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of incredible salespeople, and I’m not hung up on the “have-I-got-a-deal-for-you” used car salesman baggage (it is so outdated that it’s lost its power).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?

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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The core skill of innovators

In reflecting on how we create innovation in the social sector, I came across this great talk by Randy Nelson of Pixar University.  He starts off by describing the problem NASA had: when they were looking to hire someone to walk on the moon, they faced the problem that no one was deeply qualified for that job.

If you want people to do new things, he asks, how do you screen for that?  One of the many money quotes in this talk:  “The core skill of innovators is error recovery, not failure avoidance.”

I love it.

And, by the way, this mindset is not, generally speaking, how the nonprofit sector (NGOs and funders both) thinks about itself.  We need more risk takers.

Other thoughts he shares on what he looks for:

1. Depth. Preference for the “proof of a portfolio rather than the promise of a resume.”

2. Breadth.  “We want someone who is extremely broad…we want someone who is more interested than they are interesting.”

3. Communication.  “Communication involves translation….do the translation at the sending end so it doesn’t have to be translated at the receiving end.” (techie to artist communication, for example)

4. Collaboration. “The amplification you get by connecting up a bunch of human beings who are listening to each other; interested in each other; bring separate depth to the problem….”

How to find great people to do new things and who can translate from one world to another.  That certainly sounds like the kind of thing we should know more about in the social sector.

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

(This post first appeared on the Tactical Philanthropy blog, as part of a conversation Sean Stannard-Stockton kicked off on creating a ‘capital market’ for philanthropy.  It is the continuation of my earlier post on whether foundation program officers should be more like venture capitalists.)

One of the big problems we need to solve as a sector is how to find ways to scale highly effective nonprofit organizations.  Kudos to Sean for raising this question and also for highlighting the power dynamic that can often exist between funders and grant recipients.  (I particularly like George’s reference to the need to be a “chameleon”, which captures the issue very nicely).

At Acumen Fund, about two years ago we realized that we were in a position for a major scale-up of our work, and we also recognized that the best way to do it would be to raise a large pool of unrestricted philanthropic capital that would take us to the next level.  We set out to raise $100M over two years in unrestricted capital in May of 2007, and by the end of 2008 we raised $85 million against this goal.

One of my reflections having led up this effort is that individual philanthropists are typically much more prepared than institutions (foundations and corporations) to make large, long term, multi-year, unrestricted gifts.  (That said, there are some institutions that are exceptions to this rule, and I do believe that when programmatic goals of a nonprofit align closely with those of a foundation, large gifts with some restrictions can provided needed growth capital that allows for the kind of organizational investment that growing nonprofits need to make.)

Where things get really tricky is when a nonprofit that might be ready for tens of millions of dollars of growth capital (the $10-$30M that George Overholser suggests is a good reference point) finds itself mostly able to raise programmatic grants (often narrowly restricted) in $50,000-$100,000 increments from foundations.  Programmatic grants like this can create the two-headed hydra of not having sufficient funding for “overhead” (a.k.a. non-program staff), combined with the communications, relationship and reporting challenge that can come with having 100 individual $50,000-$100,000 grants (an absurd number, but this would get you to $5-$10 million) – the “chameleon” problem.

The irony is that in other lines of work – venture capital; executive search; etc. – being able to find and invest in a world-class team of people is seen as THE differentiator between good and great firms.  Yet all too often, foundations seem unwilling to invest in people and organizations, instead seeing nonprofits as a means to a programmatic end.

The problem with a world in which the most proactive, risk-taking philanthropists are individuals (rather than foundations) is that it has the potential to limit severely the types of new nonprofits that will be successful at growing to scale – namely, the winners will be those organizations that are run by individuals who are capable of building strong and deep relationships with ultra high net-worth individuals. Nonprofit CEOs who can do this bring together a unique combination of skills, but if this is only real way for anyone looking to grow a new nonprofit, then we as a society have a problem. (though large scale retail fundraising using Web 2.0 tools is a potentially interesting solution).

The potential I see is to have foundations bring together both know-how about what it takes to solve major social problems AND a risk appetite to put capital behind organizations (and not just programs) that have a real chance at building those solutions.

For now, at least, it seems like we’re coming up short on the appetite for risk and for openness to the idea that investing in great teams and building great institutions will be what brings forth the next wave of groundbreaking nonprofits.

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.

Job security in the nonprofit sector

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

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.

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?

Becoming a must-read blog (or, tackling my RSS feeds)

As part of my year-end housecleaning, I’ve been trying to catch up on the 30 or so blogs that are in my RSS feed.  It’s been time-consuming and stressful.

(for those of you not using an RSS reader, I encourage you to start.  It makes blog-reading incredibly easy and frees up your Inbox too.  I use Bloglines but Google Reader or any reader out there will do).

I discovered that the blogs I subscribe to fall into four categories:

  1. Must-read blogs: absolutely read every day
  2. The contenders: potential to move to must-read status
  3. Shoulda/Coulda/Woulda: read only in catch-up mode/am planning to delete
  4. Wildcards: New, recently added, haven’t figured out what to do with them

“Must-read blogs” are the blogs I’m passionate about.  If someone asked me, “what blogs should I absolutely read?” these are the ones I’d name.  The rest are just the rest.

If you’re a blogger, think about what it takes to make it to someone’s must-read list: they have to hear about you, read a post, be excited by that post, read some more, add you to their reader or an email feed, and keep on reading daily…. until you’ve worked your way into the fabric of their day.  Phew!  That’s a lot of work.

So I’m flattered and thankful that I’ve made it onto some of your must-read lists.  I know how valuable your attention is and how short everyone is on time, and I know that every day you make a small decision to keep me on that list.  So thank you.

I do hope that you keep on reading, and that, when the mood strikes you (and I write a post that’s compelling enough) that you keep on spreading the word about this blog.  (Commenting and pingbacks and forwards all count).

Also, I’d like to ask you dedicated readers tell me more of what you’d like to hear about in 2009.  Write a comment on this post or just email me directly via the Contact form.

The corollary here is if you’re in a nonprofit, your constituents (Board members, advisors, donors) have their own implicit list of where you fit in with their priorities.  And it’s easy to confuse the people who have the biggest names or write the biggest checks with the people who are most important to you.

Hint: these people ARE important, but they’re often not as important as those people who put you on their “must-read list.”

For example, if a major donor just told you that they were planning on giving to you this year, but other organizations they support are more in need, you’ve just learned that you’re important to them but not at the top of their list.  Listen to that feedback and act on it in 2009.  You want to build an organization that’s at the top of lots of (powerful, smart, influential, visionary) people’s list, and you want to figure out how to engage and motivate those folks who love you best – to journey together with you in the coming year and to co-create the change you’re trying to make in the world.

Lots of work to do, but it’s exciting.

Here’s wishing all of you a Happy New Year.  You have my thanks and gratitude for tuning in.

Be well.

Should nonprofit leaders be like boiled broccoli?

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.