High Impact Non-Profit Organizations

Heather McLeod Grant: Sure, absolutely. It's a good question because these organizations have different names in different countries. My husband is actually British and, the first time I told him I worked for a non-profit organization, he thought that meant I was working for a business that wasn't making any money. Over here we call them non-profits, but in the UK I think you refer to them more commonly as charitable organizations or charities, and internationally they're also more commonly known as Non-Governmental Organizations or NGOs. So really what we're talking about is organizations that have a charitable purpose, who exist to serve the common good, and help society. They have to have a charitable mission in the United States in order to receive a designated 501(c)(3) tax status, which means they don't have to pay tax on any of their revenue or donations.

Rachel Salaman: How does running a successful non-profit organization differ from running a successful for-profit organization?

Heather McLeod Grant: I think the first important difference is that the goal of these non-profit organizations or charities is really to improve society and to improve the welfare of human kind. So in some cases it can be larger social change that they're trying to achieve, like starting a social movement for civil rights or equality for women, and other times it can be as simple as helping to feed hungry people in society or helping to meet needs that are not met by the market. So they really exist for this mission-driven purpose rather than for profit. Obviously the main goal of businesses is to make money for its shareholders and investors.

I think another important difference about non-profits is that they do tend to be more resource constrained because they exist to fill market gaps. They don't make profits doing what they're doing. You know, we like to say that if somebody, you know, if there was a way to make money feeding the hungry or housing the homeless, it would have been done. And the reason non-profits exist is to fill in these gaps or to take care of externalities that are not taken care of in market systems. So they don't make profits, they don't have money coming in the door as a byproduct of whatever product or service they're giving, and therefore they tend to be more resource constrained and have to operate under, you know, different operating environments, different dynamics than for-profit institutions.

Rachel Salaman: And that must have an effect on the way that they're run, compared to for-profit organizations, I imagine?

Heather McLeod Grant: Oh, absolutely. We found some interesting things in our research, you know, one of which was that non-profits actually have a greater incentive to collaborate rather than compete. So, in the for-profit sector, you see businesses trying to differentiate themselves and really, you know, gobble up sort of a bigger slice of the pie, if you will, against their competitors. So you'll see, you know, different financial institutions competing for customers, really trying to stand out and make more money because that's their goal, is to make profits. In the charitable sector, what we see is that there's often an incentive to collaborate, because these organizations are much more powerful when they team up and connect collectively rather than competing against one another. So that's just one small example but, in our research, we did find many ways in which non-profits are run differently from for-profit institutions.

Rachel Salaman: Is it possible to generalize about the role that non-profits play in today's world?

Heather McLeod Grant: Well, I think, you know, it's a big question. We certainly believe that the social sector is in ascendance and, you know, it's one of the stories that you don't really read about in the media very much because I think, you know, oftentimes people think, oh well, non-profits; that's great, you know, but they're very small institutions. What we're really seeing now is that the non-profit sector in the United States, which I think is, sort of, on the forefront of this movement, is growing at a faster rate than GDP, our gross domestic product in this country. There are 30,000 new non-profits created every year in the US alone. We have a total of 1.5 million charitable institutions today, and some of these are very big global organizations like Habitat for Humanity, which we write about in our book, which has a global budget of one billion dollars.

So what we're seeing is non-profits taking on more and more of the role of solving social problems, particularly in the US as the Government has retrenched and scaled back, social programs have been cut. What you're seeing is Government outsourcing more to non-profits to meet these local needs, and also looking to non-profits for innovative solutions to social problems like global warming, you know, environmental problems, problems of, you know, poverty has been with us for years. So, you know, we really think of non-profits as kind of existing in this space between free markets and the for-profit sector and then Government on the other hand. Now, of course, it differs a little bit in Europe and the UK, where you have a slightly different system of Government and you have certain things that are paid for by the Government, like education or healthcare, more than you do in the US. But I think, even in Europe, you see in Eastern Europe, in India and in Asia, you see this rise of these non-profits, sort of, coming in to meet needs that are not being met by the markets or by the State.

Rachel Salaman: Your book, Forces for Good, is based on your research into more than 2,000 non-profit organizations. Why did you see a need for that work?

