Social Investing & The End of Charity

In my recent writing defining the difference between Tactical and Strategic Philanthropy, I’ve focused on the concept of the Strategic Philanthropist as a social problem solver and the Tactical Philanthropist as a social investor. So I’d like to draw your attention to an article by David Hunter in the brand new Philadelphia Social Innovations Journal titled The End of Charity: How to Fix the Nonprofit Sector Through Effective Social Investing.

In the article, David (a consultant to grantmakers and nonprofit agencies and the former Director of Evaluation and Knowledge Development at the Edna McConnell Clark Foundation, a key practitioner of social investing) puts forth an excellent argument for what social investing is and what the implications of the approach are for the social sector. I encourage you to read the full article.

David starts with three “Unpleasant Truths”:

Unpleasant truth number 1: While nonprofits work incredibly hard, with passion and dedication, and often in incredibly difficult circumstances to solve society’s most intractable problems, there is virtually no credible evidence that most nonprofit organizations actually produce any social value.

Unpleasant truth number 2: Because so few nonprofits are willing to face this fact and ask themselves whether they are doing any good at all, or even as much good as they may be doing harm, we cannot rely on direct service nonprofits to fix themselves without a serious push.

Unpleasant truth number 3: In general, nonprofits do what their funders tell them to do. When funders make demands, more often than not the vision, mission, goals and objectives of nonprofit organizations give way. As the saying goes, We are what we eat. . . . and most nonprofits are what their funders make them.

He then goes on to give examples of a number of organizations who he says are actually destroying social value (either by spending money that results in no positive change or actually encourages the opposite of the intended outcomes – such as a violence prevention program that has been show to actually increase violent behavior).

David believes (as I do) that a social investing approach can greatly increase the social value production of the nonprofit sector and he lays out an inclusive definition of social investing:

  • the use of rigorous selection criteria to choose nonprofit organizations to support,
  • structuring investments to strengthen organizations in which investments are made in order to enhance their ability to provide effective services reliably and sustainably at high levels of quality,
  • tracking performance and providing non-financial supports as indicated, thus helping these agencies become more effective and efficient in helping the people they serve to measurably improve their lives and life prospects,
  • diminishing transaction costs to help these organizations stay focused on achieving their respective missions, and
  • helping nonprofits to build reliable revenue streams that will support them sustainably at the appropriate level of scale — before terminating the investment.

As part of the selection criteria for investing in a nonprofit, David believes that social investors must ask the following questions:

  • Who, exactly, is the organization serving and what are their needs?
  • How many and what percentage of the people they serve finish the programs or receive a large enough and long enough exposure to services so that they can benefit?
  • What empirical basis is there for believing that an organization’s program(s) and service(s) are effective — that is, producing outcomes for the people they serve?
  • What are those outcomes, what are the indicators used to assess them, and what is the rate of success for program participants in reaching them?

This is where the rubber hits the road. According to David:

“In my experience, the majority of nonprofits cannot answer these questions… in this new age of accountability, nonprofits that cannot answer these questions will find it harder and harder to attract funding from social investors. And social investors will increasingly represent the larger sources of revenues flowing into the nonprofit sector… Social investing, if widely adopted, will help channel funding streams that are directed by measurable performance rather than feel-good stories, habits of giving and rank sentimentality. And social investing has the potential (yet to be realized) to advance a selection process that either forces poor performers to evolve and improve, or weeds them out.”

I agree with David on the way he has described social investing and the implications of it being widely adopted as an alternative to traditional charitable giving. I greatly applaud the clarity with which he describes the process. However, I must also reject the nihilistic claim that most nonprofits and the social sector as a whole is not currently producing social value.

To put this claim in context, realize that 8% of US workers are employed by nonprofits and the sector receives and spends roughly $1.5 trillion in revenue each year. Now I believe that the amount of social value creation in the nonprofit sector can be significantly increased. I believe that currently, as a country we are getting far less social value per dollar spent than we would if social investing became a dominate approach in philanthropy. But just because we have limited evidence of impact does not mean that the sector is not producing positive social value.

