social impact bonds
Since today is Halloween I wanted to continue a tradition I started last Halloween of providing a list of resources about nonprofit innovation. I’ve created the list below by culling from our constantly evolving and much larger list of resources on the Social Velocity website. Below I’ve handpicked the tools I think are most useful for wielding the money sword, connecting to the larger social innovation movement, and finding inspiration. Please add to the list in the comments of this post.
Wielding the Money Sword
- Nonprofit Growth Capital, Building is not Buying
- The Nonprofit Starvation Cycle
- Social Impact Bond Initiative
- Creating a Financing Plan
- The Enormous Opportunity of Capacity Capital
- Financing Not Fundraising
Connecting to the Social Innovation Movement
- Accelerating Social Entrepreneurship in the Age of Austerity
- Clinton Global Initiative
- Grantmakers for Effective Organizations Conference
- Harvard Social Enterprise Conference
- NextGen: Charity
- The Nonprofit Management Institute
- Nonprofit Technology Conference
- Skoll World Forum on Social Entrepreneurship
- Slow Money
- Social Capital Markets Conference
- Social Enterprise Summit
- Social Good Summit
- Social Impact Exchange
- Social Innovation Summit
- Getting to Maybe: How the World is Changed
- How to Change the World
- The Power of Unreasonable People
- Making Good
- Work on Purpose
What have I missed? What books, conferences, articles, tools do you find inspiring and insightful? Add to the list in the comments.
Photo Credit: dimland
There was much discussion in August about money. We heard that foundations should be more open to risk and should engage with nonprofits to find the best solutions. And we found out some fascinating information about how Americans give. And there were some exciting developments in the newest social sector funding vehicle, the social impact bond. What a great month!
Below are my top 10 picks for what’s worth reading in August in the world of social innovation. But please add what I missed to the comments. And if you want to see more of what catches my eye, follow me on Twitter, Facebook, LinkedIn or Pinterest.
You can see the 10 Great Reads lists from past months here.
Here’s August’s 10 Great Reads in Social Innovation:
- It looks like social impact bonds are starting to take off in America. This innovative social financing partners private investors, public bonds and nonprofit organizations to solve social problems. Goldman Sachs has gotten on board with a $10 million investment in a New York City program to reduce prison recidivism rates.
- Writing in the New York Times, Georgetown University professor Peter Edelman breaks down the factors contributing to a 15% poverty rate in America and what needs to change to improve it.
- I can’t tell you how many times I hear complaints from nonprofit leaders that social media won’t really improve fundraising. Try these on for size. Geri Stengel (guest posting on Beth Kanter’s blog) shows how the Genocide Intervention Network found major donors through social media, HubSpot offers 7 Creative Ways Nonprofits Can Use Social Media to Drive Donations and Kivi Leroux Miller explains How Social Media and Fundraising Fit Together.
- Guest blogging on the PhilanTopic blog, Derrick Feldmann argues “We need donors who are truly willing to embrace risk and invest significant dollars in potential solutions that may not yield immediate results but get us closer to our ultimate objective, even if it’s only by demonstrating what doesn’t work.” Amen to that! And Rodney Foxworth seems to agree.
- On the Stanford Social Innovation Review blog Sheetal Singh writes that there is a new active, engaged citizen movement in America, but that nonprofits are missing the opportunity to participate. She argues that “nonprofits need to realize that the “new citizens” are no longer passive recipients of their services; they demand engagement and inclusion. If nonprofits don’t adapt to this paradigm, they will be left out of the conversation.”
- One of my new favorite bloggers, Mark Hecker, does it again with a great post encouraging nonprofit and government leaders to be “fearless” in setting goals that will knock social change out of the park.
- A new study by the Chronicle of Philanthropy reveals how Americans give to charity. It turns out you give more if you have less or live near those who have less. But there is much more data to explore on their website. Fascinating.
- Forbes uses the World Wildlife Fund of The Netherlands as a case study to demonstrate the Five Steps to Growing Your Social Impact.
