Social Impact Funding - Fad or Forever?

In a previous post I quoted a friend who was frustrated that her donations to Hurricane Katrina victims did not result in the ideal outcome she envisioned, which was relocating the entire population of New Orleans to higher ground. What she was really looking for was a permanent solution to a recurring problem. She has donor fatigue, also known as the “tired of pouring money down a black hole” syndrome. In other words, she wants to support a social impact project. 

Many foundations are considering or have recently adopted long-range strategies to move from targeting symptoms of social conditions to trying to fund basic change in the condition creating the symptoms. The current trendy phrase for that is “Social Impact Funding”.

Originally, funding for this concept was limited to very large foundations with a national or international focus. More recently even local community foundations and United Way agencies are adapting that model to derive what they perceive to be widespread societal benefits. To some extent, this is a result of their funding sources demanding that change in focus in order for the umbrella organization to continue to receive funding. It’s “trickle-down” social change or to put it another way, those that hold the purse strings control the mission focus at every level. Call it “go along to get along”, if you will.

I think that this viewpoint will have a significant impact on nonprofits that refuse, or are unable to adapt to this shift. Certainly, in the short term, losing the support of one of these foundations due to mission shift will severely restrict local and regional nonprofit programs.

Too many nonprofits are failing to prove their results or simply addressing the same old problem in the same old way. Survival in the macro-financing world will demand that you understand the changing climate, and provide professional solutions and management of funds.


Citing the example of the United Way of Chicago in an illustrative reference, Jason Saul observes that one way to effect meaningful change is to look at the common denominator of piecemeal programs and design a program around that area, and then employ honest measurements of the results.[1]

Suffice it to say, this trend is getting a lot of attention. Is it really new, or just a repackaging of the concept of bettering a detrimental condition that affects a widespread group through the use of collective dollars and ideas? More importantly, how will affect your local nonprofit?

In spite of the trendy packaging, this is not a new idea. I would venture that every single nonprofit and every funding source supporting them is based in the concept of broad social change. The whole system of Federal grant programs is based upon the idea that big changes happen when you invest big money and apply comprehensive planning to achieve wholesale societal changes.

The problems inherent in remote solutions to local problems arise because the solutions must still be dependent on addressing segments of the problem. Whether your mission is to eliminate hunger, or out-of wedlock pregnancy or AIDS, it will always have facets that need solutions at specific levels.

For instance, if your mission is to eradicate West Nile viral infections in humans, you can (a) kill the vectoring agents (mosquitoes); (b) kill the carriers (birds, horses); (c)eliminate the breeding ground for the mosquitoes; (d) eradicate the virus itself;  (e) instill natural resistance into the entire susceptible mammalian population (vaccine) and (f) eliminate the ability of the virus to replicate itself through bio- engineering (the end goal).  Each one of these “solutions” can be funded individually with the funding going to local or regional NPO’s concerned with just one facet of the problem, or you can amass and disburse funds under the trendy umbrella phrase “Creating a Healthier America to Reduce Our Health Care Costs”. You will still need to invest funding in every step from A to F in the example, and you will still only address a tiny percentage of the reason people are using healthcare. The Federal government has been trying that approach forever, with varying degrees of success.

Will private funding find a more effective way to achieve those results, or will the concept eventually result in the same entanglements and failed initiatives that are inherent in the often-ineffective Federal programs? Time will tell. In the meantime, nonprofits must deal with the consequences. Is it time to redesign your program descriptions and implement measurement methods that are more in line with funder expectations? That’s for you to decide.

Whole new business models have emerged or adapted their business plan to serve that market, and academics are writing papers touting the advantages of social impact funding, either grant or investment-based. A quick search of the term “social impact funding” yields seemingly unending pages of results. I stopped at eighteen pages, and there are lots more.

 

I am not suggesting that all grantors will adopt new criteria that will totally exclude local nonprofits. Rather, I am observing that smaller organizations need to be aware that there is a need to address these shifts in strategy. If you have funders or donors that are indicating that they may be re-thinking their giving strategy, you may want to get out in front of that now. It may be as simple as adding language to your program description that relates it to the grantor's broader focus, or it may require a significant shift in your entire strategic plan. 

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[1] http://missionmeasurement.com/ideas/blog_entry/the-dirty-little-secret-about-measurement1

Is your fund-raising strategy relevant in today’s economy?

In my last post, I addressed the issue of showing that your mission and your strategy are still relevant. Donor focuses may be changing, and some donors are becoming disenchanted with what they see as repeating a failing strategy, while expecting different results. This blog is targeted those of you that don’t have multi-million dollar budgets, but even medium size nonprofits can benefit from reviewing their goals.

