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May 5, 2014

The announcement, a few weeks ago, that the William and Flora Hewlett Foundation would soon end its Nonprofit Marketplace Initiative sent a chill through the young industry that collects and markets data on nonprofit performance. The foundation had been a formidable supporter of such grantees as the data-aggregation sites GuideStar and GiveWell, which try to arm donors with information on how nonprofits are run and what they achieve. And more generally, Hewlett had all but trademarked the proposition that databases should become a guidepost for smart giving.

No more. In a video on the foundation’s web site, foundation officers and evaluators explain that two successive research reports had found that the effort was not achieving its goals. “We have decided not to fix this strategy,” says Fay Twersky, head of Hewlett’s Effective Philanthropy Group, “but instead to tie it off responsibly.”

Here, it seemed, was a commendable case of a foundation declaring defeat in an exceptionally public statement, explaining how it had failed, and announcing what it would do instead.

Even more striking, the video announcement included a rueful statement by former CEO Paul Brest, who in his dozen years at the helm had made it a personal cause to marshal more data on nonprofit effectiveness. In the video, Mr. Brest declares that this particular initiative “was a case where … the risk hasn’t paid off.”

But he added, “at least so far.”

And therein lies the issue that makes this decision so thought-provoking. (The Chronicle of Philanthropy devoted well over a full page to it.) The question is not solely whether it is possible to create a marketplace for nonprofit performance data; the question is also how long it would take. Hewlett’s marketplace initiative rested on a dubious initial assumption that, in the words of Hope Neighbor, one of the evaluators, “there [was] tremendous pent-up demand” among donors for more data on the organizations to which they give. Feed that hunger, the foundation believed, and donors would race to the buffet table. That assumption proved to be false.

But many of the initiative’s flagship grantees evidently knew that already. To hear them tell it, the challenge was not really to find ways of feeding a starving market that was already pleading for data. The challenge was to create a market, by creating an appetite that did not yet exist. That, as Ms. Neighbor notes in the video, is a far more difficult undertaking, which would demand “much more time and more investment” to complete.

In that case, it is worth asking (at least for discussion and reflection) whether this was really a case of a foundation acknowledging and accepting failure, or something slightly different: a foundation running out of patience. Or maybe, more precisely, a foundation that thought it had taken on a short-term goal (officially, that by 2015 at least 10 percent of individual donations would be based on nonprofit performance data), and instead discovering that it had embarked on a long and arduous journey, for which it lacked the confidence, interest, or resolve.

To be clear, either of those is a perfectly reasonable, honorable decision. The point is not to critique the foundation’s choice. The point is to clarify that money is only one of the resources that foundations must decide how to spend. Another is time. A well-managed endowment can supply a reliable amount of money and a nearly limitless amount of time. Only a foundation’s executives and board can decide how much of either of these assets they are willing to commit to any one thing. For Hewlett, the price of continued support for nonprofit data markets, measured in time as much as in money, was simply too high. Perhaps the return might never have repaid the risk, but that is unknown. What we know for sure is that it would not repay the risk by 2015. And at that point, the clock will have run out.

[Photograph: Flickr user Penn State]

Tony Proscio