Innovation

Funders Who Reward Capacity Development

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Creative and sustainable nonprofits are drawing more and more funding from "investors" while the pool of feel-good "donors" is shrinking.

You can trace much of how nonprofits operate back to the source of their funding.

The majority of nonprofits have a Development Director whose key role is not development of the organization, but development of funds for the organization. They are in charge of writing grants, reporting on grants, courting foundation contacts and major donors, managing fundraising campaigns, and basically asking for money.

In my experience, very few nonprofits see "development" beyond the role of asking for money, over and over and over again.

If we trace this back, it's easy to see the reason for this reliance on repetitive fundraising.

Historically, many foundations and donors demanded that the greatest possible percentage of their funds be invested in direct program services. In other words, donors have demanded that nonprofits spend donated funds right away, with no investment in the future.

This idea was set in stone by organizations like the Better Business Bureau Wise Giving Alliance, Guidestar and Charity Navigator; sites whose profit model was based on giving donors solid information about the nonprofits they were considering donating to, but whose lack of concern or awareness of genuine indicators of mission efficacy resulted in a long era of comparing nonprofits based on one major indicator: their "overhead".

In fact, many states (including Utah) still publish the percentage of donations invested in direct program services on charitable solicitations permits - requiring these permits to be displayed on location and making such information available online, as if it were a genuine indicator of impact that was comparable across mission focuses.

This hyper-focus on a particularly meaningless percentage has resulted in enormous pressure to pay as little as possible for everything, from space to supplies to talent. Nonprofits are expected to get everything donated and to attract bleeding hearts who will work hard in crumbling offices on the bad side of town for less money and terrible health insurance.

I was talking with several talented employees of a local nonprofit that I admire a great deal for their forward-thinking revenue models last week. I was amazed to learn that because of their location, they are approached daily by drug dealers and have to watch their young clients deal with the same interactions as they come and go from classes.

A for-profit arts school would absolutely never subject their clients to this type of environment; it's bad for business. This organization is catering to the same clientele with unique and important STEM education, yet they have not made it a priority to move to a better location. Why? Almost certainly because it would increase their overhead.

While many nonprofits are responding to opportunities for sustainability and internal revenue creation, they continue to sacrifice in ways that ultimately lead to poor performance of those initiatives, or outright failure.

However, the nonprofit culture is shifting, albeit slowly.

Family foundations are now being run by a younger generation, a generation characterized by entrepreneurship and impact. More and more corporations are investing in nonprofit grants and awards that reward sustainability and innovation. And thanks to technology, we are witnessing nonprofit and for-profit startups that are making a splashy impact, while giving 100+ year old nonprofit in the same niche a run for their money.

With this shift, those big three online nonprofit rating services finally backed away from this percentage as an indicator of mission performance with an open letter in 2013 and a follow-up letter to nonprofits in 2014.

The days of doling out $10,000 checks for feel-good programs are petering out and it's a good thing.

While I've witnessed many nonprofits deny this shift and struggle to incorporate better business models into their long-term mission strategy, the process is leading to stronger, more accountable, and increasingly sustainable cause organizations who may very well multiply their impact on homelessness, domestic violence, animal cruelty, addiction, and every other mission focus.

And much of this credit comes back to funders and donors who are willing to invest in the long game, who are looking beyond the percentage of donations invested in one-time services and reinforcing the importance of internal capacity.

Eide Bailly's Resourcefullness Award is just one example of a funder that sees the bigger picture, investing a total of $15,000 in nonprofits with creative and sustainable revenue generation initiatives in Utah, Arizona, Colorado and Minnesota (applications are due August 12th).

Here in Utah, our Community Foundation just held it's third Social Investors Forum, curating a community-wide dialogue around the importance of funding unique, innovative, and sustainable nonprofit initiatives while bringing new funders to the table who are more comfortable with "investing" rather than "donating".

