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Social Enterprise

Moving Social Finance Forward: An Interview with Ted Levinson

Ted LevinsonIn today’s Social Velocity interview, I’m talking with Ted Levinson. Ted is the Director of Lending at RSF Social Finance, a San Francisco-based financial services non-profit dedicated to transforming the way the world works with money. Levinson manages RSF’s flagship $75 million Social Investment Fund which provides debt capital to US and Canadian social enterprises.

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

Nell: RSF Social Finance is really the leader in the social finance market, you’ve been doing this long before anyone started talking about a “social capital marketplace.” Given that long history, how do you view the current state of the social capital market? Are we where we need to be to funnel enough and the right kinds of capital to social change efforts? And if not, how do we get there?

Ted: RSF has a twenty-nine year operating history, but it’s still early days for the field of social finance. The industry is at the same stage of development as natural food stores were thirty years ago – we’re established, we’re growing, we’re doing good work, and yet we’re still considered a fringe movement. I believe we are on the cusp of mainstream acceptance which will mean a much broader audience of impact investors (especially young people and unaccredited investors) and far greater demand for social capital from the growing number of social enterprises that are just now becoming investment-ready.

There’s been a shift in society’s view of natural food stores – we’ve overcome our fear of the bulk bins and now all grocery stores look more like natural food stores. I expect the same thing to happen with our conventional financial institutions which are just now beginning to pay attention to social finance.

What the field really needs is to expand the financial products available to social enterprises and address some of the existing gaps. Frustrated social entrepreneurs may disagree, but I think the angel capital and large-scale venture capital spaces are meeting the needs of for-profits. Incubators, business plan competitions and seed funds are providing modest amounts of funding to emerging non-profits and for-profits. RSF and some of our friends including Nonprofit Finance Fund, Calvert and New Resource Bank are addressing the middle market market.

The big voids in social finance include:

  • True “risk capital” for non-profit social enterprises. We need more foundations willing to place bets on high-potential organizations.
  • Bigger finance players or (better yet) a more robust consortium of social finance organizations that can band together to meet the $5 million + needs of high growth social enterprises such as Evergreen Lodge, Playworks and other organizations that are reaching scale.

I believe the field will get there but we’re playing “catch-up” now and social entrepreneurs are an impatient bunch.

Nell: RSF does something pretty revolutionary in that you combine philanthropic giving with impact investing, whereas these two sides of the social capital marketplace have not yet really found a way to work together in any large scale or significant way. Why do you think that is? And what needs to change in order to encourage foundations and impact investors to work more closely together?

Ted: We call our approach of combining debt and philanthropic dollars “integrated capital,” and we think it’s going to have a profound effect on impact investors, philanthropists and the social enterprises it serves.

Most non-profit social enterprises rely on a combination of earned revenue and gift money. There’s no reason why a single transaction can’t bridge these two forms of capital. With integrated capital we can leverage philanthropic grants or loan guarantees to push high-impact loan prospects from the “just barely declined” category into the “approved” category. In fact, even some for-profit social enterprises are eligible for this. Our loan to EcoScraps – a fast-growing, national, composting business was made possible by a foundation that shared in some of RSF’s risk.

Integrated capital is possible because RSF works with individuals and foundations that have overcome the prevailing view that how you invest your money and how you give are distinct activities. We’re also fortunate to work with an enlightened bunch of people who recognize that philanthropic support for social enterprises isn’t a crutch or a sign of a failed enterprise.

Our work at RSF is driven by a belief that money ought to serve the highest intentions of the human spirit. Conscientiously investing money, giving money and spending money can all further this goal.

Nell: What do you make of the emerging social impact bond movement? Is this a social finance vehicle that you think will work?

Ted: I’m deeply hopeful and deeply skeptical of the future of social impact bonds. I’m hopeful because our government is notoriously risk-adverse and slow to adopt new ways of improving education, reducing recidivism, or curbing our runaway health care costs. I think spending money on early interventions could go a long ways towards improving these fields societal challenges, but paying now to save in the future is at loggerheads with the short-term view which prevails in politics. Social impact bonds are a clever way to push the risk on to investors who are willing to take a longer view for the potential of a big upside.

I’m also a fan because social impact bonds are an alternative to the financial engineering which brought us collateralized debt obligations. They demonstrate that Wall Street doesn’t have a monopoly on financial innovation.

