nonprofit starvation cycle
Something really interesting could emerge out of new federal rules about overtime pay. My hope is these new rules force a better conversation between nonprofits and their funders about the real costs of creating social change.
This coming December new Department of Labor rules will go into effect doubling the salary threshold for guaranteed overtime pay, from about $23,000 to $47,476 so that employees (in any sector) who make less than that threshold will be guaranteed overtime pay whenever they work over 40 hours a week.
This new rule has a potentially enormous impact on nonprofits, which (because of their resource-constrained nature) often underpay and overwork their employees. Many have pointed out what a burden this will place on an already strapped nonprofit sector, which often tries to squeeze ever more productivity out of staffs that are already working well over capacity.
As the National Council of Nonprofits argues, nonprofits receiving government contracts signed prior to this new ruling will be forced to deliver the same services at a higher cost:
“Nonprofits with government grants and contracts at any level of government (local, state, tribal, or federal) will now be put in the position of having to comply with new federal requirements that impose new costs not known when those grants and contracts were signed. Unlike businesses that can raise prices, or governments that can raise taxes or curtail public services, nonprofits with government grants and contracts may find themselves contractually bound to maintain services at increased costs that may not be expressly covered by existing written agreements.”
Certainly in the short-term this new overtime rule puts nonprofits in a really difficult position.
But I wonder if in the long-term this new rule could shine a light on the impossible situation in which many funders put nonprofits. With a new ceiling on just how many staff hours a nonprofit can get out of a dollar, I wonder if nonprofit leaders will be forced to stand up and say “Enough is enough!”
Writing in The Atlantic about the potential impact of the overtime rule change on nonprofits, Jonathan Timm seems to think the solution is for nonprofits to simply charge funders more for their services, as he put it:
“If nonprofits truly care about the well-being of their staffs, one easy place to start is simply to write higher salaries into budget proposals. Likewise, government and philanthropic funders could be a lot wiser in how they dole out money: Scarce public-service dollars can impose a state of financial stress on the people who put them to use.”
Ahhhh, if only it were that easy…
But at its core, that is the problem. Nonprofit leaders are wary of calculating and articulating the full costs (including all staff costs) of their programs, and government and philanthropic funders are unaware of and unwilling to pay those full costs. But with growing demands on a nonprofit sector already stretched to the brink, something has to give. Perhaps this new reality will force a conversation about what it really costs to address the social challenges we face, and how we must effectively and adequately support the nonprofit sector we have charged with addressing many of those challenges.
The problem has always been that nonprofit leaders are so committed to the work they do and so empathetic towards their clients that when budgets and staff are tight, those leaders simply work longer and harder and ask their employees to do the same. But with these new rules that can no longer be the case.
Program budgets will have to grow to reflect the real costs of those programs (including all of the countless staff hours previously hidden by free overtime). And funders who want more and more services at lower and lower costs will be forced to reckon with the actual costs of the programs in which they want to invest. These new overtime rules will force the “real costs” conversation that many in the nonprofit sector have been encouraging, where nonprofits calculate and report the full costs (including the actual cost of staff time to deliver the work) of the work that they do.
So instead of being a negative change, perhaps these new overtime rules could actually serve to propel nonprofits and their funders toward calculating, articulating and investing in what it really takes to create social change. Call me an optimist.
Photo Credit: Dave Dugdale
There was an historic victory last month in the battle to rid the nonprofit sector of the Overhead Myth. The federal Office of Management and Budget adopted new Uniform Guidance rules that when any local, state or federal agency contracts with a nonprofit at least 10% of the contract must fund the nonprofit’s administrative costs (what the government calls “indirect costs”).
This is huge because nonprofit leaders report (here and here) that government contracts rarely fund even 10% of indirect costs and many times closer to 0%. While this is a big step forward, there is still much work to do in getting nonprofits the money they need to fund the full costs of their work.
The sector is so underfunded largely because we have taught nonprofit leaders that they should keep their indirect costs as low as possible. This is such a ridiculous shackle to put on the sector.
