The only guy I met

The other day I took about eight boxes of books and clothes to the Salvation Army, part of a (meant to be) biannual, you-ever-going-to-wear-this-again? ritual that I talked about here.

I have to admit, there’s so much inertia around getting this done that when I get enough momentum to go through my closet, pack up clothes, and get out of the house, I don’t stop to ask whether the Salvation Army or Goodwill or anywhere else is the most efficient place to give things away.  I just assume that stuff that I drop off at the local Salvation Army eventually ends up in the hands of the people who need it.  Trust in a brand, through and through.

My local Salvation Army is an ominous, somewhat murky place: a giant, brick, 1930s warehouse with a single door leading to a small room with one small desk.  The only other door opens to a giant room filled with trash bags of dropped-off, donated stuff.

The giant room is enough to raise some questions: how long do these clothes sit here?  Do they end up in the right hands?

I should find out more, to be sure.  But I haven’t and I don’t, yet I still end up feeling like things are going to be OK.  Here’s why:  the guy who mans that tiny front desk where I drop off the clothes is such an obviously compassionate, serious, considered person – and this comes across so readily in even a short interaction with him – that I’m left with a sense of confidence.

Specifically, I think, “if he’s here manning this ship, then he’s made a decision based on a lot more information than I’ll be able to get easily”  Barring my own opportunity to really dig in and learn more, I’m going to trust this decision of his as proxy for my own due diligence.

To me, on this day, this guy was the whole story.  He was the only guy I met, and he is the Salvation Army to me, just like the Zappo’s Customer Loyalty Team is Zappos to their customers (and if you haven’t seen this New Yorker article on Zappos, it’s worth the read).  In fact, Zappo’s CEO Tony Hsieh doesn’t even care much about shoes, he cares about culture and about the consumer’s experience.

If this is right – if for most of the people most of the time, their experience of the organization is about the one person they meet – tell me again, what’s the desired profile of people who serve on the front lines in your organization (your delivery people, your teachers, your CSR reps, your repairmen and women, your fundraisers)? How important are these roles?  What’s their status within your organization?

Is there a single reason why you’d want these folks to be anything other than  your best, brightest, blow-me-out-of-the-water, if-you-work-here-it-must-be-great, people?

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The fundraising forward bend

I’ve been wondering about why “the ask” for philanthropic funding can be the hardest, most awkward point in the meeting.  Here are some thoughts from somewhere else entirely…

Try this experiment: bend at your waist and, in a relaxed fashion, try to touch your toes (or however close you happen to get, it doesn’t matter).   Then, with no extra effort at all, take four deep breaths, focusing on exhaling.  I promise you by your fourth breath you’ll be a lot closer to your toes than you were when you started.

What’s going on here?  Our nervous systems are well-adapted to protection, so any time the body is in a position that is new or unfamiliar, our sympathetic nervous system tightens muscles to protect us from going into positions that might hurt us.  It’s your body saying “this seems risky…I’m going to tighten up to stay safe.”

The deep breaths tell our minds and our bodies that everything is OK and that we’re not going to get hurt, and the protection reflex passes, which is why it just takes a few breaths to get closer to our toes.

“The ask” can make your body’s protective/panic response kick in.  When you’re new to it, it feels like a standing-at-the-side-of-a-freezing-cold-pool-about-to-jump-in moment that causes so much anticipation that you freeze up – and in so doing make the person you’re talking to freeze up as well.  “Here we go!” your subconscious screams.  “This is probably going to be terrible!”

How do you develop the confidence not to panic?  How do you find ease in this uncomfortable situation?

The only answer I see comes from recognizing the response, and putting yourself in the situation that makes you feel that way as MUCH as possible (tough, I know), and then find what it takes for you not to panic (better yet, shine). You don’t get there by starting at the deepest end of the pool with the coldest water. You start small and build up, and then keep on pushing yourself into situations that ARE hard, but you teach yourself to act easy.  You teach yourself that everything is going to be OK.  You learn to take the thing that you once feared, that once was difficult, and to breathe into it and be your best, most confident self even then. (Sure, there’s plenty of technique and tactics too, but recognizing and addressing the panic response is part of the answer).

Two closing observations: you won’t get better at this without putting yourself in that situation more and more often.  And you’ll definitely bungle some things along that way.

(That’s OK too. How else are you going to learn?)

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Raising investment capital…that ought’a be easy

I was speaking today to the executive director of a small and growing NGO that’s in the grant-giving business – they’re interested in getting into the loan-giving business.

I asked him why they wanted to make the shift, and he explained: to create a sustainable revenue stream; to create more accountability on the part of the grant recipients; to create a capital base that will allow the organization (and its impact) to grow over time; and because it would be easier to raise below-market debt than it is to raise grants.

I agreed on 3 out of 4 points.  The last one is tricky.

