You can read every webpage about every foundation’s strategy.
You can scour CSR reports to see about a company’s social priorities.
You can analyze an individual’s past giving and the boards they serve on to understand their philanthropic priorities.
That all will help, but don’t be fool yourself.
Philanthropy is and always will be personal, deeply personal. There’s no such thing as the best place to give a donation, and there is no analysis that gives the philanthropist the right answer.
This is why all the best philanthropists have a healthy dash of angel investor in them. Angels invest in people above all else, because they know that when you can find that rare combination of grit, belief, tenacity, vision, people skills, humility, audacity, and, and and….
You see, that’s the point.
The list is too long, the unicorn-like combination of attributes so rare, that it’s always, fundamentally, about someone’s belief in you.
(and, for those keeping score, ‘you’ is not just the founder or the CEO, not by a long shot).
Of all the reasons cited to give or not to give a philanthropic donation, “you’re too big” is the one that I have the hardest time digesting.
First, a clarification. In my experience, most people who say that they want the size of their donation to be significant relative to the size of the organization they’re supporting rarely say “I am really good at spotting great startups but don’t feel like my expertise extends to bigger organizations.” Rather, the underlying message seems to be, “when you were smaller, I knew my gift made a difference. Now that you’re bigger, I’m not so sure.”
Analytically, we can agree that size is a poor predictor of effectiveness (you can be big and effective or big and ineffective; small and effective and small and ineffective). Yet the concern, more often than not, seems to be size itself. There’s rarely any overt assertion that through growing the organization became less effective (to wit, often one would imagine that size provides some scope for efficiencies).
In the face of this critique, rather than take the question at face value and conclude that we are not as good as we could be at communicating our own effectiveness (read: we need better metrics), instead we slice and dice ourselves up programmatically to create a closer approximation of transparency and accountability. We make the big black box of “what we do” smaller – so we communicate a sense of “this is where your money is going” – as a proxy for answering the real question – “how effective have you been?”
It’s true, we won’t persuade all the people all of the time. Smaller just feels right to some people, and that’s going to be their (appropriate) choice no matter what we are able to show them. Nevertheless, our job is to be able to answer, in a convincing and rigorous fashion, how much change we created with the money we were given.
I’m not talking about “for $20 you can ________” (fill in the blank). I’m talking about real change at a big scale, shared with an educated, interested philanthropist who is open to a real conversation.
A donor with $50,000 to give faces a surprising conundrum: she knows, intellectually (and perhaps in her gut) that $50,000 is itself not enough to make lasting, large-scale change. However, we can all agree that $50,000 is an awful lot of money, and the donor is well within her rights to ask what will happen as the result of her donation.
Donors who push hard on this question may be asking one of three things. It could be about accountability (“I’m going to make sure you’re not going to waste it”); it could be about comparison shopping (“the nonprofit down the street told me they could buy __________ with this money”); or it could be about the story they need to tell someone (their board, their spouse, themselves) about what they “bought” with the gift.
The real challenge here is that a number of seemingly contradictory truths happily co-exist: if you give someone in need $5 worth of ________ (de-worming; safe drinking water; emergency shelter), their lives will absolutely be significantly better for a period of time – so 10,000 “significantly betters” are potentially on offer for this $50,000 donation. OR a few medium-sized things can be built (a library, a well, a school) for $50,000. AND we also know that large-scale, lasting change comes in much bigger bites – whether to fill that school with teachers; to transform the educational outcomes for a community; to dig not one well but instead to build an organization that’s going to solve the water problem for a village or a hundred or a thousand villages.
So $5 and $50,000 and $5 million and $50 million all co exist.
More complicated still, each of those numbers is, alternately, either really big relative to the problem ($5 is a lot for a subsistence farmer making $1-2 a day), and small for the problem ($50 million doesn’t hold a candle to the annual health budget of even a very small, very poor country).
Echoing a theme from yesterday, the only truly satisfactory answer I’ve found is around solidarity: this is a change we are making together, this is what success looks like, let’s make this happen…and you figure out the piece that you can do relative to your own ability to give.