So nonprofits and funders must move to a place where we are funding the full costs of effective operations. But that won’t happen overnight. In fact, it requires that nonprofit leaders do four key things:
- Calculate the Full Costs of Each Program
In order to tell funders and government contractors exactly how much a program costs, you need to first understand those costs yourself. And the full costs of a program include BOTH 1)the direct costs (like the program director’s salary, program materials), and 2) the indirect costs (like the percent of the executive director’s salary spent on the program, office rent and utilities devoted to the program). Bridgespan created a really nice guide to figuring out the full (direct and indirect) costs of each of your programs.
- Articulate Those Costs to Funders
Once you’ve figured out the full costs of each of your programs, you must articulate those full costs to funders (individuals, foundations, government contractors) interested in supporting your programs. Explain how you came up with the full costs of each program, why you included both direct and indirect costs, and why you need support for ALL of those costs in order to effectively run the program. If a funder balks at supporting indirect costs, explain that a program without space, leadership, evaluation, or systems would not function, let alone function as effectively as it does.
- Analyze Your Overall Program Mix
But don’t stop there. Turn this new knowledge about the financial impact of each of your programs into a strategic tool. Once you figure out what each individual program fully costs, you can compare the financial and social impact (how well it contributes to your mission) of each program to each other, like this in order to understand how well your entire program portfolio contributes to the money and mission of your nonprofit. Through this analysis you can determine what programs you should expand, which you should continue, and which you may need to cut.
- Stop Selling Your Nonprofit Short
Once you’ve figured all of this out, stop accepting less than what your nonprofit really needs. When you allow a funder to haggle their way to receiving the full product without paying the full price you are undermining your organization and your mission. If a funder can’t or won’t pay the full costs then find someone else who will, or scale back on your programs until you do. Nonprofit leaders must break out of the nonprofit starvation cycle of agreeing to do more and more for less and less. You must stop running programs, or worse, adding new programs when they are not fully funded. Be honest with your board, your staff, your funders, and yourself about what each program really costs and whether or not you have the funding to continue (or grow) those programs.
I believe the Overhead tide is really turning. Nonprofits and their funders are starting to recognize that great programs take real money. But to truly take advantage of that trend nonprofit leaders must figure out the full cost of their programs and have the confidence to ask for, and receive, the funding to cover those costs.
Photo Credit: Dave Dugdale
In today’s Social Velocity blog interview, I’m talking with Ann Goggins Gregory, Chief Operating Officer at Habitat for Humanity Greater San Francisco where she oversees programs, the social enterprise called the ReStore, HR and Operations.
Previously, Ann was a Senior Director at the Bridgespan Group, where she led the organization’s work on organizational learning; managed consulting engagements with human services, education, and youth-serving nonprofits; and spearheaded research efforts on a variety of nonprofit management topics. She remains a Senior Advisor to Bridgespan on issues related to the starvation cycle.
You can read other interviews in the Social Velocity Interview Series here.
Nell: You and your colleague Don Howard are in some ways the catalysts behind the Overhead Myth campaign because of your seminal article, The Nonprofit Starvation Cycle in the Stanford Social Innovation Review back in 2009. How far have we come since that article? How prevalent is the starvation cycle today and what can we do to move beyond it?
Ann: “The Nonprofit Starvation Cycle” names what I consider to be a fundamental truth: “Organizations that build robust infrastructure…are more likely to succeed than those that do not. This is not news, and nonprofits are no exception to the rule.” For decades, researchers and practitioners have argued that low overhead does not equate with efficiency and efficiency, in turn, does not equate with effectiveness.
We are seeing (productive) focus and movement now versus five or ten years ago, yet that starvation cycle is still an entrenched issue. On a positive note, the Overhead Myth campaign has been critical in communicating with donors directly and empowering nonprofits to communicate with “back up.” Though I have mixed feelings about some of the messages in Dan Pallotta’s video, it elevated paradoxes of how costs are treated in the social sector. We’ve also seen targeted efforts to help funders and nonprofits address cost-related issues together. Even the federal government is trying to shift practice: the Office of Management and Budget issued guidance requiring that nonprofits receiving federal funding receive a minimum of 10% indirect rate, or they can negotiate a rate. If this guidance is followed, it will be a major policy win.
