Stanford Social Innovation Review
There is something pretty interesting going on in Illinois around nonprofit overhead costs. I have written many times (here and here for example) about how the distinction between “overhead” and “program” costs in the nonprofit sector is meaningless at best, and destructive at worst.
I’m really excited to see that the Donors Forum in Illinois is starting to host real conversations between nonprofits and philanthropists about the Real Costs (including administrative costs) necessary to create effective social change.
With the help of the Bridgespan Group, in March the Donors Forum brought nonprofits and philanthropists together for a one-day discussion about real costs in the nonprofit sector. They want funders to understand that it is not enough to fund only nonprofit programs. In order to create effective social change, nonprofits must also be able to fund the infrastructure, staffing, space, tools, and research costs of their work.
The image above is a graphic facilitation of the March session. The Donors Forum has also developed a great website with resources for nonprofits and philanthropists about real costs, including Ann Goggins Gregory and Don Howard’s seminal article in the 2009 Stanford Social Innovation Review “The Nonprofit Starvation Cycle,” reports and resources about nonprofit fiscal fitness, Grantmakers for Effective Organization’s study on how philanthropy is changing, and much more.
As part of their efforts, the Donors Forum has also put together this video that helps to explain, in very clear terms, the critical importance of funding ALL of a nonprofit’s costs:
I’m excited to see where this conversation goes and whether more nonprofits and philanthropists start having open, honest conversations about what it really takes to create lasting social change. I’m hoping to interview Valerie Lies, President and CEO of the Donors Forum, later this year about this initiative and where they hope to go from here. So stay tuned.
April was all data, all the time. From big data, to performance data, to how donors use data to improve programs, to whether donors even care about data. It’s enough to make your head spin. But many people were cautioning to keep the end goal in mind. Data is only data, its ultimate use is to create social change.
Below are my 10 favorite social innovation reads in April. But let me know in the comments what I missed. And if you want to see my expanded list, follow me on Twitter, Facebook, LinkedIn, or my newest addition, Google+.
You can see the 10 Great Reads lists from past months here.
- Writing on the Full Contact Philanthropy blog, David Henderson argues that we must understand the limitations of data, as he says “Decisions we make should be informed by data, but data does not make decisions for us.”
- Daryn McKeever from the Gates Foundation seems to agree arguing that we need to move from Big Data to Big Wisdom, using data to make better decisions. And David Brooks writing in the New York Times seems to fall into the same camp.
- The Stanford Social Innovation Review is celebrating their 10 year anniversary and as part of the festivities are running a series of essays about how social innovation has evolved and where it’s going. Part of that series is Tim Ogden’s controversial (I think) post claiming that contrary to growing belief donors don’t care about impact any more than they ever did.
- As a counterpoint, the recent NextGen study from the Johnson Center on Philanthropy found some pretty significant changes in how the newest donors, Millennials, do philanthropy. Michael Moody and Sharna Goldseker, authors of the report, break down how they think donors are changing.
- And adding to the conversation about whether donors care about outcomes, a debate raged between William Schambra from the Hudson Institute and Ken Berger from Charity Navigator. William argues that moving the nonprofit sector to outcomes measurement would lose other, more important and less tangible benefits (civic engagement, social bonds) that the sector promotes. But Ken argues that measuring outcomes is absolutely critical to helping the nonprofit sector create more change.
- During April’s annual Skoll World Forum a new Social Progress Index launched, a measure for comparing different countries abilities’ to “provide for the social and environmental needs of their citizens.” The hope is that the index will help guide social investment decisions. It will be interesting to watch how it evolves.
- For a really interesting case study on use of data, The National Center for Arts Research interviews Kate Levin, Commissioner of the New York City Department of Cultural Affairs about how they use data to make the case for investments in culture.
- I have been fascinated to watch New Orleans’ renaissance via social innovation in the years following Katrina. Two recent articles (here and here) highlight exactly how the city is coming back and the role social innovation is playing in that comeback.
