This piece originally appeared in Medium as a guest post for +Acumen.
You may have heard of the phrase “human-centered design,” an idea swarming Silicon Valley, and often the origin of some of our favorite tech and social products. But what is it, exactly, and what does it mean to the success of your nonprofit? Simply put, human-centered design is an approach to problem solving that starts with the people you’re designing for, and ends with new solutions that are tailored to suit their needs. Seems simple enough, right?
While conducting research for Social Startup Success, I saw a consistent theme in my interviews with breakthrough social entrepreneurs: many had used this innovation practice to develop their models for products or services, and put them to the test before going out to raise capital and seek press coverage. With testing underway, the social startups were able to develop more effective programs and products, and, at the same time, craft a persuasive story about how they had arrived at these models.
If you’re thinking about incorporating human-centered design into your testing process, you might give these methods a try.
Get out from behind your desk.
To stay innovative, it’s essential to stay inspired. Get out and build strong connections with the end-users in order to build a better understanding of their needs. Host focus groups or surveys, ask the right questions (how can you help your beneficiaries, not how they can help you), and observe the nature of life by conducting in-person interviews to understand the problems they face.
Think of design as a team sport.
Once you’ve conducted interviews, discuss key findings with your team, and perhaps with a range of stakeholders and outside advisors. Hold a session where you invite others to discuss the problem. All ideas are welcomed and encouraged, and none should be shot down during the brainstorming session. Take a note from Silicon Valley and consider scribbling thoughts on brightly colored post-it notes, then sticking them on a whiteboard, poster, or wall.
Create a rough prototype.
You’ve researched, brainstormed, now it’s time to put your ideas to the test. This step should be a very simple and inexpensive representation of the product, or how the service will work, such as a sketch describing a product, or a storyboard showing how a service would operate. Gain valuable feedback, refine, and get ready to launch a pilot program to really test results.
This piece originally appeared in the Stanford Social Innovation Review.
During a five-year research project I conducted about what makes organizations successful, I learned a shocking statistic: While 75 percent of nonprofits collect data, only 6 percent feel they are using it effectively. To me, this means that while there is a data feeding frenzy happening in the nonprofit sector, the vast majority of nonprofits have failed to develop a data culture—that is, a deep, organization-wide comfort level with using metrics to maximize social impact.
Although many organizations don’t feel like their organizations are making good use of their data, creating a data culture is critical to their success. Actively and consistently using data to inform decisions allows nonprofits to track whether their programs are resulting in the outcomes they intend. In fact, in my survey of 250 social entrepreneurs, organizations that began measuring their impact from the start tended to have a faster path to scale.
These organizations were scaling faster because they had the data to prove that what they were doing was working. The data wasn’t just about donors. These leaders wanted to know that what they were doing was actually having a positive impact on their beneficiaries. I’ll never forget Tess Reynolds from New Door Ventures telling me, “It is really hard to raise a million dollars. If I am going to work hard to get that money, I need to know beyond a shadow of a doubt that what we’re doing works.”
But as indicated by the 6 percent number, it’s really hard for most nonprofits to make good use of their data, because most nonprofit leaders are not data scientists—they get into the work because they care about the cause. The good news is that you don’t have to be a data scientist to tell a good data story. All organizations have the capacity to create a data culture, no matter how big or small, or data savvy or not, they are. Organizations can improve their data cultures in at least four ways:
1. Be clear about outputs vs. outcomes. One of the most important lessons I learned in my research is that organizations must do a better job of distinguishing between outputs (how many people are participating in their programs) and outcomes (how their programs are actually changing lives for the better). When Rey Faustino started One Degree, a Yelp-like platform for social services in the San Francisco Bay Area, his organization was thrilled to be able to show that a year after launching, 40,000 people had visited the site. But quickly he realized that this was just a “vanity metric.” It wasn’t really a measure of how many people the organization was helping to get social services, let alone how their lives were improving because of access to those services. One Degree had to shift its measurement systems to move past tracking outputs (such as what types of services visitors searched for and whether they downloaded an application to receive government benefits) to tracking longer-term outcomes (such as whether they were actually accessing benefits, their experience with them, and how their lives improved as a result). Now it tracks the data even farther down the pipeline, and personalizes the user experience on the site to keep track of how their clients benefit from their services.
