NextGen:Charity talk tomorrow

For those in the NY area, I’m speaking tomorrow at the NextGen:Charity conference.  It’s an exciting line-up of speakers including so many people I admire and respect…too many to list them all, but folks like Seth Godin, Scott Case (Malaria No More), David Saltzman (Robin Hood), Jonathan Greenblatt (Worldchanging.com), and Joanne Heyman (Heyman Partners), to name a few.

Tickets just sold out but you can follow the conference on Twitter and as soon as I find out about video (either simulcast or after the event) I’ll post the link here.

Here’s the list of speakers (click for details)

 

For those in the NY area, I’m speaking tomorrow at the NextGen:Charity conference.  It’s an exciting line-up of speakers including so many people I admire and respect – too many to list them all, but folks like Seth Godin, Scott Case, David Saltzman, Jonathan Greenblatt, and Joanne Heyman, to name a few.

Last I heard a few tickets were still available with a discount.

For those in the NY area, I’m speaking tomorrow at the NextGen:Charity conference.  It’s an exciting line-up of speakers including so many people I admire and respect – too many to list them all, but folks like Seth Godin, Scott Case, David Saltzman, Jonathan Greenblatt, and Joanne Heyman, to name a few.

Last I heard a few tickets were still available with a discount.

For those in the NY area, I’m speaking tomorrow at the NextGen:Charity conference.  It’s an exciting line-up of speakers including so many people I admire and respect – too many to list them all, but folks like Seth Godin, Scott Case, David Saltzman, Jonathan Greenblatt, and Joanne Heyman, to name a few.

Last I heard a few tickets were still available with a discount.

Run and hide! (nonprofit hiring)

File under: you can’t make this stuff up.

I was asked to fill out a survey about salaries and hiring trends in the nonprofit sector, and one of the questions is:

What is the determining factor in hiring staff for your organization?

a. Budget

b. Filling vacancies

c. Grant requirements

d. Organizational strategy

Other (please specify)_______

Help!! Is our sector really this broken?

Is hiring due to “organizational strategy” fourth on a list of four?

Does the fact that “grant requirements” beats it out make you more worried about our ability to fundraise successfully (so that strategy and business needs can drive our actions) OR about the fact that you would be required to hire someone because you got a grant?

When oh when will we get out of the echo chamber?

Changing a Dinosaur’s Mind

A few weeks ago I wrote a post about the “inefficient” nonprofit marketplace that asked two questions: whether the nonprofit marketplace is any more inefficient than other markets (mutual funds, cosmetics); and whether improving the quality of information available about nonprofits will have a significant effect on the efficiency with which capital is allocated in the sector.

This post led to a great conversation with an active philanthropist and nonprofit Board member I’ve gotten to know who, it just so happens, is an investor herself and knows lots of active, successful investors.

Her observations, and the resulting questions, are the right ones.

She observes that people around her who are overwhelmingly deliberate about how they manage their investment capital are, in her words, quite often not deliberate at all about how they manage their philanthropic capital.  Put another way, the majority of capital deployed for investment is deployed with the intention of maximizing financial return (whether or not that in fact happens due to systematic biases, crummy products, etc.), and it’s not clear that the majority of funding that she observes going into nonprofits even has the intention of maximizing social impact.

This brings me back to the great post by Renata Rafferty on Dinosaur Philanthropy from the Tactical Philanthropy Blog.  Renata writes:

Those of “us” on the “cutting edge” of philanthropy…tend to navel gaze, looking ever more deeply into how our groovy new ways of thinking about philanthropy are….well, groovy.

On-the-ground reality in everyday communities, however, is more about gala slippers on the ground than eco-friendly boots on the ground.  I live in an extraordinarily wealthy community, where millions change hands between individuals and families….and influence plays a HUGE role in where the money goes – but the influence has little to do with a real understanding or examination of community needs, community assets, and who is doing fine and deserving work…

Sometimes I feel like one of the few left on the dock watching the philanthropy boat sail away, leaving behind the well-intentioned, kind, caring, wealthy people who are so generous with their giving, but who just aren’t part of the “cool crowd.”