Many small and newer nonprofits address local concerns. In the perfect world, these NPO’s would be supported by local or at least regional grant-makers. To some extent, that will continue to be true. Who better to care about the less fortunate in a community than the members of that community? The question becomes not so much whether they will continue to support you, but at what level?

Current pundits are predicting that no matter what “budgetary reforms” take place nationally, they will have a negative impact on the nonprofit world, and there is certainly at least anectodal evidence to support that viewpoint. For instance, if the unemployed lose extended benefits, there will certainly be more people hungry and homeless, driving up demand for services. On the other side of the coin, if there is an adjustment of income brackets and tax rates, it may well impact those at the lower end of the earnings curve. If they have to pay more in taxes, there will be less discretionary income available for everything, and that includes charitable giving. The very wealthy will probably be able to absorb the costs without much impact on their charitable giving, but those people that previously had been giving the average of three to four percent of their income to charity will now see that money going toward taxes. 

Larger foundations may begin to move toward funding nonprofits that focus on eliminating causes of need, rather than alleviating the symptoms of a larger problem.

The point of all this is that your board may need to evaluate your current funding strategy and address different ways to accomplish the mission. For example, if there are several nonprofits in your area dealing with different aspects of domestic violence, perhaps you could collaborate on a single program to address the initial triggers, such as economic pressures caused by joblessness, by providing support for continuing education to retrain or improve worker skills. This may well open up stronger revenue streams that any of you can access as single agencies. Some nonprofits may be able to integrate a for-profit partner into the mission to access program-related investment funding.

If your nonprofit is proactive, rather than reactive, you may even find that you will emerge far stronger and able to help even more beneficiaries than before. If you need help, Cloudlancer Writing Services is happy to be of service. 

The Changing Face of Philanthropy

Sometimes charities are so wrapped up in their localized, immediate problems they fail to understand what drives people to help. The current uncertain fiscal and political climate probably doesn’t help the situation. People feel more personally threatened and are constantly making do with less, and that affects their viewpoint.  Still, it benefits all of us in the nonprofit sector to examine factors that may drive change.

Recently a client shared a letter from a major funder. The gist of the letter was that the grantor was moving on to support social impact organizations that were trying to eliminate the root causes of problems, rather than supporting local charities dealing with symptoms of the larger issues.

The nonprofit in question just received the first installment of a multi-year grant for capacity building, in the hundreds of thousands of dollars. While they have been offered the full amount of the grant in a lump-sum payment, they are considering refusing the funds, since they don’t know if they will be able to maintain services to the larger population they had been planning to serve. In short, their entire ten-year strategic plan may need to be seriously revised, or even scrapped and replaced.

There are significant lessons and clues in this letter. One, the grant maker (a corporate-supported philanthropic foundation) doesn’t feel that they are “getting the most bang for their buck”. Two, the funding organization is anticipating reduced revenues due to national economic and political issues, and they feel powerless to compensate for that. Three, they truly want the root cause of the situation the nonprofit is addressing to be solved. Four, they feel that the nonprofit’s focus is too fragmented or too unrelated to other groups serving a similar population to achieve that change.

Businesses are successful, and have money to support charities because they don’t spend money foolishly, with no expectation of results. The corporate mentality is crystal-clear in the letter. They simply feel that continuing to support local charities is a waste of their money in relation to what they hoped to accomplish.

Regardless of whether you agree with their decision, the grantor letter exposes some weaknesses in the current methods used to address social ills. If you are feeding the same or greater number of people every year, or rescuing the same or greater number of dogs and cats, donors may not see that as solving the larger problem.

Businesses tend to think in terms of identifying a problem, constructing a solution, implementing that solution, calling the project done, and moving on. The grantor in this situation simply doesn't see an end to ever-increasing need. 

Beyond the corporate viewpoint, plain, ordinary, not-rich people are becoming tired of supporting symptom solutions. I recently had lunch with a friend shortly after “Super-Storm Sandy” hit the northeast. I knew that she had sent money to help the victims of Katrina, so I asked if she was doing the same with Sandy. Her answer surprised me. She told me she wouldn’t send any money unless it was to a charity that would support a ban on building in the same areas. I said, “Well, you’re talking about places like Long Island. A lot of people live there, it’s their home.” She replied “And it shouldn’t be. Anyone could see that this could happen. Look at New Orleans. It’s a fish pond. It’s lower than the surrounding land, and they’re just going right back and building in the same spot. It just flooded again this year. Why can’t people see that they need to move the whole (expletive) city to a safer area? I feel like they stole my money, because they didn’t fix the problem”. She went on to say she felt that charities had no interest in really fixing problems, because then they would be out of business.

