In 2010, the New Yorker published an article titled The Truth Wears Off, that looked at the existence of the “Decline Effect”, the seemingly inevitable way that when scientific studies are repeated over and over, they tend to follow a path of diminishingly positive results.

In the article, Jonah Lehrer wrote:

“The test of replicability, as it’s known, is the foundation of modern research. Replicability is how the community enforces itself. It’s a safeguard for the creep of subjectivity. Most of the time, scientists know what results they want, and that can influence the results they get. The premise of replicability is that the scientific community can correct for these flaws.

But now all sorts of well-established, multiply confirmed findings have started to look increasingly uncertain. It’s as if our facts were losing their truth: claims that have been enshrined in textbooks are suddenly unprovable. This phenomenon doesn’t yet have an official name, but it’s occurring across a wide range of fields, from psychology to ecology.”

Lehrer’s article incited a flood of angry letters and emails claiming that he was undermining scientific research and drumming up a controversy that doesn’t exist. However, my reading of the article (and Lehrer’s responses to his critics) suggests a much more modest claim is at the heart of his article.

Human knowledge is an evolving concept.

For all the perceived precision of a large study “proving” that something is true, the fact remains that over time our understanding of facts and truths change.

Lehrer explains a number of reasons behind what is know as the “Decline Effect”. Taken together, much of the issue has to do with human cognitive biases and behavioral issues in the way we process information. For instance, Lehrer points to the way that scientific journals seem to greatly prefer to publish studies that prove something to be true, so scientists have a significant incentive for their studies to find these results.

But even if you peel away all of the messiness of the human practice of scientific study, you are still left with the idea that seeking truth is a process not an event.

Lehrer writes:

“The decline effect is actually a decline of illusion. While Karl Popper imagined falsification occurring with a single, definitive experiment—Galileo refuted Aristotelian mechanics in an afternoon—the process turns out to be much messier than that.

[The Decline Effect is so troubling] Not because it reveals the human fallibility of science, in which data are tweaked and beliefs shape perceptions. (Such shortcomings aren’t surprising, at least for scientists.) And not because it reveals that many of our most exciting theories are fleeting fads and will soon be rejected. (That idea has been around since Thomas Kuhn.) The decline effect is troubling because it reminds us how difficult it is to prove anything. We like to pretend that our experiments define the truth for us. But that’s often not the case. Just because an idea is true doesn’t mean it can be proved. And just because an idea can be proved doesn’t mean it’s true.”

Now the silly way to react to the decline effect is to turn our backs on science and decide that if it cannot present us with the unquestionable truth, then it doesn’t work (this is the message that some of Lehrer’s critics through he was pushing). The more useful way to react is simply to understand that the concepts of “truth” and “fact” are far less rigid and concise than we tend to treat them. The search for truth, for “proven programs” will not end some day when we finally, finally, finally discover the real truth.

As Ralph Waldo Emerson said, “Life is a journey, not a destination.”

What this means for nonprofits and funders who want to direct their resources towards programs that actually work is that doing so will always be a continuous process. There will never be a a final, definitive study that tells us the “truth” of the best way to eradicate poverty, to end obesity, to give every individual the opportunities they deserve.

But that doesn’t mean we should lower our ambitions nor reject the scientific process. Instead, I think that Ted Cadsby, writing in the Harvard Business Review had it right when he argued in favor of adopting a mindset of “provisional truth”:

“Provisional truth requires that we think of our explanations as hypotheses — always subject to replacement based on new information or alternative ways of structuring existing information. Provisional truth means challenging our interpretations with disconfirming evidence and alternative perspectives. Provisional truth does not preclude drawing conclusions or taking action; but it demands that we be skeptical about our first reasonable explanations in the realm of complex problems. It keeps us humble and mentally flexible, constantly asking ourselves if we’ve really got everything figured out and responding, "Probably not."

But of course the scientists among you will recognize that the skepticism embedded in the idea of “provisional truth” is in fact a core aspect of the scientific process. The Decline Effect doesn’t discredit the process of scientific inquiry. Instead it simply lays waste to the fetishism of the scientific process that deludes people into thinking that we can at last completely understand and control our world once we discover “the truth”.

Jumo

GOOD is a publishing and marketing company “for people who want to live well and do good”. Founded by Ben Goldhirsh, the son of the founder of Inc Magazine (a hugely successful traditional print magazine), GOOD was one of a handful of “philanthropy magazines” that launched in 2007. While the other “philanthropy magazines” folded, GOOD has evolved to encompass online content, live events, and now a kind of advertising/marketing agency that helps organizations do socially connected campaigns.

Now GOOD is buying Jumo. Interesting…

First off, why isn’t Jumo working on a standalone basis? While Hughes says that the organization had a “very successful start” and counts over a million users, in all my surfing of the philanthropic web I haven’t once found reference to activity on Jumo other blog posts saying how great it is going to be.

