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.

Lucy’s posts were great because out of the need to communicate nonprofit due diligence best practices to a 10-year-old, Lucy manage to distill everything down to three simple questions:

1. What does the organization do?
2. How do they do it?
3. How do they know if they are making a difference?

I’ve written up my own list of five simple questions to ask, but they are a good deal more technical. Sometimes I think the “smart giving” movement gets lost in our own nuanced debates and forgets how powerful it can be to reframe our discussions so they make sense to anyone (in this case, a motivated 10-year-old ended up being the perfect foil for Lucy).

Here’s why I think Lucy’s questions are so powerful and are the core of what more complex evaluation processes are trying to get at.

What does the organizations do?

This seems to be such an obvious question that it doesn’t need to be asked. But visit the Red Cross’s website and try to explain what they do. Or check out the American Cancer Society, which many people think does cancer research, and then realize that only 17% of their program expenses go to research.

Understanding what an organizations actually does should always be the first step to building conviction in a decision to support them. A good answer to this question can’t just discuss the organization’s goals or focus area, but should describe the programs or approaches taken by the nonprofit in pursuit of those goals.

How do they do it?

The question above might be answered above for a college access nonprofit that the organization provides assistance to under-privileged high school students in the process of applying for college. But lots of nonprofits do that sort of work, so how does the nonprofit in question provide the service? How does their service differ from similar organizations? How do they fund their activities?

How do they know if they are making a difference?

Any high performing nonprofit is going to have some process in place for trying to get a handle on whether they are having success in their programs. The answer to this question doesn’t need to come in the form of a spreadsheet. It might be completely qualitative. But regardless of how it is answered, a solid nonprofit should be able to speak convincingly about their own efforts to know if they are making a difference.

In some ways, that’s about all you need. If before you make a donation you are able to fully describe what an organization does, how they do it and how they know if they’re making a difference, you are well on your way to knowing that your money is actually going to make a difference.

I’m sure some people will argue that this is too simple of a process. My own advice on this matter requires that a nonprofit base their programs on evidence about what works or, if the program is experimental, make clear that the program is a research effort. But we can go on adding qualifications and additional due diligence forever.

In a world where most people do little to no research before donating, it seems to me that a big positive shift would occur if donors began to spend 15 minutes figuring out the answers to Lucy’s questions before making a donation.

The majority of charitable giving is done between Thanksgiving and New Year’s. From stats I’ve seen from online giving portals, it seems that a big rush of online giving occurs in the last few days of the year. Readers of this blog know that I recommend donors spend time planning their giving, creating a written philanthropy plan and donating to organizations in which they have a high level of conviction.

But what if it is the last day of the year, you want to make a gift to charity and you aren’t sure where to give? Here’s a strategy that takes 5-10 minutes and will result in your donations accomplishing more good than the vast majority of charitable gifts.

In 5-10 minutes you can’t possibly learn enough about a charity to determine if it is any good (imagine buying a stock with 5-10 minutes of research!). But you can piggyback on the research being done by professionals. For free.

Your first resource is GiveWell’s top rated charities. GiveWell is a research team that works to identify charities whose programs actually work. Read the short profile of these thoroughly researched charities and pick one that interests you. The organizations range from ones providing immunizations in Africa to ones working on improving teacher quality in the US.

Don’t even have time for that? Just donate to one of GiveWell’s top rated charities by clicking on the links below.

• Village Reach (Immunizations)
• Stop TB (Tuberculosis)
• Against Malaria Foundation (Malaria)
• PSI (Global Health)
• Small Enterprise Foundation (Microfinance)
• Village Enterprise Fund (Economic Empowerment)
• Chamroeun (Microfinance)

A new option this year is choosing to support one of the pre-selected grantees from Venture Philanthropy Partners’ winning application to the Social Innovation Fund. With this approach you know you are supporting a nonprofit that has passed Venture Philanthropy Partners due diligence and that VPP has pass the due diligence of the federal government’s Social Innovation Fund, which included multiple reviews by outside experts.

VPP named these four nonprofits as their intended grantees for the Social Innovation Fund grant:

• College Summit
• KIPP
• Latin American Youth Center
• Year Up

Another great resource is Philanthropedia. This group surveys nonprofit, foundation and academic experts to identify top charities. They currently rate nonprofits across 12 different issue areas. Don’t even have time for that? Philanthropedia has created charitable “mutual funds” where you can make a single gift to a cause area and they’ll split it up among the groups they recommend. Just click on the links below and select a top rate nonprofit or issue area “mutual fund” to support:

• Microfinance
• National Arts & Culture
• National Childhood Nutrition/Health
• National Climate Change
• National Education
• National Reproductive Health, Rights, & Justice
• National Workforce Development
• Bay Area Arts & Culture
• Bay Area Climate Change
• Bay Area Early Childhood Education
• Bay Area Homelessness
• Bay Area Middle-Secondary Education

A fourth option is New Profit, Inc. New Profit is a national venture philanthropy fund that supports rapidly growing social entrepreneurial organizations. They too won a grant from the Social Innovation Fund. While their site is not designed to process donations, they do offer profiles of their current portfolio of charities they support. Once you find one you like, head over to Network for Good to make an online donation to the group.

