Navigating Nonprofit Challenges: Insights and Advice
Q&A with Larry Gilson
Larry Gilson is the founder and leader of Focusing Philanthropy, a nonprofit organization that identifies areas of extraordinary human need where corporations, foundations and individual donors can make a major difference, then develops unique giving opportunities in concert with well-vetted nonprofit implementing partners and presents them as candidates for philanthropy. Larry brings to this role a wealth of knowledge from this extensive background in both the investment sector and public policy.
For almost 20 years, Larry founded and led a leading private equity firm focused on energy investing. Before his investment career, Larry held a variety of positions in Washington D.C. in and around the federal government. He was one of the founding staff of Common Cause, a citizens’ lobbying organization. He was a leader of the U.S. Advisory Commission on Intergovernmental Relations, and later he served on President Jimmy Carter’s White House Staff as Associate Assistant to the President for Intergovernmental Affairs. He is the author of a book on government reform, Money and Secrecy, A Citizen’s Guild to Reforming State and Federal Practices, and was a contributor to Creating the Future; A Guide to Living and Working for Social Change. He has a B.A. from Claremont McKenna College and a master’s degree from the Johns Hopkins University School of Advanced International Studies.
Anthony J. Mohr: What led you into the world of philanthropy?
Larry Gilson: I grew up in a family with an active sense of community engagement and a history of following up on identified community needs primarily through volunteerism. This ethos was integral to my youth. When I went to work in the government, I had a different perspective and saw a range of challenges among my fellow citizens in the United States. I was exposed to, and observed, a wide range of human needs. But I was super busy working. It wasn't until years later, after I sold my private equity firm, that I had the luxury of time and some additional money that allowed me to give focused attention to these profound human needs and the philanthropic impulses they engendered.
Mohr: We hear about areas that are labeled philanthropic deserts. Exactly what are those?
Gilson: What I mean by a philanthropic desert is that there are areas, both geographically and demographically, where there is profound human need, but very little philanthropic response. Nonprofit activity is disproportionately focused elsewhere, and with little wealth among residents in the communities where need is concentrated, whatever money is generated is too often “exported” to where those who benefit financially live outside the relevant geography or demographics. The result is an absence of philanthropic capital or focus in areas of profound need – a philanthropic desert.
An example in California is the San Joaquin Valley, where the greatest poverty in the state is concentrated among farm workers and other agricultural people. The wealth that's generated in the San Joaquin Valley often gets hoovered up to the Bay Area, Los Angeles or beyond. Yet, the needs in that region are great.
Mohr: How should a social impact practitioner attract funding into these philanthropic deserts?
Gilson: I think the best approach is the same I would use to attract philanthropic capital to any program or geography. You should begin with the example of an individual human being whose circumstances exemplify the broader challenge you wish to address. The goal is to help the potential donor with whom you're speaking visualize the circumstances and then identify psychologically with that individual. You can build from that to a more general characterization of the problem at scale. Many people start with a macro problem statement, but in so doing, the potential donor too often thinks, “this problem is too big or too complex for me to address,” and turns off before the affirmative proposition is delivered. By starting with an individual with whom the prospect can identify, then generalizing in ways to make clear that the individual is not facing a unique plight, the next step is to offer a credible response that is rooted in evidence. In other words, something that has worked already. That gets you to the moment of the appeal, which would be to say, “You personally can make a difference in addressing this need. And here's a well vetted structure by which you can confidently translate your dollars into human impacts benefiting many people like the individual I have described.”
Mohr: Can you give another example about how one attracts money and talent into one of these deserts?
Gilson: We know there are many large industries in the United States that are having trouble filling their entry level positions. These are pyramid structured industries that have lots of entry level positions and then a hierarchy through which one can be promoted. Four examples of such industries are information technology, healthcare, hospitality, and construction. Yet, you have millions of unemployed or underemployed Americans who are looking for work and not finding it. Too often, their world offers no path to improve their plight. They are in an “opportunity desert.” So why aren't these large industries hiring those workers? If we could get a good answer to that question, maybe we could find a way to be useful.
