By many accounts, billions of philanthropic dollars are sitting on the sidelines in donor-advised funds. A growing number of experts are working to find ways that this money might be invested in nonprofits to make a big difference in solving the world’s most vexing problems.
As a social entrepreneur who has started both nonprofit and for-profit organizations, I have had a firsthand look at what it takes. I have seen the challenges of establishing nonprofit organizations and programs in an inefficient, chaotic, and dysfunctional capital market, and then expanding them to the point where ultra-wealthy philanthropists — the venture-capital market of the nonprofit world — can begin funding them. Putting together a steady stream of funding to support a rapidly evolving nonprofit organization is a daunting challenge, to say the least.
From one of my most successful efforts, let me distill some lessons for philanthropists who want to overcome some of the barriers that hinder making the investments needed to achieve social impact.
My journey as a social entrepreneur began in 1998, when I was asked by the financial executive and philanthropist Charles Schwab to leave the business world to become the founding CEO of All Kinds of Minds, a nonprofit institute that eventually trained more than 50,000 teachers in how to address learning differences. The institute attracted more than $98 million from sources that included family foundations and federal, state, and district agencies. In just eight years, we developed a portfolio of programs that had measurable benefits for educators, parents, clinicians, and, most important, students.
In creating the organization, we took several steps that I believe could be helpful to donors looking to get involved with nonprofit enterprises.
The institute was organized around the work of an academic whose approaches had been field tested in clinics and classrooms. His model for helping students with learning differences showed great promise in being adopted successfully, at varying degrees of intensity, by any trained classroom teacher.
A group of high-net-worth families shared the vision that this work could transform our country’s educational system and change lives. This foundation was key, as no donors want to go it alone, nor should they. In the beginning, four families wrote seven-figure checks annually to support the institute. Over time, that grew into a broad and diversified base of annual support.
One of the important benefits of this kind of model for collective action is that no single donor has to bear the risk — financial or reputational — of a new venture’s possible failure. Like venture capitalists, board members at All Kinds of Minds invested not just in our organization but also in other nonprofits that focused on learning issues, in the hope that at least one or two would succeed.
Board members hired a nontypical CEO. After interviewing dozens of senior-level nonprofit executives, the board selected a passionate “Young Turk” whose skills matched the requirements of the job: a track record in entrepreneurship, program development, talent management, and brand building, coupled with solid instincts in organizational development. They concluded that I was coachable.
Chuck Schwab played a leadership role in the hiring. He believed it was worth the risk to mentor me in transferring my skills from one domain (entertainment) to another (education).
Two points here are notable. First, the board members did not insist on hiring a person they knew, as many high-net-worth families do for reasons of trust, regardless of the requirements of the job. They also put their money where their mouths were, making long-term commitments upfront to ensure the organization would have the resources it needed in working to meet a series of milestones.
We spent a year and $1 million developing a slate of new products. To improve and expand the adoption of the two professional-development programs we already offered, we hired seasoned education and consumer-products executives to determine the needs of teachers, clinicians, students, and families and what educational resources would help them most. With this data in hand, we developed a three-year plan for product development and implementation. Our goal was to provide programs that could generate enough earned income to become self-sustaining.
There are several more points worth noting here. The independent contractors the institute hired had strong experience in their areas of expertise. They were chosen carefully from the range of disciplines required for institute’s launch and operations. They were compensated at the same rates they would have made in business.
The board approved management’s recommendation that the institute employ a couple of key independent contractors to help lead the launch of the start-up. This strategy enabled me to recruit a senior team that would otherwise never have joined such a young start-up. (They came from GE, RJR Nabisco, Duke and NYU, and the National Board for Professional Teaching Standards.) The approach assured strong execution of our plan.
It’s important to note that the institute was able to make these hires thanks to two board decisions. First, it was decided that the institute would pay executives at a level competitive with corporate compensation. Also, the board would provide enough funding for the organization to begin generating the revenue it needed to grow its own capital for expansion.
A core group of board members had experience running nonprofits and businesses, and their expertise was critical. They not only mentored me but also guided new trustees that we recruited to attract greater philanthropic support.
Most important, a culture of mutual respect between the board and management was demanded, as the trustees knew from their previous experience that their business wisdom needed to be tempered and adjusted for the environment of a nonprofit, especially one that was evolving rapidly. The board approached the work as a collaborative learning opportunity for us all. Of particular importance, the board understood that success in any endeavor entails a combination of talent, hard work, persistent inquiry, and luck.
Our donors were patiently impatient. Although donors are usually eager to see systemic change as soon as possible, one trustee took me aside only a month into the venture to offer advice. “Despite all the crap that you hear from venture capitalists,” of which he was one, “most ventures in the private sector take at least 10 years to succeed, if they do at all. You must not get discouraged if it takes a little longer.”
Once our programs were up and running, we invested heavily in developing policy and procedures that would enable us to rapidly expand our reach and impact. We were growing quickly, despite an unpredictable capital market, so we needed systems and safeguards in place that anticipated operational leaps forward. We planned for success and developed alternative scenarios for survival. We devoted ourselves to creating a nonprofit that operated like a for-profit. Financial results were critical for furthering our mission.
Our trustees had realistic expectations about metrics, even though most of them worked in finance and were data-driven. The institute worked hard to quantify its impact as we built the business. The effort was so thorough that the board complained about the level of detail in the reports we provided for meetings. Nearly 23 independent studies were eventually conducted, although that body of evaluation did not begin until nearly six years into the venture. Once programs were established, we developed rubrics for assessing whether programs had achieved their desired outcomes.
In 2004, the institute developed and approved a plan for going to scale, working with the Bridgespan Group, a nonprofit consulting firm. Despite a year of hard work to complete the plan, we will never know whether it would have achieved its objectives because of problems that arose related to the professional conduct, many years earlier, of the academic whose intellectual property was central to our approach. Although not related in any way to our organization, the delicate situation prevented the institute from advancing its programs.
Also, there were no aggregated capital funds for us to tap into in 2004. Such funds — which the Edna McConnell Clark Foundation and others have established recently — allow donors to marshal resources and invest collectively into “big bets": organizations with proven programs that are ready to expand rapidly.
In a recent analysis, “Pathways to Greater Giving,” Bridgespan described capital aggregation funds as an important “pathway” that could benefit philanthropy by unlocking a huge amount of funds held by high-net-worth investors. But capital aggregation funds are not the entire answer. As Bridgespan notes, ultra-wealthy families must overcome a number of barriers that keep them from meeting their goal of doing good through their investments.
One of the greatest obstacles is this: While many smaller nonprofits with worthy missions need nurturing and support, most aren’t yet developed sufficiently to have the capacity needed to absorb sizable capital investments that would help them scale up to have a much bigger impact.
I think the approach we found successful at All Kinds of Minds offers a model for overcoming that obstacle. We discovered that through careful planning, staffing, organizational development, and steady funding, a group of bold, visionary leaders could guide a social enterprise through its early development in a way that enables it to flourish, grow, and achieve high impact. There are many nonprofits that need our focused philanthropic support, so let’s get started.
Mark Grayson, former CEO of All Kinds of Minds, is co-founder and CEO of Rocket21.com, a professional networking platform that offers a safe way for young people to connect with experts and professionals who specialize in a wide array of causes.