Don’t even have time for that? Just make a donation to New Profit, Inc and they’ll use 100% of your gift to support their full portfolio of charities.

If you use this process, you can feel confidence that the organizations you are supporting are the same ones that experts would pick if they were in your shoes. But if you use this process to complete your charitable giving in just 5-10 minutes, do me a favor and make a New Year’s resolution to start earlier next year so you can make a simple written plan and find organizations you personally believe are doing great work.

Happy New Year!

Probing Questions All Donors Should Ask Before Making a Significant Gift

By Sean Stannard-Stockton | Chronicle of Philanthropy

One of the holy grails of nonprofit evaluation is to be able to compare nonprofits with different missions. Concepts like “social return on investment” strive to measure how much “good” an organization is creating, regardless of whether it is a soup kitchen or a job-training program. Given the difficulties of comparing the results of different types of organizations, it makes more sense for potential donors to ask a specific set of questions of all organizations.

Successful programs often look quite different from one another. However, high-performing organizations, those that have the ability to carry out successful programs, have similar characteristics. These organizations base their programs on research about what works, actively collect information about the results of their programs, systematically analyze this information, adjust their activities in response to new information, and focus all their energy on producing results.

To figure out whether nonprofits meet those standards, donors can ask specific questions that will help them decide whether a group is worth supporting. Each answer must be interpreted in the context of the nonprofit’s operations.

For instance, it would be unreasonable to expect a small grass-roots organization to present extensive evidence supporting its answers. However, no matter how big or small the group, donors can still assess whether an organization has the proclivity to become a high-performing group and whether it has put in place all that it can to move toward that goal. Even most large organizations do not possess all of the attributes of a high-performing organization. It is important that donors not let the perfect be the enemy of the good.

With that caveat in mind, here are the questions that donors should ask when they are considering a significant gift.

On what research or evidence did the organization design its programs? Whether you are evaluating a local after-school tutoring program or a global disaster-relief program, a high-performing nonprofit should be able to speak about the evidence and research that shaped its programs. While many organizations have not conducted extensive evaluations of their programs’ results, all programs should at least be based on knowledge about what works. When a nonprofit is exploring an unproven approach, it is critical that the program is treated as a research project to test an idea—and that donors are told that.

What information does the nonprofit collect about the results of its programs?For-profit organizations can track their revenue and expenses to determine exactly how much profit they are producing. Nonprofits need to track not only their financial transactions but also the social results that their programs achieve. The relevant information will vary at different organizations. However, all high-performing nonprofits should be making a consistent effort to collect the information that they believe is most relevant to measuring progress toward their goals.

How does the organization systematically analyze the information it collects? It is not enough simply to collect information; the whole point of gathering data is to better understand a situation. Whether information analysis takes the form of sophisticated statistical analysis or simply regularly scheduled reviews and discussion among the board and staff members, high-performing nonprofits should diligently attempt to understand the meaning of the information they collect.

How has the nonprofit adjusted its activities in response to new information?Unfortunately, knowing what should be done is not enough to spur every organization to action, just as knowing that eating less and exercising more are the keys to losing weight does not guarantee a successful diet. Nonprofits must be ready and able to adjust their activities as needed. High-performing nonprofits should be able to discuss specific instances in which they responded to new information by stopping or significantly altering their activities.

Does the organization have an absolute focus on producing results? In the business world, the intended result—a profit—is also the fuel that sustains the organization. In the nonprofit world, program results don’t usually pay the rent. That means that nonprofits are at risk of giving higher priority to fund raising and other revenue-generating activities than producing program results. Producing the revenue needed to run an organization is critical, but it is a means to an end. Sustaining an organization is useful only to the extent that it enables the delivery of program results. High-performing nonprofits should be able to speak convincingly to their absolute focus on results.

Plenty of nonprofit groups can show financial success. But donors need to ask the probing questions that will make sure that dollars flow only to organizations that turn financial resources into program results.

Sean Stannard-Stockton is chief executive of Tactical Philanthropy Advisors, in Burlingame, Calif., and author of the Tactical Philanthropy blog. He is a regular columnist for The Chronicle of Philanthropy.

One of the major critiques of the Giving Pledge is that it is seemingly focused solely on generating more giving and makes little mention of better giving.

For instance, Pablo Eisenberg in an article titled The Gates-Buffett Giving Pledge Won’t Do Much Good Unless It Changes Philanthropy, wrote:

“Who will provide the leadership to increase the quality of philanthropy, not just the amount of money given? So much of the giving wealthy donors and foundations now do is lackluster and does not involve risk taking or innovation. Nor does it seek to solve urgent public needs. Will the new pledges mean more of the same?”

While the letter of the Giving Pledge calls only on billionaires to give at least 50% of their wealth to charity, the spirit of the Pledge seems to me to focus on smarter philanthropy.

On the conference call, Buffett repeatedly stated that the Pledgers would not be asked to fund any specific cause. Yet, he also spoke to his goal of bringing the Pledgers together to learn about how to do philanthropy well.

Buffett said,

“We will gather the Pledgers to talk about big problems in philanthropy and learn as a group about being smarter about philanthropy…”

Most interesting to me was that Buffett spoke directly to my hope that the Giving Pledge will lead to an increase in the general level of giving across all demographics and income levels.

