Hi Villy,

Thanks for this very relevant and informative topic! I want to turn to your question, "how can we run our nonprofit social enterprises efficiently so we can manage donors, investors, clients and clienors/donorents?"

In the most traditional sense, a fundraiser has a top-down approach in which the project determines the fundraising strategy.

An investment manager concerned with ROI would have to be aware of the monetary kick-out of a donor's investment, and the social benefit of the investment (in a broad sense). As an investment manager accountable to a donor, he/she would want to ensure maximum ROI on the investment to attract as many "clienors" or "donorents" as possible. The focus is not on the project so much as it is on the donor and his/her money, and how the investment manager can ensure maximum ROI.

This begs the question of how to measure the ROI on a scale that objectively compares the monetary and social benefit of all projects of an organization. Because only then, can we ensure maximum ROI on the investment.

In terms of staying competitive, do we run a risk of converting a social enterprise into a for-profit model, where the focus is on monetary gains as opposed to social benefit?

Thank YOU, Jyotsana, for being the first one to post a reply!

I do believe the traditional funding world has been adapting their vocabulary to adjust to the pressures from the for-profit world to be more efficient and economically conscious. Personally, having been in both worlds, I don't believe it is all bad if it stimulates nonprofits to think of themselves as viable businesses that need to be both thoughtful AND strategic about their missions and sustainability. However, I do have the same concern that as we stay competitive, what are the metrics that are used to compare our success when our product or mission is education? In the for-profit world, the metrics are often based on scale and size. BAYCAT doubled in size in the last three years from 125, to 250 to 500 students. Though that may seem impressive, that metric is not satisfying to our organization as bigger isn't necessarily better. How does the quality of the education and the varying lengths in time for students to succeed get factored into the ROI calculations?

Even if the metrics for profitability or ROI are not at this point specifically defined, I'm also noticing a trend where more grantors care about how their donations are leveraged within their own portfolio. In other words although grant requests are project driven, it seems that behind the scenes, the grantor does think about the impact of their potential donation within the larger of context of their own organizational portfolio, whether it is project-based (education, youth development, community development) or geographically concentrated. It seems the funders themselves are also trying to figure out ROI's for themselves and their 'industry' as well. How will these two worlds come together in figuring out these metrics?

Thanks Villy! I agree with your view that there is great benefit in nonprofits thinking and portraying themselves as viable businesses. I am very intrigued with BAYCAT's approach and was wondering if you would be able to shed some light on how you "report" back to your investors. Are you currently looking into creating metrics on quality of education? What are your investors saying in terms of the metrics they would like to see?

Honestly, it's been rather basic as far as metrics are concerned. I would say there is still more interest in traditional academically-oriented metrics, thus, my comments above. On the education side, we'd like to keep better track of the progress of our students over years instead of just through our program. It's great to see them move onto other programs whether art-related or otherwise. At this point, we still count on more anecdotal evidence to show an increase in self-esteem leading to other measures of success whether it's continuing with other activities or staying in school. Certainly, I'd really would love to work on creating a group of other metrics related to education that work more toward the many other facets of youth development. Thanks for your thoughts?

villy: first, great idea on baycat!

One question,something I observed repeatedly in education related metrics discussion: how do one demonstrate that the program makes *the* difference (rather than inherently attracting those who are more motivated / talented, etc., which will do just fine without the program)? What's your thoughts?

Villy, great topic. When talking about social investors do you mean donors who prefer to use the vocabulary of investing, since it is more respectable in certain circles, or do you mean a person who literally invests money in return for an equity or debt stake? That is, are you using the terms literally or metaphorically?

I assume you mean that you want to attract investors who want a true financial return to them on their investment, and that you want to attract investment managers and investment advisors. One hurdle is regulatory. It is difficult for those who operate under the NASD and the SEC jurisdictions to do much with investments unless they are approved by their broker dealer. Also, the broker or salesperson or advisor will want to get paid. That gets into the subject of commissions, asset trails, broker dealer concessions and all that.

To invest in a small start up operation whose securities are not traded on a stock exchange sounds like the kind of thing that would be limited to so called Reg D investors, that is, investors with lots of money. http://en.wikipedia.org/wiki/Regulation_D

Developing funds for small investors to invest in small start-up socially responsible ventures seems a noble cause, but can anyone point to successful funds based on that model? GoodCapital? www.goodcap.net.

I guess what I am flagging is that our regulatory, tax, and legal structures do not yet really support the mixing of apples (business and investment) with organges (gifts).