While people like Amy Sample Ward and Beth Kanter are far better sources to comment on the technology aspect of Jumo, from a donor perspective I must say I don’t understand the drive to create a social network based around nonprofits. Nonprofit and for-profit brands may be ways that people define themselves and thus be the sort of thing that people want attached to their online social persona. But for the vast majority of donors, nonprofits are not the central way that they seek to organize their social network.

GOOD on the other hand seems to be figuring out that there is a huge interest in social sector related content, especially when it is presented as an integrated part of the fabric of life, not somehow separate from politics, business, culture, food and technology. Rather than being for “donors” or “philanthropists” or some other adjective that applies to only a slice of people’s persona, GOOD proudly proclaims it is “for people who give a damn”.

So what will GOOD do with Jumo? Speaking to the New York Times, Goldhirsh said “I’ve always felt the real potential of GOOD was to connect people wanting to take action with the organizations and businesses that could help them do that, and Jumo is the connective tissue that will allow and enable that to happen.”

We’ll have to see how Goldhirsh puts that vision into action, but I’m struck by his choice of words. Rather than seeing a social sector-social network as a standalone entity unto itself, maybe it is the “connective tissue” that ties everything together.

Let’s imagine a 20-something Millennial. She works at a for-profit company importing sustainably grown coffee that hopes to turn a profit while leveraging the power of the free market to pull people in the developing world out of poverty. She listens to U2, makes microfinance loans on Kiva and loves Apple products so much that she wears a t-shirt with the Apple logo. She’s a political news junkie and is disgusted with both parties. She makes donations to nonprofits but feels that the products that she buys, people she votes for and where she chooses to work are just as important elements of her impact on the world.

Our 20-something Millennial doesn’t define herself by the nonprofits she supports.

She defines herself as someone who gives a damn.

What she wants isn’t a special place she can visit to express her social self before returning to the “real world” of work, life and play. Instead she wants a world full of work, life and play that is built around a connective tissue that infuses all of her life with meaning.

There is no work-life balance in our Millennial’s world. No need to “give back” as if her success in life somehow extracted value that must be repaid. There is only meaningful experiences that honor the many priorities of the individual: self, family, and member of the global community (and many smaller communities).

There is great need for nonprofit oriented transactional platforms, such as Global Giving, Charity Navigator and GuideStar. But I doubt there is a need for a nonprofit oriented social network.

I look forward to seeing what GOOD does with Jumo. If they pull things off, they might just move from being a content platform for people who give a damn to an immersive experience, extending across the online and offline worlds for a new generation that views social impact as the connective tissue that connects their interests and passions.

Is Underperformance Philanthropy’s ‘Natural State’?
By Sean Stannard-Stockton | Chronicle of Philanthropy

The nonprofit world is full of technocratic conversations about how to measure and improve results. But two new books, Leap of Reason, by Mario Morino, and Give Smart, by Thomas J. Tierney and Joel Fleishman, make the argument that the key to progress is not a new technical solution but a new mind-set by both donors and nonprofits.

In Give Smart, Mr. Fleishman and Mr. Tierney—both longtime advisers to donors and nonprofits—make a startling (but accurate) claim that the “natural state” of philanthropy is one of underperformance.

In discussing the “terrible truths” that donors who seek to achieve results must face, the authors note that excellence must be self-imposed in philanthropy.

Unlike in corporate America, where weak performance will drive a company out of business, philanthropy “has no built-in systemic forces to motivate continuous improvement,” they write.

This presents an enormous barrier to success. Improving results requires making changes, and humans resist change at all costs unless there are forces that compel them to act. As the authors write, “Self-imposed accountability is not a natural act. It requires extraordinary determination and discipline to pursue outstanding results year after year when nothing in the surrounding environment requires you to do so.”

If underperformance is the natural state of philanthropy, then no clever measurement system is going to solve the problem. Instead, we must find ways to motivate donors, grant makers, and nonprofits to choose to be accountable to themselves for the results they achieve.

While everyone will happily support a call to focus on results, the message of Give Smart is that actually following through requires the determination and discipline to create self-imposed accountability. The solutions to this problem are more likely to be found in the study of psychology than the science of evaluation.

While Give Smart focuses on the need for donors to overcome their natural proclivity to underperform, Leap of Reason makes a similar case for nonprofits.

Mr. Morino, a prominent businessman who was one of the early founders of the venture-philanthropy movement, calls for nonprofits to run their organizations with the determination and discipline to produce results. Since nonprofits by and large do not get paid for producing results, the only solution is self-imposed accountability, an act as unnatural for nonprofits as it is for donors.

Leap of Reason makes clear that most nonprofits do not manage their organization to maximize results, but not due to lack of interest or passion. Instead, nonprofits face many challenges, and perhaps the most important one can be found in Give Smart: because most donors don’t make a deliberate effort to support groups based on their results.

Mr. Morino recognizes that measuring results is only a means to an end and urges readers never to confuse measurement with mission. He warns of the danger to nonprofits when outsiders foist measurement requirements on nonprofits. Far from helping nonprofits achieve results, these approaches distract them from achieving their mission.

The only path to results, for both donors and nonprofits, is to dig deep into the wellspring of passion that drives their giving and their work to find the determination and discipline they need to be accountable to themselves.

