Laying the Tracks for Future Growth

This blog was co-authored with Heather Peeler of Grantmakers for Effective Organizations.

This post originally appeared on the Social Impact Exchange website.

It's hard for nonprofits to raise money for their day-to-day work. It’s even harder to raise money to grow their impact.

Funders and nonprofit leaders tend to focus on programs and expansion plans. That’s the sexy stuff that attracts support. Too few invest adequately in building the organizational capacity needed to lay the tracks for future growth—what Bridgespan’s Paul Carttar calls the "unsexy" side of scaling.

What explains this dilemma? Many nonprofit leaders find it hard to be forthcoming with funders about what their organizations really need to execute a growth strategy—whether it’s leadership development, IT support, financial management, or performance measurement. By and large, grantmakers do not provide support that adequately addresses those needs.

This disconnect shaped a key takeaway from the panel on Capacity Building for Sustainability at the recent Social Impact Exchange Conference: most nonprofits can’t invest enough in the organizational capacity they need to stay ahead of their own growth curve. In short, great programs may flourish, but the organizations behind them fail to keep up—an unsustainable mismatch. What will it take to ensure organizations are prepared to take programs to scale?

Invest in revenue growth. Bridgespan’s research shows that nonprofits ”get big” by focusing on a dominant funding source and anticipating needs five to ten years down the line. As an organization grows, it becomes increasingly difficult to master a diverse set of revenue streams. The skills needed for government contracting are different than the skills needed for major gifts. Funders can help by investing in grantees’ capacity to get clear about their funding model and build the internal capabilities to pursue the most promising type of revenue. That means, for example, investing to help hone an organization’s ability to secure and execute government contracts or funding systems and processes to pursue individual gifts more effectively.

Smile Train provides a case in point. Early on the organization realized that small, individual donors would be the key to its long-term scale potential. Thus, with the help of funders, it invested in building up its donor research and analytics capacity, and its direct-mail marketing capabilities. This enabled Smile Train to launch a highly effective fundraising operation and to become one of the fastest-growing nonprofits in the country, while other nonprofits with similar missions have hit funding ceilings by not laying tracks for future growth.

Don’t just invest in programs. Effective programs do not operate in a vacuum. They need strong organizations for support. Grantmakers should take stock of the whole organization rather than focus on a specific program. Panelist Rodney Christopher, senior fellow at F.B. Heron Foundation, emphasized the importance of investing in financial management and business planning needed as building blocks for future growth. These complementary skills ensure that grantees not only understand the sources of reliable and replicable revenue but also make plans to nurture and grow those sources over time.

Support evaluation and learning. Measuring and evaluating impact are prerequisites to scale, said panelist Gabriel Rhoads, director of evaluation and learning at the Edna McConnell Clark Foundation. Unfortunately program evaluation is an overlooked area of capacity building. Investment in measurement, including specific skills and IT systems, helps nonprofits use data to inform decision making and make improvements to their programs. It also lays the groundwork needed for attracting funder support for “what works.” When grantmakers help build evaluation and learning capacity, they ensure that grantees become more adaptive, sustainable organizations.

Strengthen nonprofit leadership. Funding a growing social enterprise is fundamentally an investment in the current leadership. “It’s placing a bet on a social entrepreneur,” said panelist Bob Searle, partner for portfolio investments at New Profit. Thus, New Profit prioritizes leadership and board development in its work with early-stage organizations, essentially helping leadership teams work better together. A focus on leadership also helps to build a mindset and culture required for long-term viability.

Organizational capacity building comes out of the shadows when funders and nonprofit leaders engage in honest dialogue and focus on the needs of the whole organization. You can’t stay ahead of the curve if you don’t put capacity building front and center. When that happens, funders and nonprofits are on the path to growing their impact in the communities they serve.

Peter Kim is senior director of learning and innovation for The Bridgespan Group; and Heather Peeler is vice president of member and partner engagement at Grantmakers for Effective Organizations.

Poverty's New Home

This blog originally appeared on the Stanford Social Innovation Review website, August, 8 2013.

Photo: istockphoto/© BrandyTaylor

By Robert Searle, Nidhi Sahni, and Erin Sweeney

The number of poor people living in the suburbs has grown by 64 percent over the last decade (vs. a 29 percent increase in the cities), and today, more than half of all low-income Americans live in suburban areas.
 
But how important is place when it comes to tackling poverty? As Elizabeth Kneebone and Alan Berube, authors of the new book Confronting Suburban Poverty, noted in a New York Times op-ed earlier this year: “Policies to help poor places—as opposed to poor people—haven’t evolved much beyond the War on Poverty’s neighborhood-based solution.” (Read and excerpt from the book here.)
 
Despite these facts, there is little consensus among policymakers, academics, and service providers about whether foundations and other organizations should direct more attention and funding to the growing number of suburban poor.
 