PRIs, LC3, B-Corps are steps in that direction, but in general the legal and regulatory mind, and the minds running broker dealers will want to force things into a familiar framework in which gifts and investments are considered as quite different things. The packagers and retailers of investments will also want, probably, a certain scale. It is easier, I would think, to do due diligence on a few reasonably large offerings, than to investigate, package, and promote lots of little ones.

Thanks Phil for your input! I actually meant the metaphoric former definition of "investor," however, I agree with you that our tax systems aren't designed to support the mixing of apples and oranges yet.

Hi

In response particularly to Jyotsana - There is a sense in which if we are looking at a return on investment that is purely financial then we do take the emphasis off the project and its social aims up to a point and we are drifting into a straight for profit model. Recently we have been doing some work with the Social Return on Investment tool developed by the New Economics Foundation which has yielded some interesting results. We had a full SROI analysis done of one part of the work which we deliver at YMCA in Perth, Scotland. It found, among other things, that for every £1 invested at YMCA there is social added value of £4.35 which is pretty good. Clearly that is very useful in talking to traditional grant funders because we are able to show them not only that we are developing a variety of funding sources but also that their "investment" is very effective. Increasingly we find that traditional grant funders see themselves more as investors and we are talking to them in that language even though they do not expect a return on their investment in the traditional financial sense. Social Return on Investment takes the finacial cost of delivering a service on one side of the page and then calculates a reasonable estimate of the cost savings of that service on the other side of the page e.g. reduction in anti social behaviour saving money from the public purse etc. This allows us to put a monetary value not only on the cost of the service but also of the "value" of the service in the broadest sense. As I said it can be very helpful in talking to traditional grant makers. In terms of more financially based investors who we might approach for capital investment to fund growth it probably has less impact except in that it may allow us to attract investment from more philanthropic investors who will accept a lower financial return on their investment if we can show them the social added value which their investment brings to the community as a whole.

Ian, thanks for your response. I have heard of more use of this kind of analysis, and it's interesting to hear it being adopted by a YMCA. I'd love to learn more about the details. Any place you can direct us?

Ian, thanks for the response! Would you be able to direct me to the SROI tool you mentioned developed by the New Economics Foundation?

I am referring to Phil’s comment, including the question about successful funds investing in small start-up socially responsible ventures.

I agree on the challenge of explaining to investors or donors why you are mixing apples (business and investment) and oranges (grants). It’s a challenge we face daily at E+Co. Translation from business speak to charity speak and back is a significant part of the work we have to do.

Despite those challenges, E+Co (www.eandco.net) is an example of an investment firm (not a fund), which has been financing clean energy enterprises in developing countries for 14 years now. We have provided capital (mostly debt, some equity) and enterprise development services to over 200 such enterprises in Africa, Asia and Latin America with a fair financial return and significant environmental and social impact.

So it works. However, E+Co as a non-profit investment company, faces similar fundraising challenges as most social enterprises. We have developed products for accredited investors in the US (under RegD) and tailor-make accounts for larger professional investors, such as development banks. But with the returns E+Co can offer (up to 5-6%), the perceived high risk prevents most but the venture philanthropists from investing. More thinking and analysis on risk assessment and perception would be interesting for companies like E+Co – and of course the translation of this analysis to the more mainstream broker dealer type.

Villy and Ian, it's nice to meet you. Phil, glad to connect with you again.

Villy, I looked at your web site. You're doing great work. Are you familiar with Hopeworks in Camden (http://www.hopeworks.org). I looks like both of you are ahead of many other youth development organizations in creating income earning projects.

Ian, it would be good to learn more of the ROI work that was done for the YMCA. I feel if we can educate the "investor" they can become more proactive in how they support not a single enterprise, but many doing similar work, but in different places.

The problem I see with applying the SE model to some types of youth development work is that programs like Baycat need to be in many different neighborhoods of many different cities. Thus, while Villy might attract an investor, the others trying to do the same work, might not be as successful. In the market place, this is not a problem, because one company can expand to serve more customers. In the youth work field, the key resource is the core group of people at the program level who won't give up on the kids, and who need to be able to innovate solutions based on the constantly changing needs of the kids. The system needs to generate investor support for multiple organizations in many places.

Business has solved this problem to a certain extent by creating trade associations who do work that supports an entire industry. I would not expect every single youth development program to be able to develop an ROI, but if an intermediary were able to do this, many programs could use that to educate investors. To a certain extent, the mentoring movement's growth of funding over the past 10 years has been spurred by the Public Private Ventures research of Big Brothers/ Big Sisters in the early 1990s.