Our state Arts & Museums Division invests up to $2,500 in arts organizations each year specifically to aid them in developing their capacity.

These focus changes are critical to creating long-term impact. In effect, these are genuine investments that multiply the impact of the funders. They trigger and support internal capacity development and revenue generation programs that allow the nonprofit to further its reach and its mission, year after year.

That's a donation check I want to write.

So, whether your making a personal donation, a grant award, or a creating a corporate giving program, consider reaching out to nonprofits within your mission focus area and finding out which ones are making this leap.

Invest in the long game, not low overhead, which is too often an indicator of low growth, unsatisfied employees, high turnover, and ultimately, low impact.

And for you nonprofits, invest in talented, creative minds that can challenge your status quo, and brag about how you are positioning to make a difference for now, and for the future.

Capacity Building and the Overhead Myth

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The concept of capacity building seems to be unique to the nonprofit sector, although it's immediate definition could apply to any organization, or anyone for that matter:

Capacity building or development is the process by which individuals, groups, organizations, institutions and societies increase their abilities to: perform core functions, solve problems, define and achieve objectives; and understand and deal with their development needs in a broad context and in a sustainable manner."

Within the nonprofit sector, capacity building has gained substantial attention over the years, primarily because we all created an environment where nonprofits did the opposite: their activities consumed capacity, every bit that they had.

Why do nonprofits eat away at their capacity rather than use it to build more?

1. Nonprofits are mission-driven, to the core.

There are always more mouths to feed, babies to save, and water to clean. The job is never done and the leaders we attract to serve within nonprofits are motivated by the mission, lacking the long-term perspective of a seasoned executive.

2. Funders and donors demand it.

The unfortunate truth is that private foundations, corporate funders, and many major donors are still part of the problem: they want warm fuzzies in exchange for their cash, so they only award it to nonprofits who promise to use it for direct services.

3. Government and industry organizations made capacity building a black mark of doom.

This is the holy "overhead" percentage myth. Here in Utah, as in many states, it is printed with pride, or shame, directly on your charitable solicitations permit, supposedly as a way to protect the donor.

Industry organizations, like Guidestar, the Better Business Bureau Wise Giving Alliance, and Charity Navigator, touted the overhead percentage as the single biggest determinant of whether a charity was worthy of a donation. Luckily, they have since removed the thorn that demanded service over capacity to serve and are trying to undo the damage.

The overhead percentage, if you're unfamiliar, is simply this: all of your spending on anything besides programs and services as a percentage of your total spending.

Charities have attempted to live up to superhuman standards: to perform their charitable services while spending as little as possible on leadership, marketing, fundraising, talent development, research, and organizational development.

The result is a nonprofit organization you should never want to invest in.

An ill-equipped executive team with zero experience leading an organization or managing its finances. The inability to attract any talent to it's employee pool. Poorly delivered services as employees receive zero development or mentoring. High turnover since employees are asked to perform miracles in a crappy office with no supplies or support.

Even more critical is that a nonprofit where 90%+ of funding is eaten up by services is extremely inefficient.

They cannot deliver their mission effectively because every dollar donated is just a dollar. It does not get multiplied by investing in marketing or fundraising where it could turn into 5, 10, or even 100 dollars. It cannot be invested in the salary to recruit a talented Executive Director with the experience and abilities required to do more and better.

Capacity building is the inverse of this mess. It is a purposeful investment of resources in increasing efficiency, engaging in strategic growth, and refining internal mechanisms for service delivery to become more effective.

Nonprofits have an obligation to seek new and even more effective ways of making tangible progress towards their missions, and this requires building organizational capacity.

All too many nonprofits, however, focus on creating new programs and keeping administrative costs low instead of building the organizational capacity necessary to achieve their aspirations effectively and efficiently…This must change: both nonprofit managers and those that fund them must recognize that excellence in programmatic innovation and implementation are insufficient for nonprofits to achieve lasting results.

Great programs need great organizations behind them.”