Where is it worse to be poor?
“Hands-down, being poor in the suburbs is better on almost every dimension than being poor in the urban center,” one researcher argued, explaining that suburbs typically have better schools, safer streets, and newer housing stock. There is also less concentrated poverty (more than 20 percent of the population in an given area), which is associated with higher rates of crime, unemployment, high school drop-out rates, and other social problems. In fact, reducing the concentration of poverty in cities by connecting poor people to the suburbs has sometimes been seen as part of the solution to poverty, whether that means providing build public housing outside the urban core or enrolling urban children in suburban schools.
 
Others we spoke to see little comparative advantage to being poor in the suburbs. In this view, the main problems of poverty—employment, education, and limited social mobility—are essentially the same wherever people live. Indeed, compared by gender, age, employment rates, and education (though not by race or ethnicity), poor people in the suburbs closely resemble poor people in the cities.
 
Still others argue that being poor in the suburbs is in some ways more challenging than in cities. For example, the fragmentation of many suburban areas into dozens of separate municipalities or unincorporated areas can make it harder for the poor to connect to the kind of social and educational services often found in big cities. A Brookings Institution study found that half of suburban municipalities lacked any registered nonprofits providing food assistance, employment, mental health, or substance abuse services. Another study by the Center for Studying Health System Change found that low-income people in the suburbs often go to cities to access “safety net hospitals” that can provide services for people with limited or no insurance. Attitudes matter too. As Harvard professor Lisa McGirr argued in New York Times article last year, one barrier to services for the suburban poor is that “the municipalities they live in are unaccustomed or even hostile to providing them.” In addition, a Bridgespan sampling of regional funders found that they devoted, on average, four times as much funding to urban poverty than they did to suburban poverty.
 
Moving beyond here vs. there
Rather than pit urban poverty against suburban poverty in the struggle for limited resources, are there other ways to address the emerging concerns of the suburban poor?
 
In our view, the best way to move beyond urban-centered approaches without shortchanging the real needs of both poor urban or suburban residents may be regional or cross-jurisdictional collaborations. Whether public, private, or a mix, such collaborations can bring together resources to focus on pressing social concerns that affect both areas. For example, several widely lauded “collective impact” initiatives—such as the Strive Partnership in Cincinnati/Northern Kentucky and the Road Map Project in South Seattle/South King County—have brought together urban and suburban districts to dramatically improve student achievement from cradle to college and career. They did this because educational achievement gaps are more than a purely urban concern. Moreover, leaders of these initiatives have seen a benefit in bringing together the ideas, resources, and experiences of multiple districts—to some extent even encouraging competition—to develop and implement the best solutions.
 
Other efforts seek to develop a single system that encompasses both urban and suburban regions for the benefit of all residents. In Connecticut, for example, the Hartford Region Open Choice Program is a cross-district school integration model that allows suburban students to attend public schools in urban areas (and vice-versa); it also supports inter-district magnet schools. The Minnesota Fiscal Disparities Program is a property tax pooling policy in the Twin Cities that promotes metro-regional development and distributes tax money more equitably across communities. It is the only tax-pooling program in the nation that operates across counties. In Baltimore, Boston, and other areas, metropolitan housing voucher programs cross city and county lines to help low-income families find affordable homes through the private market.
 
These programs are not part of some “suburban poverty initiative”—indeed, do we even need one?—but all of these programs are casting their net beyond the city limits and are not letting the near-invisibility of suburban poverty get in the way of doing something about it.
 

What’s Your Way to Better the World?

A “sleeping-bag” incubator for premature babies in remote regions – at 10 percent of the cost of standard equipment. An online support group for victims of rare diseases and their loved ones – built with free apps. Cold, hard cash, in small amounts, given to poor families, no strings attached – and measurably improving their lives. These are just a few of the ways that young entrepreneurs, with a vision for helping the world, are getting results for society.
 

They are part of a growing movement in social enterprise, manifest in dramatic increases in recent years of relevant course content at leading MBA programs, and in the growing number of applicants—from hundreds to thousands—to longstanding social enterprise fellowships like Echoing Green. In parallel we’ve seen a rise in venture philanthropy that funds such efforts since early pioneers, like Ashoka, launched the field more than 30 years ago, and count dozens of modern-day “impact investors” across continents investing capital in promising solutions while taking a long, patient view on returns.

It’s a good time to ensure that the most important questions and best insights regarding social innovation are widely shared, especially with those starting out. To that end, we’ve published: From Start-up to Scale:  Conversations from the Harvard Business Review-Bridgespan Insight Center on Scaling Social Impact. It’s a “best-of” collection, particularly relevant for folks mounting ventures, of a blog and webinar series that ran on HBR.org from January to April this year, supported by impact investor Omidyar Network. The Insight Center curated blogs from practitioners and researchers, both upcoming and veteran, around a different theme each month.
  • Month 1: What to do and how to fund it
  • Month 2: The talent required to create change
  • Month 3: Using technology and data to scale what works
We benefited in the curation and sharing of Insight Center content from a team of advisors and their networks. From them we garnered the notion of a “best-of” collection of 15 blogs most relevant to newcomers to the field. The compendium is the result, handpicked by those involved with equipping them. We hope it will serve to spark valuable discussions in training fellows, coaching grantees, or prepping a team of employees to serve the common good.

