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Measuring Nonprofit Effectiveness: Interview with Lindsay Nichols

(Editor's note: This interview originally appeared on the WildWomanFundraising.com blog on July 17th, 2014)

Transcript below:

Mazarine Treyz: Hi Lindsay! Thanks for chatting with me today. Tell me more about what you do at GuideStar.

Mazarine Treyz Mazarine Treyz

Lindsay Nichols: Thank you so much for having me. I lead the marketing and communications team at GuideStar and my job is help communicate what we do for the nonprofit sector. My official title is Senior Director of Marketing and Communications Team.

Mazarine: GuideStar is incredibly valuable for nonprofit job seekers because you can look at 990s to see what kind of salary you might get. And it's valuable for donors to see where nonprofits are spending their money. You'll also be able to see if the nonprofit is in trouble or not. You'll know what you're walking into a bit more. But there's another piece about donors. Donors seem to be demanding more accountability and transparency from nonprofits these days. What do you think of this trend?

Lindsay J.K. Nichols Lindsay J.K. Nichols

Lindsay Nichols: I think it's fair. We took a lot of ownership of this trend. We were founded nearly 20 years ago and our entire focus was on providing nonprofit transparency. Our goal is to provide a central repository that donors can use for nonprofit transparency to guide their giving decisions. Our belief in the importance of transparency has never wavered. Transparency holds such a key place in our hearts it's actually in our mission statement. Our mission is to revolutionize philanthropy by providing information that advances transparency, enables users to make better decisions, and encourage charitable giving.

So, we think we began the first revolution of nonprofit transparency, and now we're beginning the second wave of nonprofit transparency that drives nonprofit effectiveness. Nonprofits don't have to pay taxes, so in return the public is really the steward of the nonprofits. The nonprofits owe it to donors to tell what they're doing and how they're getting there. We have a free transparency program called the GuideStar Exchange, and so far there are over 50,000 nonprofit participants. There are a lot of nonprofits that understand this, and donors are becoming more savvy too.

Q: A lot of donors look up nonprofit 990s on GuideStar, and perhaps some of them think about giving or not giving based on how much the nonprofit executives make. What is wrong with this approach?

Lindsay Nichols: We understand that no one gives to charity to line a nonprofit executive's pockets. But the fact is not everyone who works at a nonprofit has taken a vow of poverty.

We've looked into the question of extreme salary, and our data indicates that these situations are extremely rare. What's a more common problem is that nonprofits are underpaying their employees.

As a matter of law, according to the IRS, nonprofits are required to pay employees what is fair and reasonable. That really means that they focus on similar nonprofits in size and mission area and compare the salaries. There are instances where nonprofits do not act in good faith and do pay executives unfairly. That's why we provide compensation reports every September, so everyone can evaluate a nonprofit employee's salary package.

For us really we want donors to look at metrics that are more meaningful. The big question is, is the nonprofit effective? We want donors to look at nonprofits in four key areas, leadership, transparency, results and governance.

overhead-mythWe actually launched a campaign called the Overhead Myth, and that's available at OverheadMyth.com. The focus of that is to correct the belief that indirect expenses are any less critical to a nonprofit's mission. Direct costs of hot meals for the homeless or pencils for the afterschool programs, those are the things that people want to fund, but the people who make those things happen, they are just as critical. These kinds of administrative expenses are classified as overhead, but that allows the nonprofit to achieve its mission and improve its performance. We encourage the public to stop thinking of them as good and bad expenses. Start understanding that investments in infrastructure, like people and the places where they are and the technology are just as critical and mission driven as the funds devoted to programming. as other costs.

Mazarine: Well said! Well done! I completely agree. It's a shame that people look at 990s on GuideStar and use that information to say nonprofits are spending too much money. For example Goodwill Industries in Portland Oregon where I live, they make $150 million a year, but they spend that much to employ people. Their overhead is they have all of these stores, all these trucks, and they're employing people. The good is spread around the whole of society. Anyone listening, overhead is a bad way to measure nonprofits. I totally agree with you, it's about leadership, transparency, results, that's what we should be looking at. But unfortunately for a lot of nonprofits, it's hard to measure results, because but there is so much noise in the system. But that's a whole other conversation.

GuideStar has had a decrease in funding from the Hewlett foundation, what's that about?

