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Philanthropy

Overcoming The Nonprofit Starvation Cycle: An Interview With Ann Goggins Gregory

AGGIn today’s Social Velocity blog interview, I’m talking with Ann Goggins Gregory, Chief Operating Officer at Habitat for Humanity Greater San Francisco where she oversees programs, the social enterprise called the ReStore, HR and Operations.

Previously, Ann was a Senior Director at the Bridgespan Group, where she led the organization’s work on organizational learning; managed consulting engagements with human services, education, and youth-serving nonprofits; and spearheaded research efforts on a variety of nonprofit management topics. She remains a Senior Advisor to Bridgespan on issues related to the starvation cycle.

You can read other interviews in the Social Velocity Interview Series here.

Nell: You and your colleague Don Howard are in some ways the catalysts behind the Overhead Myth campaign because of your seminal article, The Nonprofit Starvation Cycle in the Stanford Social Innovation Review back in 2009. How far have we come since that article? How prevalent is the starvation cycle today and what can we do to move beyond it?

Ann: “The Nonprofit Starvation Cycle” names what I consider to be a fundamental truth: “Organizations that build robust infrastructure…are more likely to succeed than those that do not. This is not news, and nonprofits are no exception to the rule.” For decades, researchers and practitioners have argued that low overhead does not equate with efficiency and efficiency, in turn, does not equate with effectiveness.

We are seeing (productive) focus and movement now versus five or ten years ago, yet that starvation cycle is still an entrenched issue. On a positive note, the Overhead Myth campaign has been critical in communicating with donors directly and empowering nonprofits to communicate with “back up.” Though I have mixed feelings about some of the messages in Dan Pallotta’s video, it elevated paradoxes of how costs are treated in the social sector. We’ve also seen targeted efforts to help funders and nonprofits address cost-related issues together. Even the federal government is trying to shift practice: the Office of Management and Budget issued guidance requiring that nonprofits receiving federal funding receive a minimum of 10% indirect rate, or they can negotiate a rate. If this guidance is followed, it will be a major policy win.

Yet we have a long way to go. Talking about terminology isn’t scintillating, but it’s critical to breaking the starvation cycle. Overhead costs aren’t the same as indirect, yet we conflate them. General operating support and capacity building—often seen as ways to help break the cycle—aren’t the same thing. Many nonprofits do not know the full costs associated with their programs, and many funders don’t understand nonprofit finance. Bridging the skill gap on both sides of the equation is critical.

Moreover, a single figure like the overhead rate is appealing because it makes comparison easy. Until nonprofits have better ways to communicate outcomes, we will continue to battle against the simplicity of a ratio. Finally, power dynamics between funders and nonprofits inhibit change; candidly, there aren’t strong forces pushing on philanthropy and government to change their practice. In the absence of such change, nonprofits are understandably worried about shifting their stance on overhead if their competitors do not (I do think there are steps that any nonprofit can take, though).

Nell: Part of what keeps the starvation cycle alive is that it is being fed, as you so clearly point out in your SSIR article, by both funders and nonprofit leaders. One of the things you were working on at Bridgespan was the Real Talk About Real Costs series of nonprofit leader and funder conversations. How effective was it to bring nonprofits and funders together to talk about these issues? And is that potential solution to the starvation cycle scalable?

Ann: Real Talk about Real Costs, sponsored by the Donors Forum with Bridgespan as a partner, brought together 300 leaders from nonprofits and philanthropy to wrestle with what good outcomes really cost. The event built upon a nine-month Community of Practice focused on “tackling the overhead challenge.” This interview has more about how Donors Forum decided to put the cost issue front and center. Another such effort is slated to begin in California in 2015.

In watching funder-nonprofit “mixed company” interactions, I was struck by how many funders expressed dissatisfaction with the grant-making status quo, yet frustrated that foundation trustees did not feel the same way. And I noticed how uncomfortable both funders and nonprofits were about having a tough conversation about full costs. At the event, we gave participants a role-reversal case study where a fictitious grantee and grant-maker had to discuss the terms of a grant; nonprofit attendees acted the part of the program officer and vice versa. In feedback surveys, the majority of comments focused on the discomfort and lack of knowledge they felt in talking about costs. Finding more ways for nonprofits and funders to wrestle with cost issues together would go a long way to building empathy and skills.