Speaking about his hopes for the Pledge, Buffett said:

“We want the general level of giving to step up…

We want the Pledge to help society become even more generous. We hope the norm will change towards even greater and smarter philanthropy…”

This trend toward a social norm of expecting smart giving instead of just more giving is showing up in other places as well. In a post I wrote in the wake of the Haitian earthquake titled The Rise of Smart Giving, I pointed to a number of indications that donors were seeking to give well, not just give more.

However, I think it is important to recognize the value laden nature of the word “smart”. When Pablo Eisenberg writes about the importance of how the Pledgers give, he is speaking to his hope that they will fund nonprofits that focus on reducing inequalities and not “established colleges, hospitals, and arts and cultural organizations.” Staying away from this sort of rhetoric seems to be a central goal of Gates and Buffett, who have repeated said that they will not ask donors to support the work of the Gates Foundation or any other specific cause.

It seems to me that rather than encouraging “smart” giving, we might seek as our goal a focus on “intentional” giving. While Eisenberg might view colleges and hospitals as “not smart”, another donor might view investments in education and health care as the best ways to reduce inequality. The key is that donors should make philanthropic decisions from a position of proactive intentionality. We can productively disagree about how to best practice philanthropy, but only if we take the time to come to our conclusions through an intentional process of educating ourselves about our options.

Smart philanthropy isn’t something you can train people to replicate. There is no single best approach nor any one cause that is more important than others. Instead, philanthropy is best practiced by people who take the time to become educated about the issue they wish to affect and who cultivate an attitude of mindfulness about the challenging endeavor of philanthropy.

Just 6 weeks ago, Warren Buffett and Bill & Melinda Gates launched The Giving Pledge, an effort to encourage all of the nation’s billionaires to give away at least 50% of their wealth.

Today, it was announced that 10% of all billionaires have already publicly made the pledge.

The Giving Pledge will be holding a press conference later today, so more information will become available. But a list of the billionaires who have pledged is now available, including their Pledge letters.

The pledges are an interesting cross section of well known philanthropists as well as billionaires whose philanthropy is generally unrecognized. Each person making the pledge has written a letter describing why they have done so. The letters offer an amazing insight into the philanthropic impulse and will certainly become a standard part of philanthropy education efforts.

Fascinatingly, most of the pledge letters state that the person making the pledge plans to leave virtually all of their wealth to philanthropy. The reasons cited and the causes the pledgers plan to support are as varied as can be.

• George Lucas writes of his own poor educational experience how he wants to help build a better education system.
• Gerry Lenfest writes about the joy he and his wife experience when they give to a worthwhile cause.
• George Kaiser admits that his charity is driven by guilt.
• 36-year-old John Arnold and his wife Laura describe their disbelief that they ever came into so much wealth.
• Ken Langone points to the spiritual purpose that the Pledge embodies.
• Lorry Lokey describes growing up in the depression and explains why he flies coach.

But not every letter is a heartwarming call for equality and self-sacrifice. Maybe the most surprising name on the list to me was Larry Ellison, the CEO of the technology company Oracle who is generally described in the press as a self-styled bad boy who spends huge sums on jets and boats. [Update: I failed to mention in the first version of this post that Ellison is the third wealthiest person in the US, meaning that the top three wealthiest people have all said they'll be giving away virtually all of their wealth].

Ellison’s letter makes it clear that he is also the “bad boy” of the Giving Pledge. But in doing so, he opens the door for participation in the Pledge by billionaires who might not resonate with some of the bleeding heart rhetoric of some of the Giving Pledge members.

While many of the letter writers address Warren Buffett directly, Ellison writes:

“To whom it may concern,

Many years ago, I put virtually all of my assets into a trust with the intent of giving away at least 95% of my wealth to charitable causes.  I have already given hundreds of millions of dollars to medical research and education, and I will give billions more over time.  Until now, I have done this giving quietly – because I have long believed that charitable giving is a personal and private matter.  So why am I going public now?  Warren Buffett personally asked me to write this letter because he said I would be “setting an example” and “influencing others” to give.  I hope he’s right.”

I hope so too.

As I wrote in my column for the Chronicle of Philanthropy following the announcement of the Pledge, I hope that it “sets an example” for and “influences others” who come from every walk of life, not just billionaires.

If Larry Ellison can sign the pledge, maybe my hopes for a Second Great Wave of Philanthropy aren’t so far fetched!

I tried to calculate the potential dollar impact of a shift in the giving of every day donors and argued that it could result in a 100% increase in annual giving vs. a maximum of a 10% lift if every billionaire fulfilled the pledge. But yesterday Ryan Allis, writing on the Social Entrepreneurship blog at Change.org gave a more compelling break down of the numbers that illustrates how vastly more important the giving patterns of major donors is compared to the ultra, ultra wealthy.

Ryan wrote:

There are 10 million millionaires in the world, with a total net worth of $39 trillion according to the 2010 Merrill Lynch and Cap Gemini World Wealth Report. The average millionaire has $3.9 million.

