Changing the Ecosystem

8/14/2019 Changing the Ecosystem

1/20

Lucy Bernholz, Stephanie Linden Seale, Tony Wang

BLUEPRINT RESEARCH + DESIGN, INC.

2 0 0 9

Changing the Ecosystem of Change


2/20

This paper was published with the support of the John D. and Catherine T. MacArthur Foundation.

Blueprint Research + Design, Inc. helps grantmaking foundations, individual and family donors, and philanthropic net-

works achieve their missions. We offer services in strategy + program design, organizational learning, andevaluation, and we think and write about the industry of philanthropy. Since 2004, Blueprint has provided the John D.

and Catherine T. MacArthur Foundation with research, advice, and documentation of the Digital Media and Learning

Initiative. That work includes the writing and distribution of five reports on field building, written for the public, as a

means of informing the field of philanthropy and as a way to strengthen the emerging field of Digital Media and

Learning.

The MacArthur Foundations Digital Media and Learning Initiative aims to determine how digital media are changingthe way young people learn, play, socialize, and participate in civic life. Answers are critical to education and other social

institutions that must meet the needs of this and future generations. Through November 2009, the foundation has

awarded 106 grants for a total of $61.5 million to organizations and individuals in support of digital media and learn-

ing. The grants have supported research, development of innovative technologies, and new learning environments for

youth including a school based on game design principles.


3/20

Blueprint Research + Design, Inc. 1

INTRODUCTION

The nonprofit sector is responsible for many of

the social innovations and movements that bene-

fit communities across the globe. Many of our

most familiar institutions, products, and services

were first developed or expanded by nonprofit

institutions, individual researchers, and the foun-

dations that enabled them from the 911

emergency system and public television to plant

biotechnology and reproductive contraception.1

In recent years, however, this ecosystem, which

has nurtured widespread social change, has trans-

formed and now includes other forms of enter-

prises, actors, and funding models. Among these

innovations is the rise of social entrepreneurship,

as well as innovative organizational forms and

emerging forms of financing.

An example of one of these new pathways to

change can be found in the locavore food rev-

olution pioneered by restaurateur Alice Waters,

which has achieved great national impact. Waters

and her peers have helped to change the way

Americans think about food, operating from her

platform as a commercial chef, restaurant owner,

cookbook author, and public speaker. Her reachextends to schools, families, farmers markets, and

the entire food and beverage industry, and yet she

instigated change not from the traditional non-

profit model but by acting as the owner of a for-

profit restaurant, changing the message she sent to

her customers and revamping the supply chain on

which her business relied.

While Waters began her pioneering work

thirty years ago, these days an increasing number

of businesses aspire to create social change in

addition to generating revenue. The rise of the

social entrepreneur has expanded the profile of

changemakers on the social front. Change is now

driven by a variety of sources, using a mix of

unlikely tools and approaches.

Just as important as business models with a

social agenda are whole new organizational forms

for generating social good. These organizations,

from deliberately temporary citizens groups to

virtual networks of engineers and activists, tend

to be problem-focused,

not institutionally driven.

They draw from the power

of open-source creation

models. Their life cycle is

somewhat like that of a

Hollywood production unit, in which a group is

formed to produce a movie, the film is made,

distribution deals are struck, and the groupthen disbands. The easy access to low-cost

network-building technologies has accelerated

the rise of these temporary, issue-specific entities

for social change.

Changing the Ecosystem of Change

The rise of the social entrepreneur

has expanded the profile of

changemakers on the social front.


4/20

Large-scale institutional financing for social

good has not always kept pace with these changes

in organizational structure for public benefit. One

of the problems is that it is difficult for founda-

tions to fund unincorporated groups or commercial

enterprises. Nevertheless, many foundations have

been creative in finding ways to do so, using pro-

gram-related investments (PRIs) or re-granting

partners to allow greater flexibility.

These ecosystems of change, and the roles

available for foundation funding, are constantly

evolving. In the case of the locavore movement,

for instance, early pioneers such as Alice Waters

and Judy Wicks of Philadelphias White Dog Cafe

have diversified their own

systems for change while

also seeking nonprofit

partners, public advocates,

and legislative or regula-

tory allies. In recent years

both Waters and Wicks

have expanded their own

ecosystems to include farmers and farmers advo-

cacy groups (the Ecological Farming Association,

for one), the media (both speak publicly and

write regularly, and Waters has frequently collab-

orated with sustainable food journalist Michael

Pollan), academia (including New York

University nutrition professor Marion Nestle) and

advocacy groups (opponents of factory farming

and farm subsidies have joined their camp). They

have shown that moving an issue requires theinvolvement of many different kinds of actors;

these new networks encompass foundations, non-

profits, social enterprises, innovators, writers, and

academics. Such a diversity of players each of

them integral to the issue begs the question: if

foundations have traditionally focused on only

one part of this network of change agents, what

are they missing?

This organizational flexibility and diversifica-

tion in foundation funding mechanisms will be

key as the organizational ecosystem continues to

shift. Reaching out beyond the traditional non-

profit and public agency partners and the tried-

and-true grantmaking tools will have important

implications for foundations in coming years.

They will only be able to see the horizon and

watch for new opportunities if they are open to

the many places from which change may come.

Being able to interact with commercial enterprises,

social enterprises, and networks of actors

while maintaining their relationships with non-

profits and public agencies is the best way for

foundations to open themselves to the widest

range of opportunities.

Where Does Change Come From?

In this brief, we examine the new organizational

and strategic options available to foundations and

other actors making social change. Innovation, we

find, is coming from a variety of unexpected

sources, and through this often experimental

work, a new and broader world of individuals,

organizational structures, and project models has

emerged. A number of variations on traditional

nonprofits are providing successful alternatives to

the typical fund a 501c3 approach. They includenew legal structures, like B Corporations and

L3Cs (low-profit limited liability companies), and

new strategies, such as individual initiatives, social

enterprises, and network funding strategies. Our

2 Changing the Ecosystem of Change

Reaching out beyond the tradi-

tional nonprofit and public agency

partners and the tried-and-true

grantmaking tools will have

an important implication for

foundations in coming years.