Effective Capacity Building in Nonprofit Organizations, Report for Venture Philanthropy Partners by McKinsey & Company (2001)

Which is your organization engaging in? Fear or hope?

Give a man a fish...and you've got a problem

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The problem? He's coming back for another fish tomorrow, and the next day, and the day after that. Too many organizations fail to empower men (and women) to fish on their own. There exists a powerful opportunity to improve the long-term outlook for every client we reach, whether we operate a nonprofit or a for-profit. And consumers recognize the difference.

What is the long-term impact of your work? For the individual? For the community? 

Case in point: The U.S. Healthcare System

Within the traditional disease-oriented "healthcare" system:

My child has a rash that is concerning. I call the local pediatric clinic after searching online for which one is in my plan. I make the earliest possible appointment for tomorrow afternoon. It's the only appointment available, but I will be at work, so I ask my husband to handle it. They drive 15 minutes to the clinic, fill out four forms, and wait 15 minutes for the physician. The nurse rooms my daughter and they wait for another 10 minutes. The physician looks at the rash for 5 minutes, recommends an over-the-counter cream, and then bills the insurance for $180. After contractual adjustment, we pay $153 a week later. The rash has still not cleared and my daughter came down with a bad cold several days after the visit...my own throat is a little scratchy.

Consumers, within the healthcare sector and beyond, are beginning to demand a different experience.

They recognize when they are authoritatively told what to do and when they are educated, cared for, and empowered. The latter is a much more satisfying experience.

In what ways are you only giving out fish? Your customers may be demanding a fish. They may genuinely appreciate the fish. But, how you could add in the resources, tools, and approach to truly empower them to fish?

This is especially imperative within mission-driven organizations.

I can hand out a box of food at the local pantry to an impoverished single mother of four and feel really good about it. But, what will that mother do when the food in the box runs out in a few days? Will she have a job, transportation, child care, a living wage, a safe home, and the ability to buy or grow her own food?

The next step could be as simple as a job skill training once a month in the pantry warehouse or posting the job ads and relevant wrap-around services on a bulletin board where clients wait in line to pick up their box.

For-profits get caught in the fish giveaway trap as well.

As a consultant, I may undermine demand for my own services by offering do-it-yourself resources and tools, but the truth is: If you serve your customers well and empower them to do more, you will always be in demand. Meanwhile you will empower yourself to do more by removing dependence on a limited asset...you.

I hire a CPA for my taxes to avoid learning all the ins and outs of various IRS schedules, but I demand that my accountant educate me on how to manage my personal finances better. I've referred nearly a dozen friends and family members to my current CPA because he exudes this rare quality.

The organizations who will rise and stay at the top aren't creating dependency. They are creating empowered evangelists who sing their praises, and become donors or referral sources.

Are your teaching your clients to reel in their own tuna?

5 Ways to Unleash Your Inner Intrapreneur

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I always imagined that once I reached the executive level, I would be free to focus on the bigger picture. Sadly, the C-suite is not a rooftop loft with inspiring views and glass walls where we hatch innovative ideas and brilliant plans with scented dry-erase markers. The reality, for many executives, is a never-ending load of administrative oversight with a fairly constant interruption of “not my job” problems that land on your desk as the last stop. After all the daily organizational maintenance, how do you ensure you stay ahead of the curve — or, better yet, pave the way in your industry with new and better solutions? Whether you’re naturally entrepreneurial — and your inner innovator has simply been stunted by the mundane — or you’re a traditional administrator needing to solve entrenched problems, you can quickly incorporate inventive thinking into your daily repertoire with a few interventions.

Click here to read my full article on the C-Suite Network

Maximizing Impact through Mission Driven Strategy

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Following the latest post on mission drift, how can nonprofits effectively grow, adapt, and innovate for superior performance, while remaining aligned with their ultimate mission? Mission Driven Strategy is a set of guidelines for designing and evaluating strategy toward maximum, mission-based value creation. In many instances, mission-oriented models and guidelines are created within the bubble of the nonprofit culture. Mission Driven Strategy, however, was adapted from the for-profit model, Return Driven Strategy, authored by Mark L. Frigo and Joel Litman.

