New Philanthropic Leader Howard Buffett Urges Nonprofits to Sell Impact Not Emotion

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September 6, 2011; Source: Fast Company | Twenty-seven-year-old Howard Warren Buffett, grandson of legendary investor Warren Buffett, recently stepped into the position of executive director of his father’s Howard G. Buffett Foundation (HGBF), and he is bringing some new business thinking and White House policy experience to the role. Following his grandfather’s proven business approach of investing in companies with successful track records, Howard intends to direct his family foundation’s resources to proven strategies in the nonprofit world. A recent interview with Fast Company reveals how “rather than doling out cash to independent, uncoordinated actors with the most heart-string-tugging story,” Buffett instead intends to take a more systematic approach, “lining up nonprofits to tackle each part of the causal chain.”

Collaboration and cost-effectiveness, words that are already familiar in the nonprofit sector, will also be two important themes for Buffett. He says flatly, “If you are an NGO, doing the exact same thing as another NGO, and that other NGO is doing better than you’re doing it, then you are in business for the wrong reason.” He is also interested in developing new incentives and legal means for nonprofits to merge—or “acquire one another” as a for-profit business leader might say.

As a way of evaluating potential impact and deciding which projects to fund, Buffett has designed a survey that assesses scope, relevancy, cost-efficiency, and risk. Following this framework, a proposal “gets 3 points for affecting [more than] 1 million people, 2 for greater than 100,000, and 1 for less than 100,000.” Projects that are determined to be “unique” and/or “cost efficient” also get special recognition in this ranking system, even if they don’t have an especially wide reach.

As a 10-year-old organization, HGBF has an international focus and a mission to improve the standard of living and quality of life for the world’s most impoverished and marginalized populations. In its 2010 annual report (PDF), the organization listed total assets of about $200 million and an average grant size of about $800,000. HGBF has set December 31, 2045 as the date for the dissolution of its assets.

While HGBF has fairly focused fields of support, do you think Buffett’s concepts will have traction for the sector as a whole?—Anne Eigeman

  • Kate McGowan

    I was in agreement until the criteria for helping > million people. It looks like just another place where rural communities can expect no support for important work with terrific and meaningful outcomes

  • John Herron

    …we can only hope.

  • PiperMartin

    “Projects that are determined to be

  • Ruth S. Taylor

    Basing rank on reach in numbers (especially setting the bar so high) is actually a way to ignore innovation. Except when practiced by organizations already large and established, who are less nimble, and less willing to take risks.

  • Jack Johnson

    Thousands of small non profits are vital to communities and operated by local people. This is a vital fabric of every day life for towns and people everywhere. I’m sure the HGBF with 200 million in assets will do good work, but on a much different level than all the small homespun non profits reaching out to 1 person and family at a time. Perfecting and developing this model and offering support world wide, empowering grass roots growth, would be worthwhile also.
    Takes all kind of people. And I applaud the efforts of all that try to make this world a better place.

  • Joanne Ivancic

    I can’t imagine another organization that reaches more than we do on a budget of less than $25,000/year, including in kind donations. Yet touting our impact and potential impact has almost no effect. Even those around the world who use our resources fail to donate. We have no “poster child” as the impact of improving agriculture, improving waste and resource management and producing “homegrown” energy fuels may be indirect. And the well-funded forces against our cause mostly do not try to work to make a truely sustainable renewable future a reality–they just put roadblocks up. Which discourage donations to our educational organization, Advanced Biofuels USA.

  • Natasha Gore

    I agree, Kate! And what about strategies that ONLY work when implemented in small to moderately-sized communities? We’re working on social capital. The best way to start that kind of work is on your street, in your neighborhood, in your city, and in your county – one relationship at a time. You can’t start with a million. Obviously they’re looking to fund only a small percentage of the nonprofits out there because most of us are focused on small-scale impact (based on their definition).