Leap of Reason is unusual among books about measuring results for nonprofits in that it is brief and practical. The main part of the book runs a mere 60 pages. Each of the short chapters ends with a section titled “Take-Homes in Tweets,” where the key points are distilled in 140 characters or fewer.

In addition to Mr. Morino’s advice, the book includes a stirring essay by Isaac Castillo, director of evaluation at the Latin America Youth Center, in Washington. Mr. Castillo discusses his organization’s determined tracking of results and how those efforts led it to make a big change in one of its programs. After the group added material on preventing domestic violence to its child-rearing classes, Mr. Castillo discovered to his horror that the lessons were increasing acceptance of domestic abuse among participants. But because the organization was regularly monitoring its results, it was able to quickly adjust the program and begin producing far more positive results.

It is a common refrain in philanthropy that giving money away is harder than making it. But Give Smart and Leap of Reason make clear that philanthropy is not just a more difficult problem than making money, it is a different kind of problem. Success in business brings with it the money needed to do more great things, but that doesn’t necessarily happen in the nonprofit world in which producing results does not automatically bring more resources.

But through our own determination and discipline, each of us—donors and nonprofits alike—can self-impose accountability. Only then will we begin to achieve great results.

By Eugene Eric Kim

Recently I spoke at the GEO Learning Conference on collective intelligence. My focus is on collaboration, but thanks to the influence of my mentor, my frame has always been around maximizing collective intelligence for the greater good. While I’ve worked with foundations in the past, it was the first time that anyone in philanthropy had asked me to talk specifically about collective intelligence. In preparation for the talk I started thinking about great examples of philanthropy catalyzing collectively intelligent systems.

I couldn’t think of any. So I started doing some research. I still came up empty.

The basic premise underlying collective intelligence is simple. Sometimes, somehow, groups exhibit intelligence that far exceeds the sum of its parts. Ants are a great example of this. Individually, ants are – quite frankly – dumb. They do three things well:

• They carry heavy objects
• They leave trails
• They follow trails

In isolation, this list is not impressive. But in collaboration with others, ants do amazing things. They build ant hills. They form ant rafts. There are no heroic leaders in ant colonies. Leadership is distributed. All ants are both leaders and followers. And because of these properties, ants, collectively, are highly adaptive, and their intelligence scales. When you add more ants, the system gets even smarter.

What would happen if humans behaved more like ants? Fortunately, there are great examples of humans behaving collectively intelligent. The real challenge is finding examples of humans behaving really, really, really collectively intelligent. This is not simply an intellectual exercise. It’s a matter of survival. Our society is literally on a path of self-destruction, and the only way to avert disaster is to start behaving collectively more intelligent.

A little bit of collective intelligence is not enough. We need a whole lot of it.

The problem is that it’s hard for humans to act like ants, because unlike ants humans are smart individually. Perhaps smarter than is good for us. The way we like to attack problems is exactly the opposite of how ants attack problems. We like to centralize control. We like to understand problems to completion – or at least pretend we do – before attempting to address them. This is exactly the opposite of what we need to do to be successful.

By definition, a collectively intelligent system should be too complex for a single person or even a subset of the group to fully comprehend. Otherwise, the system would only be as smarter as that single person, which is to say, not smart enough. If we truly want to harness collective intelligence, we need to get over this idea that we need to fully understand the problem before we can act. That’s neither possible nor desirable.

I don’t need to rant about how slowly foundations move, or how they’re afraid to fail, or how they seem fixated on control and understanding at the expense of action. Foundations are experts at saying these things about themselves. The question is how can foundations start shifting their culture so that they can become better at both catalyzing collectively intelligent systems and behaving more collectively intelligent themselves? I think there are three ways to start.

First, most foundations need to stop thinking of themselves as funders. Giving money away is a valuable tool, but it’s not a high-leverage tool for solving the world’s most complex social challenge. Foundations don’t have enough of it, and there aren’t market mechanisms for leveraging it effectively. Foundations are fantastic at doing research and getting in the middle of systems, but they don’t leverage this expertise effectively. I think part of it is because they self-identify too strongly as funders. They need to think of themselves as movers of knowledge instead of movers of money.

This leads into the second thing foundations can do: Give knowledge away aggressively. The great thing about giving away knowledge is that, unlike money, it’s an abundant, accumulating resource. The more you give away, the more the world has, and you can give it away as often as you like.

Third, be courageous. I love what Sean wrote on this topic:

"The lack of external pressures, which gives philanthropy great freedoms, also requires us to draw on inner determination and discipline to achieve results."

In the face of structural resistance, change requires courage. "Courage" is a word that’s not used enough in philanthropy. I think that’s a shame, because we need much more of it in philanthropy and in the world. People need to acknowledge this, and they need to draw on it. The world is depending on it.

Recently, watching a sitcom of all things, I heard a character utter a line that perfectly captures my view of the role of debate and disagreement in philanthropy.

"Those who do not agree with us are not the enemy, they are the goal."

