An Investment Approach to Philanthropy

InvestingMany people who hope to see the social sector perform at a higher level talk about the need for a more “business-like” approach to nonprofit work and philanthropy. The phrase is odd because nonprofits are businesses and so there’s no other way for them to act but to be business-like. So what the phrase really means is that the social sector should behave more like for-profit businesses.

The problem is lots of for-profits are run really poorly. Jim Collins, the renowned business researcher, said in his book Good to Great and the Social Sector:

“Most businesses – like most of anything in life – fall somewhere between mediocre and good. Few are great. When you compare great companies with good ones, many widely practiced business norms turn our to correlate with mediocrity, not greatness. So, then, why would we want to import the practices of mediocrity into the social sector?

…The critical distinction is not between business and social, but between great and good. We need to reject the naïve imposition of the “language of business” on the social sector, and instead jointly embrace a language of greatness.”

I completely agree with Collins, but for the sake of argument, let’s set aside the semantics for a moment so that we can reflect on this comment from Benjamin Graham, the author of the groundbreaking book The Intelligent Investor and the most critical mentor to a young Warren Buffett:

“Investment is most intelligent when it is most business-like.”

What Graham was saying is that most for-profit investors do not really consider the core characteristics of the organizations in which they seek to invest. Instead, many investors in the stock market consider a whole range of other inputs (has the market been hot lately? what’s the price of oil doing? what will the next new thing be in the tech sector?).

According to the book Buffettology, Graham taught Buffett that the key questions to ask when making an investment were 1) In what enterprise? and 2) On what terms is the commitment proposed?

I think that this concept, can be translated to the nonprofit sector. Business-like investing means focusing in on the likelihood that an investment in a company will be rewarded by financial profits out of the company that are attractive relative to the investment made. If we simply replace “financial profits” with “social impact” we have a recipe for a a successful approach to philanthropy.

It seems to me that so much of the discussion around good philanthropy skirts this core issue. Sure ideas like being transparent, engaging in collaboration, providing assistance beyond the grant and the whole host of “good philanthropy” practices are important. But at the end of the day, I think philanthropy is most intelligent when grantmaking decisions are driven primarily by the questions “In what enterprise?” and “On what terms is the commitment proposed?”

“In what enterprise?” means that you don’t make a grant “to support education” but instead focus your attention at the nonprofit enterprise level.

“On what terms is the commitment proposed?” means that you make a grant if, and only if, you believe that the social impact generated by the nonprofit enterprise will be attractive relative to the grant that you’ve made.

This is what I mean when I write about “tactical philanthropy”. This is what George Overholser means when he talks about “builders”. This is the argument being made by Susan Ditkoff and William Foster in their recent Harvard Business Review article laying out a strategy for becoming an effective philanthropist. This is the premise of those organizations that seek to “invest in nonprofits”.

But this is not the premise of strategic philanthropy.

The strategic philanthropist sees themselves not as an investor, but as an entrepreneur. A strategic philanthropist believes that they can solve the worlds problems. They are problem solvers, not investors.

That is not to say that strategic philanthropy is not effective. But it is important we understand that there is a great divide in philanthropy that is not recognized for the incredibly important distinction that it is. The investment approach to philanthropy is wholly different from the problem solving approach to philanthropy. This recognition is critical because the two approaches require entirely different methods of implementation.

This then becomes the first question that any philanthropist must ask. “Do I seek to be a philanthropic investor or am I a social problem solver?”

The question is a giant fork in the road. The tools, approaches, people and conversations you will have will be completely different depending on which fork you take. This issue is not one of semantics, it is a distinction that completely and utterly changes the very essence of the philanthropic act.

