In my Tutor/Mentor Blog I use graphics like the one below to illustrate our goal of helping inner city youth grow up over a period of 10 to 20 years. We all start at birth and it takes 20 years to get through the first formal stages of education and into the college, vocational or job stage of our lives. Yet, if you live in high poverty areas, you face more challenges.
So how can non profit organizations build the support needed to fuel this year to year grow. I've been following a set of blog articles written by Sean Stannard-Stockton, CEO of Tactical Philanthropy Advisors and I encourage you to read them yourself.
These articles have helped me understand the difference between donors who give us small grants to support the "transactions" of tutoring/mentoring that we do each week and donor/investors --- who Sean names "Philanthropic Investors".
"Philanthropic Investors" invest in the organization, and its leaders, and provide the flexible, long-term support that organizations need to grow from good to great.
Below I've posted some excerpts I took from these Tactical Philanthropy articles. I've added some of my own commentary. Sean's articles were posted over several days, so I have linked to each article where you can fund the full text that I pulled my comments from.
…The critical distinction is not between business and social, but between great and good. We need to reject the naive imposition of the “language of business” on the social sector, and instead jointly embrace a language of greatness.”
…before you become good, there are many stages of growth. Many businesses and non profits never reach the stage of being good because of poor ideas, poor leadership and lack of access to capital to develop their ideas.
Business-like investing means focusing in on the likelihood that an investment in a company will be rewarded by financial profits out of the company that are attractive relative to the investment made. If we simply replace “financial profits” with “social impact” we have a recipe for a successful approach to philanthropy.
I think philanthropy is most intelligent when grantmaking decisions are driven primarily by the questions "In what enterprise?” and “On what terms is the commitment proposed?”
“In what enterprise?” means that you don’t make a grant “to support education” but instead focus your attention at the nonprofit enterprise level.
“On what terms is the commitment proposed?” means that you make a grant if, and only if, you believe that the social impact generated by the nonprofit enterprise will be attractive relative to the grant that you’ve made.
The investment approach to philanthropy is wholly different from the problem solving approach to philanthropy. This recognition is critical because the two approaches require entirely different methods of implementation.
One of the reasons it is so important for us to recognize distinct approaches to philanthropy is because doing so allows us to avoid “debates” that are really only a function of lack of awareness of the different styles. For instance, there has long been a debate about the value of general operating support grants vs restricted grants. But this debate falls away when we recognize the distinction between problem solving strategic philanthropy and an investment approach to philanthropy. The investment style seeks at its core to support the nonprofit enterprise. General operating support is the default choice because it is most useful in supporting the enterprise. But strategic philanthropy seeks to create a solution to a problem on the philanthropist’s own terms. The general operating support grant is only preferred if it best advances the strategic philanthropist’s solution.
Charitable Giving seeks to buy nonprofit program execution that will accrue to beneficiaries. It is classic “buyer” behavior as defined by George Overholser is Building is Not Buying. The Charitable Giver is concerned primarily with the value of the programmatic execution relative to grant size and cares little about the nonprofit enterprise for its own sake.
Philanthropic Investment seeks to invest resources into nonprofit enterprises in order to increase their ability to deliver programmatic execution. It is classic “builder” behavior as defined in Building is Not Buying. The Philanthropic Investor, like a for-profit investor, is primarily focused on the longer term increase and improvement in programmatic execution relative to grant size.
Strategic Philanthropy seeks to buy nonprofit goods and services in a way that aligns with a theory of change defined by the strategic philanthropist. It too is “buyer” behavior, but the funder is primarily concerned with the degree to which the net result of the programmatic execution across their grantees advances the solution that they believe is most likely to solve the problem they seek to address.
Social Entrepreneurism seeks to directly execute programs that align with a theory of change, defined by themselves. They are the enterprise with which the other approaches engage. They are primarily concerned with the net social impact that is a result of their programs.
In the comments section for this article, George Overholser posted the following comments:
We might boil it down even further by asking: (1) Who pays for the work?, (2) Who shapes the work? and (3) Who does the work?
“Buyers” pay for the work. They merely exchange money for program execution without asking the nonprofit to change what it does.
