Making Philanthropy More Business-Like Is a Big Mistake

Larry Kramer

This post first appeared on India Development Review.

A lot of people today talk about how philanthropy needs to be more business-like, about how we need to incorporate principles from the for-profit business sector into the nonprofit and traditional grantmaking sector. I think that is a big mistake, and I urge you to take care before doing it.

Obviously, there are things that overlap. We all want to manage well, we all want our organizations to be efficient and operate appropriately. But those aren’t business principles as such. They are just good practices for running an organization in any sector or endeavor.

For-profit and nonprofit organizations work in different ways, on different problems, toward different goals — and those differences matter. Here are a few things I think are important as distinguishing features:

1. People

The people who come into our sector — whether in foundations or in the kind of nonprofits that foundations fund — come with passion for the work, they care about the issues we work on, and care enough to make the financial and other sacrifices the work requires.

To manage them in the same manner you would manage someone in the for-profit world, where the culture and motivations attract people who want to move up the hierarchy and earn a higher salary, is a mistake. The people in these different sectors are different, they come for different reasons, look for different rewards, and should be managed in ways that acknowledge these profound differences.

2. Measure of success

In the for-profit world, there is a single metric for success, everyone agrees on what it is, and it’s easily measured and tracked. It’s simple to know when you are doing well and when you are not, and it’s the same metric and measure for every business.

That’s simply not true for the vast bulk of work in the nonprofit sector. So much of the impact we are trying to achieve is not easily quantifiable; it’s complex. And if you are an organization like us — working across several different fields — what success looks like is incommensurable from one body of work to the next.

3. Competition

In the business sector, the success of your business organization necessarily comes at the expense of your competitors. Whereas in philanthropy, I’m not trying to outdo other foundations, or maximize the glory of the Hewlett Foundation. It’s exactly the opposite: I’m trying to develop and be part of ecosystems of organizations, including other funders with whom I want to partner, in ways that will help achieve solutions to social problems or help improve everyone’s social good. It’s a profound difference at precisely the level where business principles could matter: me with everyone else is not me versus everyone else.

Making philanthropy effective

The idea of strategic philanthropy comprises three simple propositions:

  • Have a clearly articulated goal about what you want to accomplish.
  • Have a story about how your grantmaking or philanthropic activity is going to achieve that goal.
  • Have a reasonable way to measure whether you are moving towards your goal.

1. Having a clearly articulated goal is by far the most important part of doing philanthropy effectively

You should start with the problem you want to solve or the change you want to make in the world. Start with the problem you want to address and let that drive everything else. Define your goal and then ask: what are the best philanthropic tools to achieve that goal? Can I deploy those tools effectively? If not, can I find a partner who can?

Each step should be guided by the problem you are trying to solve. That goal then becomes the North Star that drives all your other choices.

2. Have a theory of change

“Theory of change” is a bit of jargon that simply means a causal story for how your actions will lead to achieving your goal. In developing a theory of change, here are some key points to keep in mind:

a) Base it on evidence
This may seem screamingly obvious, but it’s important to do your research and be open to learning. Even if you think you know something, take the time to comprehensively survey the field and learn from whatever is out there about how things work, what we know about how they work, what the weak spots are, and so on. You may be surprised. Keep up with the literature after you start, too, because new research may emerge that should affect your work.

b) Talk to the people you want to serve
Seeking out and listening to feedback from the people I want to serve is not only pivotal to understanding the problem, it also tells me how the plans I am making are going to be heard and received within the community I mean to address. And if they’re not going to be heard or received well, I should think about what needs to change. But that’s insight I won’t have unless and until I have a conversation with the people whose lives I hope to affect for the better.

c) Collaborate
There is no problem worth tackling that any of us can solve by ourselves. And that’s not just a matter of financial resources. It’s also a matter of human resources: a matter of diversity of ideas, inputs, partners, and people who bring different perspectives and gather knowledge you might miss. It’s important, on almost anything you do in philanthropy, to work with other funding partners, and to develop those relationships.

So how do you do that?