There’s a rational argument that says, if someone has to choose between giving money away with no prospect of financial return (a grant) and giving money away with the prospect of some return (a loan), the latter will be more appealing.  So it stands to reason that if you have a more (financially) attractive product, it will be easier to “sell” that product.

But that’s not necessarily how it plays out in practice.  What I think this misses is the different hats we all wear, and how much easier it is to walk well-worn paths than to blaze new ones.

Seasoned philanthropists are familiar with giving.  While each philanthropist makes decisions differently – and solicits advice and ideas from different people – a donor gives based on an (explicit or implicit) set of criteria that motivate her giving.   These criteria could be strategic, analytical, cerebral or intuitive, but giving philanthropically is a known and well-understood endeavor for this person.

At the same time, anyone who has amassed a certain amount of wealth no doubt has experience with and criteria for making investment decisions: the risks she’s willing to take, the amount of diversification she feels comfortable with, the people from whom she gets advice and with whom she pressure-tests investment ideas.

So long as you’re raising funds that fall in either of these two buckets, the rules of the game are known.  These are the well-worn paths.   But something that’s “the best of both” (not quite philanthropic, but not quite an investment) is in a murky middle, where criteria are not well-established, the stakeholders are ill-defined and not used to weighing this particular opportunity.  Suffices to say it’s not a layup.

I think this is important to recognize because there’s a lot of talk in our space about how investors / donors “will” behave, but these discussions often are framed analytically rather than building up from actual experience talking to donors about their own preferences.

How people “should” behave is one thing.  How they will behave is something else entirely.

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The simplest nonprofit ven diagram ever

I presented today to an amazing group of 30+ summer interns and new hires who are about to start working for Acumen Fund, E+Co, Root Capital, Agora, IGNIA and Endeavor – all organizations that are supporting entrepreneurship in the developing world to promote economic development and poverty alleviation.  The training was organized by the Aspen Network of Development Entrepreneurs (ANDE), run by Randall Kempner.

I’ve spoken on enough 3-person panels that I’ve come to realize that the best gift I can give the audience is to leave them with one concrete, meaty thought they can take away and chew on.

So here it is, with the world’s simplest ven diagram in support of my big question:

How much overlap do you (future leaders in this sector) think there is between these two circles?

Ven A

It’s such a simple question to ask, and the group is smart enough to know how they’re supposed to answer: there’s a good deal of overlap.

But push yourself a little.  Is it what’s above (A), or is it (B) or (C)?

Ven B

Ven C

So we know the “right” answer to the question is definitely not (B), possibly (A) but maybe it’s (C).

But what we know isn’t necessarily how we act. How can you suss out what’s really going on in your organization?  Here’s a list of questions to get you started:

  • How much senior management time is spent on strategies for raising capital?
  • What percentage of her time does your CEO spend fundraising? (<10% / 30% / 50%+)
  • How much Board time is spent on this?
  • Do you have a Board Development Committee (yes/no/sort of)?  How much does it raise?
  • How much integration is there between the people who raise capital and the “program” folks?  (None/Some/A little/A lot)
  • Is there an obvious difference in the quality of staff you can recruit for capital raising functions vs. everything else in the organization?  (Yes / No)
  • Is there an obvious difference in the prestige of the different roles within the organization? (Yes / No)
  • Is it possible to be a star performer in your organization if you haven’t proven you can raise money? (Yes / No)

(Please, take this set of questions, develop them further, and use them to shake things up in your organization or at a nonprofit you love).

My take: there’s a huge amount of white space between how we analyze this question and how we act as a sector.

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Call it out

I recently went out to a nice birthday dinner at a new TriBeCa restaurant in New York City.  It’s been open for about a month, and while the food is delicious, the service is still finding its way.  Our waiter was friendly enough, but he would disappear for swaths of time.  At one point, we found ourselves looking longingly at our bottle of white wine, chilling across the room, and discussing exactly how big a faux pas it would be to stand up, grab the bottle, and pour for ourselves.

But no matter.  It was a jovial night, and we didn’t have anywhere to be; the languorous service gave space for conversation.  But things got worse over main dishes when food arrived for everyone but the birthday girl.   She insisted we all start eating, and after some protest, everyone dug in.  But the clock kept on ticking on the one missing dish, so much so that we considered canceling the order altogether.  Finally, a full fifteen minutes later, when everyone had clean plates in front of them, the tardy pizza finally arrived.

In a stroke of brilliance, our waiter said, “We knew it was your birthday, and so we wanted to make your pizza extra-special.  That’s why it took so long for us to make it.”

Poof!  Everyone laughed.  The tension was gone.  What could have been a wrong turn, a souring of our entire meal, became a moment of lightness.