Heather McLeod Grant: Well, we say that we wrote this book because this is the book we wanted in our work and it didn't exist. Both Leslie, my co-author, and I have worked in the social sector for more than 15 years. We also went back and got our MBAs sort of mid-career. We both have management degrees and, what was interesting, as we were working in this sector, we kept saying we wished there was a book like Good to Great, which is a leading business book, and I think it's sold more than two million copies, by the author Jim Collins, who many of your readers are probably familiar with. You know, we really wanted a book like that for our sector, because nobody had actually gone out and looked to the best charitable organizations or the best non-profits and figured out how do they operate differently and what are they doing to make them so successful; what are their practices? So essentially that's what we did. And we actually studied in-depth 12 high-performing non-profit organizations, but it took us almost a year to pick those 12. And as part of picking those 12 organizations that we studied more in-depth, we actually surveyed more than 2,000 non-profit organizations that are based in the United States.

Rachel Salaman: And what was the focus of your research?

Heather McLeod Grant: The focus was really on scaling impact, and that sounds a little jargony, so let me explain what I mean by that. We really wanted to understand what takes a non-profit from a small seed of an idea to a significant force for change at the national or international level. So we were particularly interested in organizations that had been founded in the last 30 or 40 years, sort of post-civil rights era, and that had gotten to a level of national or international impact. So, when we were looking for organizations to study, they had to have had impacted the national or international level, like Habitat for Humanity or America's Second Harvest, which is a network of food banks in this country; and we had a whole set of other criteria that we looked at as well. But the main thing we were looking at was trying to understand how they have impact, because I think impact in our sector is really sort of the equivalent of profit in the for-profit sector.

Rachel Salaman: But it's very hard to evaluate, isn't it? How did you carry out that research?

Heather McLeod Grant: Well, it is incredibly hard to evaluate, and that was one of the biggest challenges early on. You know, we joke that business writers have it easy because they can actually go out and look at the stock market and see, you know, immediately who's performing better than their peers, based on total return to shareholders or stock market valuations. Unfortunately there isn't a single metric like that in the social sector so, if you're working in education, what you're measuring in terms of your impact might be things like how well children are learning in the classroom: are they improving on test scores, etc? But, if you're working in the environmental field, the metrics might be entirely different. You might be looking at how well have we preserved a certain species from extinction or how many acres of wildlife habitat have we preserved? So there is no single metric across the entire sector, so what we had to do instead was really use more of a crowd sourcing approach. That's why we went out and surveyed 2,800 Executive Directors of non-profits nationally, and asked them to tell us who in their field was having the most impact. Then we spent another six months talking to experts in a whole variety of, you know, fields within the non-profit sector: so in education, in the arts, housing, community development, and so on. And we talked to these experts in order to identify which metrics made the most sense to look at in their field, and then used some of those criteria to actually, you know, determine which organizations were having the most impact in those fields. So, yes, it was very complicated and I think that's why a lot of people initially said that this book, you know, couldn't be done because of this problem of measurement. But we did find ways around it and we feel that we indeed picked some of the highest performing organizations in the country, if not the world.

Rachel Salaman: And what were your most surprising findings?

Heather McLeod Grant: I think, once we got into the research, the thing that surprised us the most is that the practices that we expected to find were not what we actually found. So we sort of went in with our for-profit MBA hats on and thought, well it's going to be about really perfect management, you know, these organizations are going to be tightly run; they're going to, you know, keep track of every penny; they're going to have great, you know, internal systems and processes; fabulous Boards, terrific fundraising, you know, even well known brand names. What we found was actually something quite different. We found that these organizations didn't have as many commonalities on basic internal management practices, but what they shared was this ability to focus externally, so really they spent as much or more time focused outside their four walls and trying to change larger systems around them. So advocating to Government for policy change or involving the private sector, as you mentioned, in partnerships that lead to greater corporate social responsibility, or even engaging hundreds of thousands of volunteers and really creating kind of grassroots movements or behavioral change in the public. So this, to us, was the biggest surprise, that they didn't become overly consumed with how they managed themselves internally, but that they were really focused on achieving larger change by influencing other institutions in society.

Rachel Salaman: Your book pulls out six practices of high impact non-profits, and you mentioned a couple of them there. The first one that appears in your book is working with Government and advocating for policy change. Can you give us an example that illustrates that?

