It occurred to me in two conversations I had this morning that small change can create large change, but how exactly does that happen?
My first conversation was a phone call with George Overholser, from the Nonprofit Finance Fund and a leading thinker around new kinds of capital for nonprofit organizations. I was getting some background from him on the whole movement to make growth capital (money necessary to build organizations rather than simply buy services) a reality for nonprofit organizations in preparation for my session later this week at the Social Capital Markets conference.
At the Nonprofit Finance Fund they have launched several exciting programs to help nonprofits secure the money necessary to scale great programs, such as the SEGUE program that takes the traditional nonprofit capital campaign approach and turns it on its head raising money not for a building, but rather for the patient capital required to pay the bills while a nonprofit figures out how to grow and make sustainable their business model.
My big question to George, however, was: How do we get these great new ideas, like patient capital (which is normal and accepted in the for profit world) prevalent and accepted in the nonprofit and philanthropic worlds? The number of nonprofits and donors currently participating in growth capital deals is very small.
George’s response was that these new ideas don’t have to be widely accepted or embraced. The end game is not to get all of the “mom and pop” nonprofits and donors to embrace these concepts. Rather, he looks forward to the day when there are ten $20 million growth capital deals out in the marketplace, that that alone will create tremendous change. He gave the example of Teach for America. If they can grow their successful program throughout the country, there would be tremendous change in the education landscape as a result . The end goal is to secure capital for a select few nonprofits that are uniquely poised to grow. He compared it to Apple, which is a company that makes billions of dollars, but has grown to that stage with only a few tens of millions, say $50 million, in growth capital. And Apple has transformed not only its industry, but really, how we all communicate, interact with data and live. That’s a pretty impressive impact for a $50 million investment in growth capital. He argues that the same is possible in the nonprofit world. We could have a handful of nonprofit growth capital deals and transform not only the nonprofit sector, but some enormous social problems.
An interesting hypothesis, but I don’t know if I buy it. Which brings me to my second conversation of the morning, with Sean Stannard-Stockton of the Tactical Philanthropy blog. Sean has been known for the past three years as a leading-edge thinker about how to make philanthropy more effective at delivering social impact. He announced this morning that he is launching a new philanthropic advisory fund called Tactical Philanthropy Advisors. The firm will advise high-net worth philanthropists (accounts of $1 million or more) on “the social impact of their financial investments, and work with their investment advisors to align their financial portfolios with their philanthropic goals.”
They are seeking to elevate philanthropic advising to the respect, time and resources that overall financial advising has enjoyed. In this new firm, philanthropic advising is no longer an add-on service that a wealth management company offers its clients. And their fee structure has them paid by a percentage of the overall portfolio an investor holds with them. So, in essence, they are paid as a traditional financial advisor is paid, based on the performance of the overall portfolio, but in this case the portfolio return is a social, not a financial one. They are also interesting because they are a for-profit company, with a social purpose and are applying to become a B Corp. So the firm is and of itself a social business; they are social entrepreneurs charting this new landscape along with the rest of us.
You only need to read a few entries in Sean’s 3-year old Tactical Philanthropy blog to understand how this new firm could revolutionize how the philanthropic sector, and thus the nonprofit sector, operates. Sean understands and believes in philanthropic equity, mission-related investing, scaling nonprofits, organization-building, and so on. He understands these new ideas that George and others promote and could be a critical partner in helping philanthropists understand how to use their money more effectively to drive change in a sector that is undercapitalized and dysfunctional.
However, Sean and his firm will probably only work with a small group of the countless philanthropists out there, so again, what change does this signify? And how do we bring along other philanthropists who cannot or will not be touched by Tactical Philanthropy Advisors?
It all comes down to the single question: How does change happen?
I would argue that it is not enough to have single examples in the largest nonprofits or among the largest philanthropists. The Nonprofit Finance Fund, Teach for America, Sea Change Capital, Tactical Philanthropy Advisors and all the other cutting-edge thinkers and examples of how we can do things better are great and absolutely necessary. Without innovation we have nothing.
But let’s not forget stage two, whenever it may come, that involves making these great examples the norm. The day when all, or most, nonprofits understand and have access to the power of patient capital and capacity capital, when all or most philanthropists understand the power of investments rather than gifts and how to truly support social change. Ten deals are great, but they are just a start. True change must be systemic, must be ingrained, must become the norm. It can’t exist just on the East and West coasts. It can’t just be in the understanding and practice of the largest, most resourced organizations. That’s why I started Social Velocity; I wanted to bring these cutting-edge ideas and practices to places, organizations and philanthropists that weren’t in the top 10, but were still instrumental to creating social change. To really be transformative, these new ideas have to become common practice. As David Bornstein has put it:
An important social change frequently begins with a single entrepreneurial author: one obsessive individual who sees a problem and envisions a new solution, who takes the initiative to act on that vision, who gathers resources and builds organizations to protect and market that vision, who provides the energy and sustained focus to overcome the inevitable resistance, and who- decade after decade- keeps improving, strengthening, and broadening that vision until what was once a marginal idea has become a new norm.
I applaud people like Sean and George and the countless others who are working to change mindsets, organizations, systems and structures. Let’s build on the innovation they have started and make those powerful ideas and examples the new norm.