That being said, I’m skeptical that this market can ever reach a stage where transactions costs can drop enough to make it economically viable. Bringing together the multiple parties that are required for such a transaction (the government, the investor, the non-profit, a monitoring entity, a social finance organization, an attorney and possibly a foundation) just seems unaffordable to me.

Nell: What sets the nonprofits and social enterprises you invest in apart? What characteristics do you look for in the investments you make?

Ted: All of our borrowers fall into one or more of three focus areas – sustainable food systems, the environment and education & the arts. These borrowers all have capable, committed management who recognize that financial sustainability is a prerequisite for lasting change. Our best borrowers have strong communities supporting them whether it is donors, customers or suppliers.
Evaluating these stakeholders is a key component of our underwriting process at RSF.

Our experience demonstrates that performance improves when social enterprises engage all of their stakeholders. RSF’s long-standing support of fair trade is an example of this commitment. We also regularly expect borrowers to solicit their community members to join RSF’s investor community as a precondition to approval. We take community seriously at RSF!

Our borrowers are all addressing major social or environmental problems such as a lack of adequate housing for developmentally disabled adults (Foundation for the Challenged), inefficiencies in the wind industry (FrontierPro) and poverty and environmental degradation from rice farming (Lotus Foods.) As social enterprises, they’re primary activities are DIRECTLY making the world a better place. We believe our borrowers have the potential to scale their organizations and make a real dent in these problems, or become a model for others to do the same.

For example, we were one of the first lenders to Revolution Foods when they were operating out of a defunct fast food restaurant in Alameda, CA. Today they deliver over 200,000 healthy meals a day to public school children.

Similarly, we think DC Central Kitchen’s model of combining culinary training for adults with barriers to employment with a robust meals business (they deliver 5,000 meals a day to schools and homeless shelters) is a winning approach that can be replicated throughout the country.

Nell: Some have argued that nonprofit leaders lack a level of sophistication when it comes to financial strategy and use of financial tools. Obviously you find nonprofits and social enterprises that are able to effectively employ sophisticated financial vehicles, so how do you respond to that argument?

Ted: Rather than argue I prefer to let the results of our borrowers speak for themselves. DePaul Industries, for example, is a $30 million non-profit that employs over a thousand disabled Oregonians. The Portland Business Journal ranked them one of the most admired companies in the state and they did this all with 98% earned revenue. Network for Good processes over $150 million of online donations every year while Digital Divide Data has a decade of year over year revenue growth in the field of impact outsourcing.

I see no lack of financial sophistication in the non-profit sector. I do, however, see a lack of risk-taking, which can sometimes be misinterpreted as unsophistication when compared with the for-profit world. It’s a shame this mentality is so pervasive because of the importance and urgency of the work that so many non-profits do. Many icons of industry have biographies filled with risky expansion, leverage, false starts and failures. We need to de-stigmatize failure in the non-profit sector and adopt that same boldness which has led to so many of the biggest successes in the commercial world.

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Why Social Entrepreneurship Shouldn’t Abandon the Nonprofit Sector

socent-bubble1Note: I was asked by UnSectored, a community platform for rethinking social change, to write a post as part of their month-long conversation leading up to the William James Foundation’s Annual Gathering about how we sustain social enterprise. Below is that post. It originally appeared on the UnSectored blog where you can see the other posts in the conversation.

 

There is an awful lot of hype around the social entrepreneurship movement. Don’t get me wrong, I’m excited about the growing focus and energy around social change. But I think we need to take a step back and recognize that nonprofits have been working on social change for a really long time.

Often nonprofits get less airtime in the social innovation movement than their for-profit, social change counterparts. Perhaps that’s because the for-profit form of social change is new, so it seems more interesting, sexier, apt to create more change. And, of course, the idea that business can be reworked to address public goods is incredibly compelling.

But among the glorified world of social entrepreneurship, some are beginning to question the hype. Like Liam Black (“Letter to a Young Social Entrepreneur”) and Daniel Ben-Horin (“Between the Quick Exit and the Long Sojurn”)

Real social change is hard, long, exhausting work. As Daniel Ben-Horin says “This ‘making a difference’ stuff can be a real grind, as it turns out.”

And amid the hype around social entrepreneurship there is a tendency to dismiss those who were working on the long haul of social change before it was cool: the nonprofit sector.