40 Comments

  1. Adin Miller says:

    Sean, thanks for writing this thoughtful post. Your point about that “if we simply replace “financial profits” with “social impact” we have a recipe for a a successful approach to philanthropy” strongly echoes the position taken by Michael Porter and Mark Kramer in their 1999 HBR article, “Philanthropy’s New Agenda.” The key concept that resonated with me in that article and their early work launching CEP and FSG, and which I have since applied at various grantmaking institutions is that as a foundation should “achieve a social impact disproportionate to [its] spending.” I have taken that further to adjust funding priorities and tactics — literally, which approach and which grant recipient would generate a bigger disproportionate impact.

    I also appreciate the distinction you put forward between a tactical and strategic philanthropist. I wonder though if a strategic philanthropist can also adopt the tactical philanthropy approach as part of an overall charitable giving and investment framework.

    -Adin

    • The problem with trying to do both has to do with the organizational type and employee type that is needed for each. To truly solve problems, you need people who have domain expertise and can craft solutions. To invest in nonprofits, you need people who have expertise in organizational evaluation and an understanding or how businesses work. I think it is hard to do both well.

      • Adin Miller says:

        Interesting observation. Which leads to the next logical question: are there any good examples of funders that have effectively combined the domain expertise and investment expertise?

  2. I think that many smart investment approach funders tend to focus in on areas where they have domain expertise and/or so they can acquire domain expertise over time.

    The people at EMCF know an awful lot about helping low-income youth and the people at New Profit know a ton about education and other issue areas in which they are active. New Profit also has an “Action Tank” in which they work to support the ecosystem in which their grantees operate.

    I think the issue should be to pure fidelity to one approach, but instead the focus of attention. George Overholser has talked about an investment approach being about putting the grantee enterprise at the center of the funders solar system instead of the foundation’s problem/solution.

    In for-profit investing, many investors focus only in specific domains. Buffett calls that his “circle of competence”. But investors don’t generally also try to start their own businesses. Investing and problem solving are different activities. They are both critical of course. But philanthropy seems to not differentiate between them and hasn’t even really developed a language to discuss the issue (see “business-like”).

  3. Absolutely there are! See pages 23-26 of this CEP report for one example. …
    http://www.effectivephilanthropy.org/assets/pdfs/CEP_MoreThanMoney.pdf

    There are many more. Wilburforce Foundation in Washington State is one example we frequently we cite. Stuart Foundation in San Francisco is another.

    It’s a false choice.

    • Why is it a false choice Phil? I’m not saying you can’t have domain expertise and use an investment approach. I’m saying that the practice of investing in nonprofits is an entirely different discipline than solving social problems.

  4. Quantitative analysis ability and strong communication skills are two distinct capacities, but when we hire at CEP, we look for — and find — both.

    • Yes. That’s true. But I don’t see how that means I’ve presented a false choice. I’m arguing that there are two distinct forms of philanthropy. Investing in nonprofits and seeking to be a problem solver. I’m not saying that if you do one the other is an impossibility. I’m saying that they are two very different activities.

      Think of it this way. A person can be both efficient and innovative. But an organization that strives for efficiency is going to set themselves up different and hire different types of people than one that is set up for innovation.

      • Sean, I see your point on this but just don’t see the tension in the way you do. In fact, many organizations focus on both innovation and efficiency: we do, at CEP. We have to in order to achieve our goals.

        And, I believe the analogy to investing often doesn’t work in practice so well, for the reasons Mario alludes to.

        In the foundation context, those that can make the most credible claims to influencing tough social problems have often had a very clear view that they needed to support the capacity of the organizations on the ground doing the work. They recognize, rightly, that it is largely through those organizatons they fund that they have impact. Paul S. has been incredibly eloquent on this topic.

