For-profit lessons for nonprofits

Jeffrey Walker
Jeffrey Walker

Jeffrey Walker

Five years ago, my colleagues, Jeff Sachs and Ray Chambers and I had a dream – to launch an organization that would cut extreme poverty in half in just 10 years. 

We realized at the time that implementing this idea sounded far-fetched. But we truly believed that with the necessary capital, the proper infrastructure, and the will to succeed, it was possible.

As a veteran private-equity investor that bought and sold businesses for a living, I also knew that the financial disciplines, accountability and growth strategies that private equity employed to strengthen companies could be applied to the nonprofit sector.

Today, our idea has blossomed into Millennium Promise, a nonprofit that fights hunger, disease, inadequate education and unsafe drinking water in 80 impoverished communities and 10 countries in sub-Saharan Africa. 

The success of Millennium Promise and other like-minded philanthropic organizations has spurred new interest in using private-sector devices to solve public policy problems.

According to data from the nonprofit consulting firm, Bridgespan Group, the next 10 years will see a greater injection of capital into private foundations than the past 50 did.

For these organizations to deliver against their social missions, they must develop an organizational model for the future that ensures this capital is used in the most efficient and effective manner possible.

The best way for foundations to do this is to look to firms and individuals that have had success streamlining organizations and maximizing growth in the private sector and then replicating their approach. 

In many cases, it is private-equity investors that have proven they can do just that.

For Millennium Promise, the keys to success were three core tenets learned in the private-equity world and applied to the nonprofit sector – board and managerial strength, a partnership approach and using measurement and evaluation tools.

Nonprofits often make significant mistakes that could easily be remedied if they took a closer look at for-profit boards of directors.

The composition of a board is key. It needs to be small enough to manage, and both members and managers need to be intimately involved, particularly those members with “celebrity” status.

Well-defined board committee structures, annual board evaluations, and term limits keep boards organized and constructive.

A partnership approach in private equity deals means shared effort and shared risk. This strategy applies to nonprofits as well.

Bringing more than one organization to the table gives a nonprofit the ability to cover more ground on a single project and disperse the risk if an idea doesn’t pan out.

But the most important tool for nonprofits to integrate is metrics.

Tracking key items and measuring impact in intervention areas is the key to building donor confidence and helping boards of directors and management teams identify where time, money and other resources could be best utilized.

Audited, periodic reporting of key items ensures efficient allocation of capital and also serves as a motivating tool to improve quarter after quarter.

These are just some of the lessons that I have learned from applying investment and organizational models often used in the private-equity industry to the philanthropic world. 

And I’m not the only one. From Teach for America to Donors Choose, organizations are taking the disciplined, performance-oriented methods of private investing and applying them to improve and grow their operations.

With these and other tools, there truly is a brighter, better model for the philanthropic future.

Jeffrey Walker is an executive in residence at the Harvard Business School, chairman of Millennium Promise and ex-managing partner and co-founder of JPMorgan Partners/Chase Capital Partners, a global private equity firm.

Leave a Response

Your email address will not be published. All fields are required.