The Inneffecient Restriction

March 21, 2012 • Blog, Development • by
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Restricted giving should be outlawed. I know, BOLD, right? But come on, since when do we think the professionals don’t know how to allocate resources? If you can’t even trust an organization to do that, should you really be giving them money? Restricted giving is essentially a selfish act, saying that you the donor knows more about the proper allocation of resources than those running the organization.

If you are unfamiliar with the concept, restricted giving is when the donor specifies how their donation should be spent. For example they might specify that it go towards a certain program or cost. We would never do this in the for-profit world, why must non-profits deal with this? Could you imagine telling a company that you would buy their product as long as the income was allocated to production but not to marketing because you felt that was wasteful.

What are your thoughts? Do you hate restricted giving as much as me? If not, why not?

The Leveraged Philanthropic Investment

February 21, 2012 • Blog, Philanthropy & Giving • by
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Don’t give to programming, give to the development team. That’s what Dan Pallotta wrote in a Harvard Business Review’s blog post last week entitled Multiplication Philanthropy. In the post he outlined the idea that if a donor wants to truly have an impact he should direct his resources to be used for fundraising, multiplying the outcome of his donation. He says if you are going to give $100k to an organization you could either give a $100k towards programming or $1m by channeling that money through development.

He and I are of the same heart and mind in that we both agree that overhead is a poor judge of a good nonprofit. He uses that idea as part of the evidence for this new approach to philanthropy. And I have to say that part of me really likes this idea. I think its an interesting one, maybe the next iteration of the matching grant. Obviously, if taken to its absurd conclusion we wouldn’t do anything because we were only raising money, but I think its an interesting point that is made.

I might take it even a step farther though. Instead of directing your money towards fundraising, just write the check. Gifts that have to be used by one department are another are horribly cumbersome to the organization. Unrestricted gifts is the most efficient thing you can do, if you trust the organization to use it wisely. Then they will be putting the resources towards the most efficient trade-off between overhead and programming.

What are your thoughts? What do you think about Dan Pallotta’s idea about giving to help organizations fundraise?

The Good Social Business

February 16, 2012 • Blog, Business, nonprofit, Philanthropy & Giving • by
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Earlier this week I wrote the post, Why I Don’t Like Your Social Business. It turned into one of my most shared and read posts of the last year, in part because I think it struck a nerve with many social entrepreneurs. Many know and can sense that the field has been inundated with bad social businesses, which I rant against in the post.

Today though I’d like to talk about the good social business and the parts necessary for creating one.

1) The best social business is a business!

This might seem odd but I think many social entrepreneurs are people who would have generally joined or started nonprofits but they see this trend and the potential for a continuous and sustainable revenue source, so they start a business. This, in my opinion, is backwards. I think the best social businesses are actually started by people who start businesses but they stumble upon a business model with positive social benefits.

2) The best social business doesn’t rely on charity.

You would think that would be covered by actually being a business, but a surprising number of businesses ask people for investment without giving them upside, return, or equity. This makes the investment a charitable gift without a tax deduction. This creates an environment where bad businesses last too long. In the normal market if you aren’t making money and have no hope of making money, you shut down. The charitable action in the social business world just prolongs the inevitable.

3) The best social business aligns social and financial returns.

This is the crux of the matter. Businesses that are built around giving a portion of their profit or each sale away are really just glorified corporate giving strategies. I think a social business is one that has found a way to align the social and financial returns. If your investors aren’t crying for you to increase social returns so they see an increase in financial ones then I don’t think you have created a social business. If you feel a tension between the financial bottom line and the social bottom line then you have not truly aligned the two.

If you are able to accomplish these three goals I think you’ve probably created a pretty awesome social enterprise. It will be sustainable, impactful, and lasting. If you are meeting a consumer need while addressing a social ill you have truly created something revolutionary. I am sure that many people will disagree with my definition here but I think that if you have not accomplished these three things you are probably just a nonprofit in disguise and you should embrace it already and give your donors the benefit of a tax deduction. You can still sell things as a nonprofit and operate in much the same way as a business.

I think social businesses can be powerful agents of social change but they cannot address every problem and it has become too large of a fad and people are being taken advantage of and good is not truly being accomplished. As I always say, bring a skeptical eye to the social business world and ask yourself are they really a business and are they really accomplishing anything good?

Giving by the (Right) Numbers

January 17, 2012 • Blog, Development • by
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Organization A’s overhead is 5% and organization B’s overhead is 15%. Who should you give to? Many donors would not hesitate to give to organization A because their lower overhead must mean they are more efficient since more of the money goes to the on-the-ground need.