Heather McLeod Grant: Sure. Well, there are plenty of examples in the book, but one of the stories we like to tell is of the Self-Help Credit Union, which is not a very well known institution in the United States. It's a big country and they've spent very little money on marketing or building their brand. What they did is they started in one State in the rural South, in North Carolina, and they wanted to empower poor people to be able to own their own home. What they found was that many banks were passing over these people as not being credit worthy risks, and so they went into these communities and figured out a new way to evaluate risk and provide small loans to individual families, usually African American or Hispanic minority groups living in the South, and usually female head of the household, so women with children. And they figured out a way to make loans and help counsel these people so that they didn't default on their loans, and in fact they found that these people were, you know, really desperate to have an opportunity to sort of pull themselves up and get a foothold in society, and having a house or having a loan to start a small business really helped empower them economically and helped them to do that. So when they found this model was successful, they started lending to more and more groups.

What they then did, which was so interesting, is they took this model to larger financial institutions, and these financial institutions ended up realizing, in fact, with the proper tools and support, that these people were not as big a risk as initially thought. What happened a few years into this, after making many loans and serving low income families, the Self-Help Credit Union discovered that there were predatory lenders who were coming into these same communities, but adding on insurance and fees, so effectively doubling the size of these mortgages, in a way that often these people would then default. So they were actually doing it to make profit and strip these assets away from these low income communities, so Self-Help began to advocate to the North Carolina Government and say, "We've got to regulate this industry."

I don't know if it's as much a problem in the UK, but here in America we've had a huge collapse in the home lending market, and a lot of it is because of these irresponsible lenders who are, you know, tagging on additional insurance or putting in exploding mortgage rates that people can no longer afford once it slows to market value, so Self-Help has been a real leader in the movement to stop these predatory lending practices. They started in North Carolina and they've now worked in more than 23 States around the Country, to pass legislation to regulate the mortgage industry so that it will behave more responsibly. So we think this is a great example of how they've actually been able to have much more impact in many more States by working at the policy level to regulate the mortgage industry, rather than just continuing to provide direct services to a smaller group in one particular region of the US.

Rachel Salaman: Well you mentioned earlier another practice of high-impact non-profits which is harnessing market forces and seeing business as a powerful partner. Why is that important?

Heather McLeod Grant: I think it's important because I think for too long social activists, particularly in the US, were sort of anti-corporations and they really thought business was the enemy or the root of all evil, and they really wanted to see larger Government solutions to social problems. What's interesting is, in the group we studied we've seen a real shift: that these non-profits realized that business has tremendous power, especially as organizations go global, and you have these massive corporations, you know. As we were talking about before, you know, a lot of times these businesses don't necessarily solve social problems or they even create externalities in operating such as pollutions that are not built into their pricing for their products or services. So what great non-profits have figured out how to do is to work with business to change their behavior and help them become more socially responsible in how they operate, so I think the great example of this in the book is Environmental Defense. You know, they started out in the late 1960s; they're a large national, even international environmental organization. They started out in the late 60s as part of the environmental movement by suing businesses, and their informal motto was actually "Sue the bastards." So they were very anti-corporate America.

Along the way they came to realize that they didn't want the environmental movement to be on a crash course with capitalism, as they said, and they realized they had to figure out a better way to work with businesses to change their behavior. So they started partnering with companies like McDonalds in the 1980s to help them reduce their packaging waste and convert from Styrofoam packaging to recycled cardboard packaging. They had a significant impact on the fast food industry in this country by this, you know, through this partnership with McDonalds.

They've then gone on to work with companies like Federal Express, which is a big global transport company, to switch their truck fleet to hybrids, so as to reduce emissions in cities. And they're doing a current partnership with Walmart, which we've all read about a lot in the press. Even at times when other environmentals were saying that they were selling out, Environmental Defense realized this was actually one of the ways to have the most impact and, as they say, you know, "If we're not working with Walmart, which is a significant, huge global retailer, to help them improve their practices, you know, that would be, you know, that's a really missed opportunity. So they're working with them now on helping them become more environmentally sustainable, helping to sort of 'green' their supply chain and figure out ways to reduce Walmart's energy inefficiencies and packaging waste.

Rachel Salaman: Another practice you've identified is the power of converting individual supporters into evangelists for the cause. Can you give an example of how a non-profit has successfully done that?