So, we spoke with leaders in those industries – CEOs of major corporations, HR department heads, and others. We focused first on IT and then on the healthcare sector. We asked those leaders, “We know you're having trouble filling your open entry level positions. Why aren't you hiring people from the populations we seek to help?” And they said, “We're not in the training business. We only hire people who are already trained and have a skill set that is aligned with what we're looking for.” Our next question was, “All right; can you tell us what skills you want a candidate to possess?” They reached into a desk drawer – this literally happened – and pulled out a list of specific technical skills. Then we asked, “Okay. If somebody's a job applicant, how do you know they have these skills?” And they said, “That's easy. There are nationally recognized credentialing exams, and if you arrive with a certificate that says you passed one of those exams in one of these specialties, you will be interviewed and you're probably going to get hired.” Now we have useful information. We can look for nonprofits that are training very low-income Americans in the specific skills we know employers want, and we can help them pass the credentialing exams and present themselves successfully to potential employers. That's a set of screening criteria that we know about because we went through a structured inquiry.
Mohr: Using that procedure, did you locate an organization that effectively addresses this need?
Gilson: Yes. We discovered the nonprofit Per Scholas using a set of very specific criteria, developed through our interactions with potential employers and aligned with our own internal screening standards. Per Scholas had begun in the South Bronx and expanded to four other low-income communities in the Mid-Atlantic and Northeastern region. They were graduating about a thousand students a year. We were able to evaluate their performance not only in the South Bronx but also in other locations where they were already active. This gave us a lot of confidence in their ability to adapt their program to geographies where the demographics of the low-income population were somewhat different, and the prospective employees needed different skill sets. Per Scholas delivers consistent, life-changing results through their structured approach. We were reassured by what we saw. That convinced us to support them and work with them through a staged rollout. Now we've helped them expand from being in five cities with a thousand graduates a year to being in 23 cities with up to about 7,500 graduates a year. We are now discussing the path to 30,000 graduates a year. They are having a national impact and are at a scale where the workforce development sector as a whole is recognizing them. The Chief Executive of Per Scholas is even invited to meetings at the White House when public policy is being discussed about how to provide more people with opportunities through technical training in a range of industries. You have to be at a certain scale to have the standing and credibility to have a voice.
Mohr: Turning overseas, can you give us another example of how someone running a nonprofit can determine whom they want to support?
Gilson: Just as with the path that led us to Per Scholas, we started with a high-level question and sought an answer and a rigorously tested a path forward. In this case: What is it that a majority of the world's poorest people have in common, aside from poverty? Answer: They're subsistence farmers. Over half of all of the world's poorest people live on a dollar a day or less. They are living on a small piece of dirt somewhere in sub-Saharan Africa or South Asia or Southeast Asia, and they are farming that land. They are planting their crops. They are harvesting what they grow. Their family is eating 100% of what they harvest, and they are hoping they don't run out of food before the next harvest. That is their life. So, with that fundamental – and motivating – observation about a population we wished to help, we asked ourselves, is there any way we could intervene and provide resources, capabilities, and insights to help move significant fractions of that defined population out of poverty? That was our question. How do we go about trying to answer it? How might a hypothetical wealthy potential donor with time and motivation behave if they were to employ this approach in seeking answers? Continuing with this example, we know (or can learn) that international aid organizations, national governments, global philanthropic organizations, ministries of agriculture in developing countries have devoted billions of dollars and decades of time to helping increase the agricultural productivity of subsistence farmers. It's not difficult to find many attempts to address the issue; we're not trying to reinvent the wheel. What we say is, let's take an inventory of what has been done, put the array of initiatives into buckets, and see which tactics appear to be the most effective and which ones are best supported by private philanthropy. For instance, there are programs like Kiva that provide micro-loans to individual farmers. There are other organizations that distribute chemical fertilizers that in the short term increase agricultural productivity. There are various training programs that employ different approaches. There are programs that distribute farm equipment. The list goes on.
You can build a list of different intervention strategies. Let's say you end up with five buckets of different types of initiatives. We can eliminate some of them because they don't seem to work very well. Now, you're down to a couple of distinct program types. Perhaps both appear effective, but one requires an international aid organization to be truly effective at scale. With the other, maybe we could do something. Now, for the first time, we’re able to define the programmatic attributes that we think lend themselves to high impact on a cost-effective basis and where private philanthropy can play a key role.
