Risk tolerance and recklessness among nonprofits

TechCrunch posted an Andy Rachleff piece a couple of weeks ago on the odds that an angel investor or venture capital investor will make money. The conclusion: pretty darned unlikely.

The vast majority of venture capital funds, for instance, either barely break even or actually lose money.

Why does this matter to nonprofits?

The “what can nonprofits learn from technology startups” theme has picked up steam in recent years in concert with the current technology startup boom, and is regularly a topic on this blog (see, for example, our recent exchange with Jon Stahl: “Should grantmakers be more like VCs” and “Should grantmakers act more like venture capitalists?“).

A grantmaking investment model that assumes an 80% failure rate among grantees may not be our best option. What I find most interesting about the Rachleff piece, however, and potentially most useful in the social sector context, is the risk tolerance that permeates the private investment landscape. Even the most optimistic of the experienced investors know that most of their investments will fail. They are willing, to varying degrees, to invest in organizations each of which only has a small chance of succeeding.

Fostering a Nonprofit Culture of Risk-Tolerance

Fostering a culture that genuinely encourages and supports risk-taking, within organizations and between organizations and their funders, is a real weak spot among nonprofits. Doing this means that the price of a failed project can’t be very steep. It means that organizations and funders have to provide positive feedback for smart risk-taking. Claiming to support experimentation and risk-taking but penalizing people and organizations with experiments don’t work out as planned fosters a culture of risk-aversion, not risk-tolerance.

Risk-Tolerance Doesn’t Mean Reckless

Risk tolerance shouldn’t mean encouraging reckless gambles. In fact, a smart risk-oriented strategy will include explicit expectations: clearly identifying the assumptions underlying any particular risk, having a clear process or tool for explicitly testing those assumptions and learning from the experience regardless of the outcome, ensuring that effective feedback loops use this learning to improve strategy and execution.

Innovation – both the incremental and the huge-leap-forward varieties – require people and organizations to take risks, and that only happens in a significant way when the rewards for taking those risks are high enough and the penalties for failure are gentle enough.

Jacob Smith is the co-author of The Nimble Nonprofit: An Unconventional Guide to Sustaining and Growing Your Nonprofit, the former mayor of Golden, Colorado, and a nonprofit consultant.

Innovation v. Effectiveness

Innovation is just a whole lot sexier than do-more-of-what-we're-already-doing.

One of the peculiarities of the philanthropic foundation world is its energetic enthusiasm for supporting innovation among the organizations they support. Everyone loves innovation, for one thing, and we know that many of the challenges we face probably aren’t solvable with traditional approaches. And funders are as susceptible to the temptations of organizational ego as everyone else … what funder wouldn’t want to get credit for breakthrough innovations in providing key community services, securing a durable change in political values, dramatic improvements in nonprofit organizational structure, or solving an important social problem?

But sometimes the right answer isn’t to create something new but to scale up something you are already doing, or to copy an approach someone else already nailed. The problem: the idea of innovation can be so sexy that it comes at the expense of effectiveness. If a funder conveys through their grant application or awards process that being innovative trumps being effective, it’s not hard to see how the nonprofits themselves might slide in the same direction. If you’re trying to solve a social change, advocacy, and community challenge, sometimes imitation actually is the best solution.

(Photo by Flickr user Jules Antonio).

Twelve Tips for Encouraging Innovation at Your Nonprofit

Some innovations are better than others (photo from the How To Be a Dad blog).

One of the more energetic exchanges at the Nonprofit Technology Conference earlier this month took place during a plenary discussion on innovation among nonprofits. The discussion was interesting but heady, and the pragmatics of fostering a culture of innovation within your nonprofit or becoming more innovative in your own work matter just as much as the big picture discussion that took place on stage.

One critical but often overlooked element is making sure you build in strong learning loops. Experimenting with creative ideas doesn’t end up being very valuable if you can’t learn from the experience and apply those lessons in the future. What does that mean? Most of the time, it means setting clear goals, being clear about your assumptions and hypotheses, being clear about your evaluation process, and finally making sure you debrief thoughtfully and share the lessons learned.

But even this kind of language is pretty abstract. Just how do you encourage innovation? A few practical suggestions:

1) Once in a while attend a conference that you wouldn’t ordinarily attend. If it’s in a different field, all the better. Try a conference on marketing, social media, museums, technology, creating a strong professional development program, or pretty much anything that involves a different group of people.