        Thanks for provoking thought on this…. Phil

  5. Mario Morino says:

    Another thought provoking article — thanks Sean! Several quick observations. I do think your distinction between investing in nonprofits and solving social problems are analogous to that of a high-end growth capital investor in the private sector to the firms who are solving market problems/needs. Sometimes individuals are able to be good at both, probably more the exception than the norm, but it does happen. The other comment I’d offer, and I think we’ve discussed at times, is that the social sector analog to growth equity investing in the private sector does agree at the conceptual framework level, but as we’ve learned in our work with VPP, it diverges significantly in implementation — due to very different ecosystems and the highly complex nature of the social issues nonprofits seek to address. One of the most important points Jim Collins made in his monograph for the social sector was that non-profits are not business nor should they run like them — I agree. But he went on to say, the defining characteristic of good / great organizations is they are highly disciplined, whether one is a business, nonprofit or government agency. Take care

    • Thanks Mario. I agree that there are lots of implementation differences between investing in nonprofits and for-profits. I’m not trying to argue that they are the same. Instead, I’m trying to argue that there is a valuable investment approach to philanthropy that is distinct from the problem solving approach of strategic philanthropy.

      The investment approach is different enough that it needs to be recognized as a wholly separate approach from strategic philanthropy.

  6. There is a whole lot about your article that SVP would agree with verbatim, Sean, you probably know that :) . The core philosophy that is most vital is the investment in the enterprise (not just or even primarily the program) and its social outcomes. Which is, of course, how we invest in private sector companies and markets.

    I was reading an article last month about Buffet and there was this quote by him – “We don’t tell Coca-Cola how much sugar to put in a Coke or AmEx whom they should lend to. When we own stock, we are not there to try and change people (or programs).” If the world’s richest guy applies that approach to his money expecting a financial return, how the heck would anyone in our sector think about it any other way?

    On the investor vs. problem solver fork, I think a philanthropist can do the latter but if and only if they are deeply committed, fully immerse themselves in the issue, take a very long-term approach, etc. There are way too many individuals and institutions that take a “problem solver” approach but don’t do it the extent necessary; therefore that should be investors. Phil B made a similar point a few years ago about grantmakers providing support “beyond the money,” i.e. don’t try to do it unless your whole org and mission are fully committed.

    • Thanks Paul. I agree that donors can be problem solvers. For instance an operating foundation is clearly a problem solver and I would argue that in many ways strategic philanthropy is a way for a private non-operating foundation to outsource program execution and thereby retain their non-operational status while in effect “operating”.

      My post is meant to simply identify the important distinction between an investment approach and a problem solving approach. While I favor the investment approach, both are valid (and both can be executed poorly and be worthless).

  7. Certainly a lively conversation going on here. My only wish is that we’d hear from some nonprofits that are on the receiving end of different kinds of foundation support. What do they need most? What serves them best? And, if they were in a position to choose from a variety of options, what would they select?

    • Great point Bruce! I know that about 45% of Tactical Philanthropy readers work at nonprofits. I hope they’ll chime in too!

      • Bruce – my thoughts, as a social entrepreneur (one for profit/ one non-profit) and professor (which gives me the time to “think”) is that this argument has little relevance on the ground at the end of the day.

        It is in my mind an “argument” that exists largely in the confines of the donor world and does not really represent how/ why donors give money, or the level of “business mindset” of the average NGO, but the lacking depth of knowledge that the average donor.

        R

        • Great perspective, Richard. Can you amplify, clarify your last setence a bit? I’d like to understand the point better and I think a few words may also have been truncated, left out. Thanks for jumping in

          • Hi Paul.

            I guess what I am trying to say is that if the donors actually had a deeper level of knowledge and experience on the ground with the issues, programs, people, and organizations, then this argument over segmentation would not be taking place.

            That, when I see these arguments take place, what I am reading is not a gap in the capacity of the benefactors (individually or as a community), but of the donors themselves who are reaching for a lens/ frame by which to judge something they do not understand.

            It is simply at the end of the day an argument that (1) hollow in that it lacks clarity and tangibility and (2) dangerous because it forces leaders who are already considered to be somehow aloof, incompetent, or otherwise organizationally handicapped to some how keep up with the constantly changing terminology that this gap produces.

