How To Spot A Bargain in Philanthropy

December 8, 2011 • Blog, Philanthropy & Giving • by
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What makes something a bargain in the philanthropic world? Last week, Dean Karlan wrote a post on the Freakonomics blog entitled, Bargain Hunting for Charities. He wrote,

Gosh that sounds so stingy. When we are charitable, we don’t want to be cheap. This is our moment of giving, of generosity, not bah-humbugness. Alas, that is exactly what we should be. If we go to a restaurant for chicken wings, what would you think of the following prices:

  • 4 chicken wings: $8
  • 6 chicken wings: $8
  • 8 chicken wings: $8

Which would you opt for (assuming more is always better)? Naturally, it shouldn’t require much thought. So why not apply this to charity?

Karlan then goes on to highlight GiveWell, a great organization that does some very innovative work in studying nonprofit institutions and makes recommendations about excellent charities. There are a couple of similar organizations, but GiveWell seems to be the most robust. Unfortunately, many of these resources are vastly under-utilized when it comes to an individual’s giving, with only 1 in 10 donors utilizing such resources at all.

I love Karlan’s premise but I’d like to take it one step further, because the issue isn’t really that we go to the same restaurant and are shown the same price for different quantity wings. It’s more like different restaurants offering a burger at different prices. In that case we don’t always go for the cheapest. I’m not going to eat a burger at McDonald’s when I can go to Kuma’s Corner.

As donors we shouldn’t be focused solely on quantity but quality as well. We trade off those things in our consumer purchases all the time, and the same thing can occur in our philanthropic choices as well. A focus solely on quantity leads to ever decreasing overhead which does not always lead to the best quality (think low overhead, large transaction chains like McDonald’s). Quality and quantity are not positively correlated, but they don’t have a negative correlation either. Just because something is more expensive does not make it better.

As we approach our philanthropic decisions let’s think about quantity and quality. Also, check out resources like GivingWell. They help you make good giving decisions.

Tapping Into Entrepreneurship

November 22, 2011 • Blog, Leadership, nonprofit • by
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A recent Philantopic blog by long-time nonprofit activist and scholar Mark Rosenman entitled, Do We Really Need 12 Million New Nonprofits? grabbed my attention yesterday. Rosenman quoted a Civic Ventures Study that showed 12 million baby boomers are interested in starting their own social venture or nonprofit over the next 5 to 10 years. Setting aside the fact that survey results are next to useless when it comes to asking people about hypothetical future behavior, what the study does show is an increasing interest in social entrepreneurship of all stripes.

Rosenman believes that this entrepreneurship will hurt the sector.

“Why do I find this aspiration so distressing? I worry that the addition of millions of new nonprofit and social enterprises — on top of the million or so incorporated charities and foundations already registered with the IRS — will make it more rather than less likely that we continue to view and treat critical societal issues as if they were fragmented and unrelated. And that means less effort to bring about the broad-based changes needed in our social, political, and economic institutions.”

While I too believe that we have way too many nonprofits in America and that there should be a pretty large scale re-structuring, I don’t think a lack of entrepreneurship is the answer. We need innovative and inspiring ideas and we need them to grow and spread. I agree with Rosenman in that we don’t need every Tom, Dick, and Harry starting a nonprofit because they feel like it, but we do need existing nonprofits to tap into this entrepreneurial spirit.

There is no question that we are becoming an increasingly entrepreneurial nation. More and more people are starting their own businesses, entering the “creative class“, and viewing themselves as a product that they sell to various organizations. These people want to move quickly, lead with autonomy, and tackle problems in innovative ways. It’s what makes them entrepreneurs. But not all entrepreneurs need to start their own organizations, they just need to find existing ones that let them loose and tap into their entrepreneurial spirit.

The nonprofit sector however, is notoriously anti-entrepreneurial. When every decision needs board approval, the entrepreneurs will leave in frustration. When movement and momentum are constantly being slowed by organizational processes, the entrepreneur won’t stay. Of course not all nonprofits have these overly-structured systems, but many do.

It will be vital to addressing our current challenges for the bureaucratic systems often found in the social sector to be left behind. It is exciting that 12 million people want to direct their entrepreneurial passions towards social problems and as a sector, we must be ready to welcome them with open arms.

Interesting Idea in Tax Reform

October 4, 2011 • Blog, bloggers, Measurement & Evaluation, Public Policy • by
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I know, I know. Many of you find the idea of tax reform so intoxicating and constantly complain I don’t discuss it enough. Well today I came across such an interesting idea I thought I’d share it with you.

It’s from Robert Egger, founder of DC Central Kitchen, a social enterprise in DC in a post entitled, Boosting the Economy Through Charitable Tax Deduction Innovation over on the Tactical Philanthropy blog. His basic premise is that nonprofits and social enterprises create jobs too and in a time where we are looking to spur growth and investment we can spur social enterprises on by having the Charitable Tax Deduction code catch up to the times. He writes:

America is no longer a manufacturing economy, with jobs for all. Nor do we produce enough “extra” money to support an unlimited number of charities. Therefore, we must begin to let go of attitudes, ideas and tax policies that rely on the incomes and opportunities of a by-gone era.

His idea is to create a return on investment formula so that donors could experience an increasing tax deduction over time if the program they supported succeeded in addressing social problems. This makes complete sense academically. Many nonprofits save tax payers millions through the services they provide and yet though don’t reap any benefits from that.

What could happen is almost like a social stock market where one could invest in a nonprofit in the hopes that the tax deduction you would receive would increase over time. Logistically there are huge hurdles to the measurement and identification of the impact and then putting a number on it but I think it is definitely an interesting idea.

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…

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…

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…