The Four Core Philanthropy Approaches

FourIn the past, I’ve written critiques of strategic philanthropy and advanced the idea that an investment approach is more likely to achieve success. But my post yesterday was meant to clear a much lower bar. I’m simply trying to establish a consensus that there exists a legitimate alternative to strategic philanthropy that is distinct in its approach.

My post yesterday was probably the most read post I’ve written in some time. It raced around Twitter and attracted comments from a number of leaders in the field. It was probably the comment from Paul Brest, president of the Hewlett Foundation and a champion of strategic philanthropy viewed alongside the comment from Paul Shoemaker, a leader of Social Venture Partners, a champion of an investment approach to philanthropy, that best illustrates the deep divide and validates the distinctiveness of the two styles.

Paul Brest: “Sean has it entirely backward…”

Paul Shoemaker: “There is a whole lot about your article that SVP would agree with verbatim, Sean…”

One of the reasons it is so important for us to recognize distinct approaches to philanthropy is because doing so allows us to avoid “debates” that are really only a function of lack of awareness of the different styles. For instance, there has long been a debate about the value of general operating support grants vs restricted grants. But this debate falls away when we recognize the distinction between problem solving strategic philanthropy and an investment approach to philanthropy. The investment style seeks at its core to support the nonprofit enterprise. General operating support is the default choice because it is most useful in supporting the enterprise. But strategic philanthropy seeks to create a solution to a problem on the philanthropist’s own terms. The general operating support grant is only preferred if it best advances the strategic philanthropist’s solution.

I would argue that there are four core approaches to philanthropy. Each is executing something quite different and recognizing this distinction is critical to their success.

Charitable Giving seeks to buy nonprofit program execution that will accrue to beneficiaries. It is classic “buyer” behavior as defined by George Overholser is Building is Not Buying. The Charitable Giver is concerned primarily with the value of the programmatic execution relative to grant size and cares little about the nonprofit enterprise for its own sake.

Philanthropic Investment seeks to invest resources into nonprofit enterprises in order to increase their ability to deliver programmatic execution. It is classic “builder” behavior as defined in Building is Not Buying. The Philanthropic Investor, like a for-profit investor, is primarily focused on the longer term increase and improvement in programmatic execution relative to grant size.

Strategic Philanthropy seeks to buy nonprofit goods and services in a way that aligns with a theory of change defined by the strategic philanthropist. It too is “buyer” behavior, but the funder is primarily concerned with the degree to which the net result of the programmatic execution across their grantees advances the solution that they believe is most likely to solve the problem they seek to address.

Social Entrepreneurism seeks to directly execute programs that align with a theory of change, defined by themselves. They are the enterprise with which the other approaches engage. They are primarily concerned with the net social impact that is a result of their programs.

The Charitable Giver and Philanthropic Investor both transact with the enterprise, but do not seek to be the agent of change themselves.

The Strategic Philanthropist and the Social Entrepreneur both seek to be the agent of change. The Social Entrepreneur executes programs directly, while the Strategic Philanthropist outsources program execution. But just as a for-profit company that outsources their manufacturing still “owns” the product they offer, the Strategic Philanthropist “owns” their programs despite their outsourcing of execution.

All four approaches are completely valid and indeed required elements of social value creation. Without Charitable Givers, the primary provider of philanthropic revenue to Social Entrepreneurs would be missing. Without Philanthropic Investors, Social Entrepreneurs would have no access to the investment capital they need to grow their enterprises. The Strategic Philanthropist is needed to create multifaceted solutions to complex problems that are beyond the scope of a single enterprise. And the Social Entrepreneur delivers the program execution that is the means of creating social impact.

Now none of this is to say that each person must select one and only one approach. Many Social Entrepreneurs are also Charitable Givers, just as in the for-profit world business owners are also customers of other businesses. A Strategic Philanthropist may make philanthropic investments in Social Entrepreneurs either as an element of their strategic plan or as a separate standalone activity.

The point is not to maintain purity of approach, but to establish a frame of reference. If you are a Charitable Giver, it makes no sense to concern yourself at all with how much the CEO of a nonprofit you are buying program execution from gets paid any more than buyers of coffee from Starbucks give consideration to the salary of Starbucks’ CEO. The Charitable Giver should simply consider the value of the program execution relative to grant size and not the organizational attributes of the enterprise.

The Philanthropic Investor on the other hand cares deeply about the organizational attributes of their grantees, because it is the health and growth of the enterprise that they seek to support. The Strategic Philanthropist, like the Charitable Giver, is also transacting as a “buyer”. But as an outsourcer of program execution, they must care about the Social Entrepreneur’s ability to deliver that execution with fidelity in an ongoing manner.