2. Get creative about metrics. If organizations want to uncover true indications of whether their programs are making a difference, they need to get creative about how they measure. Row New York is an organization that pairs rigorous athletic training with tutoring and other academic support to empower youth from under-resourced communities. To develop this model, it drew on extensive educational psychology research about how “grit” contributes substantially to success in school and life. Like so many others, when it started out, Row tracked things like number of participants, growth, and fitness levels. But success wasn’t just about kids showing up; Row needed to show that the program was influencing their rowers’ lives. Eventually, Founder Amanda Kraus came up with inventive measures of success. By tracking both attendance and daily weather conditions, the organization was able to show which students were still showing up to row even when it was 38 degrees and pouring rain. Those indicators of grit tracked with students who were demonstrating academic and life success, proving that their intervention was improving those students’ outcomes.
3. Measure in a mission-driven way. For some organizations, staying true to your mission may mean recognizing the limitations of our data-hungry nonprofit sector. Rob Gitin of At The Crossroads, an organization that serves homeless youth in San Francisco, knew he needed data to measure his organization’s progress, but because he was serving hard-to-reach youth (who sometimes require more 200 encounters with an outreach worker before they will engage with the organization), his data wasn’t going to look as impressive as organizations that were taking on the “easier” cases. He also didn’t want to fall prey to tracking someone else’s definition of success, such as helping a kid find housing, when what they really wanted was to get clean. But he still needed to figure out whether their interventions were working, and after many agonizing, late-night conversations with his team, At The Crossroads broke down its model into a clear set of achievement phases. This allowed the organization to work with each youth to set their own unique goals, while also tracking a consistent set of metrics.
4. Be honest with data. If organizations are going to collect data, they also need to be ready to be honest about what that data is telling them. The organizations I interviewed who were building strong data cultures couldn’t afford multimillion-dollar randomized control trials, but that didn’t stop them from applying the strictest standards against their data to pressure test it. For example, Braven, an organization that helps low-income college students graduate and get jobs, paid an informal control group of students who were not in their program with Amazon gift cards to compare their performance with the ones in the program. In other words, Braven wasn’t just satisfied with improving students’ assessments; it wanted to test the counterfactual to ensure that its students were performing better than they would have had they not participated in the program. Pressure-testing your data to ensure that positive results are actually connected to your programming, versus other factors, is critical to being honest with your data.
Ultimately, for organizations to get the most out of their data, they need funders to support data-driven cultures through unrestricted grants that pay for impact measurement; capacity-building support to help develop better systems for tracking data; and the patient, long-term capital that organizations need to ensure that they can be honest with their data without worrying that their funding will get pulled if it doesn’t tell them what they want to see.
Some of the most important practices of successful startups can’t be measured—things like believing in people and building trusting relationships. But figuring out what we can measure and measuring it effectively is essential to the success of organizations that want to achieve impact.
This piece originally appeared on StartupNation.
You’ve heard it before and you’ll surely hear it again: “What is your elevator pitch?” Compressing passion, data and complicated work into a few key points is no small feat, but it’s necessary for introducing your startup and approaching potential investors.
Whatever stage your organization may be in, always be prepared to strike up a conversation. If you’re looking for tips, read on to learn how to craft and deliver an award-winning elevator pitch.
Pitching is a very necessary part of scaling your startup or small business. Rather than dreading the process, view it as an opportunity to share your passion and talk about your business with even more people! So go ahead, craft your pitch, practice and get out there to make this your organization’s best year yet.
1/22/2018 0 Comments
This piece originally appeared on The Chronicle of Philanthropy.
Good ideas come from people of all backgrounds, but the evidence suggests that the distribution of money to help nonprofits and social enterprises get going is very narrow.
Male-led social organizations raise twice as much as female-led groups in the crucial early growth stage, and the same is true for nonprofits led by white founders versus people of color. This is despite the fact that it is often people of color who have experienced the hardships that the organizations they’ve founded seek to address — and are arguably in a better position than others to tackle those problems.
