The strategic consulting firm Bain & Company was relatively small when Tom Tierney joined the staff in 1980. As Bain grew in influence, so did Tierney, rising to the post of CEO in 1992.
During this long, intense encounter with business, Tierney was also serving in the nonprofit world as a volunteer, board member, and pro bono consultant. In the 1990s, realizing the hit-and-miss nature of pro bono consulting, he began to wonder if there were a way to provide better assistance to the nonprofit world. After several years of talking and planning in collaboration with Jeffrey Bradach, Paul Carttar, and others, he was ready to launch the Bridgespan Group in 2000. Bain spun off the new entity as an independent charity to which it would provide some administrative support at low cost. Jeffrey Bradach became Bridgespan’s new managing partner, with Tierney as full-time volunteer chairman.
Bridgespan’s business model called for it to offer state-of-the-art consulting to nonprofits, employing veterans of Bain, McKinsey, and other leading for-profit firms who would spend multi-year terms at Bridgespan working for much less than they were accustomed to. With these lower labor costs and the reduced expenses resulting from Bain’s administrative support, Bridgespan’s services would be available to nonprofits at far lower rates than for-profit consultants charge.
And those services wouldn’t just be offered to the grantees of the nonprofit world but also to grantmaking foundations that, Tierney believes, face their own daunting obstacles to success. In fact, one large foundation came to Bridgespan eager to have help figuring out just what effect, if any, its millions were having. The group’s own aim is straightforward: “We are entirely focused on helping clients get results. We do this by helping them make better strategic decisions and build more effective organizations.”
Some persons may wonder why anyone would step down as head of Bain to run a nonprofit, but Tierney credits his upbringing with his pull to public service. “In my family, we were taught that people are more important than stuff.” Or as Tierney likes to say, “I’m trying to build a life, not a résumé.”
PHILANTHROPY: What is new about Bridgespan?
MR. TIERNEY: Traditionally, three kinds of providers have offered professional assistance to foundations and charities: small boutiques of, say, one to a dozen experts; a few large organizations that provided specialized services such as help with capital campaigns; and for-profit consulting companies, like Bain & Company, that took on pro bono projects. What didn’t exist were general-management consulting firms of any scale focused on the fundamental needs of nonprofits. Therefore, Bridgespan’s first innovation was to create a dedicated and independent organization—that is, independent of Bain—to provide consulting services to charities and foundations.
Second, we decided Bridgespan would be a firm of “bridgers”: people who have both a business consulting background and a history of contributing to the nonprofit sector, so that they bring an understanding of both worlds to their work. Third, and most important, Bridgespan is itself a 501(c)(3) mission-driven nonprofit. We exist to help other nonprofits achieve superior results in their vital work of addressing society’s most important challenges and opportunities. We can look other nonprofits in the eye and say, “We have a social mission just as you have a social mission.”
PHILANTHROPY: What is different about consulting to nonprofits?
MR. TIERNEY: We anticipated that the problems confronting nonprofits and foundations would be as challenging as those businesses face. Four years in, I can say, “We were wrong—they’re generally much harder.” First, there are not obvious ways to keep score; so you can’t easily crunch numbers to analyze or develop a strategy. In addition, the time frames under which nonprofits operate are decades, a dramatic contrast to businesses worried about quarterly profits. Instead of competing with others, nonprofits also tend to be more collaborative; and they have more stakeholders, from donors, to volunteers, to engaged boards of directors, which makes the consulting process harder.
Our relationship with Bain, I should add, is truly an exceptional partnership. Bain provides our technology and training infrastructure, which greatly lowers our costs. Bain also lets us recruit from their organization—and about 20 percent of our people are on rotation from Bain. Last but not least, we benefit from the intellectual capital and brand Bain has built in its 31 years of generating results for corporations.
PHILANTHROPY: How did you decide to work with both foundations and grantees?
MR. TIERNEY: We called the firm the Bridgespan Group because we knew we would be bridging various constituencies—not just the business and nonprofit sectors but also funders and grantees. As you know, there are no “capital markets” that direct foundation or other types of funding to those nonprofits that are achieving the best results. Funding tends to be highly personal and situational. It quickly became clear how helpful it would be to bridge both sides of the equation. A nonprofit with a great business plan that can’t be funded doesn’t yield results. A foundation with a great strategy that doesn’t align effectively with its grantees also won’t get results.