This all brings me back to my hope that we’ll right-size our expectations and the promises we make as we charge ahead (rightly) with efforts to improve the availability of information about the effectiveness of different charities.  This is important, necessary work that will lay the foundation for how we think about and understand charities in the future.  AND at the same time it is completely possible that the direct impact of this work on Renata’s “dinosaur philanthropists” (an intentionally provocative name to be sure) is that of a tree falling in the forest that no one is around to hear.

What I think we need also need are strategies that look hard at where most of the philanthropic (especially individual) philanthropic money is, how giving decisions for this money is made, and from there to think about actions that are likely to have direct impact on THIS crowd.

Put another way, solving the data transparency problem is absolutely important, but it’s kind of like giving a screwdriver to an investment banker – it’s not the tool she uses to do her work.

Blue Hill – if restaurants were nonprofits

The other night I got to eat dinner at Blue Hill at Stone Barns, easily one of the best restaurants around.  Chef Dan Barber has radically shortened the time and distance food takes to get from the farm to the table, and the tastes that result are simply exquisite.

But more interesting than the tastes, to me, was the meal – and that’s something completely different from the food.  The meal was the experience, the meal was a story about what food could be.

Just one example:  near the end of dinner, to kick off desert, our server came to the table with a full honeycomb, covered with honey, that she placed on the table.  It’s kind of a big, messy, natural thing – honeycomb within a wood frame.  She explained that Blue Hill started harvesting its own honey last year; they started with six hives and are up to twelve.  This was the last of the late fall honey, she said, and it is richer and deeper than the early spring honey.  And it would be part of our next course.

Then she disappeared.  A few minutes later, four waiters, with the precision of synchronized swimmers, simultaneously placed four white bowls in front of the diners.  Each bowl had no more than two tablespoons of a concoction with “homemade tofu, bergamot, and honey.”  Then, for the final flourish, each of the four servers simultaneously whipped out a stainless steel garlic press with a piece of honeycomb inside, and each squeezed the press to drizzle fresh honey over our dessert.  Performance, panache, surprise, story, and a little bit of magic.  And it was delicious.  This was one of a hundred moments that made the meal exceptional and memorable.

After dinner we got to peek into the kitchen, filled with the cooks who make this spectacular food.  No surprise, things feel different when you pull back the curtain…cooks and staff are busily washing dishes, or heads-down prepping and running food.  They’re the engine that makes the magic possible, but the kitchen, of course, isn’t magical.  It’s a shop floor.

The interactions at the “front of the house” (with the maitre d’, the waiters, the sommelier, the honey-squeezers) and the “back of the house” are distinct.  The front of the house is populated by storytellers who are creating an experience.  In the back of the house, amazing food is created.  But the skills required of folks in the front and the back might have very little overlap.  And you need them all to create an exceptional dining experience, and to deliver it night after night.

*                           *                               *                                 *                                 *

So now, with the restaurant story as backdrop, fill in the blanks at your favorite nonprofit.  Who’s who?   You can do your own, magazine-quiz-style “match column 1 with column 2”:

1. Waiter                                                              A. Program staff

2. Line cook                                                        B. Head of Development

3. Chef/owner                                                    C. Fundraiser

4. Maitre d’ / General Manager                   D. CEO

Who creates the reality?  Who is doing “the real work?”  Without whom do you fail? (hint: it’s everyone).

To take the analogy a step further, if restaurants were run like much of the nonprofit sector:

  1. The only job anyone would ever want would be to work in the kitchen
  2. It would be impossible to hire waiters
  3. There’d be no set menu – diners would pick what they want; and over time the kitchen could end up serving tons of dishes that they don’t best know how to cook
  4. Before choosing a restaurant, diners would ask whether the restaurant spends more than 10% of its operating budget on waitstaff.

Bon appetit.