These funding biases are reinforcing the very inequality that philanthropy is seeking to eliminate, and they are leaving a great deal of potential on the table. Organizations that don’t receive adequate startup money are much less likely to get off the ground.
A brief look at the makeup of foundations may explain the problem of bias.
Three-quarters of foundations’ full-time staffs are white. About 85 percent of foundation board members are white, according to a Council on Foundations study, while just 7 percent are African-American and 4 percent are Hispanic. This puts leaders of color at a strong disadvantage when powerful forces lead donors to naturally gravitate toward (and fund) people who are similar to them.
Funding is also skewed toward “sexier” nonprofits that describe themselves as in the business of “social entrepreneurship,” with leaders who are disproportionately Ivy League graduates who’ve learned to talk in trendy language about their “innovative,” “metrics-driven” work. These subtle language disparities present a bias against community-based leaders, often people of color, who may frame their work in terms of “activism” or “social justice.”
As Raj Jayadev, co-founder of Silicon Valley De-Bug — a community-organizing, advocacy, and multimedia storytelling nonprofit based in San Jose, Calif., — says, he didn’t even know what social entrepreneurship was when he started the organization in 2001. His funding mostly came from the community and a handful of foundations until he won the prestigious Ashoka Fellowship for social entrepreneurship. By framing his work in terms of an “innovation approach,” all of the sudden the organization had access to a whole new network of funders, even though very little had changed about their approach to the work.
Ivy League degrees not only give an advantage to people who package their pitches in certain terms, it also gives them access to networks of grant makers. That puts people without those credentials and networks at a double disadvantage in a system in which foundations require a personal connection or a special introduction to get a preliminary meeting.
These significant barriers can also feed on internal insecurities for those who may lack fundraising expertise and have discomfort about networking.
For example, Gemma Bulos, who founded the Global Women’s Water Initiative to train women in East Africa to provide clean water for their communities, told me that when she got started, as the daughter of immigrants, she often didn’t feel comfortable in rooms with wealthy, mostly white donors and instead focused on chasing $5,000 donations, which took much too much of her time and didn’t yield the funds she needed.
As a result, it took her much longer to gain confidence in her fundraising, and thus despite clear evidence of impact on the communities she was serving, it was years until she got the capital she needed to grow.
Fortunately, several foundations have pioneered ways of leveling the funding playing field. These include:
Diversifying the pool of advisers recommending worthy organizations. The Rosenberg Foundation focuses on funding emerging leaders of color through its Leading Edge Fund, and it solicits nominations by a highly diverse group of people, most of whom work at organizations that serve people of color. By tapping into dozens of community-based leaders and explicitly seeking to support young people of color, it has been able to identify and fund nonprofits that are not getting noticed by more traditional foundations.
Building the pipeline of leaders. We will not see a diverse corps of nonprofit leaders unless foundations take deliberate steps to cultivate the next generation of nonprofit leaders of color with mentoring, leadership training, and funding. Tipping Point Community, a grant maker that fights poverty in San Francisco, recently created an Emerging Leaders Fellowship, which is a nine-month program to support the training of emerging nonprofit leaders of color.
Rosenberg’s Leading Edge Fellowship also builds up new leaders of color who are tackling inequality in low-income communities by giving these executives an unrestricted grant of $225,000 over three years to support their work. More programs like this should exist.
Accept more meetings with women and people of color. Foundations can increase their potential to fund great ideas from leaders of color if they take the time to meet with them. Shannon Farley, co-founder of Fast Forward, an accelerator for tech nonprofits, suggested setting aside a certain amount of time every week to sit down with people you don’t hear about through your typical networks.
Take steps to avoid implicit bias. Subconsciously held stereotypes often taint decision making. Echoing Green, the largest provider of startup money to social entrepreneurs globally, counters this by conducting “blind” readings of the first round of its application process, with name, gender, education, and other markers concealed from the reviewers. It also provides training on how to avoid implicit bias to the people involved in the judging portion of its business-plan competition.
Provide applicants with expertise. Echoing Green also pairs applicants with past fellows to prepare them for the final round of selection. This allows candidates without strong networks to gain confidence and presentation skills.