  • Claire Sandford

    Not if it turns into a huge corporate self-licking ice-cream (as an American friend of mine once described the UN). Some of the bigger NGOs (or NFP organizations) have morphed into not-accountalbe box-ticking entities that have lost sight of their original ethos and purpose. If you have the sort of money that can actually do some good and be effective, please look carefully at the model you choose to adopt

  • Lisa Karle

    It’s not even a rural issue as far as being eligible for the funds, as I live in a city of about 250,000 and yet most of our agencies serve a few hundred or less people who find themselves homeless annually, not several hundred thousand.

  • Katherine Mueller

    I absolutely agree with Kate. The depth of an organization’s reach is very important as well. An organization can work very closely with few individuals and have incredible results. Or it can stretch itself thin to reach more people on a shallow level, which tends to create very little long-term change.

  • Charles N. Oakes

    😡 I was very very smart when I was 27 years old too. I was sure to set the world straight in an organized linear fashion. But life isn’t linear, it is fractal and fragile. And people are statistics, they are individuals.

  • Ruth McCambridge

    I am so impressed by this conversation – and especially love the last comment by Charles. I always think of this kind of thing as a kind of super-rationalist arrogance that flies in the face of the real workings of the world but it seems endemic to much of philanthropy right now. Very old science of them.

  • Charles N. Oakes

    I meant to say: People are not statistics, they are individuals.

  • Jose Luis Nunez

    Totally agrre with Charles & Ruth. I can see how this man is just trying to measure his philantrophy stature by the size of the projects his organization funds. If he is trying to really improve the quality of life os many many human beings, he needs to be willing to work really hard and analyze and fund much more small to medium-size projects, geared to start small but focussed at the root of problems. For example, teen pregnancy problem can be effectively reduced (eliminated?) if we work hard on prevention through education (moral values included!), which requires to get deeply involved in our communities (all organizations included!) and that is a more challenging job than simply distributing contraceptive pills and condoms.

  • Donna Reimer

    I like the that this organization has looked and seen that putting funds into organizations no matter what the size will do nothing to change long term problems unless it is striving to change the way things are…..this takes time , long term time, it takes thought and goals, long term goals which will enfact affect millions of people over the next generations as they work toward a better future….our organization is very very small as tp these terms but we do feed approx 400 children daily while we strive to be sure the new ones being born have birth certificates, that they have proper identification, so when they are adults they have the choice to work and support themselves, our goal is to change this the way these people are forced to live at present and over the next generation or two, millions will be affected by the outcome…thank you Howard G. Buffett Foundation (HGBF for what you are giving
    God Bless you in your efforts

  • Virginia Schnabel

    Was disappointed to read this article. After working at a small non-profit in a small community for six years, I have learned how important it is to be small and focus on your community rather than to try and help the millions. A community is transformed one life at a time, not millions at a time, and it is the small, local non-profits that are equipped to do this work on a regular basis because they know and understand their communities and the people who live there.

  • Elenas

    As non-profits have different missions and scopes, it’s clear that he is focusing his efforts on those that are the most innovative and efficient on a “grand scale”. (I don’t think it’s fair to demonize him for focusing on this specific sector of the non-profit population.)

    Although I do feel that there is some room for such criteria for certain types of non-profits, there cannot be a blanket “one-size-fits-all”.

    In my varied non-profit experience, I do feel that there are inefficiencies in many non-profits which presents a perfect opportunity for boards and staff leadership need to idenfity training opportunities for their staff.

    Non-profits need to invest in their staff (as in continuing education, leadership and innovation training) as much as for profit companies to be best able to manage tight budgets.

  • Chaudhry, Zafar iqba

    Ten years back, when we started our NGO in Pakistan it took us 6 months on the drawing board to ascertain how and what needs to be done. We realized that in the environment we were working in, it was the smaller, rural communities that needed help and development towards emancipation.

    As we grew in the social sector, we experienced that someone had to be there to help on a larger scale like the Pakistani Earthquake -2005 and floods-2010.