Finding funding for the intermediary, or trade association is also a challenge, and an ROI needs to be developed that demonstrates the value of such work to investors.

With the Internet, I think the intermediary role can go further than a traditional trade association. I think that we can create on-line communities, and databases, of people doing similar work, and that these people will work together to increase traffic to those sites, with a goal of attracting and educating investors, who then choose where to invest based on where there is a need for the social benefit product, and who is doing work in the different places where there is a need.

Quite a few portals are growing that try to connect volunteers and donors with all non profits. I think this needs to be more narrowly focused on groupings of non profits doing similar work, or serving similar goals. The more narrow focus might attract investors more interested in that type of work.

Hi Daniel,

I really appreciate your comments. Also, thanks so much for taking a closer look at our website! I don't know about Hopeworks, but I'll look them up.

Being in the mentorship/tutoring world, you've nailed the SROI challenges on the head. The kind of work that we do is so dependent on consistently like-minded program providers on the front line who also understand the need for proper evaluation tools. I believe that's an important place to start. However, it's difficult when the system emphasizes success with good grades and graduation rates; unfortunately, for the population we work with they are truly miles behind if success was only measured that way. As you know in this work, it's important for everyone especially our students to feel achievement and positive impact in small steps for them to continue...otherwise the program doesn't work. How does one quantify and standardize growth in self-esteem and ability to work with others, two qualities vital for the success of our students in society?

Expanding that back up to what's presented to potential investors & donors, although we present self-evaluation results that show improvement with pools of our students, it still doesn't "sell" or have the effect as talking about the traditional metrics like graduation. And there's the rub as they say...part of the reason why our kids are not reading at grade level since funding for schools is also based on advancement in grade level. I'd love to learn more from others who have figured out solutions toward this issue.

Your idea of trade associations is a good one, but definitely a challenge as you pointed out because they, too, are in the same funding vortex. I think it would be exciting to mix it up a bit by gathering the best forward thinking teachers who understand youth development issues together with business minded people good at creating new evaluation tools that lead toward creating metrics behind SROI anaylsis for the education field. Does that exist already? It certainly something I'm very mindful of.

Thanks so much for your input!

You've expressed the challenges we face. To build a trade association someone has to be building a database of the different organizations who are doing various forms of tutoring/mentoring, sharing information across programs so they can learn and network with each other, and inviting groups to come together to build relationships. I call this a network of purpose and describe it in pdf essays you can read at http://www.tutormentorexchange.net/Partner/CC/Presentations/CC_presentations_home_page2.htm

I've been hosting a networking conference in Chicago every six months since 1994 (http://www.tutormentorconference.org) to draw people together and to create public awareness that would draw volunteers and donors to these programs. In the past few years I've been trying to build virtual connections via forms like this, and other forums such as http://tutormentorconnection.ning.com

In the Links Library at http://www.tutormentorconnection.org I have more than 1200 links to different organizations who do tutoring/mentoring, as well as to research that expresses opinions such as you've outlined, and to funders who we can connect with. Thus, it's a knowledge based association, where the links enable each visitor to find and connect with others whenever they want.

As the discussion winds down here I encourage you and others working with youth to join me in these forums, and to create parallel forums in your own parts of the world. We can each be a hub that draws local people together, and we can be connectors that enable local people to find others around the world who struggle with the same issues.

Those groups who work with media and communications are better positioned to take this role because your students can not only collect and organize this knowledge, but they can tell stories that attract volunteers and donors through your hubs to the various organizations linked from your library.

Hello,

Yes I do agree with Marr on looking to the "third bottom line" or the Social Return on Investment as a central tool to attract and manage donors/investors for hybrid organizations.

SROI is a relatively easy concept for potential investors to understand, and it also concisely represents (and ultimately explains) what a hybrid company does and stands for.

What would be helpful for us hybrid organizations is a standard set of SROI measures from which we can measure ourselves and benchmark from each other. External audit organizations can also step in to verify our measurements.

-krie

Villy - great conversation! In response to Krie's comment on a standard set of SROI measures, and for more background on SROI and hybrid models, you may find useful definitions and additional discussion here on the Social Edge Hybrid Models page: http://www.socialedge.org/features/issue-areas/hybrid-models/
And because SROI depends on measurement, also check out our Impact Measurement page and new blog SVT on Impact for ideas about what to measure and how to manage and communicate your impact to you "investors" "clienors" and "donorants": http://www.socialedge.org/features/issue-areas/impact_measurement/

Villy - more thoughts on a standard set of SROI measures and benchmarking for hybrids?
Cheers,
Jill

Hi Jill and Krie,

Thanks for your comments, and Jill, thanks for pointing out some other resources within Social Edge. I especially like Steven LaFrance's blog on Scaling Capacities where he talks about have a 'data-minded' culture built into the organization. On an operational level, that is where it starts as I mentioned in my comments to Daniel. That also makes working at a 'trade' level difficult, because of varying levels of data-minded cultures in addition to variations on programming and capacities to capture data within the trades.