Yet we have a long way to go. Talking about terminology isn’t scintillating, but it’s critical to breaking the starvation cycle. Overhead costs aren’t the same as indirect, yet we conflate them. General operating support and capacity building—often seen as ways to help break the cycle—aren’t the same thing. Many nonprofits do not know the full costs associated with their programs, and many funders don’t understand nonprofit finance. Bridging the skill gap on both sides of the equation is critical.
Moreover, a single figure like the overhead rate is appealing because it makes comparison easy. Until nonprofits have better ways to communicate outcomes, we will continue to battle against the simplicity of a ratio. Finally, power dynamics between funders and nonprofits inhibit change; candidly, there aren’t strong forces pushing on philanthropy and government to change their practice. In the absence of such change, nonprofits are understandably worried about shifting their stance on overhead if their competitors do not (I do think there are steps that any nonprofit can take, though).
Nell: Part of what keeps the starvation cycle alive is that it is being fed, as you so clearly point out in your SSIR article, by both funders and nonprofit leaders. One of the things you were working on at Bridgespan was the Real Talk About Real Costs series of nonprofit leader and funder conversations. How effective was it to bring nonprofits and funders together to talk about these issues? And is that potential solution to the starvation cycle scalable?
Ann: Real Talk about Real Costs, sponsored by the Donors Forum with Bridgespan as a partner, brought together 300 leaders from nonprofits and philanthropy to wrestle with what good outcomes really cost. The event built upon a nine-month Community of Practice focused on “tackling the overhead challenge.” This interview has more about how Donors Forum decided to put the cost issue front and center. Another such effort is slated to begin in California in 2015.
In watching funder-nonprofit “mixed company” interactions, I was struck by how many funders expressed dissatisfaction with the grant-making status quo, yet frustrated that foundation trustees did not feel the same way. And I noticed how uncomfortable both funders and nonprofits were about having a tough conversation about full costs. At the event, we gave participants a role-reversal case study where a fictitious grantee and grant-maker had to discuss the terms of a grant; nonprofit attendees acted the part of the program officer and vice versa. In feedback surveys, the majority of comments focused on the discomfort and lack of knowledge they felt in talking about costs. Finding more ways for nonprofits and funders to wrestle with cost issues together would go a long way to building empathy and skills.
I don’t see a single scalable solution, but what feels most scalable as a starting point is a fundamentally different approach to communicating about costs: on websites, in collateral, and in conversations between nonprofit and funder. I believe that most funders can still make restricted grants without making unrealistic demands about how the funds are spent. For instance, what if funders asked “what type of capacity will you need to deliver on this grant?” vs. “what is the overhead for this project?” What if funders moved away from prescribed budget templates that don’t align with how nonprofits think about their resources? Even these seemingly small steps would go a long way to empowering nonprofits to communicate differently. Below I share a few specific ways I think nonprofits can help break the cycle.
Nell: The starvation cycle is just one example of the many ways we hold the nonprofit sector to a higher standard than we do the for-profit sector (costs for R&D, marketing, infrastructure, technology are taken as a given in the business world). Why does that discrepancy exist and how do we overcome it?
Ann: Overhead in the for-profit world—sales, general and administrative costs as a percentage of total sales—is 25% across all industries and 34% for service industries. The cruel irony of holding nonprofits to a much tougher standard is that donors often say that they do this because nonprofits ought to “run more efficiently, like a business.” Most people don’t know the overhead of businesses because profitability matters more.
Unlike businesses, nonprofits can’t report results in a single figure that makes apples-to-apples comparisons easy. One way to overcome this challenge is to move toward highlighting outcomes. I don’t mean standardizing outcomes (although efforts like Perform Well are very powerful), and I don’t mean doing away with financial indicators entirely. I mean moving from touting our overhead to sharing our program results. In an ideal world, nonprofits would be able to share not only their outcomes but also the costs associated with producing them.
I know this doesn’t happen overnight. Starting immediately, I would love to see more funders speak out in support of—and actually fund—these investments. And nonprofits have a role to play in shifting the conversation: by sharing for-profit overhead as a way to challenge assumptions; by taking down the overhead pie chart and other “we’re lean!” messaging from websites; and using systems like the Guidestar Exchange to share our goals and strategies in our own words.
