Chairman's Corner

Chairman’s Corner: June 2005

A Never-Ending Quest to Improve

by Mario Morino, Co-founder of VPP

Over the past nine months, VPP has taken a long, hard look at its work. These efforts were driven by our desire to improve our effectiveness in serving our investment partners and to gain valuable insight that would inform how we consider and plan for VPP’s future. The more we can do to improve ourselves, the better we can directly impact and contribute to the achievement of our investment partners’ aspirations to enhance their ability to deliver quality services to improve the lives of children and youth of low-income families in the National Capital Region.

In September and October of 2004, the VPP team took time to reflect on what we have done and how we have served our investment partners. We distilled what we had learned from our experiences in the field, questioned and dissected the findings, and applied them to clarify our focus and improve our approach. This self-scrutiny culminated in an external assessment of our work, conducted by Fred Miller, President of The Chatham Group. The assessment has proven its value in several ways, not the least of which was to demonstrate to our investment partners our willingness to subject ourselves to the same rigorous introspection we ask of them as a part of our investment approach. In fact, one of our investment partners said, “It was great to see that you were willing to walk the walk,” and another said “…This honest, thorough review is a pretty remarkable thing that VPP has engaged in.  Proof again that VPP is not your typical funder.”

When the findings and observations from our introspection, the day-to-day knowledge we are developing in the field, and the assessment converged, the information provided us the first clear sense of how well we are doing and, equally important, highlighted areas where we can improve. The results were confirming, insightful, and informative. And, we are already using this feedback and the key lessons learned to strengthen VPP’s current activities and better plan our future.

It’s worth mentioning that we’ve put great emphasis on ensuring an “honest” exchange and on being inclusive in sharing the findings of the assessment. The interviews with our investment partners were conducted under a strict code of confidentiality, which was rigorously applied and enforced. The confidentiality was at the very core of the process, because we knew that the kind of openness we desired could not be achieved without it. Hopefully, we’ve demonstrated the transparency and openness we worked so hard to achieve by how we have used what we’ve learned. We’ve shared the findings in multiple sessions with the full VPP team and in discussions with our Executive Committee and Board. And, we presented the findings in a meeting/dinner with our investment Partners, with over 50 people from all ten of our investment partners in attendance.

Continued Learning and Improvement

So what did we learn during this process? First and foremost, we affirmed that our investment approach works—all investment partners claimed that the approach added value (even those who were most critical) and over half claimed high value. It was important and encouraging (and, candidly, somewhat surprising for this stage of our evolution) that half cited that the value of the strategic assistance provided exceeded the value of the funding. And, of high importance was the fact that the most fundamental premise of our investment approach was affirmed—that to deliver the greatest value a true partnership must emerge between VPP and the investment partner. This dependence on partnership continues to be the backbone of our investment approach. But what we learned helped us and our investment partners better understand what partnership really means. As a result, we are now better focused on:

• Working harder to build relationships based on a mutuality of respect, aligned goals and expectations, and shared learning;
• Encouraging more give-and-take, honesty, and transparency between both parties; and,
• Placing greater attention on relationship development in all aspects of VPP’s investment approach and phases of the investment partnerships.

With regard to selecting new investment opportunities, we will need to do more during the investment analysis to judge the potential and likelihood for a good partnership and to set the correct expectations—for both parties.

Improving Our Own Execution

Our internal reflection, the assessment, and the dialogue that has ensued have proven to be a valuable investment for informing the VPP team and board. VPP’s investment partners confirmed five areas that VPP had identified and has addressed, is working on, or will focus on:

• Availability of revenue sources to achieve and sustain improved capacity and outcomes, and the impact of financial difficulties and staff changes on successfully achieving aspirations—We’ll continue to work with each investment partner to restructure and expand development functions; define sustainability plans; and identify talent for senior staff and board seats.
• Sensitivity to differences (including language) between private business/corporate culture and the nonprofit sector—We’ll continue to adjust and improve on our approach to be more respectful of investment partner organizational cultures and the impact of achieving scale on their nature and outcomes.
• Performance pressure of the pace of implementation plans—We’ll continue efforts with investment partners to review milestones, the nature of investment agreements, and timing of periodic reviews, in order to better pace implementation, sharpen clarity, and better align milestones to most critical needs.
• Impact of VPP’s increasing presence in the region and its unintended consequences on image and reputation of investment partners and those that are not—We’ll continue and be even more sensitive to unintended consequences as we pursue our work in the region.
• Awareness of “noise on the street” about the nature of our investment partnerships and community reaction to our approach—We’ll continue to work on language we use, actions we take, and how we explain and implement our approach to minimize unintended interpretation of actions.