I don’t see a single scalable solution, but what feels most scalable as a starting point is a fundamentally different approach to communicating about costs: on websites, in collateral, and in conversations between nonprofit and funder. I believe that most funders can still make restricted grants without making unrealistic demands about how the funds are spent. For instance, what if funders asked “what type of capacity will you need to deliver on this grant?” vs. “what is the overhead for this project?” What if funders moved away from prescribed budget templates that don’t align with how nonprofits think about their resources? Even these seemingly small steps would go a long way to empowering nonprofits to communicate differently. Below I share a few specific ways I think nonprofits can help break the cycle.

Nell: The starvation cycle is just one example of the many ways we hold the nonprofit sector to a higher standard than we do the for-profit sector (costs for R&D, marketing, infrastructure, technology are taken as a given in the business world). Why does that discrepancy exist and how do we overcome it?

Ann: Overhead in the for-profit world—sales, general and administrative costs as a percentage of total sales—is 25% across all industries and 34% for service industries. The cruel irony of holding nonprofits to a much tougher standard is that donors often say that they do this because nonprofits ought to “run more efficiently, like a business.” Most people don’t know the overhead of businesses because profitability matters more.

Unlike businesses, nonprofits can’t report results in a single figure that makes apples-to-apples comparisons easy. One way to overcome this challenge is to move toward highlighting outcomes. I don’t mean standardizing outcomes (although efforts like Perform Well are very powerful), and I don’t mean doing away with financial indicators entirely. I mean moving from touting our overhead to sharing our program results. In an ideal world, nonprofits would be able to share not only their outcomes but also the costs associated with producing them.

I know this doesn’t happen overnight. Starting immediately, I would love to see more funders speak out in support of—and actually fund—these investments. And nonprofits have a role to play in shifting the conversation: by sharing for-profit overhead as a way to challenge assumptions; by taking down the overhead pie chart and other “we’re lean!” messaging from websites; and using systems like the Guidestar Exchange to share our goals and strategies in our own words.

Nell: You recently left the consulting/thought leader side of the sector (as a senior director at The Bridgespan Group) to work in the nonprofit trenches as COO of Habitat for Humanity Greater San Francisco. What are you learning as you work to turn theory about overcoming the starvation cycle into action inside a nonprofit organization?

Ann: I am learning that it is doable and reminded that it is hard. In the last few months, we have taken down the efficiency statement on our website (“87 cents of every dollar goes to helping families…”) and will soon to replace it with statements of outcomes we see for Habitat homeowners. We walked away from a $100K+ funding opportunity because the grant would have allowed a maximum of 10% for indirect costs, and we estimated that the compliance costs alone would have been 2-3 times that. The grant’s focus aligned well with a nascent program, so it was a tough decision.

Under our finance team’s leadership, we also implemented a time tracking system. We now have better information on how people spend their time and can compare actual versus what was allocated in the budget. We learned, for instance, that in the last quarter we spent more time on G&A than we’d projected. This makes sense: this summer a small team of board and staff, including myself, negotiated a lease for a new office space, then transitioned to managing the move out- and move-in process. I don’t think anyone would say that was a waste of time; finding a space that met our budget in the San Francisco real estate market has been a challenging but important task.

Next on the list is an internal conversation about Charity Navigator and the way we promote our four-star rating on our website. It will be a healthy debate. On the one hand, I appreciate the focus on accountability and transparency, and I’d be naïve if I thought we hadn’t received donations from donors who use these ratings. On the other hand, I have deep reservations about Charity Navigator’s financial health methodology, particularly in that it penalizes nonprofits with higher overhead regardless of context. If we invest to support our growth—spending time finding a new office in a tough market, or upgrading our HR systems to find and retrain the best staff—we ought not to feel embarrassed about that, nor be penalized for it.

I am fortunate to work with a board and staff who are open to these changes and debates. My hope is that our experiences can serve to keep my perspective about the starvation cycle grounded and productive.