Stepping back for a moment, if you are involved in a nonprofit, what does strategic planning look like in your organization?

For many, if not most, nonprofits, strategic planning takes the form of an annual retreat where the executive or management team comes together to set a few (or a dozen) goals for the coming year. Very few organizations have a 5-year plan or tangible vision for the future and many are flying by the seat of their pants as they squeeze in the all-day retreat to check-off the annual planning task before they get back to putting out fires while fulfilling five other roles in order to keep overhead low.

While our nonprofits are constantly focused on today, or even yesterday, successful for-profit organizations are positioning for tomorrow. Their products can become irrelevant overnight if innovative competitors get a few steps ahead of them. They therefore invest heavily in strategic planning.

Mission Driven Strategy is simply one of many models which can help us gain a bigger perspective around strategy and effectively position our organizations for sustainability and increased social impact.

As always, we must be cautious in applying overt profit-rooted models and methods to our nonprofit organizations, ensuring that we don't fall into the trap of maximizing revenue around our social causes while disregarding sustainable, positive impact. After all, the latter is why nonprofits exist.

An Adapted Overview of Mission Driven Strategy

Foundational Concepts:

In order to effectively discuss and design a strategic plan, there are a few concepts that we must understand about our organizations. Similar to conducting a SWOT analysis, reviewing the organization through these lenses lays the foundation for the strategic design:

Genuine Assets

What unique or high value assets do we own? Examples could be our unique mission in our geographic area, an ideal location that is embedded within our constituents' community, or a staff comprised heavily of former constituents.

Significant Forces of Change

What external forces are driving change for our mission now or in the near future? Consider scientific or technological breakthroughs; statutory, regulatory, and political change; and cultural and demographic shifts.

The Strategic Plan

Our resulting strategic plan should fulfill the following three goals:

#1: Ethically Maximize Mission-Based Value

Are we doing the right things for the right reasons? How can we adapt or innovate our models, delivery mechanisms, or infrastructure to maximize the value we provide?

#2: Address Constituents' Unmet Needs

Do we have a clear understanding of our causes' needs? How have the needs changed and how will they likely change based on the trends and coming events? How can we best fulfill unmet needs in line with our mission or through partnerships?

#3: Target the Greatest Needs for the Greatest Impact

Where are needs increasing or acting as substantial barriers to mission-delivery? How are we uniquely positioned to impact the greatest needs our constituents face?

Measuring and Monitoring Impact

Example adaptation of the Balanced Scorecard model

The model authors recommend using the Balanced Scorecard model (Kaplan and Norton) for establishing metrics and tracking performance around your Mission Driven Strategy.

The Balanced Scorecard tool was developed to help organizations integrate strategic objectives into daily operations, essentially connecting goals to tasks to measurements. A coming post will review best practices in applying the Balanced Scorecard to our Mission Driven Strategies.

The Bottom Line: Considering how forces of change will drive unmet needs within our mission focus, how can we leverage our genuine assets to develop, deliver, and measure maximized impact?

Bleeding Hearts, Cash, and Mission Drift

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"Mission drift" is typically associated with organizations who inadvertently or inappropriately lose focus of their mission and begin dabbling in other areas, although organizations can and at times need to consciously shift directions. Avoiding unproductive mission drift can be difficult, especially for small nonprofits run by bleeding hearts (no offense intended, we all bleed for certain causes).

A nearly harmless drift:

A startup nonprofit that I have worked with provides a very specific service to a very low-income, disenfranchised, and predominantly immigrant population. They exist to serve X need, but in the process they get to witness all of the other needs in the alphabet, from homelessness to sexual abuse to malnutrition.