Finance management training. Grant makers have many ways to build the capacity of organizations led by women and people of color. Accelerators are one. Camelback Ventures, New Profit, and Fast Forward all offer intensive boot-camp-style programs that not only provide skills training to entrepreneurs who are women or people of color but also open up access to funding networks. Foundations can also offer capacity-building internally. Emerson Collective, a social-enterprise founded by Laurene Powell Jobs to help remove barriers to opportunity and strengthen social-justice groups, builds leadership and management skills at the nonprofits it supports by offering fundraising and governance training in addition to hiring leadership coaches for many of its grantees.
The onus is on philanthropic leaders to do a better job of combating bias among grant makers and wealthy donors. The clock is ticking on pressing social problems like climate change and widespread poverty, and we need to be better at tapping the talents of leaders from all backgrounds to more effectively tackle these challenges.
This piece originally appeared on Quartz.
Employee turnover is bad for team morale and expensive for businesses, with the cost of losing an employee ranging from tens of thousands of dollars to two times the employee’s annual salary. Rapid job-hopping is most prevalent with millennials, though the pace has picked up with Generation Xers and Boomers as well, particularly in the Silicon Valley, where new research shows the average tenure for employees at ten major technology companies is just one to two years.
The good news is that there’s an easy way to hold onto people: get them involved in social causes.
I’ve seen first-hand the intense hunger among millennials for contributing to the social good in classes I teach on social entrepreneurship at Stanford University. But beyond my personal experiences, the largest annual survey of millennials about their engagement in social causes, The Millennial Impact Report, provides powerful evidence. In a recent survey, 55% of respondents said that a company’s support for social causes was an important factor in accepting a job offer. The appeal comes not only from the desire to contribute to causes, but from the sense that a company that’s involved in doing social good is likely to be a better place to work. As one respondent explained, “If a company cares that much about outside causes, then I know they are invested in treating me right as an employee.”
One innovative study showed powerful positive results specifically on retention as well. Analyzing the retention of employees at a major global consulting firm who volunteered for a social impact consulting assignment, which involved a temporary reduction in salary that could be as much as 50%, the researchers found that the participants were a third less likely to leave the firm. The conclusion was that the chance to apply their talents to a social good project increased loyalty to the firm, which many of the participates explicitly expressed, such as one who told the researchers “I feel very loyal toward [the firm] for providing me this opportunity.” More evidence comes from a Deloitte survey that found that “millennials who frequently participate in workplace volunteer activities are more likely to be proud, loyal and satisfied” and that they are also twice as likely to be very satisfied with the progression of their career.
But not all social volunteering opportunities are equally rewarding. There are several ways to optimize corporate social responsibility programs.
So much of the attention to how distinctive the millennials are as employees has focused on difficulties in managing them and how fleet-footed they are. Their strong desire to contribute to the social good should be seen as a golden opportunity not only to cater to their interests and build their job satisfaction but also to genuinely further a company’s strategic mission.
This piece originally appeared on Echoing Green.
Today, it’s becoming more and more apparent that we’re not content with commuting to a 9-5 job, mindlessly putting in the hours, and returning home only to do it all over again the next day. Instead, the case could be made that we’re looking for something more: making a positive impact on this world, one idea, trial, and pivot at a time. Recent studies show that 94 percent of Americans want to use their skills to benefit a cause–that’s 94 percent of people who know that they too can be changemakers.
Social entrepreneurship has been on the rise for the last half decade, with more and more consumers turning toward ethical brands, and more and more talent seeking to join a team that aims to make an impact. But what exactly is a social enterprise? Simply put, a social enterprise is a for-profit or nonprofit organization that uses innovation to improve human and environmental well-being. Whether you’re headed for a cap and gown or looking to make a career shift, consider these reasons why you should work for a social enterprise. My guess is you won’t be sorry!
You can work in an environment where innovation is the norm.
In my new book, Social Startup Success, I have an entire chapter dedicated to failure: what it is, what it isn’t, and why it’s not just inevitable, but crucial to the success of a social enterprise. Here’s the thing: some of the most successful social enterprises have reframed the way they think about failure. Failure is the learning curve. Failure is innovation at its finest. I think that’s one of the many perks of joining a social enterprise: the freedom to fail, take risks, and produce even more creative ideas until you land on one that’s truly transformation–one that can change lives.