Photo Credit: Habitat for Humanity Greater San Francisco

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10 Great Social Innovation Reads: October 2014

social innovationOctober was another interesting month in the world of social change. Continued efforts to make the nonprofit overhead myth history, a troubling report about the beloved American Red Cross, a dire prediction about Millennial philanthropy, some new models for scaling social change and connecting people to solutions in their community, and a call for funding for nonprofit performance management all combined to make a great month of reading.

Below are my 10 favorite reads in social innovation in October. But, please 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.

  1. The three writers of last year’s Letter to the Donors of America, GuideStar, BBB Wise Giving Alliance and Charity Navigator, have penned a new Letter to the Nonprofits of America in order to encourage nonprofit leaders to do their part to convince donors that financial overhead is a poor way to evaluate nonprofit performance.

  2. New York Times columnist David Brooks takes a really interesting position on the difference between networks and institutions. He equates the recent government failures to effectively fight ISIS and stop the spread of Ebola with the death of institutions and our overwhelming focus on innovation and disruption as opposed to systematization and execution. As he puts it, “We like start-ups, disrupters and rebels. Creativity is honored more than the administrative execution. Post-Internet, many people assume that big problems can be solved by swarms of small, loosely networked nonprofits and social entrepreneurs. Big hierarchical organizations are dinosaurs…[but] when the boring tasks of governance are not performed, infrastructures don’t get built. Then, when epidemics strike, people die.”

  3. The American Red Cross came under fire for the disaster response to hurricane Sandy in 2012. NPR and ProPublica created a two-part story (here and here) uncovering serious issues with how the response was handled. But the American Red Cross, typically a model of effective communications, went largely radio silent. Perhaps they will have a more effective response this month?

  4. Writing at The Daily Beast, Joel Kotkin gives a (perhaps too) chilling prediction for how Millennial philanthropists could impact our world. As he sees it, “Schooled in political correctness, and not needing to engage in the mundane work of business, this large cadre of heirs to great fortunes will almost surely seek to shape what we think, how we live, and how we vote. They may consider themselves progressives, but they may more likely help shape a future that looks ever less like the egalitarian American of our imaginings, and ever more like a less elegant version of Downton Abbey.”

  5. Sam McAfee takes philanthropy to task for not being truly innovative, and he looks to technology disruptors for a better model. As he puts it, “The vast majority of the social sector is still trying to tackle social problems with program and funding models that were pioneered early in the last century…The philanthropic community should be interested in the agile and lean methods produced by the technology sector, not the money produced by it, and start reorganizing project teams and resource allocation strategies and timelines in line with this proven innovation model.”

  6. Amy Celep and Sara Brenner describe the “Intentional Influence Strategy” that nonprofits, like playground creator KaBOOM!, use to create social change at scale. As they describe it, intentional influence is “moving likely and unlikely stakeholders within an ecosystem to take the actions required to solve a problem at the magnitude it exists.”

  7. Writing on the UnSectored blog, Patrick Davis from the Calvert Foundation describes their new initiative, “Ours to Own” which takes a “radical inclusion” approach to getting local community members to invest in solutions to the challenges their cities face.

  8. We cannot expect nonprofits to measure performance without providing the funding necessary to do so. Laura Quinn makes this quite clear, writing “If we demand more data without more funding, it logically follows that what we’ll get is simply data that’s more made up.”

  9. Mark Rosenman, writing on the PhilaTopic blog, describes the particular role nonprofits must play in a world suffering from the “failures of political leaders and the self-serving nature of the corporate world.”

  10. And finally, the Ford Foundation launched a new online forum kicked off by eight changemakers that asks the question “Where Markets Lead Will Justice Follow?” The articles will get you thinking.

Photo Credit: Joanna Penn

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How to Create Capacity Builders on Your Board

Nonprofit capacitySomething really interesting happened the other day to an executive director I know.

A couple of board members approached her to ask what she needed to continue to move forward. They wanted her to be blunt about the obstacles in her way. She was equally honest, telling them she could really benefit from leadership coaching on how to manage a staff, grow an organization, continue to develop the board, build financial sustainability. The board didn’t bat an eye. They told her to figure out how much it would cost so they could foot the bill.

How amazing is that?

A group of board members not only recognized that their executive director might have challenges that she wasn’t expressing, but also listened to those challenges and invested in their solutions. What a dream scenario!

How great would it be if more board members, and even some donors, did that?

