Community Investors: Making Money While Making Social Change

THE VISION

FOR COMMUNITY INVESTING

1

LIFE LESSONS ABOUT MONEY

by Sylvia

At some point in our lives, we begin to think ahead. Having and making money is one of the first issues we consider. We instinctively develop wealth creation strategies, and it often requires that we change our perception of money. Well-known American financial advisor, author and TV show host Suze Orman refers to this process as facing your fears and creating new truths about money.¹

The insights shared in this book are about money—with the intent of helping individuals across the spectrum, from emerging young leaders to innovative entrepreneurs to the 50-plus generation and senior citizens, change their perception and create new truths about the tax-exempt sector (nonprofit organizations). The tax-exempt sector is a viable money-making environment as well as a way to do good and serve society in a socially conscious way.

Many individuals have made earning income their mission and passion. They study the intricacies of the economy, read the Wall Street Journal and devour books on how to make money. For some, making the money is the ultimate outcome—not spending it. For others, establishing a comfortable lifestyle is the goal. But whatever the reason one seeks to make money—to spend it, save it, have it or give it away—many fail to consider the money-making opportunities that exist in the tax-exempt sector.

This book is a reference tool for devising a strategy for becoming a magnet for money. It gives individuals seeking to combine doing good with making money—we call them Community Investors—a step-by-step process for accessing an alternative source of money and wealth.

BEFORE COMMUNITY INVESTORS

One day, while an employee in the federal government, I woke up with a realization that changed the course of my life: No matter how hard I worked or what creativity I brought to the job, at the end of the day, my take-home pay would not change; nor would my ability to impact my promotion potential, due to the rigid seniority system in government. At the time, I was thirty-three years old and had never given thought to money as a type of reward for superior performance.

In my family of origin, due to a strong religious foundation, we never focused on access to or lack of money. We instead focused on the trust and belief that God would provide more than we needed when we needed it. Money was never a part of our dinner conversations, nor was having money a fixation. We always had enough money to take care of what we needed and wanted.

My life goals were very simple: go to college and get a good job. My parents considered going to college to be the prerequisite to becoming gainfully employed and self-sufficient. What that really meant was earning just enough money to pay our bills and cover our lifestyle expenses; that is, get a job, so we could live "Just Over Broke." Maybe I was naïve, but I never thought about money for any other purpose, such as philanthropy, social prominence and acceptance, or a measure of performance.

In terms of money lessons, one of my clearest memories of law school is from my tax law class. The subject was annuities, and the professor asked if we would rather have our annuity in one lump sum or in installments. I responded that I would prefer installments. I knew nothing about investments, never considered financial matters, and never thought about situations that would make it more beneficial to access all the funds at once. My thought was that it would be nice to have a check coming every month. Needless to say, my professor gave me my first financial literacy lesson: Take the lump sum and invest it for the compounded interest; seek a return on the investment.

In 1994, after deciding that I was not going to work in the federal government until I retired, I began exploring what assets I could leverage to change careers. At the time, I was serving on the community outreach committee at my church. The issue came up of the need to create a tax-exempt organization to operate a day care center. At that point, I knew nothing about tax-exempt organizations. So, I contacted a classmate from law school who worked for the Internal Revenue Service (IRS) to see if I had somehow missed that day in our tax law class. She informed me that the subject had not been covered in law school, and was only a one-hour discussion as part of her Master of Laws (LL.M.) in Taxation program. I decided I would just have to learn it on my own and rely on IRS tax-exempt organization specialists for assistance.

I did just that, and subsequently provided pro bono legal services to community-based organizations on tax-exempt matters for several years. That experience actually provided me the opportunity to resign from my federal government job five years later in 1999. I was able to convert my pro bono legal work into a lucrative and rewarding business.

I left my federal government career at the height of the social entrepreneur movement when we started to see a blurring of the line between for-profit and nonprofit organizations. I did not fit the classic definition of a social entrepreneur because I was not motivated solely by a social mission; instead, I created the concept of Community Investor because it fit the fact that I was motivated by the economic opportunities and incentives of tax exemption and economic wealth as much as I was committed to the notion of charity and social benefits.