2) Just getting out of your own narrow nonprofit space can be really valuable. If you focus on women’s issues, try engaging with environmentalists sometime. If you run a botanic garden, plug in with the education-focused folks.

3) Once in a while read through blogs in those other areas. And if you can’t afford or make time for any more conferences, blogs are a great way to pay attention to conversations in other spaces.

4) Give each member of your staff a small discretionary “sandbox budget” that they can spend however they wish so long as they explain the goal, why they think it might work, and how they’ll evaluate the outcome.

5) Give an award every month to the member of your staff that tries the most interesting new project.

6) Make open conversation about failures a part of your staff meetings … what was the logic of the idea, what did you learn, how might you iterate from here?

7) Mix up the location of staff meetings and especially retreats.

8) As part of the workflow for any new project, ask who else has tried this and what have they learned, and show how this project iterates on those lessons.

9) Establish a consistent system for evaluating new ideas and then evaluating the outcomes when you test them.

10) Read business books off the bestseller list, or read books on innovation and creativity, or histories of social and political movements.

11) Watch TED videos or read Kottke.org.

12) If you work with any philanthropic funders that support groups across multiple issues, ask them which of those other organizations really stand out for their innovative approaches. Or ask local angel or venture capital investors about the most innovative startups in the area, or your local culture reporter which local arts organizations would be the most interesting to talk with. Take those executive directors or founders out for coffee.

Cultivating a Culture of Innovation at Your Nonprofit

Photo by Flickr user elycefeliz (and h/t to Beth Kanter).

A persistent focus of conversation among nonprofit folks – and the highlight of one of the plenaries at the Nonprofit Technology Conference a couple of weeks ago – is the challenge of fostering a climate of innovation within the nonprofit community.

Why does it matter? For one thing, nonprofit folks know that some of the challenges they face aren’t solvable with conventional approaches. For another, funders often explicitly emphasize their interest in funding innovative approaches (a topic for another day). And innovative just sounds cool. Who wouldn’t prefer to be innovative and ground-breaking instead of dull and conventional?

The trick about innovation, though: it’s one thing to say we encourage it, but quite another to actually follow through. Cultivating a culture of innovation means encouraging your staff and colleagues to take risks. It means embedding an expectation about learning from those risks – the successes and the failures – and sharing that knowledge. It means rewarding people on the team for questioning assumptions and suggesting new ideas. And if fostering a culture of innovation is important enough to you, you may even need to penalize people for not taking risks.

Most importantly, you need to convey – not just pay lip service – to your staff and colleagues that you genuinely support them thinking creatively, testing their ideas, and sharing what they learn, even when it fails.

Stopping SOPA

UPDATE: Senator Mark Udall took a clear position opposing PIPA this weekend and Wikipedia is getting a lot of attention for its plan to “go black” on Wednesday in protest of PIPA and SOPA (along with a bunch of other sites, such as Reddit and Boing Boing.

I support sensible tools to limit internet piracy. While I think there is often much to gain by making your intellectual property as widely accessible as possible, I think people who create and own intellectual property – books, film, software code, technical innovations, and the like – deserve to have control over what happens to that property. As an author (my first book will be out next month) and the co-founder of a startup whose success will depend, in part, on building effective software, I believe I should have the right and ability to govern who else uses the intellectual property I create.

But it’s easy to craft anti-piracy tools that get it wrong, and two bills currently under consideration by the U.S. Congress fail miserably. Under the pretense of protecting intellectual property, and I say this as someone whose livelihood is now connected to the creation of intellectual property, both the Stop Online Piracy Act (SOPA) and Protect IP Act (PIPA) overreach in very destructive ways. A bunch of folks have written thorough, cogent explanations of what the bills would do and why they are so harmful to innovation, free speech, and the security of the internet.

The most ominous of their many problems is the way in which they basically enable anyone to force web sites to remove access to other web sites simply by claiming piracy. The structure of intellectual property law in the U.S. is a mess, heavily privileging those with resources over those without, independent of the actual merits of a particular infringement claim. But SOPA and PIPA would actually make it worse by undermining the ability of entrepreneurs to create and protect intellectual property.

Critics span the political spectrum, from the Cato Institute and Heritage Foundation to the Electronic Frontier Foundation to MoveOn.org, and they include technology giants like Google and Facebook, entrepreneurs (e.g., a letter signed by 200 prominent entrepreneurs), publishers (e.g., O’Reilly Media), and investors (e.g., Brad Feld and Fred Wilson) alike. Nonprofit folks like Beth Kanter have been stepping up as well.

