The Inneffecient Restriction

March 21, 2012 • Blog, Development • by
5 Comments

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?

Social Impact Bonds: Moving in the Right Direction

March 5, 2012 • Blog, Public Policy • by
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I believe that for many of our biggest social problems the answer derives from the ability to attract private capital to the problem. When there is the opportunity to make money solving problems you will attract higher talent, more competition, increased innovation, and more. One of the new, innovative structures attempting to do just that our Social Impact Bonds. While they began in the UK, the United States has begun experimenting with them.

The idea is simple. The government outlines a problem; recidivism, homelessness, etc and says that they will pay organizations to solve that problem. Often times there are clear criteria and such. I would imagine that the deals could be structured in a whole variety of ways. Why not follow the private sector’s lead and if an organization can do something cheaper or more efficiently reward that employee by splitting the difference. So if an organization can address homeless at 50% of the cost why not financially reward them for that. Social Impact Bonds are dipping their toes into that kind of water.

If you want to learn more read this great introductory article from Fast Company.

Why I Don’t Like Your Social Business

February 14, 2012 • Beliefs, Blog, Business, nonprofit • by
1 Comment

I don’t like your “social business” because you aren’t actually a business. You wouldn’t exist unless people donated money to you on Kickstarter and you aren’t even able to give them anything in return, not even a tax deduction. If you have a product people aren’t buying it but you might not even have a discernible product or service that you are offering.

I don’t like your “social business” because you actually aren’t doing much socially. Since you aren’t really a business and aren’t making any money you have nothing to give away and more likely than not your business model isn’t doing any measurable good. You would have been better off pouring your time more directly into the problem you set out to address.

I don’t like your “social business” because you see the “social” and the “business” as being at odds with one another. You steal profits from the one to give to the other. You believe one to be good and one to be a necessary evil. You did not take the time to build into your business model (because you don’t have one) the social side of your business in a way to create harmony between the dual goals.

I don’t like your “social business” because you couldn’t cut it the business world and this is your way to still do something that makes you feel important. Or you think this is trendy or cool or a way to make a fast buck.

Please stop. I just don’t like your “social business.”

That’s not to say I don’t like any social businesses. I like social businesses that are actual businesses. That make money. Have customers and sales. That can operate without charity. They have aligned their social and financial goals so that their shareholders and stakeholders insist that they do more good because that will help the bottom line. They are addressing real needs, both economically and socially. They are meeting a demand that exists naturally. They are not scoring branding points or look to wash their business in charity to trick consumers. There are good social businesses.

But not every problem can be solved with a social business. Lets stop acting like it can.

Not every social business is inherently good because they call themselves a “social business.

Lets stop giving people a pass just because they claim to be a social business.

How Mobile Money is Changing the World

December 14, 2011 • Blog, nonprofit, Public Policy, Research • by
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An M-Pesa Client

Mobile money is one of those revolutions that not many people in the U.S. are familiar with but which is having profound implications in much of the rest of the world. The Stanford Social Innovation Review highlights the most successful mobile money system in the world, the M-Pesa in Kenya. The article, entitled Mobile Money: A Game Changer for Financial Inclusion, is a great introduction to the mobile money movement and its implications.

The basic idea is that in rural, poor countries, access to financial institutions is essentially non-existent. Yet in many of these places, large portions of the population use cell phones. By moving currencies from physical bills to virtual money on their phones, financial institutions can be opened up to entire communities without ever opening up a bank branch.

Financial inclusion is one of those things that has grabbed my heart lately. I know its a weird thing to say that I’m passionate about financial inclusion, but I am. Financial institutions move economies forward. They make people’s lives better. They move capital around in (hopefully) efficient ways. Communities without access to financial services are significantly worse off because of it. Whether on the south side of Chicago or in rural Kenya, individuals’ lives are made better when they can open up a savings account, easily move their money around, and begin to access markets first-hand.

Read the SSIR article here to learn more.

How An Economist Runs A Casino: Apply Economics Ideas to Any Business

December 5, 2011 • Blog, Business, Ideas, Research • by
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I am really interested in how businesses and other organizations can implement economic ideas. That’s why I was really excited when I saw podcast #323 from Planet Money entitled, From Harvard Economist to Casino CEO. It’s about former Harvard economist Gary Loveman who is now CEO of Ceasar’s Entertainment Corporation, one of the largest casino companies in the world.

One of the things I found interesting was how Loveman tests everything. He completes trials of every new initiative before rolling it out company wide. Whether it’s how much of an incentive is the right amount for waiters to get their customers to order drinks (that have higher margins than food) without getting naggy and annoying, or how to decrease the amount of randomness in the level of pleasure in the Ceasar’s experience (Loveman says that it’s better to have lots of experiences distributed closely to the mean return than a wider distribution), Loveman completes as close to a randomized trial as possible.

I love Planet Money in general and if you’ve never checked them out, listen to From Harvard Economist to Casino CEO and if you’re looking for ways to implement these kinds of ideas into your organization, Contact Me about my consulting practice.

WaterForward: An Experiment in Social Giving

October 31, 2011 • Blog, Development, nonprofit, Philanthropy & Giving, video • by
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It’s long been known that, for some, the motivation to give to a cause is that others will know about it. That’s why everything from buildings to hallways to benches are named after donors and its why we tweet and Facebook our favorite causes. The innovative water provider charity:water is bringing this tradition into the 21st century with WaterForward.

The idea is simple. Someone pays $10 to get you into the WaterForward book which can be viewed online and will be printed after every million members. You get a message that you’ve been placed in the book and you are asked to pay it forward by buying a spot for your friends for $10. They will then be invited to do the same. The only way to get into the book is for someone to buy your spot (though initially there are some other ways to get invited).

I think it is a tremendous way to raise awareness and money at the same time while literally making your fans your development team. This is something that charity:water has always excelled at.

After a quick perusal of the book its hard to tell how well it is catching on but often times these social movements need to reach a tipping point and when they do they’re unstoppable.

To learn more about WaterForward read this article from FastCompany and watch the video below.

 

 

How WaterForward works. from charity: water on Vimeo.

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.

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.