In the Titanic Recession, Which Nonprofits Get the Lifeboats? Editor notes issue #78

Now that we have all become experts on the Titanic, we all know that third-class (steerage) passengers died at substantially higher rates than first-class wealthier passengers. But did you know that nonprofits that serve poor people are failing at much higher rates than those that serve the general population?

In fact, nonprofits that provide "the most basic anti-poverty services for the poor and homeless failed at around twice the rate of more mainstream services," according to the UCLA Center for Civil Society in its recent report on nonprofits in Los Angeles County (and we have no reason to think that other areas are different). And even more telling is this: that among nonprofits serving the poor, those located in African American neighborhoods failed twice as often as anti-poverty organizations in other neighborhoods.

What a sad story this tells about our society in general, and about funders in particular. A sobering statistic is that in terms of foundations, fewer than 16% of grants are targeted to low income communities (National Committee for Responsive Philanthropy).

We suspect that one reason (of many) for the relative lower amounts of foundation funding is -- unexpectedly -- the focus on innovation, social enterprise, outcome metrics, and the coolness factor. Innovation: when serving the poorest in our communities, we know the answers; we just need more money. Social enterprise: in only very, very rare cases can a nonprofit make money by helping the poor. Outcome metrics: funder pressure for outcome metrics forces nonprofits to serve those who can most readily "improve" -- which means serving folks that are relatively better off. And the coolness factor: a start-up run by well educated, cool, high-energy young people is more fun to fund than a long-time provider run by community-embedded nonprofit staff.

Sometimes we need to choose nonprofits because they are doing the most important and pressing human work, not because they are the most innovative or have the best metrics, or because we know and like the leaders. I am guilty of this in my own personal giving, and I pledge to be different. -- Jan Masaoka

* This issue features a blockbuster article from Kim Klein, in which she discusses her Christian faith, an article on Real-Time Evaluation, and a Board Cafe article on how many people should be on a board. Plus: how to make mini-weapons of destruction (and fun) in your very own office.

* What a great response to our last issue with special 4-day discounts for Blue Avocado readers. More than 90 people took advantage of book discounts and more than 1,235 signed up for webinars. Terrific!

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Comments

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You all produce awesome content. Just wanted to say thanks. Brian Depew

Love it! I'm retitling Innovation vs Liberation and sharing!

Awesome post!

Once again you have spoken truth to power: foundations are mainly focused on innovation, social enterprise, outcome metrics, and the coolness factor. Let's start with the huge The California Endowment, whose wealth derives from billions paid by people in health insurance premiums for Blue Cross coverage.

This money was supposed to be spent on health care --- doctor visits, surgery, prescriptions, etc. That's what people were buying when they paid Blue Cross. When Blue Cross (nonprofit) became WellPoint (for profit) the assets of Blue Cross (premiums paid for health care coverage) were ceded to a new foundation, TCE. (Don't forget the "The"!) Rather than pay for health care, TCE is devoted to systemic change.

When I walk past the Venice Family Clinic every morning, I wonder how many kids could have ear tubes, how many homeless people would have their wounds cared for, and how many people could have a listen to their lungs before their colds turned into pneumonia. That money paid for health care could have paid for the prescription drugs that the Venice Family Clinic scrapes to dispense because its patients cannot buy a prescription at a pharmacy to save their lives (literally).

The cool stuff that TCE funds, and there is a lot of innovation and cool there, pales in comparison to the basic, mundane health care needs of poor people in Los Angeles. There is no mechanism for holding foundations accountable for their choices, and in fact they are lauded for their foresight and generosity. Again, thank you for recognizing the contradictions.

Whatever its shortcomings, the California Endowment is trying to support health care for people who are poor and for everyone. Why do we tend to attack the people that are closest to where we stand rather than those that stand the furthest away?

A community foundation president told me that the majority of donor advised grants they send out go to top tier universities like Yale and Stanford. Look at the amount of foundation money that goes to providing services mostly to the wealthy (the ballet) or provides thousands of jobs for well-educated (mostly white) people to research over and over the same social science topics, or the salaries spent by foundations for communications officers who work at publicizing the foundation? Or the foundations that have ten full time staff making a total of $400,000 in grants a year?

I completely disagree with the sentiment of this article. Just because a nonprofit is doing "good" does not mean it is doing it "well."

Foundations of all sizes have a responsibility to ensure their dollars are being used responsibly and effectively. I know many organizations in LA County which are started by grassroots, passionate people who could have done their community a much greater service if they had simply used the internet to find out who is ALREADY doing the work they are trying to "start." The state of the sector survey referred to in this article indicates the shocking number of nonprofits all located in one county. Additionally, it highlights the fact that there are very few innovative collaborations, mergers, or partnerships among these service providers.

While a smaller, direct-service agency may not need some fancy program concept to effectively deliver food, shelter, etc., it does not preclude those same organizations from thinking strategically about improving their service models, reducing overhead, identifying and eliminating duplicative services, collaborating with competitors or being innovative. I really do not appreciate the suggestion that any business (nonprofit or for-profit) should be exempt from innovation. We are all operating businesses--even though they are driven by mission not profits--and we all have a duty to continue to improve our sector and our organizations.