    My experience is that whereas large NGOs have a wider canvass, it the work of the smaller organizations where help and results at the grassroots level are best seen.

    Not under estimating the motivation and experience of Mr. Howard Buffett , I would suggest an even distribution for small NCOs working in smaller communities and bigger NGOs for specific calamities and not as a standard scale.

  • Brookman

    There’s a huge divide between high impact donors who want to control how a system functions and think they, as donors, can leverage the whole system from their privileged perch and more sophisticated donors who understand that general operating support of an organization is the best form of philanthriopic $$. The latter ironically seem to apply logic more akin to free market principles, no? This article from Kevin Starr of the Mulago Foundation is a good antidote to Mr. Buffett’s thinking:

  • Brookman

    Donna, I agree with your sentiment, but I don’t think donors are the right actors to be calling the shots. They should support collective impact via investment and encourage collaboration between nonprofits, but as donors, I don’t think they should be the ones taking on systems change – they should be facilitating it by encouraging learning, R&D, and experimentation by legions of small, medium, big, and giant nonprofits as well as new forms of hybrid organizations like the B-corp, etc.

  • Michele Brice

    I find this to be an interesting article and I know I may be going against the grain, but I have to agree with the strategy. The hangup seems to be over the quantity of numbers the NGO effects. Having done training for a grant program, we directly impacted 40 people, but the indirect impact was for the benefit of over 300. So in theory if there are multiple programs within an NGO that are directly impacting individuals, they need to also account for the indirect impact which could easily affect over 100,000.It makes sense to support the players that are consistently making the positive impacts. I don’t see that it would alienate a certain demographic.

  • David Barbagallo

    I think his general approach is excellent. If you actually read what is suggested it does not necessarily exclude small, rural or remote communities. The “impact” criteria if correctly applied could result in any number of NFP being supported. It is ironic that most comments appear to be emotional rather than looking at the impact of what is proposed.

  • Bernadette A.

    😀 🙂 I totally agree with you. I too have a small non-profit. Transformating one life at time, not millions is so true. one, one, one, one, and etc. makes millions.

  • Karen Bassler

    What if Buffet considered replicability and scalability in his analysis? A program or project that impacts a few thousand people very effectively might be something other organizations can replicate, each thereby affecting additional thousands. He should be looking for projects that can serve as models and templates, leveraging much greater impact than the one funded organization could hope to accomplish on their own.

  • Yolanda

    I know want to read the article in Fast Company. Does he really think his approach is new and innovative and will rock the world of the nonprofit sector? Hello, we’ve been measuring outcomes, setting objectives and implementing strategic plans for as long as if not longer than the for-profit sector. We do it with less resources and more effectively. Our funders expect it of us and we deliver. Has he ever run a nonprofit? The smaller, the more efficient it is. I think he needs to do his homework before he implements his assessment tool. Would you like to see ours?

  • Karen Remetis

    I don’t have a problem with this article at all. Not for profits also have to gain traction (read support=funds) by providing what is wanted OR, as it says in the article, by providing something which is relevant and unique. What’s wrong with that?

  • David Scholl

    A Deaf Services Agency would have to reach EVERY American Sign Language using Deaf person in the United States just to qualify for 2 points! (The National Census of the Deaf Population conducted way back in 1974 asserted that the total of sign language users in the U.S. was close to a half-million strong.)
    And we are in no way unique, as there are several hundred comparable agencies in the contiguous states – each serving a local population that it knows well. Guess we will continue to look for funding from other sources! 😉

  • G. Cheshier

    David, I agree with you. He is suggesting that non-profits avoid duplication of services by joining together to address not only the issue but the long term solution. Can you imagine a world in which our non-profit service system became as effective as the WalMart’s supply chain?