- Lucy Bernholz takes issue with foundation application processes and calls instead for a model “where foundations and nonprofits are working together – from idea generation through proposal, implementation and assessment – to actually solve problems.” Wow, imagine that.
- The Gates Foundation blog demonstrates how support of public libraries is a critical part of transforming developing countries.
Photo Credit: Library of Congress Archives
In this month’s Social Velocity blog interview, we’re talking with Kate Barr, Executive Director of Nonprofits Assistance Fund, whose mission is to foster community development and vitality by building financially healthy nonprofit organizations. Kate has led the organization’s growth as a premier resource for training, strategic financial counsel, and financing for nonprofit organizations in Minnesota. Kate enjoys helping nonprofits consider the relationship between their mission and program goals and their financial and organizational strategy. She frequently writes and speaks on nonprofit financial and strategy and is lead blogger for Balancing the Mission Checkbook.
You can read past interviews in our Social Innovation Interview Series here.
Nell: Nonprofits Assistance Fund is all about helping nonprofit leaders become more financially savvy. Why do you think strategic financial management is so important for nonprofit leaders and what holds some nonprofit leaders back from achieving it?
Kate: I think about it this way: if strategic direction in general is important for nonprofit organizations, then strategic financial management is equally important as a component of that direction and vision. When a nonprofit develops a strategic plan they are also adopting a financial strategy. Too often, though, that financial strategy is underdeveloped because the vision and strategic goals don’t incorporate the business model that’s required to support the plan. At Nonprofits Assistance Fund we unpack the financial aspect of a nonprofit business model into four inter-connected components: revenue mix; cost of effective programs; infrastructure; and capital structure. I see the biggest obstacle to understanding financial strategy is the singular focus that many nonprofit leaders place on revenue, revenue, revenue. If we could just raise enough money, they think, it will all work out. In reality the business model is more complex than that. The extreme revenue pressures that many nonprofits have faced over the last few years have uncovered the vulnerability of business models. Fortunately, savvy leaders are stepping back to understand the strengths and weaknesses of their financial strategy and being more intentional about identifying and creating a business model that can work.
Nell: A few months ago you wrote a rebuttal to the Center of Philanthropy’s recent survey that claimed nonprofit managers lack solid financial knowledge. What would you say is the actual extent of financial knowledge among the leaders of the nonprofit sector? And what can we do to improve it?
Kate: Yes, I was critical of the study because the findings were based on an extremely narrow test of knowledge to define financial literacy. As we said in the column, the report did not make a connection between the “lack of financial knowledge” based on the survey and the health and vitality of the nonprofits and their missions in the community. Frankly, the fact that so many nonprofits have been able to respond to huge increases in demand for service without going over the cliff is testament to some pretty remarkable financial skills. The direct answer to the question, though, is that the financial knowledge is mixed. Anyone with financial management responsibility needs to understand the terminology of nonprofit finance and know how to read and make use of financial information. Leaders of nonprofits need to have both technical knowledge – what I would categorize as financial management skills – and leadership capacity to navigate changes to their business models. There has been a lot of progress in building financial management skills as the field has become more professionalized. There are many training opportunities for skill building, both in person workshop and online learning (including Nonprofits Assistance Fund’s training workshops and webinars). Financial leadership capacity requires more than a few classes. It takes experience, knowledge, and guts to align mission, strategic plan, and financial structure in a way that build sustainable community impact. I think the ideal nonprofit leader combines passion for the mission with excitement for the business challenge.
Nell: There is a phenomenon in the nonprofit sector that when business people join a nonprofit board they often leave their financial and business acumen at the door fearing it could muddy the charitable work of the organization. Why do you think this is and what can we do to overcome that tendency?
Kate: I’ve seen two different dynamics when this happens with board members: wishful thinking and misunderstanding. The wishful thinking problem arises when board members believe that nonprofits operate outside of the market and that their good work can be performed with minimal cost and simple revenue streams. The misunderstanding is just another version of the “nonprofits should operate more like businesses” myth. Nonprofits are businesses. This “advice” underestimates the complexity of nonprofits as business enterprises. Board members can’t be effective unless they understand how the enterprise works and what the board’s role is in planning and governing. Overcoming this tendency starts with board leadership and carries through recruiting, orientation, and ongoing board development. The executive director or CEO has an important role to work with the board chair or governance committee to prepare and support board members’ ability to understand and build the business.