I point out this disagreement because I think that David’s starting point is shared by many analytical thinkers who hope to create a more robust social capital market. But I believe that painting this picture of the current social sector actual impedes the development of social investing because it 1) Flies in the face of the experience that most donors and nonprofit employees have and allows them to then dismiss the need for social investing and 2) It greatly lowers the bar to lay claim to being a successful social investor. If in fact the social sector is currently creating no social value, then any investment that creates social value, even a minimal amount, could be seen as having been successful.

David is a super smart guy. He’s also not afraid to say what’s on his mind, such as when he suggested earlier this year that I did not have a “smidgeon of knowledge” about evaluation and that I needed to get a “solid grounding” in social investing issues before I wrote any more about it(!). He’s also a member with me of the Alliance for Effective Social Investing.

What do you think? Is social investing needed? Will it lead to a more effective nonprofit sector? If you work for a nonprofit, are David’s criteria for social investments questions that you feel are relevant and important items for you to be able to answer (I certainly do)? If you are a funder, would you describe yourself as practicing social investing? If not, why have you chosen to use another approach and what flaws are their with the social investing approach?


  1. Alan Sorkin says:

    The Chain of Value Creation David references is quite similar to the method used by Social Venture Partners and my 2000 partners in 24 cities and 3 countries. We believe that $1 invested in an ineffective organizations is a $1 wasted and should be given only to effective organizations. We have invested in 300+ organizations and I personally believe as The Chain of Value Creation you referenced is quite similar to the method used by Social Venture Partners and my 2000 partners in 24 cities and 3 countries. We believe that $1 invested in an ineffective organizations is a $1 wasted and should be given only to effective organizations. We have invested in 300+ organizations and personally believe as Venture Philanthropists we need a Social Venture Investment Fund to fund our effective nonprofits.

  2. Jeff Mowatt says:

    Yes, needed and happening. The theoretical concept of investing in social outcomes, was described thus in a paper delivered to Clinton’s re-election committee:

    “The P-CED concept is to create new businesses that do things differently from their inception, and perhaps modify existing businesses that want to do it. This business model entails doing exactly the same things by which any business is set up and conducted in the free-market system of economics. The only difference is this: that at least fifty percent of profits go to stimulate a given local economy, instead of going to private hands. In effect, the business would operate in much the same manner as a non-profit organization. The only restrictions are the normal terms and conditions of free-enterprise. If a corporation wants to donate a portion of profits to its local community, it can do so, be it one percent, five percent, or even fifty percent. There is no one to protest or dictate otherwise, except a board of directors and stockholders. This is not a small consideration, since most boards and stockholders would object. But, if an arrangement has been made with said stockholders and directors such that this direction of profits is entirely the point, then no one will object. The corporate charter can require that these monies be directed into community development funds, such as a permanent, irrevocable trust fund. The trust fund, in turn, would be under the oversight of a board of directors made up of employees and community leaders.

    “How can such a thing work? Where would the initial venture capital come from? This capital in each case can come from each community if available, or from sponsoring communities or funding organizations. In Chapel Hill, North Carolina, for example — where P-CED was born in 1997 — multi-millions of dollars are donated each year to charities, after which the money is typically given away, spent, and gone. Two churches adjacent to the university campus recently raised in excess of four million dollars to improve their buildings. (As a counterbalance, a third church chose to forego its own plans for a building and donated its entire building fund to a badly-needed support program for the elderly.) If twenty percent were set aside to fund a “P-CED enterprise”, that money would never go away, but would instead grow as it should in business. Once the seed capital is available and the business plan implemented, everything after that goes the normal way of business. Employees are paid according to the local pay scales, receive benefits, and so on. They would also enjoy profit-sharing directly for themselves from a total pool of ten percent of profits. Forty percent of profits would be rolled back over into the company for growth. The remaining fifty percent would go to the trust fund. Thus, aside from the final direction of profits, everything is exactly the same as with any other business enterprise.”

    From there it was deployed to source the 1999 Tomsk Regional Initative in Russia and proposed for the microeconomic ‘Marshall Plan’ approach in Ukraine.

    Small progress has since been achieved in creating a swing toward domestic adoption of orphans, whereas the Tosmk initiative leveraged $6 milion in microfinance and 10,000 “private entrepreneurs”.