  • Blue Star Mom

    This is a way sounds like an initiative to only work with large organizations who dole out money to smaller nonprofits… I think the key indicator in the beginning of this article was “he is bringing White House policy experience to his role”… a mindset of big governing rather will ultimately make small community based initiatives a thing of the past with the idea of incentives for non-profits to “acquire one another”… the basis is good but the presidence will be set to push out small volunteer based non-profits.. this is a sad thought . :-*

  • Martha de Forest

    I completely understand the motivation for leverage. Our non-profit is underwriting the “Medicare Lawsuit” which seeks to restore health freedom to retirees by decoupling Social Security from Medicare. The entire lawsuit will cost about $1.5M, could save taxpayers $2B and restore a freedom to ALL retirees. That is leverage.

    Overseas, it would be wonderful to help struggling countries implement fair property laws and stable court systems, that would have a positive effect on an entire country. That would be leverage.

  • James Parsons

    😉 Right on, Charles. Let young Buffett work on the streets for 30 years, as I have, before he starts telling the rest of us what works. I think the real rationale behind his

  • James Schmeling

    The best sentence in this article, in my view,is Buffett instead intends to take a more systematic approach,

  • Jon Simpson

    I thought this was an interesting clash of the meaning of efficiency and effectiveness in a large donor organisations and small nfps. I don’t think suggestions or implications that the donor organisation Executive Director is too young, arrogant, or unworldly add anything to the discussion.

    It is clearly more efficient for the large donor organisation to make fewer larger donations just as it is clearly more effective for nfps to be closer to their clients and provide individual service. That is how we save the world “one life at a time” For the nfps to be efficient in their funding activities means standardised applications and reporting, whilst for the donor organisation to be effective it means assembling groups of nfps that deliver on the same outcomes.

    To me that suggests a role for an intermediary a small organisation that distributes the donor money according to predetermined criteria and organises standardised and intelligent reporting. The leaves the donor to undertake the strategic research and determine how the investment of their funds can produce the greatest outcome and the nfp to continue to do what they are best at, delivering service efficiently and effectively.

    Wouldn’t it be fantastic if there was an email in your inbox tomorrow from a donor saying “If you can deliver the following outcomes and provide this quarterly report, we will fund your organisation to the tune of $x per successful outcome. Not fill in this 50 page application and wait six months while we make up our minds if we will meet some small part of your organisations requirements whilst you apply to 20 other funders .

    For the donor organisation to suggest that mergers of small nfps increase effectiveness is dubious and runs contrary to most logical thought on competition. Mergers detract from service delivery and rarely deliver the efficiency gains that seem apparent to the un-merged organisations. Joint back office functions on the other hand may produce efficiencies amongst smaller agencies. M and A activity in the business world is designed to benefit merchant bankers, solicitors tax accountants and ultimately shareholders but rarely customers. Similarly in the nfp sector mergers are in my experience rarely of benefit to our clients, indeed monopolistic nfps are generally associated with waste not good service delivery.

    Any volunteers to run the intermediary organisation?

    There are a couple of other possibly unintended side effects from the Buffet approach to philanthropy. If the donor chases the biggest outcome for their dollar it will tend to leave small cultural organisations unfunded like my museum for example. Secondly I believe there is a distinct parochialism about large US donor organisations with the exception of the Gates foundation not much of the money seems to find its way out of the country. I stand to be corrected but thats the view from Australia

  • Tharanga Gunaratne

    I strongly believe that donors need to be responsible financiers. Given the limited funds and funding sources available, and the increasing demand for funds, donors have to adopt measures to ensure that their dollar is well-spent, and that it goes as far as possible reaching out to as many people as possible. In my view, this does not mean that donors would expect to see an impact immediately as they do understand that it takes time to create an impact, and that most projects undertaken by NFPs involve one to one engagement.

    I have seen so much of donor funds wasted before even they reach the intended beneficiary groups. Most often, this results from funds being distributed among too many small organizations, some of which are doing very similar programs as the others, and also targeting the same beneficiaries. This essentially means that collectively, a large percentage of funds are used for administration purposes of the many smaller NGOs. From a donor