It would be of value for all nonprofits to review their programs and incorporate more results-driven data in their proposals. Instead of just sticking your finger in the dike, thereby being stuck in one place, show how your program(s) will rebuild the dike so that you can move on. For instance, while nonprofits can’t lobby, perhaps your organization could implement a program of educating the public on what they can do to eliminate the bigger issues. Develop a strategic plan that shows that you recognize donor fatigue and have a plan to address it. Every bank account can be over-drawn. We might be getting there on a national scale. Before your organization reaches that point, have a plan to be one of the survivors. 

Finding funding for nonprofit administrative costs

Every nonprofit is familiar with the capital campaign that seeks to fund some bricks-and-mortar goal. In this post, I propose that you research, design and implement a campaign that has fund-raising for “soft” capacity building as its goal.

What is the definition of “soft” capacity?  To put it simply, it’s the money used to pay the bills and fund administrative costs. It’s the money that buys software, ink, and toilet paper, or pays administrative salaries.

Far too many nonprofits try to pretend that they are somehow able to fund administrative expenses without actually asking for the money to do so.  They try to “sell” their programs and hope that some of the money will slop over so they can pay the phone bill. That’s the accepted model, and it’s one that I spend hours helping clients design, simply because they can’t or won’t acknowledge that if they had better infrastructure, they would be far more effective in accomplishing their mission. Even if they do acknowledge it, they can’t find a way to get funders to support these “non-program” costs.  

If your nonprofit operates in that mindset, I really can’t blame you. There is an obsessive focus by grant makers and even major donors on reducing the percentage of the acquired funds spent on overhead, so that the nonprofit can say, “92% of all money raised goes directly to the service recipients”. Even worse, the nonprofits themselves actually try to run their business that way. The idea of strategic and financial planning/forecasting just never enters into their plans for survival.

Trying to pretend that purchasing toilet paper and printer ink isn’t a part of your service delivery is like trying to pretend that being bitten by a rattlesnake won’t affect your health. In both cases, the outcome could be fatal.

Sometimes, these costs can be allocated directly to a specific program. One mistake I see often is underestimating the cost of putting on an event. Many times, the nonprofit will report that they raised X dollars, yet at the end of the year, there was much less than that actually used as program input.

Let’s examine a typical nonprofit fundraising strategy, the “event”. The nonprofit decides to hold a fundraising dinner at a local hotel dining room. The planning committee sets a gross target of say, $25,000. They factor in the cost of the physical venue, the cost of printing the invitations, and the food costs at $10,000, and project a net “profit” of $15,000. The plan is to sell 25 tables at a cost of $1,000 per table, to arrive at a 33% profit. Putting it another way the nonprofit expects $1.50 in revenue for every $1.00 spent. Unfortunately, that projected $10K is NOT the true cost of the event. What about the “soft” overhead?

What percentage of the executive or program director’s time was spent in planning meetings, donor meetings to encourage attendance, or perhaps media interviews? There is a tendency to say “well, we have to pay them anyway, so what’s the difference?”. If the person makes say, $75,000 a year, and they spent 100 hours on this event, then the event portion of their salary was $3606, not including their per hour benefit costs. What is the cost of volunteer time? The national allowable rate for calculating the value of volunteer hours is in the $20/hour range.   If five volunteers spent 20 hours each on the event, that’s another $2,000. What about the cost of the office staff’s hours specifically used for the event?

The point here is, these costs are directly chargeable event production costs. They do affect how much money can go directly to programs. You do have to pay these costs. They are the reason why when you report to donors on program dollars, you can’t account for $15,000 that actually bought dog food, filled food boxes, or purchased coats.

To arrive at a true adjusted net income, you have to consider these costs. Just using the examples above, your $15000 net return is now $9394. Divide the net cost ($15606) by the net revenue, and it cost your organization $1.66 for every $1.00 of revenue raised. You must either to increase the per-table cost, or sell a lot more tables. It could be that you might actually decide that this event just isn’t worth your investment.

You must find a way to involve your board, your donors and grantors, and the community in a more effective survival strategy. In future posts I’ll offer some suggestions to accomplish that. 

Rebecca Lee Baisch

Cloudlancer Writing Services

What funding changes will the future bring?

Faced with the probability that their funding streams may shrink over the next five, ten or more years, many grant makers are looking for ways to apply whatever future income they may have to models that will sustain their organizations. Even if the proposed limits on charitable deductions and increases in the tax rate on passive income don’t materialize, the conversation in many foundation boardrooms is addressing ways to achieve more effective use of their funds.

Thus, they may change their grant guidelines to fund collaborations that will make that change happen. They may even move their funding model to one of providing PRI (program-related investment), rather than outright grants. That model allows the investment to replenish the pool of foundation funds, rather than depending on what may be a shrinking pool of available donors and dividends for sustainable funding. Many are funding for a broader social impact, rather than an immediate basic need. While this may seem counter-intuitive to the concept of grants, this model often allows nonprofits to obtain capacity-building funding that funds projects year-over-year, rather than constantly chasing the same donor for continuing support each year. It also provides a higher level of certainty for the foundation, since they know the funds will sustain other giving in the future. 