  3. Jeff Mowatt says:

    So, to the down side.

    Our position is one of a very small scale social investor, a business funding own advocacy and activism. It sometimes involves going toe-to-toe with organised crime to raise awareness. It can also get very nasty when misinformation / defamation is used to preserve the status quo. It’s no territory for the investment banker or the assumption that free market economics will achieve the desired outcome.

    In Russia. as an example, we’d arrived behind the Harvard managed Defense Enterprise fund which was the subject of David McLintick’s article How Harvard Lost Russia. A catastrophe which preceded Russias 1998 economic collapse. McLintick concluded that the failure was due to missing the opportunity to establish democratic governance.

    I’ve seen nothing on the subject of ethics, from what I’ve read of social impact investment . That concerns me, given the example of pumping funds into Russia.

  4. Jeff Mason says:

    Does anyone think that social investing as David defines it above isn’t needed? Social investing vs. giving based on heartwarming stories, a recognized brand, relationships, and low overhead is a no-brainer. What gets measured and rewarded is what gets done. When funding depends on the answers to David’s social investing questions then nonprofit performance will improve.

  5. Alan,
    I clearly see SVP as “social investors” Thanks for spreading the good word!

    Definitely agree with you. The trick I think is that people respond to incentives and telling donors they are bad for giving based on emotion just isn’t going to move the needle. We need to find ways to package the social investing experience so that it is more attractive to the donor than traditional charitable giving.

  6. Jeff Mason says:

    You’re right, you do attract more flies with honey. However, I believe that the reason for social investing is to drive the actions of the service provider to better serve those in need. I think that many donors have a perception that all nonprofits are good. This simply just isn’t true. To generate a sense of urgency and a passion for change i think the masses need a whiff of reality. We are wasting too much money and failing too many people. Did you see this recent article in the Wash Post?

  7. Jeff Mowatt says:

    So why not financial reasoning rather than emotion Sean? I’ve written of experience in Ukraine, where were to learn that up to 80% of funds directed to childcare institutions were being siphoned. The financial reasoning, after adding up the overall costs was that it made no sense to pay domestic adopters less than half what institutions were paid. That was proposed as one of several measures, in a strategy paper. The recommendation was implemented by doubling the allowance and this was reflected in an announcement of recent growth in domestic adoptions – a social impact . As a social investment strategy, precisely the same idea, , described in the UK context part of the paper which advocates a social impact bond, as a concept.

    A social enterprise investment fund was one of the suggestions that didn’t happen, we got a new USAID foundation to do the job instead. They are at least encouraging local business to participate in another recommendation – of creatng 400+ rehab centres. But that isn’t making the progress we’d like to have seen.

    In the Tomsk initiative $6 million was leveraged for microfinance and returned over 5 years, USAID replicated it in several other cities and the moral collateral lending model became the standard for the Russian Microfinance Centre.

    This success is discussed in an interview after we set up in London. I offered to present it to our APPG on microfinance. They weren’t interested.

    That interview came about after standing up to block the Crimea project from skimming and I suspect some on our “own side” may not have been best pleased about that. Taking a stand for integrity, is possibly rocking the boat and that may be why there so much failure to deliver benefit.

  8. Aaron Stiner says:

    It seems to me this conversation is looking at nonprofit organizations from a “we social investors know more than they do” kind of approach. This paradigm is very frustrating for nonprofit organizations.

    I believe nonprofit organizations are incredibly smart in how they operate. I don’t believe they have trouble measuring impact because they just haven’t thought about it the right way.

    It is really, really hard to measure impact – and plenty of smart people in the nonprofit sector have thought of ways to do it. But even when smart people in the sector really look hard at social impact, it is very difficult to measure. Most social sector work involves human change and there are just too, too many inputs into an individual or group of individuals ability to change or progress for it to be measured very easily. Yes, you can measure outputs and indicators, and most nonprofit organizations already measure these things, but outcomes and impact are so difficult to track.

    My comments go directly to this point in the post, “How many and what percentage of the people they serve finish the programs or receive a large enough and long enough exposure to services so that they can benefit?”