You can find your ideal role.
So you’re just out of college, not exactly sure where to go next. Maybe you’ll dabble in marketing, or maybe project management. That’s the beauty of a social enterprise: many have small, hands-on teams that allow you to get your hands dirty in any and all places. With a small team, your role can often morph many times until you land in the perfect position. For those who want variety in their day-to-day lives, a social enterprise could be the perfect fit.
You can act like an owner.
Every successful founder will tell you they couldn’t possibly have made their idea work if it weren’t for the incredible work of their staff. Those same founders might also say that their success is in part due to something called “collective leadership,” where founders allow their team to take on a leadership position of their own. If you’ve ever craved an organizational culture that energizes you with a sense of purpose, trust, and appreciation, you may be looking for that of a social enterprise.
You can play a role in changing our tomorrow.
The great unknown is often thrilling, especially when it comes to a social enterprise. What if you could work in a position that allows you to create opportunities that don’t yet exist? Imagine being the driving force behind a future where sustainability and ethics are at the core of every business, or a world where no child went hungry. These are the opportunities presented by working for a social enterprise–every day is a new chance to change the world as we know it.
You can’t ignore the facts.
Recent studies have found that core to job satisfaction levels is the opportunity to make an impact, and with 60 percent of U.S. social enterprises being created in 2006 or later, and 29 percent created since 2011, there have never been more chances to join an organization that speaks to you. In the same study, two-thirds of the graduating university students said that making a difference in their next job was a priority, and 45 percent said they would accept a lower salary to do so.
With everything out on the table, I want to know, would you consider joining a social enterprise in 2018?
1/9/2018 0 Comments
This piece originally appeared on Bright Magazine.
Nonprofit leaders everywhere struggle daily to search for the money they need to sustain their organizations, which are solving massive social problems like climate change and global poverty. In fact, an overwhelming 81% of nonprofit leaders identify access to capital as their most pressing problem. What most nonprofit leaders don’t realize is that fundraising doesn’t have to be a one-man-show. The most successful leaders get others raising money on their behalf, tapping into a broader audience and increasing organizations’ pie of donations.
Take the case of John Wood, the founder of Room to Read – an organization that supports literacy and girls education globally, who developed a model where other people would actually become actively involved in fundraising for the organization. Wood’s success in breaking the mold of nonprofit fundraising is perhaps attributable to his roots in the corporate world, as a former executive at Microsoft. When he first described his idea, many people told him his model would never work, that it wasn’t sustainable to try to raise money from individuals for libraries. He insisted that he was selling something donors wanted, and that if he packaged it in the right way, to create a one-to-one connection between the donors and the individuals they were supporting, they would eagerly respond.
According to Room to Read’s cofounder Erin Ganju, that packaging was really important to the organization’s success with individuals. “We started a model where you could support a school, you could support a library, you could support a local-language book being published in Nepal or Vietnam, and you knew exactly where that $5,000 or $10,000 check was going, and even got a couple of reports back throughout the year with photos of the school library being set up in that school or children reading those books.” This approach made donors feel strongly connected to the mission and the results.
Room to Read’s supporters felt so connected, in fact, that they wanted to do more. The organization started setting up chapters across the country and around the world to engage their supporters in raising even more money for the organization. These volunteer fundraisers commit to participating in geographic chapters based in cities around the world. Each chapter has a couple of leaders that go to San Francisco every year, at their own expense, for a leadership conference where Room to Read helps them develop their annual plan for their individual market. For example, they decide how many events they want to do, who their target audience is and how much money they plan to raise from them.
In addition, Room to Read uses the gathering as an opportunity to energize these champions, much like a corporate annual sales conference, sharing motivating stories about the organization’s impact they can take back to their chapters, and revealing the organization’s key objectives for the year. The chapter model has been so successful for Room to Read that they now have chapters in over sixteen countries in over forty cities, which in close collaboration with their staff help raise about 25 percent of the organization’s $50 million annual budget.