Nell: You recently left the consulting/thought leader side of the sector (as a senior director at The Bridgespan Group) to work in the nonprofit trenches as COO of Habitat for Humanity Greater San Francisco. What are you learning as you work to turn theory about overcoming the starvation cycle into action inside a nonprofit organization?
Ann: I am learning that it is doable and reminded that it is hard. In the last few months, we have taken down the efficiency statement on our website (“87 cents of every dollar goes to helping families…”) and will soon to replace it with statements of outcomes we see for Habitat homeowners. We walked away from a $100K+ funding opportunity because the grant would have allowed a maximum of 10% for indirect costs, and we estimated that the compliance costs alone would have been 2-3 times that. The grant’s focus aligned well with a nascent program, so it was a tough decision.
Under our finance team’s leadership, we also implemented a time tracking system. We now have better information on how people spend their time and can compare actual versus what was allocated in the budget. We learned, for instance, that in the last quarter we spent more time on G&A than we’d projected. This makes sense: this summer a small team of board and staff, including myself, negotiated a lease for a new office space, then transitioned to managing the move out- and move-in process. I don’t think anyone would say that was a waste of time; finding a space that met our budget in the San Francisco real estate market has been a challenging but important task.
Next on the list is an internal conversation about Charity Navigator and the way we promote our four-star rating on our website. It will be a healthy debate. On the one hand, I appreciate the focus on accountability and transparency, and I’d be naïve if I thought we hadn’t received donations from donors who use these ratings. On the other hand, I have deep reservations about Charity Navigator’s financial health methodology, particularly in that it penalizes nonprofits with higher overhead regardless of context. If we invest to support our growth—spending time finding a new office in a tough market, or upgrading our HR systems to find and retrain the best staff—we ought not to feel embarrassed about that, nor be penalized for it.
I am fortunate to work with a board and staff who are open to these changes and debates. My hope is that our experiences can serve to keep my perspective about the starvation cycle grounded and productive.
Photo Credit: Habitat for Humanity Greater San Francisco
The other day I met with a nonprofit leader (let’s call her June) who has a great idea for an earned income venture that fits directly with her mission, but she doesn’t have the start-up capital to launch. When she explained this to me, she threw up her hands as if to say, “I’m powerless to move forward.”
But from my vantage point she has all the pieces necessary to raise the start-up capital and launch, she just isn’t putting them together. It’s a common refrain — nonprofit leaders complain about being in a catch-22 of not having enough money to raise enough money. But the answer is often right in front of you. To break free from the starvation cycle, assemble the assets you already have in order to raise capacity capital, which is the topic of today’s post in the ongoing Financing Not Fundraising blog series.
The nonprofit starvation cycle is one nonprofit leaders know only to well. Nonprofit organizations rarely have the technology, staff, and systems to function effectively. So they scrape by trying to wring one more drop out of a completely dry rock. But instead of waiting for funders to fix the situation, it is up to nonprofit leaders themselves to break free. And you break free by raising capacity capital.
Capacity capital is a one-time investment of significant money that can help build or strengthen a nonprofit organization so that it can create more social change. Capacity capital funds things like technology, systems, a program evaluation, revenue-generating staff, start-up costs for an earned income business. It is money that strengthens the organization so that it can do more.
But often nonprofit leaders, like June above, don’t recognize that everything they need to raise capacity capital and break free from the starvation cycle is in right in front of them. Here are the necessary pieces:
A Plan. You know what you need in order to do more, so put together a change plan and figure out what elements you need (technology, systems, staffing) and what they will cost. Do your homework so you can speak intelligently about what it will take to get you from point A to point B. June has a great business plan for her venture and knows exactly how much she needs in start-up costs.
Donors Who Love You. When raising capacity capital you want to go after donors who already love what you are doing and want to see more. You must convince them that a one-time investment of capacity capital will enable you to do even more of what they already love. June has a great network of long-time donors, which she could convince to become capacity capital donors.