So, just who is a Community Investor? Like me, a Community Investor is a person or organization that operates with the objective of making money and realizing a profit while using strategies reserved for public charities, and that uses the incentives and advantages of tax exemption to change the landscape of the surrounding community. A Community Investor is driven by the passion to balance being a community change agent and being a magnet for money.²

To broaden my knowledge in the area of tax exemption, I became an avid reader of the journal The Chronicle of Philanthropy. In a 2003 issue, a development officer from Columbia University was featured and was asked what books development officers should read.³ Her simple, yet loaded, answer was to read books about the economy. So, I began to study the economy. Because I had minored in mathematics in college, I was able to take graduate-level courses in economics at the University of Maryland College Park as I pursued my exploration of the workings of money and our economy. I supplemented my studies by reading books listed on the Wall Street Journal business bestseller list, as well as books about successful entrepreneurs, investors and businesses. Such books broadened my thinking and knowledge base. We highly recommend them as required reading for Community Investors.

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COMMUNITY INVESTOR TIP

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THE COMMUNITY INVESTOR BOOK LIST

These books and others helped shape our thinking about Community Investors and guided the writing of this book:

Good to Great: Why Some Companies Make the Leap... and Others Don’t, Jim Collins

Good to Great and the Social Sectors: A Monograph to Accompany Good to Great, Jim Collins

Personal History, Katharine Graham

The World Is Flat, Thomas Friedman

Wealth and Our Commonwealth: Why America Should Tax Accumulated Fortunes, William H. Gates, Sr., and Chuck Collins

Take On the Street: What Wall Street and Corporate America Don’t Want You To Know, Arthur Levitt

Secrets of the Millionaire Mind, T. Harv Eker

The Search: How Google and Its Rivals Rewrote the Rules for Business and Transformed Our Culture, John Battelle

The Tao of Warren Buffett: Warren Buffett’s Words of Wisdom: Quotations and Interpretations to Help Guide You to Billionaire Wealth and Enlightened Business Management, Mary Buffett and David Clark

Buffett: The Making of an American Capitalist, Roger Lowenstein

Winning, Jack Welch

Conquer the Crash: You Can Survive and Prosper in a Deflationary Depression, Robert R. Prechter, Jr.

Rich Dad Poor Dad Series, Robert Kiyosaki

The Great Tax Wars: Lincoln to Wilson—The Fierce Battles over Money and Power That Transformed the Nation, Steven R. Weisman

The Google Story, David A. Vise

Blink: The Power of Thinking Without Thinking, Malcolm Galdwell

Freakonomics, Steven D. Levitt and Stephen J. Dubner

Copy This!: Lessons from a Hyperactive Dyslexic Who Turned a Bright Idea into One of America’s Best Companies, Paul Ofalea

The Influencer: The Power to Change Anything, Kerry Patterson, Joseph Grenny, David Maxfield, Ron McMillan, Al Switzler

What Would Google Do?, Jeff Jarvis

Showing Up for Life: Thoughts on the Gifts of a Lifetime, Bill Gates, Sr.

Think Big and Kick Ass in Business and Life, Donald Trump

Uncharitable: How Restraints in Nonprofits Undermine Their Potential, Dan Pallotta

Outliers: The Story of Success, Malcolm Galdwell

The Bible, New Living Translation

The Rise of the Creative Class, Richard Florida

The Green Collar Economy: How One Solution Can Fix Our Two Biggest Problems, Van Jones

Good Counsel: Meeting the Legal Needs of Nonprofits, Lesley Rosenthal

Forces for Good: The Six Practices of High-Impact Nonprofits, Leslie R. Crutchfield and Heather McLeod Grant

Gems of Wisdom for Succeeding in the 8(a) BD Program—and Beyond, Sharon T. Freeman, Ph.D., and M. Charito Kruvant

Impact Investing: Transforming How We Make Money While Making a Difference, Antony Bugg-Levine and Jed Emerson

The Non Nonprofit: For-Profit Thinking for Nonprofit Success, Steve Rothchild

The $100 Startup: Reinvent the Way You Make a Living, Do What You Love, and Create a New Future, Chris Guillebeau

The Generosity Factor: Discover the Joy of Giving Your Time, Talent and Treasure, Ken Blanchard and S. Truett Cathy

Tribes: We Need You to Lead Us, Seth Godin

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I came to believe that the tax-exempt sector⁴ was the Holy Grail of the premise of equality of economic opportunity. The economic playing field is mostly level in the tax-exempt sector of our society. Doing good and making money are not mutually exclusive. In fact, the tax- exempt sector, by definition, is about the process of making and distributing wealth.

ACCESS DESPITE BARRIERS

As I contemplated ways to earn income in this sector, I saw limited opportunities and more barriers than access. I had a multitude of questions:

• How do I connect to wealth/money within my community and nationally?

