Rebecca Thomas on Change Capital, Risk-Taking, and Creative Freedom

In this interview, Rebecca and I discuss the evolving definition of change capital, the capacities needed to leverage it, and how organizations can access it.

Rebecca Thomas.

Over the past month, we’ve been exploring the topic of change capital to explore how we can build a capital structure to invest in organizational transformation and thrive in the long-term.

After we posted our topic introduction a few weeks ago, Rebecca Thomas (who was until recently a Vice President at Nonprofit Finance Fund) reached out to me to continue the conversation about the evolving definition of change capital, and what it means for the nonprofit field.

In the interview that follows, Rebecca and I discuss NFF’s Leading for the Future program, which she led, and the important capacities organizations need to leverage change capital.

Karina Mangu-Ward: Hi Rebecca. Thanks for reaching out. I’m looking forward to this conversation!

Let’s start with the question I posed in my original blog post: Is NFF’s definition of change capital just about improvement or adjustment on the margin, or is it about transformation as well?

Rebecca Thomas: I think the question is a good one. If I take you back to 2008, when we introduced this term to the field, every organization was undergoing a period of tremendous turmoil as a result of the financial crisis. So we found that it would be irresponsible to demand that organizations undertake sizable transformative changes and risk undermining their financial health and their artistic success in the process.

That does not mean at all that change capital can’t or shouldn’t be deployed towards significant change. Leading for the Future, a program funded by the Doris Duke Charitable Foundation and directed by NFF, was the field’s first major experiment in change capital. The program invested in ten performing arts organizations’ strategic plans for adaptation. In fact, in many cases organizations that applied to the Leading the Future Initiative came to us with very transformative plans for change.

KMW: That’s really interesting. So this definition that NFF introduced over six years ago, was, in part, influenced by rather extreme circumstances. Has your definition and/or your thinking changed since then?

RT: The definition I use now is: change capital is a substantial, flexible, multi-year infusion of capital that supports organizations in adapting their programs, operations and finances in ways that contribute to their long-term health and artistic vibrancy.

Depending on the needs of the organization and the resources available, these adaptations can take the form of modest adjustments to business or program delivery models, or be substantial transformations in how an organization conceives of itself and its work. But at its essence, change capital is an investment in the enterprise that underpins artistic innovation and risk-taking.

KMW: Another element that I felt was missing from the old NFF definition was change capital was any sense of the human element of change management. What do you see as the role of human intervention in change processes?

RT: There is a very important human element to any kind of transformative change, or even a more modest adjustment to an organization’s business and programs. In the Leading for the Future program, the money was an essential component, but there was also a very intensive, one-year planning process that every organization went through to develop its change strategy and financial model and to define how it wanted to measure its progress.

KMW: Who was it critical to involve in that planning process?

RT: In pretty much every situation the Executive Director was driving the change process. That said, it was the organizations that really collaborated – bringing in artistic leadership, their boards and different departments – through a cohesive, interactive process that I think got the most out of the program.

KMW: Are there other key factors to success in leveraging change capital?

RT: I think another key factor is an ability to look outside of one’s own organization for expertise. For example, in Leading for the Future, it was really important for the organizations investing in new technology initiatives to search out new ideas in the arts sector, other non-profit sectors or even in the corporate sector. I would say that those organizations that had a culture of learning benefitted much more greatly.

KMW: Anything else?

RT: The use of data to guide course corrections is also critical. The most successful organizations are rigorous about collecting programmatic, financial and operational data that illuminate progress against their change strategies. They are also rigorous in reviewing the data, talking about the data and deciding what to do and what not to do as a result of the data.

KMW: So leadership, culture, scanning the external environment, and the use of data are all important capacities for leveraging change capital. What do you do with organizations that aren’t strong in one or two or three or more of those? Is change capital something that’s not the right resource for all organizations?

RT: Yes. I think that’s a really important point. It’s critical that we not assume that every organization is ready for transformational change. Many organizations first need to stabilize, or recover from a period of deficits or accumulated debts. Of course, funders risk plugging a hole that will open up again if they give an organization with a structural problem an infusion of recovery capital without also providing an infusion of change capital alongside a strategic plan for change. The nice thing about Leading for the Future was that we were flexible about the timing and purpose of our capital deployments as circumstances changed. When a few organizations experienced significant hardships during the recession, we allowed them to use a portion of their funds for liquidity or debt repayment. This then paved the way for the later, more appropriate investment of change capital. It was stabilization first and change second.

KMW: In the original definition of change capital, it seems that revenue is the ultimate goal of a change capital infusion. Do you still see that as the right goal?

RT: Generating more reliable revenue to pay for an organization’s ongoing cost structure once it has implemented change is a significant goal, and it is what makes change capital different from other kinds of capital. It is not the only goal. Ultimately, change capital allows for creative freedom by providing organizations with the resources to re-imagine aspects of their business and artistic programs, whereas not having those kinds of funds can compromises artistic dreams. The goal is financial stability and health in the service of artistic vitality, even if that relationship takes many, many years to materialize.

KMW: Change capital is hard for organizations to get their hands on right now. How organizations can get access to this kind of capital? What kind of barriers will they face and how might they break them down?

RT: Every organization faces substantial challenges in raising not just change capital but really any kind of flexible money for their balance sheet. In the LFF program, we heard time and time again, even from the most successful groups, that a) they feared that they would be penalized and lose support if they were candid about their financial challenges and their capital need; and b) they didn’t think that their funders wanted to hear about funding that wasn’t tied to a new, sexy project or some kind of innovation or growth initiative.

A few organizations have found themselves cobbling together short-term project grants to continue the change efforts that they started under Leading for the Future.

I also think the lack of understanding among funders about the difference between revenue and capital in our field is a big barrier. I think funders often times give revenue and have capital expectations. They provide a general operating support grant, which ostensibly should be for organizations to do what they already do, yet the outcomes they expect are tied to innovation, growth or change. I think as a sector we need to be a whole lot clearer about the different roles of money. Are we providing revenue to help organizations do what they already do or are we providing capital, which is flexible, long-term and tied to more ambitious outcomes?

KMW: If you were to launch LFF 2.0, what would you do differently?

RT: LFF was an experiment. Every organization was given the same amount of capital: $1 million over five years. When we conceived of the program with the Doris Duke Charitable Foundation, the idea was to invest in ten ideas for transformative change, not to tie funding amounts to organizational size in a conventional way. With the benefit of hindsight, we could have been more conscientious about matching the capital to the scale and the scope of each organization’s change strategy.

Also, LFF introduced one type of capital to the sector. In implementing the program, we came to see change capital’s placement within a “hierarchy of capital need.” All organizations need liquidity first, so they have a relatively stable foundation from which to pursue change. Some may need “recovery capital” (to repair a broken business model), alongside an investment of change capital. Future capitalization programs should seek to understand organizations’ “next, best use” of capital before making a determination of what kind of capital to invest.

KMW: Thank you, Rebecca!

This interview has been condensed and edited.

Learn more

During September, I also spoke with Holly Sidford (who worked closely with NFF on Leading for the Future, and developed several publications about change capital) and Jesse Ehrensaft-Hawley (of Global Action Project, an organization that invested in a change capital process). I encourage you to read my interviews with them about their perspectives on the definition and practices of change capital.

Karina Mangu-Ward is the former Director of Strategic Initiatives at EmcArts.