5/20

intention here is to provide information and

models that will help foundations learn how to

recognize opportunity and encourage greater

collaboration and joint strategy-setting as the

ecosystem grows and changes.

OPPORTUNITIES FOR INNOVATION

As the world around institutions has changed,

institutions have needed to reinvent themselves.

The traditional one-size-fits-all funding model is

no longer the only choice. As foundations are

struggling to be more nimble and to respond to

the challenges and opportunities around them,

they are also building their philanthropic tool kits

to go beyond the usual roles of grant making and

convening. In some cases, they are venturing well

into new policy arenas, financing methods, and

partnership possibilities, and some are even con-

sidering wholesale changes in market mechanisms.

The global recession has provided a rare

opportunity for the social sector to redefine its

relationships with public- and private-sector

groups. The declines in the economy and the rise

in unemployment have made the need for inno-

vative solutions to problems in health care, home

ownership, and education all the more pressing. In

a twist on the old adage, necessity really is the

mother of social innovation.2 While one response

to the downturn would

be to spend less and hun-

ker down, foundations are

actually in a unique posi-

tion to experiment and

evolve. It may well be that

incremental innovation spurred by these

challenges, rather than bold and expensive

program or product launches, will lead to radical

change in the philanthropy field.3 In general,

foundations have been slow to embrace technolo-

gy or explore the ways in which it might influence

their organizational structure. There are remarkable

similarities between todays foundations and the

operating structures of one hundred years ago.

The same board-run structure persists, along with

endowments, grant departments, finance

functionaries, proprietary software, offices, and

various levels of management,4 even though

foundations are seeking to address different social

needs and vary in size, location, and history.

As a field, foundations often seek to inform

and improve their practices by organizing confer-ences, affinity groups, and learning opportunities.

However, the most significant changes may come

instead from experiments at the core level of

grantmaking. In addition, since much of todays


The traditional one-size-fits-all

funding model is no longer the

only choice.


6/20

most meaningful technology reformulates con-

cepts with which were already familiar (like

online communities, social networking, or

smart phones), the foundations that aim to

move issues and incite significant social change

have a host of accessible tools at their disposal.

Leaders in the field of evolutionary economics

have observed two types of innovation that

advance social systems: advances in physical and

social technologies.5 The former include

environmental and technological developments,

while the latter include new models of organiza-

tion. The twenty-first

century has brought

wide-ranging physical

change in the form of

technological advances,

and now may well be a

perfect opportunity to

consider new organizational models that can lead

to advancements in social innovation as well.

Different Sources for Innovation and Change

Alice Waters and Judy Wicks pioneering contri-

butions to the locavore movement were catalyzed

by their status as chefs and business owners first;

their activism emerged later. Increasingly, the

business community has been producing many

such social-minded innovators who are interested

in maintaining one foot in the commercial sector

while working toward social change. Another

example is former eBay head Jeff Skoll, who, inaddition to launching his own grantmaking foun-

dation, also runs a for-profit film production

company. Skoll bet that instead of funding

environmental organizations as his sole strategy to

mitigate the effects of global warming, producing

a well-received film like An Inconvenient Truth

would complement and even augment the impact

and reach of the groups he supports. His bet paid

off on both the financial and social level and

helped to change the debate on global warming.

In order to achieve widespread impact, social

entrepreneurs like Skoll are eschewing nonprofit

organizational structures in favor of traditional,

yet social-minded, businesses in order to solve

community and environmental problems nimbly

and even profitably. Returned Peace Corps

volunteer Sam Goldman founded D.light to

replace kerosene lamps with safer and cheaper

solar lamps throughout West Africa. Goldman

considered starting a nonprofit organization but

ultimately decided that the venture could only

spread across the developing world by operating

as a for-profit enterprise. We could have done it

as a nonprofit over a hundred years, but if we

wanted to do it in five or ten years, then we

believed it needed to be fueled by profit, he told

the New York Times. Thats the way to grow.6

Different Funding Styles

More often than not, in order to fuel change and

growth, funders need to consider not just their

grantees work but their own internal organiza-

tional culture. Consider the recipients of the 2009

Scrivner Award for Creative Grantmaking given

by the Council on Foundations to Geri Mannion

of the Carnegie Corporation and Taryn Higashi,formerly of the Ford Foundation. The two grant-

makers co-founded the Four Freedoms Fund in

2003 to support integration and civic participation

efforts for immigrants, building an infrastructure


Social entrepreneurs are

eschewing nonprofit organizational

structures in favor of traditional,

yet social-minded, businesses


7/20


that links unconnected immigrant rights groups

across the United States. The Four Freedoms

Fund is a collaborative, funded by but independ-

ent from each founders home foundation, and it

benefits from contributions by both large and

small grantmakers. It also allows members to cir-

cumvent the strategic or administrative con-

straints of their institutions and to let prospective

grantees apply to one entity rather than to a

dozen funders. While a funding collaborative isnt

innovative or creativeper se, the Scrivner recogni-

tion stems from the co-founders work in build-

ing and sustaining a national network of grass-

roots, regional, and state organizations.7 In its

press release, the council suggests that networking

of grantees allows for more strategic and inclusive

grantmaking, and the co-recipients note that the

key to success is actually in the network of net-

works, which links funders, staffs, and the benefi-

ciaries themselves.8 This comprehensive network

model not only drives change and provides

opportunities for grassroots action alongside the

work of the Carnegie Corporation but also

allows for institutional memory to persist across

the complex web of relationships, creating more

opportunities for transfer of experience and

insights.