I recognize that this isn’t the strongest sales pitch, and that part of our job as people who mobilize resources is to right-size the solution to the funds being given – since it is 100% true that a gift of any size, when given to an effective organization, makes a significant impact. But I still feel at some level that the game of optimizing a message to a particular giving level inevitably falls short of all the honest-to-goodness complexities of solving real problems in the real world.
If investing = sexy, and if sexy = better = innovative = how we’re going to solve all the world’s problems…well then, Houston, we have a problem.
There’s huge momentum around using investing capital to solve social problems. The question isn’t whether this is a good thing (it is!); the question is, how do we do this in a way that doesn’t devalue grant funding, that doesn’t inexorably end up at the conclusion that if you’re getting your money back (and then some), you win, and if you’re the grantmaker, you’re doing something that’s not as important/innovative/worthwhile.
What a shame that would be.
What happens when we build large-scale enterprises that serve tens of millions of people, but the service still remains out of reach for many? Is the grant funder who provides capital to makes the service more affordable doing anything less noble, less valuable, less impactful than the equity investor? What about the person who put up the first $500,000 with no expectation of ANY return so that the whole thing could get off the ground?
The thing that’s in scarce supply isn’t investing capital – heck, there are trillions of dollars fleeing the European fixed income market and looking for a place to alight. What’s scarce is risk capital that will take a bet on a person or an idea and help it scale; and high-impact capital, which will take a powerful, existing infrastructure and make it accessible to those who can’t afford it…all in a way that doesn’t distort the market.
In the US, there’s no notion that the person who puts up $15M to fund cancer care for the poor is somehow doing something less important or less impactful than the bondholders who financed the initial construction of the hospital itself. If anything, the donor is MORE celebrated. Different tranches of capital are all playing their roles in an attempt (not completely successful nor a complete failure) to provide high-quality heathcare.
We’re obsessed with “building the market” for investing in enterprises that solve large-scale social problems. That’s good. But let’s not confuse that with making the world safe for investors to get their money back.
We’ll know the market is functioning not by measuring how much money is swirling around, how many funds there are, and their total capital under management. We’ll know it’s functioning by measuring how many new blueprints for social change we’ve created; how many people’s incomes have increased; how many people no longer need a permanent handout.
Speak up for yourself! Don’t play the supplicant, tin cup in hand, hoping that some change will fall from that purse (or that pocket). Your time is precious and the playing field is level. You offer something of great value, both to the beneficiaries of your work and to your (potential) supporters.
Believe that and start treating yourself with the respect you deserve. Believe that and start treating your potential supporters with the respect they deserve. Be clear what you’re talking about and why, state out loud your hopes and expectations for where this conversation is going, risk saying early on what your goals are – knowing full well that the whole thing might crash and burn because you had the nerve to say something out loud that others were thinking.
It is true that the best partnerships take time to develop, that they can meander and take surprising twists and turns, that it’s not usually a straight line from here to there. So be open, be generous, explore and share your dreams.
But by all means act like an equal partner in the endeavor, because you have so much to offer.
Please, please, be careful and clear with your intentions, with your time, and with our time. I know you don’t want any special treatment, and I know you don’t want different rules to apply to you…but they do. (Nonprofit) folks will always take that extra, exploratory meeting with you, that broad-ranging conversation to better understand the sector, the work they’re doing, all the little intricacies that are their special sauce. They’ll do it because they honestly want to share with you, and they’ll do it because it’s very difficult to tell the difference between a casual conversation and an active exploration of a partnership that leads to a funding decision.
(Worse than loose exploration, please, please, please, don’t make commitments that you cannot or will not keep. There are few things more debilitating than that.)
It’s true, it really is their job – the nonprofit’s – to draw the line, to be clear, to ask you the tough questions. But it’s a hard thing to do, and sometimes they won’t. Sometimes they’ll talk and talk and talk, keeping that distant hope alive that sometime soon you’ll see that glimmer of what you’re looking for and decide to write a big check. No, that’s not the only thing they see when they see you coming, but it is certainly part of what they see, and they’re going to give you more leeway than they would give to someone else.