Lindsay: We actually still have a great working relationships with Hewlett. They just stopped their program, their Nonprofit Marketplace Initiative, at the end of 2014. GuideStar was a recipient of that program. The entire focus on that program was to get donors to rely on their heads as well as their hearts. We made great inroads on that, We spent a lot of time and energy with Overhead Myth and charting impact. It was ended because we discovered that A. Fundamentally donors give with their hearts and that's okay and B. We were also really successful with donors who want to give with their heads as well. We're happy to report we still

Mazarine: A lot of fundraisers do know this already, people give with their hearts and then they'll justify it with their heads. Initially they give because someone asked them to, and because the nonprofits have a record of measurable results.

Lindsay: Jacob, our CEO, actually wrote a letter to the editor in the Chronicle of Philanthropy about this. It really does lay the groundwork for why that's okay: Giving with your heart is a great thing. It's our job to help give easy tools so people can give with their heads without realizing it. That continues to be our focus but it's a complicated one of course.

Mazarine: People give because they want to do it. It's about their values and how the story shows their values in action. GuideStar bought Philanthropedia, and it seems like there's not a lot of activity there. What is GuideStar doing in the area of nonprofit effectiveness measurement?

Lindsay: We acquired Philanthropedia in 2011 and they are now a division of GuideStar. There is one paid staff person. A lot of the activity comes down to a bandwidth issue. We have more than 3,000 experts that participated in this research and we've provided reviews on 715 top nonprofits across 35 causes. We feel like we've made successful inroads here. What Philanthropedia is is crowdsourcing expert opinions on different cause areas. It's complex.It takes a lot of time. It's not a simple ratings system. There's a time issue there and also bandwidth.

charting-impact-5-questionsYour question on nonprofit effectiveness is so important. We've spent a lot of time on this, we've partnered with Better Business Bureau Wise Giving Alliance, and Independent Sector's Charting Impact.

That's the result of three years of intense research to determine how to think about it, how do you measure and report nonprofit effectiveness?

Charting Impact is very qualitative but it's completely free for nonprofits, it helps them think through their strategy and results. It's nice because there are 2 million nonprofits in this country there's so much diversity, it's hard to get these very diverse groups to report the same way.

Charting Impact is five questions (see graphic on the left), we encourage all nonprofits to answer those. That's the standard and the framework in the sector. Of course that's qualitative, and now our focus is quantitative. How do we get information on nonprofit programs and how do we cross reference things like that so we can learn from each other? So that's where we're going.

Mazarine: It's very very difficult. Meyer Memorial Trust tried to do this with Connectipedia. Have you heard of it? They thought we'll make a wikipedia for nonprofits. So that program officers can go look at what is effective for a particular cause area. I'm not trying to rank on them or anything but it didn't get widely adopted. It's nice that you're taking the lead in seeing what is effective.

Lindsay: We know there are lots of solutions out there. We know that GiveWell is doing great work too. We're working on a portion of our website that's called Social Explorer, bringing together rankings reviews and experts to help donors make decisions. We're trying to take our time to do this right.

Mazarine: GuideStar has partnered with GreatNonprofits to put testimonials on nonprofit profiles. Are you measuring if nonprofits get more donations because of these testimonials?

Lindsay: We don't but GreatNonprofits does. I was recently on a panel with Tara Verner who is the head of communications at GreatNonprofits and she was mentioning statistics there. There is no doubt that nonprofits that utilize their great reviews effectively get more donations and get more brand building. It's like the Yelp for nonprofits. It's super helpful for nonprofits to get feedback and it can be successful.

Mazarine: Anyone on here who hasn't yet gotten testimonials about their nonprofit, not just letters of support from community leaders and partners, that this would be an excellent time for you to get a profile on GreatNonprofits, and cross post your testimonials on there to your GuideStar profile.

Mazarine: What is GuideStar's priority in the next few years?

Lindsay: This is such a lovely question for me because we just published our new strategic plan, we're calling it GuideStar 2020
GuideStar 2020 (note links to a downloadable pdf). We have different time horizons, we have a 3 and 5 year set of goals.

But taking a step back,

  • the nonprofit sector accounts for 2 trillion in economic activity,
  • it employs for 10% of workforce,
  • it involves nearly 2 million nonprofits, and
  • it has over 100 million volunteers and donors.

There's no doubt that the sector is really powerful, and our job is to continue that thriving society that we all imagine and help nonprofits step up their collective game. We need to see more impact out of our work and our roles, and bring together these pieces of information.

We see four drivers of greater impact in the social sector:

  • More giving, that means the financial capital that fuels the work
  • Smarter giving, that means the system that rewards performance
  • Reduced waste, that means less redundancy busywork and distraction
  • Greater effectiveness, that means greater results per dollar.