Another nontraditional practice is the spend-

ing down of endowments, which is more com-

mon among family foundations than among their

private or corporate counterparts. Grantmakers

who adopt this practice have structured their phi-lanthropy as time-limited in order to maximize its

impact. A few of these spend-down leaders have

sought to share what they have learned with the

community, most notably the French American

Charitable Trust (FACT), a family foundation

created in 1989 and based in San Francisco and

Paris. The foundation awards approximately $3.5

million in annual grants

to community organizing

groups in both France and

the United States, aiming

for long-term systemic

change at the grassroots

level.9 Working with

organizations seeking to

prevent social injustice, FACT also provides pro

bono consulting to select grantees through its

Management Assistance Program. Even with the

relative success seen through this holistic

approach to grantmaking, FACT President Diane

Feeney has been candid about the foundations

intention to spend down its $40 million endow-

ment by 2020. In 2008, FACT worked with

Northern California Grantmakers and the New

York Regional Association of Grantmakers

to produce a report on the handful of foundations

that have opted to completely distribute their assets,

as opposed to following the government-mandated

five percent minimum payout requirement.10

Philanthropy journalist Cheryl Dahle has

spoken out in favor of this hastened spending

process, saying, I would love to see more foun-

dations incented by making the boldest change

and biggest leap forward they can in a short peri-

od of time (rather) than a fleet of organizations

motivated to stay in business by playing small.11

These kinds of changes in the standard payout

formula could have a broad impact, as noted in

Beyond Five Percent: The New Foundation

Payout Menu,12 affecting both foundations

I would love to see more founda-

tions incented by making the bold-

est change and biggest leap forward

they can in a short period of time

- Philanthropy journalist Cheryl Dahle


8/20

grantmaking strategies and the government poli-

cies that dictate their parameters. In April 2009,

the Foundation Center released the results of a

new survey of more than a thousand family foun-

dations in the United States, indicating that 12

percent plan to spend down and close at some

as-yet-undetermined time and that 25 percent

were uncertain about their tenure.

Another family foundation that has spent

down its endowment is the Beldon Fund, which

was founded by John Hunting, heir to the

Steelcase furniture fortune. The Beldon Fund

began operations in 1982 but only really ramped

up its grantmaking activities once it had decided

to spend down the endowment. A longtime envi-

ronmentalist, Hunting sold the bulk of his stock

in 1998, when Steelcase went public, and

endowed the foundation with $100 million,

adding the stipulation that the funds be depleted

within ten years. True to

his promise, by spring

2009 the Beldon Fund

had disbursed $120 million

to environmental organi-

zations in a few key states

and shut its doors. Hunting has placed an article

called Giving While Living: The Beldon Fund

Spend-Out Story13 on the foundations website

in order to spur others to give as aggressively as

he did. Anita Nager, the foundations executive

director, said that if the foundation had been set

up to last in perpetuity, it would have been ableto give no more than $4 million annually

in grants. Instead, it awarded $10 million to $15

million per year.14 By restricting its activity to a

ten-year period, the foundation was able to spend

more on grants than a comparably sized founda-

tion. It also took greater risks with its grantmaking

but fewer with its investing, since a short-term

payout would only allow for more conservative

investments of the endowment. Hunting and

Nager agree that their initial strategy spread the

foundations resources too thin, but spending out

allowed them to focus on policy change, fueling

solid victories in fewer locations, which they

believe helped build momentum for national pol-

icy reform.15

The heterogeneity of the new social change

landscape is another positive sign. New avenues

for philanthropy are being developed alongside

commercial enterprises in places like Silicon

Valley, where the most successful entrepre-

neursoften start charitable foundations and

other ventures to support innovators (nonprofit

and for-profit alike) working to address the

worlds hardest social and environmental chal-

lenges.16 The outside perspective of for-profit

business leaders on philanthropic and social

change work ensures more than a steady supply of

funding; the varied and diverse opinions also

allow for that disruptive and iterative innovation

process that has produced the most widespread

and transformative impact. The Skolls, Omidyars,

Brins, and Pages of the world have sought to

establish a new environment in which social

innovation is as sought after as commercial

innovation. Google, in fact, has eschewed the tra-

ditional private foundation model by starting upGoogle.org with about $1 billion in Google stock

and establishing the enterprise as a for-profit,

which allows it to lobby, fund start-ups, and partner

in business ventures. While the foundation has


New avenues for philanthropy are

being developed alongside

commercial enterprises.


9/20


undergone a number of transformations since its

founding in 2006, its tax status continues to sup-

port the Google founders assumption that being

a for-profit organization will greatly increase

their philanthropys range and flexibility.17

Not all of Silicon Valleys new philanthropy

follows the same model, however. Jeff Skoll, for-

mer president of eBay, is now well known for his

Skoll Foundation, which invests in and celebrates

the accomplishments of social entrepreneurs

worldwide. Skolls approach has been less corpo-

rate than Googles but no less holistic; the foun-

dation has taken on a multitude of activities in

addition to its flagship funding program. In 2003,

Skoll launched the Skoll Centre for Social

Entrepreneurship at the University of Oxfords

Sad Business School to nurture academic study

and scholarship on the field of social entrepre-

neurship. The following year saw the launch of

Participant Media, a film and television produc-

tion company with the goal of creating socially

relevant films that inspire audiences to take action.

In its first five years in business, Participant films

received eleven Academy Award nominations, and

it partnered with more than eighty nonprofit

organizations to see through its mission of creating

entertainment that inspires and compels social

change.18

Responding to the needs brought on by

pandemics, climate change, and nuclear prolifera-

tion, Skoll announced a new organization inApril 2009 to complement his other philanthropic

and social change activities. Led by former

Google.org head Dr. Larry Brilliant, the Skoll

Urgent Threats Fund intends to identify and

support innovative high-impact initiatives19 in

order to combat pressing problems around the

world. What Skoll seems to be building is a net-

work of financing vehicles from grantmaking

foundations to media outlets each of which

can focus on a core set of issues and deploy the

right mix of money and expertise.