This sounds amazing, you might be thinking, but how do you sort through the noise in everyone’s lives to get others to help you with your fundraising? Here are a few tips on how you can develop a “champions program” to help others help you raise money:
Kathleen Kelly Janus is a social entrepreneur, author and lecturer at the Stanford Program on Social Entrepreneurship. Her new book, Social Startup Success: How the Best Nonprofits Launch, Scale Up and Make a Difference, shares all this and more.
12/21/2017 0 Comments
This piece originally appeared on AshokaU.
Tell me, what grabs your attention more: a list of statistics spelling out the down and dirty facts, or a story – a narrative that really draws you in with a common mission? Recent research suggests you’d choose the latter, proving that our brains are far more engaged by storytelling than the cold, hard facts. This is true for nonprofits, just as much as it’s true for any university campus changemaker initiative.
We are now in a new age of marketing. Stories powerfully connect us to our listeners. It gives your audience a chance to feel like they’re one with an authentic cause and person – the human behind the brand. Great leaders recognize that human connection comes far before concepts and strategies, because after all, what’s a strategy without a story to drive it?
Changemaker initiatives on campus compete for student attention with so many other campus departments and programs. Embracing the wisdom of a good story is one way to break through the noise, all while tapping into digital platforms to spread that story near and far. From Facebook Livestream to harnessing the immersive storytelling power of virtual reality, there have never been more ways to engage and inspire your audience, and that all starts with crafting a compelling narrative.
While it may seem that some people are just born storytellers – take Tom’s Shoes founder Blake Mycoski or Teach for America’s Wendy Kopp – what I’ve found from interviewing countless organization leaders is that it’s more the product of a whole lot of preparation and practice than that of innate talent. As we head into a new semester and a new year, use these tips to create your own narrative for your changemaker initiative.
Get to Know Your Audience
Whether you’re preparing a presentation or designing an event, you must know your audience. I suggest sitting down with your team to create your target audience’s persona, so that you can ensure you’re speaking to them directly. Ask yourself these questions:
Connect the Story to a Popular Narrative
One of the most powerful ways to create a sense of urgency is by connecting your message to a current issue in the news, or crafting a “news hook.” Constantly be alert to what’s happening in the news, and be ready to pounce on as soon as it hits. This gives you the chance to author an opinion piece that links back to your changemaker initiative, or use relevant happenings during a presentation. Use the stories to help promote your message, and remember, the more topical you can make a presentation, facebook post, or background story, the more convincing your call to action will be.
How to Craft Your Story
Now that we’ve covered the basics, it’s time to jump in to craft your own narrative. As you get started, ask yourself these questions:
Kathleen Kelly Janus is a social entrepreneur, author and lecturer at the Stanford Program on Social Entrepreneurship. Her new book, Social Startup Success: How the Best Nonprofits Launch, Scale Up and Make a Difference, shares all this and more. Whether you’re ready to launch a new centre on campus, a new nonprofit, or teach students how to do so, you’ll find all the tools and tricks you need to make a difference.
This piece originally appeared on Stanford PACS.
Innovation in social entrepreneurship is critical to solving the world’s most pressing social problems, such as rising inequality and persistent poverty. The good news is that in recent years, the sector has seen an explosion of innovation, with rigorous methods like human-centered design leading to more testing of pilot projects, the development of solutions that are more responsive to the needs of beneficiaries, and the implementation of better methods of measuring actual impact. Yet as Johanna Mair and Christian Seelos point out in a comprehensive review of non-profit innovation practices, many mistakes are being made. Too many organizations are devoting too much of their scarce time and money to flawed ideas, aren’t abandoning approaches quickly enough that fail to produce results, or, on the flip side, aren’t allowing enough time to test for results and then modify programs to improve them.
Philanthropists can play a critical role in fostering more effective innovation. But many donors are reluctant to play an active part in funding innovation, in part because they consider themselves ill-equipped to evaluate the risks involved and whether they are worth taking. They also aren’t confident that they can identify which organizations are best prepared to manage the process successfully. Additionally, many funders categorize innovation as an overhead expense rather than a program expense, and their policy is not to fund overhead. As a result, donors often default to funding programs that have already proven their impact, leaving minimal financial support for critical research and development.
So how can philanthropists do more to support innovation? Here are some key lessons I have uncovered in my conversations with leading experts in the field:
This piece originally appeared on SSIR.