There is some hope. A small subset of funders are recognizing and investing in the tremendous need for leadership development in the nonprofit sector.

But a nonprofit leader who is really struggling doesn’t have the luxury of waiting for her board (or donors) to wise up and ask her about the challenges she is facing. So in lieu of a truly enlightened board of directors, here is what you can do to encourage your board (and close donors) to become capacity builders:

Identify a Few Allies
As executive director you probably have at least one or two board members, and perhaps a couple of donors, who are very supportive of what you do. They strongly believe in the work of your organization and your ability to effectively lead that work. Meet with them one-on-one to discuss the challenges you are facing – not in order to vent your frustrations, but rather to explore proactive solutions.

Describe the Capacity Challenges
Really analyze what is holding you and your organization back. Where do you struggle? Why are you hitting your head against the wall? Describe in an honest (but not whining) way the capacity constraints (lack of adequate staff, effective technology, long-term planning, verified program results) and how those issues keep you from delivering more social change.

Quantify the Capacity Building Solutions
Figure out what it would take to clear those hurdles. How much would a Development Director cost? Or an evaluation program? Or a strategic plan? Then break those costs into investable amounts. A single board member or donor may not be able to fully fund a $50,000 evaluation program or a $75,000 Development Director. But if 3-5 board members made their own investments and then identified a couple of other people who could also invest, you would quickly get there. Show your allies how achievable, with their (capacity capital) support,  the solution is.

Create Champions in the Cause
But don’t let them off the hook when they write that check. Enlist their help in convincing others inside and outside the organization why you need to invest in capacity building. Have them articulate to others how important this next step is and the potential return on investment to the organization, and the social change you all seek. Create an army of champions who will advocate for your capacity building cause.

The challenges you face as a nonprofit leader are very real. But they won’t get any better unless you become proactive. Find partners among your board and donors to help you remove those obstacles standing in your way.

If you want to learn more about the leadership coaching I provide nonprofit leaders, click here, and if you want to learn more about raising capacity capital, download the Launch a Capacity Capital Campaign guide.

Photo Credit: Paul Keheler

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Social Enterprise is Not the Answer to Fundraising Woes

square pegThere is an article in Forbes this month that bothered me. Carrie Rich, co-founder and CEO of The Global Good Fund, argues that more nonprofits should move from a “donor-driven organization” to a “revenue-producing social enterprise.” Instead of “relying on donor funding” more organizations should “create revenue-producing services.” In essence she is encouraging more nonprofits to figure out how to sell their services.

The problem with her argument, though, is that it encourages nonprofits to think one-dimensionally about funding sources instead of developing an overall financial strategy that may or may not include earned income.

Rich’s argument is that earned income, or what she calls “revenue-producing social enterprise” is a more sustainable and impactful way to create social change. She goes on to list all sorts of reasons (10 actually) that revenue generation (or earned income) is better than contributed income. These reasons include that revenue generation allows nonprofits to be “more responsive to change,” “attract employees who seek growth,” “accelerate growth and impact,” “become more financially sustainable and mature,” and the list goes on.

Rich is echoing a repeated dichotomy in the social change space between traditional, broken nonprofit approaches, and new, more sustainable and impactful social entrepreneurship approaches. Her line of argument stems from a distaste for fundraising done badly.

Believe me, I get it. Fundraising is broken. But just because traditional fundraising is flawed doesn’t mean we should eschew all contributed income.Yes there is deep dysfunction within the nonprofit sector – I talk about it all the time. But the answer is not to simply dismiss the sector and all of its trappings (and revenue sources).

Let’s remember that a nonprofit organization is often created to provide a public good that is not offered by the market. In other words, nonprofits are selling what someone is unable to purchase.

Thus, nonprofits typically have two customers:

  1. Those who benefit from the services (“Clients”), and
  2. Those who buy the services (“Donors”)

When social change organizations are able to conflate the two – when the client becomes the buyer – a social enterprise is born. And while that is great, it is rarely the case. Therefore, market-based solutions will never provide all the social change we need.

Every social change organization must analyze their overall strategy and develop a financial model that best delivers on that strategy. That financial model may have earned income elements, contributed income (individual, corporate and foundation grants) elements, government funding or, most likely, some combination of all of these. And every nonprofit should at least analyze whether earned income is right for their financial model. But social enterprise will never be right for all nonprofits, or even a majority of them.

