Young and Old: Innovative Start-up Projects vs. Established Institutions

“What should I do?” you wonder. The economic crisis has eroded your assets and earnings, leaving you with less money for philanthropy. The community foundation, university, hospital and museum to which you always contribute are asking you to consider an increased gift this year due to their own depressed financial situation. At the same time, a close friend introduced you to a social entrepreneur who is seeking seed money for an innovative start-up project that aims to tackle the root causes of social inequality.

You consider your options. One is to continue to contribute to those institutions that are counting on you as a loyal friend and supporter, and politely decline the seed money proposal. Alternatively, you can put up the seed money for the innovative start-up project and inform the institutions that you are unable to contribute this year, but hope to do so in the future.

What factors should be considered in making such a decision? How will your decision affect the institutions and projects that seek your funding? Are you a major supporter of the university? Will others follow your lead and also eliminate or reduce their gifts? Will your decision cause irreparable damage to a certain research center or department? What will be the impact of your funding? Will it go toward maintaining existing programs and projects? Or, will it enable the creation of something new that might make a real difference to your community? Which route is better for society? Which carries more risk? Which holds the potential for the greater return on investment?

The tensions between innovation and establishment have been on the agenda of several international conferences since the beginning of the economic crisis, less than a year ago. The World Council of Jewish Communal Service (WCJCS) held a conference in Jerusalem during November 2008 with a track on inter-generational issues pertaining to leadership succession and the younger generations’ preference for innovative start-up projects at the expense of established community institutions. The Jewish Funders Network (JFN) held its annual conference in March 2009, titled “Funding Genius: Smart choices for challenging times.” It focused on funding innovation as well as best practices for managing in an economic downturn. Both conferences included speakers from leading Jewish social innovation groups: ROI at the WCJCS and PresenTense at the JFN.

The economic crisis has forced funders to pause and consider how to best distribute their philanthropic dollars. Yet, the issue goes beyond the mere allocation of now scarcer resources, to a review of the characteristics of both innovative start-up projects as well as established institutions. We tend to generalize and perceive innovative projects as visionary, creative, entrepreneurial, passionate, small, but rapidly growing, and having simple organizational systems. In contrast, we perceive institutions as systematic, professional, formal, large, and bureaucratic. Essentially, each type is perceived to lack what the other has. The pros of the innovative type are the cons of the established type, and vice versa.

The fact is, however, that today’s start-ups are tomorrow’s institutions. And today’s institutions were once start-ups. This is because organizations, like people, go through different life cycle stages. Carter McNamara[i] writes about this topic using Lawrence Miller’s book Barbarians to Bureaucrats. He states:

Miller suggests that the life of an organization is similar to the shape of a bell curve, that is, the organization experiences a rise of health, it peaks, and then gradually declines. The life-cycle stages of Prophet, Barbarian, Builder, Explorer stages are on the way up the curve of health, the Synergist is at the peak, and the Administrator, Bureaucrat, and Aristocrat stages are on the way back down the curve of health.[II]

Miller states that the best organizations are those that are synergistic; meaning they incorporate various management styles based on a set of principles: (1) spirit, (2) purpose, (3) creativity, (4) challenge and response, (5) planned urgency, (6) unity and diversity, (7) specialized competence, (8) efficient administration, and (9) on-the-spot decisions.[III]

The answer to our conundrum, therefore, is not that philanthropists should have to choose between established institutions and innovative start-up projects; after all, our society needs both types of organizations. Rather, they should make their funding decisions on whether an organization is synergistic; namely, the extent to which it maintains a healthy balance between creativity and stability.

When considering funding to an innovative start-up project, ask the following questions:

1. Do you identify with the cause and the proposed solution (theory of change)?
2. What other funders, public figures, and the like are on board and enthusiastic with the project? How committed are they to seeing it through?
3. Are the founding leaders capable of transforming their ideas into actions, and of growing the organization from a start-up to a mid-sized organization?
4. Are you driven by the desire to see results, not just words? Do you have the patience to see it through?
5. Are you willing to provide funding for building the project’s organizational capacity?
6. Are you willing to play an active role in providing not only substantial funding, but also guidance, connections, leadership and experience without micro-managing?
7. Are the founding leaders open to learning from the experiences of others? Are they willing to utilize the best that established institutions offer – efficiency, professionalism, strong management, procedures and more?

When considering funding to an established institution, ask the following questions:

1. Are the institution’s programs and activities still aligned with its mission? Is it still relevant and attuned to the needs of its stakeholders and publics? Or, is it stagnant, aloof, cynical, and primarily interested in its own self-preservation?
2. Who really runs the institution – the lay leadership or the professional management? Is the founder still involved? If so, might there be a case of founder’s syndrome?
3. What level of involvement do you wish to have with the institution? Do you see yourself as a silent limited partner – providing mainly money, or as a more active partner – serving on the board of directors or a committee?
4. How does the institution perceive its donors? Is there respect for you as a genuine limited partner? Do they fulfill donor intent? Is there transparency and accountability? Or, do they perceive you as an ATM or a blank checkbook?
5. What kind of funding are you willing to consider – earmarked for a specific project or program, or general support such as via an annual campaign?
6. Does the institution still have a degree of passion, creative spirit, and energy that typify innovative start-up projects?
7. Is the institution open to innovative and creative ideas and proposals from its various stakeholders -clients/participants, staff, board members, funders, and the general public?

One of the key lessons learned over the past year is that investors need to build a diversified portfolio based on the amount to be invested, timeframe, risk tolerance, cash flow needs, and earnings goals. The same applies to the realm of philanthropy. Charitable or social investment “portfolios” may include both established institutions (value) and innovative start-up projects (growth). The composition of the portfolio should be based on the philanthropist’s financial resources, timeframe, giving vehicle, desired level of involvement, and funding interests.

Ultimately, both types of organizations contribute to society. Philanthropists should recognize the value and role of organizations at different life cycle stages, and be open to funding both innovative start-up projects and established institutions. The criterion is not age. It is the extent to which they are synergistic and a sound investment.

Notes

[I] Carter McNamara, MBA, PhD, is co-founder of Authenticity Consulting, LLC, and founder and developer of the Free Management Library.

[II]Carter McNamara’s article includes a table comparing each of the seven life-cycle stages on five parameters: business environment, beliefs, mission/tasks, management style, and nature of organization.

[III] McNamara’s article also expands on the nine principles of synergistic organizations. See link above.

David Roth and Ardie Geldman are philanthropic consultants with Donor Associates in Israel, Ltd. and regular contributors to eJewish Philanthropy. Donor Associates in Israel, Ltd. (DAI) exists to guide donors in making wise philanthropic decisions. We invite you to touch base with us for an initial consultation prior to making your next major gift to Israel.