Nell: One of the most exciting developments in the last year or so is the growing interest in and experimentation with social impact bonds, or pay for success bonds, a public/private funding vehicle for nonprofits based on outcomes. Minnesota has already begun to experiment with a $10 million pilot. What, if anything, has Minnesota learned so far and what do you see as the future for this new financial vehicle?
Kate: There is a lot going on in efforts to develop models and financial structures to pay for results, including social impact bonds, pay for success contracting, and the Minnesota pay for performance pilot. The Minnesota state legislature approved a $10 million state appropriation bond to test a pay for performance approach for some state funded programs. The Minnesota pilot is the first experiment to use an actual bond offering as the financial structure. The advisory committee started meeting early this year and has just issued a Request for Information for nonprofit service providers in workforce development and supportive housing. What we’ve learned so far in developing the Minnesota pilot is that every question leads to three more questions. Part of the complexity stems from the goals. In each of the models in development there are actually multiple goals: identifying program designs that work; saving the state money; attracting new funds; and sharing or transferring financial risk. Any one of these goals requires capacity to deliver and appropriate measures for success. Combining all four goals, as most of the models do, creates something of a bear to design and evaluate. Some of the open questions in Minnesota include: the methodology for the economic measure of success; the role of evaluator; the time-frame for measuring and valuing ROI to the state; access to the data that will be used for monitoring; the market for the bonds; and the appropriate level of risk for nonprofits to bear. The Minnesota pilot does not transfer the financial risk to the bondholders in the same way as the SIB model so there is also a working capital gap for the service providers. We are assessing what will be needed for our loan fund to help with that. As for the future, while there is great enthusiasm for these ideas and pilot projects we have to keep in mind that this is all still early stage with lots of lessons to be learned before we even know if these can attract significant new funds.
Nell: One of the big debates in the nonprofit sector centers around a distinction between program and administrative (or “overhead”) expenses. Rating agencies are just starting to realize that this distinction is damaging to the nonprofit sector. But how do we really move beyond this and get a majority of funders, regulators and others to recognize the danger of evaluating nonprofits based on how they spend money versus how they achieve results?
Kate: Is this even really a debate anymore? There’s pretty universal agreement that the functional expense ratio doesn’t measure nonprofit effectiveness, efficiency, or accountability. The challenge now is communication and education. This one ratio has so dominated every nonprofit financial measurement that we are forced to try and undo decades of practice. Nonprofits bought into the ratio, too, and reinforced it with pie charts and donor messages about how “every dollar goes to program”. Is it any surprise that donors listened and believed us? It took years to create the “standard” that expense ratio is the most useful measure for nonprofit financial results. Unfortunately it’s going to take time to re-educate. We have to start within the nonprofit field itself. There are still many nonprofits that promote their low overhead ratio in fundraising because, they claim, it helps them to attract and retain donors. It’s easy to calculate and communicate. Rather than battle the monster that we helped to create, I think we need to change gears, replace the ratio with more meaningful information about impact and financial health, and raise expectations for results. I really appreciate that Financial Scan, the new product from Guidestar and Nonprofit Finance Fund, doesn’t even include the functional expense ratio on the financial health dashboard or accompanying analysis reports. None of the other ratios – that are much more useful – are quite as simple, though. We’re going to be having this “debate” for some time to come.
In the world of social innovation, May was most definitely about innovations in philanthropy and funding of social change. From social impact bond experiments, to hybrid foundations, to impact investing, to the Giving Pledge 2.0, there was much discussion and debate about how funders of social change should and are innovating. And that is very exciting because it is not enough for social entrepreneurs to push things forward, we desperately need new financial vehicles to fund those social change efforts.
