This is a guest post by Erinn Andrews, COO of Philanthropedia, which I blogged about in October. You can find my write up on their efforts here.
Providing donors with better information—actionable and scalable—all in one place
By Erinn Andrews
Clearly, people care. If we look at charitable contributions in 2008, we see that individuals donated more than $250 billion to nonprofits. I assume donors weren’t forced to give away that money—they wanted to. But what goes through their minds as they decide where to write that check? And especially for newer, younger donors, with more than a million registered nonprofits out there, where does one even begin?
This week, I posted a blog entry introducing Philanthropedia’s idea about a Foundation for Everyone. Philanthropedia is an online resource and tool for individual donors. We ask nonprofit experts (with an average of 10 years of experience) to identify strong nonprofits and allocate money across the organizations. On the basis of these recommendations, we create an Expert Mutual Fund that helps donors support an entire sector rather than just one nonprofit.
Now, thanks to Sean, we have the opportunity to share more about our perspective and explain how we hope to help donors as they make donation decisions.
At Philanthropedia, we see 3 factors shaping the problem donors face: Individuals lack good information that is actionable and available at scale, across multiple social causes.
What does it mean to have “good information at scale?” In general, we think the nonprofit marketplace has very little good information about nonprofit success. And, in contrast to capital markets, measuring nonprofit impact is extremely challenging because it’s difficult to quantify. Some independent organizations have attempted to solve this problem by rating, ranking, and scoring nonprofits according to various metrics.
As Lowell, Trelstad, and Meehan explain in The Ratings Game, at one end of this spectrum, organizations examine only a few metrics, a model which is highly scalable and inexpensive. Charity Navigator, for example, evaluates nonprofits primarily according to financial metrics such as fundraising efficiency ratios—which many have criticized as being too narrow a measure to assess nonprofit effectiveness. To their credit, Charity Navigator recently announced their plans to add additional dimensions of evaluation to their rating system. We think this is a great move in the right direction.
At the other end of the spectrum, organizations weigh a variety of measures, a model which is more comprehensive and likely more accurate. Employees at the BBB Wise Giving Alliance, for example, evaluate a nonprofit’s “financial efficiency and stability, governance and oversight, performance measurement, and the quality and accuracy of the organization’s fundraising and informational materials.” (source)
Unfortunately, there are limitations to both forms of nonprofit evaluation. On the one hand, relying on financial data from only one year “tells you about the [nonprofit’s] use of resources, not about the program effectiveness.” (source) And on the other hand, conducting in-depth research is much more time-intensive, costly, and therefore limited to a smaller number of organizations.
What does it mean for information to be “actionable?” The next challenge is how to share the information in a way so individuals can make a decision about where to give. Examples of actionable information are: presenting the donor with a donation strategy, with suggestions about the meaning behind different evaluations, or with ratings to help donors compare organizations. Charity Navigator, for example, uses an easy to understand 4-star rating system, while other organizations choose to provide anywhere from basic facts about nonprofits to comprehensive reports. To someone outside the nonprofit world, presenting information as facts or reports without further recommendations can be difficult to act on.
Philanthropedia’s solution. Therefore, given the unavailability of good information (at scale), we, at Philanthropedia, believe that nonprofit professionals—experts—in the sector are the next best option to evaluate nonprofits. Foundation professionals, academics, and nonprofit executives have access to non-public data, and, because they’ve been working in the sector for a long time (on average our experts have ~10 years of experience) they have advanced mental models for how to weigh the many factors one ought to consider. For us, “good information” about nonprofits will combine both objective facts and subjective assessments to allow for a more holistic review of nonprofit performance. And, this method is inexpensive and scalable (even though we’re not at scale quite yet) because we enlist the help of experts and can concurrently run our research in 2-month cycles. Many thanks to the 261 experts who have already contributed to this work.
While relying on experts to measure nonprofit effectiveness is still imperfect, we believe we can meaningfully capture the aggregated beliefs of a group of well-informed people and understand which organizations they currently think are impactful. And, experts are only a starting point. We then supplement the top-nonprofit profiles with information from Charity Navigator (for financial metrics), GreatNonprofits (for beneficiary voice), and eventually GuideStar (for tax 990 forms). We believe it’s important to bring together and make public multiple measures of nonprofit performance.
Finally, to make this information actionable, we present our research to donors in the form of an Expert Mutual Fund. We ask our experts to allocate 100 monetary points across the top organizations. The result is an easy-to-understand donation strategy that allows donors to support an entire social cause rather than just one organization. Because no one organization will have the solution to the problems within that sector, we believe a diversified giving strategy is a great way to support a social cause.
While there is still a lot of room for improvement, we hope we can move one step closer to providing donors with good information about a number of social causes and make it easier for them to take action to support some of the strongest nonprofits out there—all in one place!
We invite your feedback, suggestions, and comments and look forward to hearing from you.
6 Comments
Erinn, thank you for sharing the philosophy of Philanthropedia.
In your post, you reference GreatNonprofits as providing the beneficiary voice. My understanding of GreatNonprofits is they allow anyone – donor, volunteer, beneficiary, etc – to provide feedback and ratings of any nonprofit organization in the country.
I see Philanthropedia as Consumer Reports (with the addition of an investment fund) and I see GreatNonprofits as Amazon.com.