The Future of Impact Investing

This blog post originally appeared on the Huffington Post.

Sir Ronald Cohen, widely regarded as the father of British venture capital, caused a stir with a recent post on the HBR-Bridgespan Insight Center: “Social Impact Investing is the New Venture Capital.”  The piece, co-authored with Harvard Business School’s William Sahlman, argued that impact investing (the practice of investing for both profit and social impact) will be as transformative for society as the institution of venture capital has been for the state of entrepreneurship globally. 

This point of view, part of a series on scaling social impact supported by the Omidyar Network (ON), provoked a conversation so rich that it begged for an encore. ON Knowledge and Advocacy Director Paula Goldman’s following interview with Sir Ronald portends his coming, free webinar discussion on Friday, April 19 at noon on HBR.org. All interested may register here.

Q.  We're intrigued by the parallel you draw between the early days of venture capital and the early days of impact investing. It took roughly 30 years for Silicon Valley to establish itself (from the time people starting doing venture deals to 1980 when Apple's IPO proved the model.) Do you think impact investing will take the same amount of time to prove the case?

Sir Ronald:  I feel impact investing is where venture capital was in 1983, 30 years ago. My experience of the growth of venture capital suggests that social impact investment will be established in the next seven years. I would hope by the end of the decade a significant number of institutions would have made an allocation from their investment pools to impact investing. These institutional investors are likely to include charitable foundations’ endowments, pension funds and family offices.

Q. What's the number one obstacle preventing the impact investing market from taking off?

Sir Ronald: In my view the first challenge is to get charitable foundations to accept that the fulfilment of their mission would be aided by impact investments made from their balance sheets. I believe the asset class of impact investment should be able to deliver a 7-percent return, uncorrelated with equity markets. If I am right, this would enable charitable foundations to pay out 5 percent of assets each year and maintain the value of their endowment while achieving significant social returns.

Q.  There are some who fear that impact investing will divert money from worthy nonprofits because wealthy individuals will believe that grants are no longer necessary. What's your take on this?

Sir Ronald: Impact investment focuses on releasing assets from balance sheets, not grant allocations. If successful, this will significantly increase, perhaps even double, the flow of money into nonprofits. The discipline that comes from measuring social performance or evidencing it in other ways should hugely increase the impact that the social sector achieves.

Q. You've been the driving force behind social impact bonds. Tell us about one of the currently outstanding bonds you're most excited about and why.

Sir Ronald:  At this stage all social impact bonds are exciting. I think the one launched by the Private Equity Foundation to equip vulnerable teenagers for employment is particularly exciting. It is very focused on improving their lives and measuring the results it achieves. It combines passion for the mission with the management skills required to achieve scale in tackling such a widespread social issue.

Q.  Paint us a picture of what the impact investing market looks like 10 years from today.

Sir Ronald: Ten years from now, a social investment firm will be a recognised entity and social investment a recognisable asset class. Social entrepreneurs of every age will have innovated in the ways we tackle different social issues and they will be admired for it.

Q. So many young people are looking to start their careers in impact investing—what advice do you have for them?

Sir Ronald:  Impact investing is the next Big Thing. Society cannot continue to cope with prevailing social issues in the traditional way. We need to harness entrepreneurship, innovation and capital to achieve in the social area what they have achieved in the creation and growth of entrepreneurial firms in general, and technology firms in particular.

(Interviewer Paula Goldman, director of knowledge and advocacy for the Omidyar Network, is an advisor to the HBR-Bridgespan Insight Center on Scaling Social Impact)

Making Organizational Learning Stick in Philanthropy

Over the last year, my colleague Katie Smith Milway and I have convened nonprofit and philanthropic leaders around the country to hear what it takes to make organizational learning “stick.” We explored this theme by anchoring squarely on two questions leaders ask most frequently: What knowledge is useful to capture? And with whom will we share what we learn? The resulting article, which appeared last week on Nonprofit Quarterly’s website, provides an easy framework and examples from both nonprofits and philanthropy for thinking about the answers.

Concurrent with—but quite separate from—this effort, The Bridgespan Group launched “Conversations with Remarkable Givers,” a series of video interviews with over 50 philanthropists and foundation leaders who share what they’ve learned through their own experiences. Many of them talked about their own learning journeys and what they did to shape a learning mindset within their organizations and across grantees.

Here is a sampling:

Melinda Gates talks about the importance of a continuous learning mindset.

 

Paul Brest takes a provocative approach to getting staff to talk about lessons learned.

 

Henry McCance on getting reluctant grantees to share what they learn with one another.

 

In addition to these stories, we were struck by the increased desire for learning across philanthropic communities. Grantmakers for Effective Organization’s report, “Learn and Let Learn,” includes six case studies of groups that came together with shared knowledge goals. In each instance, the process proved as instructive as the product. Definitely worth a read.

What have you seen? When philanthropy is at its best, what does organizational learning look like? What about at its worst?