Category: non-profits

Job security in the nonprofit sector

~ Sasha ~ Leave a comment

For those in (or interested in) the nonprofit sector, today starting at noon (in about 2 hours) the Chronicle of Philanthropy is holding an online discussion titled “The Recession and Your Career: How to Become an Indispensable Asset” featuring Nick Fellers, Karen Katz and Lynne Sarikas.

I’m curious to see how the discussion unfolds.  That said, my starting point would be that if you haven’t been indispensable every day for the last 6-12 months, you have a tough row to hoe.

Changing people’s impressions is a lot harder than creating new ones.

Why overhead ratios are meaningless for Kiva and Acumen Fund

~ Sasha ~ 8 Comments

Matt Flannery, the CEO of Kiva, wrote an excellent post on nonprofit overhead over on the Social Edge blog.  Kiva has been a game-changer in the poverty alleviation space: they use Kiva.org to connect donors to microfinance loan recipients in the developing world.  What’s important is the loan part — rather than getting a grant the borrower has to pay back the microfinance organization, which in turn pays back the funder.  Conceptually, this is similar to Acumen Fund, where I work – we raise philanthropic donations and then make debt and equity investments in enterprises that serve the poor in the developing world.  When we’re paid back, we recycle that capital into new investments.

One of the challenges that Acumen Fund and Kiva both face is that our models – focused on innovation, accountability, investment, and better leverage for each philanthropic dollar – are in direct opposition to the traditional metrics that rate nonprofit efficiency.  This is because invested capital (loans and equity), unlike grants, don’t factor into ratio of “overhead costs as a percentage of total cost.”  It just stays on the balance sheet but is not part of the annual budget.

The conventional nonprofit wisdom is that “best in class” nonprofits will spend no more than 20% on “overhead,” breaking down roughly to 10% on fundraising and 10% on administrative costs.

As Bridgespan, one of the leading consulting organizations to the non-profit sector, reports, “Many organizations and their funders are locked in a vicious cycle in which nonprofits are pressured to under-invest in overhead and to under-report their true overhead costs, even when those costs are still below what their senior managers feel is needed.”  Worse still, Bridgespan reports that “The majority of nonprofits [75-85% they studied] under-report overhead on tax forms and in fundraising materials.”

If we’re going to break the cycle, we have to uncover how flawed the underlying logic is.  Here’s where the logic falls apart:

An example: Both the Grameen Bank and BRAC in Bangladesh are world-class organizations that have changed the lives of tens of millions of poor people (mostly Bangladeshi women) through the provision of microfinance services.  Both organizations were founded by visionary leaders upon whose shoulders my generation stands in our work to bring an end to global poverty.

Yet, if forced to choose, I would argue that Grameen had the greater impact on the world because Mohammed Yunus, Grameen’s founder, won the Nobel Prize.  This was a major marker that “mainstreamed” microfinance and allowed the world, and not just the development community, to understand that lending money to poor people could change their lives in new and exciting ways. The result was a huge influx of commercial capital, and significantly more growth in the sector – ultimately leading to millions more served.

My question is: in the 30 years prior to Yunus receiving the Nobel Prize, does it sound right to you that every meeting Yunus had with a world leader, a powerful donor, or a leading journalist would have been counted in Grameen’s “overhead” cost, as separate from the “program” cost of delivering microfinance services to Bangladeshi women?  Should Grameen have “stuck to its knitting” in delivering microfinance services and not wasted money on all the “overhead” of external communications and building a community of friends, advocates, advisors, and supporters, which ultimately led to a global movement in support of microfinance?  (and yes, I know it wasn’t all Yunus, but without him, I don’t think we’d be where we are today).

My point is: it’s not just a little wrong to try to separate out “program” from “overhead,” it’s an outdated (or maybe it was never right) mode of thinking that is based on the premise that nonprofits are primarily delivery mechanisms for pre-determined services.  In reality, nonprofits play an active role in shaping our collective understanding of how to solve important social problems.

And getting back to Kiva and Acumen…: There’s a whole new segment of hybrid organization – encompassing the likes of  Kiva, Acumen Fund, Root Capital, E+Co, Agora Partnerships, sitawi, and others – that deploy mostly non-philanthropic capital for social ends.  Much as we’d like not to worry about the conversation, people do often ask about “overhead ratios” when making philanthropic decisions.