Initially, we set the target that no more than one-third of our clients would be foundations, and the rest would be nonprofits, and we’ve stuck with this mix. Our foundation work could have grown beyond that, but we’ve held it in check, because we think it’s important for us to stay close to where the action is, in the field where results are actually achieved.
PHILANTHROPY: What differences do you find between grantmakers and grantees? Does one face bigger challenges?
MR. TIERNEY: Let’s start with nonprofits. Like any organization, a nonprofit needs three ingredients to generate results. The first is a clear strategy: How will it deliver on its mission—what impact will it hold itself accountable for—and how will it allocate resources over time to achieve that impact? What will the organization do and what won’t it do, which constituents and programs will it focus on, what are its likely economics, and how will it track its results. The second ingredient is capital: How will this strategy be funded over time? Third, a nonprofit needs “talent,” the organizational capability required to raise the capital and implement the strategy. Bridgespan tries to serve nonprofits in all three areas.
One complicating factor is that, as I mentioned earlier, nonprofits have quite a few more stakeholders than businesses do. In a company, for example, you can work with the chief executive, and once the CEO understands the direction they need to take, he or she can make sure decisions are made and implemented appropriately.
Nonprofit leaders can’t do that as easily, because there are many more constituents at the table. They have donors to worry about, and volunteers, and board members, and even other organizations they collaborate with. How those other players are participating in our process becomes very important. So unlike typical work at Bain, we tend to be more involved with outside stakeholders during a strategic engagement, in order to have a higher probability of success.
PHILANTHROPY: And your work with foundations?
MR. TIERNEY: From a businessperson’s perspective, the most striking thing about the foundation world is that there is no “invisible hand,” no marketplace that holds these organizations accountable for results. While you can argue that nonprofits aren’t market-driven either, that’s not altogether true. If nonprofits can’t raise money, for example, they can’t pursue their missions. If they can’t attract reasonably talented people to work for generally low pay they can’t pursue their mission. If they can’t convince their fellow nonprofits and other important players to collaborate to deliver services they can’t achieve their mission. And so in the nonprofit world, there are certain market forces, even though they are nowhere near as robust or effective as those in business.
In the foundation world, these constraining forces don’t exist. Foundations don’t have to compete with other foundations for funding. They don’t have to worry about attracting staff at deeply discounted compensation, because they usually pay their staff well. Think about two foundations: one puts its money to work and delivers outstanding social results; another puts its money to work and sees no social results. Are there consequences? Do the boards of those organizations even know, for certain, which is generating results and which isn’t? Not necessarily.
A foundation’s accountability is technically limited to the legal requirements to spend 5 percent of its assets and to maintain its compensation and cost structures at “reasonable” levels. Beyond that, foundation executives are motivated not by outside forces, but by the outcomes they choose to hold themselves accountable for. As a result, I’d say foundations more often under-perform their potential than nonprofit organizations do.
Without market forces and feedback, foundations can fall into some chronic and insidious traps. The first trap, pursuing a dream instead of a strategy, occurs when people have deeply held beliefs about where they want to spend their money, but those beliefs aren’t anchored in reality. To have a real impact, a rigorous understanding of how the world works is as important as ideals and good intentions. Foundations need both passion and data.
The second trap is under-investment. It’s not uncommon, for example, to hear a foundation person say, “We’ve got X million dollars, and we really want to solve this problem.” But when you put pencil to paper, it doesn’t cost millions to solve the problem, it costs tens of millions. Another example is the mismatch between the length of the average foundation grant, which is about 18 months, and the timeframe of the problems foundations usually address. Foundations tend to wrestle with problems that are at least partly structural: complex 20- or 30-year social problems. These challenges don’t lend themselves to quick fixes. Moreover, to truly deliver on their missions, nonprofits generally need unrestricted operating support more than program funding; yet foundations typically resist such grantmaking. Awarding smaller, shorter-lived grants isn’t bad, per se, but it is unlikely to lead to big results or fundamental change.