Philanthropy is all about creating change in the world. If we think about those with whom we disagree as our “goal” instead of our “enemy”, then philanthropic debate becomes a mechanism for inducing change in the world, not something to be avoided.

The emergence of robust, online philanthropic discussions has been an important platform for stirring debate. This process of idea generation, remixing, refining and development may be leading to philanthropy’s own period of rapid innovation. But in order to get there, we need more people to engage in these debates.

If you believe in a future of high impact philanthropy then you need to embrace and encourage debate in our field while always remembering that those who do not agree with you are not the enemy, they are the goal.

The US government frequently provides social services such as kindergarten readiness programs for disadvantaged children or employment services for welfare recipients by paying social service providers to deliver a program. The results of these types of programs are often not assessed and when they have been, their effectiveness has often been called into question.

Under the Pay For Success model, the government would contract with an intermediary for the delivery of specific results. The intermediary would then contract with one or more social service providers in a bid to create the results in question. If, and only if, the results were actually shown to have been achieved after rigorous evaluation by independent evaluators, the government would make payments to the intermediary.

While performance based contracts have existed for a while, Pay For Success adds another important layer – private or philanthropic capital that funds the intermediary during the time prior to them receiving success based payments from the government. Unlike a grant, in the Pay For Success model, the funders would have the potential to recapture their initial invested principal plus a rate of return. While it is expected that philanthropic funders will be the first entities willing to provide such funding, if the Pay For Success model is shown to work, impact investors or profit-seeking investors may become sources of capital as well.

The core innovation of this model is a transfer of the risk that a program will actually work from the government to the intermediary and its funders. Once the programs demonstrate their effectiveness, the government can reallocate its spending to now proven solutions.

While this model would be attractive to the government in a variety of cases, it is particularly compelling when program success will result in cost savings for the government, such as when employment training for welfare recipients reduces future welfare payments. Some government officials refer to Pay For Success as an opportunity to shift government spending towards preventative programs and thereby reduce the need for very expensive safety net services.

For funders, Pay For Success provides a new investment option, one where the financial return is directly dependent on social results. While many impact investment options exist that offer both a financial and social return, the two are rarely directly linked. Microfinance investors for instance earn a return based on the rate at which borrowers repay their loan. Microfinance may very well be a useful tool for creating social benefits, but the social and financial returns are two separate outcomes of the investment rather than the financial return being a result of the level of social benefits.

In other words, with most impact investments, the financial return can be realized even if the social return fails to materialize. Pay For Success funders on the other hand would receive financial returns that were directly dependent on the realization of social returns.

The Pay For Success model opens the doors to a wide range of capital – from market rate investment capital to philanthropic support – being used to finance innovative social programs that produce better results at lower cost to tax payers.

But at its heart, Pay For Success is not just a financing or cost savings program. Its success hinges on whether the intermediaries and nonprofits that participate in the program are able to deliver measureable results that are superior to current government programs. Pay For Success offers an opportunity for the social sector to showcase the potential of the current push towards results based philanthropy. If the program succeeds, the payoff will be a dramatic increase of funding for effective nonprofit programs.

The Pay For Success model will not be appropriate for all social services. For the model to work, the government and intermediary must be able to accurately track the results of the program. In areas like school readiness or employment services, the government is already tracking much of the data needed to determine the level of program success. But there are many areas in which program results are difficult to accurately track or the benefits are so long term in nature that it would not be feasible for the intermediary to finance the program since government payments for success would not be triggered until far into the future.

The Pay For Success proposal is a pilot program and we need to learn much more about the model before it can be determined whether the concept will work well in practice. In the early stages, Pay For Success programs should focus on areas where nonprofit programs have already undergone rigorous evaluation to prove their effectiveness and where positive program results would produce significant cost savings to the government.

The government is by far the largest funder of nonprofit services. Today, those funds are rarely dependent on the effectiveness of a given program. The Pay For Success model offers a promising approach to directing government funds so that they achieve better social results at lower cost to tax payers.

Philanthropy is in the most general terms about “doing good”. But it is about specific type of good. While government is “public action for the public good”, and for-profit activity is “private action for private good”, philanthropy is “private action for the public good”.

Debate is so strong in the public sector about the role of the government because the government takes action on behalf of the public for the benefit of the public. So everyone has an opinion about the role that government should play.

In the philanthropic sector, while activity is meant to benefit the public, the actions are taken by private individuals and so there is (mostly) a limited debate about the best role for philanthropy to play. It isn’t exactly good form to debate someone who has taken a voluntary action with the intent of benefiting others.

The point of the Philanthropy Compass is to help frame the range of potential roles that philanthropy can play. Just as the Political Compass is not designed to pass judgment on the various potential roles, the Philanthropy Compass is meant to help us all understand the potential roles so that we might better form our own opinions about how philanthropy should be conducted.

Before you can really get into making a decision about how to act in a given situation, you need to understand your goals. Too often, the goal driving philanthropy is a sort of undifferentiated sense of “doing good”. But doing good, taking private action for the public good, is a nuanced, complicated endeavor. My hope is that the Philanthropy Compass can help donors better understand their own goals and motivations so that they can better take actions that are aligned with those goals.