So, please, explore, talk, brainstorm, ask questions, give advice, but also insist on clarity if they’re not being clear. If you know you’re not planning to fund them, but the conversations are going great, you have a chance to speak up, to level set, to explain where things are and explain why you’re talking – because there are many ways to partner, and funding is just one of them.
You’ll be doing yourself and them a great service by speaking up.
In preparation for the Feast Debate that I’m moderating next week, I was having a conversation today about trends in the philanthropic space. Someone made the offhanded remark, “Well, there’s clearly a trend of philanthropic dollars being harder to come by and philanthropists being more interested in new models and in financial sustainability.”
Are we talking “trend” or “Trend” with a capital “T”?
Here’s how I think about this question, in terms of total dollars and how they are deployed: without a doubt the “trendsetters” in philanthropy (especially individual philanthropy) are the Buffett/Gates Billionaires who have pledged to give away at least half of their wealth and who are, by and large, younger, more active, and more wealthy than the previous generation of mega-donors. It’s also clear that the talk in professional philanthropy circles continues to be around results, new approaches, more transparency and accountability.
But how people talk in philanthropy circles and forums and conferences and how actual real live philanthropists behave is not the same thing. And part of me wonders – and fears – that the amount of talk is getting ahead of the amount of change, and at a certain point we have to ask ourselves what we think the future will look like and what we WANT it to look like.
Graphically, if there’s a leading edge of innovative philanthropy today (which there is…and let’s put aside the question, for now, of whether more innovative is more effective), do we expect and hope that 10 years from now there will be a slightly larger, more established group of innovative philanthropists (v1 in the chart below), or do we think we’re engaged in shifting the whole curve?
What kind of future do we want to create – one with a bigger niche of progressive philanthropists or, instead, do we want to see a shift in the center of gravity? Because the actions we’d take, the measures of success, the audiences we’d address would be very different depending on which future we hope to see.
My hat’s in the ring for the wholesale shift, but if we’re going to get there we have to spend a lot more time working directly with philanthropists themselves – and not only the most active and engaged ones, but all across the spectrum.
A friend who’s doing a lot of work to improve giving practices and flows of capital in the nonprofit marketplace asked me the other day: “do you think capital is allocated efficiently in the nonprofit sector?”
“Of course,” is what I was supposed to say, but instead I asked, “Compared to what?”
Here’s another version of these questions, played back with a little more detail:
Question 1: Is there a significant gap between the way capital optimally would be allocated in the nonprofit sector and how it is allocated (where optimal = the best, most high impact ideas / organizations get the most funding; the worst get the least)?”
Answer: Yes.
But before we stop there and dive headlong into the steps we can take to “optimize” how capital is allocated – with better rating systems and more transparency and standards – I’d like us to ask and answer this question too:
Question 2: Is the nonprofit sector any worse than any other sector in how it allocates capital?
Answer: I haven’t seen any data that helps me answer this question. So for now, I have to say I don’t know.
Or, more simply:
Might we be a mess? Sure. Are we any more of a mess than anyone else? Dunno.
For example, let’s compare the nonprofit sector to the mutual fund industry (since both involve individuals and institutions allocating their capital in pretty significant ways). Mutual fund clients have the clearest incentive to allocate their capital efficiently and to avoid paying for things (like high management fees or stock-picking managers that say they’re going to beat the market) that are proven to be inefficient. Plus, tons of time and effort has gone in to creating standards and disclosure requirements to protect individual investors and provide them with clear, easy-to-understand information.
And….? And investors make all sorts of screwy decisions about what to do with their money, pouring billions of dollars into funds that cost 10, 20, 30 times the cheapest and most efficient option. (And in further proof that we keep on getting halfway to the wall, just three weeks ago the mutual fund industry had another call to action about how disclosure and transparency need to be radically improved.) In the meantime, high fees persist, people put money into underperforming funds, and investors ignore reams of data that says it’s impossible to beat market returns in the long term, especially with high-fee mutual fund managers. On average, we buy high and sell low most of the time.