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Burying a blunt instrument

The other day a very thoughtful friend told me he’d like to pull together a list of recommended nonprofits for his co-workers as a way of raising visibility and funds, and he wanted my suggestions.  We were talking about what the list should look like in terms of geographic focus, issue area, etc., and he said, almost as a throwaway line, “…and we should make sure none of them spends more than 10% on fundraising.”

He didn’t mean it this way, but it could have sounded like, “Let’s make sure none of them spend too much money doing what you do.”

So let’s dig a little deeper.  What he’s essentially saying is, “let’s make sure the organizations aren’t wasting money,” and unfortunately “overhead spend” is the unbelievably blunt approximation we have of wasting money.

A great comment on my blog last week, in another post where I riffed on the overhead ratio test, put this point very well, concluding:

There are horror stories of huge sums burned by inefficient organisations. It isn’t bad guys, frauds or scammers. It’s just organisations that don’t do as good a job…In some cases almost all of the money donated goes into running the bureaucracy of the organization itself. In some cases, fundraising itself costs more then the activities it funds.

…How do you avoid donating to companies like this? Well, you might find that most great organizations have a 20/80 overhead/programs ratio…The problem with this is that it is incredibly crude. If all else is equal, a lower overhead is certainly good but all else is never equal…

I understand what you are saying. I agree. You’re right.

But what is the alternative?

It turns out that a number of “rating agencies” in the nonprofit space have banded together to answer this question, with the goal of creating a quick and easy way to rate the effectiveness of nonprofits.  Tim Ogden, Editor-in-Chief of Philanthropy Action, recently issued a press release titled “The Worst (and Best) Way to Pick a Charity,” and the release was signed by the CEO’s of Guidestar and Charity Navigator, the two organizations that have arguably done the most to create the “10% overhead” rule of thumb in the nonprofit sector.  Hats off to Tim for kicking this off, and to Bob Ottenhoff (CEO of Guidestar) and Ken Berger (CEO of Charity Navigator) for signing on to the release and for helping push this conversation forward.

Some thoughts on how this might play out:

1. Changing perceptions about this will be hard. Convincing someone that your new idea (product, story) is better than the one they currently believe in (purchased) is harder than selling them on a brand new idea (this is part of the reason the iPhone still beats the pants off of the Palm Pre – iPhone created the category, and the Pre is trying to be improvement on the iPhone).  So getting people to let go of the overhead ratio myth will actually be harder than it was to convince them of the myth in the first place.  For any real traction, this thing needs a breakthrough idea, message, and advocate.  In fact, I bet you most people don’t even know where they first heard the overhead ratio number.

2. Effectiveness is the right goal, but will we ever get there? The push to replace the overhead rule of thumb with an effectiveness rating feels right, though I worry that executing on that promise will be elusive.  There are lots of players pushing this forward, but I’d feel a lot more comfortable if the push were towards “here are the questions we want to ask” rather than “here are the answers.”  I know the world wants a star rating for everything (including the food we buy at the supermarket), but can’t we do better?

3. The endgame is creating better stakeholders. Let’s learn from the field of socially responsible investing.  A lot has gone into ratings of public companies, and the track record is decidedly mixed: attempts to make ratings more sophisticated have generally resulted in less transparency and objectivity.

The real power of these ratings comes not from the ratings themselves (with retail shareholders and consumers somehow knowing if companies are good or bad), it comes from shareholder activism – as information becomes more available, passionate followers create a dialogue with companies that can turn the dial on accountability.  If ratings can create real dialogue (hopefully with much less acrimony than exists with public companies) we’ll make more real progress (and for this to happen, the raters have to be held accountable too…)

4. If you must talk about overhead ratios, ask about efficiency. Since I doubt that the myth of overhead spend is dying any time soon, why not in the meantime promote a marginally better measure: measure fundraising efficiency (how much does it cost to raise $1) rather than how much fundraising is done (fundraising as a % of total spend).  I’m not sure I care if a nonprofit with a great mission spends 8% or 18% of its budget on raising funds – assuming they can spend the funds they raise wisely.  But I do care if a nonprofit spends 4 cents to raise a dollar or 40 cents.  While neither of these numbers tells me anything about the effectiveness of the nonprofit as a whole, all in all I’d rather make a bet on the one that’s more efficient.