Our opportunity is to strengthen every one of those factors to get the sector to the next level.

Mazarine: Wow that is so exciting. I bet a lot of nonprofits are wondering how this is going to happen. Speaking of the future, how is GuideStar looking to the future of nonprofit and donor engagement through the website?

Lindsay: We're in the middle of a redesign, we are doing a ton of user testing and surveys and talking with people, our goal is to
completely clarify navigation, we are redesigning all pages on our site, there are new nonprofit reports, so that it's very clean and fresh, that's happening throughout the site.

But when it comes to nonprofit and donor engagement at large, our goal is to strengthen the supply chain of nonprofit information. We've got this new strategic plan, and three focus areas. Data collection, Data Distribution and Data innovation. Our job is to get more data, better data, and faster data. And to tie it all together so the nonprofit sector is strengthened. We hope to take nonprofit and donor engagement to the next level as well.

Mazarine: Wow I love that because it does seem like people go to GuideStar to see 990 forms, for most nonprofits that is the only way they can check up on them. It would be nice to have more information about nonprofits and what wonderful work they're doing and not depend on that dry IRS report.

Lindsay: Oh totally, by the time the nonprofit files it with the IRS, then we get it, and upload it and digitize it, it's a year old. No donor wants to see something a year old, they want to see what's happening now. So we're spending a lot of time evolving the definition of transparency that is more timely and inclusive, you're reporting results not just to funders but to all stakeholders. Bidirectional communication. We hope to have a lot of free resources for nonprofits to do that. We do believe in reducing paperwork redundancy for nonprofits. Our goal is not to give them more busywork but to make that part of their workflow.

Mazarine: That's key because for most nonprofit professionals, transparency is not part of their job description, it would be nice if it could come under the wheelhouse of the fundraising or communications professional. You have to raise money but you also have to share with the world what we're doing in a transparent way. Learn how to make infographic, or help program staff gather stories. It sounds really hopeful and promising.

Lindsay: Thanks for letting me talk about this!

Mazarine: It's so exciting, and you've got so much momentum behind you! What is your highest hope for GuideStar as a resource?

Lindsay: Our vision is a nonprofit sector that is truly strong enough to tackle the great challenges of our time. We really want to help nonprofit that are doing this amazing work do it as effectively as they can, as efficiently as they can. It's a very ambitious goal but we really think it's doable, there are so many pieces already in place it's just a matter of bringing them together.

Mazarine: How do you wish people would use the GuideStar website?

Lindsay: You know it's a really good question. People are using it very well. We get 10 million of visitors every year. We've done a lot of research and most people are coming to our nonprofit reports, which makes a lot of sense. It's why we exist.

I would love it if people would take a step back and look at the sector at large and look at the missions that these nonprofits are trying to tackle. We have so many resources: we have a bimonthly newsletter with articles explaining different issues that nonprofits are trying to tackle; we have a lot of social media engagement. I'd love to see even more engagement at a broad level.

Mazarine: Yeah, I know your blog is a wonderful resource and your tumblr too! You're ahead of the game!

Lindsay: We are so thankful for amazing bloggers like you Mazarine! Shameless plug!

Mazarine: I wasn't fishing for a compliment but thank you! Is there anything else you'd like to mention on how nonprofits can better take advantage of the GuideStar website?

Lindsay: Yeah! I would love to talk about the GuideStar Exchange. That's that free transparency program I talked about. You are so right. If you look at people's job descriptions, transparency is not on there. We get it. It's really about managing your online identity. Every single IRS registered nonprofit is on our site, unless you're a faith-based organization or government entity. Probably your nonprofit is on our site. You have the ability to manage that. What it looks like, what it says, to do that is completely free. GuideStar exchange, give you great benefits and these wonderful symbols to show the sector that you are transparent. Above and beyond all that, it's your opportunity to tell your story and get in front of the 10 million people that are already coming to our site. It's at guidestar.org/exchange and it's completely free.

Mazarine: I love that! Get in front of your 10 million visitors! Nonprofits are you listening? Fundraising person, make it part of your job You wanted to mention the August 11th impact call.

Lindsay: It's loosely based on a for-profit call. Our CEO and CFO are there, and they spend about half the time chatting and half the time taking questions. Go to npo.gs/impactpage--anyone can join in. We would love to hear from you!

Mazarine: Lindsay, thank you so much for chatting with me today. I'm looking forward to seeing where GuideStar goes in the future! It's been such a pleasure!

Lindsay: Thank you Mazarine, thank you so much!

 

Topics: Impact