            R

  8. Paul Brest says:

    Sean has it entirely backward when he says that the first question that any philanthropist must ask. “Do I seek to be a philanthropic investor or am I a social problem solver?”

    Leaving aside philanthropic support for one’s church, alma mater, or personal ego, virtually all philanthropy seeks to solve social problems. Otherwise, what’s the point? A savvy philanthropist welcomes the opportunity to invest in organizations dedicated to solving problems of common concern. This is the ideal case for unrestricted, general operating support. But there do not exist organizations committed to or capable of addressing every problem that may concern you as a philanthropist. Therefore, at the same time as you make grants to build or strengthen such organizations, you must often make project-oriented grants (not really characterizable as “investments.”) to achieve your goals.

    For example, the Hewlett Foundation make grants to address global warming generally and also to address particular energy, pollution, and transportation issues in China. To these ends, we are a “philanthropic investor” in the Energy Foundation and ClimateWorks. But we also support the Energy Foundation’s particular projects in China, and make grants to researchers at universities and think thanks to analyze particular climate and energy issues, which are not investments in those organizations.

    In sum, the philanthropist’s first question is, “what social problems would I like to help solve?” If there are well-aligned organizations to invest in, then invest you should. If such organizations don’t exist, then make grants to create them, but in the meanwhile make whatever other kinds of grants are necessary to address the problem.

    • Thanks for adding your thoughts Paul. I really appreciate your ongoing engagement in this debate. You’ve certainly be a major influence in how I think about this issue.

      As Paula Goldman writes below, I think we can all agree that all philanthropy seeks to solve a problem. That’s the whole point of philanthropy after all. But it seems to me that there is a very important difference between trying to solve a problem by designing a solution, paying someone to deliver their solution or investing in the ability of an organization that has a solution so that they can improve it and increase its distribution.

      I want to be clear that in these posts I’m not trying to position one approach over the other. Instead I simply seek a consensus that the various approaches are distinct and important.

      I’ve laid my position out more fully in a new post.

      • Paul Brest says:

        Sean,
        I think these approaches lie on a continuum, and the decision of what problem to solve rather than the particular approoach should be the starting point.

        • I can concede the idea of starting with which problem. But once you’ve made that decision, the approach you choose is critical and being aware of the goals and responsibilities of each approach is required.

          The process of deciding which problem seems based on personal values and not really open to debate. Whereas the approach (as I’ve defined them in my recent post), seems issue agnostic.

          If we can assume that the philanthropist has figured out what they care about, do you then agree with my framework?

          • Sean, I’d like to jump in on a couple of your statements …. “I think we can all agree that all philanthropy seeks to solve a problem.” and “If we can assume that the philanthropist has figured out what they care about, do you then agree with my framework?”…. by asking you why you believe in the first place that the philanthropist has any idea of what the solution is, and how to solve it.

            Sure, the “philanthropist” has the money, but do “they” have the knowledge or the committment to the issue that is also needed? Are they (as an individual or organization) someone who knows how to effectively build a program, staff, and/or organiztion?

            In my experience, I would largely say no. they don’t. That while they have the money (small or large sums) and can often articulate an issue of interest, very few have deep enough knowledge base to be able to effectively understand what it will take to have an effective impact.

            So, how are they going to bring a solution? How, under this framework, is it possible that the money can be spent for maximum “impact”?

            I ask not because I do or do not agree with you, but because the context by which this conversation is taken place assumes the donor (strategic or otherwise) is also an expert in the field that they are passionate about, engaged in, or have donated money towards.

            R

          • Hi Richard, thanks for jumping into the conversation. In these posts I’m trying to sketch out what I see as distinct approaches to philanthropy rather than express my opinion regarding which are best. So in fact I agree with what you write.

            I do think that philanthropy always seeks to solve a problem, but I believe, as it looks like you do, that the problem solver should usually be the nonprofit and donors should simply be positioned to provide support to the nonprofit problem solvers of their choice rather than thinking they know the solution to the problem.