In closing, here are four (more or less related) thoughts:

  • Until “social investors” like Acumen et al. can develop a common vocabulary to  assess how efficient and effective we are (or are not), we will be at a disadvantage in the philanthropic marketplace
  • The nonprofit sector as a whole would be significantly stronger, and better positioned to weather economic downturns, if nonprofits didn’t rely on annual funding cycles.  But raising money over 18 months to pay for costs over 5 years requires an upfront investment – one that will look “inefficient” based on traditional ratios
  • If you care about fundraising efficiency, ask how much it costs an organization to raise a dollar, not how much they spend in total on raising money.
  • Even when asking this question, take the answer with a HUGE grain of salt – raising money, teaching, inspiring people, changing attitudes, motivating people to act….there’s huge overlap in these activities. If you don’t agree, please read my NonProfit CEO Manifesto and let me know how we can all do this better.

Learning from Teixeira’s $180M contract

~ Sasha ~ 4 Comments

I’m no big baseball fan, but, living in New York, it’s impossible not to notice the eye-popping $180 million contract Mark Teixiera just signed with the NY Yankees.

I’ve heard fans grumble about this in the context of rising salaries for sports mega-stars, but I think the frustration is generally misplaced. Financially, there’s a big difference between being an OK sports team with a .500 record or a team that wins the World Series (or Superbowl). So, without digressing into all the wonderful analysis in Moneyball (Michael Lewis’ best book by far, in my mind) – which showed how baseball teams could be very successful without marquee players – let’s take as a given that in sports, giving a star player a piece of the “winner take all” pie might make sense.

One step removed from this is the private sector, where CEO pay is supposed to be linked to performance. An interesting tidbit I hadn’t heard yet was in Robert H. Frank’s “Economic View” column on capping CEO pay in the NY Times, where he noted that one reason for the ballooning of CEO pay is that “companies themselves have become bigger…[and] CEO compensation at large companies grew sixfold between 1980 and 2003, the same as the market-cap growth of these businesses.” [Translation: the companies are 6x as big, they earn 6x as much, and the CEOs pay is 6x bigger]

There are about 1,000 holes you could punch in this argument, but bear with me for a second…

One of the central questions for the nonprofit sector – as batted around most recently in the discussions of Dan Pallotta’s new book Uncharitable – is whether compensation levels are too low.  And here’s where I think the discussion gets interesting: what if teachers, nurses, and nonprofit professionals provide an economic value to society that’s much greater than their compensation?  If so, society is systematically under-investing in the “preventative medicine” that could lead to outsized return on investment.

So here’s the idea: what if we did a better job quantifying the positive impact of things like a kid who goes to college instead of ending up on the streets; someone who ends up with a productive, paying job instead of on welfare; a person who kicks a drug habit instead of staying a junkie on the street? No doubt you could round up a set of econometricians to quantify the social value of each of these outcomes just like you can figure out that the Yankees will make a few hundred million more in profits if they win the World Series.

If so, why couldn’t you take this pool of capital (“potential social value”) and offer it up as:

  • An incentive payment to staff (an “social equity kicker”) if certain targets are met
  • A block grant of government funding that is given to the organization that delivers a set of desired social outcomes?
  • A challenge grant to be matched by philanthropic capital against a specific problem

I know that some of these ideas have been tried, and others would be hard to implement without distorting outcomes or gaming the system. But I don’t hear a lot of talk about quantifying the economic value that social sector organizations create, monetizing that, and using that to create more positive social outcomes sooner.

And, as a positive byproduct, salaries in the social sector would presumably rise, making it more likely that some of our best and brightest would end up in social sector organizations rather than in investment banks or hedge funds.  That would absolutely be a good thing.

Toe to toe with Dan Pallotta

~ Sasha ~ 1 Comment

If you enjoyed my post Should NonProfit Leaders be Like Boiled Broccoli, you might be interested in the discussion on Sean Stannard-Stockton’s Tactical Philanthropy blog between Dan Pallotta (author of Uncharitable), Robert Egger (founder of DC Central Kitchen), with me chiming in from time to time.  (It’s also worth checking out Sean’s FT article, “Sacrifice Notion Sabotages Nonprofits” that appeared today.)

Lots of food for thought here, including how much is the “right” amount an organization should spend to raise money, whether raising more money quickly is always better, appropriate compensation in the nonprofit sector, and how to think about efficiency and effectiveness for nonprofits.