The third trap is self-absorption. Foundations live in a very isolated world. When you are giving money away, people tend to tell you what they think you want to hear. Grantees rarely say, “You know what, foundation executive? We think you’re under-performing.” We realize that many nonprofits fall short. We know the success rate of business is inconsistent: most businesses, most years don’t earn their cost of capital. One could easily imagine that 25 to 30 percent or more of a foundation’s grants fail. But how often do you read about a foundation that is willing to describe its failures or publish a third-party evaluation of its performance—as a few leaders in the field are now starting to do?
Running a foundation without any self-correcting mechanisms is like flying a plane without an instrument panel: You can’t quite know where you are; even odder, the plane can’t crash. I’ve heard board members say, “The worst thing that can happen is we’ll waste the money.” In fact, the worst thing is all the good that doesn’t get done, the change that doesn’t happen, because the foundation’s grants haven’t been structured to get results: that is, with rigorous clarity about the intended social impact and a thorough understanding of how that impact is likely to be achieved and at what true cost.
These traps are structural. It’s not that the people leading the foundations are not outstanding people. It’s not that the boards don’t work hard. It’s not because people aren’t trying to do what’s right. It’s because there is no marketplace to hold foundations accountable for results, which means a foundation truly committed to social results has to exercise extraordinary leadership. The people leading it have to hold the foundation to higher standards of performance than any marketplace or environment will. That’s hard.
PHILANTHROPY: Could you give an example or two of a truly outstanding donor, institutional or individual?
MR. TIERNEY: We have to be careful about characterizing best practices, because there are many ways in which foundations can generate results. For example, in the business world, it tends to be the case that the more focus, the better. But with foundations, no law of nature says three program areas are necessarily better than five, because there’s no universal recipe for generating results. Achieving impact depends on the foundation’s unique circumstances, its beliefs, its ambitions, and the realities it must confront. That said, there are some basic principles. A foundation needs a strategy grounded in the reality of what it is trying to do. It needs to invest appropriately to achieve the hoped for results. It needs to focus on the success of its grantees and on the services they require to help them generate superior results.
Currently, there are a variety of experiments being conducted across the country, by both new donors and established foundations, seeking to apply these principles. One foundation that has been implementing them for three or four years is the Edna McConnell Clark Foundation in New York. Harvard Business School has written a case study about Clark that captures its shift in strategic direction to include: a heightened focus on a smaller number of grantees, all in the area of youth development; a greater insistence that those grantees have viable strategies and business plans; and a strong commitment to help those grantees over multiple years. In short, doing fewer, bigger things for a longer period of time, with very high standards. If you talk with Mike Bailin, the president of Clark, he’ll say they’re making progress; but he’ll also remind you that it’s only been four years. It will probably be another four or five before they know whether they’re seeing the results they hoped for.
PHILANTHROPY: Do you have advice for the different constituents of a foundation—donors, trustees, staff?
MR. TIERNEY: My advice to all of them, first and foremost, is to maintain an informed conversation about the foundation’s true objectives. The key question is, “What are you going to hold yourself accountable for?” If God said, “What are you doing here?” you should be able to say, “We’re holding ourselves accountable for reducing the high school dropout rates in these five schools. We know we can’t do that alone, and it will take 20 years.”
Donors, trustees, and staff must focus on this accountability question. Ambiguity is the enemy of results. You can’t hold yourself accountable for changing the world. You can’t hold yourself accountable for reforming all K-12 schools in America. You can’t hold yourself accountable for improving the lot of the poor. Those are vague answers. What specifically are you holding yourself accountable for? If at the end of the day people can’t tell whether you earned an A, a B, or a C, you had better revisit your approach.
Question number two is, “Exactly how are we going to achieve the outcomes for which we’re holding ourselves accountable?” Don’t just say, “We’re going to give away $5 million a year.” That’s not an answer. Say, “Because we work through grantees, we’re only an intermediary. What will our grantees do to achieve the outcomes for which we hold ourselves accountable? What do we have to believe about how the world works to be confident about our odds of success?” Those are the questions donors and trustees need to ask staff. Those are the topics about which staff need to be engaging donors and trustees with data, with facts about how the world works and about their grantees’ strategies and performance.
Einstein said questions are more important than answers. With foundations, confronting the right questions is a critical success factor.
PHILANTHROPY: What does Bridgespan hold itself accountable for?
