Billions of Drops in Millions of Buckets

Why Philanthropy Doesn't Advance Social Progress

Steven H. Goldberg

• Publisher: Wiley
• Year: 2009
• ISBN:
  9780470488287
• Edition: 1
• Topic: Business
• Subtopic: Nonprofit Organizations & Charities
• Index: Business

Praise for BILLIONS OF DROPS in MILLIONS OF BUCKETS

" Billions of Drops in Millions of Buckets provides a bracing and original look at philan-thropy that offers a much-needed corrective to conventional wisdom. Steve Goldberg combines a resolve to understand why so much philanthropy accomplishes so little enduring social change with a timely and serious proposal to reinvigorate nonprofit capital markets through the simplest of insights: getting more of the money to where it can do the most good. This book will change how forward-looking philanthropists, foundations, and policymakers think about the relationship between charitable giving and the transformative capacity of social entrepreneurs."
— Jerr Boschee, founder and Executive Director, The Institute for Social Entrepreneurs; Visiting Professor of the Practice in Social Enterprise, Carnegie Mellon University

"Goldberg's arguments are logical next steps in the rapidly evolving discussion of social capital markets. He offers ambitious proposals informed by the reality of current practices and focused on an achievable set of goals. He fully recognizes the potential for restructuring that is inherent in this time of financial hardship. Real change relies on big ideas, and Steve Goldberg offers us several."
— Lucy Bernholz, author of Creating Philanthropic Capital Markets: The Deliberate Evolution

"When I first heard about 'evidence-based medicine, ' I thought: 'you mean it isn't?' Read this book and that's how you'll feel about 'performance-based philanthropy.' Goldberg takes some of the best current management thinking and applies it to social enterprise, illuminating both the encouraging successes of social entrepreneurs and the barriers they face. Even better, he presents compelling ideas for making the social sector vastly more effective."
— Christopher Meyer, Chief Executive, Monitor Networks

"Goldberg calls for more 'performance-driven philanthropy, ' where nonprofits are rewarded based on their results, in place of the current dysfunction. It is an important call and a valuable contribution to discussions about how to improve nonprofits in the U.S. and internationally."
— Martin Brookes, Chief Executive, New Philanthropy Capital

" Billions of Drops... is a must-read romp through emerging fields of social entrepre-neurship and nonprofit capital markets."
— George Overholser, founder and Managing Director, NFF Capital Partners

Chapter 1

The Disheartening Problem of “Scale”

Philanthropy today generates a world in which experiments multiply but very little sums.

—Katherine Fulton and Andrew Blau, “Cultivating Change in Philanthropy”

Anyone in search of the very model of the modern social enterprise need look no further than Teach For America (TFA). Wendy Kopp founded TFA in 1990, and the title of her book about that adventure, One Day, All Children. . . , encapsulates in just four small words what is so important about the social movement TFA represents:

As a college senior, I happened upon an idea that would put me in the middle of an incredible movement. The idea was to create a corps of top recent college graduates—people of all academic majors and career interests—who would commit to teach two years in urban and rural public schools and become lifelong leaders dedicated to the goal of educational opportunity for all.¹

Just 21 years old at the time, the estimable Ms. Kopp didn’t just want to help a lot of kids in underperforming public schools, she wanted to help all of them. She envisioned creating “an enduring American institution” that would “eliminate educational inequality,” the socioeconomic and racial disparities that “severely limit the life prospects of the 13 million children growing up in poverty today.”² And so TFA dedicated itself to the proudly audacious proposition that “one day, all children in this nation will have the opportunity to attain an excellent education.”

The problem of educational inequity is no small matter, as virtually all recent studies confirm. Douglas Harris of Arizona State University’s Education Policy Studies Laboratory calibrated the differences among high-performing schools for different socioeconomic cohorts:

The achievement gap between students of various racial, social, and economic groups is large and growing. For example, between whites and African-Americans, the size of the achievement gap ranges from 29 to 37 percentile points. Between whites and Hispanics, the gap is 16 to 34 percentile points. Strong signs suggest these gaps have worsened recently after decades of improvement.³

Such pervasive and enduring disparities do not originate from simple or ephemeral causes. Rather they reflect the corrosive effects of long-term institutional and systemic failures:

All parts of the political spectrum seem to agree that these educational inequities represent a significant problem. There is also strong evidence and agreement that students’ social and economic disadvantages are substantial causes of the problem. Poor nutrition and illness cause students (a) to miss school more often and (b) to be less prepared to learn when they attend. Within the disadvantaged home, parents often have relationships with their children that are, emotionally and physically, less healthy. These unhealthy relationships are reinforced in part by economic pressures that induce conflicts between parents and children. The combination of these factors and other effects is shown to be worse as students remain in poverty for longer periods of time. Of course, many parents living in poverty are able to successfully navigate and avoid these potential problems, and some parents with high incomes are not great parents, but the general patterns described here are quite strong.⁴

Andrew Sum, director of Northeastern University’s Center for Labor Market Studies, puts it more simply: “Declining economic fortunes of young men without college degrees underlie the rise in out-of-wedlock child-bearing, and they are creating a new demographic nightmare for the nation.”⁵

The gravity of the situation makes TFA’s accomplishments over the past 17 years all the more extraordinary. A 2004 independent research report found that “even though Teach For America teachers generally lack any formal teacher training beyond that provided by Teach For America, they produce higher test scores than the other teachers in their schools—not just other novice teachers or uncertified teachers, but also veterans and certified teachers.”⁶ Another study concluded that “nearly three out of four principals (74 percent) considered the Teach For America teachers more effective than other beginning teachers with whom they’ve worked” and “the majority of principals (63 percent) regarded Teach For America teachers as more effective than the overall teaching faculty, with respect to their impact on student achievement.”⁷ Most recently, a 2008 study found: “TFA teachers tend to have a positive effect on high school student test scores relative to non-TFA teachers, including those who are certified in-field. Such effects exceed the impact of additional years of experience and are particularly strong in math and science.”⁸