    Let’s take girl scouts as an example. So, if a young girl goes through scouting, we can measure if she performs better on a self assessment of leadership values and self esteem – indicators to a successful life. But can we measure if she has a “successful life”? We can measure over the long term aggregate if girls in scouting programs graduate from HS or go to college at a higher rate than girls who don’t go to scouting programs, but is that actually statistically significant? What about all the other life factors – ethnicity, family income, quality of school system, presence of parents and mentors, etc that play into a young girls life. How do we “control” for these factors to truly measure impact? Also, what do we do when that young girl also has a Big Sister, or her dad goes through job training programs? How do we control for and measure the affects of those programs on the outcome or impact – a successful life? And how do we even define success or a successful life? Is it a particular income? Is it health indicators? Is it civic involvement indicators?

    And, who is going to fund the research to determine the what is “large enough and long enough exposure to service”? That question is thrown out like it is so easy to answer, when we know it is incredibly hard to answer and takes a lot of money – in research dollars – to answer. Who is willing to pay for this research? Who is willing to pay a nonprofit organization to track their recipients their entire lives to measure if they have had a successful life? Where are you/will you get “rigorous selection criteria to choose nonprofit organizations” when there is very little research dollars out there to establish that criteria? And, because of the complexities I note above, what research is out there can sometimes be contradictory.

    So, what we are left with is realizing that, while it can be done, measuring social change impact is incredibly complex and time consuming, must be done over long periods of time and is very expensive.

    Applying all these methods of social investing is going to put more strain on nonprofit organizations to jump through hoops, leaving less time and resources to make change happen.

    Also, to the point of, “we cannot rely on direct service nonprofits to fix themselves without a serious push.” What is broken exactly? How are you measuring broken and how will you measure fixed?

    It seems to me that if donors really want to increase the effectiveness of social change they would spend a lot more time sitting in a room with nonprofit organizations and their RECIPIENTS, asking them what resources they need to improve their lives. Once you see how complex is the system for human change, you may see how difficult it would be to answer your questions above.

  9. Love your post, Sean, and I would like to respond to Aaron Stiner. Aaron is right about two things: 1) the voices of nonprofits are often absent from these debates, and 2) somebody needs to fund nonprofits’ efforts to manage performance.

    That said, I would ask Aaron a question in response to his assertion that it is too hard to measure impact: How can you justify your organization’s existence if you cannot show that you are likely making a difference? Many programs make no difference at all, and some do harm. The assumption that all nonprofits, by their nature, must necessarily do good is simply dangerous.

    It is true that you cannot show beyond any scientific doubt that the people you served are better off because of your program. But unless your organization is incredibly sophisticated, you should not be worrying about that kind of rigorous evaluation at this point.

    Instead, you should be worrying about performance management. About questions like the one you highlighted “How many and what percentage of the people they serve finish the programs or receive a large enough and long enough exposure to services so that they can benefit?”

    What this means is that you have a theory about what it takes for people to benefit. Let’s put it this way: if your girl scouts are not showing up, well, they sure won’t benefit. If mentors do not meet the kids as often as necessary and the relationships end prematurely, they may even do harm. Yes, anyone who takes the trouble to do some basic research before starting a program will learn this.

    And if you measure outcomes, you will learn whether people are benefiting as intended or not. If not, you can explore the reasons why, and you can act to improve the likelihood that they will benefit. If they do experience positive outcomes, you can relate the results to the services – if people weren’t receiving services, like the Girl Scout in question, well, you shouldn’t be taking credit for the results. If they were, it may have been because of you.

    Rigorous external evaluation has its time and place, but all organizations should be expected to apply common sense to manage performance. And yes, funders need to support that.

  10. Aaron Stiner says:


    I guess I lost my larger point. And that is, I don’t know what social investors think is missing in nonprofit organizations that social investors can come in and fix.

    Almost all the medium to large nonprofit organizations I know can easily tell you the logic model on which they base their programming. They know the change they want to make and what it takes to get to that change. They can tell you how the activities you fund help them get to that change. If they receive any kind of gov’t or foundation funding, they are already measuring and tracking inputs, activities, outputs and indicators towards outcomes.