In addition to confirming the above areas, the insights also helped us target a number of efforts that will strengthen and improve our effectiveness with our investment partners. We are in the process of refining and articulating our Theory of Change internally within our investment team, clarifying expectations with our investment partners, and better explaining our intervention strategy. We are working to be even more sensitive to the need to better understand and take into account the respective organizational cultures of our investment partner organizations, and, then, to think through how those cultural elements should influence our approach and execution. We are mindful of the need to demonstrate even more respect for investment partner organizations and their accomplishments, and be more considerate of the nuances and sensitivities of nonprofit organizations. We will also play a more active role in the facilitation of relationships between investment partners, planning firms, and other providers to reduce cultural and style differences. We are looking at our VPP team in new ways to see how we might apply our team skills and experiences more effectively to support investment partnerships across different phases of the relationship. And, to reinforce the last two points above, we must be highly conscious of how to continue to benefit from the leverage of VPP’s growing “brand” and “power,” while being more diligent to avoid potential negative repercussions. (It is worth noting that the findings of the assessment specifically focused on VPP’s growing power in the region, although this is not a term we would have used to characterize VPP.)

Lessons to Inform and Shape Our Future Efforts

In addition to improving VPP’s effectiveness vis-à-vis our current portfolio of investments, the learning and valuable inputs we’ve received are informing our future planning. Even though the inputs below are related to VPP, they are highly relevant to other investors and nonprofits using or considering the strategic investment approach.

• More capital invested over longer periods of time. Although we began VPP with an appreciation for the need for significant capital and long investment horizons, we’ve learned that individual investments require even more capital invested over even longer periods of time. In fact, we believe that long-term capital commitments for larger investments may need to be even greater than the largest investments we’ve made to date, and that strategic investors may need to think in terms of much larger capital commitments spread across multiple, phased investment partnerships with a single organization.
• A longer investment horizon and fund life. VPP’s first fund, the Children’s Learning Fund, was projected to have a five-year life, which has been extended to six. Considering the experience we’ve gained and what we’ve learned, we would suggest that the life of future funds needs to be longer—in the 7-10 year range. This longer investment horizon would allow more time to cultivate and allow for the most promising investment opportunities to develop and, as mentioned above, would better serve our individual investment partnerships by recognizing that such major change takes a long time in order to be successful.
• Transformative change takes a lot of time. We need to recognize and factor into our implementation timelines the reality that transformative change takes a lot of time—individual investment partnerships will need better paced implementation, sharpened clarity, and milestones better aligned to the most critical needs of the investment partner organization.
• We need to add value across the various stages of the relationship. We also learned a lot about the shaping of our team. Specifically, our own partners (individuals that lead VPP’s efforts with our investment partnerships) and our investment team must add value across the various stages of an investment partnership. This requires demonstrated executive leadership and understanding by individuals who grasp, as line executives, what is involved in building and transforming organizations, and who have the accountability, rigor, and sensitivity required to be true partners in the management of our investment partner relationships. Additionally, the role requires political understanding and savvy to navigate the political, governmental, and jurisdictional systems on behalf of our investment partners, and to be able to understand and contend with the highly politically savvy nature of good executive leaders of nonprofit organizations.
• Investment criteria must be rigorously and consistently applied. Our experience and feedback from the assessment has taught us that our investment selection criteria must be rigorously and consistently applied. These criteria include: demonstrated performance; a bold vision for high impact to improve the lives of children and youth; potential for true partnership; strong leadership; prospects for financial strength and sustainability; products and services capable of scaling in quality and reach; and, readiness and willingness to embrace change.

One thing we have learned for certain—no matter how well an organization stacks up against the above criteria, the investment will be unsuccessful and leave both parties disillusioned if an organization does not embrace change—substantively and emotionally—and show the readiness and willingness such change requires. Beyond that, we need to better navigate the change process with the organization while respecting and supporting its culture. And we need to be more considerate of the type, stage, and culture of organizations and characteristics of the leader to ensure that the potential for partnership, investment approach, and team skill set will benefit our investment partners.

Summary

As a result of the assessment, we—VPP and our investment partners—have a better appreciation for the importance of partnership as an essential foundation for VPP’s strategic investing approach. We have learned that developing true partnership is difficult and, for most, very different from what is typical in the field. As one investment partner noted, “The transparency and openness of VPP’s process is not something we are used to in our other funding relationships.”

There is also an inherent power imbalance when one party is the provider of funding and the other the recipient, and that imbalance, by its very nature, impedes open and honest dialogue between nonprofits and the investors or donors supporting them. To sum it up, true partnership takes a lot of time and effort on the part of both parties.

The good news is that, to the extent that a strong relationship exists or gets built, it creates a multiplier effect in the value generated. Alternatively, the impact of lots of time, lots of money, and lots of effort is lost if the foundation of partnership doesn’t exist or isn’t strong enough. When it works, VPP and our investment partners are changed by the relationship. And both parties emerge with new ways of thinking, new behaviors, a different view of the world, and a greater understanding of each other.