More than 17,000 “corps members” have joined TFA since 1990, and they’ve reached more than 2.5 million kids in more than 1,000 public schools nationwide. TFA plans to more than double the number of corps members from the year 2005 to 2010, from 3,500 to 7,500, and to increase its placement sites by 50%, from 22 to 33.⁹

Remarkably, TFA recently eked out tenth place in Business Week’s “The Best Places to Launch a Career,” and it recruits more college seniors than Microsoft, Procter & Gamble, Accenture, or General Electric. ¹⁰ The once famously shy Ms. Kopp is so dedicated to her cause that she not only appeared on Comedy Central’s The Colbert Report, but she mopped the floor with the pugnacious satirist.¹¹

Notwithstanding these impressive achievements, there is one measure of success that TFA has not met: its own. TFA’s success is impressive except in comparison to the universe of need embodied in the phrase, “one day, all children.” After 17 years of perseverance, the 425,000 students TFA plans to reach in 2008 represent just 3.3% of the 13 million kids who face “educational inequity.”

As far as I know, TFA has no specific plans by which it will reach 13 million disadvantaged students. Nor, for that matter, does any other social change organization of which I’m aware.

For example, the NewSchools Venture Fund, another proud flagship of the nonprofit entrepreneurial fleet, is dedicated to “promoting high academic achievement for every child by attracting, preparing, and supporting the next generation of outstanding leaders for our nation’s urban public schools.”¹² Since 1998, NewSchools has raised and deployed tens of millions of dollars for educational innovation at dozens of charter-management and school-support organizations. It states that “over the next several years, the organizations we support will run more than 200 charter schools and serve nearly 75,000 students, making NewSchools’ national portfolio comparable in scale to a mid-sized urban district.”¹³ After 10 years of exceptional work and highly sophisticated financial management, the aggregate result (at least of the charter school portion of its portfolio) amounts to one school district that performs at the level to which the entire country aspires.

“All Children”

Social entrepreneurs “carry out innovations that blend methods from the worlds of business and philanthropy to create social value that is sustainable and has the potential for large-scale impact.”¹⁴ But for all that social entrepreneurs such as TFA and NewSchools have accomplished, they have yet to come to grips with the implications of their worthy goal of helping “all children” in need. While quite a few successful and innovative nonprofit organizations (NPOs) aspire to serve millions of people who need their services, I’ve yet to see even one strategic growth plan that explains how the organization will address anywhere close to even 20% of the need.

A comparison of what social entrepreneurs call “scale” and what I’ll be calling “transformative social impact” puts things into perspective. Social entrepreneurs (and their “venture philanthropy” funders) appropriately identify organizational growth as one of their fundamental strategic objectives, and after a decade or so of hard slogging, they take justifiable pride in what they’ve accomplished.

Exhibit 1.1 New Profit, Inc. Model of Venture Philanthropy

Source: “Our Model of Venture Philanthropy,” New Profit, Inc., 14 Apr. 2008, www.newprofit.org/about_model.asp.

For example, New Profit, Inc. (NPI) in Cambridge, Massachusetts, was one of the original venture philanthropies that adopted a funding approach modeled after venture capitalism in order to alleviate many of the shortcomings inherent in traditional foundation financing. NPI devised a novel funding and support model (see Exhibit 1.1) that integrated the efforts of investors, social entrepreneurs, business consultants, and other experts to nurture and grow portfolio NPOs to an extent that had not been possible under the more passive foundation model.

Exhibit 1.2 Venture Philanthropy Partners’ Value Chain for Institution Building

Source: “Future Impact,” Venture Philanthropy Partners, 17 Sept. 2007, www.vppartners.org/impact/future.html.

Venture Philanthropy Partners (VPP) in Washington, DC, also provided innovative social entrepreneurs with funding tailored to their more businesslike approach to social change (see Exhibit 1.2). Like NPI, VPP made larger, longer, and more flexible grants to carefully selected nonprofits and provided in-kind management consulting to help their portfolio NPOs enhance organizational capacity and effectiveness.

The traditional model of nonprofit finance that venture philanthropy sought to reinvent is deceptively simple: foundations collect charitable contributions and bequests from individuals, corporations, and institutions, and they administer systems of grant application, review, and funding to NPOs that the foundations believe will advance their social missions. But entrenched historical, practical, and structural problems have come to plague foundation funding:

Fragmentation and Undercapitalization

Traditionally, “[f]oundations saw their role as funding a large number of small programs for a short time, hoping that a few would enjoy some initial success.”¹⁵ As a result, it has become a regrettable fact of nonprofit life that “[f]oundations generally spread their resources—both money and people—too thin.”¹⁶ “The average grant among the 100 largest foundations is roughly $50,000.”¹⁷ Such grant sizes are simply too small to support the development of robust and enduring nonprofits capable of achieving scale and consequential social impact, and foundation employees are responsible for too many grant applications to provide active or sustained engagement with recipients beyond simple financial support. More than 90% of U.S. nonprofits have annual budgets of less than $1 million, and fewer than two dozen social entrepreneurs have annual operating budgets exceeding $20 million.¹⁸ As a result, “a foundation grant covers only a small proportion of a nonprofit’s costs.”¹⁹

As one trenchant example, Business Week reported that the $1.6 billion Annenberg Challenge was “widely viewed as a crushing disappointment.” The reason: “The five-year grants,...