The current hype around for-profit social entrepreneurship sometimes reminds me of the dot.com bubble, or the sub-prime mortgage speculation. We have to be careful of the hubris that accompanies new trends.

The nonprofit sector is an enormous part of our economy and has a long history of working towards social change. If we were to cast it aside completely, we’d lose the tremendous resources (money, people, mind-share) that are being invested in that sector every day. Without its oldest component, the broader movement to solve social problems is doomed. So instead of tossing it aside, let’s remake it, re-envision, restructure and reinvent it.

What does that mean? It means that the best and the brightest in the social innovation field need to figure out how to innovate in the nonprofit as well as for-profit sector. It means that the emerging social capital market creating financial vehicles for budding social businesses should also support social entrepreneurs in the nonprofit space. It means philanthropists should share investor prospects with impact investors, and vice-versa.

What’s more, innovation requires that investors interested in a social return own portfolios that include not only social businesses, but also nonprofit deals. Many more foundations should explore mission-related investing so that their money can go to both nonprofit and for-profit social change efforts. Nonprofits interested in growth should have access to capital and management expertise to scale. And a nonprofit that’s solving social problems should get just as many resources, respect and mind-share as a social business that’s doing the same.

In essence, we need an “unsectored” approach to social change.

Which means a shift in attitudes, laws, accounting standards so that social entrepreneurs are not restricted by outdated structures and incentives.

There’s no magic bullet for social change. But by focusing all of our energy on only one piece of the social innovation puzzle, we run the risk of less change — or none at all.

Photo Credit: unsectored.net

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Calling All Nonprofit Social Entrepreneurs

There is a really interesting research study about social entrepreneurs going on at the University of Massachusetts and you may want to join in.

John Walker, Finance Director at Echoing Green and Nardia Haigh, Assistant Professor of Management in the College of Management at UMass Boston are investigating social entrepreneurs who went through a process of deciding whether to establish their organization as a non-profit, a for-profit, or a hybrid. They want to understand the range of circumstances under which social entrepreneurs identify which type of business model fits best for different situations.

While they have already interviewed many for-profit social entrepreneurs, they are having a hard time finding nonprofit social entrepreneurs, which is where you come in.

If you are a social entrepreneur and struggled with the decision about whether to form a for-profit/nonprofit/hybrid entity, Nardia would like to interview you about your organization’s strategies, structure, and direction.

According to Nardia, there are many circumstances under which hybrid organizations are established, and to date, two distinct variations of the hybrid business model are evident: Multi-entity and Integrated:

  • Multi-entity hybrids link for-profit and nonprofit entities – often through contracts and/or ownership. A nonprofit may establish and own all or part of a for-profit subsidiary (e.g. Embrace and Embrace Innovations), or a for-profit may establish a nonprofit and provide it with equity or other means for it to derive non-discretionary revenue.

  • Integrated entities are either for-profit companies with a strong social or environmental mission deeply embedded within its business model (e.g. TOMS Shoes or Maggie’s Organics, and companies registered as L3Cs), or are nonprofit organizations that use for-profit methods to generate revenue (e.g. Ten Thousand Villages or Ecosia.org).

In this study, they seek to understand the decision-making process entrepreneurs go through in choosing which to pursue.

Nardia’s research at UMass Boston focuses on business models and strategies that address large-scale sustainability issues in positive ways. And John has significant experience as an entrepreneur, an executive, and as a board member in a range of industries, where he specializes in financial analysis, capital raising, and structuring acquisition and investment deals.

If you are a social entrepreneur and would like to participate in this research study, contact Nardia at Nardia.Haigh@umb.edu.

Nardia has promised to share the results of the study with Social Velocity readers when it’s completed. I can’t wait to hear what they find out.

Photo Credit: piermario

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Chatting About Social Entrepreneurship

As I announced in an earlier post, yesterday I participated in a Live Chat organized by the Foundation Center about social entrepreneurship. Abby Chroman from Ashoka joined me as a fellow panelist, along with The Foundation Center’s Katie Artzner who moderated.

We took questions from the audience about social entrepreneurship, social change, where nonprofits fit in the social innovation movement, social return on investment, measuring outcomes, fundraising and much more. It was a fast and furious hour with great discussion and great questions. This was a fun format because there was no audio, only text chatting.

If you missed it, you can still view the chat on the Foundation Center’s website here. And below is an excerpt from the discussion just to give you a taste.