A Connection Between Capital and More Impact. Make a convincing argument to those donors that capacity capital will create more of what they already love. For example, having a great Development Director in place can bring hundreds of thousands of new dollars each year which means many more people will be touched by your organization. Or explain how an evaluation of your program will allow you to focus your resources on highest impact activities. June could describe how a profitable earned income venture could increase financial sustainability while delivering more impact.
June has all of these pieces. She has a great plan for an earned income business that could significantly contribute to a more sustainable financial engine and thus allow her nonprofit to reach more people, a clear articulation of how much capital she needs and for what, and a committed group of donors who love the organization. For her, and for most nonprofits, it is simply a question of connecting the dots.
If you want to learn more about the power of capacity capital, download the Enormous Opportunity of Capacity Capital e-book, the Creating a Capacity Capital step-by-step guide or the Raising Capacity Capital webinar.
Photo Credit: PublicDomainPictures
A reader of my blog post earlier this month, From Nonprofit Scarcity to Social Change Abundance, took issue with my argument that nonprofit leaders need to be more bold. He believes that I, and others, should stop telling nonprofit leaders to chart bolder goals because nonprofit leaders simply don’t have the time or resources. I think his comments and our subsequent exchange (you can read the whole comment string here) illustrate the self-imposed limitations that hold some nonprofits back.
In his comment on my blog post, Dan Owens argues that nonprofits are not at fault for limiting their goals. Nonprofits’ very lack of resources holds them back, and it is unreasonable to try to push nonprofits to be more bold:
Nonprofits everywhere are working incredibly hard to solve some of the toughest challenges our society has to offer. Even truly great nonprofits…are stretched to capacity, and even those who embrace all the latest trends and business models cannot solve all the problems they seek to address. The money doesn’t exist, and without sustained and increased federal funding for nonprofits and those they serve, we will not be able to solve the problems we hope to achieve, including childhood hunger…Nonprofits need more resources. You’re right in saying that nonprofit leaders often design plans based upon last year’s fundraising figures. But they have very good reasons to be afraid, and to worry for the future and the clients they serve. They don’t have the freedom and money to make those “pie in the sky plans”…most nonprofit have to fight and scrap for every dollar they have, contributed, earned or applied for. And then they have to do it all again the next year. Is it any wonder they operate as they do?
But my point with the blog post, and really my point with the entire blog and Social Velocity in general, is that nonprofits have to break out of the starvation cycle of never having enough to do more. Instead of embracing the fact that the nonprofit sector is incredibly under-resourced, nonprofits must see past that and envision a future where they have everything they need to accomplish bold social change. It is the very act of turning scarcity on its head that creates abundance, as I point out to Dan:
You have clearly delineated many of the funding problems inherent in the nonprofit sector. There is no doubt that nonprofits need more resources. But the only way that will happen is if nonprofits become more bold, not just with “pie in the sky plans” (which I, by the way, think are absolutely critical) but also by being more bold with funders, government regulators…board members. My whole point with the Financing Not Fundraising series, and really this blog overall, is that nonprofits must break out of the cycle of “fighting and scrapping for every dollar they have.” That is an unsustainable scenario. Instead of accepting the shortcomings of the current funding for the nonprofit sector, let’s get bold about asking for more. But that request must be made in the name of bold goals for social change.
Still seeing the current hurdles standing in the way of bold goals in the nonprofit sector, Dan wonders if the solution might lie in separating nonprofit leaders from the day-to-day work of their organizations so that they have the time and space for envisioning true social change:
I believe one of our greatest challenges is to get those in the nonprofit sector with the real knowledge (usually EDs working on the ground) to have the time and space to work up the bold (and yes, fearless) ideas. Everywhere I have worked I have had the all-too-rare conversation with the ED or program director who can articulate the overall bold vision but cannot see how that can be achieved within the current framework and particularly without harming those they currently serve- because the disruptive innovation necessary would take resources away from current programs…I heard a great speaker recently who [had a great idea for change] but she never really had the chance to build the idea out until she took a few weeks off from her job and was able to really focus on specifics and practical considerations. Perhaps that is what we need more of — sabbaticals, and then planning to implement the bold ideas.