    So when I read, “there is virtually no credible evidence that most nonprofit organizations actually produce any social value”, I think he must be talking about rigorous scientific research.

    Because if what he means is, “nonprofit organizations cannot tell me how what they do leads to improvement on indicators for success” then he hasn’t been asking nonprofit organizations I know.

    Sean lists this in his philosophies, “We believe it is often the nonprofit management teams – those with decades of experience in their chosen fields – that are best positioned to figure out what works.” I guess I don’t see that value in the post above. What I see in the post above is “nonprofits can’t prove their work has impact and they need us social investors to come in and tell them how to do that.” I disagree.

  11. Aaron and Ingvild,
    Great points on both sides. To be clear, the post is mostly excerpts from David Hunter’s essay, but of course I state that I support the social investor approach. Yet I also say that nonprofits are best positioned to know which programs are most likely to succeed. So how do I reconcile those two points?

    I agree that measuring true impact is very, very difficult and so I’ve stated in the past that focusing on high performing organizations (those that are well run and seek to track and maximize the outcomes they achieve) is the best approach for social investors.

    While I think that nonprofits are best positioned to decide which programs to offer and how to offer them, I think that social investors are best positioned to decide proactively which nonprofits to fund. I believe (and I think that David would agree with me, but I won’t speak for him) that the social investor who wants to “push” nonprofits should not “come in and tell them” how to design their programs, but instead provide funding to nonprofits that do a good job of tracking and accomplishing outcomes and withholding funding from nonprofits who don’t.

    In the for-profit field, investors provide capital to organizations that appear to them to have the most potential (and/or track record) of producing profit. That doesn’t mean they “come in the tell them how to do it”, it means they invest in high performing organizations and do not invest in low performing orgs.

    I don’t see the role of social investor as a “superior” role to nonprofits. Not in the least! Investors should strive to (and take pride in) having the intelligence to source great organizations and invest in orgs offering good risk adjusted outcomes. But this doesn’t mean they are better than the entrepreneurs who run nonprofits. The world needs both investors and entrepreneurs. The system doesn’t work without both.

  12. Bridget Laird says:


    I think the difference is when non-profits provide you with their logic model, inputs, outcomes, etc; they are basing this on what they believe and say their non-profit is doing. However, the reality is many non-profits are saying one thing and doing another. Performance Management stops this from happening because non-profits are forced to track daily, weekly, monthly progress towards their outcomes and can easily identify when they stray away from their intended path.

    Scenario 1: A non-profit runs several tutoring centers which match 1 trained tutor with 5 children and tutoring takes place 3 times a week. (Inputs and activities)

    One of their outcomes is each child will improve standardized test scores by 15 points within one year.

    A year ends and children only improve scores by 12 points. The non-profit chalks this up at being close to the outcome and begins another year of tutoring.

    Scenario 2: That same non-profit manages their performance and discover that only 50% of their tutors are attending the required amount of training, some centers are allowing 7 children to participate and there were 2 weeks during the first month that tutoring only occurred twice a week.

    These problems are taken care of ASAP. And if their theory is correct, the children improve their scores by at least 15 points. However, if the scores are not improved by 15 points, they go back to the drawing board and design their program to meet the outcomes they have set.

    In Scenario 1, the program is not operating like it intends to but nobody knows and therefore they do not know why they fall short of their outcome.

    In Scenario 2, the program operates exactly as described in the Logic Model/Theory of Change created by the organization. They are putting their best product out there. If their best product is not working, they adjust, modify, test and make changes they believe will work.

    Social Investors need to fund the non-profit that manages performance because when they reach their outcomes, they are going to know exactly what they did to reach them. They can then design a product (program) that can be replicated.

  13. I couldn’t put it any better than Bridget just did. Many nonprofit organizations have logic models or other frameworks, but few actually use those to guide performance management in practice. And unless that happens, in the way Bridget described, logic models and similar frameworks are useless.

    In my experience – and I have worked with many, many nonprofits of various sizes – the fact that an organization has federal or foundation funding means that they can count certain outputs and often certain outcomes, but it does not mean that they manage performance well or at all.