In a sense, the fight is about the old media (primarily Hollywood studios and record labels) trying to protect their incumbent but dying business models. Steve Blank has an interesting take on the refusal (inability?) of old media giants to innovate.

Thankfully, the White House is now saying it opposes both bills as well and the tide seems to be turning.

And while this is an important fight in its own right, it’s also a tremendous example of a smart political strategy married to a terrific organizing effort.

Trust your staff

Trust your staff.

That is point number one in a recent post by Allyson Kapin on Frogloop titled Tips to Create a Culture of Collaboration and Innovation.

Leo Cullum cartoons on innovative thinking in the office.

Leo Cullum cartoons on innovative thinking in the office.

It’s interesting to us that a commentary on ways organizations can create collaborative and innovative cultures should begin by emphasizing trust in staff. Most nonprofits, after all, are intensely staff driven. For many, staff knowledge is their key asset. Salaries (and overhead) comprise the vast majority of expenses. This is perhaps even more true (or should be) in advocacy organizations whose activities revolve around research, policy analysis, lobbying and communications.

What does “trust your staff” have to do with innovation? As mentioned above, staff are all you have. The external pressures on organizations and pace of change around them require teams that are trusted to implement, innovate and learn quickly.

Numerous factors are coming together that make it more important than ever that staff be both strong actors and collaborative contributors to iterative growth and learning in organizations. Online communications is empowering citizens, activists and donors to take action, make donations, get involved and speak out in ways and at times that organizations can’t control. People have more ways than ever to do things organizations don’t expect. You send a direct mail piece and the donor goes to your website to make a contribution. You send an email asking an activist to send a message to his congresswoman and he views the message on his phone before going to bed but can’t see the links clearly enough to click and forgets it.

A fractured (and in some cases dissolved) news distribution system has completely altered citizen expectations of their role in news. People are not just recipients they are reporters (which is VERY different than journalists, we want to make clear and this isn’t necessarily a good change). And personal sharing of news and thoughts can happen quickly, with a large audience and impact networks beyond just immediate friends and family.

The 24 hour news cycle and social networks that are always on mean that organizations must be on their game at all times. They are also being asked to engage directly with activists, donors, media and community leaders in ways most never envisioned just five or ten years ago. Transparency is de rigeur. Financial statements and 990s are online for all to see. Staff, volunteers and just plain outsiders are blogging, Facebooking and tweeting about issues and organizations in ways that can’t be controlled.

In the face of these and other dramatic shifts in the environment in which nonprofits operate, the only way forward is to create and truly support cultures of trust within organizations. What this looks like will vary, of course, for every organization. All have different leaders, histories and missions. And “trust” is not the same as turning people loose to do what they will without guidance, leadership, plans and support.

What trust looks like and how to create and engage a trust-driven culture is itself a big topic. One for a future post. For now, we encourage you to reflect on that state of trust within your own organization and teams. Define it. Talk about it. If you are a manager, leader or staff member don’t stew on it. Bring it up. Hash it out. Take steps to make it happen. It may not be easy but the result will be more creative, innovative and successful teams that move past reacting and push organizations forward.

Innovation through Stubborn Commitment

Thinking about innovation lately. Not just what it is and if/how/why it is good but rather the factors that create a culture of innovation.

Innovation defined by Merriam-Webster Dictionary

Innovation defined by the Merriam-Webster Dictionary

A lot has been written about managing to create and foster an innovation-friendly organization (more on that below). Great resources and research out there.

But it seems that sometimes – maybe most of the time – innovation needs a champion that is just really committed. Or stubborn. Someone wants to see a certain result and won’t take “no” for an answer. Often, there is a reason for the “no” and it takes a new way of doing things to get to the goal.

Recently, I wrote about “Innovate and Thrive: The Future of Nonprofits” by Randal Moss and David Neff. Moss and Neff take a hard look at how to design and maintain a culture that focuses on innovation. Of course, innovation for the sake of innovation is not the point. Yet most every organization and business – from coolio tech startup to retail to auto repair shop to restaurant – is constantly competing, coping with change and trying to, well, keep its head above water in its ever-shifting environment.

Moss and Neff do a great job covering some key pieces of innovation culture and ways to design that culture into the organization. Design – of processes, positions and programs – seems intrinsic to an innovation-friendly environment.

Sometimes, though, you just have to be committed enough to an idea to break past the “usual” way of doing things, change your framework and reach your goal in a new way. [Read more...]