How to Think Like a Philanthropic Investor

May 1, 2012 • Blog, Development, nonprofit, Philanthropy & Giving • by
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Imagine for a minute a world in which you did not reap the benefits of your investment. You still invested in the market but the profits and losses would not be allocated to you, they’d be given to someone else. How would you make your investment decisions? You would not care whether your investment turned a profit or not so you would not use that criteria. Your investing would be haphazard at best.

Unfortunately this is the reality in the nonprofit sector. Our “investors” do not reap the benefits of our work. They give on behalf of someone else, someone they most likely will never meet. I’ve written often about this fundamental distortion and it continues to plague my thinking. So how can we try and correct this uniqueness in the nonprofit sector?

1) Think in terms of outcomes. It is very easy to become a donor who gives to what is cool, trendy, or makes you feel good. It’s easy because that is the easiest thing to base our decisions on. Try and move beyond that. Peruse some annual reports, talk to a staff member, try and meet someone who benefits from the organizations work.

2) Think critically. When making investing decisions we think critically about the business model, leadership, and product that a company has to offer. Do the same when it comes to your philanthropic giving. Does the model they are using make intuitive sense? Do they have research to back up what they are doing? Does it seem like they are offering something that is making a difference in the world?

3) Don’t stress. Celebrate your philanthropic efforts and don’t let them become overly burdensome. If you even move a little into the investor mentality you are leaps & bounds beyond most donors. There are very few organizations where your money will actually do damage, thinking like an investor is all about maximizing the return of your philanthropic gift which is an unattainable goal.

What is a Social Business?

October 25, 2011 • Beliefs, Blog, Thoughts • by
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Social entrepreneurship. Social business. Mission driven organization. L3C. There are millions of terms floating around trying to get at this idea of a business that creates positive social outcomes.

But, in some sense, is there a business that creates no positive social outcomes?

All businesses generally have employees, therefore combatting unemployment and raising standards of living. All businesses sell products or services that people want, increasing the satisfaction of the consumer (most of the time). One could argue that no organization has done more to increase access to affordable healthcare than Walmart.

I think business, by its very existence, creates positive social outcomes.

So what’s all this talk about social businesses about?

I think it stems from a desire to care about something more than quarterly profits. I think it comes from the hunger to go out and solve problems with business. I think it comes from a frustration that the nonprofit sector cares more about survival than actually addressing issues.

I think that, just as people care about things other than wealth, businesses are realizing that they can as well.

Management vs Leadership

October 22, 2011 • Blog, bloggers, Leadership, Thoughts • by
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Seth Godin had a great post this morning on the difference between leadership and management.

“Managers work to get their employees to do what they did yesterday, but a little faster and a little cheaper.

Leaders, on the other hand, know where they’d like to go, but understand that they can’t get there without their tribe, without giving those they lead the tools to make something happen.

Managers want authority. Leaders take responsibility.”

I definitely think that people confuse the two and I think they are two distinct roles and often require two very different kinds of people. Managers tend to see incremental change where as leaders dream of innovation.

In the nonprofit sector I think we have an over-abundance of managers. Many executive directors are trying to incrementally change there programming year over year, when, to really solve problems, we need drastic innovation.

Should the Government Limit Executive Pay???

October 11, 2011 • Blog, Measurement & Evaluation, Philanthropy & Giving, Public Policy • by
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I think most people would emphatically give the answer “No!” What about the executives of nonprofits who receive government funding? That question generally gets a “Yes!” by the public, especially in these financially difficult times.

Governor Chris Christie of NJ is proposing to limit the compensation of nonprofit executives whose organizations receive state funding. According to this Star Ledger article he wants to cap the pay of nonprofit executives at $141,000 for those with budgets more than $20 million.

This doesn’t make sense to me. In the private sector world, we purchase a product that we believe has a good value. If the CEO is making $3 million a year, that is built into the price of the product and we decide whether it is a good value or not. Why would that not be true of the nonprofit sector?

If Governor Christie feels like he is not getting his money’s worth, then go to a new nonprofit. Can’t competition take care of this problem? And if an organization is doing great work and the CEO happens to be compensated at $300,000 does that matter? Shouldn’t the outcomes, the impact, the results dictate whether you hire an organization to perform a service?

I obviously understand the many difficulties of this in the nonprofit sector but I believe mandating compensation limits is a dangerous road to go down.

Read a post by SSIR on the matter here and a previous post on the topic here.

origami_dollar

To Profit or Not

August 29, 2011 • Blog, Business, nonprofit, Stories • by
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There is only one thing that identifies a non-profit, the inability to distribute net income. That’s it. If a non-profit makes more than it spends it cannot give that excess income to anyone. It must remain in the organization. To help induce people to give money to nonprofits they are given a tax deduction for their gift but in today’s tough economy it is becoming increasingly difficult to attract that capital.

So some non-profits are becoming for-profits.

For example, Forbes reports that the non-profit Couchsurfing, which connects travelers with free places to stay, has changed to a B-Corp and raised $7.6 million in venture capital. That’s right, they left their non-profit status behind and got a nice $7.6 million check.

This does raise the question though, why was Couchsurfing a non-profit to begin with? Or did all of those people that gave to Couchsurfing while they were a non-profit receive a tax-deduction for a gift that later resulted in profit for a for-profit organization? The questions could go on and on.

What we are seeing is a blurring of the lines. Non-profits are becoming for-profits. For-profits are buying non-profits (see GOOD buying Jumo). In a lot of ways I think this is a good thing, social missions are not relegated to the left-over economy of the non-profit world. But it is also an example of innovation moving faster than regulation and the tax implications of this emerging gray space needs to be figured out.

foodbank

Activities vs Outcomes

July 19, 2011 • Blog, Development, Philanthropy & Giving • by
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Activities are the things we do. Outcomes are the things we produce. Outcomes are more necessary than activities and today’s donors don’t want to just fund activities, they want to purchase outcomes.

An activity is handing out food at a food pantry. An outcome is helping people move from food dependence to food independence.

An activity is running an after-school basketball league. An outcome is increasing the odds a student ends up in college.

Activities make up the day to day life of social entrepreneurs and nonprofit leaders. Outcomes are why they started the organization to begin with. Read More…

Cutting Dollar

Why Limiting Itemized Deductions Will Be Good for Nonprofits: Pt. 2

July 13, 2011 • Blog, Development, nonprofit, Philanthropy & Giving • by
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William Daroff, vice president for Public Policy and director of the Washington Office of the Jewish Federations of North America, weighed in on the Tax Deduction debate yesterday on the SSIR blog. A couple days ago I wrote how I feel that limiting tax deductions might actually help charities.

Mr. Daroff wrote that 90% of the Jewish Federations‘, and many organizations like it, funding comes from less than 10% of its donors. Generally this 10% is the wealthiest 10% and the most motivated and attune to tax strategies when it comes to their philanthropy. Limiting itemized deductions will certainly hurt and stretch these organizations.

But this raises the question, has it been a healthy thing for such a large part of the social sector to be reliant on such a small portion of the population? I believe the answer is no. Read More…

Fundraising Tree

Why Limiting Charitable Deductions Might Actually Help Charities

July 11, 2011 • Blog, Development, nonprofit • by
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The Philantopic blog had a great post today about the Obama administration proposal on limiting itemized deductions on charitable giving. It quoted a survey by the Association of Fundraising Proposals that found that development officers expect to see at least a slight drop in giving if the proposal goes into effect.

As a University of Chicago trained economist, this make sense. As it becomes more expensive to give, people will do less of it.

But is it a wholly awful scenario? Read More…