    When David Hunter writes that “there is virtually no credible evidence that most nonprofit organizations actually produce any social value,” I believe he is referring to the fact that the vast majority of organizations have neither been through rigorous evaluation nor have in place meaningful performance management systems that resemble anything close to what Bridget so eloquently described. That jives with my experience – on the ground. I also know that David would be the last to recommend that all nonprofits go through rigorous evaluation; he operates with a continuum of evidence of effectiveness which you can see in question 18 of the Social Investment Risk Assessment we are currently testing (

    The larger point here is that if we – funders, donors, social investors, nonprofits – want to help the vulnerable populations nonprofits exist to serve, excellent systems for performance management must be in place. I believe that social investors and good nonprofits alike agree that this is all about people – we owe them services that have the highest likelihood possible of improving their lives. Our primary responsibility is to them, not to the nonprofits.

    That means that social investors should choose one of two paths, depending on their preference: 1) invest in organizations that have rigorous evidence of effectiveness and/or are high performing; or 2) invest in building the performance management capacity of organizations that are not yet there, in which case improvement must be a pre-condition for continued funding and high performance must be expected in due course.

    There is no doubt in my mind that social investing is greatly needed, and nonprofits who are willing to ask the tough questions of themselves, manage performance and do whatever it takes to serve their clients in the best possible ways are the ones that will attract investments and thrive.

  14. Laura Deaton says:

    I won’t re-create my whole post from Sunday on this topic ( but I do want to jump in and say that I agree with much of what Ingvild says, however I differ strongly when we start talking about only two paths that social investors “should” choose. There are many viable options that still provide significant value. Not only can an investor choose both options 1 and 2 at that same time (invest in high performing orgs and those that aren’t there yet), but they can also, at the same time fund organizations that may never be there. This is not a binary, “black and white” world and to expect or direct people to behave in such a way is simply not practical, nor to the benefit of society as a whole. We need the non-entrepreneurial organizations who feed a homeless person a meal just as much as we need the high-performing organizations who believe that meals aren’t as important as ultimate long-term changes away from homelessness. You can teach someone to fish at the same time as you give him a fish. In fact, it’s likely that you need to do so. I daresay that there are grassroots organizations, run primarily by volunteers that will never reach the level of performance and measurement that would be needed under the scenarios above. And, they’re working in communities where there aren’t many funders who care about what they’re doing, where there aren’t any other resources, and where the extinction of their services would be devastating to communities. Do we really want them to stop feeding, and clothing and sheltering? Do we want them to perish because the donors who might consider funding have been advised to put their funding elsewhere? They exist not just by “charity” but often in spite of the lack of it. Why are we leaving them out of the equation? Why is there no discussion of building their capacity to serve alongside those that are high performing and/or on that path but haven’t gotten there? This simply doesn’t have to be an approach that leaves so many nonprofits out there to fend for themselves. How about “charity” and “philanthropy” happening side-by-side? How about envisioning a world where we lift the entire sector up instead of turning our backs on the amazing volunteers and staff in the organizations that don’t know how to “get there”, and haven’t got a guide. Shouldn’t we instead be helping them find a guide and resources instead of advocating the shifting of resources away from them? My answer is yes.

  15. Laura,

    I would not exclude organizations that produce outputs such as food and shelter in the short term – they can also manage performance to ensure that they are providing quality services, even if they do not produce outcomes. They are much needed.

    I also agree that we must try to lift the sector by investing in building performance management capacity. This is investment organizations often struggle to secure; making such funds (and expertise) readily available would be a significant advancement.

    Do I understand you correctly that you believe organizations that never manage performance should also be funded in the long term? If so, you are right that we differ. Even small organizations can do basic performance management, and not doing so is to the detriment of clients – services may be ineffective or harmful and the organization would never know. On behalf of the people who are expecting – and often desperately needing – services that will help them, can we in good conscience accept that?

  16. I want to briefly re-emphasize a point here that both Sean and Jeff made earlier. And that is this:

    A lot of this comes down to education (or re-education) of funders. Most funders THINK they are asking for outcomes/performance management/impact, when in reality they are only asking for outputs.