_______________________________

Foundation Center’s Grant Space Live Chat

Comment From Dan:

How do you deal with accountability in the social entrepreneurship sector? Should social entrepreneurs be democratically accountable to those whose lives they seek to impact?

2:38
Katie:

How about we start with Nell.

2:38
Nell Edgington:

Dan, I’m not sure what you mean by “democratically accountable,” but they should absolutely should be accountable to their theory of change. Any social change org should have a theory of change (argument for how they are using community resources to create positive change). Once they have a theory of change they must measure whether that change is actually occurring.

2:38
Abby:

Accountability is a huge part of social entrepreneurship. It’s why we take a person’s “ethical fiber” as a very very serious part of our selection criteria for leading social entrepreneurs.

2:39
Katie:

“ethical fiber”? Can you explain?

2:39
Abby:

Yes, this is the level of trust we invest in our Ashoka Fellows that they will not only solve the social problem but that they will be accountable for their impact.

2:40
Abby:

It sounds odd, but imagine if you would stand on the edge of a cliff with someone…

2:40
Abby:

Do you trust them 100%?

2:40
Katie:

Depends!

2:40
Nell Edgington:

Can I jump in here for a second?

2:40
Katie:

Absolutely, Nell

2:40
Abby:

If no, why not? That’s the kind of rhetorical question we’d ask.

2:41
Nell Edgington:

That’s a really interesting concept to me. To me, social change is a very complex combination of people, money, ideas, structures, etc.

2:41
Nell Edgington:

It can never be dependent on just one person. So how can you know whether a single actor is actually going to make change happen?

2:42
Abby:

The person is will catalyze the change, but you’re right – it involves whole systems. So we’re back to systems!

You can see the whole live chat here.

Photo Credit: AlexDixon

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The Future of Financing Social Change: An Interview with Antony Bugg-Levine

In this month’s Social Velocity blog interview, we’re talking with Antony Bugg-Levine. Antony Bugg-Levine is the CEO of Nonprofit Finance Fund, a national nonprofit and financial intermediary dedicated to mobilizing and deploying capital effectively to build a just and vibrant society. In this role, Mr. Bugg-Levine oversees more than $225 million of capital under management and a national consulting practice, and works with a range of philanthropic, private sector and government partners to develop and implement innovative approaches to financing social change. He is the co-author of the newly released Impact Investing: Transforming How We Make Money While Making a Difference.

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

Nell: You’ve recently taken over the helm of the Nonprofit Finance Fund, a pioneer in cutting-edge ideas for better capitalizing the nonprofit sector, like growth capital. What’s next for NFF? Where do you go from here?

Antony: I am humbled and excited to be given the responsibility to lead an organization with such a strong legacy and talented staff. After 31 years of working with nonprofits and funders, Nonprofit Finance Fund understands as well as anyone how we can best raise and use financial resources to create sustainable organizations that together weave the fabric of just and vibrant communities.

Honing and sharing these insights is more important than ever. As the economic crisis has turned into an intractable employment crisis, the communities we work with and the organizations that serve them are facing unprecedented challenges. Business as usual is no longer going to work. But business-as-unusual is increasingly exciting. The crisis has created new opportunities by shaking loose long-held barriers that kept the worlds of social change and business firmly apart.

NFF is well-poised to help ensure that these new opportunities bear fruit, by doing what we have always done–bringing a data-driven approach to identifying what works, and working deeply and closely with social change organizations while communicating effectively with capital providers. We will have more details on our specific strategic direction in early 2012 but are very excited about the possible directions we can take. In many ways, this is our time and we hope to be worthy of these opportunities.

Nell: You recently wrote a book with Jed Emerson about impact investing that charts the field and where it might be going. But the field of impact investing, especially in places like the Social Capital Markets Conference, seems to separate itself from philanthropy and the nonprofit sector. How can and should impact investing and philanthropy collide and what will make that happen?

Antony: Advocates of impact investing have done a great job in the last few years explaining how for-profit investment can be both a morally legitimate and economically effective tool to address intractable social and environmental challenges.