But what about the role of philanthropy as a whole within society? A philanthropic investor might fund organizations that seek to create value using market driven solutions while another may fund organizations that view the market as the cause of social problems and seek to correct for its excesses. Is there a framework we can develop that helps us understand this difference and shed light on the various ways that donors view the role of philanthropy? This framework would need to holistically describe the values behind giving, without regard to issue area.

During the debates about Philanthrocapitalism between Matthew Bishop and Michael Edwards, I observed that the two men had fundamentally different world views which rendered their debate impossible to resolve. Edwards seems to view the market and capitalism as the root cause of social problems while Bishop views the market and capitalism as the force most responsible for increasing standards of living. It is therefore not surprising that Edwards sees adapting the tools of the market to philanthropy (what Bishop calls Philanthrocapitalism) as a terribly idea while Bishop sees the trend as fantastic news.

In the political sphere, the terms Right and Left are used in an attempt to describe what is believed to be two prevailing views of the role of government in society. But this shorthand framework fails to capture the differences between libertarians who believe in lower taxes as well as limited regulation of social behavior and conservatives who believe in lower taxes but an expansive role for government in regulating social behavior. It similarly fails to differentiate on the Left between Joseph Stalin and Mahatma Gandhi. In an attempt to build a better model of the beliefs around the role of government, The Political Compass has been created.

The Political Compass creates a two-axis grid that allows a given political view to be charted on a spectrum of economic and social thought rather than a simple Left-Right.

In this case, political belief A believes in a limited role for the government in regulating the economy, but a expansive role in regulating social behavior. Belief B believes in limited government roles in both the economy and regulation of social behavior. Belief C is for a limited social role, but an expansive economic role. Belief D believes the government should have an expansive role in regulating both the economy and social behavior.

Might we create a similar compass for philanthropy that describes the various beliefs that donors have about the role of philanthropy in society?

I first considered this idea during a conversation with Peter Frumkin during which I posited that the appropriate axes might be Optimization-Transformation and Creation-Distribution. My thought was that philanthropy can be seen as a tool to make the current social system work as well as possible (Optimization) or as a tool to create a new social system (Transformation). A separate, uncorrelated axis would look at philanthropy’s working relationship with the market economy. A donor might believe that role is to enhance the market by creating social value (Creation) or they might believe the role is to correct for the excesses of the market by focusing on how social value is distributed (Distribution).

This loose framework led to the Tactical Philanthropy Forum debate titled Unconstrained Philanthropy in which we discussed whether donors and funders should see their role as one of correcting and optimizing existing social systems or if they have an opportunity to remake the social fabric.

However, I was never convinced that these axes holistically captured the full range of various viewpoints.

In recent days I’ve been discussing this topic with reader Matt Lee, formerly of Bridgespan and now a doctoral candidate at Harvard Business School. We’ve gone back and forth a bit on the general framework and agreed that the Political Compass works because rather than focusing on specific issue areas, it maps out beliefs about the overall role of government in the economy and society. We think the same should be true of a Philanthropy Compass.

The Political Compass allows users to answer a series of questions about their beliefs and then locates them on the compass. Public statements by politicians have been used to answer the questionnaire and thereby locate public personalities on the compass as well. A strong Philanthropy Compass framework should allow for a similar process and Matt has expressed interest in working with colleagues at Harvard to build a functional Philanthropy Compass tool if we can figure out the best axes to use.

So now I open the floor to you. What axis can be combined to best capture the huge, multifaceted set of values that drive philanthropic behavior? The only requirement is that the two axes describe a set of beliefs about the role of philanthropy and that when combined a large majority of donor behavior can be logical explained by the donor’s position on the Compass.

Please share your thoughts in the comments section!

In the Fast Company article about baby carrots being branded as junk food, the carrot company CEO talked about how most all of the advertising companies who applied to work with them tried to make baby carrots more fun, but kept returning to their status as a “health food”. It was only the winning advertising company who completely took baby carrots out of the “should” category (you should eat healthy food) and put them into the “want” category (you want to eat this cool, fun, tasty product).

This weekend at the grocery story I ran into this new packaging of Mandarin oranges:

The basic concept is similar to the junk food baby carrot campaign. Note the plastic, shiny packaging, the “cool” character on a skateboard, the tagline “One of life’s sweetest pleasures”, and the “grab ‘n go” handle.

But the company doesn’t go all the way. The product was in the produce department, not in the snack food aisle, and they still stick the “healthy snack, naturally sweet” tag on the packaging.

Of course, while philanthropy does make people feel good and can be marketed in the “want” category, a major part of what makes people feel good is the idea that they are doing good for others. It is like a health food that only tastes good if you believe it is healthy.

