In this month’s Social Velocity blog interview, we’re talking with Mario Morino. Mario is co-founder and chairman of Venture Philanthropy Partners, one of the oldest venture philanthropy funds, and chairman of the Morino Institute, a nonprofit focused on technology for social change. His career spans more than 45 years as entrepreneur, technologist, and civic and business leader. He also recently wrote Leap of Reason: Managing to Outcomes in an Era of Scarcity, which I recently reviewed here on the blog.
You can read past interviews in our Social Innovation Interview Series here.
Nell: In your book Leap of Reason, you tell the leaders of the nonprofit sector that they need to make a fundamental shift in how they conduct business. Have you gotten any push back from nonprofits or philanthropists? Or has all of the response to the book been positive?
Mario: We are pushing for some hard changes, so we expected some hard reactions. But to our surprise, the response from nonprofit, for-profit, and public-sector leaders alike has been overwhelmingly positive.
We’ve asked ourselves why we’re not getting more push back. There are probably several factors at work. For one thing, the people who have taken the time to read the book are probably those who are more inclined to be receptive to this message. Those who are natural critics—for instance, those who believe mission and metrics are mutually exclusive or that discipline inhibits charismatic, entrepreneurial leadership—may not have read it. And so that shoe may drop at some point. The more we push beyond those already singing in the choir, the more constructive push back we’ll get.
I’d like to think that another factor is the way we presented the case. We made a forceful case, but we weren’t strident in our tone. We have a strong appreciation for the reasons why these management approaches have not been more widely adopted in the social sector. We sought to focus on what to do versus placing blame.
Nell: Do you think the majority of nonprofits will adopt an outcomes-management approach? And if so, when? What will be the tipping point?
Mario: Even when you take into account all of the work on outcomes, accountability, and mission-effectiveness over the past 15+ years, only a small slice of nonprofits (or government agencies, for that matter) have adopted an outcomes-management approach. So I fear that we’re in for only incremental adoption, unless our sector finds a way to seize the opportunity in this era of scarcity. This funding crisis can enervate or energize us. I really hope it’s the latter. In other words, I really hope this crisis will lead people to look much harder at what they do and how they can do it more efficiently and effectively. I hope it will cause them to go beyond incremental improvement and fine-tuning to rework fundamentally what it is they do.
Nell: It seems that this is a charge you are very much willing to lead. Beyond writing the book, what are you doing to lead the effort to create this fundamental shift in the nonprofit sector?
Mario: I would certainly like to join others in advancing this shift in the social sector and even lead in some areas. But I don’t think I’ve earned the stature to be the leader of a movement of this type. Even with 15+ years in the social sector, some still see me as a newbie!
As I said in the book, to help kick things off I would welcome helping to convene a select group of early adopters who have “been there and done that” and those most instrumental in helping them. I hope that a collective leadership will emerge and offer the beginning of an effort that could put our sector on a different and much more rapid trajectory.
As others began to follow their example, the network effect might well start to take hold. Imagine universities incorporating the outcomes-management mindset and discipline into nonprofit leadership curricula. Imagine funders offering outcomes-management grants to nonprofit leaders who show a real predisposition to use information well, and hiring seasoned staff members who have the expertise to provide strategic counsel and assistance to grantees. Imagine nonprofit leaders and staff joining together in peer-learning networks to share, learn, and push one another. Imagine government funders encouraging and rewarding successful outcomes management through new types of contracts and awards. A cadre of leaders and doers could help spark all of these things—and in doing so, spark a real movement.
Nell: What role can and should philanthropists, both foundations and individual donors, play in the effort to shift the nonprofit sector toward an outcomes approach?
Mario: Funders generally don’t provide the kind of financial support and strategic assistance that nonprofits need to make the leap to the outcomes-management discipline. While a lack of funding is by no means the only barrier, I know many nonprofit leaders who would take up the challenge in a heartbeat if funding, advice, and encouragement were available. The hard truth is that far too many funders have been conditioned to insist that every dollar “support the cause” through funding for programs. They don’t want “overhead” to dilute their grants.
To make the leap to outcomes management, nonprofits need creative funders, like the Edna McConnell Clark Foundation, that are willing to help them manage smarter through greater use of information on performance and impact—rather than forcing them to meet myriad evaluation and reporting requirements that too often do little to help the organization learn and improve. They need funders who understand that making the leap requires more than program funding, and more than the typical “capacity-building” grant. They need funders who are willing to make multi-year investments and offer strategic assistance to help nonprofit leaders strengthen their management muscle and rigor.
Nell: What does an outcomes approach look like for a social service nonprofit with an annual budget of $100,000? How does this approach apply across the sector?