Again, I believe this is the wrong approach. Bold action must be part of the day-to-day work of the organization. We can no longer separate big picture strategy from the day-to-day work of the nonprofit sector. Every effort, every resource, every staff member must be engaged in the larger vision of social change. It must become part of the everyday culture of the nonprofit sector, not just the purview of the elite few at the top, or an exercise conducted a few times per year.
If we are going to truly break free of the hamster wheel and make social change a reality, we must make bold vision part of every day life in the sector.
What do you think? Do the resource constraints of the nonprofit sector stand in the way of big, bold goals?
Photo Credit: cdrussorusso
Perhaps it is the nature of trying to solve the intractable, but social change leaders are heading for burnout. I see it more often lately. A nonprofit leader gives me a dazed look, rubs her temples with exhaustion, throws her hands up in the air, seriously considers just giving up.
The exhausting, endless hamster wheel nonprofit leaders live on is just not sustainable. At some point they will give out.
But the leaders who are driving social change are the very people we need to persevere. Because if they give up, where does that leave those who so desperately need the solutions they are providing?
Here are some things social change leaders can do to overcome burnout:
- Get Brutally Honest. With your donors, with your board members. Stop telling people what they want to hear and start being honest about the limits of your time, your staff’s capacity, your program’s scope. And stop chasing rabbit holes for your board or donors. You know what the reality is, so stop hiding it.
- Stop Fundraising. The thing that burns executive directors out more than anything is the endless, dysfunctional fundraising cycle. But if you could switch to a more effective strategy for bringing money in the door, and start to engage others (board members, donors, volunteers) to help, you would have a much smaller burden on your shoulders.
- Raise Capacity Capital. Executive directors are tasked with way too much. Most nonprofit staffers are doing the jobs of 2 or 3 people. That’s fine for awhile, but not long term. The only way out of that vicious cycle is to raise some money to hire key staff, or buy effective technology. That’s capacity capital.
- Get Inspired. Social change can be very inspiring. When you hit a wall, read about other leaders and the hurdles they faced, visit your own program and see the change that is happening every day, ask your staff and board why they are involved, ask donors why they give.
- Forgive Yourself. One thing I absolutely love about social change leaders is their undying commitment to the cause. So many of them have a deep calling for the work they do. But that can also have a dark side. They can become so passionate that they think taking a day off would be to let down the cause. They sometimes picture themselves as Superman and deny their human need for rest and regeneration. But the only way to create lasting change is to make it sustainable. You need to know when to say when.
- Get Some Help. You may be born to lead change, but a true leader knows how to engage others. You cannot do it all. Recruit and retain a staff to whom you can confidently delegate. Recruit a board that steps up to take key pieces off your plate. Ask your donors to tap into their networks to do some fundraising for you. This is not a one person show, rather you need to view yourself as a cheerleader, organizer, and leader of a vast army of people who are making social change happen.
When you feel your eyes glaze over, your head start to spin, a yearning for the family you haven’t seen in weeks, it’s time to take a step back. You are engaged in a marathon, not a sprint, and you can’t burnout after the first 5 miles. Long-term change takes time. Pace yourself.
Photo Credit: gb_packards
It’s that time of year when donors make key decisions about their end of year giving. But a recent post on the Social Earth blog advising donors about questions they should ask nonprofits perpetuates thinking that actually hurts, rather than helps the nonprofit sector. The author, Tarini Chandak, asks “How do you know where your charitable dollars are going? Are they going to the cause you want to support or are they going to administrative and fundraising expenses?” In reinforcing old, and destructive binary thinking about program vs. overhead expenses, Tarini is doing nonprofits and their donors a real disservice.
Tarini lists 4 key questions she thinks every donor should ask of the nonprofits they consider donating to:
As various charities vie for your charitable donations, there are many questions you can ask them directly, including:
- How much goes to the cause? How high are their expenses?
- How efficient is their fundraising? What is their cost-per-fundraised-dollar ratio?
- Is the charity run properly? How efficient and effective is their human capital? Management team?
- Do they even need your money? Will your money just be lying around in their reserve?
I think questions #2 and #3 are excellent, but questions #1 and #4 perpetuate thinking that holds the nonprofit sector back.