That is how we discovered One Acre Fund. This is an organization that helps farmers materially increase their crop yields. They do it through a combination of distribution of high-quality seeds and modest levels of fertilizer coupled with technical assistance, crop insurance, and orchestration of collaboration among groups of farmers supported by local, trained field agents. If we had initially looked at One Acre Fund without having previously engaged in any sector-level due diligence, we wouldn't have known how to assess it in comparison with any other program or intervention tactic. Were they great? Were they mediocre? Were they weak? How would we know? We would have no frame of reference. By the time we found One Acre Fund, we knew that we were looking for an organization like them. We looked at several and concluded they were the best that we could find at the time, or if not the best, they were at least very good – among the best. That doesn't mean the others were bad; it's just that One Acre Fund was a very good vehicle to pursue.
The optimal time to begin close scrutiny of a potential nonprofit implementing partner (grantee) is when they've been at their work for four or five years, are still relatively small but have successfully scaled their programs to some extent, preferably geographically, so that we can visit and evaluate their effectiveness both in the communities where they started and in the additional communities they’ve expanded to. This allows us to assess the program’s ability to scale effectively on a proven model. In the case of One Acre Fund, when we started looking at them, they had already launched in western Kenya and had opened additional program sites in Rwanda and Burundi. This was perfect for us because we could assess their performance across all three countries and see evidence that they were able to maintain high quality program efforts as they scaled.
Mohr: What are some of the pitfalls a nonprofit organization should avoid?
Gilson: I think there's a need to be cautious about a widespread problem in the nonprofit world: the power dynamic between funders and nonprofit organizations. As soon as a wealthy person or organization shows up and says, “I'm thinking about giving you a bunch of money,” the nonprofit often shifts immediately into romance mode, trying to figure out what they need to do or say to secure the funds. This power dynamic creates a conscious or often unconscious impulse for the nonprofit to modify what they're already doing in order to get the donor to give them the money. This can easily divert them from what they're good at and what they should be doing. It is crucial for a nonprofit to remain clear on what the keys to their success are and what advances its mission, and not become diverted by the possibility of a poorly aligned contribution, however large it may be. Worse yet is when a well-intentioned potential funder tries to impose his or her notion of how a nonprofit can “improve” or reprioritize to pursue the donor’s priorities. Donors need to be sufficiently informed to decide what programs to support, but it is almost always better to look elsewhere if the fit isn’t good, rather than force the fit by acquiescing to first-order changes in the NGO.
Another cautionary observation is that for many years, for an entrepreneur in a for-profit business, the mark of success was taking their company public. As a result, hundreds of companies went public that should have stayed private. Many subsequently failed. An analogous motivation, and risk, is present in the nonprofit world. For the last ten or fifteen years, too many people have viewed the mark of success of a nonprofit as evidenced by one or both of two things: rapid growth and geographic expansion (scale) and/or substantial earned revenue. Most nonprofits that chase these goals fail. The more persistent of these over-emphasized measures of success is the pursuit of scale. Most nonprofits are local, and that’s a key to their success. They are organic in that local community. That doesn't mean nobody should scale. One Acre Fund successfully scaled. But there is a very small subset of nonprofits that are built to scale and can succeed in doing so.
Look what happens. You understand your local community, understand its leadership. You have credibility in that local community. You use a vocabulary that's well accepted and understood. You can get agreement on things that might not be easy, because the local folks know you're one of them. Then you go to another area where none of those things is present at the outset. You're introducing yourself as an outsider. Maybe you're in the same state or tribal area or country, but you're away from home and trying to transplant what was working for you in a new place. You're now introducing a whole set of additional challenges on top of the inherent challenges of operating a small enterprise. You're very likely to have more problems in your new location than you had in your first one. So, how do you respond? You will likely spend more time and resources in your new territory. And you have to travel there because it's not where you live. Your key expertise is in your home location, not in locations two, three, or four. Now you're spending more time in your problematic, less substantial, more likely to fail satellite locations than in your headquarters region. This is a prescription for institutional failure.
The second supposed indicator of institutional success is too often earned revenue. If you have an activity that’s a natural element of your core program and it is generating revenue, that’s great. It happens that both One Acre Fund and Per Scholas are two such examples. With One Acre Fund, the participating farmers repay the direct costs of the farm inputs that One Acre Fund provides them. They repay with a fraction of the cash they generate by selling their surplus crops in the market. That's a form of earned revenue. In the case of Per Scholas, many IT employers are happy to pay a placement agent to help them recruit qualified candidates. Why shouldn't Per Scholas charge those employers a placement fee for the graduates of its program? In those two cases, a natural revenue source is available, and it makes sense to capitalize on it, reducing dependence on philanthropic dollars.