In this hilarious segment of Curb Your Enthusiasm, Larry David finds out just how bitter the giving experience can be when he suddenly feels like his giving is in the “want” category instead of the “should” category. When he suddenly feels like his giving is something he’s doing for himself instead of others, his giving loses its meaning and value. (warning: some explicit language at the end of the segment)

(Click here to see the video if you are viewing this in an email)

So what’s the answer? I don’t know. But I do know that philanthropy shouldn’t be in the “guilt” category. Those things you do because you “should” even though you really don’t want to. I’ve always thought that the phrase “give back” when used in philanthropy sounds like the donor has “taken” something that must be returned (and in fact, I think many people think about giving this way).

As we explore new blended value propositions, I think it is important that we keep in mind the strange characteristics of philanthropy. It is like really tasty health food, or maybe junk food that’s good for you. But whatever it is, it is something people do enjoy and we need to embrace this aspect of the giving experience.

It turns out that a similar dynamic appears to be at work in philanthropy. But while the crowding out theory in macroeconomics is controversial and the magnitude may not be large, a new report suggests that government grants to nonprofits end up crowding out a stunningly large amount of private philanthropy.

In a paper by James Andreoni and Abigail Payne of the National Bureau of Economic Research (hat tip: John MacIntosh of SeaChange Capital Partners), the authors find that for every $1,000 of government grants given to a nonprofit, private donations fall by $757. This means that while the government is trying to supply the nonprofit with $1,000 in additional financial resources, in practice the nonprofit only receives an additional $243 due to the drop in private donations.

But fascinatingly, it appears that the drop in private donations is mostly self-inflicted. For every $1,000 in government grants, nonprofits reduce fundraising expenditures by $141, causing private donations to fall. Netting together the reduced fundraising expenses and the additional revenue, the nonprofit ends up about $385 better off financially for every $1,000 in government grants.

There are a lot of interesting ways to think about the implications of this data. The authors of the report reflect to some extent on the lack of a revenue maximizing approach to fundraising – bringing to mind some of Dan Pallotta’s critiques – and seem to suggest that nonprofits should just choose to not slow fundraising when they receive a grant.

But the report reminds me of a story my friend George Overholser tells about the ramifications of the nonprofit sector booking all grants as revenue without any accounting for equity (growth capital). George used to be a venture capitalist and work with a venture philanthropy organization. He relates a story about how in the morning he presided over a meeting where the venture philanthropy group made a large grant to a nonprofit. Everyone was very excited and it was high fives all around with the nonprofit executives leading the cheers. The excited executive director happily pointed out that the grant met their entire fundraising budget for the year and so now they could focus on their programs.

That afternoon, George presided over a meeting where the venture capital group made a large investment in a for-profit. Again it was high fives and excitement, except this time only the venture capitalists were cheering. Looking over at the for-profit executive team, George noticed they all seemed nervous. When he asked what was wrong, the CEO said, “well, now that we have the growth capital, the pressure is on to generate revenue!”

To the nonprofit executive director, it didn’t matter if the venture philanthropy donors called their grant an “investment”. The only accounting treatment for money coming into a nonprofit is revenue. But for the for-profit, the venture capital money really was an investment. It would be booked as equity, not as revenue, and from here on out their success in generating revenue would be measured against the amount of equity they had deployed to build their business.

I’ve written before about the importance of philanthropic equity, a concept that George pioneered, in the past. But I’ve never really thought about the way that the lack of appropriate nonprofit accounting actually creates a vicious crowding out effect.

I’ve always thought that the catchphrase “accounting is destiny!” that Clara Miller and George would throw around when they ran the Nonprofit Finance Fund was a little… nerdy. But it sure seems to me that our simplistic nonprofit accounting standards, paired with our moralistic views around spending money on fundraising, is a major culprit of our undercapitalized nonprofit sector.

If accounting is destiny, the nonprofit sector will not see the emergence of a significant number of high growth organizations until growth capital is officially recognized in nonprofit accounting.

You can see this dynamic working if you think about whether you would rather be given $100 today or be given it in one year. The difference in the value of the present and the future is called the “discount rate”. In all likelihood you would probably prefer to get $100 in one year rather than $10 today. But there is some point at which you become indifferent. If you are indifferent between receiving $90 today or $100 in a year, then you are using a 10% discount rate (approximately).

However, for some time I’ve been wondering about how this fundamental tool for financial decision making works when it comes to philanthropic decision making.

Which would you rather have, a crime free society and clean environment today or in the future? Clearly, sooner is better. But what if it is either/or? Anyone with a child is going to tell you they’d rather their children live in that better world than that they receive the benefit of it. This preference for the future is hardwired into our species as becomes evident any time a parent puts their children’s needs ahead of their own. It is so hardwired into our neurological makeup that adult humans will often choose to put themselves in physical danger if needed to protect the physical health of any child, let alone their own.

Why does this matter? Because positive discount rates erode the value of investments. If I offer you an investment which promises you a 10% return on your money, you’ll be indifferent if you have a discount rate of 10%. The lower your discount rate, the more attractive any given investment is. The higher the rate, the higher the prospective returns need to be to attract your attention.

But if humans have a preference for social good to occur in the future or to benefit our children rather than us, then it means we have a negative discount rate. It means, we’d rather $100 of social value occur in the future rather then $110 of social value occur today.