Let’s start with Question #1: “How much goes to the cause? How high are their expenses?” As I’ve written before, the distinction between program (or “cause”) and administrative expenses is meaningless at best, and destructive at worst. If a nonprofit organization is creating change, then everything they do is in support of that change. How can a program run if there is no financial engine (fundraising) to fund it? If there is no building or space to house it? If there is no financial management or regular audits? If there is no regular evaluation of whether the program is making a difference? How can you possibly separate “program” from “overhead?” We must move beyond this distinction and encourage nonprofits to raise (and donors to give) more capacity capital, or the money that nonprofits so desperately need to create effective and efficient organizations.
Tarini’s Question #4 “Do they even need your money? Will your money just be lying around in their reserve?” is equally troublesome because it reinforces the backward notion that nonprofits should not have a reserve fund. As I (and others) have written before, we have to get away from the nonprofit taboo that operating reserves are wrong. Nonprofits cannot plan for the future, have a sustainable financial model, experiment with program changes, take risks, or any of the other things that are absolutely necessary to creating social change, without some operating reserves. If nonprofits are continually forced to go month to month without any cushion they will never emerge as strong, sustainable organizations capable of creating lasting change.
We must move away from thinking that encourages nonprofits to scrape by without the tools and infrastructure they desperately need. We must stop measuring nonprofit performance with meaningless financial metrics and instead evaluate nonprofits on their ability to deliver change. If a nonprofit is creating real change, does the minutia of how they spend money really matter?
Photo Credit: just_a_name_thingie
Many of the ills of the nonprofit sector can and should be solved by educating and strengthening nonprofit leaders, staffs and boards, but there is also work to be done with nonprofit donors. Those private individuals, foundations and corporations that support the nonprofit sector also need to change their approach if nonprofits are ever going to emerge from the starvation cycle.
There are some key things nonprofit donors need to do differently in order to make their gifts go farther:
- If you want something, fund it. Over and over again a foundation or individual donor will tell a nonprofit that they want to see a program evaluation, or a strategic plan, or a stronger financial model, but they refuse to fund it. This automatically puts a nonprofit into a catch-22 of needing a key element to get funding, but not having the funding to get the key element. It’s an unwinnable situation and no donor should put a nonprofit in that position.
- Invest in a management team you believe in, then back off. Foundations in particular tend to attach unnecessary strings (endless reporting requirements, benchmarks) to the grants they make. In theory, these strings exist in order to ensure a good investment. But in reality, the only way results will happen is if there is a great plan and a talented team to execute on it. If you are worried about a nonprofit’s ability to execute, then you probably aren’t comfortable with an investment in that team. Either invest elsewhere, or back off and let them perform.
- Don’t expect big things from a little gift. Donors sometimes get a big head about the gifts they make. They expect a nonprofit to expand a $1 million program with a $5,000 gift, or create a brand new program from one donor’s one-year investment. Those are ridiculous, and possibly hubris-filled, expectations. You get what you pay for. Invest accordingly.
- Understand that you hold the power and use it benevolently. Because you are writing the checks, you have the power in this funder/fundee relationship. A nonprofit leader will never be able to be completely open and honest with you for fear that you will take your money elsewhere. Recognize that fact. Don’t put undue pressure on the organization, don’t ask for special favors, and be as hands-off as possible.
- Don’t just buy services, build organizations. It might seem more exciting to have all your gifts go to support direct services, but realize that those services will be stronger and more sustainable if there is a healthy, effective organization behind them. That means a nonprofit needs a capable, well-trained and paid staff; adequate equipment, systems and space; and efficient technology. Occasionally think about supporting those infrastructure items so that your program gifts can go even further.
- Get others to give. If you are a philanthropist, chances are you know other philanthropists. Share your knowledge of the great management teams and infrastructure gifts you make. Don’t invest in a vacuum. Actively recruit your friends and colleagues to build on your investments.
If we really want to change the nonprofit sector we have to change the donors who support it. It is no longer enough just to write a check and be done with it. If you really care about the organizations you support, you’ve got to step up and make more thoughtful, necessary, smarter investments.
Photo Credit: HikingArtist.com