Now I’m sure my definitions above are flawed. I’m sure I’ve missed elements of this puzzle or mixed them up. But my hope is that they can begin to delineate the distinctive goals and responsibilities of the various actors that make up the social sector. It is a messy world and no simply model will perfectly depict it. But by having internally consistent frames of reference, we can have a much more robust conversation about how to best practice the philanthropic art because the answer to that question is very, very different for each of the actors I’ve described.


  1. So where does Tactical Philanthropy fit in here? Is it one and the same as Philanthropic Investment?

    It seems like “Social Entrepreneurship” is in a different category than the other three terms you outline, no? Social entrepreneurs are at the base of this system, working on the ground, and the other three types of people funnel money into them, motivated and aligned by their different strategies. Social entrepreneurs aren’t funding solutions, but creating solutions. Even strategic philanthropists aren’t figuring out the programmatic and organizational details , but relying instead on their theory of change to direct action, rather than an “on the ground” feeling.

    Thanks for another great post!


    • Yes, Tactical Philanthropy as I’ve defined it is Philanthropic Investment. I didn’t use the term Tactical Philanthropy because while I might use the term, it is not widely used as the primary term. Plus Tactical Philanthropy is a brand name and I didn’t want to confuse things.

      You are right about Social Entrepreneurs. I debated whether I should include that element, but felt that it was needed to define everything else. Plus look at operating foundations like the Pew Charitable Trust. They run programs. And many foundations do “direct charitable activity” as well as make grants. So I felt that it was a useful part of the framework to include.

      Thanks Jeff.

  2. Mark Fulop says:

    Sean -Thanx for a very important discussion in your last post and this one. As a local consultant working with nonprofits and as a partner with SVP Portland, my client work is most often helping nonprofits to clarify strategy and define the kind of capital they need and the collaborative partnerships that they need to cultivate with investors. As you and the “brain trust” of commentators on your first post observed (in one way or another) that this discussion is more refining the language of a framework rather than creating a new one. I appreciate your contributions because, as a practitioner, it pushes me closer to shared semantic in my coach-partner role with nonprofits. To the degree that philanthropy can begin describing their giving approach in more precise terms, it enables nonprofits to align strategies and their capital needs with potential investors. Shared vocabulary is a starting point for shared strategy. Thanxs again for the lively and informative discussion.

  3. Event360 says:

    Insightful- a great delination and definition of the differences between a philanthropic investor and a social entrepreneur. It only makes sense that people would suggest a more business-like approach in nonprofits, especially since they seek to solve problems in a social sense (as opposed to being a for profit that is after financial gain). We believe that we have some important advice on how to start thinking in such an entrepreneurial way. Readers who are interested in becoming effect social entrepreneurs should read our blog posts. They are rich in advice, tips, and case studies.

  4. Mark Rubin says:

    Great post! Your comments are more refined than they were in the first piece and add yet more clarity. As an SVP Partner and fund development/governance amateur, it’s very helpful to appreciate why people give, on ever more fundamental levels, and to have a framework for explaining what Social Venture Partners (in particular) and how it does what it does.

    • Thanks Mark. The downside to blogging is that you post first draft material every day and so you don’t always achieve the clarity you seek. The upside is you get to post first draft material every day and so every once in a while you find that clarity!

  5. George Overholser says:

    We might boil it down even further by asking: (1) Who pays for the work?, (2) Who shapes the work? and (3) Who does the work?

    “Buyers” pay for the work. They merely exchange money for program execution without asking the nonprofit to change what it does.

    “Builders” shape the work. In effect, they say: “You are not equipped to enact our strategy, so we are unwilling to pay for what you already are capable of doing. Instead, we would like you to change what you do. Of course, it is entirely up to you. But unless you make changes, you won’t get the money.”

    Organizations are the one’s that do the work. Sometimes they are entrepreneurial. Sometimes they are mature. Sometimes they are their own funders — as in an operating foundation.

    Payers/Shapers/Doers = Buyers/Builders/Organizations

    All three types are needed. And all three types need to be strategic.

    The problem comes when multiple shapers converge upon a single organization. Everyone is being strategic… but unfortunately they don’t necessarily share the same strategy. So the result can be an organization that is shaped, and re-shaped and re-shaped again.

    If the organization were well-capitalized, it might be in a position to say no to the chronic re-shaping. (“Sorry, that’s not our strategy, and we won’t go bankrupt by turning you down.”)

    If our capital markets were more mature, they would aggregate the capital of like-minded shapers. Through syndicated capital campaigns, an organization’s shapers would be aligned for long periods of time with a single strategic plan.

    But our nonprofit capital markets are not mature. Shapers tend to take turns, rather than pool their resources. For this reason, the organizations fail to stay focused long enough to build the capacities and track records they need to attract type of simple payers (buyers) that won’t try to re-shape them.

    If you think about it, “strategic” shapers are actually not being strategic if they allow the organizations they support to be whipped around by other “strategic” funders.