So what about another, simpler point of reference, like, say, just about any consumer product on the market? Because while mutual fund fees may be obtuse and hard to understand (so arguably a great point of reference for the nonprofit sector), people also routinely spend, say $250 for 1.7 ounce facial moisturizer when its non-comodogenic cousin costs $10.99 for a 20 ounce container (about a 300:1 price difference).
$150/ounce or $0.50/ounce?
The point is not that the nonprofit marketplace doesn’t need better disclosure, more transparency, more accountability – it does. But we need a mental model of what we hope our sector will look like when we’re successful if we’re ever going to get there. And “better than where we are now” isn’t much of a rallying cry.
Is the model publicly traded companies (with GAAP and ratings agencies…which failed us spectacularly in the latest economic meltdown)? Is it the mutual fund business? Consumer credit? The point is obvious: lots of markets more “advanced” than ours fall short the same ways we do.
Since it’s so hard to find examples of markets that are “working” in the sense that capital is allocated in the “right” way, I would advocate starting by understanding how we’re the same (we’re interacting with consumers who, with limited time and attention, are allocating capital) and how we’re different (nonprofits tend to die slower deaths than their for-profit brethren), and then be clear about what these differences and similarities mean and, from that, describe the gap we hope to close from where we are to where we hope to be.
In the meantime it feels like there’s a lot of railing about what’s wrong (“it’s not all about overhead ratios!” “Donors just respond to stories and sad pictures instead of digging in and understanding who is most effective!”), and a lot of effort to improve on what we have (by the nonprofits “rating” agencies and work to improve online giving marketplaces) which is all probably productive, but if we don’t know where we’re ultimately trying to go I have trouble seeing how we’re going to get there.
So my closing question is, “What does a highly functioning nonprofit marketplace look like, one filled with real actors who act like real human beings when deciding how to allocate their capital?” And from that statement, let’s figure out what it will take to get there.
Congratulations to Sean Stannard-Stockton on the launch of Tactical Philanthropy Advisors. Sean has been writing on the Tactical Philanthropy blog since 2006, and has become one of the leading voices “Chronicling the Second Great Wave of Philanthropy.” If you want to know what’s going on in U.S. philanthropy, with a nod to what is newer and is most cutting edge (and an acknowledgment of what’s mainstream), you go to Sean.
This week, Sean has launched Tactical Philanthropy Advisors, to provide philanthropic advisory services to clients with $1 -$50M or more of philanthropic assets. And yes, Sean will still be writing his blog.
Why does this all matter? Sean reminds us that “Individual donors give $250 billion a year to charity, making up 82% of all charitable giving.” It’s a lot of money, and where it goes makes a real difference.
Sean is also launching the Tactical Philanthropy Knowledge Network, “a network of professional grantmakers who are committed to the idea that knowledge sharing leads to greater social impact.” Jed Emerson will be the Chair of the Network, and IDEO will be involved in designing the Network and facilitating Network gatherings.
I had a fascinating, far-ranging conversation today with a friend about philanthropy, touching on giving, donor accountability, what an individual gift means in the context of larger pools of money, how people really make philanthropic decisions…the works. Out of the blue, he says, “this is highly emotional, this business of giving.”
In another conversation today, another friend told me that his giving is “an expression of who I am in the world.”
Pretty heady stuff.
People can write analytical papers until they are blue in the face about the efficient allocation of philanthropic capital, but unless they spend some time on the front lines, I worry that all the real substance around how and why people give – for expressive, emotional, personal, sometimes selfish, always human reasons – is and will continue to be lost. This is part of the reason I wrote a manifesto a while back, because I think the business of giving – how and why it’s done; but also how important it is to raise money in the right way – is often fundamentally misunderstood.
People bring their whole selves to their giving decisions, and if you are going to engage with them at that level, you have to be prepared to bring your whole self to the conversation. This starts with knowing who you are and knowing why you’re there, talking to someone, and asking her to give.