Excluding the $1.3 trillion of the Forbes 400 [Sean: these are the billionaires targeted by the Giving Pledge] from this $39 trillion, there is $37.7 trillion in assets among millionaires globally. What if there were a Millionaire Pledge?

If through a directed effort we can get 20% of global millionaires to commit to give half of their wealth, instead of an extra $120B for philanthropy, we’d have an extra $3.8 trillion.

Did you get that? If every billionaire commits to giving away 50% of their wealth, we’d see billions of dollars going to philanthropy. But if just 20% of millionaires commits to giving away 50% of their wealth we’d see trillions of dollars going to philanthropy.

Most people can’t even begin to grasp the difference between a billion and a trillion. Below is the best illustration I’ve seen.

This is a billion dollars of stacked $100 bills:

This is a trillion dollars of stacked $100 bills:

(Illustration from PageTutor.com)

Wow.

The idea of giving away 50% of your wealth isn’t something to suggest lightly. It is certainly not something that I would personally be willing to do today. But for a billionaire or for a millionaire at the right stage of their life and given the right circumstances, it is entirely possible.

In fact there is an excellent group called Bolder Giving which launched in 2007 with The 50% League to tell the stories of people from all walks of life who had committed to giving away 50% of their wealth. Interestingly, Patty Stonesifer, former president of the Gates Foundation and now an advisor to Gates and Buffett was quoted in the Chronicle of Philanthropy as saying that the efforts of Bolder Giving were one of the reasons they thought the Giving Pledge was achievable.

Gates-Buffett Example Worth Its Weight in Gold
By Sean Stannard-Stockton | Chronicle of Philanthropy

The collaboration of Warren Buffett and Bill and Melinda Gates transfixed the nonprofit world four years ago when they announced the biggest philanthropic merger in history, producing a foundation that will probably be worth at least $60-billion one day. But last month’s announcement that the Gateses have joined forces with Mr. Buffett on a campaign to persuade the nation’s billionaires to give 50 percent of their wealth could be an even more important milestone—especially if it persuades Americans at all income levels to increase their giving.

While much has been made of the amount of money the Bill & Melinda Gates Foundation gives away now that it has an infusion from Mr. Buffett, what is far more important is the way the personal decisions made by two of the world’s wealthiest men affect other donors.

The Gates foundation is responsible for only 1 percent of annual charitable giving. But the cultural importance of Mr. Gates deciding at age 48 that running his foundation was more important than running Microsoft and of Mr. Buffett deciding he would give away most of his wealth while he is alive was remarkable.

Those decisions are a striking departure from the historical philanthropy of America’s wealthiest individuals. Many people have undertaken their major giving late in life or simply taken care of through bequests left in a donor’s will.

For as long as we have had records, Americans have given roughly 2 percent of their income to charity each year. Today, American foundations, corporations, and individuals give about $300-billion a year.

If every billionaire decided to give 50 percent of his or her net worth, it would result in $600-billion for charitable causes.

But of course, much of the $600-billion would flow into foundations or go to charity over many years. So a better way to look at the impact of the pledge is that it could trigger a permanent $30-billion per year increase in charitable giving, or 5 percent of the $600-billion pledge. If the money flowed to nonprofit groups any faster, it would run out at some point and therefore not make a permanent impact on the level of charitable giving.

Now $30-billion is real money. After all, today all the foundations in the United States combined give a total of about $40-billion. But such giving would result in only a 10-percent increase in the amount charities receive every year.

It is very likely that even without the pledge, Americans will increase their giving by $30-billion within two to four years simply because that is what happens whenever the economy starts growing again after a downturn.

However, just as the announcement of the Gates-Buffett collaboration in 2006 inspired many other people to get more involved in philanthropy, it seems likely that their new campaign could do much to increase giving far beyond the exclusive circle of American billionaires. It will certainly motivate some billionaires outside the United States. Chinese government officials have already called on their country’s billionaires to increase their giving in reaction to the Gates-Buffett campaign.

But most important would be for the Gates-Buffett “giving pledge” to act as a sort of tipping point that helps accelerate the growing public interest in philanthropy and kick-start a gradual increase of average giving from 2 percent of income to 4 percent of income.

The result would be an increase in charitable giving of $300-billion every year. That’s 10 times what the giving pledge might raise even if every billionaire in the United States committed to the idea.

A 10-percent increase in charitable giving would elevate the resources of the nonprofit world to a level we’d normally not see for several years to come. But a 100-percent increase would mean access to resources today that otherwise would not appear for a generation.

That’s what potentially makes the Gates-Buffett giving pledge a really big deal.

Big announcements make the news, but it is the giving of everyday individuals that really drives philanthropy.

Sean Stannard-Stockton is chief executive of Tactical Philanthropy Advisors, in Burlingame, Calif., and author of the Tactical Philanthropy blog. He is a regular columnist for The Chronicle of Philanthropy.

This is a guest post from Hope Neighbor, founder of Hope Consulting which recently released the report Money For Good.

Read Part I.
Read Part II.

By Hope Neighbor

On Friday, I talked about principles to guide efforts to improve the quality of charitable giving. Today, I’ll talk about another opportunity to achieve social impact – by addressing the $120 billion market opportunity for impact investments for individuals. Today, these dollars are “hiding in plain sight,” in individuals’ investment accounts.