            I wrote about this in a column for the Chronicle of Philanthropy.

            I have argued for this approach in this series of posts because I’m simply trying to seek agreement on the existence of these distinct approaches rather than which one is better.

  9. Susan Wolf Ditkoff says:

    Thank you, Sean, for another thoughtful post. I think the fundamental choice you pose – “Who holds the pen?” – is indeed a big one. Does the philanthropist view themselves as the primary change agent, writing and executing their own strategy (in which case they might start their own initiative or nonprofit, or support grantees who essentially become sub-contractor partners toward a particular goal)? Or rather, does the philanthropist primarily view their role as an investor in the strategies of their grantees?

    Over the past decade-plus I’ve seen philanthropists play both roles well – and play both poorly. Success seems driven by 1) how clear the philanthropist is about what success looks like; 2) how realistic they are about what it takes to make change happen (and crucially, how well the philanthropist is positioned to play their chosen role); and 3) how well they learn and get better over time. We’ve seen that it becomes dangerous when philanthropists fall in love with an idea, but then don’t really understand what it takes to make change happen, and thus fall prey to wishful thinking and end up offering unhelpful “helpful suggestions” to grantees. Or when they try to start an organization (my favorite is “Why hasn’t anybody launched a Morningstar for nonprofits yet? I’ll do it!”) without sufficient context or humility about the world they’re entering.

    Individual benefactors and professionals alike fall into these traps. For example, we have clients who tell stories about a program officer who had programmatic expertise, but not the management expertise to understand what it really takes to expand a multi-site organization. Or about a philanthropist who was a successful entrepreneur and could help the nonprofit assemble resources to build an organization around a great idea, but should not be the one designing the programs. In either case, the grantor/grantee power dynamic makes it hard for the grantee to say no, even to inappropriate advice, on management questions (in the first instance) or programmatic ones (in the second instance).

    On the flip side, when done well, successful philanthropists can really accelerate great change … when they align the program results they’d like to see with the type of change needed in the field, the needs of their grantees, and with their own role, resources, and relationships they bring to bear. We tried to highlight successful approaches in the article you cited (I won’t repeat the “investment models” here, but we do have a limited number of full-text downloads available for free through the Bridgespan homepage if your readers are interested).

    Again, thank you for your thoughtful treatment of the question. Getting this clarity is hard work, but getting it right is worth it!

    Susan

    • Thanks Susan. I think that the prerequisites for success that you’ve seen with your clients are very likely to map well to the framework I laid out in my new post today. Critically, it seems to me that those prerequisites will be different depending on the approach you use and so correctly identifying your approach is key.

  10. kevin jones says:

    As someone who is only learning to think as an investor and as someone who is doing what he can do make a positive difference in the world through what i do understand, which is for profit business, as one who is only beginning to think seriously about the role of philanthropy, i found this interesting. i am somewhat smarter than i was about this last fall, but the philanthropic landscape in europe is so different that things i am working on for the conference in amsterdam at the end of may that my understanding in this area has not progressed as much as it will when i focus again on the u.s. as the intensity of preparation for europe.socialcapitalmarkets.net slows as content and connections and context start to dance down the lane toward amsterdam.

  11. David Lynn says:

    As Paul noted, this certainly hits on some core elements of SVP. However, it is also a question that SDSVP is wrestling with in attempt to better define ourselves.

    Regardless of the semantics, I do tend to agree with Phil in the sense that it is a bit of a false choice. One of the elements you began with is the difference between good and great. If we take the assumption that any good nonprofit has their programs aligned with their mission, then in order to continually drive cost-per-service improvements – and become great – both investment and innovation are required. Investing means “I’ll give you more money so you can do more of that”, and the problem-solving means “I’ll help you find ways to do more with what you’ve got”. Both lead to – and are probably required for – greatness.

