Non-Profit Tech Blog

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.