That’s Karl Brown from the Rockefeller Foundation, Jeff Tuller (the chairman at socialmarkets) and myself hanging out at Rockefeller Foundation
I know I know — I haven’t posted recently. However, it’s because I’ve been putting more and more effort into my startup at socialmarkets.org. You probably have seen Deborah Elizabeth Finn’s posts regarding our efforts. Anyway, I’d really love for people to comment on our manifesto over at socialmarkets.org. I want to know what you think about the idea of a social capital marketplace for the nonprofit sector. I know — that’s a mouthful but let me give the quick and dirty pitch on socialmarkets.
We know that the nonprofit sector has accountability and transparency issues. Many donors, especially younger people, don’t really feel connected to nonprofits as a result. They want to do good but they also want to see the money actually do work. Meanwhile, nonprofits are not so great at pushing their cases and project listings to the web. They don’t do public progress reports, outcomes aren’t reported publicly and there’s no public discussion of the risks inherent in trying to do social good except by some foundations. Notice I say public — nonprofits probably do all those things for their funders but definitely not the public.
So what’s obvious here is that the ledger books aren’t open. Oh, I don’t mean 990s. They’re a terrible way to find out whether or not a nonprofit is doing its job. What we don’t have is a ledger that tells the public the actual social good that a nonprofit is doing. So one would think, “Can’t we just get nonprofits to do that?” No, they won’t bother to put up an account of their work unless there’s a good reason to do so. They’re here to do good, not to fill in Excel spreadsheets and many of them don’t want to take on additional administrative overhead. However, you can incentivize them to do it. Well, how do you provide that incentive? You have to use an exchange of goods to do that. We’re talking money, folks. You need to pay nonprofits to measure and account for the social goods they create.
And this is where socialmarkets comes in. We create a marketplace for nonprofits to show their case listings and projects. In return, they get to be on a Web site where donors are looking for great returns on their donations. It’s not any different from say Kiva, but there’s a twist here. We ask nonprofits to report back on outcomes as well as their SROI (social return on investment). Yeah, that’s right, we get down and dirty with the numbers and will tell donors that if their donation is successful, they will get back SROI dollars in their portfolio. However, not every project is successful. Many things that nonprofits do are extremely difficult and we want to show this to the public. We want to show that it’s not all unicorns and roses in our sector. In fact, some of the most difficult tasks are carried out by nonprofit line staff EVERY DAY.
And oh yeah, those SROI dollars that donors would be receiving? It’s not real money. It’s just an indicator of basically how savvy a donor you are. We’re going to put up a leaderboard that will allow people to track the best social investor on socialmarkets. We think there are going to be social investment geniuses on socialmarkets and we’d love to find out who they are and how they do it. And how do we compute these SROI dollars? We use a counterfactual. We imagine a scenario where the nonprofit didn’t exist and try to figure out what the world would be like without the proposed project or casework involved.
Let’s say a nonprofit wants to save a river. How do we quantify the SROI? We look at all the industries tied to that river and figure out the economic cost of the loss of that river to those industries. I’m pretty sure we’d end up looking at fishing, tourism and recreation industry figures and saying that the river costs $X amount if it’s not saved. This is how I look at SROI in general: if it were not for the nonprofit, then who would do it? How much would it cost if it the nonprofit wasn’t around? And who is affected by all this? But Allan, the astute reader may say, won’t nonprofits just game the SROI numbers? What’s to stop them from claiming an unrealistic number? We would just say — it’s a market. Markets have a way of self-regulating themselves. And one of the first things people will look for is gamed SROI numbers. It’s like any prospectus we see in the regular NYSE market. No one is going to buy a company that claims unrealistic returns when it obviously doesn’t have the wherewithal to gain those returns.
However, all this talk about risk and outcomes leads us to a very important point. We will have a somewhat complete picture of many SROI-generating activities of many nonprofits over time. This is the ledger of nonprofit social returns on investment. The sharper among you may already understand the true nature of what we’re building. We’re building a database that will be able to give researchers and managers deep access to the outcomes of what will be thousands of cases. Ultimately, a ledger isn’t just an accounting instrument, it’s a research instrument. And with our fancy REST-ful API, we can let other researchers access our own databases and generate even greater social returns by researching the very patterns of successful outcomes that are reported by nonprofits.
This is a tremendous undertaking, I know. And I haven’t even begun to list the full ramifications here — that’s going to happen in the manifesto though. I urge you to read it and comment on the socialmarkets site.
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Great post. You’re right that donors want to understand the impact of their contributions. These are the types of issues that New Progressive Coalition (NPC) has been tackling for the past year in the political arena. We provide donors with products and services to help them make more effective political giving decisions. We have collectively worked in politics for years and during this time have listened closely to the frustration of donors. They told us that they are tired of being treated like ATM machines and want to better understand how their contributions are affecting political change. We created an online marketplace for organizations to post proposals, but donors needed more than a profile to guide their giving decisions.
In response, NPC developed our proprietary Political Return on Investment (PROI)â„¢ framework. The PROIâ„¢ methodology delivers a greater transparency so that donors feel more comfortable giving to innovative political organizations and are able to understand the impact of their contributions. It also allows organizations to better articulate the value of their work and gain insight into the process of how giving decisions are made.
NPC’s PROIâ„¢ framework quantifies data submitted by organizations across the sectors that make up a political movement–an approach aimed at breaking down traditional issue silos and encouraging political innovation. The metrics and indictors developed for the PROIâ„¢ framework were evaluated and rigorously tested by a group of leading political investors and organizations. The idea for our PROIâ„¢ framework was heavily influenced by efforts surrounding SROI (Social Return on Investment) and our second generation methodology emphasizes transparency as well as usability.
NPC will be using this unique PROIâ„¢ framework as the methodology behind our flagship product which we will be launching this fall. Our goal is to transform donors into political investors. Our products encourage calculated risk-taking and investment in innovative and effective organizations so that real political change can occur.
We are excited about our work and encourage you to check out our website at http://www.newprogressivecoalition.com. We look forward to your thoughts and hearing about your progress.
Alison Koler
Marcom Manager
New Progressive Coalition
This is a great overview of socialmarkets.org, Allan! I have to admit that even with the several conversations we’ve had about it, and following your blog over on the website, I didn’t really understand the mechanics until just now. You might want to incorporate some of this more tactical information into your manifesto.
In particular, I’m interpreting that you’re going to be asking nonprofits to calculate their own SROI. I think that’s an incredibly key piece, and really intriguing. Yes, obviously there will be some issues with gaming, and with the fact that very few people have anything particular useful to measure their SROI at the moment. But giving incentive to think carefully about SROIs is really useful in of itself, and if the calculations for each org are shared, presumably the effectiveness and accuracy will grow over time, as more orgs contribute, and the ability to convince people of a crazy high SROI will decrease as there’s more precedent for how things will be measured.
Thanks for the kind comment. Tactical information is coming in the manifesto. Each of the bullet points will be expounded upon in a series of articles.
Yeah, SROI can be gamed but we’re thinking that having enough eyeballs looking at it will cause enough ruckus to stop the gaming from happening. We’re evaluating ways to let people change the SROI numbers in a collaborative effort but we’re not at all focused on it as of yet.