But many of these challenges have been intractable precisely because neither markets nor governments have figured out how to address them. So impact investors will have to collaborate with philanthropists, nonprofits and governments to create comprehensive solutions when no one piece can work alone. At NFF we are increasingly seeing the power and necessity of a “total capital” approach where, for instance, we provide impact investing capital in the form of loans, human capital in the form of (grant-funded) consulting support, and government assistance in the form of subsidy or loan guarantee. This is particularly important as the unemployment crisis places increased demands on already strained organizations. For example, to support a set of leading arts organizations, we secured a PRI from the Mellon Foundation that enabled us to provide loans alongside technical assistance to leading arts organizations. We are now developing a similar integrated approach to support social service agencies such as homeless shelters and soup kitchens.

Nell: The vast majority of money is still bifurcated with for-profit investing on one side and charitable donations on the other. What will it take to change that and get more capital to social change organizations?

Antony: When I began this work at the Rockefeller Foundation almost five years ago I thought we were in the deal-making and infrastructure building business: that a few compelling examples of how impact investing can work and the development of networks and measurement standards to facilitate collaboration would be enough to allow impact investing to take off. But now I realize how impact investing threatens deeply-held mindsets of a bifurcated worldview that insists the only way to solve social challenges is through charity and the only purpose of investing is to make money.

To overcome this belief will require more than analysis and anecdote. Instead we need to build new systems to support the new aspirations. We need:

  • a regulatory and legal framework that recognizes and incentivizes the contributions impact investors can make;
  • educational systems that train young professionals to adapt investment tools to social purpose;
  • measurement systems that allow us to assess and compare the blended value investments generate;
  • nonprofit and for-profit social enterprises equipped to navigate the increasingly complicated strategic options that impact investors present; and,
  • a philanthropic system organized around the question “How can we deploy all our assets to address the social issues we care about?” rather than “How do we give well?”

Nell: What is your idealized financial future for the social change sector? What level and kind of change would you ultimately like to see?

Antony: I envision a day when we organize the social change sector around the problems we seek to solve rather than the tools we happen to hold. Instead of fetishizing the moral or practical supremacy of grant-making or investing, in this world we will recognize that each has a role to play, and they are often most powerful when taken together. Exciting examples are already taking hold. In California, the California Endowment organized a multi-sector coalition to put an end to the “food deserts” that left many poor communities without easy access to purchase healthy food. This collaboration resulted earlier this year in the launch of the FreshWorks Fund that has mobilized grant capital, bank capital, impact investing capital and intellectual capital to bring new grocers into underserved communities. At NFF, we are applying a similar approach in the ArtPlace initiative, which is using arts as an engine for economic development in the US. This initiative has mobilized substantial commitment from private foundations, the US government and commercial banks.

Nell: How much of a panacea for social problems is impact investing? Can double bottom-line investing truly revolutionize how money flows to solving problems? Will it overtake government and philanthropic investment in social problems? And should it?

Antony: Impact investing is not a panacea. We cannot create and sustain a just and vibrant society unless we recognize that many organizations generate social value that cannot be monetized, and instead must be supported through charity and government. But we also must not ignore the vast potential in the trillions of dollars of for-profit investment capital currently lying on the sidelines of the social change agenda.

The global capital markets hold tens of trillions of dollars. Unlocking just one percent for impact investment will bring multiples of the approximately $300 billion in total annual charitable giving in the US. So impact investing can create a huge difference in how quickly or comprehensively we can address those social challenges where lack of money is the main issue.

Impact investing can also be revolutionary by accelerating new discipline in how we identify, assess, and manage our social change agenda. At their best, investors bring a rigor and discipline in allocating scarce resources to their most productive use, where there is a market-based solution. Impact investing will help spur a movement to link social spending to outcomes that a set of organizations can achieve, rather than just the outputs any one organization can deliver. We need to be careful, however, to recognize exactly where these new approaches will work and where simplistic and reductionist thinking will divert resources away from worthy causes or leave behind worthy organizations.

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10 Great Social Innovation Reads: November

November was another great month in the world of social innovation. Here is my pick of the top 10 posts, articles, graphics, and discussions. As always, please add your favorites from the month to the comments. And if you want to see a longer list of what catches my eye, follow me on Twitter @nedgington. You can also read past months’ 10 Great Reads lists here.

  1. Some very interesting reports and predictions on how nonprofits and philanthropy are changing. First, the Philanthropic Ventures Foundation predicts a pretty exciting future for philanthropy. And Blackbaud released a report on what 35 experts think it will take to grow philanthropic giving in the US. And finally the 2011 Nonprofit Almanac is out. The annual report shows the nonprofit sector growing and that giving is back to 2000 levels

  2. DC Central Kitchen founder and nonprofit sector advocate Robert Egger launched a new group called CForward to help nonprofits fight for their rightful place at the political table.