The different funding styles of each of these

institutions demonstrate that there is no one

standard approach. Rather, any of a number of

factors the founder, executive director, endow-

ment size, board of directors, or issue area may

lead a funder to a particular strategy or format.

Different Platforms

While growth on an institutional scale is difficult

for one person to achieve, the digital environment

is enabling individuals to function much as entire

firms did a generation ago. We have seen early

examples of creative project-based models, not

unlike those that Hollywood pioneered in the


10/20

1960s when the large studio model, in which one

institution housed all of the producers, directors,

writers, and actors under one roof, gave way to a

more flexible model, with short-term contracts

and assignments for each film. This la carte,

project-centric model allowed for greater creativity

and more interaction among parties who other-

wise might not have worked together, but it also

meant that the studios were likely to have less

control over the production.20

More than forty years later, the independent,

ad hoc model has been renewed and vastly

expanded through the communication tools of the

Internet. The Web enables individuals to collabo-

rate quickly beyond organizational or even

national boundaries. People at different firms and

in different countries can

use online forums, wikis,

blogs, and social network-

ing applications like

Twitter to team up with

others who have similar

interests, challenges, and

priorities, enabling greater opportunities for collab-

oration. As online distribution channels have also

increased, processes like product design and devel-

opment have shifted from firms to individuals and

small teams; the 75,000 applications now available

from Apples app store for the iPhone have largely

been produced by small firms or lone coders.

Venture capitalists investing in an iPhone develop-

ment fund call this the kickoff to a tectonic shift,noting that it marks a move away from an industry

structure based on structural and size advantages

to an industry structure driven by innovation,

consumer choice and software developers.21

Some of the best examples of social innovation

are also the result of small teams innovating on a

large scale. Take for example Ushahidi, a website

launched by Kenyan citizen journalists to cover

the aftermath of the countrys 2008 election.

Realizing the site could work as a platform for

collecting and visualizing any information, the

organization expanded to a handful of interna-

tional activists, each with his or her own career

and independent affiliations, and focused its

efforts on crisis reporting, aggregating reports

from the Web, email, and mobile phone texts and

presenting them in an open source format.

Ushahidi, whose globally scattered core staff

recently met in person for the first time in

California, won a $200,000 grant from the

MacArthur Foundation in May 2009 to develop

and expand upon the tool. Whats notable is that

the Ushahidi platform itself is essentially the

grantee and is funded with project-based support

rather than a general operating grant.

Similarly, FrontlineSMS:Medic is a free, open-

source software program that expands rural

health-care networks with mobile phones. The

founders of the initiative see themselves as having

created a model of implementation that can be

used throughout the developing world but not

as creators of a nonprofit organization.

FrontlineSMS:Medic envisions local health

workers as the implementers of and evangelists

for the tool. Again, the distinction is in the per-

spective; FrontlineSMS as a tool is the center-piece of their system, as opposed to an institution

with solutions or programs at its disposal.22

Although our examples here are taken from


Some of the best examples of

social innovation are also the

result of small teams innovating

on a large scale.


11/20


the world of technology, idea funding need not

focus on technical work or the creation of tech-

nical tools to be used by a particular group of

individuals. In fact, similar kinds of discrete devel-

opment can also be used to fund activities,

including content creation, that achieve more tra-

ditional funding priorities, such as advocacy and

education. One example is The Story of Stuff, a

video supported by the Tides Foundation that has

been viewed more than six million times since its

December 2007 launch. A brief documentary

about the perils of consumerism, the video has

been screened in schools across the nation and has

been integrated into countless lesson plans. The

hosted website also contains links to a number of

nonprofit organizations, educational resources,

and volunteer opportunities, and click-throughs

have no doubt been recorded and noted by the

site developers and funders. While one school

board has banned the video, many other educa-

tors laud it for raising sensitive issues and offering

a segue into difficult conversations.23 The Story

of Stuff offers a creative repackaging, if not an

entirely newidea an approach at odds with the

traditional foundation funding model but still

successful by most measures.

Different Corporate and Tax Structures

Traditionally, it has been advantageous not to

mention easier for funders to make their

donations to nonprofit organizations. In the

United States, this has meant that funders usually

contribute to organizations that have adopted the501c3 tax-exempt status normally conferred

upon charitable, religious, and educational groups.

Although other nonprofit organizations also

enjoy tax exemption, their status as lobbying or

membership-based associations means that

private foundations are unable to make grants to

them; public foundations are allowed to donate

only a fraction of their grantmaking budget to

these nontraditional grantees. The regulatory

structure therefore creates incentives for grant-

makers to fund, almost

exclusively, the 501c3

organization model. While

the law permits grants

made to individuals,24

private foundations have

tended to fund individuals

only in the form of schol-

arships or to make contri-

butions via fiscal sponsors, which are 501c3

entities willing to vouch (for a fee) for the

individuals permanence or acumen or to lessen

the administrative burden and cost of disbursing

small grants to multiple individuals. 25

However, today, a number of options from

funding of individuals to a number of other alter-

natives to the 501c3 regulatory model exist for

the social sector. These alternatives enable foun-

dations to consider and utilize a much wider array

of options in their quest for impact.

One alternative to the traditional 501c3 is the

for-profit social enterprise what Bill Gates

calls creative capitalism and Muhammad Yunus

calls social business. The for-profit social enter-

prise sector is increasingly gaining attention fromphilanthropic funders for its ability to achieve

scalable, sustainable impact and its potential for

generating some return on investment. As the

sector continues to develop, vehicles to help both

The for-profit social enterprise

sector is increasingly gaining

attention from philanthropic

funders for its ability to achieve

scalable, sustainable impact and

its potential for generating somereturn on investment.


12/20


philanthropists and investors to provide capital for

these organizations are starting to emerge.