  12. Liz Krueger says:

    I think considering the separation is important – am I trying to get people to fix something the way I want it fixed, or am I providing resources for others to accomplish work they can do, and I believe is important?
    Is my belief in myself, or am I willing to empower others?
    This may work in combination, but at least stopping to reflect on the question, and how our behavior aligns with the answer, is important.

  13. I think we can all agree with Paul Brest that we are all here to help solve problems. The main issue here is not a semantic one- it’s not whether we call ourselves philanthropic investors or strategic philanthropists. We would suggest, however, that there is a more important and fundamental question at play here. Specifically, are we here to help solve a problem, or are we here to empower others to solve their own problems?

    We recognize that there are a number of valid and important answers to this question, and that most philanthropists will fall somewhere on the spectrum between the two poles. At Omidyar Network, we fall very heavily on the side of empowering others to solve their own problems; it is a core value of ours. We believe that people are inherently capable. …And that given the opportunity, they will find the most effective and innovative solutions to the issues they face.

    It is for this reason that the majority of our non-profit grants are general operating support rather than program-specific. We are investing in entrepreneurs who we trust and believe in–and our goal is to give them the capital to build their organizations so that the solutions they provide can be both sustainable and scalable. We do in fact call ourselves philanthropic investors– but it is not the terminology that’s important to us.

    • I did see you first reply to Paula, Sean. But just picking up on what Paula says, and acknowledging that there both approaches can be valid, I think there are WAY too many philanthropic entities – instituitonal or individual – today that seem themselves / act as problem solvers when should be investors. I’d maybe even suggest that the investor approach should be the default setting for philanthropists. And the bar for being a problem solver is very high, much higher than most philanthropic entities could currently meet

  14. Thanks for your comment Paula (I mistyped and called you Paul in my reply to a comment above. You may have seen it if you got an email alert, but I’ve corrected the typo).

    I agree that there is an important discussion to be had around helping people vs. helping people help themselves. But I think the argument I’m laying out is slightly different. The point you’re making seems to be a programmatic question (do we fund/run programs that seek to help people help themselves?) while I’m trying to get at an organizational question about the approach that is taken. I’ve tried to make this clearer in my new post today.

  15. I don’t think you can separate tactical philanthropy from strategic philanthropy. I agree that when investing, no matter if it’s for- or non-profit, focusing on financial profits/social impact is critical. But it’s a moot point if one invests in a mediocre company or nonprofit. And, from where I sit, that’s a huge issue. That’s also one of the big differences between for profit investing and non-profit philanthropy.

    Public for profit companies publish earnings, profits, and, generally, one can track evidence of effective leadership and corporate successes. But donors routinely give to nonprofits without a shred of evidence that the leadership is competent, that money is spent strategically, or that the organization has effective fundraising processes in place and engages in evaluation and measurement exercises to track results.

  16. A very interesting thread and I am probably a day (or a week) late and a dollar short. There are a lot of provocative (and ultimately mixed) metaphors here about investment and philanthropy, and rather than try to synthesize or clarify, I’ll bring my own metaphors and concepts to this virtual stone soup.

    When I read the post and the comments, two thoughts came to mind. The first is that Sean is calling out that the unit of analysis needs to be the organization/enterprise. Social change, in his view, does not happen with strategies or consortia, but with enterprises that take capital and convert it into discrete change. I think that in many domains, this is true. The need to enhance the capacity of existing enterprises to do more and to do it better is the challenge; in other sectors, new strategies are needed and no amount of funding the existing organizations will get you there.

    In the case where new approaches are needed, the second thought I had is something that we often observe in our work at Acumen Fund. There are a lot of strategic philanthropists who are very deductive. They start at the left side of the white board, map out the problem statement (often with the help of the usual suspect consultants) and then disaggregate the problem into solvable units. Want to prevent deaths from malaria? You can either prevent or treat… want to prevent, you can either distribute nets or fund the search for a vaccine (among other solutions). From this deductive approach, funding decisions can be made to either support organizations aligned with the strategy or to invent new organizations to fill in the gaps.