  3. The Washington Post gets into the social innovation business by launching a new “On Giving” section to discuss philanthropy, social entrepreneurship, socially responsible business and much more.

  4. The Nonprofit Finance Fund offers a great worksheet to assess a nonprofit’s strengths and weaknesses in order to link their financial health to their impact. Love it!

  5. HubSpot offers a great infographic on pull vs. push marketing, but I’d argue it applies to fundraising as well.

  6. The Alliance for Global Good is launching a $10 million fund to promote innovation in philanthropy. The new fund will “draw attention to charities that have found new approaches to tough problems and provide money to help them expand their work.”

  7. On the Unsectored blog Jeff Raderstrong encourages us to start asking the right questions about the charitable deduction currently the focus of so much debate.

  8. Always one to tell it like it is, Mario Morino from Venture Philanthropy Partners offers 6 Wrenching Questions Every Board Member Must Answer.

  9. Jim Kucher argues on his blog that there is a bipolar disorder in social entrepreneurship, between the competing, and sometimes conflicting, social and business perspectives.

  10. Tom Tierney, chairman of Bridgespan Group, a nonprofit consultancy, has written a paper, “The Donor-Grantee Trap, about the dangers of the nonprofit starvation cycle. In a recent interview about it, he argues “Nonprofits should be clear about their definition of success, articulate their strategy for achieving success and be up front about what that costs. That includes understanding the organization’s true overhead costs and making a case for funding good overhead.” Amen to that!

Photo Credit: Sim Van Gyseghem

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Nonprofits as Equal Partners in the Economy: An Interview with Robert Egger

Robert EggerIn this month’s Social Velocity blog interview, we’re talking with Robert Egger. Robert is the Founder and President of the DC Central Kitchen, the country’s first “community kitchen”, where food donated by hospitality businesses and farms is used to fuel a nationally recognized culinary arts job training program. In addition, Robert is the Founder and President of the just launched CForward, an advocacy organization that rallies employees of nonprofits to educate candidates about the economic role that nonprofits play in every community, and to support candidates who have detailed plans to strengthen the economy that includes nonprofits. Robert was included in the Non Profit Times list of the “50 Most Powerful and Influential” nonprofit leaders from 2006-2009, and speaks throughout the country and internationally on the subjects of hunger, sustainability, nonprofit political engagement and social enterprise.

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

Nell: You have argued that nonprofits need to more assertively demonstrate how they are changing things (jobs created, dollars saved by society, etc), but this necessitates an understanding of and ability to articulate and track performance. Do you think the nonprofit sector as a whole is ready for that?

Robert: I don’t think we have a choice. There are external forces that will not allow organizations to go-it-alone, or do what they’ve always done, indefinitely, any longer. The “era of extra” in America, when our manufacturing economy produced enough extra money to sustain (however anemically) the hundreds of thousands of nonprofits, has passed. Plus, donors are more and more demanding of groups now. They want results.

And while many groups may struggle to move beyond antidotes to better articulate their already amazing economic results, there are assets available in every community that can help speed up the transition.

EVERY university and college is brimming with a generation raised doing service, and they would readily embrace the opportunity to help groups measure, and then use new media outlets to market themselves, with gusto.

There are also well-skilled Baby Boomers surging into the sector, equally anxious to be part of rocking their community. The only thing we have to fear is the fear of opening up to change and embracing new ideas. That will be particularly hard for older leaders, or founders who have so much invested in their vision or systems. I understand that trepidation… up to a point.

To be honest, human service nonprofits ask for that kind of courage everyday from the people we serve. Since 1989, we at the DC Central Kitchen have asked that of the recovering addicts and ex-cons who come looking for a second or third chance at change. Shouldn’t we in the sector be equally willing to let go of old habits and be open to new ways of making money? I think so.

Nell: You have worked in social services, feeding and finding jobs for the homeless. Are social problems like hunger, homelessness, poverty ever solvable without fixing the underlying infrastructure inequalities that caused them in the first place? How can and should a nonprofit work to solve something that has a much larger underlying cause?

Robert: I divide my time 49/51.

49% is spent helping colleagues at The Kitchen, or any nonprofit, work stronger, better, faster. But that’s all I’ll give to traditional charity, no matter how bold the effort.