MR. TIERNEY: At the core of all we do is our mission, helping nonprofits succeed in their important work. To deliver on this mission, our strategy is both to provide consulting services to particular nonprofits, grantors and grantees, and to do that in a way that will generate knowledge that other organizations, that don’t benefit directly from the consulting services, will find useful. These two activities—consulting and generating useful knowledge—are critical levers in our theory of change. So what are we holding ourselves accountable for, and how are we doing it? We’re holding ourselves accountable for success stories—breakthrough results with both foundations and charities—and we’re holding ourselves accountable for developing ideas, frameworks, and tools that will help other organizations who are not our clients.
PHILANTHROPY: How does your new Bridgestar project tie into your work?
MR. TIERNEY: A few months into our consulting work, we discovered the challenges that nonprofits face in building the organizational capability they need to deliver the results they promise. You can give an organization a lot of money, but if it doesn’t have the capability to use the funds effectively to achieve its mission, the results will fall short.
We also realized that a leadership crisis is brewing within the nonprofit sector overall. First, turnover among executives is high and rising. For example, a recent study found that 50 percent of the executive directors of charities in New York were going to leave their jobs within five years, and virtually none had succession plans. In addition, the flow of new talent into executive positions is highly constrained. The whole next generation of nonprofit leadership is far smaller than it needs to be.
There are about twice as many nonprofits today as there were ten or 12 years ago, and the larger charities are growing larger. Think of the emphasis on going to scale among K-12 programs like KIPP Academy or Teach for America, for instance. Dozens of programs are trying to do national rollouts. We believe the sector over the next decade will confront a leadership shortfall such as it’s never seen.
One of our funders challenged us to think about structural solutions to this leadership crisis, and Bridgestar grew out of that challenge. Bridgestar aims to enhance the flow of executive talent into and within the nonprofit sector. On the “demand” side, we plan to have a membership base of nonprofit organizations, which will ultimately be nationwide. On the “supply” side, Bridgestar will tap into unexplored and under-penetrated pools of talent, including the nonprofit sector itself, where career mobility is often constrained. If you’re a chief financial officer at a small nonprofit, for instance, no headhunter is calling you to move to a larger organization.
We also know there are enormous pools of talent outside the sector looking in. This past January, we began a pilot test in Boston. Ten graduate schools in public policy and business are helping us with this pilot, because they want to provide Bridgestar’s services to their students and alumni. More and more, their alumni are asking, “How can I move from business, or government, into a role in nonprofits?” Those people usually don’t show up on any nonprofit’s radar screen.
Ten years from now we hope to have 15,000 to 20,000 nonprofit institutional members around the country, including foundations and national and local nonprofits, and roughly 40,000 to 50,000 individual members, who are committed to building careers in the nonprofit sector.
This is what business writer Jim Collins would call a “Big Hairy Audacious Goal.” Yet it’s one that, if we are even partially successful, could have a tremendous ripple effect on the ability of both foundations and nonprofits to generate social results.
PHILANTHROPY: Why does democratic capitalism in America spawn more philanthropy than in other countries?
MR. TIERNEY: I’m not an expert on American culture versus other cultures, but Bain has offices in 25 countries, and I’ve done my share of traveling. My observation is that American culture is deeply rooted in people helping other people. Alexis de Tocqueville characterized this early on when he visited the young United States. When you’re explorers and you’re migrating into a new country, you have to rely on each other because there is little institutional support.
Even today, it’s a central element of American culture that we tend to rely on each other before we rely on some institution; whereas in European countries, the norm has been that the government supports the citizens. The person on the street in America expects to be asked to help others and expects others to help him or her.
There are probably other reasons people would give to explain why this nation is different. They might point to tax law. They might point to the structure of our institutions. Our health care system, for example, is partially nonprofit.
But I don’t think American behavior is a function of tax law; tax law just reinforces it. I think our institutions have grown out of who we are, not the other way around. My hunch is that although tax law will continue to ebb and flow, American behavior—concern for your fellow citizen, a willingness to make gifts and volunteer—is part of who we are. Something like 85 percent of Americans volunteer at least a few hours a year, and I believe roughly the same number give at least some money to charity. Those are extraordinary statistics, and they’re not a function of people reading the tax code. They are a function of people saying, “This is how we do it around here.” I define culture—in an organization or a community of any kind—as “how we do things around here.” And the way we do things in America is we help each other. I hope that never changes.