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Is “fundraising” a dirty word?

Continuing yesterday’s thread, I think we might need a new job title.  “Fundraising” is stigmatized – it sounds transaction-y and narrow and kind of like something you don’t want to do.  (If there’s a job out there that no one can fill, then I probably don’t want it, right?)  “Development” is not so great either – too euphemistic.

One approach is to borrow known words from the for-profit sector.  Personally I have no problem with “sales” because I’ve gotten to know lots of incredible salespeople, and I’m not hung up on the “have-I-got-a-deal-for-you” used car salesman baggage (it is so outdated that it’s lost its power).  “Business Development” seems equally OK, since it implies a level of partnership and co-creation that actually captures a lot of what this work really is about.

Everything else seems a little too clever by half, things like:

  • Head of Resource Mobilization
  • Chief Rainmaker
  • Director of Strategic Alliances
  • Capital Raiser Extraordinaire
  • Head Storyteller
  • Philanthropic Adviser (taken)
  • Etc.

If you ask the best fundraisers (and salespeople) what they do they will say things like: “build partnerships,” “steward relationships,” “mobilize resources,” “make connections,” “build networks and tribes,” “tell stories,” and “translate across lines of difference.”  Of course you “raise funds,” but the word has no moxie and I’m skeptical that we’ll succeed in resuscitating it anytime soon.

Maybe this isn’t all that important, but if we know that there’s a need for a new model of “fundraiser,” one with a broader remit, a deeper connection to the mission of the organization, and a defined role of bringing the voice of top stakeholders into strategic decision-making…  well we’ve got a branding problem on our hands.

Any ideas?

“Help” or help, and the Fifth Element

Nonprofits face a dilemma.  Especially in a down economy, we get lots of offers of help.  How do we figure out what to do with these offers?  And how do we, kindly, with grace, respond to “I’d like to help” with tough questions to figure out whether that help will be, well, helpful?

The dance of sorting this out – in a way that minimizes investment of time and effort for everyone involved – boils down to figuring out who is offering what across four dimensions:

  1. Brand
  2. Skills
  3. Resources
  4. Time

1. Brand. E.g. “I’ve got an startup online marketplace where the profits go to nonprofits and I’d like to feature your organization on my site.”  This happens pretty often.  There are lots of online startups that have noticed the success of places like GlobalGiving and want to populate their own sites with lists of brand-name nonprofits that get them to critical mass.  So in this case an “I want to help” might really mean “I’d like to borrow your brand, which is worth a lot to me, in exchange for which you might get some revenues/visibility down the line.”  Not necessarily a problem for the nonprofit, but understand the exchange that’s going on and make sure the exchange is a fair one.  (This analysis also applies to multinationals linking up with nonprofits – there’s huge value in nonprofit brands, but as an intangible asset, it’s often undervalued in the exchange).  Also, this can cut the other way, namely a firm that offers pro-bono help (legal, PR, communications, etc.) to a nonprofit – you can only figure out what such offers are really worth if you can get past the brand that’s being offered (which is often very appealing) and learn more about the Skills, Resources and Time (meaning the people) you will get on the project (see below).

2. Skills. E.g. “I’m a strategy consultant…maybe I can help your organization with strategy issues.”  Potentially hugely valuable.  Also the hardest to judge up-front.  Recognize that nearly all Skills offers require significant investment of time and energy by the nonprofit.  You’ve got to dig deeper on the specific skills being offered and their potential value to you – and you’ve got to know what other Resources and Time are being offered – to understand how to evaluate these offers.  Coupling Skills offers with Resource offers is often a good way to make sure everyone is equally invested in making the relationship work.