- Albert Ruesga, Chair of Grantmakers for Effective Organizations and editor of the White Courtesy Telephone blog, writes a fairly scathing (but in a nice way) post about how philanthropists need to start having more difficult, honest conversations in order to move the sector forward. His post was in response to Caroline Preston’s February Chronicle of Philanthropy article in a similar vein and the impetus for a panel discussion in DC along the same lines. They promise to keep this conversation going. Let’s hope, because we need more cruelty, or at least honesty, in the sector.
- As I said last month, crowdfunding is apparently the next new shiny thing. And April continued the drumbeat with many more articles, the most interesting of which was Dowser’s list of 10 New Platforms for Crowdfunding.
Photo Credit: o5com
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.
- 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.
- Talk about innovative, arts groups try the airline company pricing approach to ticket sales.
- 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.
- An MBA myself, I love the fact that more MBA students are turning to social enterprise.
- The Nonprofit Tech 2.0 blog gives us 11 examples of innovative nonprofit websites that are designed for the social web.
- Khan Academy, an education website, is being used to teach kids in new, interesting, and controversial ways.
- From one of my favorite blogs, Full Contact Philanthropy, comes an argument about how even simple evaluation can help create more effective programs.
- 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.
- 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.”
- Guest blogging on the Tactical Philanthropy blog, Tony Wang argues that philanthropy needs to be more critical of itself.
Photo Credit: Infrogmation
It amazes me how much the funder, government, and even sometimes nonprofit leadership, bias against nonprofit capacity building holds the sector back. It seems like such a simple thing: in order to get more results you need to devote time, energy and resources to organization building. In order to find the resources required to deliver programs, you need to invest in fantastic fundraisers. In order to track program results, you need a system which includes technology and staff. In order to have a fantastically talented staff, you need a human resources function that takes the time to vet great candidates. A nonprofit cannot exist on direct program dollars alone.
The idea that the vast majority of nonprofit funding should go to direct program expenses is ludicrous. Why is there even a distinction between program and non-program expenses? Doesn’t a nonprofit exist to deliver programs? And doesn’t that mean that everything they do helps to make those programs better, stronger, bigger, more effective? Why is capacity such a dirty word?
I met with a nonprofit Development Director earlier this month who has had a really hard time convincing their CEO and board to let them spend money on a donor database and some fundraising materials. Yet, at the same time the Development Director is expected to raise millions of dollars in revenue. That sounds completely crazy, doesn’t it? But in the world in which I work that is often the rule rather than the exception. Infrastructure, capacity, fundraising, marketing, and operations dollars are somehow bad, dirty, not necessary, dismissed.
Which is why the recent article in the Stanford Social Innovation Review by Bridgespan Group’s Ann Goggins Gregory & Don Howard was such a breath of sanity-infested fresh air. If you are nonprofit staffer, board member, donor, or volunteer, I really encourage you to read the whole article. They have studied what they call the “Nonprofit Starvation Cycle”–nonprofit organizations’ continual drive to do more and more with less and less– and come up with a path out of the insanity.
What seems like such an obvious statement, its almost a truism–”Organizations that build robust infrastructure—which includes sturdy information technology systems, financial systems, skills training, fundraising processes, and other essential overhead—are more likely to succeed than those that do not”–is so often overlooked by nonprofit organizations. But I think most nonprofit leaders would tell you that they would love to spend money on infrastructure, that they absolutely understand the return on investment, but funders and board members have a hard time allocating money to those projects.
In their work with nonprofits at Bridgespan Group, Gregory and Howard uncovered three reasons for this inability to build capacity in the nonprofit world:
- Funders have unrealistic expectations about how much it costs to run a nonprofit
- Nonprofits need to conform to these unrealistic expectations in order to receive funding
- Nonprofits underreport infrastructure expenditures on tax forms and in fundraising materials
The end result is a vicious circle where few fund or spend money on infrastructure in the nonprofit space: “This underspending and underreporting in turn perpetuates funders’ unrealistic expectations. Over time, funders expect grantees to do more and more with less and less—a cycle that slowly starves nonprofits.”