One such entity is the B Corporation, a label

applied to companies and firms seeking to harness

the reach of business to solve social and

environmental problems.26 Adhering to the

triple bottom line guidelines of profitability

and environmental and social sustainability (or

people, planet, profit, for short), B Corporations

are a unique corporate structure. Numbering

more than 160 across thirty industries, B Corp

organizations must demonstrate profit as well as

minimum levels of community, environmental,

and employee excellence

to maintain certification

through B Lab, itself a

501c3 organization. (In

full disclosure, Blueprint

Research + Design, Inc.,

the author of this brief, is

a founding B Corp.)

White Dog Cafe, one of the examples we men-

tioned earlier in this paper, also is a B Corp; it

became one in order to serve its community in

addition to its customer base, while hoping to

institutionalize its values and be a model to other

companies.

Another for-profit vehicle specifically created

with the philanthropic funder in mind is the

low-profit limited liability corporation, also

known as the L3C. Unlike traditional for-profitcorporations, L3Cs have an explicit charitable

mission that takes precedence over concerns of

profitability. Spearheaded by Robert Lang, the

CEO of the Mary Elizabeth & Gordon B.

Mannweiler Foundation, the L3C was designed

to streamline the ability of foundations to make

PRIs (program-related investments), enabling

these for-benefit companies to attract both pri-

vate and philanthropic investors as funding

sources. This structure enables the organization to

allocate risks to allow for a higher rate of return

to private investors while responding to grants as

a traditional nonprofit would, a format that makes

L3Cs attractive to a range of funders.27 As of this

writing, L3Cs are not recognized nationally,

but an organization formed in one of the states

recognizing this legal corporate structure can

operate in any state.

One of the first operating L3Cs, CoolPass, is a

business that enables individuals to reduce their

carbon footprint by purchasing credits on the

Chicago Climate Exchange (CCX). Through its

two-pronged approach generating revenue

from the retirement of carbon offsets while reduc-

ing environmental impact CoolPass presents

itself as unique and appealing to different types of

stakeholders. CoolPass notes that it provides one

of the first opportunities to put traditional capi-

talists, non-profit organizations, and government

agencies around the same table,28 recognizing

common values (if somewhat different missions

and goals) among all parties.

Some traditional nonprofit organizations have

found that despite their works admirable social

mission, growth is difficult because of the con-straints of philanthropic capital. A few have even

transformed themselves into standard for-profit

entities, not substantially altering their profile but

increasing their ability to attract investment capital.

As individuals are increasingly able

to function in ways that entire

institutions would, we are seeing

the potential for a sea change in

the nonprofit world.


13/20


RealBenefits, a software development firm, is one

such nonprofit. Providing assistance to would-be

government benefits recipients who find the

bureaucracy too difficult to navigate, RealBenefits

developed a web-based tool to reach the millions

of people who might otherwise give up on

enrolling for welfare and Medicare benefits. In

2006, the organization even received the

MacArthur Foundation Award for Creative and

Effective Institutions, in recognition of technologys

power to assist poor and disenfranchised commu-

nities. Yet with increased difficulty reaching

donors most of whom had no interest in

giving money to a software firm RealBenefits

converted into a commercial firm with a sliding-

scale subscription model. In 2008, it was

purchased by TriHealix, a health-care information

technology company eager to let RealBenefits

continue its social mission and even expand.

TriHealix CEO Enrique Balaguer argues that

beyond merely enabling growth, profitability is

integral to the three core goals of maximizing

benefits to families, effecting policy change, and

creating additional capacity.29

As individuals are increasingly able to function

in ways that entire institutions would, we are see-

ing the potential for a sea change in the nonprofit

world. For starters, organizations and individuals

no longer need to conform to the traditional

model of a nonprofit in order to collaborate with

and be funded by foundations and others. While

the L3Cs and B Corps of today are still an anomaly

amid the landscape of 501c3 organizations, as

these administrative innovators prove their mettle,

they will achieve more clout on matters of policy.

Ultimately these alternatives to the nonprofit may

be commonplace, with funders and policymakers

alike recognizing that social innovation may

emerge from a variety of unexpected sources.

Different Approaches to Scaling Social

Change

Foundations, like most nonprofit organizations,

aim to keep their overhead expenses low. They

also recognize that, despite what may appear to be

a tremendous amount of money, most endow-

ments are actually relatively small compared to

government and private sector activity in similar

fields. This has led foundations to develop creativeways to achieve impact with limited dollars.

The Ewing Marion Kauffman Foundation of

Kansas City, which is among the thirty largest


14/20


private foundations in the country, makes grants

related to education and entrepreneurship and

spends about $90 million per year on program-

related expenses, relying on assets of just over

$2 billion. Yet the Kauffman Foundation still sees

itself as a small funder and aims to engage in

humble leadership, providing ideas, encourage-

ment, and strategic grants as opposed to long-

term, ongoing support. So what does it fund?

Kauffman staff have claimed the idea role and

hope to catalyze innovative and important activity

that holds promise. As

President and CEO Carl

Schramm has written,

We(make) idea gener-

ation itself an interactive,

iterative process.Our

efforts to advance innova-

tion have burgeoned dramatically, with the

Kauffman Foundation providing lots of idea and

leadership, but very little by way of funding.30

Most notably, the foundation has learned that

there is no silver bullet that could improve edu-

cation across the board and has sought instead to

enable an entire region committing itself to a

focus on excellencewith many concerted

efforts on many fronts at once.31 That is, the

Kauffman Foundation uses Kansas City the

schools and business community as an incuba-

tor for its educational and entrepreneurial

research and funding. While many foundations

limit their activity to a local community, the

Kauffman Foundations envisions its small workin Kansas City as a model for the entire country

and expects other changemakers to build upon its

work in order to achieve national impact.

While some activists act locally but envision

change more broadly, others deliberately work in

the other direction. Ellen Schneider, executive

director of the media activism organization Active

Voice, notes that the ecosystem of change is

inherently collaborative32 and must involve

different leaders, organizers, policymakers, funders,

and researchers, in part because the results of each

of their efforts may not be measurable on its own.

