It used to be that a nonprofit leader receiving a check from a donor would smile politely, say a big “Thank You” and go on her way. But just as (seemingly) every aspect of the world as we know it is changing, so too is philanthropy. We are starting to question long-held assumptions about how money is given and how it should be spent.
As a nonprofit leader, if you want to start securing and using money in a more strategic way, if you want to move from fundraising to financing, you need to bring your donors along with you.
It is up to you to enlighten your major donors about how they can use money more effectively. So that instead of being merely the recipient of your donors’ largesse, you become a true partner in putting their money to work for real social change, which is today’s topic in the ongoing Financing Not Fundraising blog series.
The Financing Not Fundraising blog series encourages nonprofits to move from the exhausting hamster wheel of fundraising to a long-term, sustainable financing strategy for their work. You can read the entire series here.
We simply can’t sit around and wait for philanthropists to suddenly understand the hurdles nonprofits face. So the next time you meet with a major donor (an individual, foundation or corporate donor with whom you have a one-on-one relationship), make time to have a deeper, different conversation aimed at enlightening them about the realities you face.
Here are some ways to start that conversation with your donors:
“Overhead Isn’t a Dirty Word Anymore.”
The notion that “overhead” expenses, like administrative and fundraising costs, are unseemly in the nonprofit sector is becoming antiquated. Instead there is a growing effort to evaluate nonprofits based on the results they achieve, not the way they spend their money. And effective nonprofits need strong organizations behind their work. Take some time to educate your closest donors about this growing movement to support all aspects (including staffing, systems, technology) of a nonprofit organization.
“These Are The Hurdles Standing In Our Way.”
Let’s face it, most nonprofits struggle with some key organizational challenges. Perhaps you struggle to secure sustainable funding; or you can’t recruit and engage an effective board; or you want to grow, but lack an effective growth plan. Whatever your challenges are, start being more open with your funders about those challenges. It is a risky conversation, to be sure. But I bet that your long-term funders have probably already recognized some of those roadblocks, and your open and honest approach to facing them might start a new conversation about solutions.
“Here Are Some Solutions to Those Hurdles.”
You don’t want simply to tell your donors a laundry list of woes. As my mother always said “Don’t come to me with your problems, come to me with your solutions.” So before you tell your close donors what is holding you back, do your research about how you might overcome those hurdles. If you struggle to bring enough money in the door, perhaps a Financial Model Assessment could help. If you can’t effectively track and communicate with donors, you may need new technology and systems. If you don’t have enough staff to grow your programs, analyze the additional expertise you need and calculate how much it would cost. Put together a thoughtful plan for how you can overcome the obstacles you face.
“Here is How You Can Help.”
Which brings me to the key conversation you need to have to enlighten your donors. You cannot execute on a change plan if you don’t have the resources to do so. That’s where your key donors come in. If you’ve spent the time educating them about organization-building, the key obstacles in your way, and your plan for overcoming those obstacles, then the next logical step is to ask them for help. If you have invested them in the need and direction for change, you are ready to ask them to invest in the solution.
I know it’s difficult for nonprofits and their major donors to have open and honest conversations. But we will never move forward if nonprofit leaders don’t start initiating some difficult, but potentially game-changing conversations with their donors. Indeed, effective social change depends on it.
The kick-off of Austin’s MindPop collaboration was this morning. MindPop, which I’ve written about before, is a collaboration of a handful of leading Austin philanthropists hoping to improve access to arts education for all Austin children. They want to understand what is holding our kids back from learning about and experiencing the arts and what needs to change in the infrastructure of the city in order to fill those gaps.
The project has 3 phases:
- Gap Analysis to determine what is missing in the arts education ecosystem in Austin
- Creation of 4 bold goals to solve those gaps
- Distribution of close to $180,000 in grants to fund capacity building of the overall system and of individual nonprofit arts organizations
So today was the launch of the project with about 75 of the who’s who in Austin’s philanthropic, education, and arts worlds in attendance. The keynote speaker was our new Austin Independent School District superintendent, Meria Carstarphen, who obviously has tremendous passion for the importance of arts education. Her recent arrival in Austin is itself a real opportunity for change to the system.