Great ideas for social impact are dying on the vine because organizations lack the tools they need to grow. With the right strategies in place, any nonprofit can lay the foundation for success.
I have had a front-row view of the boom under way in social entrepreneurship. As a social entrepreneur myself and a lecturer in the Program on Social Entrepreneurship at Stanford University, I have watched the launch of so many exciting innovations for good. And yet, while for many nonprofits this has been an invigorating and transformative time, so many other nonprofits, have struggled on the sidelines. Despite doing important work, many operate in constant survival mode, scrambling for the money to make payroll every month. In 2014, almost two-thirds of reporting public charities in the United .States. had an annual budget of less than $500,000.
For the past five years, I have been traveling around the country, visiting the founders, leadership teams, and funders of dozens of what I call breakthrough social startups. I’ve interviewed over a hundred social entrepreneurs, academics, and philanthropists, both newcomers and veterans in the field, including the leaders of Teach for America, City Year, DonorsChoose, and charity: water, and started our conversations with a simple question: “What is the key to nonprofit success?” Social Startup Success highlights the findings of my study in the form of a playbook for any organization that wants to grow increase its impact.
In these uncertain times, when so many social problems are not only persisting, but in many cases, worsening, we need every bit of creativity and determination to find better solutions. My hope is that the stories you read in this book and the tools it recommends will help you to make your own organization, or those you are supporting, thrive. We need to spend less energy keeping organizations alive, so that we can devote more energy to spreading positive impact. This book is a guide for how to achieve do that.
Attracting funding is by far the biggest barrier to scale. In fact, 81 percent of the social entrepreneurs I surveyed identified access to capital as their most pressing problem. Nonprofits at all levels struggle to get noticed by new funders. What separates the best organizations is a culture of testing a variety of funding streams to figure out what works. By purposefully experimenting with revenue, they discover a funding model both authentic to their mission and effective at raising money.
Earned income such as selling products or services is fertile ground for experimentation. My survey revealed that successfully developing an earned-income strategy was one of the ways organizations broke through the $2 million annual revenue barrier. The responses showed that while organizations typically start out with mostly philanthropic support, with just 8 percent of their budget coming from earned income, as they grow past $2 million in revenue, they are more likely to report that a higher percentage of their budget is covered by earnings; on average about 30 percent. These findings indicate that testing earned-income strategies should be a key ingredient of efforts to scale. But my research into how nonprofits generated earned income also highlighted that the process is fraught with challenges, and is more viable in some subsectors, such as education and health care, than others.
The vast majority of organizations under $3 million in annual revenue will rely on a combination of funding sources to come up with a model that fits their unique mission and values. In one of the most widely read Stanford Social Innovation Review articles, titled “Ten Nonprofit Funding Models,” William Foster and his Bridgespan colleagues reveal that of the 144 nonprofit organizations created since 1970 that have grown to $50 million a year or more in size, each grew by more narrowly pursuing sources of funding, typically concentrating on one particular source: what they call the “natural match.” For example, the Sierra Club relies on membership fees.
A key point to highlight, however, is that their research also shows that organizations typically do not begin to transition to dominant funding sources until around $3 million in annual revenue. This underscores the point that while organizations that want to scale substantially should be driving toward finding one or two primary sources of reliable ongoing revenue, they should get there by testing a good diversity of approaches as they’re growing.
Many of the organizational leaders I interviewed remember the great recession of 2008 like it was yesterday. Virtually overnight, foundations that had promised multiyear grants reneged on their funding because their endowments had tanked along with the Dow Jones. Earned income was critical to many of them in order to stay afloat. Beyond providing a financial cushion, earned income helps bridge the gap lying before so many organizations: the funding they’re able to raise versus the amount they need in order to invest adequately in growth. Another benefit is that demonstrating your capacity to generate reliable income appeals to funders, many of whom have come to see earned revenue as a vital part of the “path to sustainability.” But before an organization begins playing with potential earned-income streams, it must establish the right expectations.