Mario: It’s hard to adopt this approach if you’re in an organization that small. It would be folly to expect a nonprofit with that budget to have formal outcomes systems, metrics, and the like. That said, I’ve never thought quality and “goodness” were functions of size. Shouldn’t every nonprofit, regardless of its size and infrastructure, have a clear sense of what it’s trying to accomplish, a thoughtful strategy for how it’s going to do so, and some sense of how it will know if it gets there? It’s perfectly understandable that such a small organization may never have crafted a “theory of change” in a formal way, but the organization’s leader needs to have this framework embedded in his or her mind. If not, what’s the rationale for asking others to contribute time and money to support the nonprofit’s work? What’s the basis for asking intended beneficiaries to put faith and trust in the nonprofit’s services?
Nell: What do you think will happen to nonprofit organizations that don’t adopt a managing to outcomes approach? What does the future look like for them?
Mario: They will continue on as they have—at least for a while.
The fiasco with Greg Mortenson and the Central Asia Institute is a cautionary tale. Mortenson had a great story, and for a while his donors took it on faith that his organization was delivering on his grand promises in Afghanistan and Pakistan. Sadly, it appears the organization turned out to be better at fattening Mortenson’s book royalties than building quality programs.
I don’t mean to suggest that all nonprofits are like Mortenson’s! Far from it. But I do mean to suggest that in an era of scarcity, there will be more pressure on nonprofits to show that they are delivering on their promises. More public and private funders will finally look under the hood and ensure things are working well.
In our ongoing blog series, 10 Great Social Innovation Reads, below are my top 10 picks for the best reads in the world of social innovation in May.
But I’m sure I missed some great stuff, so please add your favorites from the past month in the comments.
- Three new books released recently argue in various ways that philanthropists need to get better at giving money away. The Economist gives us the skinny: Giving for Results.
- News organizations are having to reinvent their funding models, some of their innovative ideas for bringing money in the door could spark some thinking in the nonprofit world: Going beyond grants: Eight new ways news nonprofits are raising revenue.
- The Dowser blog argues that recent efforts to re-imagine the great American city aren’t bold enough: Creating the Sustainable City: Are Imagination and Leadership Enough
- Newsweek investigates the philanthropic investments billionaires have made in American public schools and claims that the results of those investments have come up quite short: Back to School for the Billionaires
- New Google research on people’s use of smartphones holds some interesting lessons for nonprofits.
- Any entrepreneur, social or not, has to fight moments of depression on the road to social change, the A Smart Bear blog tells us how to Fight Mini-Burn Out.
- From Amy Sample Ward, nonprofit social media maven, comes a great post about crowdsourcing versus community-sourcing and how and when nonprofits should take advantage of each.
- In a recent interview, Robert Egger, founder of DC Central Kitchen, argues that nonprofits need to rethink how they position themselves in order to really “move the needle”
- Nonprofit Tech 2.0 gives us Six Online Fundraising Tools You May Never Have Heard Of
- The Nonprofit Finance Fund is doing something pretty exciting with capital. They are directing $10 million in “change capital” to 10 performing arts organizations to help them “prepare for future growth and make changes to the way they operate.” NFF has a special page with resources and case studies about what they are doing: The Case for Change Capital in the Arts.
Photo Credit: Robby van Moor
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.
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.
The kick-off of Austin’s MindPop collaboration was this morning. MindPop, which I’ve written about before, is a collaboration of a handful of leading Austin philanthropists hoping to improve access to arts education for all Austin children. They want to understand what is holding our kids back from learning about and experiencing the arts and what needs to change in the infrastructure of the city in order to fill those gaps.
The project has 3 phases:
- Gap Analysis to determine what is missing in the arts education ecosystem in Austin
- Creation of 4 bold goals to solve those gaps
- Distribution of close to $180,000 in grants to fund capacity building of the overall system and of individual nonprofit arts organizations
So today was the launch of the project with about 75 of the who’s who in Austin’s philanthropic, education, and arts worlds in attendance. The keynote speaker was our new Austin Independent School District superintendent, Meria Carstarphen, who obviously has tremendous passion for the importance of arts education. Her recent arrival in Austin is itself a real opportunity for change to the system.
As inspiration for Austin’s foray into building this collaboration, Gigi Antoni, CEO of Dallas’ Big Thought, was there to explain how her organization led Dallas from a community that dismissed most of their art and music teachers in the 1970s, to a comprehensive, fully funded in- and out-of-school arts learning environment. Over the course of the last 12 years, Big Thought has brought together philanthropists, educators, arts organizations, schools, parents, and community leaders to create an ecosystem for arts education that ensures that all Dallas children have a rich art-centered learning environment both in school (90 minutes of arts instruction for every student every week) and in their communities (music camps, rehearsals, rec center activities, etc). For Gigi, the big transformation was that Dallas went from a bunch of individual solutions and organizations that were providing “random acts of change” to a “completely changed environment that works as a SYSTEM” to create arts education for every child in Dallas.
