I'm pleased to welcome guest author Steve Rothschild. Steve is the author of The Non Nonprofit: For-Profit Thinking for Nonprofit Success (Jossey-Bass, 2012). In that book, Steve shares how he brought business principles from very successful companies to the world of nonprofit and made them work. He founded Twin Cities RISE!, a Minnesota-based job training program, and went on to found Invest in Outcomes. Steve speaks and writes about new financial instruments to fund nonprofits, such as the Human Capital Performance Bond (HUCAP). For an introduction to the HUCAP, I recommend you take a look at Steve's TEDx presentation.
This election year, it's often about the money. We're hearing about recovery, but also deficits, and large cuts to government budgets. One of the hardest hit areas is also one with some of the largest opportunities for society-changing impact: the nonprofit sector. And, without a change in thinking within this sector, we'll feel the consequences of cuts to preventive programming in everything from early childhood education to drug treatment, workforce development and housing programs.
In the midst of this uncertain time for social enterprises, it's also important to analyze and share the effectiveness of programming. It's the long-term solutions that thoughtfully blend innovative nonprofit thinking with for-profit expertise that will sustain organizations and allow them to continue serving the community, despite decreasing government support.
Having worked 22 years in the for-profit world, and having founded two nonprofits, I've come to realize that metrics have a way of focusing our attention. Whether we're measuring return on investment or the S.A.T. scores, it's human nature to spend our time, energy and material resources to improve that which is being measured - which means that in a world of limited resources, it's critical to measure what counts. Organizations get what they measure.
In order to do this, metrics need to measure outcomes that directly reflect the purpose and mission of an organization; and, they need to be meaningful and understandable to all its stakeholders.
Unfortunately not all nonprofits measure outcomes; rather they often focus and report on inputs like the number served or outputs like the number who complete classes. But inputs and outputs don't reflect the purpose or mission of an organization. It's like General Mills focusing on how much wheat it purchases (an input), or how much cereal it produces (an output) instead of how much Wheaties it sells to its customers (an outcome).
Inputs and outputs can help measure progress but they don't measure long-term impact. When you share outcomes with your stakeholders, you distinguish yourself, validate your work and can improve your support.
Many nonprofits are already leading the charge in using the best cross-sector practices, and seeing the results in the form of funding.
Minnesota-based job training program Twin Cities RISE! not only looks at how many people they place in jobs, how many retain those jobs for at least one and two years, and how much their income increased, they also track their return on investment to the state.
Grameen Bank, a microloan institution in Bangladesh, specifically defines its desired outcomes and then rates its branches success based on those indicators. Lumni, a social enterprise active in North and South America raises funds from private investors to enable deserving students to attend college and provides its investors with a financial return on their investment.
Measuring outcomes may sound overwhelming but it's a payoff for long-term success. With outcomes data, we can start to establish the economic value of the social benefits provided to society, and create pay-for-performance and other innovative funding models like the Social Impact Bond (SIB) in the UK or the Human Capital Performance Bond (HUCAP) to be piloted in Minnesota that reward high-performing social enterprises. This provides government, foundations and individuals with the incentive to invest in organizations that have proven results, and gives nonprofits the potential for new funding sources.
Deficits and cuts are major challenges, particularly to our social enterprises. But this is a time of potential for social enterprises as well. By measuring what counts, organizations can set themselves apart and thrive.