Congrats to Sean for writing a post that inspired this conversation.

Should nonprofit leaders be like boiled broccoli?

~ Sasha ~ 8 Comments

Nicholas Kristof had a very interesting column in Tuesday’s NY Times called “The Sin of Doing Good,” focusing on Dan Pallotta and his new book, “Uncharitable.”  Kristoff leads off the column with this question: “If a businessman rakes in a hefty profit while doing good works, is that charity or greed?”

Pallotta ran a for-profit company that invented fundraisers like AIDSRides, events which “netted over $305 million over nine years for unrestricted use by charities” ($35 million / year, for those keeping score) while Pallotta pulled in a $394,000 salary, which is, in Kristoff’s words, “low for a corporate chief executive, but stratospheric in the aid world.”  And if you want to get a whiff of the ire Pallotta inspires, check out this discussion on Philanthropy.com.

Let me start by saying that I know nothing about Pallotta outside of what I’ve read in this article and poking around some on the Internet, so I cannot vouch either way for his person, his values, etc.  However, a bigger-than-life personality who is finding new and exciting ways to raise visibility and funding for important causes certainly catches my attention (hence the manifesto I wrote a few months back).

Here’s Kristof’s money quote from Pallotta, which really makes you think a little harder about this question:

We allow people to make huge profits doing any number of things that will hurt the poor, but we want to crucify anyone who wants to make money helping them.  Want to make a million selling violent video games to kids? Go for it. Want to make a million helping cure kids of cancer? You’re labeled a parasite.

Interesting, huh?

So, for example, we’re OK with Jay Shipowitz, the current CEO of Ace Cash Express (one of the largest payday / predatory lenders in the United States, which makes high-interest loans primarily to poor people) earning more than $750,000 as COO back in 2003 (the last public data I could find; they went private in 2006).  Never mind that that’s triple the average 2008 CEO salary for the largest nonprofits.  (And I don’t even have time here to get into the complexities of Ace Cash Express making headlines by giving nearly $1 million to the United Way.)

The (provocative) question I’d like to ask is is: is making sure nonprofit leaders (and their staff) have pure motives and low salaries more important than getting the results we so desperately need? How do we, as a society, want to reward people for the paths they take in life?

And here’s the broccoli analogy: for years, whenever I made vegetables with meals, I thought, “these are going to be healthy.”  Hence the boiled, flavorless broccoli.  Guess how often I prepared (let alone ate) the broccoli.  Pretty infrequently.

More recently, I’ve discovered if I make my veggies taste good, they become part of almost every meal.  So now they often have olive oil, salt and pepper, and sometimes even bits of bacon or pancetta, but they taste delicious and they’re part of my daily diet, not the exception I dabble in when I’m feeling virtuous.

(And for the ultimate blogging aside: if you want to change your mind about Brussel sprouts forever, prepare them  following Ina Garten’s recipe in her Barefoot Contessa Cookbook.)

So while there’s a woman who I met once – who I’m sure will live forever – whose diet consisted mainly of humongous bowls of salad (no dressing), I don’t think that’s going to work for most people.  Large numbers of people are healthier when whole societies have cuisines that centers on fish and olive oil and red wine (go figure!).

So while I don’t know much about Dan Pallotta, I’m sure we need more openness to new ways of doing things in the nonprofit sector, and new ways to attract, motivate and keep the best and brightest.  Maybe this is through contests or pay raises or incentive pay – for now I’ll defer to others to fill in the details.  But I would love to live in a world where society stands up and says, “These problems are so big and important that we will align resources against them to get them solved.”

Better yet, if someone really were to make a great living solving one of the world’s big problems, don’t you think that person would be just as likely to plow the money they made back in as charitable donations?

Food for thought, anyhow.

Carving up your nonprofit

~ Sasha ~ Leave a comment

I wanted to share an excerpt from great post from Adam Thurmon’s Mission Paradox blog (it’s a long excerpt, so it’s pasted in below).

The question Adam was asked was whether it makes sense to have both an Executive Director and an Artistic Director as equal co-leads of an arts organization.

I’ll leave you to read the excerpt and encourage you to read the post as well.  What strikes me is that Adam is pointing out an important (mis)management theme that can pervade the nonprofit sector: the notion that there’s the “real work” (the art, the programs, the care you provide) and the “business stuff” (raising money, working with the Board, keeping the lights on, marketing :), and that somehow these things can and should be separated out.