Last week Fast Company had one of those articles that I wish I had written. Entitled, Its Time to Start Judging Nonprofits Like For Profits, the article discussed the problem of judging an organization by overhead alone. They correctly stated that many donors are advised to use sites like Guidestar or CharityNavigator when making their giving decisions. These sites are great for looking up an organization’s financials but they tell you very little about the impact those organizations are having.

The authors write:

“No one would judge a for-profit company for spending on advertising, sourcing the best hires, or using the best equipment. Indeed, these are points that a wise investor looking for long-term stability should seek out in a for-profit. This constant pressure that nonprofits feel from both their mission-driven world and the donor landscape toward minimizing anything that could be counted as “overhead” is destructive and efficiency-killing. Low overhead means burning staff out at an alarming rate, and having trouble sourcing or retaining skilled workers. It pushes organizations toward duplication over cooperation to attract and maintain funding. Worst of all, it forces a short-term view on what should be a long-term mission. This hurts not only the organizations, but the missions they serve.”

I think the authors are right on. Low overhead is not always better. Nonprofits need hard-working, brilliant teams and that takes money. Our most talented people should be addressing our most pressing problems. To attract them they need decent salaries, benefits, and technology. Of course there are horrendous examples of outrageous spending (see Jon Krakauer’s Three Cups of Deceit for one particularly upsetting example) but just because some people abuse donors’ money does not mean that everyone else should live in forced poverty.

As you make your giving decisions of course consult Guidestar and CharityNavigator, but don’t let that be the end of your investigation. Dig into how the organization is impacting people’s lives and addressing problems. Unfortunately, these numbers are currently very difficult to find (if they even exist) but these are the numbers to give by.

Experiments in Charitable Giving

December 19, 2011 • Blog, Development, Research • by
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The Freakonomics blog had a post last week entitled, To Ask or Not to Ask: Experiments in Charitable Giving. It was a brief follow-up to their What Makes a Donor Donate? podcast episode.

In the post they talk about the research of James Andreoni, Justin M. Rao, and Hannah Trachtman. In their experiment they positioned bell ringers outside of a grocery story in suburban Boston. They told a portion of the bell ringers to not say anything, to just stand there ringing the bell. They told the rest of the bell ringers to solicit customers as they were going in and out, asking directly for a donation.

Their findings are both interesting and illuminate unintended consequences.

While hardly anyone avoided the silent bell-ringers a full 30% purposefully avoided the ones making solicitations. Among those that did give, the donation increased by 75% for those that gave to the bell ringer who solicited the gift. The conclusion: that asking for the gift drives some people away but the gift size might increase.

Check out the whole post here and read their study here.

Evidence Based Philanthropy

December 19, 2011 • Blog, Philanthropy & Giving • by
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The Philanthropy 2173 named “Evidence Based” one of their buzzwords of 2011. (Read the post here) I think this is a good choice. I believe that a level of academic rigor can and should be applied to the social sector, especially given the fundamental distortion found in the sector. It plays itself out in that those who receive the service and those who fund them are two people who will most likely never meet. You can read more of my thoughts on that here.

As nonprofit practitioners, we must work to ensure that our organizations are offering programming and services that are backed by research, measured for effectiveness, and creating the impacts we set out to create while minimizing unintended consequences. Of course, numbers and data isn’t everything. There are some things that will be impossible to apply the evidence based methodology to. It is important then, to work with people who know how to decipher what can and cannot be measured.

If your organization is interested in addressing these issues contact me and I’ll be happy to discuss what Means Well Does Good can do for you.

Old & New Philanthropy

July 16, 2011 • Blog, Development, Philanthropy & Giving • by
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A recent Chicago Magazine piece profiled Liz Lefkofsky, a wealthy Chicago philanthropist. The article discussed her philanthropic interests, her taste in art, and her ability to rise exorbitant sums of money (she helped bring in $2.8 million during the Museum of Contemporary Art’s 2010 auction). She is the classic picture of a philanthropist; wealthy, artistic, and glamorous.

Yet I can’t help but wonder whether this is the future of philanthropy.

Philanthropy has in many ways belonged to this strata of society and yet everyone wants to make a difference in the world, not just the wealthy. In many ways I think this desire to make a difference is what drives commercial philanthropy like Toms and Sevenly. If you are going to buy a pair of shoes, you might as well buy a pair of shoes and help someone in need get a pair as well.

Those in nonprofit development need to begin to diversify and find creative ways to engage the non-wealthy in philanthropy.