As inspiration for Austin’s foray into building this collaboration, Gigi Antoni, CEO of Dallas’ Big Thought, was there to explain how her organization led Dallas from a community that dismissed most of their art and music teachers in the 1970s, to a comprehensive, fully funded in- and out-of-school arts learning environment. Over the course of the last 12 years, Big Thought has brought together philanthropists, educators, arts organizations, schools, parents, and community leaders to create an ecosystem for arts education that ensures that all Dallas children have a rich art-centered learning environment both in school (90 minutes of arts instruction for every student every week) and in their communities (music camps, rehearsals, rec center activities, etc). For Gigi, the big transformation was that Dallas went from a bunch of individual solutions and organizations that were providing “random acts of change” to a “completely changed environment that works as a SYSTEM” to create arts education for every child in Dallas.
I have to admit that I am a bit skeptical about whether what worked in Dallas will work in Austin. We have a tendency in this city that I love to talk and plan and envision a future, but sometimes find it difficult to move towards action, perhaps part of that stems from a lack of infrastructure and capacity. So what I am really excited about with MindPop is not the gap analysis and the creation of 4 ideas for solutions. I have no doubt that the gap analysis will be thorough and the ideas for solutions creative and exciting. I am most interested that a group of five very influential philanthropists (family foundations, a corporate foundation, and the Austin Community Foundation) is pooling their resources and efforts toward a common goal, and more importantly, toward building infrastructure and an ecosystem for the arts education sector. Often it is the infrastructure that is missing in true solutions. Ideas are great, and so many fabulous ones exist. But the real hurdle is taking a great idea and building the infrastructure, support, ecosystem behind it to create results.
The other exciting thing about this project is that it could become a model for funder collaboration and ecosystem creation that could be replicated in other nonprofit issue areas. What if all of the education, or healthcare, or youth development, or environmental funders in town got together and decided that they wanted to create an ecosystem of money, expertise, organizations, solutions that could work together towards system-level, not individual program level, change? That would be pretty interesting.
I’m thrilled that these philanthropists are working so closely together, putting money and resources behind this collaboration, and being very public and transparent about the process. I would love to see more philanthropists putting their resources behind big picture, infrastructure-building solutions.
I plan to keep my eye on this project, and I’ll keep you posted.
I mentioned earlier that a group of Austin philanthropists is working on a collaboration around building the capacity of local arts education organizations. I now have more information on the project, and as an example of philanthropic collaboration and capacity building it’s pretty interesting. The project, called Mind Pop, is a $225,000+ collaboration among Still Water Foundation, Webber Family Foundation, Applied Materials, Tapestry Foundation, the Education Foundation of America and additional funders who they are still working to secure. The leaders of Mind POP hope to improve the unequal access Austin students have to high quality arts education and the lack of capacity and collaboration among arts education organizations in town.
Their goals for the project are to:
- Establish a baseline for measuring improvements in access and quality
- Pinpoint inequities in the community to design targeted solutions
- Strengthen relationships between key community partners
- Fund four pilot projects designed by the key partners to address systemic change
- Improve the capacities of 25-40 arts education orgs and provide seed funding to strengthen their programs
- Act collaboratively, laying a foundation for ongoing coordination and potential national funding going forward
The project has three phases over the next year. Phase One is an analysis to understand gaps in resources in the current arts education landscape. Phase Two is a series of professional development sessions for arts education organization leaders to address the four most critical barriers to capacity that they see. These two phases will happen concurrently. Then, Phase Three will be the distribution of $150,000 in grants to the arts organizations that participated in the capacity building sessions. This money is comprised of four systemic change grants at $25,000 each and 40 mini-grants at $1,000-2,500 for organizational change projects.
The details, partnerships and funders are still being worked out, so this is all subject to change, but I imagine the basic overall design of the project will stay the same.
Although the scope and dollar amount of the collaboration and capacity building project is relatively small, it is impressive for two reasons. First of all, I like to see philanthropists pooling resources for greater leverage. Particularly in Austin, where our foundation assets are small compared to the foundation assets of other cities, collaboration is crucial to achieve broader and deeper social impact. So the fact that these family and corporate foundations are creating a pooled fund of money means a greater amount of capital working for the same goal, which hopefully means a greater chance that the goals are realized. And secondly, this project is interesting because it seeks to understand AND remedy problems of capacity within the nonprofit sector. I have talked at length about the need for greater capital to fund organization building in the sector. Philanthropists are often hesitant to see their money go anywhere other than direct program services. But when philanthropists like those in Mind POP recognize how important capacity and organization building is to addressing the root cause of social problems (like unequal access to arts education) they are moving the sector forward. They are recognizing and demonstrating to their colleagues that capacity can and should be supported.