Instead of completely throwing out “traditional charity models,” let’s make them better. Rich argues that one of the many reasons earned income is better is that it allows organizations to “afford the best technologies to help them succeed.” If social change organizations need more capital investments for technology (which they definitely do) then let’s make capacity capital ubiquitous in the sector. But let’s not erroneously assume that more earned income equates to more capital investment.

Let’s move past these social enterprise vs. charity debates and instead focus on helping social change organizations develop smart, sustainable financial engines that include the right revenue (and capital) mix.

Photo Credit: Yoel Ben-Avraham

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What Social Change Requires

ConstitutionIt is obvious to most in this country that our political system is quite broken. A gridlocked Congress, a shilling mainstream media, a checked-out electorate, and the list goes on. But last week I saw some hope.

I participated in a really interesting gathering in Baltimore hosted by the William and Flora Hewlett Foundation. As part of their Madison Initiative (a $50 million project to “support and improve the health of representative democracy in the United States”) Hewlett brought together 90 nonprofit and government leaders, consultants, journalists, heads of think tanks, and other foundation leaders to connect and analyze.

It was a fascinating few days. Through conversations and design-thinking sessions we were encouraged to stretch our thinking about solutions to the often depressing state of American government. I met some inspiring people who are creating solutions to our broken political system. (A few have agreed to be interviewed on the blog, so stay tuned.)

I am only tangential to this world of political reform, so for me it was interesting to see how conversations happening here can inform social change more broadly.

A few things occurred to me over the course of the three days about what effective social change requires:

Networks AND Institutions
Networks, loose connections of people and groups, exist outside of our 200+ year-old political institutions, but social change happens when networks organize themselves enough to pressure outdated institutions to adapt. This happened in the civil rights movement, recent global democracy movements, and the state-by-state legalization of gay marriage. But when networks and institutions don’t connect, social change doesn’t happen (like in the Occupy movement). So networks must organize enough to influence institutions, and institutions must open themselves enough to let networks in. Social change requires that the two work in tandem.

Millennials AND Boomers 
Echoing Robert Egger’s guest post this past summer on this blog, both Millennial and Boomer generations have a deep commitment to social change and the critical mass necessary to make it happen. But they would be even more effective at creating social change if they worked together, instead of against each other. Millennials need to recognize that Boomers fought for system change in their day (civil rights, women’s rights) and Boomers need to recognize that Millennials are creating similar kinds of system change, just with new tools and technologies. The two must find connections and collaborate more often. And I think Gen Xers (of which I am one) can play a critical role in translating between the two generations.

East/West/Rural/Urban Geographies
This is a huge country and sometimes that reality gets in the way of change. Red vs. blue, rural vs. urban, Eastern time zone vs. Western time zone, coastal vs. flyover states, there are many ways to slice our country. It amazes me how often people focus on geographic differences instead of common values and goals. But true change comes when we break down those walls and have a conversation based on shared values rather than opposing frames of reference. The only way we move beyond impasse is for each side to listen with a completely open mind (free of assumptions and stereotypes) to the other side. And occasionally leave our comfort zone and meet others where they are.

At the end of the day, political reform is no different than any other social change we seek. To create positive change we must move beyond the dichotomies. We have to think much bigger. Perhaps the answer to our political woes is the same as the answer to our other social challenges, as E.M. Forster put it, “Only connect!…Live in fragments no longer.”

Photo Credit: Wikimedia

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Flipping the Default Setting on Philanthropy: An Interview With Kathleen Enright

KE1_websiteIn today’s Social Velocity blog interview, I’m talking with Kathleen Enright, founding president and CEO of Grantmakers for Effective Organizations (GEO). GEO is a diverse community of more than 450 grantmakers working to reshape the way philanthropy operates and advance smarter grantmaking practices that enable nonprofits to grow stronger and achieve better results.

Prior to GEO, Kathleen was at BoardSource, where she was responsible for building public awareness of the importance of strong nonprofit boards. Prior to joining BoardSource, Kathleen was a project manager for the National Association of Development Organizations Research Foundation where she directed a Ford Foundation funded project to encourage collaboration between nonprofits and local governments.