Why? Because grant-funded charity cannot solve the problem. It’s beyond the ability of nonprofits—socially, politically and economically.

That’s why I devote 51% of my energy to forwarding tactics and strategies that help us as a sector (and we as a country) develop the civic courage, economic open-mindedness and political will required to finally root out, root causes.

That was why I Co-Convened the first Nonprofit Congress in 2006. I wanted to challenge the canard that the sector is too diverse to find common ground. I wanted to help inspire groups to climb out of their individual silos and embrace our shared opportunity to change the rules of the game, versus continuing to play by outdated (and economically flawed) dictates.

Most of all, I wanted us to be directly involved in the wide-open Presidential race of 2007 and the dozens of Governor’s races of 2010. I wanted to challenge candidates to vie for our votes, not take them for granted. I still believe that this is the strategy we need to take.

That is why, on Nov 4th, I launched CForward, a PAC (political action committee) for nonprofits. Our goal—to openly support and help elect a new generation of legislators who show up on day one, fully invested in partnering with nonprofits to strengthen the economy.

Admittedly, CForward is a long term strategy for change, but I advance immediate, on-the-ground tactics with equal audacity.

One of many ideas I think could move the dime involves mergers. Not in the two-become-one model, although that’s essential in the current economic climate. No, I’m talking about merging things that matter. If, for example, the top 25 nonprofits in any town merged their banking business and shopped their combined cash-flow, they could leverage their assets and advocate for seats on the board of the bank and work for access to capital (rather than remain encumbered by the grant system).

Another version–what if we developed a “nonprofit seal of approval” for businesses? We could suggest that if citizens wanted to decrease the need for charity, or lower taxes—they could support businesses that we identified as providing good wages, healthcare or other benefits that would decrease demand for services and increase independence. Imagine if we directed our 90 million volunteers to see daily commerce as philanthropy!!

That’s what interests me. What resources do we have and how we can use them differently?

Nell: You are sometimes viewed as a renegade in the nonprofit sector, in that you are not happy with the status quo and you challenge nonprofits to do more and better. Since the nonprofit sector is such a consensus-driven, collaboration-oriented one, have your opinions served you and your work well or ill?

Robert: The better question is; “Has consensus served the sector well?” I genuflect to the power of being open and inclusive, but I think consensus has been used as an excuse for inactivity. Fraternity has been used as a shield to stifle critical review of groups or ideas whose time has passed. The perceived lack of unifying forces has left us fighting each other for scraps. And our silo mentality has left us politically weak at the very moment we should be advocating for a more pronounced role in strengthening the economy. We are 10% of America’s economy. There are 100 million people who work at, or volunteer with, a nonprofit. Of greater potential is the 90 million strong Millennial generation that has been raised doing service and who are now beginning to flood out of schools. They are out of work. They are poor, pissed-off and plugged in. And they are our natural allies in pursuing new policies.

In short—why should we occupy the streets when we can take over the town.

If the organizations that purport to lead the sector can’t bridge the barriers that divide us and help us find common ground to build upon, then I say it’s time for new leadership.

Nell: You have strong opinions about what nonprofits should do differently, but what about philanthropists and government? Where do they fit into what needs to change in the social sector?

Robert: We are ALL trapped by charity.

It is rooted in all faith traditions and deeply ingrained in the American experience. Yet, it is driven by the “redemption of the giver, versus the liberation of the receiver” power dynamic. That flawed flow cascades down from government and foundations to nonprofits, and from nonprofits down to those we “serve”. None are truly liberated, and each resents the other. What’s important to recognize is that it’s not the players who are flawed, it’s the game itself.

I work for the day when nonprofits are viewed, rightly, as equal partners in the American economy. For those who would scoff at that idea, I suggest they ask any Chamber of Commerce what makes a town or state attractive to business. You know what they will include on ANY list? Quality healthcare. Vibrant arts & culture. Access to higher education. Strong communities of faith. A clean environment and recreational space for families.

ALL nonprofits!!

Our work enables businesses to make profit, yet, we settle with token grants. We are told that we cannot be openly political when businesses can post placards in their windows for candidates who they feel represent their interests. I say it’s time to re-negotiate.

I believe our country’s economic future rests on re-aligning the sectors, and being bold enough to see opportunity beyond current constraints or lines of demarcation that divide our resources when we should be aligning our assets.