It’s not about business taking over nonprofits, it’s about recognizing that any organization that has a purpose in the world needs to be integrated both in how it delivers its services and in how it runs its operations. You can’t chop it up and separate it out any more than that.

In today’s world, your brand is every person who talks to anyone outside your organization; your culture is defined by how you treat each person who works for and with you; your message is owned and nurtured mostly by people who are not on your payroll.

And it’s all the important in mission-driven organizations (artistic, humanitarian, religious, you name it) that every person feels like they are part of advancing that mission.

This is why people are showing up to work every day.

Why would you squander that?

Here’s what Adam has to say about this:

“We still have arts orgs running with the simplistic notion that having artistic decisions over here (run by one person) and business decisions over here (run by another) is the most viable way to structure an organization.

Again, this creates an environment where one side can easily place blame for any challenges the org may be having on the other side . . .

“If we were doing better art we could raise more money.”

“We do great art, too bad the business folks don’t know how to sell it.”

Instead of recognizing what most of us who have been in this game for a while clearly see . . .

Artistic decisions ARE business decis ions.

Business decisions ARE artistic decisions.

You know this.

Everyone knows this.

So why are we taking ultimately singular decisions and placing them in the hands of seperate people?

Alert the press!! Weingart Foundation breaks new ground

~ Sasha ~ 6 Comments

If I were writing for the NY Observer or some other similarly sensationalist newspaper, I’d write a headline that says:

“Nation Stunned: LA-based Weingart Foundation Places Trust in Nonprofit Grantees”

This is absolutely, positively not meant to be a dig on the Weingart Foundation.  To the contrary, they deserve praise.  As the LA Business Journal reports, the Weingart Foundation has announced that it will “offer unusual ‘core support’ to underwrite administrative costs for social service agencies that provide necessities such as food, shelter and health care to the region’s poor, unemployed and sick.”

This is contrary to normal practice, wherein “Most philanthropic foundations traditionally give large grants that pay the costs of specific programs but do not underwrite non-profits’ operating costs, such as staff salaries and rent. Many non-profits get their operating cash typically from their own fund raisers or from direct donations.”

My point is: the fact that this is newsworthy is a reflection of how far (too far) things have swung in terms of foundation grantmaking to nonprofits.  There’s a serious power imbalance here, one that has to change if we are going to increase the impact and efficiency of the nonprofit sector.

There’s a longer history here, one that I will be exploring over time on this blog, but as a starting point imagine the following in the for-profit sector:  Blackstone or some other private equity fund investing three million dollars in a portfolio company, but restricts the funding to the purchase of an Oracle database, with 10% for “overhead.”   Guess what?  That never happens, because it doesn’t make a lick of sense.

So why have we ended up at this perverse equilibrium in the nonprofit sector?  The list of reasons might include:

1. A desire for funding to go “to the beneficiaries”

2. Concern that nonprofits are not efficient enough, and that limiting grants in this way will lead to increased efficiencies

3. Because there’s a serious power imbalance between people who hold the money (the foundations) and the people who use the money (the nonprofits), so the people with the purse strings get to write the rules. (something I talk about more here)

4. Because the donors have their own philanthropic agenda, and fitting unrestricted funding into a specific agenda is difficult

5. The fear that on the part of the foundation program officer that one of their grantees will end up as front page news because of exorbitant salaries paid to their top executives or CEO

The result of all of this is that we end up with scores of nonprofits twisting themselves into knots to manage a series of too-small, too-specific “program” grants, with individual donors asked to pick up the difference between what’s funded and what’s needed to deliver on the non-profit’s mission (weren’t the foundation supposed to be the trailblazers in this equation?).

Worse, the nonprofits get tied into a cycle of yearly make-the-numbers funding, and they end up perpetuating the myth that you can neatly separate a non-profit into “program” and “everything-else-that-really-isn’t-that-worthwhile-but-we-have-to-do-some-of-it-even-though-we’d-rather-not.”

Lots more to talk about here, but here’s a starting point:  Do you think you’re going to get the best people to do a job that you (foundation program officer; non-profit grant-writer) have proclaimed is in the “not terribly worthwhile” bucket?

(Hat tip to Sean Stannard-Stockton at the Tactical Philanthropy blog for pointing out the LA Business Journal article.)