    I agree with David when he says that the funding organizations/individuals will likely have to drive the change.

    But we in the nonprofit sector should not assume that those funders know what they are doing in this realm. In most cases they don’t. And we collectively need to figure out a way to communicate these important points AND make it more attractive to funders.

  17. I’ve written a new blog post responding to Aaron’s critique: Do Social Investors Look Down on Nonprofits?

  18. Tywanna says:

    This has been a very interesting blog to read and wish I had read it sooner, but two things really have popped out to me:
    1. Is it really difficult to measure performance and if so, does that mean you can’t justify your organization’s existence?

    2. Should funders drive any part of nonprofits?

    I must stay Aaron’s post definitely stuck with me because I feel the point of measuring impact, especially when it comes to dealing with humans. For example, in my field we deal with juvenile offenders. I have had clients come in with 10 arrest in one year, smoking marijuana, and not going to school. In one quarter/ 3 months (which is normally the reporting requirement) you may get that client into substance abuse treatment and even enrolled in school and he may not re-offend and certainly we celebrate that and we could report out the number of clients we were able to enroll into substance abuse treatment and/or school but what about the client still smoking marijuana? What if he never stops smoking but stays in school? We’ve also have found that getting someone substance abuse treatment/education doesn’t necessarily stop the negative behaviors. For example, we had a client who was employed, taking GED classes, and visiting his worker daily who got arrested for a double homicide. Did we or did we not have an impact? Maybe short term with a few success but what about long term? Or should our organization state that only short term impacts are our mission? I don’t raise these points to obtain answers on how are organization can answers these questions; we’ve been future to partner with Johns Hopkins research to fund research around some of these questions; however, I would say the majority of nonprofits aren’t in the position to hire people to fund someone to help answer those questions. I do raise the point to raise it is not necessarily as easy of a task as presented. I do thing educating/reeducating funders would help and I agree that funders should expect to dictate programming as much as to be knowledgeable in supporting organizations that our higher performance organizations. I also feel that part of that education includes the struggles that can arise in trying to measure impact.

    Furthermore, I think it would be dangerous to try to apply the business world model to the nonprofit sector. Considering that most nonprofits operate in the human service sector you can never break down human life/impact in the same manner you do products. It just doesn’t equate out to dollar and cents in the same manner.

  19. Jeff Mowatt says:

    Tyvanna,, Picking up on your last paragraph. This is the essential point that I’m trying to make about a form of business which doesn’t equate to profit and numbers.

    It’s been rather difficult, taking 13 years in fact to get across to the nonprofit world how this is a work in progress. Today I discovered that some in the nonprofit arena are beginning to see things this way too.

    I describe a model which derives among many influences, from Carl R Rogers and person centered counselling, a people-centered approach which takes as a fundamental predicate that people are not disposable.


  20. Laura Deaton says:

    Hi, Ingvold – Sorry to jump back a few posts, but I want to answer your direct question and this is the first opportunity I’ve had to do so. You asked whether you were correctly interpreting my earlier post as saying that organizations that never manage performance should be funded in the long term. Actually that wasn’t what I was saying at all, but it is a possible outcome of what I was saying.

    What I was, and still am saying, is that there is a role for social investors who wish to only fund high performing and/or high-impact organizations, and at the same exact time, there is a role for donors who wishes to fund what you are calling “inputs” like meals and shelter, and what I might call individual outcomes, like feeding a hungry person, or providing methadone to a heroin addict. Are those long-term changes for the individual? Maybe, who knows? As we know, measuring outcomes for homeless people who live on the streets is one of the most difficult things to do. If so, then there is not only a condition change for those folks (more than just counting a meal, but an actual outcome for that person), and society has one less hungry person and one less dope addict, so I’d argue that there’s societal impact, too, albeit not on a grand scale.

    To go back to Sean’s original questions: “Is social investing needed? Will it lead to a more effective nonprofit sector?” Maybe, but we don’t yet have any real data to see what impact it could make on the sector if widely adopted. In isolation, though, I believe it could and would be harmful.