In addition to charitable giving, the Money for Good research analyzed Americans’ demand for impact investments, and what was required to meet that demand. In other words, what do American investors need to make more impact investments? To get at the answer to this question, we surveyed 4,000 Americans with household incomes of $80,000 and above. Here’s what we found:

To start, there’s a strong, untapped appetite for impact investments. Almost 90 percent of the individuals surveyed expressed openness to impact investing. We calculated a market opportunity of $120 billion for these investments, with half of that opportunity in investments of under $25,000. What’s more, even the very affluent are interested in smaller investments: over half those with household income of over $1 million a year still want to make impact investments of $10,000 or less. Long story short – there is a very large market for small impact investments that is largely unmet in the market today.

In addition, we found that Americans won’t cannibalize their charitable giving in order to make impact investments. When asked where they would draw the funds to purchase impact investments from, only 10% said that they would pull the money from their charitable giving.

Finally, we found that individuals were more receptive to impact investments if they are positioned as investments, not alternatives to charity. Americans are 1.8 times more likely to make an impact investment if they’re placed in an investment mindset rather than a charitable one.

The Money for Good research yielded several findings that point to how to best open up the retail impact investing opportunity. First, Americans want to receive information from and transact through their standard financial services provider; financial advisors were by far the top place investors would turn to learn about impact investment opportunities.

Second, Americans break out into six specific investor segments. The segments include Safety First, Socially Focused, Quality Organization, Hassle Free, Personally Recommended, and Skeptics. The first three – Safety First, Socially Focused, and Quality Organization – represent over 80% of the impact investing market opportunity we identified. Each of these segments has different core motivations for making impact investments – Safety First prioritizes downside risk protection, Socially Focused prioritizes the cause the investment is addressing, and Quality Organization investors want to invest with a reputable organization that has a strong track record and business plan.

Third, we found that there are five barriers to investment that are common across all those open to impact investing. Interestingly, the five barriers are all related to the immaturity of the market, not the social or environmental impact investments are having.

Building on these findings, there are seven steps that we believe will help to open up the retail impact investing market:

1. Clarify what impact investing means for individuals and professionals
2. Structure products with small initial investments (<$25,000)
3. Tailor products and messages by segment, to appeal to different motivations
4. Make opportunities accessible to retail investors, as many existing impact investment opportunities are open only to accredited investors
5. Position these as investments, not as alternatives to charity
6. Address market immaturity barriers, to provide confidence to investors
7. Build awareness of impact investing overall and the specific opportunities available today with investors and their advisors

We’ve heard many times that opening the retail market will be too hard – too hard even to try. In conversations in the past six weeks, that’s not what we’ve heard from those with deep retail investing or banking experience. Instead, we’ve heard that there are gaps in knowledge that make it difficult to know how to address the retail impact investing opportunity today. More must be understood about financial advisors’ incentives, retail distribution networks, and how impact investments can be structured and sold to accommodate those incentives instead of being defeated by them. We also need to understand the economics and expected social impact of different retail impact investing alternatives. But once the sector is armed with this knowledge, we believe that it will have the insights that it needs to attack this $120B market opportunity “hiding in plain sight.”

Read Part II.
Read Part III.

By Greg Ulrich

There’s been some terrific discussion here on Tactical Philanthropy in recent weeks about the results of our Money for Good study. Sean and others have been particularly focused on the central question of how, and whether, more giving can be directed to the highest performing nonprofits.

We thought it was appropriate to weigh in directly on the debate and on some other important findings from our study. We thank Sean for giving us the chance to do so. This is the first of three related posts we’ll have on this site in the coming days.

Specifically on the question of improving the quality of giving, the common perception seems to be that donors don’t give to the highest performing organizations because they lack the information that will allow them to do so. While this is certainly a barrier, our research suggests that better information alone isn’t going to move the dial on this issue.

To quickly recap our research (you can find the full Money for Good report, including our methodology and more detail on these findings at www.hopeconsulting.us), we found that:

• The vast majority (85%) of donors say that they care about a nonprofit’s performance
• However, only a third of donors ever do any research before they give. When they do research they don’t spend a lot of time doing so and prefer simple facts and figures
• Of those that do research, the majority do so only to validate their choice of charity (i.e., to make sure that their nonprofit is “good enough” and not going to “waste” their donation)

All told, only 3-4% of donors do research on nonprofit performance in order to give to the highest performing organization.

While that picture is discouraging to many, it isn’t necessarily new news. For many the more interesting question is why donors don’t research more. Our research points to three key reasons.

First, donors say that the nonprofits to which they donate perform very well. While people may think that nonprofits overall are relatively ineffective, most donors feel that their chosen organizations are doing a great job. (You can think of this as a derivative of the fact that all parents believe that their children are above average.)

This belief means that there is no “burning platform” to motivate people to research. As we heard in our focus groups: “I only give to good organizations. Why would I research?”