Heather McLeod Grant: Sure. Well I think Habitat for Humanity is a great example and, because they're global, many folks in the UK have probably heard of them, but they obviously have a wonderful, very strategic model, where they actually get volunteers involved in building a house, working side by side for the recipient of that home. So in the process these volunteers become very inspired; they have this real tangible emotional connection with what it means to build a house and they get to talk with the future homeowner, somebody who's never owned a home in their life. So it's this very participatory experience that has, you know, this great sort of emotional impact that inspires people to keep coming back and giving time and time again to Habitat. Not only that, but when they come back the next time they usually bring five friends, or they go back and they tell their church group about it, or they tell the company they work with, "Hey, we should get a corporate team and go build a house for Habitat." So it's this viral marketing. I mean, I think it's what, you know, in the for-profit world we would say is experiential marketing or even viral marketing, where these non-profits can create these truly sticky relationships and these people then go out and advocate on behalf of this cause because they've had a real experience with it.

Rachel Salaman: Well the fourth practice you mention in your book is building a network and treating other groups as allies. You mentioned earlier that this was one of the biggest differences between non-profits and for-profit organizations. Can you explain how that works?

Heather McLeod Grant: Sure, yeah. In the for-profit world, you know, a lot of people are probably familiar with the franchising model where you have local, you know, branches of say McDonalds, but they have to sign, you know, all this paperwork and agree to run it a very particular way and serve the same exact food and have the same exact brand and logo and all of that. What we found in the non-profit sector was something that's much more akin to what's called the Open Source movement here in Silicon Valley where I live and work, and that is this idea of having very loose networks where you actually share information and give information away; you don't try and control it too tightly, you don't try and capture the economic value.

If you're a non-profit your incentive is to achieve the most impact possible or the most social change possible. So this is where it's very different operating as a non-profit, being mission driven as opposed to a for-profit being focused on profits. And, you know, a great example of this kind of collaborative behavior or Open Source approach is the Exploratorium, which is a fantastic, very funky, science and art museum here in San Francisco, where you can go in and actually participate in scientific experiments. They have all these wonderful exhibits on the floor that really bring science to life. The founder, Frank Oppenheimer, who was the brother of Robert Oppenheimer, started the Exploratorium in the late 1960s because he wanted to revolutionize how science was taught and give people real experiences with science and they realized it wasn't something kind of scary or abstract in a textbook, but it was something that everybody could learn and benefit from. When he started the Exploratorium, he invited Museum Directors, from not just all over the country, but from all over the world, to come and observe this museum and, you know, this very experiential approach to learning, and so essentially he gave away his model.

Now more than 600 museums globally use this approach, whether they're children's museums with more hands-on participatory exhibits or other science and technology museums, many of which you'll find in the UK or in Paris, for example. A lot of them have actually copied the models of the Exploratorium. Now the Exploratorium didn't require that they have a formal brand affiliation and be called, you know, Exploratorium Paris or Exploratorium Leeds; they let these organizations set it up and run it however they wanted, but they did give away their intellectual property; they helped train these museum leaders and they really had global impact because of sharing the idea and the innovation, without trying to control it too much. So we think this is a great example of how non-profits can have far more impact by collaborating, sharing ideas and sharing resources, rather than seeing other non-profits as competitors.

Rachel Salaman: But nevertheless some non-profits will be competing with each other for donor funds. Doesn't that get in the way of building the kind of network you're talking about?

Heather McLeod Grant: It's true, and I think many non-profits take the short-term view and they see these other organizations as competitors for donor dollars or for volunteer time. What we found that was so interesting in the 12 organizations we studied, is that they really took a much longer term view. They realized that this is, you know, a multi-play game and that they wanted to have more impact over time; they were going to figure out how to work with other organizations in their field. So I think a great example of this is City Year, a youth corps based in Boston, which is now in 18 sites around the United States, and has just opened a site in South Africa in the last few years, with the help of Nelson Mandela.

You know, they're such a great example because they never thought of other youth groups as competitors. What they did is they said, "Let's get together and form a coalition and lobby for National Service legislation so that we can have some Government funding to support the work that all of us are doing in our communities. So, by working together, they were able to have more impact and influence over Government, which then passed the National Service legislation back in 1993 under the Clinton Administration. And this, you know, this AmeriCorps program, as it's called, has continued to fund many grassroots groups that are primarily performing community service in localities all over the country. So, by working together, they leveraged far more resources and have had more impact than had they just seen these other youth groups as their competitors.

Rachel Salaman: Your fifth principle is adapting to the changing environment. In what way do non-profits have to adapt?