3. Resources. E.g. “I’d like to support you financially” or “I’d like to introduce you to people who can.”  These offers are hard to come by, but when they do, you probably want to take them very seriously.  The main thing to keep an eye on is Brand – will this individual strengthen and protect your brand with the same care you will?

4. Time. Brand, Skills, Resources offers cannot be understood without an understanding of Time.  Talking up-front about how much Time is on offer – and when – is key to understanding any offer of help.  For example, the world’s greatest transaction lawyer, offering her services for free, is no use to you if you cannot get her or anyone on her team to reply to an email when your next transaction comes up.

The Fifth Element – Values. Assessing who is giving and getting what – in Brand, Skills, Resources, and Time – is often hard to do up front.  The starting point is having a candid conversation about what is on offer, and explaining that any engagement, volunteer or otherwise, requires your staff’s time so you always dig a little deeper to understand offers of help (drawing up terms of reference helps a lot too).

The silver lining is that you have a trump card, often undervalued and underplayed – Values.  If, when talking with someone who offers to help, you are convinced that both parties hold shared values, then that creates space for honesty and dialogue and transparency and clarity, even when you know very little up front about the things you need to know about.   Conversely, if, as the nonprofit, you walk out of that first conversation wowed with the offer (brand, skills, resources, even time) but feel crummy about the values, it’s probably time to ask a lot of question or just walk away.

One closing thought.  If you’re feeling hesitant about asking tough questions of people who offer to help, consider this: no one at Apple or Virgin or Amazon or Toyota or any brand you respect would mind replying to someone knocking on the door saying “I’d like to help” by saying, “Really? How?”  Why does it feel so different when you’re at a nonprofit?

P.S. A nod to the The Blog of Unecessary Quotation Marks for inspiration on this post’s title.

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I want to help

I’ve been thinking a lot lately about offers to help / volunteer in the nonprofit sector, and I think these cut both ways more than most people realize.

On the one hand, I laud President Obama’s call to service and I am encouraged by the fact that one of the results of the economic downturn has been an upsurge of interest in volunteering in the nonprofit sector.  At the same time, in some cases there’s an undercurrent of expectation that work in the nonprofit sector is somehow easier, simpler, and more straightforward than work in the for-profit sector.  Hence the oft-repeated refrain, “I want to take the skills I’ve learned in the for-profit sector and apply them in a new way.”

If the nonprofit sector is meant to be a main driving force – in partnership with with government and the public sector – to address the unsolved problems of poverty, healthcare, education, malnutrition….well, that sounds like a pretty tall order requiring some seriously high-order skills.

Experienced philanthropists and experienced nonprofits know that the best kind of giving is a two-way street, where both the donor and the nonprofit get and give something of real value out of the relationship.  Volunteering can be the same way, but at times “I want to help” really means, “I want to help in the way that I want to help.”  To me it’s like the difference between a grant and a grant that ties a nonprofit into knots.  They both might look the same at first, but they take you down very different paths.

I don’t think a big change is required, just a small shift.

“I want to help” is such a show of generosity.  “I want to help…so please tell me what you really need” can open the door to an entirely new conversation.

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A ‘sustainable’ revenue stream?

Hats off to Nell Edgington at the Social Velocity blog for a post titled “The Critical Alignment of Mission, Money and Competence,” which kicked off an interesting conversation between Nell, me, Sean Stannard-Stockton who writes the Tactical Philanthropy blog, Nathanial Whittmore who writes the Social Entrepreneurship blog for Change.org, and Kjerstin Erickson, the CEO of FORGE.

My first observation is that this discussion happened very quickly thanks to Twitter.  So I’ve realized that Twitter is here to stay for me, and that even if I’m not ready to commit to more than a 1-2 Tweets/day, Twitter enables very useful conversations that I’d miss if I gave it up.  So, if you’re interested in following, you can find me @sashadichter

On the substance of the discussion, there are two threads that I found particularly interesting:

1. The first thread centers on the risk many nonprofits run of their revenue model compromising mission.  The stark example is when a nonprofit ends up chasing funding dollars and makes small programmatic contortions for each subsequent grant (more on this here).  As I suggested to Kjerstin, your only hope as a nonprofit is if you start with a bright line that says you absolutely will not compromise mission at all to get funding…since even with this much clarity, you will still make the occasional compromise.  But if you start saying that some compromises are OK, you’ll be so far off mission in a year or two that you won’t recognize yourself or your organization.