I threw out the idea above of gathering a mixed group of stakeholders to work on the education 'trade,' for example, that combined the best minds of teachers, possibly the school district, program service providers, and business people to help think through possible ways to standardize new metrics that lead to developing SROI models. I would throw in investors, clienors and donorents interested in seeing returns within this trade, who have experience with a myriad of programs to come to the table as well! Has something like this happened already? Would someone fund this kind of process? Hmmmmmm...

A timely new opportunity just came into Social Edge and might be one place to continue this discussion on SROI. They point out in the description of the event:

"The focus on metrics as a framework for evaluation often puts non-profits under tremendous pressure to prove their effectiveness and efficiency. Additionally, donors, volunteers, and the public also demand greater accountability and transparency. As a result, there's been a strong drive within the sector to find simple, affordable means to measure non-profits' impact."

If you are interested, check out this new opportunity on Web–based Non–profit Ratings: New Tools for Measuring Impact: http://www.socialedge.org/features/opportunities

Questions: Is benchmarking for hybrids different than benchmarking for nonprofits? Is the work doubled because you have financial benchmarking and statements of the private sector as well as measuring SROI? What do the clienors need to see?

I am currently exploring a variety of investment tools for a social enterprise market while developing a social enterprise. The project involves real property development of a public asset, subsidizing high quality learning opportunities for youth with professional development programs, demonstrating conservation and sustainable development technologies & methods, providing training and employment opportuities for youth by operating a market based business and community based arts centre. Some ideas I am tossing around include the creation of an Initial Community Offering (ICO like an IPO but offered to the community of interest involved in the project) Putting real value on social value and implementing real measurement tools. I envision selling shares in an operation that shows a profit based on SRO. Donors/Investors would recieve yearly statements of accountability, shareholders would have some voting rights on where any profits may be invested. I am in the process of getting a business school involved in the theory of this market and how these tools could be developed. On the more pragmatic side, it is a difficult sell to community members who are use to thinking in terms of fund raising and grant proposals. Perhaps there is room for both methods as long as the legalities are clear.

Hi Nancy,
Thanks for your posting. Sounds interesting. Sounds like a LOT in one project! Good luck, and keep us posted!

Lot of great issues comng forward in this string (I especially like the vertical integration community model Nancy Ellen is pursuing--WHOA!)

An observation from my experience...regarding Daniel's suggestion of a trade association, yeah, that can be a powerful tool in the right sector I suppose, but--apart from the issue of how a TA can be financially supported--TAs have a tendency to get political, both internally and externally, which can end up being at cross purposes to the work its members are trying to accomplish. Why not take the concept toward the SE realm and create a "management services" company in support of all of those in any particular field (or multiple nonprofit fields)? Plenty of models exist in the private sector, and I assume there are a few in the SE and nonprofit world as well. Believe it or not I've seen communities where there are more nonprofits than there are residents, and the duplication of back-office and support staff makes few of them sustainable, much less able to focus on their missions vs. fund-raising, capacity-building, reporting, etc, etc. Orgs like BAYCAT seem to find their power and success when they can focus their energy and resouces on their work and not on their internal issues. As the corporate world has proven time and again (e.g., think franchises for the moment)building a national (international?) support infrastructure for the local service you're trying to provide works out best in both financial and customer service terms. And that could, and perhaps should, include developing a core team of expertise in the fund generating realm. Wouldn't it be nice to have meetings which focused on the work you loved getting up in the morning to do rather than sweating thru where are we going to find the money to do it? Mike

Mike, you're observations about the bureaucracy of a traditional trade association is why we did not go this route when we crated the Tutor/Mentor Connection. In many ways we're designed like the "management services" corporation you describe, except instead of charging fees from primary users (parents, volunteers, non profits) we're raising money from people who want to reduce poverty, improve the workforce, improve education outcomes, increase diversity in the workforce, etc.

As many of the How to Change the World articles we read on Social Edge will demonstrate, entrepreneurs like us often work for decades to develop an idea and to gain support. We've been doing this since 1993. To show the impact of this long term nurturing, we started working with a group of Chicago lawyers in 1994 with the idea that they could raise money to fund general operations of multiple tutor/mentor programs in the city. They began to give small grants, totaling between $25,000 and $45,000 per year in 1995, and they began doing things to build greater awareness in the legal community. In 2006 this was rewarded with a $2 million award, making the grant pool in 2007 $240,000.