Heather McLeod Grant: If you think about non-profits as existing in the space between markets and Governments, it makes sense that, as Government policies change, as political administrations change, you know, from Conservative to Liberal or vice versa, that they have to be incredibly responsive. It also makes sense that as they're, you know, working with business and they have impact in one industry or area, they're then going to move on to the next big thing, just as Environmental Defense started working out, you know, by suing businesses, and then changed their approach to actually figure out how to work with business. So they started in the fast food industry, they had significant impacts there on packaging waste; they moved into global transportation through FedEx and transportation vehicles, working on hybrid trucks, that sort of thing, so they continued to evolve and look for new areas to have impact. They don't just keep doing the same thing over and over again. So this for us was really interesting, and we actually think that this is a practice that the best non-profits and the best businesses share. Because I think in this day and age, you know, again from where I sit in Silicon Valley, where there's so many new ideas, so many new technology innovations, from biotechnology to Facebook and online social networks; what you see is that the really truly best organizations, whether they're for-profit or non-profit, have figured out how to continually be innovative and adapt.

Rachel Salaman: Your sixth principle is sharing leadership and empowering others to be forces for good. Do you have an example to illustrate this?

Heather McLeod Grant: Yes, one of the examples we love to give which, at least over here, is sometimes counterintuitive for folks, is the Conservative think tank Heritage Foundation. So this is a group that advocates on behalf of free market principles, typically aligned with the Republican or Conservative party in the United States. And what's interesting about them is that they actually behave in an incredibly Democratic way internally. That, from the very beginning, the Founder, or the early Executive Director, Ed Feulner, invited one of his best friends to help him come run the organization, Phil Truluck, and so the two of them have really built a powerful team of leaders within their organization. They have a strong group of Executive Vice Presidents and Vice Presidents. Ed Feulner's the CEO, but he doesn't operate in an authoritarian kind of 'command and control' way, but that he realizes that the more he empowers other people to be leaders on behalf of the Conservative cause, the more impact he's going to have.

So early on Heritage saw itself as not just a think tank in like an ivory tower where they produce reports that only a few people read; they really wanted to go out and build a Conservative movement, so they are accredited with helping to orchestrate the Congressional takeover by Republicans in the mid 1990s and then, you know, to some extent, the election of George W Bush and his administration. They did this by helping build a grassroots Conservative movement and to help create and train other leaders around the country, both through their network and internally within their own organization. So again, we think it's a great example of how, working in this environment, the best leaders realize that it's not just about management and command and control, it's really about empowering others to lead on behalf of the mission or the cause that you care so much about.

Rachel Salaman: And finally, what can people who don't work in the non-profit world take away from your research?

Heather McLeod Grant: I think that's a really good question. I mean, I think there's a lot that we can learn from looking at the best non-profits. Again, it's sort of counterintuitive. The last ten years we've spent a lot of time telling charities that they need to be run more like businesses. They need to be more effective and more efficient, and what we're really seeing is that there might actually be an opportunity for businesses to learn from non-profits.

I think a couple of things really stand out: one just the power of social and organizational networks and I think we're seeing this with the internet now and social networking sites like Facebook and so on; people are looking for ways to connect to other people who share their values. And non-profits have always been able to do this really well by building out these networks of evangelists or even these organizational networks.

I think that secondly, you know, just the power of missions who are inspiring people and giving people meaning in their life. Peter Drucker's the first one who wrote this in an essay, probably 15 years ago, about what a business can learn from non-profits; that one of the things he highlighted that we really believe is true is that, you know, these organizations are all about creating community, creating meaning and purpose in life and giving back. And I think everybody, deep down; we all have this human need to want to belong and to want to make a difference in our lives. And so these non-profits are really great at doing that and I think businesses might be able to learn from how they're able to inspire people so effectively.

And then I think, lastly, I think there are some interesting things to learn around the importance of influencing policy. I mean, certainly corporations have figured out how to lobby Government and influence Government policy but, you know, we think that there's a lot they could learn from non-profits about really understanding policy as it impacts larger society, and really understanding how Government works. So, you know, I think there's some commonalities we found as well around leadership and adaptation. I think these are practices that some of the best companies already share, but that companies that are wanting to become better in this area are people who are working with them, say Government systems: they might like to these non-profits for great examples of how to share leadership or how to remain nimble and innovative and adaptive, rather than becoming bureaucratic.

Rachel Salaman: Heather McLeod Grant, thank you very much for joining us.

Heather McLeod Grant: Thank you so much. This has been a real pleasure.

Rachel Salaman: You can find out more about Heather's research at www.forcesforgood.net. I'll be back next month with another Expert Interview. Until then, goodbye.