• How do I establish a Katharine Graham Network?⁵

• How do I gain access to networks with the likes of Oprah, Buffett and Gates?

• How do I become a peer of someone like Oprah Winfrey, Warren Buffett or Bill Gates?

• How do I get to the table?

• Where is my seat at the table?

• What is my role at the table once I am seated there?

I describe myself as a baby boomer zippie—intoxicated with attitude, ambition and aspiration. I am conscious, awake and ready. In The World Is Flat, Thomas L. Friedman defines a zippie as a young entrepreneur between fifteen and twenty- five years of age, with a zip in their stride, cool, confident and creative, seeking challenges, embracing risks and shunning fear.⁶ These young people feel no guilt about making money or spending it. They are destination-driven—not destiny-driven. They are outward-looking—not inward- focused. They are upwardly mobile. Zippies want and seek the good life.

The term baby boomer refers to people born between 1946 and 1964. I was born in 1961. The first group of baby boomers turned sixty in 2006, and they are now retiring in record numbers. At the same time, they want to continue to use their life experiences in business, the government and other professions to serve the public. Yet, they want flexibility and adequate compensation for their services.

As Bill Gates, Sr., articulates in the book Wealth and Our Commonwealth, I was not given an inheritance.⁷ Nor did I have Lady Luck assisting me in business, the God-given grace of athletic ability or some other sort of special talent as a pathway to money. Instead, I knew I would have to create access to opportunities and make money for myself. Despite my limited assets and networks, I began to see economic opportunities in the social sector through the use of incentives available to tax-exempt charitable organizations. I began to understand that the social sector could serve as a business platform for gaining access to wealth and making money. I saw my participation in the social sector as my connection to the Oprahs, Buffetts and Gateses of the world. Today, my Katharine Graham Network is a network of Community Investors!

BECOMING A COMMUNITY INVESTOR

This book is not intended as an ivory tower experience— academically rigid or elitist. It is a living exhibit of my past and present life experiences as a Community Investor, living without a safety net of guaranteed income and cash flow. In other words, there is no paycheck every two weeks regardless of my performance or level of effort. Our goal here is to authentically and transparently share how to become a Community Investor through practical applications—how to turn your God-given assets into financial rewards.

Since resigning from my comfortable good government job, generating sources of income has been an exciting process! Yes, it has been challenging; there is uncertainty most of the time. But as a Community Investor, I strive to do my personal best every day. I have yet to create my endowment, but I can confidently say that the strategies my coauthors and I employ in our organizations and share in this book do, without a doubt, pay off.

As we continue to build our ships, set sail and work hard to return safely to shore, we invite you to join us on our journey. The reward is priceless—self-made money and the satisfaction of doing something good.

Godspeed,

Sylvia (Nzinga) Louise Quinton, Esquire

A mind once stretched by a new idea never regains its original dimensions.

—Oliver Wendell Holmes

2

LESSONS LEARNED IN THE FIELD

by Theo

For more than twenty-seven years, I have either worked in-house for tax-exempt organizations or provided legal assistance to them through my private law practice. I have also served tax-exempt entities as an adjunct law professor in a law school-based community development clinic. I am amazed at the financial disparities between the more established and financially secure tax-exempt organizations and those surviving on the margins.

I believe the disparities are a direct consequence of an organization’s level of understanding about the scope and breadth of the federal tax code. Well-established tax-exempt organizations depend on a bevy of hired guns who are aggressive about understanding the tax code and have learned how to navigate the legal, financial and business hurdles which are often stumbling blocks for the more marginalized tax-exempt organizations. The more established organizations have learned to maneuver within the complex tax code to develop products and services— including licensing—that organizations market in order to sustain themselves financially.

My experience has been that tax-exempt organizations operating on shoestring budgets are reluctant to invest in, and may even be fearful of hiring, experts to help them take advantage of the tax code. Moreover, such organizations are less inclined to think outside the box to develop strategies to increase their revenue streams. However, less- established tax-exempt organizations and those struggling to survive would benefit from a new way of thinking about how to attract financial resources that could allow them to better deliver services to the underserved communities in which they operate. Without question, this would require a paradigm shift.

Which brings me to the purpose and scope of this book: answering the question of how to establish a tax-exempt organization that is financially viable on the one hand, while providing much-needed services to communities on the other. We hope you will find the answers in this publication.

Frankly, now is the time to develop new approaches to identifying funding streams for your tax-exempt organization. Government grants and corporate contributions are drying up and becoming increasingly competitive, and philanthropic resources are being redirected to national and international concerns and issues. Yet, there