Below are my ten picks of the best reads in social innovation in May, but as always, please add what I missed in the comments. If you want to see other things that caught my eye, follow me on Twitter, Facebook, LinkedIn or Pinterest. And if you want to read 10 Great Reads lists from past months, go here.
- First up is social impact bonds (or pay for success bonds), a very exciting, new way to fund nonprofits that achieve improved social outcomes that result in public sector savings. McKinsey released a new report on the potential for social impact bonds in the US. And Minnesota is one of the first states to experiment with these bonds with a $10 million pilot. Twin Cities Business magazine explores the idea and Kate Barr of Minnesota’s Nonprofit Assistance Fund gives an overview of the idea, resources and further conversation.
- This month’s second annual meeting of those wealthy individuals who signed Bill Gates’ Giving Pledge (a public promise to give at least half of their wealth to charity in their lifetime) showed some real interest in impact investing, or using their money to make money while creating social change at the same time. Laura Tomasko argues why their interest in impact investing (both mission-related investments and program-related investments) is such an exciting opportunity. And Lucy Bernholz takes their interest in impact investing in another direction arguing that “this century’s great philanthropists should aim not just to match history’s great givers in their largess, but also in the creation of mechanisms and institutions that serve the future as well as their predecessors served the past.”
- Finally, in a very exciting move, the Obama Administration has proposed an expansion to the rules about how foundations can use program-related investments (low or no interest loans to social change organizations) and some community foundations are already getting into the game.
- And from the nonprofit side of the financial equation comes the Nonprofit Finance Fund’s effort to debunk the myths around endowments as a road to nonprofit financial sustainability.
- Financial sustainability must always be on the mind of social change organizations, as this cautionary tale from the North Carolina YWCA that had to close its doors because of poor financial management and oversight demonstrates.
- Has the drum beat against judging a nonprofit based on overhead costs gone mainstream? An op-ed in the LA Times argues that administrative costs are “no way to judge a charity.”
- At the Social Earth blog Thien Nguyen-Trung cautions against an overemphasis on growth among social entrepreneurs and instead argues for “impact offtakers” or an exit strategy for social entrepreneurs to hand off their solution to government or another larger entity instead of trying to reach scale on their own.
- And Patrick Lester seems to agree in his argument that it’s not enough to fund social change solutions: “Foundations and philanthropists need to step forward and fund not just innovation, but advocacy too–only then will our best ideas be taken to scale.”
- There were several articles about exciting, innovative approaches to solving food problems. From a $125 million loan fund for healthy food outlets in California, to urban farming in Detroit, to a very successful nonprofit grocery store in Portland, Oregon.
- In the Stanford Social Innovation Review Matthew Forti offers 6 things nonprofits should avoid in their theory of change (their argument for what they exist to accomplish).
Photo Credit: C. Frank Starmer
I’m excited to announce that I have a new post up at the Chronicle of Philanthropy’s Mission:Innovation blog. It is reprinted below. The Chronicle’s Mission:Innovation blog is one of my favorites and was launched last year. Nicole Wallace, a senior writer at the Chronicle, manages the blog, which “reports on nonprofits that are taking bold, new approaches to the way they work, explores what charities can learn from other disciplines, and provides advice from experts on how organizations can better foster new ideas.”
I’m honored to contribute to the blog. Here is the article:
“Innovation” has become such a buzzword lately, particularly among people working on social change. But let’s take a step back and talk about what the word could really mean. Innovation is more than just new ideas. To me, it means taking a completely new approach to how we finance, structure, and prove social change.
The nonprofit world has never lacked new ideas to address problems. In fact, you could argue that nonprofits are innately entrepreneurial, being borne out of a recognized market failing and a new idea to remedy it.
The need, then, is not more new ideas. Rather, true innovation lies in reinventing a field built on social change.
Here are some ways that is starting to happen:
New support mechanisms. The avenues for sending money to social-change efforts are increasing significantly. What started 10 years ago with venture philanthropy has now expanded into nonprofit campaigns to raise growth capital, foundation loans and other investments in organizations, social-impact bonds, and investments that seek both financial and social returns. And that creates an opportunity for social-change efforts to be much more flexible and (we hope) successful, because access to enough and the right kind of money can often make or break a great idea.