Second, maximizing the impact of their donation is not why the majority of donors give. We analyzed how donors make their charitable gifts. Specifically, we looked into the importance of 15 drivers of their giving, including, “This organization is better than others at addressing social issues”. This driver came in 8^th of 15 in terms of its importance – in other words, it’s not a significant factor driving donor behavior. Taking this a step further, our research also showed that there are six different behavioral segments of donors, and that giving to the best organization is only somewhat important to one of them (which we termed the “High Impact” segment). Unfortunately, “High Impact” donors make only 12% of total individual donations each year.

Third, donors are loyal. Of all of the donations made each year, only about 15% are available to move from one organization to another. The other 85% will go to the same organization next year. People are more loyal in their giving than they are for most other categories of spending.

The tide is certainly turning, and we believe that more donors care about nonprofit performance today than did 15 years ago. And we think that this trend will continue. But at the same time it’s critical to understand that this growth is coming off of a very small base. The fact that individuals that are focused on high performance may be louder than others does not mean that there are more of them.

Getting donors to change their behavior is an uphill battle. There are few carrots and even fewer sticks that can be used to influence a person’s charitable giving. Given that most people don’t want to research, and those that do spend little time doing it, we worry that elaborate systems to measure nonprofit effectiveness won’t have the impact people desire. Building that system won’t necessarily change the behaviors of most donors.

To be successful, we believe that efforts here will need to accommodate donor needs and behaviors, not try to change them dramatically. Our next post will outline some ideas that we think have the best chance to improve the quality of giving in the United States.

I think this development marks a major milestone in the expansion of the Second Great Wave of Philanthropy. But the importance of news is not the actual money that many billionaires are likely to pledge, but the cultural ramifications of the campaign. More about this is a minute, but first a little history.

In the spring of 2006, I was driving my 6-month-old son around town in a desperate attempt to get him to fall asleep. That was the moment that I heard the news on the radio that Warren Buffett had announced he was going to give 85% of his wealth to the Gates Foundation and Bill Gates was leaving Microsoft to run the foundation. I had been playing with the idea of starting a blog for a few months, but it was the Gates/Buffett news that convinced me that something dramatic was beginning to unfold in philanthropy. A few months later I launched the Tactical Philanthropy blog.

In my past writing about the importance of Gates/Buffett decision, I have repeatedly stressed the idea that it was not the money that they were giving that had such potential to revolutionize philanthropy, but the cultural importance of their decisions. The Gates Foundation is only responsible for 1% of annual charitable giving. But the impact of the richest man in the world deciding at age 48 that running his foundation was more important than running Microsoft and the second richest man in the world deciding he would give away 85% of his wealth while he was still alive is simply remarkable.

I think the same sort of analysis is the best way to look at the Gates/Buffett Giving Pledge. According to Fortune Magazine, if every single billionaire signs the pledge, it would result in $600 billion being given to charity. But Americans already give $300 billion a year to charity every year. And of course, much of the $600 billion would flow into foundations or go to charity over a multi-year period. So a better way to look at the impact of the pledge is that it could trigger $30 billion per year in charitable giving or 5% of the $600 billion pledge. If the money flowed to nonprofits any faster, it would run out at some point and therefore not have a permanent impact on the level of charitable giving.

Now $30 billion is real money. It is roughly what all the foundations in the country currently give each year. But it would only result in a 10% bump in total charitable giving. It is very likely that even without the pledge, Americans will increase their giving by $30 billion within 3-5 years simply by virtue of the typical pattern of giving increasing with economic growth.

But just as the original Gates/Buffett decision in 2006 inspired many other people to get more involved in philanthropy, if the Giving Pledge is successful, it will have ramifications far beyond the exclusive circle of US billionaires. Certainly you would expect that it would motivate some non-US billionaires. But it is also likely to affect the way that everyday Americans think about their personal philanthropy.

For as long as we have data, Americans have been giving roughly 2% of their income to charity each year. What if the Giving Pledge acts as a sort of tipping point that helps accelerate the growing public interest in philanthropy and kick starts a gradual increase of average giving from 2% of income to 4% of income? The result would be an increase in charitable giving of $300 billion every single year. That’s 10 times what the Giving Pledge might raise if it gets 100% participation from the country’s billionaires.

That’s what makes the Giving Pledge a potential really big deal. The original Gates/Buffett announcement resulted in a 1% increase in charitable giving, but it was important because it had the potential to trigger the 10% increase in charitable giving that the Giving Pledge represents. The Giving pledge might result in a 10% increase in charitable giving, but it is important because of its potential to trigger a 100% increase in charitable giving.

Big gifts make the news, but it is the giving of every day individuals that really drives philanthropy. The Second Great Wave is alive and well.

What if instead we tried to build a more effective philanthropy that was designed for real life, human donors?

The first step of course would be to actual ask donors what they wanted. So today I’m glad to be able to point to the newly released Money For Good report from Hope Consulting. The report was underwritten by the Hewlett and Rockefeller Foundations as well as a number of other well known organizations.

The Money for Good report tries to answer three questions, 1) how can we increase charitable giving from individuals, 2) how can we increase donations to the highest performing nonprofits and 3) how can we realize the potential of impact investing.

The report opens with this quote:

“It is our nature to see the world based on our own context, experiences, and points of view. People in all walks of life struggle with this bias every day. How can a new product fail when you and your cohort believed that it was a great idea? The need to understand the world as it is – not as we wish it were – has caused primary market research to become a multi-billion dollar industry.