During the holidays, their devoted team members were particularly vulnerable to mission drift and there were several instances of giving away cash from personal wallets and brainstorming about a giving tree or free food cabinet.

Why is this a problem? It isn't...if your nonprofit exists in a vacuum where no other community services are available and you have endless resources. In this case, you're simply becoming more comprehensive. Drift away!

However, in most cases this type of band-aid reaction causes more harm than good. Not only do we lose focus on what we need to do to serve X need to the best of our ability, we also distract our target clients from accessing the organizations that are experts at providing the ancillary services they need. The homeless client is better served by a referral appointment with the local housing provider than with the twenty that was slipped to her out of sympathy.

A more detrimental drift: 

On the other end of the spectrum, when you have bleeding wallets or business-oriented executives, drift is prevalent for different reasons, most often the draw to cash.

Unfortunately for many human services organizations, the glow of government super grants is often too tempting to turn away from. Instead of focusing their efforts on serving X need, I witnessed as an organization loaded up their existing team members with the task of launching new services in an arena they had zero expertise in.

Why? Because said services were in vogue and $100M+ government contracts were out to bid.

The organization didn't even get an award, but the program had to be in existence to apply and it would be too much of a black eye to turn back now. Needless to say, they aren't serving their new side mission well and the mirage of increased credibility will fade with the poor outcomes and the soon-to-end service fad.

Maintaining mission perspective

The above examples are highly prevalent in the nonprofit sector. Our causes naturally come with other symptoms, whether we start off working toward clean air or ending cruelty to animals. Funding is deliberately used as a mechanism for change, our causes attract passionate leaches who hope we can add their cause to our momentum, and nonprofit work attracts employees who can't help but see how we could do more.

In fact, nonprofit executives are constantly accused of neglecting their duties. As COO of a behavioral health nonprofit, I had the unsavory duty of working with the endless stream of government auditors. One particular auditor was of the bleeding heart variety and should have become a prosecutor with her ability to latch onto a small mistake and make it into murder. However, they all lacked perspective.

We were constantly told we needed to address the barriers to successful treatment outcomes. From creating veteran-specific PTSD programs to posting outreach workers at the homeless shelters to providing referral specialists to the emergency rooms, there was no shortage of ideas (which of course came across as demands without funding).

When you fragment your organization to try to solve every problem associated with your cause, you cannot be effective.

The perspective that nonprofit organizations function to solve all of the problems that come along with their cause needs to end.

Nonprofit piety won't change the world

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Why do we get involved in a cause? 88% of us give to charity each year. A quarter of us actually go out and volunteer our time. 10% of us have chosen to work for a nonprofit. We want to change the world for the better.

Perhaps you think about your involvement in a more humble way. You're connected to a cause because you want to do "a little good". You hope to have a small part in improving air quality or feeding the hungry in your home town.

But the deeper drive is that the reality we are faced with, whether it be kids having asthma attacks at recess or a decorated veteran going without a meal, is intolerable. So intolerable that we are willing to take action, even if just through a $10 donation or spending an hour serving soup one evening a month.

It is unbearably frustrating that more than 16 million American children go without something as basic as adequate food while Apple releases unimaginable innovations in technology and Facebook made it possible to share our latest meal with strangers in real-time a decade ago. How have we not solved these basic social problems by now? 

Uncharitable author, Dan Pallotta, sheds light on the root problem; the giant wall that stands in the way of world-changing solutions.

It's us.

It's an entire belief system rooted in the "ethics" of charity and reinforced by decades of indoctrination around how nonprofits should operate. Take 15 minutes and watch Pallotta's paradigm-shifting, eye-opening TED talk:

Intrigued? Pallotta recently spoke to the Utah Nonprofits Association in depth. It's an hour that will change how you donate, where you volunteer, and why. If you then share it with a few people you care about, maybe we can truly empower our nonprofit organizations to begin changing the world.