Yes...except that "responsibly and efficiently" is typically defined by funders as "the way we have seen this done before, and understand." Which is the exact OPPOSITE of innovation.

Of course, organizations providing services need to think strategically. But let's face it: most foundations and funders are pretty conservative in their orientation to their work (their politics notwithstanding). In 20+ years of work in the nonprofit sphere--most of it in development--what I have seen emerge from the "foundation biz" is wave after wave of trendy groupthink that simply establishes more, varying, and arbitrary hurdles for those who are actually benefiting society, and changes gears every few years so organizations have to scramble to remain competitive.

Most foundations in my experience think of themselves as leaders in benefiting society. But they aren't, and they really need to get over that. They are fuel stations. Their job is to pump gas for those who are actually putting miles on the odometer towards a better, more just, and happier society. Foundations need to start thinking in those humble terms and understanding that they stand in service to those who are genuinely advancing those interests, rather than congratulating themselves as "innovators" when they brainstorm a new hoop for NGOs to jump through.

I completely agree. Many organizations are run with lots of heart, but little business savvy. An insufficient operating budget and a lack of staff development training make a strained program impossible to sustain. The communities we serve ultimately suffer the most when our programs disappear because we had too much of one ideal and little of the other. Reinventing a service that already exists--but perhaps not the way we want it to-- cannibalizes an already limited pool of resources. Egos have to be put aside in favor of the mission itself which means that we may not get to bathe in the limelight of running our own organizations. Business acumen and innovation are not the enemies here. Collaboration is key and may go along a way in keeping those mission-driven, community-based, grass-roots organizations afloat.

To go to the original question, I think the sad truth is that the nonprofits which are most likely to get seats in the lifeboats are those which are "First Class"...meaning, those with maximum appeal to wealthy benefactors, and associated with minimal unpleasantness or controversy.

Museums, symphonies, opera and ballet companies, the very large disease research charities, etc. will always weather a disaster better than the scrappy, grassroots organizations which deliver services far more beneficial to the society as a whole--and far more efficiently, on a bang-for-buck basis--than many older and more heavily staffed organizations. I don't have to name names--everyone at Blue Avocado knows exactly the kinds of groups I'm talking about.

Innovation is anathema to foundation and major donor fundraising, much as foundations congratulate themselves that this is not so. Nearly all foundations and major donors play the main chance. They are gambling for results, and they go with approaches they see as tried and true...whether or not they are, in actuality.

This is the nature of our system. In the US, functions which are performed by governmental programs in most developed nations are instead farmed out to NGOs by contract or through granting. For the balance of their support, these organizations must rely on the largesse of foundations and major donors, and this inherently distorts what kinds of programs will attract major funding. While there are many high-capacity donors who are willing to go out on a limb to do what they view as right, a far larger number want to look good in the eyes of their peers without being associated with anything controversial. Which means that "safe" foundations, programs and organizations accrete more and more support while others which may have a far more effective approach to the problems they are seeking to solve are left to fight over the scraps.

When the individual whims of donors set our social priorities, it is inevitable that both institutions and individuals which are farthest out of the mainstream will continually be left behind. And so it is with our nonprofit sector.

Hear, hear!

Well said!

Thanks, Jan. We will be using these notes in our next discussion (on poverty & finance) at the next Oakland Chamber of Commerce Nonprofit Roundtable on Tuesday, May 15. 2:30-4:30pm in the Oakland Chamber boardroom, 475 14th Street, Oakland, CA. Jerry Metzker Co-Chair, Oakland Chamber Nonprofit Roundtable

Perhaps 25 years in the np sector (both sides of the phrtonlhiapic dance), followed by a new incarnation as corporate business strategist, explains my cynicism about the possibilities of significant change in the deadly dance between the funder and the funded, to which you referred in your original blog of 10/04. As you indicated, the rhythm of the dance in the np sector is largely determined by the focus of funding from third parties, rather than by the shifting needs of the market (those whose lives the np sector intends to serve). The introduction of new technology service providers to nonprofits isn't about a new source of funding, but rather a new source of efficiency and innovation, the two issues that lie at the heart of the sector's structural woes. Efficiency and innovation are the two primary drivers in the commercial sector. Not so for nonprofits. The competitive necessity to be efficient, to increase profit margins, is distorted in the np sector by funding not tied to production, or to the marketplace directly. Similarly, innovation (which any technology offering would aim to encourage and on which its future is dependent) is inhibited by the dance with funders who reward adherence to their intellectual priorities and who discourage risk, punish failure, and oppose deviations from recognized practice (all of which lie at the heart of innovation). Perhaps the most notable difference between the nonprofit and the commercial sector is that in the np sector, ideas follow money. In the commercial sector, money follows ideas. The question I'd ask of any new entrants like Kintera and Collaborative Standards is whether they really understand the dynamic of the dance they've entered, whether they understand that their new clients (nonprofits) are not free to dance to a new beat, no matter how exciting or promising. My bet? These new service providers will share the market with the old for a time, then dominate .and then they'll have the unenviable position previously occupied by MicroEdge ..a head full of arguments about the enormous potential but a belly full of irrational obstacles that are nonetheless real.

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