“Builders” shape the work. In effect, they say: “You are not equipped to enact our strategy, so we are unwilling to pay for what you already are capable of doing. Instead, we would like you to change what you do. Of course, it is entirely up to you. But unless you make changes, you won’t get the money.”
Organizations are the one’s that do the work. Sometimes they are entrepreneurial. Sometimes they are mature. Sometimes they are their own funders — as in an operating foundation.
Payers/Shapers/Doers = Buyers/Builders/Organizations
All three types are needed. And all three types need to be strategic.
The problem comes when multiple shapers converge upon a single organization. Everyone is being strategic… but unfortunately they don’t necessarily share the same strategy. So the result can be an organization that is shaped, and re-shaped and re-shaped again.
If the organization were well-capitalized, it might be in a position to say no to the chronic re-shaping. (“Sorry, that’s not our strategy, and we won’t go bankrupt by turning you down.”)
If our capital markets were more mature, they would aggregate the capital of like-minded shapers. Through syndicated capital campaigns, an organization’s shapers would be aligned for long periods of time with a single strategic plan.
This captures the goals of the Tutor/Mentor Connection!
But our nonprofit capital markets are not mature. Shapers tend to take turns, rather than pool their resources. For this reason, the organizations fail to stay focused long enough to build the capacities and track records they need to attract type of simple payers (buyers) that won’t try to re-shape them.
If you think about it, “strategic” shapers are actually not being strategic if they allow the organizations they support to be whipped around by other “strategic” funders.
George, thank you for your comments. Sean, thanks again for hosting this discussion.
This sounds like the Abilene Paradox. We all agree that lack of consistent revenue flow keeps organizations from building the strength and capacity to impact problems that are long term, yet aggregating resources and connecting donors around common goals seems to be an unreachable goal.
As a result the Good to Great theme might be summarized to say “they don’t get good, they don’t get great, and the don’t stay great long enough to do good.”
With that said, where can we find forums where different investors are connecting with social entrepreneurs focused on specific social issues? In one of Sean’s post “tutoring” was brought up as a transaction a donor pays for. If this were framed as “helping to raise kids living in high poverty areas” would more investors be interested in helping build the organizational strength needed for many organizations to provide the long-term support kids in many places need to grow up? There are thousands of tutor/mentor programs in the country, each spending scarce resources looking for scarce investors. Where is a forum where investors and program leaders who want to help kids living in poverty can be sharing ideas and working to “aggregate the large pools of capital” needed to support the entire universe of these programs over a quarter century or more?
Who want so help build such a meeting place?
The Charitable Giver seeks to buy nonprofit program execution that will accrue to beneficiaries. It is classic “buyer” behavior as defined by George Overholser is Building is Not Buying. The Charitable Giver is concerned primarily with the value of the programmatic execution relative to grant size and cares little about the nonprofit enterprise for its own sake.
There is a sense in professional philanthropy that “philanthropy” is a superior form of “charity”. Philanthropy is often positioned as getting at the root cause while plain old charitable giving only addresses symptoms. I think this is both incorrect and confuses the purpose of charitable giving and strategic philanthropy.
Let’s take the case of a nonprofit afterschool tutoring program that provides services to inner city school children (a case study that George Overholser has often used). A Charitable Giver is a donor who wishes to purchase tutoring services on behalf of the children who will benefit. We call this “buyer” behavior, because the transaction is similar to a consumer who buys afterschool tutoring services for their own child from a for-profit tutoring service. The fact that the service is being bought on behalf of someone else makes the transaction a charitable one, but does not change the nature of the transaction. Both are a purchase of tutoring services.
Now the effective Charitable Giver, like a savvy shopper purchasing things on their own behalf, wants the best value for their expenditures. If nonprofit tutoring organization A provides more hours of tutoring or higher quality tutoring per dollar spent than tutoring organization B, the effective Charitable Giver should seek out organization A.
So the effective Charitable Giver needs to first decide what category of social value they are interested in purchasing (education, environment, arts appreciation, etc) and then comparison shop for the best value for their grant dollars.
This means that the effectiveness of charitable giving is dependent on the success of comparison shopping for the most/best program execution per dollar. For the most part, organizational analysis is not part of the equation, the issue is programmatic analysis. The Charitable Giver should seek the services of a theoretical Consumer Reports of nonprofits, not a Morningstar (investment advice) of nonprofits.
