[Philanthropy 101] How Philanthropy Discourages Entrepreneurialism

I left Global Voices in May of last year and ever since have been cautiously dipping my toes in the world of philanthropy. For the past seven months I have been working as a full-time consultant for the Information and Latin America programs of Open Society Foundations, the philanthropic foundation of George Soros. I will continue to do so throughout this year, but unlike last year I am going to start writing about it.

One of the reasons I wanted to get involved in philanthropy is because I’ve so long been a critic of its outdated practices. However, I also understand that there is an important gap left by classic market failure and ineffective government bureaucracy that philanthropy is in a position to help fill. It is this frustrating dissonance between what philanthropy could achieve and what it actually does that has tempted me to try to reform the beast from within. However, I’m now worried that by focusing more of my attention and energy on internal strategy and process issues I might become disconnected from the real world. So this is the first in a new series of posts that looks at what philanthropy is, what it does well, where it falls short, and how it can improve. As usual there will be a lot of criticism and cynicism tempered by idealism and optimism. In addition to highlighting the problems in philanthropy, I will also emphasize what I believe is important work that is often ignored.

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I believe that many of the shortfalls of philanthropic foundations are related to institutional culture, but others are structural. For example, why do foundations seem to suck so bad at innovation and entrepreneurialism? Why are they unable to effectively forecast the major issues that are five to ten years down the road?

In the business world, if you have a smart idea that is ignored by your boss then you have an incentive to leave your job and start your own business. To a certain extent, this is also true among non-profits. For example, if I had proposed an idea to my bosses at Global Voices that was ignored, then I would have simply started up my own non-profit and competed for grants. (Receiving a grant still has more to do with who you know than what your idea is.) But if you work for a private foundation and you have a great idea that is ignored, you’re only alternative is to engage in internal politics: competing for the attention of upper management. There is no “marketplace of ideas” in philanthropy, and there is always an undercurrent of personal relationship management that always affects the outcome of any discussion on strategy.

I don’t think that there are any easy solutions to what is an inherent, structural problem. I am doubtful that private foundations would co-fund participatory philanthropic challenges like the kinds I advocated for back in 2008, but maybe they will start to invite more public input into their strategizing processes.

6 Comments

  1. Hm, a dim little light bulb is trying to come on over my head. I guess I’d never understood the difference between philanthropy and non-profits. Can you clarify? Or am I misreading your fourth paragraph?

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  2. Sorry, I should have been more clear. By ‘philanthropy’ I mean the donors that fund grants whereas the non-profits receive them.

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  3. This is not really that different from the private sector, is it? If you work at, say, Nokia, and you have an idea for something Nokia should do, if you can’t convince anyone you cannot realistically go and start your own phone manufacturing company. We work within institutions because individually we lack all the necessary resources to accomplish things alone — funding is one of resources, but hardly the only one. There is no end of good (and bad) ideas that are formed by people embedded inside an institution, and then die because the institution does not choose to follow the idea, and the person does not choose to abandon the institution.

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  4. Hi Ian,

    I feel like the blog post explains the difference from the private sector fairly clearly. Of course it’s difficult to start your own phone manufacturing company, but if you work for Nokia and you come up with a great phone keyboard that is ignored then there is a decent chance that you might start your own business to manufacture that keyboard for other phone manufacturers.

    I agree that good and bad ideas die in institutions both in the private sector and in philanthropy. Ideally, however, we want those ideas to be tested out by the market rather than a small group of individuals with decision making power. There are endless lists of products that were expected to be a failure and went on to become great successes.

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  5. In a way, accountability is the enemy of innovation, and when you create systems of accountability in nonprofit organizations, you create an environment in which every dollar spent has to be justified.
    So in order to ensure that money is well spent, there are layers of review and plenty of people willing to question why you want to do a project with Mr. Nobody from Nowhereville (who may be a dynamo and genius) when you can choose the Harvard grad, who may be an incompetent putz.
    Entrepreneurial ventures are practically incompatible with bureaucracies, and most grant-making organizations have to be bureaucracies. Part of their job is protection of assets. Another is covering of asses.

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  6. David, I don’t agree that private foundations are not able to find and support innovation and social enterpreneurs. On the contrary, they tend to have highly competent and intelligent program staff, who stay longenough in their positions to develop a deep strategic understanding the complexities of the issues the foundation has chosen to address, to know the non-profit players in the subject are and pick out the high performers. Once they have chosen these, they go beyond providing them with money but also invest in their information systems, financial systems, and so on. They are willing to take risks, and understand the risks they are taking too.

    This contrasts to government aid, which tends to be allocated on a much more subjective basis, and the main concern is just to offload the yearly alotment of cash in a low risk way. “We have ten issues in our human rights policy, so lets find the ten most reliable NGOs and give them a slice”. And the focus is to avoid career-damaging mistakes, which discourages risk-taking… better to invest in what everybody else is already funding. Its safe.

    EU and UN calls for proposals are no better, where grants are ranked according to rigid criteria, and where savvy proposal writers tend to win the bids. There is no possibility to create a portfolio of NGos with complementary approaches for example.

    So don’t be too harsh on foundations.

    James Breiner, its also not very logical to say that accountability is the enemy of innovation. On the contrary.

    As you may have learned from your working experience, your good ideas often suck initially. They sound very good when you explain them to your buddies at the bar, but when you try to write them out the next day, suddenly its not that easy anymore. Good ideas take time and work to polish, to test, to polish some more, until you get something that really shines, which will often be much different from the initial good idea, much more mature and strong.

    So you should see a donor, who challenges you, as a coach. If you could just walk in the door with the first daft idea that crosses your mind, that would be too easy and you’d avoid the hard work.

    Basically, a foundation, like a venture capitalist, wants a return on investment, meaning the grant money should lead to some positive change.

    So if you can’t explain, in simple terms on 10 pages:
    1. what you want to do
    2. how you will do it
    3. why that will help the foundation’s goals
    4. why you are competent to carry it off

    … then you don’t deserve the money.

    Its a bit like everything in life. Competition. The best projects win. The best NGOs get funded. The best books get published. The best restaurants and doctors get waiting lists.

    If you would spend a month working at a foundation and looking at proposals and talking to potential grantees, you quickly get a sense of what is good and what is half-baked. The good stuff stands out. And if you’re not in the right pile, then that sucks but its your fault. Go home and polish your idea some more.

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