Thus, our "trade association" has created a new stream of revenue for the programs we seek to help. In this $240,000 we were given a $30,000 grant to support our own efforts in this process.

Thus, if we can duplicate this in other industries we can generate a more diverse base of support for all tutor/mentor programs in Chicago. At some point we should be able to help other cities duplicate what we're doing here, opening another channel of revenue to support what we're doing.

We started the Tutor/Mentor Connection out of a single tutor/mentor program in Chicago, which we were creating in 1992. We could have focused only on the growth of the single program, but we said, "let's build an infrastructure that helps all programs grow, and which will give us more of the help we need to help our single program grow."

I think others who work in the same field, or in different social benefit sectors, can take on this "we" strategy, as part of their own growth and survival plan. Who better to know the needs of non profits in specific sectors than people who lead such organizations and struggle every day with doing good work, and finding the money to do good work.

Mike,
Thanks for your comments, and also an opportunity to redirect this conversation a bit to some of my original questions. I do still LOVE getting up in the morning AND figuring out how to make as much money as possible while delivery the BEST programs in our field. HOWEVER, what keeps me awake (and I know many of my peers) is one of the biggest moving targets in what we do...HUMAN RESOURCES. I'm speaking of not just for BAYCAT, but how do we develop, and where do we find the like-minded folks in all the stakeholder areas of the world from corporate, to foundations, to gov't, etc. You are absolutely correct that in our developing stage, it is taking all the energy in the world to manage and scale the business without having to worry about joining outside organizations to create policy, system, & metrics to make our future world better. WE, and I'm sure organizations like ours have to worry about surviving through all the human resource challenges, in addition to figuring out how we can strategically create positive social change in the markets in which we operate. Suggestions?

You are correct when you say you speak for many of your peers, including me. Finding and keeping quality staff is a critical challenge for existing non profits. If we decided we needed 100 more organizations doing just what you or I do, but in different places, this would create 100 new places where such leadership is needed.

Finding volunteer talent who can contribute in a meaningful way is just as important, and the organizations who have the best staff talent, are more likely to be able to do a better job of recruiting and retaining volunteer talent.

The solution to this question lies within the conversation about associations of similar-service organizations. We can help talent grow if programs network and provide professional, social and emotional support to each other.

If we connect to share ideas, maybe we can innovate new solutions based on what we learn from each other. One of my targets is universities. If just one university would set up a program that recruits high school students into nonprofit tutor/mentor careers, these students could be spending summers and doing internships with programs like mine as they go through school, and they could be discussing what they learn during internships in classes intended to help the build skills needed to be leaders in this field. The result might be that people coming out of college would have four to six years of hands on experience, along with classroom experience, when the leave college and enter our field. One college could provide staff and leaders for dozens of programs.

In addition, such a college might create another group of informed leaders, who don't go into direct service, but go into business, with an understanding of how they need to be proactive in supporting non profits with staff who have been trained by the university. Thus, we not only create a pipeline for trained leaders, we also create a new stream of funding to help those leaders stay in their careers.

While I may not be able to make this idea a reality by my own actions, one of the "lurkers" who is reading these messages may be a donor advisor, or a wealthy person trying to decide how to use his/her wealth. If that person used a major gift to his own college, he could make this vision and this pipeline a reality.

There are only two or three of us in this discussion who lead youth serving organizations. If we can create a forum with 100 or 200 of us, we might generate many more ideas, and attract volunteers and donors who would help make them happen.

Stretching the hybrid SE notion a bit, Daniel, by twisting Nancy Ellen’s notion of “subsidizing high quality learning opportunities for youth with professional development programs,” do you see a way in which T/MC could leverage it’s work into a subsidiary social enterprise? There are a number of for-profit companies sustaining themselves by providing tutorial work, so could your initiative be, in part, tutors training tutors for a for-profit service company? And in BAYCAT’s case, Villy, and stretching the hybrid notion even further, could you see a way to flip the services revenue you already generate into the development of subsidiary companies to further extend the economic benefits of the work you’re doing? Strikes me as you are already running an operation which has the major elements of a media-enterprise incubator. Could the training and education BAYCAT currently provides have the necessary support elements added to it to act in that way, potentially creating not just additional service-revenue streams, but an asset base which is a capital endowment fund as well? Maybe such a vertically integrated organization could be a possible hybrid SE model. Mike