Your nonprofit may have to adapt to a changing funding environment and become sensitive to, and capable of designing programs for, this new environment. Even relatively small (under $500K) nonprofits may have to adapt to achieve continued growth. You may have to furnish a much higher level of sophistication, detail and accountability in your programs to obtain funding than in the past.

What does this mean for your nonprofit?  Let’s look at a hypothetical example.

As an illustration, let’s say that a foundation has historically supported a local nonprofit that provides real-time support for battered women. The symptoms of the problem are the physical injuries to the women, and the need to remove them from the abusive situation. The foundation has been supporting the nonprofit’s program of paying for emergency housing and counseling for the women. That program helps women individually, but does nothing to stop the overall culture of abuse. In many cases, even though the women may get out of the situation, and even have a restraining order in place, they are later injured or killed by the abuser.

This year the funding foundation has decided that the only way to help the women is to fund a regional program to eliminate the causes and not just the symptoms of domestic violence.

A program that might address this focus could be one that will require changes in the law to mandate lengthy prison terms for first offenders, coupled with intensive counseling to obtain true behavior modification. The offender will get days off their sentence for each day they are in the program and early release if they are deemed safe to re-enter the outside world. If they are not successful, they will serve the full original sentence without the possibility of parole. This program will require large cash infusions and even collaboration with government agencies or for-profit businesses.

The social impact element the foundation is looking for is met by eliminating the opportunity for the abuser to be free to contact the woman at all, and force the offenders to accept changes in their basic behavior.

For you, the nonprofit in the middle, this means much greater emphasis on mission refinement, program design and development, targeted and measurable goals and outcomes, realistic and comprehensive financial planning, and constant monitoring of the timelines to meet grant maker expectations. If you don’t have, or discount the need for a strategic plan, you may very well miss substantial funding opportunities.

Cloudlancer Writing Services provides strategic and business planning assistance to both nonprofit and for-profit organizations. Let us know if we can help.

What Does Your Home Page Say about Your NPO?

I look at about a dozen nonprofit website landing (home) pages a month, both by invitation and because something points me to them. Some are for organizations just starting out, while others may have been up for several years. About two-thirds of them leave me asking “OK, what is it these people do, and how do they do it?”

The only place you have to grab and hold the visitors attention is that first web page. Whatever comes up when they visit will determine whether they stay to learn more, or leave. It is your “sales” page.

Here are some of the most common errors I see:

          1. The blank “enter our site here” page. I clicked on or entered your web address, and I expect to  see a landing page. Don’t make me work harder to find it. Don’t use funky background colors. Keep it very light, and with very little pattern. Black type on a very light or white background is still the most readable. Light green lettering on a beige background can be hard to read.

      2.  Slow loading pages. I have a fast broadband connection.  If the page is loading slowly, I will spend only so much time on it, and then I’m leaving. Test your pages before you post them. Too many animations or large images can slow the load time to a crawl.

      3.    You don’t immediately tell me if you are a 501(c)(3). Grant-makers want to see that up front.

      4.  Once I get there, your mission statement should tell me, in very few words, exactly why you are in business, and who or what you are helping.  Don’t confuse a mission statement with a vision statement. Examples:

     Good: Our mission is to provide temporary shelter and basic necessities to women in (your town) who are trying to escape abusive relationships.

Bad: We want to provide all necessary services to domestic violence victims.

The first example tells me who you are helping, indicates what you need grant or other funds for, and how large your service area is at present. The second one could mean that you want to help every domestic violence victim in the world, and is so broad that it may indicate your goals are not attainable.

Once you provide a clear mission statement about your nonprofit, you can expand on it. Referring to the first statement above, you could include a list that looks something like this:

• “Last year, (your town or state) recorded 11,000 domestic violence complaints, 7,000 physical injuries and nine deaths related to domestic violence (answers the question, why are our services needed).         
• Through arrangements with local shelters and apartment owners, we provide vouchers for one month’s rent and gift cards at (list of retailers) for food, clothing, transportation and legal aid. The maximum length of time we can provide assistance is three (3) months.
• Working with local job placement agencies we provide resume writing assistance and notify women of job opportunities.
• ·We provide a list of licensed daycare locations that offer free or low-cost daycare.
• ·The cost of providing these services is approximately $1200 per victim annually

This is about all I would try to cram into one landing page. From there you can have drop down menus or links to other pages on the site for your organizational history, supporting statistics if applicable, contact information, board member biographical information, lists of supporters, or other information that provides context, background, credibility (such as how many people you have helped to date) and a contact or donation page or tab.

If you would like a free website landing page critique, contact me at www.cloudlancerwriting.com.

©2012 Rebecca Lee Baisch  All rights reserved