woven into the human psyche, and when this desire is given full expression, by individuals and the organizations they work in, so is our humanity. Whether this quest involves “outcomes” and “measurement” as we conventionally define them depends on context. It may well involve tracking audience surveys and visitor numbers and assessments by informed critics. But it may also involve a troupe rehearsing until it feels it finally has its performance nailed, or a museum director continuing to refine interpretive material that she thinks visitors are struggling to understand. Those behaviors reflect a relentless quest for outcomes in their own right. At the end of the day, performance measures are merely proxies to help us assess our progress toward what we are working towards: an underlying excellence. The excellence itself is really the point.

Photo Credit: Hewlett Foundation

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10 Great Social Innovation Reads: July 2013

10 Great Social Innovation ReadsSince I was out of the office for part of July and checked out of social media (which I highly recommend!), the below list is in no way comprehensive. But it is what caught my eye in the world of social innovation in July (when I was paying attention). More than ever, please add what I missed in the comments below.

And, as always, you can see more of what caught my eye by following me on Twitter, Facebook, LinkedIn, or Google+.

You can see the 10 Great Reads lists from past months here.

  1. In a highly provocative op-ed, Peter Buffett, son of Warren Buffett, wrote a pretty scathing rant against today’s philanthropy, calling it “conscience laundering — feeling better about accumulating more than any one person could possibly need to live on by sprinkling a little around as an act of charity.” Needless to say, much argument followed, including Howard Husock’s post arguing that Buffett is “far too pessimistic about what philanthropy, well-conceived, can accomplish.”

  2. Dan Cardinali, CEO of Communities in Schools and an emerging voice on the importance of measuring nonprofit outcomes, wrote a third piece in his series on redefining the nonprofit sector. This one explores the need for nonprofits to “hold ourselves accountable to objective measures and quantifiable outcomes.”

  3. And another nonprofit leader trying to shake things up, Bill Shore of Share Our Strength, offers the provocative “We Just Don’t Have the Money, and Other Fibs We Tell Ourselves“.

  4. Antony Bugg-Levine from the Nonprofit Finance Fund provides additional fodder to the conversation with his post “Navigating Tough Trade-offs in the Era of Scarcity.”

  5. Lucy Bernholz, philanthropy truth teller and future seer, offers three ways we can reinvent philanthropy in this great, short video brain dump.

  6. Kathleen Enright, CEO of Grantmakers for Effective Organizations, talks with Paul Carttar, former Director of the Social Innovation Fund, about what he learned there. It remains to be seen what impact the Social Innovation Fund will have, but as Paul says, government can and must play a role in social innovation, “The challenge for everybody — for government and for philanthropy — is to understand what each has to offer.”

  7. The New York Times uses Think Impact (which encourages entrepreneurship in third world communities) to provide an interesting case study of the dilemma of deciding whether to be a for-profit or nonprofit social change organization.

  8. Ever provocative, Phil Buchanan from the Center for Effective Philanthropy argues that the approach MBA programs take in teaching philanthropy “denies the reality that nonprofits and philanthropy work to address the problems that have defied markets…and, in many cases, are a result of market failure.”

  9. Writing on the Pioneers Post blog, Jeremy Nicholls takes issue with the word “impact” and encourages us to think about “value” instead.

  10. The National Committee on Responsive Philanthropy found that in 2011 American foundations increased unrestricted giving by 50% (from 16% of all grant dollars going to support general operating in 2010 to 24% in 2011). Now that’s an exciting trend!

Photo Credit: josue64

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Addressing the Nonprofit Fundraising Elephant in the Room

Nonprofit FundraisingNote: I was asked by Markets for Good to write a post as part of their ongoing online conversation about improving how money flows to social change. Markets for Good is an effort by the Bill & Melinda Gates Foundation, the William & Flora Hewlett Foundation, and the financial firm Liquidnet to improve the system for generating, sharing, and acting upon data and information in the social sector. 

Over the past several years, Markets for Good has been a forum for discussion and collaboration among online giving platforms, nonprofit information providers, nonprofit evaluators, philanthropic advisors, and other entities working to improve the global philanthropic system and social sector. Below is the post I wrote. You can see this post and the others in their series and contribute to the ongoing conversation at the Markets for Good blog.