It will be interesting to see how this project progresses and the outcomes it achieves. I’ll keep you posted.
I’ve discussed before how important boards of directors are to the effectiveness of the nonprofit sector. But I think they are particularly critical to overcoming the bias against nonprofit capacity. Boards of directors are a largely untapped resource available to nonprofits. If nonprofits could figure out how to tap into the expertise, networks, knowledge and resources that board members bring to the table it could be a new day for the nonprofit sector.
But, really, the burden for change lies with the board members themselves. Board members must take a larger, more strategic role in the organizations that they serve. And this could be particularly effective in the area of organizational capacity. Board members need to help their nonprofit organizations uncover, plan for and fund the staffing, technology, expertise and systems required to make the nonprofit more effective at creating social impact.
In my work helping nonprofit organizations to build their capacity and infrastructure in order to grow their social impact, it is board members who sometimes stand in the way of that growth. Board members tend to like to see most of the dollars that a nonprofit raises go back into programs, not organization building. But if a nonprofit’s own board of directors doesn’t understand what a losing battle it is to continually starve nonprofits out of the most necessary kind of resources, capacity-building resources, then how will donors ever understand it? And how will nonprofits ever be able to get better at tracking their results, communicating with staff and volunteers, increasing their fundraising function, marketing to their constituents, etc.?
I am encouraged by some of the organizations I meet with who have been able to convince their boards and major donors to make an investment in capacity and growth planning, but we definitely need to see more. We cannot simply leave it up to beleaguered, exhausted Executive Directors to push organization-building forward. The EDs are often the ones balancing organization needs against funders and board members who have no interest in those needs.
Therefore, I challenge board members to start putting their time, effort and resources behind organization building. And here are five things they can start doing today:
- Determine the True and Full Costs of Effectively Running The Organization. Stop asking nonprofit staffs to get by with less and less. Stop telling an Executive Director to lower the salary they can offer a talented Development Director. Stop telling EDs they shouldn’t be spending money on technology, that they should use a free database instead of buying a more effective database. Stop encouraging nonprofit staffs who lack expertise in a certain area (fundraising, evaluation, strategic planning) to use volunteers instead of consultants to help them.
- Encourage the Organization to Create a Capacity-Building Plan. Nonprofit EDs are often so caught up in the day to day that they don’t have the luxury of stepping back and figuring out what is required to make the organization more effective. Ask your ED to spend some time coming up with a capacity building plan that will take the organization to the next level.
- Make a Significant, Personal Financial Investment in the Organization’s Capacity. Stop asking that your annual gift to the organization go to your favorite program. Organization building dollars are very difficult to find. So those closest to the organization should be the first to step up and invest in capacity. And don’t just give the required amount. Make an investment that is significant to you. If you truly believe in this organization, take out your checkbook and make it hurt.
- Convince Your Fellow Board Members to Follow Suit. Boards are often led by a vocal few who convince the rest to go along with their plans. If you can be that vocal member who can articulate the need for organization building, how it will result in greater social impact over time, and how the board must be the champion of and seed investor in organization building, you can marshal the organization’s greatest resource (its board) toward becoming a strengthened, healthier nonprofit.
- Tap Into Your Network to Find Organization-Building Dollars. Think strategically about who you could convince to join you in strengthening the capacity of this organization you serve. Then pitch them and get them to invest with you in the capacity plan. Make the case for why a Development Director, or a strategic plan, or an evaluation study or new technology will expand the social impact that your organization is making. One of the reasons there aren’t more capacity-building investments made in the sector is because board members are not making a compelling case to their friends and colleagues about the importance of capacity and how those dollars can actually provide much greater impact down the road than a direct service grant can today.
The nonprofit sector is struggling, as are many of our institutions and systems. So things have got to change. Board members can be an instrumental driver of the change that results in stronger, healthier, more effective nonprofit organizations creating real, successful solutions for the problems we face. But in order to get there, board members have to understand and embrace the power of organization-building.
If you want a roadmap for making your board more effective, download the “10 Traits of a Groundbreaking Board” e-book.