Given that each site is intending to inform potential donors about the quality of nonprofit organizations, I wonder who is the potential donor for each site – in other words, who is the Philanthropedia target donor – age, income, social/psycho/demographics – and how does that differ from GreatNonprofits’ target donor?
Another thing that just popped into my head – how does Philanthropedia measure success? Is it by the number of donations to your funds, through your website?
I wonder if it is the same for GreatNonprofits – do they measure success by the number of donations through their website?
If it isn’t donations through your website, how will you know if sharing this information online brings value to the consumer – in this case the donor?
By the way, I think the information on both sites is incredibly valuable. I just wonder how you measure success…
Thanks!
Aaron—thanks for your great questions. You’re correct that GreatNonprofits allows anyone to comment on any nonprofit found in GuideStar. One way to look at the difference between our organizations is that, loosely, Philanthropedia does expert crowd-sourcing whereas GreatNonprofits does traditional crowd-sourcing.
Our target donor is someone who is interested in giving more strategically and has a social cause they care about, but doesn’t necessarily have a long giving history with a particular organization. These donors want high quality information they can trust but probably don’t have a lot of time to sort and sift through various nonprofits. They also want an easy system to manage their donations. Likely, they are not the high-net-worth individuals (with more than $1 million in assets) who have access to information from community foundations or elite donor circles. We think the work GreatNonprofits is doing is essential for serving all donors well, no matter their background. Therefore, we’re working closely with them to provide both kinds of perspectives to the public for free.
Your question around measuring success is an excellent one. A main goal of ours is to direct more dollars to really strong nonprofits in the sector. Therefore, one measure of success will be based on being able to provide donations to these top nonprofits. More importantly, however, (though more difficult to measure) we hope to change the way donors think about charitable giving. We really believe in supporting an entire social cause, rather than just one nonprofit. Therefore, another measure of success for us is to see how many of our donors donate to the mutual funds versus donate to a single or handful of top nonprofits. Of course, a donor could donate directly to these organizations (which is also fantastic), however that is impractical if one is really interested in giving via mutual fund. Therefore, because we really believe in the mutual fund idea, we’re most interested in measuring donations through our site to the expert funds. And, of course, there are many other measures as well, but I’ll stop there for now.
Thanks again for your great questions and interest in our work!
Erinn
I really like the idea of expert philanthropy giving funds. Here at Excellence in Giving (a philanthropic advisory firm) I have been developing “Diversified Giving Portfolios.” A client is able to pick a program area and a limited geographic region, and then we pick a group of organizations/projects that contain key success indicators for creating positive change in that area.
The key success indicators have been determined through research on program models and results. The goal is to be able to watch actual problematic statistics in a specific location change over a 5-year period, such as the number of child-headed households in a Swaziland province drop from 23% to 14% compared to neighboring provinces without such drop.
However, such customized service can only be given to contracted wealthy clients. So when we are asked by financial advisors how a smaller donor can get expert advice for their charitable giving, we don’t have an easy answer. The Expert Mutual Funds could prove to be an answer to that question. Great idea.
Interesting concept however, I feel the need to challenge a key component of your approach: that your “experts” are best able to evaluate non-profit success.
Your approach assumes that your experts are not among the many nonprofit executives and funders who continue to equate budget size, numbers of clients served, community awareness, etc to “success”. Tactical Philanthropy readers know that these elements are outputs, not outcomes, and are poorly correlated to effectiveness. What confidence do I have that your experts approach their recommendations any differently than the vast majority of those in my grantmaking community?
I might also add that the tenure figures used to prove their expertise do not move me. Since the average tenure of your experts is 10yrs, does that suggest a greater ability to recommend an organization worthy of investment? I could make a compelling argument that the inverse is more true.
Thoughts?
Matthew, You pose an excellent question, thank you for bringing this up. We were also curious what criteria our experts would use to evaluate nonprofit effectiveness because we, too, believe that outputs are poorly correlated to effectiveness, as you say. In fact, the first question we ask our experts is about the criteria they use to evaluate nonprofits. We found some very interesting results as we looked at the answers across the professions.
For example in our research on Climate Change we found that for foundation professionals, the following three criteria were most important when considering nonprofit effectiveness in their sector: 1. the organization is able to produce measurable results that go toward fulfilling their mission, 2. the organization has a high quality strategic vision, mission, and/or theory of change, 3. the organization has high quality staff/personnel. Interestingly, nonprofit executives said their top criterion was the same as foundation professionals. However, their next two criteria were quite different: the organization is able to manage their finances well and the organization is able to build communities of action—a criterion that is rather social cause-specific because of the number of grassroots organizations working in the sector. To us, these answers paint a picture that may include outputs but also include many different measures of success.
Your last question is also an important one. You’re correct that years alone do not necessarily guarantee an experts’ ability to identify a strong nonprofit to fund. However, we do generally think that the longer a professional has been working in the sector, the more likely they are to have seen organizations succeed as well as fail. And over time, they will learn from these experiences which will in turn influence their perspective. In the example of Climate Change, our experts had anywhere from 2 to 40 years of experience working in the sector. So, there is a representation from newer professionals as well as even more senior practitioners. Ultimately, we agree that experts are an imperfect measure, however we still believe there’s value in capturing their perspective and believe there’s value in collecting the opinions of a cross-section of nonprofit professionals—something we haven’t seen before. Perhaps most importantly, we want this information to be available to the public and not limited to foundations or donor circles for high-net-worth individuals.
Thank you for posing these key questions—they are fundamental to what we do!