A converging economy. We used to suffer from pretty strict delineations among the public (government), private (business), and nonprofit sectors, but that is changing. True innovation is happening where those lines blur—like businesses that make a profit solving social problems. Or governments developing new mechanisms to finance and evaluate nonprofit efforts, such as the Department of Justice’s Pay for Success program.
Proof of social change. Nonprofits used to be viewed as benevolent charities that received donations to support their good work. That’s not enough anymore. Nonprofit donors and social investors are increasingly demanding a social return on investment—proof that the organization is making a difference—in exchange for their money. And nonprofits are now competing not only with other nonprofits but also with for-profit social entrepreneurs. So nonprofits can no longer focus on how many children they’ve read to, meals they’ve served, or animals they’ve saved. They must track and prove how they have changed lives, changed systems, or changed communities.
Although these innovations are encouraging, there is room for so much more. What if:
- The best and the brightest of Generation Y worked to remake existing organizations from the inside out instead of just starting their own social-change groups?
- The social-capital market that’s emerging to provide financial vehicles for budding social businesses also included support for social entrepreneurs in the nonprofit world?
- Venture-philanthropy funds (growth capital for nonprofits) shared investor prospects with social-venture funds (growth capital for social businesses) and vice versa?
- All nonprofits interested in growth and with a proven model for success had access to enough capital and management expertise to expand?
- A nonprofit that solves social problems received as many resources and as much respect and attention as a business that solves a consumer need?
These things require sweeping, fundamental changes to the current structures of the nonprofit, government, and private sectors. To me, that’s real innovation.
Photo Credit: mademoiselle lavender
I think it gets harder and harder every month to narrow down to a list of only 10 great reads in social innovation. October was no exception. Here are my top 10 of the last month (but actually more like 13 if you’re counting). As always, please add what I missed to the comments. And if you want to see the expanded list of what catches my eye, follow me on Twitter @nedgington.
You can also read the lists of Great Reads from previous months here.
- Marketing is a brave new world these days, and so is fundraising. Replace “customer” with “donor” and “We’re All Marketers Now” from McKinsey Quarterly applies to nonprofits as well.
- A new Chronicle of Philanthropy blog launched recently that focuses on innovation in the nonprofit world. One of the first posts is about how the U.S. Army’s practice of using a “devil’s advocate” in their decision-making processes is something that some philanthropists are copying in order to come up with better solutions.
- Occupy Wall Street and the other protests in cities around the country was a big topic this month. Some of the most interesting were Who are the 99 percent? from Ezra Klein in The Washington Post and The Demographics of Occupy Wall Street from Fast Company.
- From the Harvard Business Review blog comes an argument that I completely agree with. Nonprofits that are struggling lack a “strategy for connecting their mission with their ability to deliver.”
- I know infographics are becoming overused, but this one is pretty cool: How the Top 50 Nonprofits Do Social Media.
- And speaking of the top nonprofits, the Chronicle of Philanthropy’s Philanthropy 400 is out, all about what the 400 wealthiest nonprofits are up to.
- The Alliance for Children and Families, a membership group for human-service charities, released a new report identifying the emerging trends social service organizations must embrace in order to succeed.
- If you missed the live-streaming from the White House last week on social impact bonds, Pay for Success: Investing in What Works, you can still watch archived recordings, or check out the Nonprofit Finance Fund’s great resources on the topic here.
- As usual, Lucy Bernholz tells it like it is, in her argument that the current debate in American politics about shifting more of the burden of funding for core public services to private philanthropy is undemocratic.
- Jennifer Landres from the Center for High Impact Philanthropy finds some lessons for philanthropy in the movie “Moneyball.”
Photo Credit: JeffersonDavis
There were lots of great discussions and developments in the world of social innovation in September. So much so, that I had a really hard time narrowing down to ten. But alas, here are my top 10 of the last month. As always, please add what I missed to the comments. If you’d like to see the expanded list of what catches my eye, follow me on Twitter @nedgington.