Kathleen speaks and writes regularly on issues of nonprofit and grantmaker effectiveness at national and regional gatherings of executives and trustees and in various publications including Investing in Leadership: Inspiration and Ideas from Philanthropy’s Latest Frontier and Funding Effectiveness: Lessons in Building Nonprofit Capacity. She is also a contributing blogger for The Huffington Post.

You can read other interviews in the Social Velocity Interview Series here.

Nell: GEO has been around for 15 years working to “advance smarter grantmaking practices that enable nonprofits to achieve better results.” In that time, has the work gotten harder or easier? Is the foundation community more effectively contributing to nonprofit results?

Kathleen: We have some new data on that exact question. GEO’s fourth national study of staffed grantmaking organizations is due out next month. The headline is that while the field is moving in the right direction on many fronts, we still have a long way to go.

We appear to have reached a “tipping point” on a few issues. At long last, the majority of staffed foundations in the US report seeking and using grantee feedback to inform their work. As good practices like this one become more common — even expected — it’ll become harder and harder for holdouts to justify the status quo. Similarly, on general operating support — one practice that has stubbornly held steady for years — we’re finally seeing movement in the right direction.

The reality is that there’s a lot of work still to be done. In our last survey we learned that during the economic downturn — when nonprofits needed flexible, reliable, long-term dollars the most — many foundations backpedaled on things like funding multiyear grants. That the new survey shows we’re back to pre-recession levels is a positive step, but we have a long way to go until we’re able to flip the default setting in philanthropy. Achieving this goal means making it so that multi-year, general operating support is the assumption and program officers and grantees need to make a specific case for why a program-restricted or short-term grant makes sense.

Nell: According to the most recent State of the Sector Survey by the Nonprofit Finance Fund, 41% of nonprofit leaders cite long-term financial stability as a top challenge, yet only 9% of them feel they can have an open conversation with funders about operating reserves. How do we bridge that gap and make it easier for nonprofit leaders and funders to talk openly about and invest effectively in financial stability? Do you think foundations’ appetites for capacity investments are growing, or waning, and how do we make capacity investing more appealing to funders?

Kathleen: Our field study will expand on this point as well, but the perception gap is huge. Funders declare themselves willing to talk about financial health, but grantees still don’t feel safe to do so. My takeaway here is that foundations need to do much more to signal to grantees that they are open to having such a discussion. Closing this perception gap won’t happen in one go. We need to find ways to normalize these conversations, including the questions or fears a grantee might have.  We need to be conscious that sometimes our funding practices act as nonverbal cues that close down conversations about financial stability. It’s hard to believe a funder is earnest about discussing financial health if they aren’t already doing the basics, like offering flexible, long-term support. Ensuring that nonprofits feel empowered to have these conversations will only happen through word and deed.

It really comes down to a fundamental shift in how many funders think about nonprofits. When a funder thinks about grantees as merely suppliers who offer what amounts to an appealing product that leads to a bit of tunnel vision. However, when grantees are seen as crucial actors in efforts to create lasting change on the complex social challenges a funder cares about, they are much more likely to take a broader, long-term perspective.

In terms of the appetite for capacity investments, we held a series of “listening sessions” with nonprofit leaders last year to learn more about their experiences with capacity-building. Most staffed foundations in the US do provide some sort of capacity building support, so some of what we wanted to uncover is how to make the most of those investments. Based on those sessions and 15 years of experience on this question, we believe that by taking an approach that is contextual (tailored to the unique needs of the grantee), continuous (taking the long view), and collective (considering how the parts add up), grantmakers will be well positioned to provide capacity building support in ways that effectively support nonprofits to achieve lasting impact.

Nell: In recent years there have been studies and efforts aimed at getting more donors to channel donations to nonprofits that can prove results. How optimistic are you that we can change donor, particularly foundation, behavior toward funding based on results? And what will it take to get there?

Kathleen: It’s reasonable for foundations to want to make sure their funding leads to impact. And with technology making data collection easier, it’s natural that there’s a lot of buzz in the field about evidence and results. But it’s complicated terrain.