The motivation behind the Money for Good project was to seek the ‘voice of the customer’ for charitable giving and impact investing.”

The report is in depth and I encourage you to read the whole thing. But today I want to focus on a particular chart that explores the opportunity to “improve the quality of giving,” which is the critical question motivating the movement for a more effective philanthropy.

The percentages refer to the amount of donors who currently do the things mentioned in the dark blue boxes. So if we want donors to give based on relative performance, to make donations that are as effective as possible, we need to help donors move from the left to the right on this chart.

The first, promising sign is that 85% of donors do care about the performance of the nonprofits they support. But only 32% of donors do any research at all to determine if the nonprofits they support are actually any good. This finding is similar to the survey that kickstarted the recent posts here and on other blogs about whether donors care.

The second major gap is how to encourage donors to use quality information. Charity Navigator proved over the last decade that donors can be encouraged to research nonprofits. The problem of course is that the overhead expense ratio metric they popularized (the Money For Good report confirms that overhead expense is the #1 most important piece of information for donors who do research) is very low quality in determining effectiveness. But Charity Navigator should be noted for their hugely successful campaign to close the Care vs Act Gap. Today Charity Navigator is working to implement a major overhaul of their rating system that they hope will increase the quality of their ratings (disclosure: I’m on the advisory board for this effort).

The Money For Good report argues that closing the “Care vs. Act” Gap and the “Quality Information” Gap so that donors go from just caring about the effectiveness of nonprofits to actually doing high quality research, means:

1. Creating many initiatives that address these issues simultaneously.
2. Providing simple information donors will use.
3. Pushing information to donors.
4. Building board awareness around select key messages.

The final goal, closing the Good vs Best Gap, or helping donors support the best nonprofits not just any that are doing a good job, is in some ways a wholly different goal. According to the Money for Good report, only 15% of donors even state that they care about supporting organizations that are better than others at achieving their goals.

To me, this means that we have two separate issues at stake,

1. We need to help the 85% of donors who already care about supporting effective nonprofits act on this interest by creating high quality information that is designed in ways that donors actual want to use it.
2. We need to work to increase the percentage of donors who care about maximizing the effectiveness of their giving by supporting the best nonprofits.

The first issue is one of meeting a pre-existing demand. The second is about creating demand. Both can be done. Both sorts of issues are tackled all the time in various markets.

But the one thing we can’t do is simply build philanthropic products and services for imaginary “rational” actors who are seeking massive amounts of data and metrics, and love to run Excel spreadsheets before every donations. These donors are as imaginary as Vulcans.

“Jacob has already pointed to the Hope Consulting study that Hewlett partly-funded. I encourage everyone to read it (it’s available at www.hopeconsulting.us) because it offers another important piece of the puzzle in this regard (note that, like Jacob, I have a connection to Hope Consulting–they are a client of my firm).

The Hope data shows that while 85% of donors say they care about nonprofit performance only 35% ever do any research. Another set of questions hints at why. Donors say they are actually quite satisfied with the performance of the charities they give to, and think those charities have excellent leadership.

When you combine this finding with the fact that overall confidence in the nonprofit sector has been steadily falling, it becomes clear (to me at least) that we are confronting the Lake Wobegon problem.

Donors believe that all the charities that they support are above average. While there are problems in the charitable sector and ineffective charities–those are the charities that other people give to. Why would a donor convinced that their charities are effective have need of a rating system or external validation? Why should they waste any time on researching performance even though they care about performance? These donors already know the answer to the question. Similarly few parents spend much time doing independent research about whether their child is lovable and cute or above average.

So a big portion of the challenge is one of helping more donors understand that not all charities are above average. And some of the ones below average may in fact be charities that they give to. But right now not very many donors are willing to give up their a priori beliefs that their charities are good charities (cognitive dissonance is a powerful force). And often when they come across a rating system that grades their charities poorly they conclude the fault is with the rating system not the charity.

I would add to Jacob’s list (perhaps a sub-point) that another piece of the puzzle to changing behavior is convincing people that the outcomes directly related to their actions are suboptimal. I suspect that to do this we need to engage the elephant more than the rider in the Heath’s rubric.”

The post generate a couple of responses. Sasha Dichter, the director of business development at Acumen Fund, wrote:

“The other way to look at these numbers is to conclude that donors don’t believe that a rating scheme is going to work; that they don’t believe that such an approach is going to effectively inform them about how to make charitable decisions. (I happen to agree that it won’t, though that’s a post for another day.)  If that’s what’s really going on, then the right headline – much less catchy, and much less likely to be retweeted – would be: “Do donors believe that rating agencies are any good at their jobs?  No.”

There’s a lot of good stuff in both Sean’s and Nathanial’s posts, especially Sean’s point that we need to put as much effort into spreading ideas as we put into assessing impact.  But I also think we have to be careful.  I don’t think we advance the field of philanthropy and champion the cause of effective philanthropy by making and tearing down caricatures of philanthropists, and I think the blog post titles do just this.”