You can also read the lists of Great Reads from previous months here.
- Two really interesting divergent reports on the results of social change work. First, a $1 million, 6-year study of nonprofit After School Matters shows that the program doesn’t really change lives.
- And a year after Facebook founder, Mark Zuckerberg’s $100 million grant to Newark public schools, some positive results are trickling in.
- After the August resignation of Steve Jobs from Apple due to health reasons, people came out in droves to criticize him for his poor philanthropic record. Dan Pallotta rose to his defense, arguing, in a thought-provoking way, that Jobs’ contributions to the world at large make him the World’s Greatest Philanthropist.
- In an exciting move to kick-start social impact bonds (a government bond that allows private investors to invest capital in nonprofits and then gain a return if the nonprofit achieves promised outcomes), the Rockefeller Foundation granted Social Finance $500K to develop the social impact bond market in the US.
- September was the month of the 4th annual Social Capital Markets Conference that brings social entrepreneurs and the funders of social entrepreneurs together. Over the course of the four SoCap conferences there has been a recurring tension between philanthropy and impact investing. Adin Miller reported from SoCap that the great convergence between philanthropy and impact investing has disappointingly not yet happened.
- The Washington Post shows us the devastating impact of the economic crisis in five charts.
- At long last, CharityNavigator, one of the best known nonprofit rating systems, unveils their Charity Navigator 2.0, an expanded rating system that includes financial health, accountability, and transparency measures. Every nonprofit should understand this important change and what it means for their organization.
- Lucy Bernholz discusses a fascinating distinction between problems and difficulties and the implications for social change efforts. “Problems have solutions; solve them and problems go away. Difficulties don’t have solutions; they require continual address.”
- On the Harvard Business Review blog Lucy Marcus argues In Troubled Times, Boards Must Step Up.
- In a similar vein, Mario Morino from Venture Philanthropy Partners argues that Board Members Cannot Check Their Courage at the Door.
Photo Credit: MMcQuade
In our ongoing blog series, 10 Great Social Innovation Reads, below are my top 10 picks (ok, if you really count it’s 11, but consider it added value) for what really stood out in the world of social innovation in April. But I’d love to hear what you think the best reads last month were. Please add your favorites from the past month in the comments.
- Are Better Days Ahead for Fundraising? It could be, according to a new fundraising survey and this infographic.
- But maybe not, since according to new IRS data (that disputes the annual GivingUSA survey) Americans gave about 20% less during the recession than before it.
- What Can Junk Food Teach Philanthropy?: Sean Stannard-Stockton from Tactical Philanthropy takes a look at how junk food is marketed and wonders if we could apply the same principles to get more people to become philanthropists.
- An interesting controversy has been brewing around the social enterprise darling, TOMS Shoes, which gives a pair of shoes away for every pair purchased. But some have begun to argue that this type of cause-related marketing is actually quite harmful. The Triple Pundit blog summarizes the debate: B1G1 Virus and the Cause Marketing Paradox.
- There are two new generations of donors on the horizon, Millennials and Generation Z. Do you know what you need to about Millennials?: What do – and don’t – we know about Millennial donors?
- And Is Your Nonprofit Connecting with Generation Z?
- The Nonprofit Finance Fund has been building a treasure trove of information, discussion, tools etc on social impact bonds, a revolutionary way to fund nonprofit impact through government, all in an effort to make them a reality in America.
- The Path to Sustainability: Bob Ottenhoff from GuideStar gives a great argument about the lifecycles of nonprofits and how revenue must move from foundation support to some sort of market support over time.
- From the Philanthropy411 blog comes a great list of resources for nonprofits entering, or looking to enhance their presence in, the world of social media: 20 Social Media Resources for Nonprofits
- Impact Market Failure: Kevin Starr from the Mulago Foundation challenges funders to start funding organizations that can achieve impact and address the failure of the impact funding market.
Photo Credit: susivinh
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