However, most mission-driven nonprofits don't have such opportunities for earned revenue. What are they supposed to do? Open a gift shop? Nevertheless, many nonprofits chase revenue sources they are not well-suited to capture. Too often these opportunities are outside their experience base or represent too much of a diversion of scarce resources to be justified. If the nonprofit management team has no experience with for profit businesses, what is the likelihood that they would be good at pricing strategy, fielding customer complaints, assuring product/service quality, managing inventory, accounting and taxes, or evaluating employee performance? Most early stage for profit enterprises fail. Why would a for profit initiative embedded within a nonprofit entity be more likely to succeed?
Mohr: Do you have other advice about how nonprofits should function?
Gilson: Nonprofit leaders need to focus. There’s a natural impulse on the part of people in the nonprofit world to see other problems faced by the constituency they're trying to help and then add programs in response, whether or not the nonprofit has special expertise in the additional problem areas. Here's an example: you have a program in the developing world where there's a lack of accessible, high-quality, culturally appropriate health care. It is your mission to address this problem, and you're good at it. And you're working with remote communities. Of course, you see that those communities have other challenges. Maybe they don't have a source of clean water. The temptation is for a small, high-performing health-providing organization to say, “We should also be helping them dig wells. Clean water reduces health problems.” Then you might say, “We know that if girls go to school and complete secondary school, they are far less likely to become pregnant at a young age. So maybe we should start a school for girls. Fewer young pregnant girls reduce the pressure on a limited health care capacity.” You see what happens. These are not crazy ideas. There's a linkage among these things, but it's hard to excel in one area. To be good at two or three or four is extremely rare. So, this is a temptation that, I think, should be resisted. A better approach is to recruit other nonprofits whose own special focus addresses the incremental community needs you see, to come and provide complementary services, leveraging the credibility you have built by providing high quality health care.
My last comment was about priorities and program management in delivery of frontline programs to the challenged population. Another angle concerns how nonprofits relate to their donors. For this purpose, I recommend studying the work of Daniel Kahneman, who won the Nobel Prize in economics for basically inventing the field of behavioral economics. This discipline tries to understand why people make decisions that have an emotional component, as philanthropic decisions obviously do. I suggest reading his books Noise and Thinking Fast and Slow. Here's a small example of applying his work to philanthropy: When we get a donation, we send an acknowledgement. The way we used to do it was to say something like, "Dear Mr. Mohr, thank you very much for your generous contribution." When we write those words, we are acknowledging a transaction – the contribution. Now, channeling the thinking of Kahneman, what we say is, “Thank you, Mr. Mohr, for being such a generous donor.” Not for making such a generous donation, but for being such a generous donor. That language validates the donor and acknowledges them as a human, and not just a transaction.
I think my summary suggestion is, be clear, explicit, and focused in defining the mission of your nonprofit. Resist the temptation to “solve all the world’s (or a village’s) problems.” Don’t be tempted to chase (or offer) dollars that divert from what is working. Invest time and money in strengthening what differentiates you as a program implementer or funder and allows you to achieve more impact more confidently and more cost-effectively than most other organizations. It can be done, and many people who were dealt a tough hand will be helped as a result.
Mohr: Thank you for your time and insights.
About the Author:
Anthony J. Mohr is a 2021 fellow of the Advanced Leadership Initiative and a senior editor of the Harvard ALI Social Impact Review. For almost twenty-seven years, he was a judge on the Superior Court of California in Los Angeles County, where he presided over civil and felony trials. He still serves there on a part-time basis. On two occasions, Anthony sat for several months as judge pro tem on the California Court of Appeal. Among his numerous professional affiliations, he served on the Executive Committee of the Los Angeles Superior Court and chaired both the Superior Court’s Ethics Review and Response Committee and the statewide Committee on Judicial Ethics of the California Judges Association. He sits on the Regional Board of Directors for the Anti-Defamation League’s Los Angeles Region and the ADL’s National Commission. With another judge, Anthony has authored two legal textbooks. In 2023, his memoir Every Other Weekend – Coming of Age With Two Different Dads was published.
This Q&A has been edited for length and clarity.