2. The second thread was somewhat more subtle, and it centered around what it takes for nonprofits to have a “sustainable revenue model.”  When I read that phrase it implies “earned income,” which worries me because there are tons of nonprofits out there that do not and should not have a model that itself generates a significant revenue stream.   Which I why I commented that, “I sometimes feel like there’s an implicit notion in the (sometimes too theoretical) discussions of nonprofit funding models that downplays the fact that philanthropic dollars can beget philanthropic dollars; that there are very powerful network effects that come from the creation of strong communities of supporters/friends/advisors/Board members; and this itself can be a “sustainable revenue model.”

Put more simply, to me a sustainable revenue model is one that gives the organization and its donors a high degree of confidence that 1,2, 5, and 10 years down the line, the nonprofit will continue to exist, will continue to focus on its current mission (or the next iteration of that mission), and will have the capital on hand that will allow it to engage in long-term strategic planning and execution.

There are a LOT of ways to get here, and we shouldn’t forget that most “sustainable revenue models” center around creating an energetic, passionate tribe of donors who want to give and who are fervent advocates for your organization (no matter if they make $10 or $10 million donations.)

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Kiva and Acumen overhead ratios redux

Sean Stannard-Stockton picked up my post Why overhead ratios are meaningless for Kiva and Acumen Fund in his Tactical Philanthropy Blog, and in reading his summary of my post I realized that I wasn’t as clear as I could have been in the original post.

I was trying to make two separate points, and I think I mixed them together:

  1. For any nonprofit whose main activity is NOT grantmaking, “operational efficiency” ratios (“how much do you spend on overhead?”) don’t mean much.

Here’s the math:  “Nonprofit Grantmaker” has a $10 annual budget.  It spends $1 on “administration,” $1 on raising money, $2 on paying its “program staff”, and $6 on grants.  According to nonprofit math, this organization spends 20% on overhead and 80% on programs.

But what if “Nonprofit That Invests Instead” spends the same amount on administration, raising money and program staff, but instead of $6 in grants it makes $6 in loans?  Nonprofit That Invests is spending 50% of its budget on “overhead” (Its annual budget is now $4, not $10.  The $6 stays on its balance sheet as an asset and is not part of the operational budget).

So even without getting into any discussions about whether loans are more or less effective ways of deploying philanthropic capital, we can agree that there’s no substantive difference between the “efficiency” of these two nonprofits, despite what the ratios say.

The solution?  The onus is on the Kivas and Acumens of the world to reframe this.  And unfortunately this probably requires some heavy lifting because until 990 tax forms explain this clearly, it will continue to feel like fancy footwork explaining “why we’re different.”

2. The second point is not limited to Kiva or Acumen Fund, though I do think our business models shine a brighter light on this question: what is the “core” work of an organization like Kiva or Acumen Fund, and what is “overhead?”

The question Matt Flannery posed on the Kiva blog was whether it makes sense that the engineer who writes the code for Kiva’s website – which in turn connects people to the issue of poverty in the developing world and motivates them to put their capital to work for microfinance customers – is “overhead” (read: bad, inefficient, should be minimized) vs. the person who interacts directly with the microfinance organizations that Kiva works with?  I for one think it makes no sense at all.

And my broader point is that you cannot successfully answer this question without grappling with your own theory of change.

This is why I gave the Grameen vs. BRAC example, and argued that large-scale, paradigm-shifting change happens as the result of lots of influencing activities which, according to traditional nonprofit math, are “overhead” and, therefore, inefficient and to be avoided.  The whole thing seems pretty a**-backwards to me.