I have to admit that I am a bit skeptical about whether what worked in Dallas will work in Austin. We have a tendency in this city that I love to talk and plan and envision a future, but sometimes find it difficult to move towards action, perhaps part of that stems from a lack of infrastructure and capacity. So what I am really excited about with MindPop is not the gap analysis and the creation of 4 ideas for solutions. I have no doubt that the gap analysis will be thorough and the ideas for solutions creative and exciting. I am most interested that a group of five very influential philanthropists (family foundations, a corporate foundation, and the Austin Community Foundation) is pooling their resources and efforts toward a common goal, and more importantly, toward building infrastructure and an ecosystem for the arts education sector. Often it is the infrastructure that is missing in true solutions. Ideas are great, and so many fabulous ones exist. But the real hurdle is taking a great idea and building the infrastructure, support, ecosystem behind it to create results.
The other exciting thing about this project is that it could become a model for funder collaboration and ecosystem creation that could be replicated in other nonprofit issue areas. What if all of the education, or healthcare, or youth development, or environmental funders in town got together and decided that they wanted to create an ecosystem of money, expertise, organizations, solutions that could work together towards system-level, not individual program level, change? That would be pretty interesting.
I’m thrilled that these philanthropists are working so closely together, putting money and resources behind this collaboration, and being very public and transparent about the process. I would love to see more philanthropists putting their resources behind big picture, infrastructure-building solutions.
I plan to keep my eye on this project, and I’ll keep you posted.
As I described in previous posts here, here and here, one of the ways in which the nonprofit sector is broken is that it is undercapitalized. It is not able to generate an adequate amount of capital in order to scale and solve the problems it seeks to address.
This undercapitalization comes not from a lack of program-related fundraising, funds that go directly to the services being created, but rather from a lack of infrastructure or administrative capital. The distinction is between funds raised to BUY services versus funds raised to BUILD organizations. The latter is very hard to come by in our current state. Donors and foundations tend to shy away from funding “administrative” or “overhead” costs. And many nonprofit rating systems reward nonprofits that keep their administrative and fundraising costs as low as possible. The end goal seems to be nonprofit organizations who plow 100% of their revenue into their programs, with no infrastructure (staffing, fundraising, technology, buildings, accounting, planning, training, professional development) to make the programs successful.
Paul Brest, president of The William and Flora Hewlett Foundation, recently wrote an attack on the notion that administrative costs in the nonprofit sector are somehow unnecessary or unworthy. As he points out, the end goal of any organization (profit or nonprofit) is to optimize costs, not minimize them. Costs are appropriate and necessary when they increase an organization’s ability to achieve its mission, or, in other words, provide a net increase to the impact the organization is creating. Costs in and of themselves are not bad. Rather, those costs that contribute to an organization being more effective and reaching more people are actually very good. He argues that in the for profit sector the idea of necessary and justified costs is well understood and that the same principles should be applied to the nonprofit sector:
To use an example from the business sector, assume that a widget manufacturer’s only mission is to make a profit for its owners. Then, an additional administrative expense of 1¢ is justified if it is likely to produce an additional 2¢ of profit. The underlying idea is not different for nonprofits. Their missions are to achieve particular social, environmental, educational, religious, health, etc. goals. And an incremental expense is justified to the extent it has the potential to increase the organization’s net social value.
It is a simple concept, but one that nonprofits and the philanthropists who fund them are only beginning to discuss. The assumption that nonprofits have to be as cheap as possible, no matter the other “costs” (inefficiency, fewer people served, diminished impact), is outdated. It is a holdover from a time when the nonprofit sector was referred to as “charity,” and philanthropy as “benevolence.” It was our duty to ameliorate the symptoms of social problems (feed the hungry, clothe the needy, provide shelter to the homeless). But now we are all realizing that that isn’t enough. We have to resolve the underlying issues that are causing these problems and that requires whole systems and infrastructure to change. And for that kind of change to happen it requires well-thought out plans, technology, top talent, clear understanding and management of our financial resources, and significant capital.
I believe this discussion is all part of a growing sophistication in the sector. Nonprofit leaders are no longer content to scrape by with hopelessly inadequate resources, and philanthropists are beginning to realize that the very principles that created their own wealth need to be applied to the sector which they are trying to support.
I’m glad to see that these conversations are beginning and that people like Paul Brest are leading them. But the discussions need to move beyond the blogs and journals and into the boardrooms of the nonprofits, foundations, and businesses that are working to solve the very issues the social sector was set up to address.
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