Nell: What do you think about the recent growth of double-bottomline investing and for-profit social enterprises? Do you view for-profit social entrepreneurs, and those who invest in them, as competitive or additive to the nonprofit sector?

Robert: I believe the only sustainable future for philanthropy is for cause and commerce to be interwoven.

We still cling to two ideas about money—Friedman’s notion that business exists to make money for investors, and Carnegie’s idea (still foolishly forwarded by Gates and Buffet) that you should give money back at the end of your life, often attempting to offset the damage made by the very pursuit of profit.

Both are boring, outdated, and flawed ideas…and each rests on the participation of a benign consumer, blinded by the role their purchases make in maintaining the status quo of the day.

For me, social enterprise isn’t about nonprofits making money; it’s about consumers awakening to the power of pennies. It’s Capitalism 2.0.

Gandhi used the boycott of table salt to get the British crown to the negotiating table. Dr King used the boycott of the dimes it took to ride the busses of Montgomery to crack racism in America. Chavez used the boycott of table grapes to finally get land owners to give migrant workers basic sanitation and access to education for their children.

Social enterprise builds on that proven power but flips the energy to a “buy-cott” , where we reward and incentivize corporate behavior we know will begin to offset the need for charity. It uses market forces to compel other businesses, however reluctant, to follow suit or fail based on how they make their money everyday.

Social enterprise opens that door.

But I’m also very deeply invested in new ideas about how we incentivize investment and performance in nonprofits.

For example, If you invested $1,000 in Microsoft in 1986, you now have over $500K in the bank. Yet, if you invested that same sum in the Grameen Bank, which has elevated millions of people out of poverty with micro-loans, all you were eligible for was a one-time tax deduction, because it’s a charity. Why not a new tax system where you could earn an increasing tax deduction based on the same return-on-investment formula as a dividend check if an organization can show verifiable economic return? Imagine regular people being able to attain wealth by investing in groups that make the community economically stronger or more civically secure? I do…and that’s why I think social enterprise is so exciting. It says you can develop a strong society and a vibrant, open economy at the same time.

But to move beyond social enterprise or micro-credit or empowerment driven nonprofits being a novelty, we need to elect people who understand that power, and turn to the nonprofit sector and offer opportunities and partnerships to see it grow.

That’s why I launched CForward…to work with other citizens who work at nonprofits to elect people who have that kind of foresight and courage. It’s not as hard as you might imagine, and it is so much closer than you think.

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10 Great Social Innovation Reads: July

I’ve been out exploring the Western states of the country (which I HIGHLY recommend) for the last few weeks, so my blog posts have been sparse, and my 10 Great Reads for July a bit delinquent, so please forgive me.

Below are the 10 things that got me thinking last month. You can also read past months’ 10 Great Reads here. As always, please let me know what I’ve missed in the comments below.

  1. In the Stanford Social Innovation Review, Paul Connolly argues that foundation support of fundraising capacity has limited returns. Although I completely agree that you cannot build fundraising capacity without building the capacity of other aspects of the organization, I think he takes this a bit too far. It is critical that more donors, not less, support the organizational capacity, as opposed to just the programs, of nonprofits.

  2. Talk about innovative, arts groups try the airline company pricing approach to ticket sales.

  3. From the Harvard Business Review blog comes a great idea: A Gap Year for Grown-ups. Far beyond the author’s argument about the benefits to the individual, something like this could dramatically increase the ranks of national service programs.

  4. An MBA myself, I love the fact that more MBA students are turning to social enterprise.

  5. The Nonprofit Tech 2.0 blog gives us 11 examples of innovative nonprofit websites that are designed for the social web.

  6. Khan Academy, an education website, is being used to teach kids in new, interesting, and controversial ways.

  7. From one of my favorite blogs, Full Contact Philanthropy, comes an argument about how even simple evaluation can help create more effective programs.

  8. Extending Mario Marino’s argument in Leap of Reason, Phil Buchanan from the Center for Effective Philanthropy argues that foundations need to provide support to nonprofits working on performance measurement.

  9. And echoing Leap of Reason’s core argument, Paul Light argues in a Washington Post OpEd that “nonprofit leaders have to get better at measuring the value they produce.”

  10. Guest blogging on the Tactical Philanthropy blog, Tony Wang argues that philanthropy needs to be more critical of itself.

Photo Credit: Infrogmation

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