This response surprised me, because Sasha seems to think that I was being critical of donors in my post. But if Sasha thought that, then other people did too and I clearly didn’t make my point well. So to try to be crystal clear, any criticism in my post is directed towards the effective philanthropy movement (of which I’m a part) for not being savvy enough about spreading the idea of great philanthropy in ways that are sticky. It shouldn’t be surprising to us that donors say they are not interested in, and are unmoved by, metrics and statistics. We too frequently talk about effective philanthropy as if we’re encouraging people to eat their spinach. Great philanthropy isn’t a moral obligation that donors should feel like they need to struggle to get right. Effective philanthropy should be a hugely engaging, exciting activity.

The headline I chose, “Do Donors Care Whether Nonprofits Are Any Good?” wasn’t meant to provocatively suggest that I think they don’t. It was in response to the New Philanthropy Capital blog post titled “Do Enough Donors Care?” which I was commenting on. Oddly, Sasha seems to criticize the blog title for being designed to get people to actual read the post and share it with others. But of course that’s exactly what I’m arguing our field needs to do better and which Sasha says he agrees with.

Taking a different angle, Nathaniel Whittemore responded to with a post of post of his own titled “Do Donors Care About Impact? Not Really.”

“I believe that the further the apparatus of giving is from the person whose money is being used, the more likely to be interested in impact metrics a certain class of money will be. What I mean is that a group like the Ford Foundation has a mandate to address a particular set of issues. For them, their raison d’etre is their impact.

For your average personal donor, it’s something much different. Most people give because they feel a longing to be a part of something bigger than themselves…

The important thing to recognize here is not that people are un-interested in impact; it is to recognize that when people give with a desire to be part of a community, or reinforce their investment in friends, the emotional satisfaction they get from their gift — their personal impact, you could say  — is immediately gratified at the moment of giving…

The point is, it’s not that people are dumb, or ultimately only care about their warm fuzzy feelings. Most people that I’ve met genuinely believe in the causes they support, and believe they’re helping achieve change. It’s just that their "due diligence" is all about who brings them through the door and the community that surrounds them there, and they will trust that over more abstractions.”

I agree with Nathaniel that donors will never make donations based on “abstract,” statistical reviews. This was one of the points of my post. But I think there is an important nuance he is missing when he says that donors care more about being “a part of something bigger than themselves” than they do about having an impact.

The “warm fuzzy feelings” that humans feel when they make a donation or do anything to help other people is hardwired into how our brains operate. The warm, fuzzy feeling is triggered when we believe that we are helping someone else. This means that we are hardwired to seek impact in our giving. All “seeking impact” means is that we want our efforts to help to actually be helpful. If donors are consciously aware that their gift in fact will do nothing. For instance, if they are consciously aware that the gift they are making is to a fraudulent nonprofit, they certainly aren’t going to feel a “warm, fuzzy feeling”. Rather they are likely to feel sick to their stomach.

The problem faced by the movement to make philanthropy move effective, is that donors understandably judge nonprofits based on their personal experiences with the nonprofit and the recommendations of friends and family who are drawing on their personal experiences. But unlike normal consumer products, in which the “customer” both buys and uses the product, donors pay for the products and services produced by nonprofits, but they are then delivered to the nonprofit’s beneficiaries, not the donor. That means that donors are unable to judge whether a nonprofits products and services are any good and instead judge the nonprofit based on the effectiveness of its sales and marketing.

The dumb way to try to change this situation is to yell at donors that the way they are making donations is bad, urge them to override the way their brain is hardwired, to dismiss the warm, fuzzy feeling of giving and instead consult statistics and metrics when making gifts.

The smart way to try to change this situation is to make more effective ways of giving enticing, exciting and engaging. To recognize how humans are hardwired and to work with it instead of against it. To find new ways to trigger the warm, fuzzy feeling by bringing to market new approaches to giving which allow donors to help other people by taking actions that actually help.

Donors aren’t dumb. Donor’s aren’t doing philanthropy “wrong”. Donors are humans who take action in exactly the way that evolution has wired our brains to act. This isn’t a bad thing. This is reality.

Kiva.org is showing us that donors are willing to take radical new actions when they give. They are willing to not only reorient the beneficiaries they support, but to completely change the very essence of the transaction. But Kiva has been able to pull this off by working with the way the human brain works rather then against it.

It is time for the effective philanthropy movement to make products and services that donors want to use rather than moralistically making products and services that we think donors should use.

However, for some time GuideStar has been looking at ways to offer visitors more evaluative information. Now, they’ve launched TakeAction @ GuideStar.

Click here to visit the new website.

The site seeks to help donors select which nonprofits to fund, objectively making available rating information from GiveWell, GreatNonprofits, Philanthropedia and RootCause.

One interesting aspect of the new platform is that it reorients the way in which users seek information. GuideStar, like many nonprofit databases, has traditionally assumed that users are looking for information about a specific nonprofit. Their search interface prompts people to enter an organization name. This format makes sense if we assume that users are checking to see if an organization is compliant and has no red flags. But if a donor is seeking the best organization, they need to search by cause area since they presumably do not already know the organization they are looking for. The TakeAction platform reorganizes the GuideStar database by cause area.

One more step towards helping donors make smart decisions about their giving, even if it doesn’t quite turn GuideStar into “the one platform to rule them all”.