Schneider herself, through Active Voice, employs

new and traditional media to engage funders,

advocates, and industry leaders in conversation on

hot-button issues. The campaign for the film The

Visitor, for example, combined the efforts of

immigration rights groups, a corporate law firm,

a Hollywood film production studio, and the

Open Society Institute to lead discussions and

raise awareness about immigrant detention issues

and provide training for pro bono legal assistance

for detainees. By working with a creative inter-

mediary like Active Voice, the funder (Open

Society Institute) reached a number of audiences

it might not have through traditional grants.

Whole media efforts like Active Voices have

helped to sway public opinion: As of April 2009,

61 percent of Americans polled favored amnesty

for undocumented immigrants, up from 52

percent just two years before.33

One unlikely source of change is the federal

government: the Office of Social Innovation was

launched in early 2009 to administer the Social

Innovation Fund, an outgrowth of the Edward M.Kennedy Serve America Act. With the stated

intention of investing in ideas that improve out-

comes and promote effective and innovative

programs,34 the Social Innovation Fund plans to

While some activists act locally but

envision change more broadly,

others deliberately work in the

other direction.


15/20


identify the most promising, results-oriented

non-profit programs and expand their reach

throughout the country.35 With this fund, the

U.S. government is taking the unusual step of

investing in collaborative measures, along with

the private and nonprofit sectors, to nurture civic

engagement and alleviate social problems. In

addition to increasing the number and quality of

volunteer opportunities, the Office of Social

Innovation also intends to promote social-mind-

ed for-profits and devise national standards in that

nascent sector. While the collapse of the economy

has resulted in more focus on regulatory involve-

ment in the private sector, there has been near-

universal agreement that greater policy focus on

the new hybrid social-benefit sphere is a good

thing.

Competitions and Requests for the

Unconventional

In addition to the $2 million Digital Media and

Learning Competition, which was developed to

supplement the MacArthur initiatives grant port-

folio by recognizing the most novel uses of new

media in support of learning, a number of foun-

dations have launched competitions to increase

their own scope and audience and reward action

and innovation. The Healthcare X PRIZE was

announced in April 2009 by the X PRIZE

Foundation, WellPoint, Inc., and the WellPoint

Foundation to catalyze high-impact activity in

health care in the United States. The X PRIZE

Foundations sole mandate is to drive innovationthrough large incentive competitions, essentially

seeking to hasten the solutions to tough social

problems by attracting money and talent.With the

$10 million Healthcare X PRIZE, it intends to

revolutionize the U.S. health-care system.36 By

collaborating with WellPoint, the nations largest

private health-care provider, X PRIZEs organizers

will have the ability to try the winners proposi-

tions in 10,000-person test groups, creating value

at the community level with the goal of developing

a new globally accepted health metric.

The Robert Wood Johnson Foundation, a

leader in health-care funding, launched the

Pioneer Portfolio in order to support high-risk,

high-reward opportuni-

ties with the potential for

long-term returns amidst

great uncertainty.37 Unlike

the rest of RWJFs grant-

making portfolio, which

addresses infrastructure

and access to health services, Pioneer focuses

exclusively on innovation and unconventional

ideas that may be in earlier stages of develop-

ment.38 While many of these ideas will merit

later-stage funding, the foundation acknowledges

that most will not.

And what of the organizations or ideas with

great initial promise that subsequently disappoint?

On occasion, a foundation will write off a failed

grant as a lesson learned, but at other times, foun-

dations will accept an early period of experimen-

tation and failure. The nonprofit sector rumor

mill was abuzz in February 2009 after the publi-

cation of an article in the New Yorker profilingGreen Jobs for All founder Van Jones. After a flip-

pant remark about wasting two grants from the

Nathan Cummings Foundation in support of his

organizations approach to poverty reduction and

A number of foundations have

launched competitions to increase

their own scope and audience

and reward action and innovation.


16/20


environmental sustainability, Jones wrote in with

a mea culpa. He apologized for joking about early

failures in developing the green jobs sector in

Oakland and said he worried that his organiza-

tion had squandered the grants and worked in

vain. The Nathan

Cummings Foundation,

however, saw Green Jobs

for All as an innovative

component (both innova-

tive and component being

operative terms) of its

environmental portfolio and stuck by the organi-

zation. One year down the road, the work blos-

somed and the Cummings Foundation support-

ed additional organizations across the nation, all

contributing to the infrastructure for the green

jobs movement. As Jones wrote, (The founda-

tions) philanthropy has had a transformative

impact in a very short period of time.39

POLICY IMPLICATIONS

As philanthropic opportunities and sources of

change multiply, the underlying rules that govern

philanthropic activity may need to change as well.

For example, if the trend toward ad hoc project-

based funding outside of traditional organizational

structures continues, IRS restrictions on grant-

making to individuals may require serious revision.

Similarly, if endowments increasingly seek out

socially responsible for-profit avenues for invest-ment, there may be calls for greater clarity in and

possible revision of the IRS jeopardizing invest-

ments rule.40 And although L3C policy efforts

have already won key victories and official recog-

nition in six states, reform will likely be necessary

to facilitate the use of foundation PRIs as a viable

source of funding.41 For program officers seeking

to broaden the types of activities they can fund, it

will be important to watch policy changes, and

the debates around them, as they shape the range

of options.