Our biggest problems don't need a bandaid. They need ground-shaking, innovative solutions that require risk, experimentation, and failure. But, we've been trained to look for reverent organizations who simply transform 90% of our donations into direct relief. Instead, we need to look for organizations that will multiply our donations into a force for change that makes more than a dent in today's suffering while also trying new approaches to prevent tomorrow's.

Follow Pallotta's efforts to change the way we think about charity on Twitter: @charitydefense

Thank you to Lauren at the Community Foundation of Utah for forwarding the UNA video (the second it was available)!

Ignite Your Intrapreneurs Into an Innovation Engine

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Many organizations, especially non-profits, are lacking an innovation engine - the capability to identify and invest in long-term strategic opportunities that produce growth.

Identify Your Intrapreneurs:

A recent article on the Harvard Business Review Blog Network (Recognize Intrapreneurs Before They Leave) and another from Forbes contributor David Williams (The 4 Essential Traits of Intrapreneurs) help to identify this unique and often neglected species of employee through 6 traits:

1. Their primary motivation is influence and freedom, not money.

2. They're future-oriented and passionate about learning.

3. They "greenhouse" ideas - carefully tending to seeds until they have a strong plan.

4. They engage in "visual thinking" - formulating a series of solutions from the initial spark.

5. They are able to "pivot" - balking momentum in favor of better direction.

6. They're confident, but humble with high self-awareness and sense of purpose.

Interestingly, the authors of the HBR post suggest:

In a firm with 5,000 employees, we’ve found, there are at least 250 natural innovators; of these at least 25 are great intrapreneurs who can build the next business for your firm."

That means that only 5% of your workforce are natural innovators and one half a percent are great intrapreneurs.

If you don't have thousands of employees, you may be looking for a needle in a haystack, which makes it all the more important that you intentionally prepare for and nurture these hidden gems, taking advantage of their entrepreneurial combination of talents.

Nurture an Innovation Engine:

As a former intrapreneur who became fed up with bureaucracy and jumped ship, here's what kept me loyal for years and what would have kept me around longer had it been done better:

  • Foster a culture of grassroots best practices, even if you have a long way to go. Intrapreneurs want to be on a winning team. If you involve your frontlines in steering toward a better direction, your natural innovators will come out of the woodwork.
  • Recognize intrapreneurial qualities and connect your innovators with a mentor. Intrapreneurs question the status quo, which often isn't rewarded in management meetings at lower levels. Connect them with a mentor who can support their ideas and refine their approach to change leadership.
  • Recruit several intrapreneurs onto your executive leadership team. Without change leadership, your executive meeting is all talk with depressing status updates.
  • Intrapreneurs in leadership positions are prone to burn out. Support these executives with enough authority and a team so that they can effectively tackle strategic initiatives with success. This is your innovation engine.
  • Channel your innovation engine's ideas into an ambitious goal and gift it back to them. Big projects that will have a big impact are bright, shiny objects to intrapreneurs. I was always excited to be part of the process of strategic innovation.
  • Create a safe environment for experimentation and revisions. Too many leadership teams try to change on demand, doling out deadlines and metrics to their innovators, which in turn deters creativity and the ability to change course when needed.
  • Lead with integrity. Nothing kills loyalty quicker than deception and loyalty is a cultural pre-requisite for the change that your innovation engine needs to initiate. Adhere to strict values and take swift action to remove negative influences in your culture before they drive your talent out.

The concept of entrepreneurial employees isn't necessarily new, but it's gaining more attention because it's easier and more rewarding than ever before to leave your 9-to-5 and start your own business. Your best intrapreneurs are an online form and a quick website away from complete autonomy.

That being said, people are social creatures who want to be part of something bigger than themselves. By creating and nurturing an innovation engine, your organization will gain enormous competitive advantage over time. Plus, you will likely keep your intrapreneurs from going rogue longer and attract a steady flow of new ones to fill those big shoes.

What do you think?