Coffee, capital. (Let’s just call both of them FUEL, with a third metaphor in the image attached here, for good measure.) Anne Sherman, Vice President, Nonprofit Strategy at Growth Philanthropy Network, makes the case for actively creating a marketplace that can properly deliver fuel for the social sector – the kind of capital that can sustain fundamental growth.
Ever wonder how Starbucks got to over 17,000 stores around the world (as of July 1, 2012)? I haven’t studied cases written on the company, and I haven’t read Howard Schultz’s memoir, so I myself don’t pretend to know. My guess is that it’s some cosmic blend of product innovation, timing, leadership, pricing, good lawyers, strategy, adaptability, strong management, and ability to meet a need that we never knew we had for “coffeehouse culture,” among myriad other factors.
Of course, growth capital played a role. There had to be sufficient money to allow the company to go from one store in 1978 to 165 stores in 1992, when it completed its initial public offering. Starbucks created a market for lattes in the U.S., but it also appears to be exceptionally good at leveraging existing financial markets to continue to grow its customer base and its earnings.
That type of growth couldn’t happen in the nonprofit sector, not even close, although you could make a convincing argument that the need for school readiness, qualified high school graduates, healthier teens, good health care, access to college, or an engaged citizenry is at least as great as the need for a half-caf Americano with room for milk. And it’s not for lack of innovation. Across the country, there are dozens (probably hundreds, maybe thousands) of effective solutions to some of our society’s most pressing problems in education, health, poverty alleviation, and youth development.
What does Starbucks have that they don’t? Among other things, access to well-functioning growth capital markets. Nonprofit markets, as currently organized, do not consistently reward the excellent, nor do they effectively weed out the bad or mediocre. And certainly, they don’t allow those nonprofits with the highest impact to achieve the level of scale that would allow them to help thousands or millions of people, as opposed to dozens or hundreds. (We can all think of examples of name-brand nonprofits with a national footprint, but I would argue those are the exception, not the rule, and they do not a market make.)
At the Social Impact Exchange, we are building a capital marketplace to allow growth funding to flow more efficiently to high-impact nonprofits. This means developing market infrastructure that will allow nonprofits scaling their impact and interested funders to connect, each party armed with shared knowledge and understanding about necessary thresholds for evidence of impact and readiness to scale.
One of our main initiatives is the Social Impact 100 (S&I 100), the first-ever broad index of U.S. nonprofits that have evidence of results and are ready to serve more people in need. Modeled on aspects of the S&P 500, the S&I 100 was designed and implemented through a broad, sector-wide collaboration of evaluation firms, ratings firms and other leaders. The index aggregates top-performing, evidence-based nonprofits so that individual donors and foundations can support them, knowing that that they are supporting scale without sacrificing quality. Each nonprofit is rigorously screened for evidence of impact through third-party verified studies (available to donors on the website) and are only included in the index if they have demonstrated readiness to grow, shown through a business plan and financial projections. The number of organizations on the S&I 100 will grow as the Social Impact Exchange continues to identify additional nonprofits that meet the established criteria. http://www.socialimpactexchange.org/page/selection-process
In a time where many of our society’s problems are growing and many resources are shrinking, we cannot afford for effective solutions to languish any longer. Too often, we hear the cynicism of critics who point out inefficiencies, waste, and even fraud in the sector. We hope that the S&I 100 will be one component of a new marketplace that recognizes and rewards those high-performing nonprofits that can make a difference at scale, given adequate investment.