What our server did was brilliant.  The moment was awkward and tense, and he could have (a) Said nothing; or (b) Issued a standard apology.  But he took a different tack – he made a point of calling out the difficult situation, and did so with humor and grace.  Suddenly we were all looking at this bad situation together, calling it out, and laughing.  The dichotomy between the server and the customer evaporated, and with it, so did the problem.

There are a lot of situations that are like this, and since I’m in the business of raising money, I couldn’t help but draw some parallels.  Not every conversation is awkward, but there are definitely times people slip into their roles – the potential donor starts acting like the potential donor, and the fundraiser is stuck in the role of fundraiser.  Usually, this is the beginning of the end of a productive conversation.  It’s just plain awkward, and if you don’t break the tension fast you’re finished.

The thing to remember is that no one likes falling into these roles – they’re uncomfortable to everyone at the table.  So call them out.  Point to the elephant in the room, describe it, make a joke about it, diffuse the situation.  And then go on with your meal.

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The one thing you need to know before launching a nonprofit

I was on a phone call today with a number of young people who are interested in working in the social enterprise space, and the question arose, “What advice would you give to someone who is interesting in launching a social venture?”

The answer is: figure out how you’re going to fund this thing.  Without that, you’ve got nothing.

Does the intervention/program/enterprise and its impact matter?  Yes.  And having the right people to tackle the problem? Absolutely.  And great, smart advisors who understand your space and who are willing to help?  Definitely.  But cash is king.

I’m not saying that people with great social venture/nonprofit ideas don’t know this on some level.  But I have seen too many people launch a nonprofit venture and then say, six months or a year in, “I wasn’t planning to spend so much time fundraising.”

Really?  I cannot think of another sector where figuring out the revenue model is anywhere but at the top of the list.  Try going up to any successful small business owner and saying, “I’m going to start a new restaurant (bakery/gift shop/coffee shop/bed and breakfast).  Only problem is I’m not completely sure how it’s going to make money.”  This would be a very short conversation.

Sure, there are a few network-oriented businesses where winning the market share game first might make sense (Facebook and Twitter today, but there was a time when this applied to Amazon and Ebay too).  But in almost all cases this doesn’t apply to nonprofits.   In fact, you’d think that since, by definition, nonprofits work to fill gaps that the markets alone don’t address we’d care more, not less, about getting revenues right.

Personally, I’m pretty agnostic about whether the funding stream you have in mind is large donations from individuals; government contracts; lots of $25 donations; or some sort of earned income.  What matters is creating a substantial, reliable revenue stream so that you can keep the lights on, pay people, make longer-term strategic decisions, and, of course, do whatever it is you want to do to make the world a better place.  And you want to do things on a large scale, which probably requires double the cash you think you need.

The good news is that you can right-size your cost base today ways that used to be impossible.  Networks of volunteers, low-cost website tools, technology enabling people to work remotely around the globe, free international phone calls on Skype….there is a way to take your nonprofit’s business plan and cut the costs in half.

But if you’ve got a fabulous idea with everything right except for how you’ll raise the first $100,000 and after that the first $1 million…it’s time to redirect your attention to what really matters.

(And if you need a pep talk, here it is.)

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Everybody wants something

The next time you sit down to talk to someone in a professional setting, remind yourself that that person wants something.  There’s a reason they are sitting across from you.  Their reason may even be that they want to help you. But they have their own separate motivations and agenda.

It’s so easy to get tied up in what YOU want that you forget altogether that the person with whom your speaking has an agenda, has wants, has needs, has motivations.

I find that remembering this actually makes it easier, not harder, to ask for things.  It allows you to say, “You and I are both here for a reason, and if we have a good meeting we will get something done – something will happen as the result of our conversation.  This means that I don’t have to pretend that I’m talking with you just to make conversation.”

In fact, I think it’s a great show of respect – of people’s time, their worth, their value – to be clear and upfront that there’s a reason you are meeting with them.

This isn’t to say that there isn’t an art to asking for things.  There is.  But it’s so easy to talk yourself out of making that ask that it helps to remember that the person to whom you’re speaking wants something too.

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Should foundation program officers be more like venture capitalists? (Part 1 of 2)

One of the big unanswered questions in the nonprofit space is how new, innovative, effective nonprofits can raise enough capital to grow big and expand their impact.  At the core of the conversation is the fact that, unlike in for-profit markets, there’s no clear and established way for nonprofits to raise money around a great idea and a great team.

The ideal proxy, in my opinion, is the venture capital business.  Venture investors typically have a specific area of expertise (telecommunications, alternative energy, software platforms) and, within that area of expertise, they find high-caliber people who have assembled teams around a new and innovative idea, and they put up significant amounts of capital to support that team and the idea.  The capital is meant to be enough to get the team past a certain threshold, at which point the business will be positioned to raise capital from another source or have an IPO.