My (Dan Bassill) comment on this. What this does not account for is the lack of needed services (tutoring) in many areas where they are most needed. Or, the existing service is not as good as others in different parts of a city, or does not have the capacity to handle more kids than it already serves. A donor who want to buy services in this zip code would be limited to a) supporting a poorly run/small program; or b) not donating at all. The third choice is to help build the capacity of the existing programs in the zip code, or to help start new programs to offer the service.
Unfortunately, a consumer report of non profit tutor/mentor programs does not yet exist. T/MC has been trying to find funding to do this for 18 years.
Without someone aggregating information showing where the need for a service is, and what providers are in that area, Charitable Givers may gravitate to brand name programs based on reputation, not based on their actual record of delivering the service the donor wants to buy. It also means that good programs go unnoticed, and under funded, so they never become great, or they cannot stay good or great for very long.
When an equity investor in a for-profit or a nonprofit provides equity, their expectation is that the organization can use those funds to grow their organization in such a way that future earnings or social impact will be enhanced.
Whereas the Charitable Giver’s relevant metric is the relative value of program execution compared to grant size, the metric of importance to the Philanthropic Investor is social return on equity. The social return on equity is dependent on the degree to which the nonprofit is able to use the equity invested to expand and/or improve their program execution.
For instance, in the case of the nonprofit tutoring program I mentioned yesterday, the Philanthropic Investor is interested in the degree to which the organization can expand the availability of their tutoring program and/or improve the value of their tutoring services in relationship to the equity provided.
I believe the lack of understanding around the role of equity in the growth of nonprofits is a primary reason why since 1970 only 144 nonprofits have launched and grown to annual revenues of at least $50 million while in the for-profit field, 46,136 organization have crossed the $50 million revenue hurdle during the same time frame.
Philanthropic Investors provide the equity capital needed to create/build the organizations which can offer the best value propositions to Charitable Givers.
In the comment section of this article, George Overholser says:
The philanthropic investor (Builder) assumes that current capacities aren’t able to solve the problem. And so, their strategy is to become a partner in re-shaping what organizations can do. They partner with the management team, the board, and with co-investors around a single coherent re-shaping plan. In the end, their strategy succeeds or fails depending on whether the organization eventually becomes so compelling that other (charitable giver) funders flock to pay for years and years of high-quality program execution.
Stepping back, you might call this the OPM strategy (Other People’s Money). “If my philanthropic investment works, it will attract other people’s money towards the program I like.” This is analogous to a venture capitalist that helps to build a company that other people (customers) then use to turn money into products and services.
I feel that our greatest opportunity may be for more philanthropic investors to realize that they must work together, and not one after the other, when they support the re-shaping of an organization. This is because it can take years to re-shape an organization. During these years, the organization must stay focused and not be jumping from one funder’s re-shaping agenda to another’s. By being willing to aggregate their capital around a single multi-year strategic plan, the philanthropic investors raise the probability that their investment will be successful.
Sean says in this final article, "Philanthropic Investor is interested in the degree to which the organization can expand the availability of their tutoring program and/or improve the value of their tutoring services in relationship to the equity provided."
After reading the Tactical Philanthropy ariticles, I received the most recent copy of the Stanford Social Innovation Review. One article is titled "Increasing Civic Reach" and shows how non profits need to recruit board members who have influence, access to power and can help build high level support for the non profit. I think this is an obvious aspiration for any non profit, but most of us don't have the connections to recruit this type of leader, at least not in the context of our single, small non profit organization.
This is exactly what the Tutor/Mentor Connection has been trying to do for 18 years, yet we've not been able to find philanthropic investors in Chicago to support this vision. I've not yet been able to build the network of leaders, the civic reach, needed to fully implement these ideas.
However, if we were to think of ourselves as a "connection of non profits who share the same vision" of helping kids living in poverty, we are a much larger enterprise and we work to help kids all over the world. This Ning forum and other T/MC web sites are intended to be a meeting space and work space where we can work together to create a better operating system of support that helps each of us have the philanthropic capital needed to build strong organizations that grow to be good, then great, and can stay great for the 20 years it takes for kids to go from birth to work.
I hope you'll read this, and add your own time and talent to helping us shape this new operating system.