    • Hi George,
      Your writings and our conversations have been one of the biggest influences on how I think about these issues. But I don’t think I agree with everything you write here.

      Builders as “shapers”. You’ve argued convincingly that growth capital funding is much more like angle/venture investing rather than investing in publicly traded companies. I think you’re right in many respects, but think that Building should refer to both active and passive “investing” in nonprofits. I get the logistically issues around truly “investing” “equity” in a nonprofit in a passive way. But I’d like this frame work to be expansive and so I don’t think Investors should be seen only as “shapers”. The smaller donor who selects grantees on the basis that they’d like to support their growth rather than pay for program execution should be considered an Investor even if they are totally passive.

      Also, I don’t think Philanthropic Investors or Charitable Givers need to be “strategic”. At least not in the sense that their grants need to work together in service of some grander mission. Charitable Givers and Philanthropic Investors may simply have a portfolio of grants that are not designed to be part of something larger or be synergistic in any way.

      • Mark Rubin says:

        Philanthropic Investors and Charitable Givers can be who they are without being strategic or worrying about synergies, but when they are strategic and do focus on synergies, wow, as amazing stuff can happen!!!

  6. Glen Macdonald says:

    While I might agree, whatever “philanthropic investment”approach one chooses , if it is conducted in a heartless laser-like business fashion, it will have less impact, create tension between the who offer help and those who recieve it, and sap the joy the sustains it.

    The conundrum is that the “industrialization” of philanthropy runs counter to its very essence and strips “giving” of the empathy that is central to caring for others (“care” not to be interpreted as a handout) . I fear that philanthropy is slowly but surely moving toward a place where it wil one day mirror the ego-driven, greed-infested culture that is so prevalent outside it. Dommage.

  7. Geri Stengel says:

    The take-away here is that there no one right way to solve social problems. Different problems require different solutions, some long term, some short term, some local, some global. Recognizing that difference is not divergence is a big step toward ending some of the quibbling and ramping up collaboration among different methods of philanthropy.

    • Yes. These approaches work in conjunction with each other. But they work together in specific ways. That means we can’t just say “all are needed!” and call it a day. Instead, we need to understand how the approaches are dependent on each other, what role they each play and what we can and cannot expect from each.

  8. So basically it comes down to the point that different people seek to help or support respectively in different ways and with different expectations and time horizons. So if we net all the four approaches which would be the best way to achieve the highest impact overall? Do we have to turn charitable givings into philanthropic investments? How would we achieve that?

    • George Overholser says:

      Arik, I would chime in to say that unless we are serious about partnering with other funders (or writing big checks), our best bet is to be highly discerning charitable givers. Shop around and find a stable program that already works really well to advance your social aim.

      Philanthropic investment implies changing what an organization does, which is a destabilizing act. For the change to be successful, it often takes a year or two of significant interim subsidy. For the investment subsidization to stop, not only must the program be altered, but, also, the revenue generation engine that sustains the newly changed organization must also kick in.

      If investors don’t act in concert, organizations often end up running out of investment subsidy mid-way through a destabilizing change. New investor (with a different plan) must be found, just when the organization is in its most disrupted state. And, with pressure to make payroll, organizations often accept off-strategy grants that worsen the syndrome.

    • Arik, I would say that all four approaches are needed. They work together and are dependent on each other. My point isn’t to argue which is better, but to clarify the role of each so that donors might better execute their activities.

      The Social Entrepreneur needs Charitable Buyers to pay for program execution. The Charitable Buyer needs Social Entrepreneurs from whom to purchase program execution.

      The Social Entrepreneur needs Philanthropic Investors to provide philanthropic equity in order to grow their enterprise. The Philanthropic Investor needs Social Entrepreneurs in which to invest.

      Strategic Philanthropists need Social Entrepreneurs to execute their theory of change.

  9. Dan Bassill says:

    George, thank you for your comments. Sean, thanks again for hosting this discussion.

    This sounds like the Abilene Paradox. We all agree that lack of consistent revenue flow keeps organizations from building the strength and capacity to impact problems that are long term, yet aggregating resources and connecting donors around common goals seems to be an unreachable goal.

    As a result the Good to Great theme might be summarized to say “they don’t get good, they don’t get great, and the don’t stay great long enough to do good.”

    With that said, where can we find forums where different investors are connecting with social entrepreneurs focused on specific social issues? In one of Sean’s post “tutoring” was brought up as a transaction a donor pays for. If this were framed as “helping to raise kids living in high poverty areas” would more investors be interested in helping build the organizational strength needed for many organizations to provide the long-term support kids in many places need to grow up? There are thousands of tutor/mentor programs in the country, each spending scarce resources looking for scarce investors. Where is a forum where investors and program leaders who want to help kids living in poverty can be sharing ideas and working to “aggregate the large pools of capital” needed to support the entire universe of these programs over a quarter century or more?

    Who want so help build such a meeting place?