Take the case of successful Hot Bread Kitchen, a training facility for low-income women who want careers in the food industry, founded by Jessamyn Rodriguez. She smartly played to her strengths in conceiving the organization, after having worked for a decade in international development before she came up with the concept. A passionate foodie, she landed an internship in renowned chef Daniel Boulud’s kitchen. That happened by serendipity. She was interviewing for a job at a microfinance organization called Women’s World Banking, when a friend misheard her as saying Women’s World Baking. The idea of an international women’s baking collective struck her, and it is now located in the heart of Harlem in La Marqueta, a historic produce market dating back to 1936, which had fallen into decline until the organization redeveloped it. The space is divided into three separate areas of operation: a kitchen that hosts a six-month job-training program for low-income women, an area where they bake bread products for sale and an incubator where small-business owners in the food industry can rent space to make products they sell throughout the city, from grocery stores to markets.
Rodriguez told me the key reason the business has been successful is that they don’t sacrifice quality despite the fact they are mission driven, and after tasting their multigrain pepita bread I can attest to that. In fact, the organization sells its bread to a number of major retail outlets, such as Whole Foods and JetBlue, as well as some of the top restaurants in New York City. But even with a top-quality product and a strong personal network for building the market, she initially overestimated the extent to which profits from bread sales would support the organization. While at first she envisioned a model where her bread sales and cafe operations would cover close to 100 percent of her operating expenses, she realized quickly that goal would be hard to accomplish. She had underestimated the costs of the training, and overestimated the profit margins on selling bread. She was forced to reset her expectations, and had to go back to her donors with a new model that would continue to rely on philanthropic donations to support 35 percent of the program budget. Rodriguez told me that “in talking with our donors, I realized that people were attached to our strong outcomes and that was most important, not being 100 percent sustainable. Over time, my understanding of the economics of the business have changed a lot,” she told me, “and I realized that there is actually a huge benefit that comes from philanthropic funding that allows us to do more for the women we serve, such as providing child care during the classes.”
Foundations and donors, and organizational leaders themselves, must not put organizations under unrealistic pressure to fund more and more of their operations by selling products and services. Recall that in my survey, most of the organizations that had scaled to over $2 million in annual revenue reported that earned income accounted for 30 percent, which therefore is a reasonable target for many organizations to shoot for during the initial phase of growth. The bottom line: plan on grants and donations to almost entirely sustain your efforts for at least the first couple of years, as you experiment with building your revenue stream.
If you decide you want to experiment with earned income, you should undertake a rigorous strategic analysis and a pilot program. Here is a five-step process for developing a viable earned-income strategy I highly recommend:
Step 1. Reaffirm your organization’s mission. Earned-income strategies work best for nonprofits when they are highly aligned with their mission. To assure that ideas are serving the mission well, you should perform an assessment of how clear your mission is by asking five or so people (a mix of staff and other stakeholders such as a board member and a funder) to describe the mission, without referring to your website or materials describing it. You could do this with a simple email request or perhaps by calling them. The responses will tell you whether or not you should spend some time aligning everyone on the objectives of the organization. Going through a theory of change is another way to ensure you have clearly articulated your organization’s goals.
Step 2. Brainstorm your options. Bring together your full team (staff, board and even external stakeholders) to brainstorm a variety of potential sources of income, and whittle them down to just a few to evaluate further. Think about the various categories of revenue. Can you charge your beneficiaries for services you already provide? Is there an invested third party such as a company or a government entity that might be willing to pay for those services? Does it make sense to launch a new business venture? What other types of revenue relationships can you form in your network?
Step 3. Assess total mission impact. Evaluate whether the proposed activities are likely to enhance or detract from the pursuit of your goals, and assess the potential net financial gain (or loss) of each idea.
Step 4. Evaluate feasibility. Analyze the internal capacity of your organization to conduct the required activities, considering whether you have the human resources and necessary experience, the financial stability and the appetite for the risk involved, as well as the likely demand for your products or services. Then assess likely funder support, which might involve making some calls to trusted funder advisors.
Step 5. Develop an action plan. Develop a design for a pilot program, following the steps for testing outlined in human-centered design. Solicit feedback about the design from professionals with experience in nonprofit earned-income programs as part of your testing process, perhaps by working with a paid or pro bono consultant, and also be sure to seek the advice of an attorney to assure you fully understand the tax implications.