 

As we talk about creating a space “where capital flows efficiently to the organizations that are having the greatest impact” we must address the elephant in the room: how nonprofits are funded.

Currently that’s a pretty broken model. And if we are ever to direct more money to more social change, we must fix it.

In an ideal world, a social change organization would create a potential solution to a social problem, prove that the solution actual resulted in change, and then attract sustainable funding to grow that solution.

But that’s not currently happening because the way nonprofits are funded is broken in three key ways:

Nonprofits don’t articulate a theory of change. 10 years ago it was enough for “charities” to “do good work.” In an ever-increasing drumbeat nonprofits are being asked to demonstrate outcomes and impact. And for good reason. If we are truly interested in social change then we must understand which organizations are actually creating it and thus deserve our investment.

But you cannot demonstrate outcomes and impact if you have not first articulated what outcomes and impact you think your solution provides. Those nonprofits that truly want to solve a social problem (as opposed to simply provide social services) must articulate a theory of change. A theory of change is an argument for how a nonprofit turns community resources (money, volunteers, clients, staff) into positive change to a social problem. It seems simple, yet most nonprofits working toward social change have not done this.

We need to change that. This simple argument is the first step in creating real, lasting social change and attracting money to be able to do it in a financially sustainable way.

Nonprofits struggle to prove impact. Once a theory of change is in place, nonprofits need to prove whether that theory is actually becoming a reality. Nonprofits have struggled for years to figure out how to measure whether they are actually achieving results. But they cannot figure it out on their own.

Philanthropy needs to step up to help fund the work, or on a much larger scale, social science could prove the impact of overall interventions that nonprofits can then implement.

Either way, the burden of proof can no longer rest solely on the shoulders of individual nonprofits.

Fundraising isn’t sustainable. Once social change is actually happening, we want to grow that effective solution in a sustainable way. But that necessitates a real financial model.

Most nonprofits chase low-return fundraising efforts that lock them into a band-aid approach that is far from financial sustainability. Few nonprofits create and execute on an overall strategic financial model that aligns with the impact they want to achieve and their organizational assets.

We have to stop the madness.

We must help nonprofits create an overall financial engine that strategically and effectively supports the social change they are working toward.

Philanthropists must provide nonprofits the runway necessary to find the right financial model for their organizations. Capacity capital funding could do this, allowing nonprofits the space to analyze their current money-raising activities and create and execute on a plan for transforming those into a sustainable financial model. The end result would be nonprofits with a great solution to offer suddenly have the ability to grow the solution in a sustainable way.

If we are really serious about directing more money to more social change, we need to reinvent how money flows to nonprofits. Instead of relying on a broken fundraising model, we need to take a big step back and get strategic. With articulated theories of change, systems for effectively proving impact and the runway to create real financial models, nonprofits will be able to bring social change to sustainable fruition.

Photo Credit: Markets for Good

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Are You a Social Entrepreneur?

I’m excited to report that a week from today, July 26th, I will be participating in a live online chat at the Foundation Center’s Grant Space website, titled “Are You a Social Entrepreneur?“.

Abby Chroman, leader of global community curation for AshokaHub, and I will be fielding questions from the audience about social entrepreneurship, social change, nonprofit innovation, capacity capital, social return on investment and much more.

Some of the questions we’ll be discussing include:

  • What qualities do social entrepreneurs possess?
  • How is this concept different from traditional corporate structure, even one with a socially-minded mission?
  • How do you truly accomplish social change vs. simply doing “good” work?
  • How can nonprofits especially incorporate some of this thinking to be successful in fulfilling their missions?
  • How do you measure social impact and return?

But the majority of questions are up to the audience. This live chat will happen entirely in the chat window on the Grant Space website. When the chat goes live, you can submit your questions and comments and interact with Abby and me and other readers, but you can also send questions ahead of time.

So join us! Registration is free at the Grant Space web site here. I look forward to your questions!


Photo Credit: Colin_K

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