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How Donors Can Maximize Social Returns

By Leslie R. Crutchfield
Saturday, November 22, 2008 5:18 PM

The global financial crisis has forced many donors to scale back their charitable giving, and nonprofit organizations are bracing for more severe reductions in 2009 and beyond. It is now more important than ever that philanthropists develop a focused strategy and strive to maximize the impact of their charitable dollars. Based on five years of research on a dozen of America's top-performing nonprofits, here are four smart strategies for donors who seek to optimize social returns this year:

· Fund safety-net services and policy solutions. Donors receive more bang for their charitable buck by supporting nonprofits that both provide direct services and advocate for larger policy reform. While many Americans will write a check to their church's soup kitchen or local homeless shelter, far fewer will fund an activist group's efforts to increase federal food assistance or alter the tax structure to aid working-poor families. Donors should look for high-impact nonprofits that do both; such groups have boots-on-the-ground experience that informs their policy campaigns. And contrary to a common concern of benefactors, 501(c)3 charities are allowed to lobby within certain legal parameters; most donations are tax deductible. To learn more, visit Center for Lobbying in the Public Interest, http://www.clpi.org.

· Give fewer, bigger grants -- without strings attached. Today's donors tend to spread their wealth around in disjointed, unfocused ways. They give lots of relatively small gifts to a large variety of groups, and they pick specific programs to fund as if they were ordering dishes off a Chinese menu. This may satisfy the giver, who wants to feel that her money has been directly deployed to build an affordable home or educate a low-income child. But this approach can be destructive to a nonprofit, which might focus more on anticipating donor desires than responding to community needs. Smart donors will select a relatively small portfolio of charities that have achieved demonstrated results and give generous, general operating grants over long periods of time. Think about how investing happens in the private sector: venture capitalists pick a small number of would-be winners and fund those companies over many years.

· Leverage social innovation. Just like for-profits companies, nonprofits need different types of capital depending on their developmental stage. Growing nonprofits require significant cash infusions to scale operations and spread their solutions widely. By giving to a group with a novel solution to a societal problem that can be replicated nationally, donors leverage their investment many times over. One source for early-stage nonprofits is Ashoka (http://www.ashoka.org), an Arlington organization that supports thousands of social entrepreneurs worldwide including the SEED Foundation, which launched the nation's first college-prep public boarding schools in Anacostia and Baltimore for low-income students. (Full disclosure: I am affiliated with Ashoka and serve on the board of SEED.)

· Look beyond conventional charity ratings. New online ratings sites, such as Charity Navigator, are capturing donor attention. While these easy-to-access Web sites show how efficiently a nonprofit deploys funding, they don't reveal which groups are the most effective. Donors should select a charity based on results achieved, not on whether it spends relatively little on administrative overhead. But substantive information on nonprofit performance is hard to find. Givers can start by asking nonprofits for independent evaluations and consulting with philanthropy experts to verify an agency's effectiveness. Also, look for evidence that a charity works across sectors to advance causes through partnerships with business, government and other nonprofits. This is how successful organizations achieve levels of impact that extend far beyond their own four walls -- results that aren't always visible in a rudimentary financial report.

Finally, donating money is not the only way to help in tough economic climates. Volunteers can give their spare time or sign up full-time. Populations that are especially hard hit in recessions, such as young people, can join AmeriCorps and receive stipends, and retirees can lend both a hand and their wisdom through programs like Experience Corps. President-elect Barack Obama has called for expansion of these and other national service programs and has proposed a Social Investment Fund Network. Advocate for these entrepreneurial ideas through America Forward, http://www.americaforward.org. Join the movement to spread innovative solutions to society's most pressing problems at a time when answers are most sorely needed and when philanthropy alone is not enough.

Leslie R. Crutchfield is coauthor of Forces for Good: The Six Practices of High-Impact Nonprofits and a national philanthropic advisor based in the Washington area.

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