The solution, Gregory and Howard argue, is to begin at the source of this vicious cycle: the funders. They argue if funders can be educated about the true costs and infrastructure necessary to build organizations to solve social problems, then we can break out of this destructive cycle. I strongly agree with that. It is difficult for nonprofits to turn to the hand that feeds them and tell them that they need more in order to do more, but such conversations are absolutely critical if we are to get beyond the starvation cycle.
But funders aren’t the sole impediment. Gregory and Howard argue that nonprofits play a part in this dysfunctional view of capacity, and there are a number of things that they can do to turn things around. Nonprofit leaders should analyze their real overhead costs and infrastructure needs, educate their boards about these real needs and then engage their board in communicating these needs with funders. And board members are just as culpable. They must encourage nonprofit leaders to develop strategies to address their true infrastructure needs and then take responsibility for encouraging funders (often board members’ friends and colleagues) to be realistic about what is required to make the nonprofit highly functioning.
I actually think that funders are much more receptive to these capacity conversations than some nonprofits give them credit for. My work at Social Velocity is all about organization building, and I often encourage nonprofit leaders to tell their board members and their closest donors what they really need to succeed. I have found that those donors who really believe in an organization will understand when a compelling case that it takes resources to take an organization to the next level is put before them.
I think the bottomline is that we have to stop playing games. Stop underreporting infrastructure costs, stop telling funders its ok to ask nonprofits to do more with less, stop telling the public that direct program costs are better than indirect program costs, stop telling boards of directors that its ok to ignore infrastructure needs. It’s a difficult conversation, there is no doubt, but what’s the alternative? We all know how a starvation cycle ends.
There is a missing link, I think, in how many nonprofit fundraisers approach their work. And that missing link is effective messaging. Fundraising often uses the messaging of need. “We need $100 to provide our programs.” “We need $1,000 to meet our goals.” And many who counsel fundraisers continue to stress the messaging of need, for example Mal Warwick’s most recent article in the Stanford Social Innovation Review. Mal encourages fundraisers to strengthen their case for giving, but, for Mal, this case for giving is about the organization’s need: “be certain your donors understand both the more urgent need for your services during tough times and the many concrete steps you’re taking to increase your efficiency and effectiveness.”
That’s not how to raise money effectively. To raise significant money you need to focus on impact. The messaging of impact is very different from the messaging of organizational need. The messaging of need gets you donations. The messaging of impact gets you investments. And the two are very different:
- Focus on organizational needs
- Tend to be smaller in size and shorter in length
- Are a response to an apologetic ask (the “tin cup” mentality)
- Focus on the impact (the change in outcomes) that an organization makes in the community
- Tend to be larger and longer
- Are presented as an opportunity
To raise significant, sustainable revenue, nonprofits have to move towards developing investors. Here is how raising investments differs from raising donations:
A successful fundraiser looks for investors who share the organization’s values and theory of change, and then demonstrates to them how the nonprofit creates that change in the community. The organization is merely a conduit for investing in change in the community. For example, an afterschool program for at-risk children is translating dollars into positive outcomes for the children in their charge (increased student achievement, fewer high-school drop outs, lower crime rates, etc.). If the organization were to fundraise around the organization’s needs, “Help us reach our goal of raising $100,000 for our program,” they would raise far less than if they were to fundraise around impact, “Invest in our organization so that we can improve opportunities for children, which creates fewer burdens on our community, more contributing members, and a healthier overall community.” The first message is about strengthening an organization, the second message is about strengthening a community. Which is more compelling? Which would make someone give more and continue to give if the promised impact is actually delivered?
The recession is, no doubt, a difficult time to raise money. But within this structural constraint there lies an opportunity. By moving an organization’s messaging from need to impact, from donation to investment, there is the opportunity to raise much more money and in so doing, to deliver much more impact.
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