Donations that make a difference

~ Sasha ~ 1 Comment

Imagine this: you’re walking down the street and stumble across an envelope with a cashier’s check for $25 that can only be endorsed by a charitable organization (I don’t know if such a check exists, but bear with me). To whom do you donate the check?

My friend Ross, in his thoughtful and eloquent comment about Maimonides and the 8 levels of tzedakah touched on this question implicitly. He said:

“I like learning about new charitable organizations and initiatives, and I balance my giving among local, national and global organizations. It’s not always the biggest foundations that need my money the most – I can perhaps make a bigger difference with my contribution to a small local effort.” [emphasis added]

This sense that “big = probably less in need of a donation” is appealing. Put another way, wouldn’t a gift matter more to a small, struggling organization than to a big, established one?

At the extremes, I suppose this is true. A brand new organization with a $50,000 annual budget really does need a $100 donation more than UNICEF, with a $1 billion annual budget. But unless we want to create tens of thousands of little non-for-profits, this logic falls apart pretty quickly. (In some sense, it seems like that’s exactly what we want, since there are now nearly 1.5 million not-for-profits in the United States). Scale does matter, and while big definitely doesn’t necessarily equal effective, we can agree that a certain minimal size is required to achieve some basic efficiencies. And if gets harder, not easier, to raise money as a non profit as you grow, then as a society we are erecting barriers to creating new, innovative organizations that make a large-scale impact.

The way many not-for-profits have addressed this question is to break down what they do into bite-size pieces. For example, Heifer International’s donation page breaks out donations into the cost of a heifer, a water buffalo, a goat, a sheep… you get the idea. You can match the amount you want to give to the cost of one of these animals, and get the sense of something tangible coming from your donation.

Of course, in reality it doesn’t work quite like this, and then there’s the inevitable backlash when someone discovers that your dollars don’t buy an actual heifer, or a water buffalo; they just go into a general fund.

To me, the problem with this approach has nothing to do with whether Heifer literally gives a cow or puts the money in a fund that purchases livestock for families, which in turn improves their ability to earn a steady income. The problem comes from the expectation that funding is an on/off switch for creating something out of nothing in the world. Fighting poverty is just more complicated and more important than that.

Here’s another approach: think about your giving like you think about voting, as an expression of who you are and what you believe in. Think to yourself, “This non-profit does great things. I want to support an organization that does great things, so I’m donating. Here are 10 great things this non-profit did last year, which I helped to support. I’m proud to be a part of that.”

It’s really not a question of who’s big and who’s small, and where a gift will “make the most difference.” If you want to give, find an organization whose people, values, mission, and approach align with your own. Evaluate the organization, make sure they are efficient and responsible stewards of your money. And then give. If you trust the people and the organization, don’t feel obliged to take that extra step to say, “this is how they used the money.”

Tell a Friend (really)

~ Sasha ~ Leave a comment

It’s this blog’s one week anniversary. Already I’ve learned some things:

  1. Blogging takes about 3x more time than I expected
  2. I also like doing it more than I expected
  3. I think that finding out the series of random facts I need to make a post come together (e.g. what is U.S. aid to Pakistan? What’s going on with fuel economy legislation? What should I know about Maimonides?) will, over time, make me a smarter person
  4. I’m very interested in figuring out how to build an audience of interested readers

This last point is where you all come in. While I’m a big fan of shameless self(blog)-promotion (and have been doing a good deal of it), I’m looking forward to the day when I don’t have to update my Facebook profile letting people know that I have a new blog post.

Since there are many more of you than there are of me, you can play a part in this social experiment. Please pick one of the following (really, I need your help):

  1. If you’re a blogger/Facebook/MySpace/social media user, post a link to my blog somewhere in Web 2.0-land
  2. Think of one person you know and send them this email:

Dear So and So,

I’ve just started reading a blog about philanthropy and social change. Sasha’s a credible guy who works at Acumen Fund and I’m enjoying hearing what he has to say and thought you might too. The site is http://sashadichter.wordpress.com. No obligations, but thought you might want to check it out

Enjoy,

YOU

(P.S. If you’re my mother, you’ll probably have to edit that note slightly)

Think about how much email you send out every day — don’t you think you could add this to the list without bending a friend out of shape? (If you post to a site, let me know where; he/she who generates the most traffic (per “site referrals” on WordPress) wins a prize.)

This could be fun. I promise to post about progress. Thank you!!