In my guest post on Paul Brest’s blog, I tried to make the case that donors (foundations or otherwise) should be primarily concerned with funding great nonprofit organizations rather than designing social programs. However, both Paul and one of my readers interpreted my post to be arguing against the concept of basing funding decisions on evidence that a program works. So let me clarify my thinking.
For-profit firms are generally built by entrepreneurs and funded by investors. Most investors are “passive” in that they provide capital, but do not influence the day to day operations of the firm. Some investors, especially large, early stage investors such as venture capitalist, do exert influence over how the firm is run. However, at the end of the day, the business plan is crafted and adapted by the entrepreneurs, not the investors. The Internet changed the world not because investors designed grand plans for a wired world and then sought out technology firms who they thought could implement their plans. The Internet was brought to a wide consumer audience by entrepreneurial firms whose great business plans and outstanding leaders attracted investment capital.
Sure nonprofits should have sound business plans that address both operations as well as a Theory of Change for why their programs will affect social impact. While neither nonprofits nor their funders should expect the level of evidence found in science, I do think that nonprofits should base their plans on evidence that they will likely work and accumulate evidence along the way that things are working (or not). My point is the designing of programs and researching of validity should be the domain of nonprofits. The focus of donors should be reviewing nonprofits and selecting those that appear to offer the best opportunity for impact. This is not how foundations behave today.
If you look at the research distributed through PubHub, a Foundation Center service that distributes foundation-sponsored research, most of the research is on specific program interventions, not nonprofit organizations (a recent report on carbon cap and trade systems is about what makes a system work, not which nonprofits are the best options for a funder interested in reducing carbon output). What I’m suggesting (and please re-read my opening comment about this discussion with Paul being a way for me to form my opinion, so I may change my mind on this) is that many foundations are practicing philanthropy with their emphasis in the wrong place. Foundations should be spending most of their time researching nonprofits and then figuring out the best way to fund the ones they chose, rather then spending their time designing programs and then finding which nonprofits they can contract with to execute their plans.
This doesn’t mean that donors cannot have their own ideas about which sorts of programs they are interested in. Just as a for-profit investor in energy companies might favor natural gas producers over oil companies because of beliefs they have about the future of energy use, donors may very well have certain “themes” that guide their giving.
So yes, evidence of social impact is important. Yes, any public benefit activity should be executed according to a plan and progress towards goals should be tracked. But I refute Paul’s assertion that philanthropists are the ones charged with designing a theory of change. Instead, I think their role should be in funding the best nonprofits. It is no wonder that we’ve been so slow to develop social capital markets if the major funders are more interested in designing programs than in providing capital to build great nonprofits.
In my model, donors would have their own beliefs and expertise around what sorts of programs work. But they would be “synthesizing generalists” in the words of philanthropy advisors Lowell Weiss (I need to point out here that Lowell worked with Paul to develop Paul’s 8 step description of Strategic Philanthropy. So in using his name here I don’t mean to imply that he would agree with me). A synthesizing generalist, which is an apt description of most great for-profit investors, does not have the domain expertise to create social impact business models. But they do have the ability to evaluate nonprofit firms across a variety of areas and select the ones who are most likely to have a theory of change that works and the ability to execute their plan.
It seems to me that one objection to this model is that foundations may feel that there are no great nonprofits working on a program that they find attractive. But I believe that problem is a symptom of the current Strategic model, rather than refuting of a more Tactical model.
Last note: None of this is meant to suggest that foundations not engage in advocacy, convening, or any other activity that is not part of the nonprofit researching and funding activity. Many for-profit investors also engage in lobbying and convening of industry players. My point is just to shift the emphasis of foundation funding from a Strategic approach that puts Theory of Change design and testing as the core activity of foundations to a more Tactical approach where foundations see themselves as investors in the great ideas of nonprofit grantees.
In March of 2008, I speculated on a more Tactical philanthropic future by imagining what it might look like in the year 2033. You can read that column here.