    As soon as I hear anyone saying, we can “fix” a sector by shifting resources toward only highly performing or highly effective organizations, my radar goes up. It’s the response that I had to David Hunter’s article, it’s the response that I had to the “only two-path course” that you proposed, and it’s the same response I’m having to Sean’s new response to Aaron.

    As you’ve noted, we need those non-highly performing, non-highly effective, output-generating nonprofits to continue to provide their services, at least in the short-term. As Sean said in his most recent blog post, we don’t live in Lake Wobegon where most people are above average, but again his conclusion is also binary. He concludes that as a result, “social investing must be selective, so low performing organizations will lose out.” And, if that’s the way that “social investors” wish to approach philanthropy – in its most raw and Darwinian form- fine. But my question is “Why is that necessary?” Why can’t we construct a “win/win” for the sector instead of a “win/lose”?

    Asserting that if we all were social investors, we could “fix” the sector is simply wrong. Flip on a switch like that, and you’d simply devastate the sector, and the people who rely on the sector for support. We would be left with an elite few well-funded organizations that couldn’t possibly handle the multitude of needs that the sector has.

    So, instead I argue a rational non-binary approach. Urge funders to look in their communities and the communities they wish to support. Find the high-performing organizations, yes, and give to them if they need your funding. Then look at the ones that are “on their way” but need a little nudge. Give them some resources and guidance to help them build capacity. And, then look at the struggling nonprofits that are targeting real issues and not doing it well. Instead of encouraging donors to shift away from those nonprofits, instead let’s encourage donors to keep them in their diversified portfolio of giving, and use their resources to help them build their capacity instead of shunning them completely. As you so eloquently stated earlier, we need to be focused on “the people who are expecting – and often desperately needing – services that will help them.” This applies to the struggling nonprofits in our sector as well as the people who need the benefit of a healthy and vibrant sector overall.

    While we’re at it, let’s urge donors to fund cross-sector leadership initiatives, outcomes and performance training, intra-sector sharing of effective practices, mentorship models for new leaders or new organizations, and more. I spend my days in the trenches with these low-performing organizations, and I can tell you that they’d snap up anything that actually looked and felt like real professional development or capacity-building in a heartbeat.

    What we needn’t do, and what I believe we “mustn’t” do, is believe for a moment that one strategy such as social investing is enough to “fix” this sector, especially if it has as its core premise a survival-of-the-fittest “win/lose” model. We can do better than that. We can take the committed volunteers and staff in low-performing organizations and work with them to build in effectiveness and evaluation and become higher performing. But we can’t do it if we’ve already shifted every resource we have away from them. That might feel like “charity” right now, and it can (and WILL, if human nature tells us anything) absolutely survive quite nicely alongside “social investing.”

  21. Laura Deaton says:

    Ingvild – Sorry for the typo in your name. I hit submit too fast.

  22. Aaron Stiner says:

    Well said Laura! I think the “rational non-binary” approach you outline is the one closest to reality.

    Keeping in mind the underlying value of plurality in philanthropy, each funder will find his or her own mix of strategies to support the causes they care about and each nonprofit organization will find their own strategies for effective impact – and each group will define impact in their own way. Some may call that a weakness of the sector, I see it as a strength. Social investors have a place, but I am not sure their’s is the only or best approach for all.

    I am guessing Sean would agree that he thinks social investing is one effective form of philanthropy, with its own strengths and weaknesses, but its not the only and best form for all (Sean correct me if I am wrong). It is the form of philanthropy on which he is focused on promoting and improving and hats off to him and others for exploring the whys and wherefores of social investing.

    I think the “binary” approach you reference may be what is leading to some of our disagreements here – it seems a little oversimplified and over “Darwinian”.

    The beauty of philanthropy is there is room for all methods and all approaches. If we lose that value and say there is only one best way of funding and only one best way of operating nonprofit organizations then I think we lose what makes our sector powerful.

  23. I fully believe that the world at large is generally non-binary and that social investing is not the only way. At other times, I’ve highlighted that I believe that Tactical Philanthropy (social investing) is an approach I prefer, but that Strategic Philanthropy can also be effective. There are many, many approaches to philanthropy just as in financial markets, there are many approaches to smart investing.