Not only do we lack a shared agreement on what proof or evidence means, most grantmakers and their nonprofit partners are focused on complex social problems with no easy answers. There was an excellent article in Forbes on the limitations of what the authors call “moneyball philanthropy,” where too great on an emphasis is placed on a clear or measurable cause and effect between the work and the impact. The bottom line is that if foundations only fund those things with “proven” results, they’ll miss opportunities to support important work on systems that has the potential to be game-changing.

Job number one in our view is to understand what’s working, what’s not and how we can continuously learn and improve. It often means taking risks and understanding what went wrong. The reality is that many nonprofits are ill-equipped to build the appropriate information infrastructure or conduct evaluations because they haven’t received the financial support to enable them to build that capacity.

So before we move too far in the direction of funding only based on results, grantmakers must consider how we can help grantees build their sophistication around evaluation. It’s a first step — and an incredibly powerful one — to help nonprofits grow their impact. This may mean providing flexible funding or tailored funding to support the development of evaluation plans, staff training or paying for third party evaluators. GEO members like the Bruner Foundation, Hartford Foundation for Public Giving, and Mile High United Way have worked diligently over many years to strengthen nonprofit capacity for evaluation. Their work suggests that such investments often have much farther-reaching positive effects on the organizations they support. We produced a short video on the Hartford Foundation’s work to build grantee evaluation capacity (which actually draws from the Bruner Foundation’s impressive body of work) that you can find here.

Nell: Foundation money only accounts for about 2% of all the money flowing to the nonprofit sector, which is a fairly small piece of the funding pie. Is there a role, and if so what is it, for foundation leaders to lead other larger sources of funding in the sector (government, individual) toward more effective giving?

Kathleen: Institutional philanthropy has incredible insights and wisdom that could be enormously helpful to help steer other dollars intended for the public good.  One of our newest board members, Peter Long, President and CEO of the Blue Shield of California Foundation, is an advocate for creating more “open source philanthropy”. His idea is that, as a field, we’ll be able to make faster progress if we’re generous with our thinking. What if every funder interested in improving health outcomes could benefit from the Robert Wood Johnson Foundation’s wealth of knowledge? This is especially important for newcomers, as building this open knowledge base both gives them a place to start from as well as gives them an opportunity to build our collective knowledge. Being “experts” in philanthropy is a role that foundations can — and should! — embrace.

Another way foundations can show leadership is by pooling resources to address complex issues. The Washington Families Fund is an example of just how powerful it is when foundations come together and work with public entities. As a public-private partnership, the Fund is capitalizing on the resources of foundations — including GEO members like the Campion Foundation, Bill and Melinda Gates Foundation, Medina Foundation, Meyer Memorial Trust, and Seattle Foundation — coupled with the on-the-ground capacity of government entities like the Washington State Department of Commerce to reduce homelessness in their region by 50 percent by 2020. Examples like these demonstrate just how powerful public-private partnerships can be.

Photo Credit: GEO

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What Nonprofits Really Need From Their Donors [Video]

My hope in creating the growing library of Social Velocity videos is that nonprofit leaders will use the topics as a jumping off point for honest discussions with boards and donors. It can often be intimidating for a nonprofit leader to raise a controversial question like:

A nonprofit leader could set aside 30 minutes in a board meeting agenda for a discussion kicked off by a 2-minute video. Play a video, and then simply ask “What do you think?” Or you could show a video to a donor when you meet and ask for their opinion.

Some will disagree vehemently with what I have to say, but others might agree, or at least be open to thinking in new ways. An interesting, thought-provoking conversation might ensue. From that discussion you might start to plant seeds for change.

So to add to the library of conversation starters, today I offer this video on What Nonprofits Really Need From Their Donors.  And if you want to see other videos in the series go to the Social Velocity YouTube channel. Good luck!

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10 Great Social Innovation Reads: September 2014

social innovationThere 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.

  1. 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.

  2. 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.

  3. 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!

  4. 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.”

  5. 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.

  6. Measuring impact is complex and costly, but Carly Pippin from Measuring Success, offers 4 steps for how small nonprofits can assess impact affordably.

  7. 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.

  8. 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.

  9. Stephanie Jacobs of the Nonprofits Assistance Fund offers some tips to turn your board into the financial leaders they need to be.

  10. 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

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