CONCLUSION

In addition to funding individuals, collaboratives,

or nontraditional organizations, foundations are

also funding ideas. To some degree, such project-

based funding seems to have fallen out of favor as

foundations strive to provide sustainable, long-

term organizational support. But the concurrent

rise in prize competitions hints that what may

have happened is a shift in how and where ideas

are supported from within organizations to

out on their own. These competition-oriented

funding efforts (including the MacArthur

Foundations $2 million Digital Media and

Learning Competition and the $5 million Knight

News Challenge), encourage organizations and

individuals to present creative and experimental

ideas without the need to offer up an entire insti-

tution for funding consideration. The Digital

Media and Learning Competition, while funded

by the MacArthur Foundation, is administered by

the Humanities, Arts, Science, and Technology

Advanced Collaboratory (HASTAC), a network

of learning networks. For two years this opencompetition has allowed submissions from

non-MacArthur grantees, demonstrating that

pioneering work often takes place at the edges

and sometimes between the most unlikely of

In addition to funding individuals,

collaboratives, or nontraditional

organizations, foundations are

also funding ideas.


17/20


collaborators,42 including groups and individuals

with innovative ideas that might otherwise not

have found an outlet or funding opportunity.

Other recent notable prize competitions include

the work of the X PRIZE Foundation and the

many competitions funded by foundations and

administered by Ashokas Changemakers plat-

form.43

Ultimately, we need to remember that social

innovation is not just about innovation for its

own sake. Whats critical is change and impact,

and to a lesser degree scale and transformation.

Social change can be achieved through any

means, provided that those involved are passion-

ate about the difference they are making. What is

key is for a funder and a grantee (or a client and

an individual, or a group of organizations) to con-

sider the different models and options available

that may engender the change they hope to see.

The basic foundation 501c3 funding model may

indeed work in certain scenarios, but as this brief

has shown, many other potentially more creative

or effective alternatives now exist.

ADDITIONAL RESOURCES ON FUNDING

STRATEGIES

IndividualsGrantcraft, Grants to Individuals,

http://www.grantcraft.org/dl_pdf/guide_gti.pdf.

Foundation Center,

Foundation Grants to

Individuals,http://foundation-

center.org/marketplace/cata-

log/product_directory.jhtml

?id=prod10019.

L3CsCommunity Wealth Ventures,

The L3C: The Low-Profit Limited Liability Company,

http://www.cof.org/files/Documents/Conferences/Legislat

iveandRegulatory01.pdf.

Nonprofit Law Blog, L3C Developments & Resources,

http://www.nonprofitlawblog.com/home/2009/03/l3c-

developments-resources.html.

Mission InvestingBlueprint Research + Design, Inc., Equity Advancing

Equity, http://www.blueprintrd.com/wp-content/

uploads/2009/09/equity-advancing-equity-full-report.pdf

FSG Social Impact Advisors, Compounding Impact:

Mission Investing by US Foundations, http://www.fsg-

impact.org/ideas/pdf/Compounding%20Impact(5).pdf.

Monitor Institute, Investing for Social & Environmental

Impact, http://www.monitorinstitute.com/impactinvest-

ing/documents/InvestingforSocialandEnvImpact_FullReport

_004.pdf.

NetworksBarr Foundation, Networks and Philanthropy,http://

www.barrfoundation.org/usr_doc/Networks_and_Philanthr

opy_- Marion_Kane_-_Funders_for_Smart_Grow.pdf.

Monitor Institute, Working Wikily 2.0: Social Change with

a Network Mindset, http://www.monitorinstitute.com

Social change can be achieved

through any means, provided that

those involved are passionate about

the difference they are making.


18/20


/documents/WorkingWikily2.0hires.pdf.

Valdis Krebs and June Holley, Building SmartCommunities through Network Weaving,

http://www.orgnet.com/BuildingNetworks.pdf.

Prizes and CompetitionsGrantcraft, Using Competitions & RFPs,

http://www.grantcraft.org/dl_pdf/competitions.pdf.

McKinsey & Company, And the Winner is,

http://www.mckinsey.com/clientservice/socialsector/And_

the_winner_is.pdf.

Social EnterpriseBlueprint Research + Design, Inc., Community

Foundations and Social Enterprise, http://communityphil-anthropy.org/downloads/CF_FutureMatters_Winter08.pdf.

REDF, If the Shoe Fits: Nonprofit or For-Profit? The

Choice Matters, http://www.redf.org/learn-from-redf

/publications/123.

Robert A. Wexler, Effective Social Enterprise A Menu of

Legal Structures, The Exempt Organization Tax Review

63:6 (June 2009): 565, http://www.se-alliance.org

/resources_wexler09.pdf.

Social Enterprise Alliance, Funding Them to Fish: Final

Report, http://www.se-alliance.org/sundance

_final_report.pdf.

NOTES

1Joel Fleishman,The Foundation (New York: Public Affairs,2007).

2 Lucy Bernholz, Necessity is the Mother of SocialInnovation, December 5, 2008, http://philanthropy.

blogspot.com/2008/12/necessity-is-mother-of-social.html.

3Thierry Rayna and Ludmila Striukova, The curse of the

first-mover: when incremental innovation leads to radical

change, International Journal of Collaborative Enterprise,Vol. 1,

No. 1, 2009.

4 Lucy Bernholz, Institutional Isomorphism, May 7, 2009,

http://philanthropy.blogspot.com/2009/05/institutional-

isomorphism.html.

5 Marjorie Kelly, Not Just for Profit, strategy + business 54(Spring 2009): 51.

6 Marci Alboher, A Social Solution, Without Going theNonprofit Route New York Times, March 4, 2009,

http://www.nytimes.com/2009/03/05/business/small

business/05sbiz.html.

7 Council on Foundations Press Release, The Council onFoundations Celebrates Philanthropic Leaders, Announces

Annual Award Recipients, April 7, 2009.

8 Taryn Higashi and Geri Mannion, To Our Four

Freedoms Fund Colleagues, with Gratitude and DeepestRespect, http://www.publicinterestprojects.org/

files/imce/With_Gratitude_and_Deepest_Respect__2_.pdf.

9 About FACT, http://factservices.org/about.html.

10 The Tax Reform Act of 1969 established a six percentminimum payout rate for foundation investment assets; in

1976 the rate was reduced to five percent.