If this is true, it means that social returns on investment are radically higher than we might otherwise suppose because, unlike financial investments, we actual prefer that social impact accrue to our children and their children.

But this concept can’t be entirely correct. Many forms of social good are not discrete events, but rather conditions within which life occurs. Wiping out polio, as Bill Gates is urging the world to join him in focusing on, is not a discrete event. If it is wiped out now, more lives will be saved and less suffering will occur than if it is wiped out later.

This means that maximizing the value of philanthropy rests on three elements 1) we should seek to create long lasting positive conditions rather than just discrete, socially good events (which is one way to express a preference for correcting the root cause of a problem rather than treating the symptoms), because doing so will create social value that accrues to more people, 2) we should seek to achieve those conditions as quickly as possible because doing so will allow the benefits to accrue to the maximum number of people but, 3) when forced to make a trade off between activities that create benefits in the future vs. benefits today, we should prioritize the future given the hardwired negative discount rates that we use to value the future vs. the present when it comes to social impact.

There are probably a number of ways to reconcile these three elements. There certainly are some creative tensions between them and so different people may choose different approaches. But for me, they suggest that as a general rule, philanthropy should focus on creating impact that:

• Is lasting rather than fleeting (working on causes rather than symptoms), but;
• Is implemented as quickly as possible, but;
• Prioritizes the needs of the future over the present.

In other words, donors and foundations should: Act quickly to create lasting solutions that prioritize the needs of the future.

To my way of thinking, the best way to get that done is for donors to make rapid grantmaking decisions in support of nonprofit organizations that seek to tackle the underlying causes of social problems, using grants which build the long term sustainability of their grantees while recognizing that truly effective interventions take time to achieve success.

In 2007, New Profit launched America Forward, a bi-partisan effort to work with policymakers, legislators and other leaders to encourage the deployment of public and private resources towards supporting social innovation. It was America Forward that advanced the idea of the White House’s Office of Social Innovation and Civic Participation as well as the concept of the Social Innovation Fund, both of which have become a reality.

The Gathering will feature speakers from all sorts of backgrounds, but I’m intrigued to see that Steve Johnson is being given a prominent role.

Johnson is the author of Where Good Ideas Come From. I cited Johnson’s thinking in my post titled Philanthropy’s Period of Rapid Innovation. That post included the video below which does an excellent job of explaining the core idea of the book (note that this production style was used to similar effect by Bill Gates in conjunction with his recent annual letter).

(click here to view the video if you are reading this via email)

Johnson was also a speaker at a TED event in Oxford where he discussed some of his ideas in more depth.

(click here to view the video if you are reading this via email)

Johnson’s core argument is that good ideas do not spring forth from any one person or at any one time, but instead are the output of a dynamic process of refinement of other ideas and our own ideas. He points to evidence that periods of rapid innovation in various fields were supported by some sort of mechanism which assisted in the acceleration of idea exchange.

I believe that social media is acting as a platform for rapid idea exchange in the social sector. It is encouraging this rapid idea exchange that makes me advocate for transparency, for talking about failure, for the Social Innovation Fund to share all applications, and for foundation and other social sector blogs to embrace a conversational instead of a newsletter approach to blogging.

Image by Sean Percival. Click to enlarge.

TechCrunch describes the first iteration of Groupon (refering to founder Andrew Mason’s The Point service for nonprofits) as a “Boring Social Good Thingy”. The company pivoted when Andrew launched the side project Groupon and then pivoted again when it moved from a simple “Daily Deal Widget” to what TechCrunch calls a “Social Commerce MONSTER”.

The illustration then suggests a possible next pivot for each company. For Facebook, the next pivot is labeled “The Next Google (or Friendster)” referring to the potential for Facebook to emerge as the most powerful web company in the world or fade away as early social network leader Friendster has done.

The next pivot for Groupon is labeled “Walmart”, essentially taking the “Social Commerce MONSTER” label and projecting that Groupon will go on to become a leading retail company. I think the best way to understand my post on Groupon as a social enterprise is to re-label the next pivot for Groupon as “Walmart (or a Social Enterprise MONSTER)”.

Who knows? As the first iteration of Facebook shows, how a web company starts off doesn’t necessarily dictate what it will become. But on the other hand, Groupon is alone among the listed companies (or any major web company to the best of my knowledge) that began life as a social enterprise.

Speed.

The world changes fast. Sometimes making the right decisions is all about thinking long and hard about your options. Other times the most important skill is learning how to make quick decisions.

According to Drowning in Paperwork, Distracted from Purpose by Project Streamline, the definitive report on the crippling bureaucracy that strangles much of institutional philanthropy, the average grant cycle – the period of time it takes to decide what grants to make – is seven months. Yet philanthropy has chosen to operate on this time lag. Organizations like Philanthropic Ventures Foundation and the Mulago Foundation demonstrate that philanthropy can be executed with far more speed.