First, you must maintain flexibility as you develop your strategy. You need to engage potential funding partners early, before your strategy is set, while you are still exploring, and they are as well.

One of the things that surprised me when I began working in philanthropy was learning that what makes collaboration difficult in foundations is that decision-making is so disbursed. If I want another foundation to work with us, I need to persuade the board, the CEO, the program director, and the program officers. And that’s easiest when it’s at the front end, when they and you are still developing a strategy and no one’s commitments are locked in.

Something else that makes collaboration difficult is the way we frame it. A staff member pushing back on my urging them to find partners said to me, “But it takes so much more time to work with others, shouldn’t we just do this ourselves?” But the perception that it takes “more” time to work with another foundation reflects the way we see the other foundation as an add-on, a departure from what is “normal.” If the slowing down comes from working with staff at another organization, I frame it as “they’re not us,” it’s extra time — even if working with them makes the work better, even if I trust and respect their staff. If their staff were my staff, I would see it as normal; if they are part of another organization, I see it as extra. But it’s not.

d) Be open to change
Develop your strategy but don’t get too locked in about it. Be prepared to learn and adapt.

You must have a strategy, you must set out in a direction, but you must be open, because everything is not going to work the way you thought it would. And that’s going to be true no matter how much time you spend thinking about it beforehand. It’s especially true if you are engaged, as you should be, in ongoing conversations with your grantees, the community you’re working to serve, and your funding partners.

3. Measure your progress

This is the place where mistakes are most often made, and where the analogy to business most often misleads. Here there are a few things to keep in mind:

a) Accept fuzziness for what it is
In business, you are looking for profits measured in dollars, so you have a simple thing that is purely quantitative to measure. But few things in philanthropy are that simple. In our climate work, we can measure progress by the reduction in emissions of tons of carbon; and in our environment work, we can measure acres of land or miles of river protected. But in most of our other work, our goals are not quantifiable in that way. We could create proxies and pretend we have made this easy to measure, but that itself distorts the work.

Given this, the basic principle we employ is one of reasonableness under the circumstances: given the nature of the goal and strategy, what is the most reasonable thing to use to track how we are doing? We try very hard not to fall into the trap of using progress markers that are bad proxies, that end up steering us in the wrong direction, or end up with us lying to ourselves about what’s really happening.

In short, when it comes to measurement; don’t force it, don’t lie to yourself, don’t demand more than is reasonable, and accept fuzziness for fuzziness.

b) Measure often
After you choose a measurement framework or method that works for you, make sure to use it. Ongoing monitoring and evaluation are pivotal.

You shouldn’t begin your work and then come back four or five years later and ask, “how are we doing?” Instead, when you build your strategy, define the questions you’ll need to ask to know if you are making progress, identify the data you think you’ll need to answer those questions, and put in place systems to gather and track it as you go. In addition, plan to have a third party conduct an independent evaluation every few years.

Maintaining perspective

1. Stay away from words like “failure” or “success”

Truth is, I don’t go through my life asking whether I’m succeeding or failing at everything I do. But, I do go through life thinking about what I want to accomplish, and if I am not doing so, asking questions like why not? What should I change to get there? Have I chosen the wrong goal to begin with? I think you should think about your philanthropy the same way. It’s about choosing things to do that seem right and then learning as you go how to do them better.

What’s more, it’s important is to infuse this attitude into your organization. Because you’re more likely to achieve your goals if your staff and your grantees see each other and you as partners than if they are thinking “I better deliver or I’m going to get punished.”

2. Listen

I spoke earlier about listening to the community you want to serve. But you also need to listen to your grantees. You need to listen to your staff. And it’s really important to listen to people who think you are wrong. That doesn’t require you to change your mind, though it might lead you to do so. But even if not, it will help deepen your understanding.

Let me stop there, with these few core lessons that I’ve learned along the way and that I believe make our philanthropy more effective than it would otherwise be.

This post was adapted from a speech given to an audience of global philanthropy leaders hosted by UBS, and delivered at the AVPN Conference 2019.

Larry Kramer is president of the William and Flora Hewlett Foundation.

, goals, measurement, performance measurement, role of business
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