11 Quoted by Sean Stannard-Stockton, PhilanthropyAdvisors website, Are Foundations Inept, Boring & Scared

to Fail? September 19, 2007, http://tacticalphilanthropy.com

/2007/09/are-foundations-inept-boring-scared-to-fail.

12 Heidi Waleson, Beyond Five Percent: The NewFoundation Payout Menu, http://factservices.org

/DLs/Beyond5_Report.pdf.

13John Hunting, Giving While Living: The Beldon FundSpend-Out Story, March 2009, http://www.beldon.org

/files/beldon/BeldonFund_1.pdf

14 Eric Frazier, Every Dollar Spent, The Chronicle ofPhilanthropy, May 21, 2009, http://www.beldon.org

/files/beldon/ChronicleofPhilanthropy.pdf.

15 Beldon Fund press release, May 15, 2009, http://www.beldon.org/files/beldon/beldonpressreleasemay1509.pdf.

16 Mario Morino, Chairmans Corner: Nurturing theNational Reef, June 2009, http://www.vppartners.org

/learning/perspectives/corner/0609_nurturing-the-nation-

al-reef.html.


19/20


17 Katie Hafner, Philanthropy the Google way: Doing goodwhile making money, International Herald Tribune, September

14, 2006, http://www.nytimes.com/2006/09/14/business/worldbusiness/14iht-web.0914google.2805857.html.

18 Our Mission, Participant Media website,http://www.participantmedia.com/company/about_us.php.

19 Skoll Foundation press release, Dr. Larry Brilliant JoinsJeff Skoll to Combat Global Challenges, April 14, 2009,

http://skoll.org/media/press_releases/internal/041409.asp.

20 Paul Monaco, The Sixties, 19601969, (Berkeley:University of California Press, 2003), 25.

21 Cyriac Roeding, The Next Steps to Accelerate the

Tectonic Shift in Mobile, Part 1, on iFundVC website,http://ifundvc.com/2008/10/29/the-next-steps-to-acceler-

ate-the-tectonic-shift-in-mobile-part-1.

22 A suite of modules for FrontlineSMS, FrontlineSMS:Medic webpage, http://medic.frontlinesms.com

/product-tour/.

23 Leslie Kaufman, A Cautionary Video About AmericasStuff New York Times, May 10, 2009,

http://www.nytimes.com/2009/05/11/education/

11stuff.html.

24 GrantCrafts Grants to Individuals: Investing in Peopleand Their Communities informs us that under U.S. taxcode Section 4945, Regulation 53.4945-4, private

foundations are allowed to make three types of grants to

individuals: scholarships or fellowships, specific-objective or

product grants, and prizes/awards with no strings attached,

http://www.grantcraft.org/index.cfm?pageId=1020.

25 The majority of foundation funding is awarded to organ-izations, creating a competitive environment among the

individuals seeking foundation funds. The Foundation

Center estimates that while 300,000 individuals received

funding in the form of grants or scholarships in 2006, the

amount represents only 9.8 percent of total dollars disbursed

in foundation giving for that year. Most grantmakers place

very specific limitations on their giving to individuals, since

provisions for grants to individuals require advance approval

of the program by the IRS. For this reason, grantmakers

usually cannot make exceptions to their program guide-

lines, even if presented with a compelling case to do so.

26 Introducing the B Corporation, B Lab, 2009,http://www.bcorporation.net/resources/bcorp/documents

/2009%20B%20Corp_Intro_Package1.pdf.

27 Tim Morral, L3C Business Structures, Gaebler.com,http://www.gaebler.com/L3C-Business-Structures.htm.

28 Our Mission, CoolPass website,http://www.coolpass.com/c/mission/Our+Mission.html.

29 Kathleen Kingsbury, Selling Out to Growth TimeMagazine, March 9, 2009, http://www.time.com/time/

specials/packages/article/0,28804,1877020_1877030_

1883902,00.html.

30 On Being Small, Ewing Marion Kauffman Foundation

website, http://www.kauffman.org/about-foundation/schramm-on-being-small.aspx.

31 Ibid.

32 Ellen Schneider, quoted at Beyond Broadcast 2009, June 4,2009. Cited in USC Annenberg News, http://annenberg.

usc.edu/AboutUs/News/090604Panel1.aspx.

33 Changing Views on Social Issues: Allemande Left.Allemande Right, press release, ABC News/Washington

Post Poll: Hot-Button Issues (April 30, 2009), http://

abcnews.go.com/images/PollingUnit/1089a6HotButtonIssu

es.pdf.

34 Service: Progress, White House website,http://www.whitehouse.gov/issues/service/.

35 Ibid.

36 Healthcare X PRIZE Initial Prize Design, X PRIZEwebsite,http://www.xprize.org/files/downloads/health/HX

P_Initial%20Prize%20Design_v1.pdf.

37 What We Fund: Pioneer, Robert Woods JohnsonFoundation website, http://www.rwjf.org/pioneer

/approach.jsp.

38 Ibid.

39 Van Jones, Letter to the Editor, New Yorker, February 9,2009, http://www.newyorker.com/magazine /letters/2009

/02/09/090209mama_mail2.


20/20

40 Jeopardizing investments defined, IRS website,http://www.irs.gov/charities/foundations/article/0,,id=

160678,00.html.

41 IRS Cautions Against Low-Profit Limited LiabilityInvestments, http://www.cof.org/whoweserve/templates

/311.cfm?ItemNumber=16653&navItemNumber=14860.

42 About the Digital Media and Learning Competitions,HASTAC webpage, http://www.hastac.org/about-digital-

media-learning-competitions.

43 McKinsey and Company, And the winner is, 2009.,http://www.mckinsey.com/clientservice/socialsector/And_

the_winner_is.pdf.

Date post:	30-May-2018
Category:	Documents
Upload:	lucy-bernholz
View:	219 times
Download:	0 times