To most people in philanthropy, operating quickly is equated with operating without adequate thought. Yet we know that Warren Buffett, the greatest investor of all time, has often made multi-million dollar investment decisions after a few days of due diligence.

From NPR:

“Last year, Buffett offered to buy an RV company one day after getting its proposal, and sealed the deal with a single 20-minute meeting. The RV company’s founder told the Wall Street Journal the process was easier than renewing his driver’s license.”

Considering the average foundation grant is for less than $25,000, it is certainly plausible that philanthropist might be able to speed up how they operate.

It isn’t just that moving slowly wastes time, it is quite possible that speed can help overcome other constraints faced by foundations.

Consider the Oregon Ducks who played in this year’s college football championship.

From the New York Times article titled Speed-Freak Football:

“The nature of [coach Kelly’s] innovation has to do with the speed with which he is able to communicate signals to his players from the sidelines — and their ability to quickly line up and run play after play at a pace that ultimately debilitates the opposition…

“Some people call it a no-huddle offense, but I call it a no-breathing offense,” Mark Asper, an Oregon offensive lineman, told me. “It’s still football. We hit people. But after a while, the guys on the other side of the line are so gassed that you don’t have to hit them very hard to make them fall over.”

Asper, who is 25 and served a two-year Mormon mission before starting college, is among several Oregon players who told me that opponents sometimes beg them to slow down. “A guy from Tennessee said to me, ‘If you keep running plays that fast, I’m going to throw up.’ I just said, ‘Sorry, but Coach will get mad at us if we slow down.’

Kelly’s overarching philosophy owes to business texts, most directly, the writings of Jim Collins (“Good to Great” and “Built to Last,” among others), who argues that successful organizations coalesce around a concise, easily communicated core mission. Kelly said: “If someone says to me, ‘What do you stand for?’ I should be able to invite them to practice and in five minutes, they’d say: ‘I see it. I get it.’ They stand for playing hard and playing fast.”

What Oregon’s innovative offense is really about is conditioning, repetitions in practice, precision and, most of all, agreement on the core mission — to go fast. Any team with a nimble, quick-thinking quarterback and an assortment of quick skill players could do it.”

For Oregon, speed under their new coach became a “great equalizer”. It allowed them to compensate for other deficiencies. It didn’t require any special gift or asset, it just required a decision to act with a relentless commitment to speed.

I’m struck by the fact that coach Kelly attributes his philosophy to Jim Collins’ books, which have also been a major inspiration in the social sector. Collins was a direct inspiration for one of the best selling social sector books of recent years, Forces for Good.

Is it a stretch to related football play calling to institutional philanthropy? Maybe. But just yesterday Google made a hugely surprising shakeup of their management team and said the reason behind the move was so they could make faster decisions.

Yes, making quick decisions can be reckless. But it is just as reckless to think you can slowly come to a supposed optimal solution while the problem you are facing increases with relentless speed.

It is a white canvas coated in white paint. I have to admit that my first reaction was somewhere along the lines of, “Give me a break! That’s not art!”. But I took the time to pop on the audio tour and was surprised to find myself quickly recognizing the value of the piece.

It turns out that Rauschenberg painted the White Painting as an intentional attempt to see how much content he could strip out of a painting and still have it have meaning. When he showed the paintings in 1951, it created a mini-scandal in the art world as many people had the same reaction I did and saw no value to the work.

However, what the White Painting does is create an unique opportunity for the viewer to contemplate what it is that makes any piece of art meaningful. Is a white canvas with a blue square on it art? How about a canvas splattered lightly with paint? What about a heavy splatter? What if the paint is “splattered” so that it gives you an impression of images that you recognize. Suddenly we’re talking about Monet, widely considered one of the most talented artists of all time and leading example of Impressionism, a style of painting of which nobody questions the artistic value.

What the White Painting does is create an experience that forces the viewer to come to terms with their own understanding of the value and meaning of art. By achieving this goal, the White Painting becomes infused with value and meaning of its own.

I think philanthropy might be undergoing its own “abstract” phase. Is microfinance “philanthropy”? What about for-profit microfinance? Is corporate philanthropy good? Is Groupon a social enterprise? How about Chevron (they provide the energy that drives the world after all). Should we celebrate the advent of charitable giving being embedded in consumer transactions or despair? If you add a Facebook Cause to your profile are you a philanthropists? Or are only gifts of time and money “really” philanthropy?

Not everything is art. Art has meaning and value. Not everything is philanthropy. Philanthropy has meaning and value.

But with the White Painting we see the ultimate stripped down attempt at art and amazingly we find that it has meaning. I think we should take the same approach to thinking about philanthropy as we contemplate the value and meaning (or lack thereof) in new efforts to create social impact that stray far outside the familiar realm of donating and volunteering.

Abstract art did not degrade the value and meaning of the great works of classical art. Instead, abstract art helped open society’s eyes to understanding the very essence of artistic expression.

In a world where even traditional donations are deemed to not have value if they do not conform to the values of the viewer, it would be a great thing for an era of Abstract Philanthropy to open our eyes to understanding the very essence of the philanthropic act.