    We operate at the other end of the spectrum as inductive investors. We don’t have the time or temperment to map out how the world should sovle problem X, but we invest in organizations that are working hard in that domain, and then from right side of the white board, we work backwards to see where existing enterprises are capable of moving the needle, and where there might be gaps.

    Not sure if the unit of analysis and the deductive vs. inductive contributes to the debate, but certainly enjoyed reading this thread.

    • Thanks Brian. I do think there needs to be problem solvers (of course), I just think that funders should primarily focus on funding solutions rather than designing solutions. However, in this series of posts, I’m trying hard to suppress this value judgement on my part and simply lay out the different approaches.

      I like your deductive vs inductive point because I do think that much of the social sector is so dynamic that deductive reasoning can fail due to the idea that future conditions will change enough to make past relationships between actions and outcomes breakdown. To me, that implies that a solution creation/refinement process is as important or more important than any discreet solution. That implies that the unit of analysis should be the organization.

      Thanks for chiming in.

    • Quick follow up. Are there mixed metaphors you see in my posts? If so, I’d like to know about them.

  17. No mixed metaphors as written, but when you wear an investor lens with business thinking to make strategic decisions about who holds the pen, inductively, of course, you have me swimming in my soup!

  18. On March 3 Bruce wrote, “My only wish is that we’d hear from some nonprofits that are on the receiving end of different kinds of foundation support.”

    I have led a non profit since 1990 and I can only say I wish I had been reading this information back when I started. I would have spent a lot more time looking for people who would support my efforts to build an organization capable of achieving the goals we outlined when we started.

    Instead we’ve written hundreds of proposals and had countless grants ranging from $1k to $50k, from different donors coming at different times. Donor giving guidelines saying we fund one, two, three or fewer years are one of the biggest hindrances to constant improvement.

    No organization can grow from start up to being good, then becoming great, then staying great for many years, with the inconsistent type of funding we’ve had as a result of not having a philanthropic investor supporting our growth.

    In 1997 Paul Vallas who was then CEO of Chicago Public Schools said to me, “Your different, Dan, you get things done”. I’ve never been able to turn that endorsment into a relationship with an investor who would help me build the organizational capacity that would get more of our ideas implemented.

    I’ve always tried to get general operating support so I could use it as needed to fuel constant improvement. I’ve resisted chasing money that would cause us to move from our mission or that would create more bureaucracy than our small organization could support.

    From my perspective having led a small non profit for 20 years, it’s a difficult and frustrating system to depend on when trying to build a strong, effective organization.

  19. Many thanks, Sean, for a thought-provoking post. At the risk of further muddying the waters of our stone soup of mixed metaphors, what if the particular social problem you are trying to solve is a capital market imperfection, such as the Missing Middle? (The Missing Middle is the gap in the capital markets between microfinance and commercial banking / private equity; it is particularly acute in rural areas of developing countries.)

    Then the problem solver becomes a social lender or investor. Root Capital’s model has elements of problem solving (applying value chain finance tools in areas where they have not been applied before, customizing our operational model to serve rural small and growing businesses, etc) and tactical philanthropy (choosing which rural SGBs to lend to, and on what terms). So are we a tactical philanthropist, a strategic philanthropist, both, or neither?

    • Great question! In these posts, I’m not trying to argue that everyone should have one label and stick with it. I’m just trying to define the various approaches so people fully recognize the mode they are operating in at any given time. I’ve pointed out in the past that Philanthropic Investors such as New Profit also engage in “market building” efforts in which they act as a problem solver.

      It sounds to me that your efforts at fixing market imperfections are a form of Strategic Philanthropy that is aimed at improving the environment in which Philanthropic Investing can take place.