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 Believe Your Annual Report

February 22, 2012 • Blog, Development, nonprofit, Research • by
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I received your annual report today. You claimed that 80% of your students go to college while only 40% of those in the community do. You told me its more likely your students go to college than become incarcerated, while it’s the opposite for the neighborhood you’re in. The same for teen pregnancy.

But the thing is, I don’t believe you.

It’s not that I don’t believe your numbers. I’m sure you are reporting them as honestly as you can. I just don’t believe that it was you who caused this difference in students’ lives. You’re suffering from the selection bias.

See, the students in your program are not a random sample from the community. While you’re open to everyone, not everyone shows up, just those that choose to. So you can’t compare yourself to the average of the community. Let’s think of it this way.

In year 1 the community has 10 students, 4 graduate high school. So the number you’re comparing too is 40%.

You start your program in year 2 but can only accept 5 students. Of the 5 students who show up to your program you notice that 4 graduate high school, a full 80%. Twice as much as the previous year. What you don’t realize is that no one else graduates high school (because the students with the will to succeed will seek out opportunities like yours to help them succeed). So for the community, 40% still graduate, you haven’t made any difference.

The selection bias is everywhere. There’s really no way around it other than to force people randomly in and out of your program. So be careful when comparing your statistics to the general statistics of your community.

Tomorrow I’ll talk about how to get me to believe your numbers.

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?

A Nonprofit Parable

January 18, 2012 • Blog, Leadership • by
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There once was a village that sat along the banks of a river. Everyday wounded bodies would float by the village, morning to night. One day a villager said, “We must take care of these people!” and began to pull the bodies out of the river, one by one, and care for their wounds. A second villager, equally moved with compassion, said, “We must not just care for these bodies, we must find out who is throwing them into the river!” and set off on an expedition up river.

Often times those people drawn to the social sector are more like the first villager. They are deeply moved by the broken and hurting in their community and they set out to care for their wounds. They run homeless shelters, food pantries, and affordable housing organizations. They are treating the symptoms of injustice or bad decision-making. It doesn’t matter. They are there to care for those that need help. These people are tremendously important to our society.

What I think we need more of is the second type of villager. We need people who seek out the root causes of poverty, violence, and injustice. We need organizations that don’t just pull bodies out of the river but stop them from being thrown in. This type of person, who thinks in systems, is not often drawn to the social sector. They don’t care so much about people but about systems. Unfortunately they are often deterred by the lack of opportunity to work in systems they see in the social sector. However, these people are tremendously important to our society.

If you are an organization that is pulling bodies out of the river, make sure you partner with someone that is up-river searching out the cause. If you are someone who enjoys dealing with systems and big, problems partner with organizations that deal with people individually. Only this partnership will truly solve our world’s needs.

For more, read True Leadership Means Wrestling Away the Wheel on the Stanford Social Innovation Review blog.

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.

Distorting Nonprofits

December 20, 2011 • Blog, nonprofit, Thoughts • by
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The nonprofit world has a fundamental distortion; the people who pay for services hardly ever receive them. The person who pays for the homeless shelter, never uses it. The person who pays for a child to receive a meal in Africa will most likely never meet that child. There is one portion of the nonprofit world for which this fundamental distortion is not generally true, the arts world.

Those who pay to keep art museums open, symphonies playing, and theaters performing are generally those who visit them regularly. This gives these organization a fundamental advantage when it comes to funding (and why some think these organizations should not really be considered nonprofits).

The Stanford Social Innovation Review, a go-to resource for all in the sector, had an interesting article last week entitled Arts Funding Promotes Neighborhood Vibrancy. What I found most interesting though, was the idea of selling the general community benefits of arts organizations. The SSIR had originally reported that arts funding spurs economic development but the organization ArtsWave responded by saying, while that’s true we like to say that it increases neighborhood vibrancy.

Here’s the ArtsWave insight: people are ready enough to agree with the notion that the arts are good for the economy. But if you probe deeper, and ask what top three things we should do to improve the economy, no one answers “subsidize the arts.” So apparently the argument that the arts are an economic engine (true or false) is unpersuasive, which is what really matters.

Let me just pause here quickly and say that I think they are slightly incorrect. Everyone would probably agree with the statement that having a healthy diet will improve an athletes performance but it probably wouldn’t show up in the top three ways to improve an athletes performance. Other things like exercise, good coaching, and practice might be the best ways to improve performance but they are not the only ways.

But the ArtsWave research also uncovered the fact that if you ask people what would improve their neighborhood the most, the arts come up time and time again. Why? Because artists’ residences are known to herald an improvement in real-estate values; because arts audiences mean feet on the street and therefore greater public safety; and because arts venues are known to spawn coffee shops, restaurants, and other places of urban liveliness.

Therefore, the argument for public funding needs to be focused not on the art but on the public benefits of art-making.

I think this is an important insight. When approaching donors, the focus needs to be on persuasiveness, not just what is true. Organizations need to think about how to sell their impact to donors. This is true for all organizations, not just arts organizations. Think about the effect you have on your community and how that benefits various stakeholders, then approach them and ask them to pay for that benefit. It is a subtle correction to the fundamental distortion found in the social sector.

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.

Measure Outcomes, Not Activities

December 13, 2011 • Blog, Measurement & Evaluation, Thoughts • by
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If you’ve read my blog for any amount of time, you know my love of data. I think that, while data should not have the last word on anything, it should have the first word on almost everything. It can bring clarity to an organization and challenge it to become better. Organizations around the world are jumping on the data train but sometimes they’re measuring the wrong thing.

The thing I see is organizations typically measure activities, not outcomes. That makes sense because activities are much easier to measure. Its easy to count how many people you served food too, how many people accessed your services, or how many volunteer hours you had this month compared to the previous month. This is good data to have but it does not answer the important question of the impact of your organization.

This activity oriented data doesn’t tell you how good the services that you provide are. They don’t tell you if people are better off after engaging in your services or not. You might be seeing increases in the number of people who access your services every year but that doesn’t mean that you are providing good services.

We need to address this question specifically in the social sector because it is fundamentally not a competitive market. The people paying for the services are not the ones consuming the services. So those that pay for and provide the services have to make sure that what they are offering is high quality.

If your organization is interested in engaging the question of impact, Contact Me.

Do Good, Get Rich

September 28, 2011 • Blog, bloggers, Leadership, nonprofit • by
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As someone who has chosen a career in the broad category of “doing good” I have to live with the stark reality that my compensation will not be on the same level of my colleagues in the private sector. I find this reality quite troubling because I believe that you should be compensated based upon the value you create, so if you are creating significant social value then you should be compensated accordingly.

Dan Pollatta makes the same case in this post for Harvard Business Review.

What do you think? Should those who work in the social somehow have a maximum compensation or should it be unlimited like the private sector?

Nuru International’s Third Birthday

September 23, 2011 • Blog, Measurement & Evaluation, nonprofit, video • by
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I’m usually quite cynical when it comes to non-profit organizations, especially international development agencies. I find that a lot of the interventions organizations use are not well though out, researched, or impactful. When it comes to Nuru International however, I fully support there work. They use tested interventions, bring holistic development to communities, and remove all western staff after just a few years.

This weekend is their third birthday. Watch this video to hear just a few of the stories from the first 3 years.

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