It amazes me how much the funder, government, and even sometimes nonprofit leadership, bias against nonprofit capacity building holds the sector back. It seems like such a simple thing: in order to get more results you need to devote time, energy and resources to organization building. In order to find the resources required to deliver programs, you need to invest in fantastic fundraisers. In order to track program results, you need a system which includes technology and staff. In order to have a fantastically talented staff, you need a human resources function that takes the time to vet great candidates. A nonprofit cannot exist on direct program dollars alone.
The idea that the vast majority of nonprofit funding should go to direct program expenses is ludicrous. Why is there even a distinction between program and non-program expenses? Doesn’t a nonprofit exist to deliver programs? And doesn’t that mean that everything they do helps to make those programs better, stronger, bigger, more effective? Why is capacity such a dirty word?
I met with a nonprofit Development Director earlier this month who has had a really hard time convincing their CEO and board to let them spend money on a donor database and some fundraising materials. Yet, at the same time the Development Director is expected to raise millions of dollars in revenue. That sounds completely crazy, doesn’t it? But in the world in which I work that is often the rule rather than the exception. Infrastructure, capacity, fundraising, marketing, and operations dollars are somehow bad, dirty, not necessary, dismissed.
Which is why the recent article in the Stanford Social Innovation Review by Bridgespan Group’s Ann Goggins Gregory & Don Howard was such a breath of sanity-infested fresh air. If you are nonprofit staffer, board member, donor, or volunteer, I really encourage you to read the whole article. They have studied what they call the “Nonprofit Starvation Cycle”–nonprofit organizations’ continual drive to do more and more with less and less– and come up with a path out of the insanity.
What seems like such an obvious statement, its almost a truism–“Organizations that build robust infrastructure—which includes sturdy information technology systems, financial systems, skills training, fundraising processes, and other essential overhead—are more likely to succeed than those that do not”–is so often overlooked by nonprofit organizations. But I think most nonprofit leaders would tell you that they would love to spend money on infrastructure, that they absolutely understand the return on investment, but funders and board members have a hard time allocating money to those projects.
In their work with nonprofits at Bridgespan Group, Gregory and Howard uncovered three reasons for this inability to build capacity in the nonprofit world:
- Funders have unrealistic expectations about how much it costs to run a nonprofit
- Nonprofits need to conform to these unrealistic expectations in order to receive funding
- Nonprofits underreport infrastructure expenditures on tax forms and in fundraising materials
The end result is a vicious circle where few fund or spend money on infrastructure in the nonprofit space: “This underspending and underreporting in turn perpetuates funders’ unrealistic expectations. Over time, funders expect grantees to do more and more with less and less—a cycle that slowly starves nonprofits.”
The solution, Gregory and Howard argue, is to begin at the source of this vicious cycle: the funders. They argue if funders can be educated about the true costs and infrastructure necessary to build organizations to solve social problems, then we can break out of this destructive cycle. I strongly agree with that. It is difficult for nonprofits to turn to the hand that feeds them and tell them that they need more in order to do more, but such conversations are absolutely critical if we are to get beyond the starvation cycle.
But funders aren’t the sole impediment. Gregory and Howard argue that nonprofits play a part in this dysfunctional view of capacity, and there are a number of things that they can do to turn things around. Nonprofit leaders should analyze their real overhead costs and infrastructure needs, educate their boards about these real needs and then engage their board in communicating these needs with funders. And board members are just as culpable. They must encourage nonprofit leaders to develop strategies to address their true infrastructure needs and then take responsibility for encouraging funders (often board members’ friends and colleagues) to be realistic about what is required to make the nonprofit highly functioning.
I actually think that funders are much more receptive to these capacity conversations than some nonprofits give them credit for. My work at Social Velocity is all about organization building, and I often encourage nonprofit leaders to tell their board members and their closest donors what they really need to succeed. I have found that those donors who really believe in an organization will understand when a compelling case that it takes resources to take an organization to the next level is put before them.
I think the bottomline is that we have to stop playing games. Stop underreporting infrastructure costs, stop telling funders its ok to ask nonprofits to do more with less, stop telling the public that direct program costs are better than indirect program costs, stop telling boards of directors that its ok to ignore infrastructure needs. It’s a difficult conversation, there is no doubt, but what’s the alternative? We all know how a starvation cycle ends.
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