Here’s the interesting part: foundation program officers ALSO have, you guessed it…specific areas of expertise and large amounts of capital behind them.  At face value, they are positioned to act like venture investors, but they don’t typically act this way.

The analogy to VCs isn’t perfect, but I do think it’s worth considering that foundations as risk-takers and “venture partners” would be a welcome shift for the sector (and yes, there are foundation program officers who act exactly like this, but it’s not the norm).

That said, there are a number of features of the venture investing world that will be very unfamiliar to the nonprofit space, and we would have to figure out how to tackle these if we expect to make progress:

  1. Acceptance of failure. In a typical venture portfolio, 1-2 of 10 firms is a blockbuster success, 3-4 return capital, and the rest lose everything.  The venture world has acknowledged that failure is a necessary ingredient in creating innovation; in the nonprofit sector, “failure” is a four-letter word
  2. Betting on people and teams first. This is what VCs do.  But more often than not, foundations see nonprofits as implementers of a specific programmatic strategy.  Being a delivery vehicle is very different than being trusted to create something new, powerful, imaginative, and groundbreaking.
  3. Clear path to exit. When startup firms are successful, there’s a clear path to the next round of funding.  This is arguably absent in the nonprofit world.  (Though George Overholser at the Nonprofit Finance Fund has put forth the idea that certain nonprofits with a built-in income generation model can achieve financial self-sufficiency once they reach a certain size, if only they could raise growth capital.  I agree, but think the concept might be too restrictive since donations are the revenue model for most nonprofits.  So the model might be: Growth → Increased visibility/brand/recognition → Stronger board/donor community → Increased ability to raise funds).
  4. Aligned incentives between the venture investor and the entrepreneur. If the venture-backed entrepreneur is successful, the VC and the entrepreneur get rich.  But if a program officer invests in a nonprofit that, through its innovation and ability to listen to its customers, veers off in a radically different direction, in some ways this is necessarily disappointing to a program officer who has a specific (and often somewhat narrowly defined) set of programmatic objectives.
  5. We’re in this together. Venture investors typically play a very active (some entrepreneurs would say too active) role in bringing in resources (people, expertise, board members) to support the success of the enterprise.  It is extremely rare that foundations play this kind of active role in supporting the success of their grantees.

So there are lots of barriers, but most of them seem to be of outlook and mindset rather than being structural.

More on this soon…

The psychology of real

Today I was talking about the economy with someone who I respect a lot.  She said that we still don’t know how much of what’s going on in the economy is real and how much is psychology.

I respectfully disagreed.  What strikes me most about this economic crisis is that what’s psychology is real.  There’s no distinction any more.  Sentiments drive markets as much or more than what’s “real.”  And 6 months worth of sentiments might create real, irreversible hardships.

Her broader point, my rebuttal notwithstanding, is that people have short memories, and if psychology does drive markets then things have the potential to get better very quickly.  A new President who has a successful first 100 days could set a good tone, and by the second quarter we could see the first glimpse of things no longer getting worse.

My worry is that enough real hardship will come from the psychology of fear we’ve lived through since October that a shift in mindset won’t be enough to avoid a protracted economic downturn.

Either way, it feels like we’re navigating between 2-3 years of things being bad and a Lost Decade a la Japan in the 90s.

So here’s the question if you’re in the nonprofit sector: is your current business plan, at a minimum, premised on things being bad for 24-36 months?  And what if things are bad for a lot longer than that?  Are you ready?  And if not, what can you do to make yourself ready?

And if yours is the kind of nonprofit organization where the best and the brightest don’t spend much (or any) time thinking about the revenues side of the equation, don’t you think now is the perfect time to change that?

Chronicle of Philanthropy 400 Google Map

I just came across the Google map mash-up of the Chronicle of Philanthropy top 400.  First, just the simple fact that the Chronicle created this is just great — goes to show the power of a concrete image instead of a list.  And better yet (though not obvious) you can click on the pins in the Google map to see each organization’s name, rank, and funds raised

At first blush what’s surprising is how evenly large non-profits are spread throughout the country.  Not what I would have expected.

I do wish the Chronicle would take the map a step further, though, and I expect that they have the data and technology to do this easily.  I’d love to be able to filter the map by type of organization and date founded (religious organizations; universities; charities founded before 1950 and 1970 and 1990, etc).  We all know how hard it is to grow a new nonprofit — William Foster and Gail Fine’s great article last year in the Stanford Social Innovation Review titled “How Nonprofits Get Really Big” described this challenge incredibly well.  Just one data point from the article: “the average founding year of the 10 largest U.S. nonprofits is 1903.”

So I’d love the Chronicle’s map to allow some filtering that would help illustrate and understand this point, so we could visually learn more about the makeup of the top 400.

(hat tip to for pointing out the map)