The following column, "Nickeled and Dimed," was originally published in the May 2015 issue of The Chronicle of Philanthropy.
Only fully capitalized businesses take on ambitious ventures. So why do foundations skimp on grants and expect miracles?
Any traveler knows: It’s nearly impossible to get lost anymore. GPS, navigation, smart luggage. So why do grant makers and nonprofit leaders often feel we get thrown off course?
Financial sustainability. It’s a buzzword we all know. But I worry it’s leading us down a byway that can distract us from our ultimate destination: solving our country’s intractable social problems.
To be sure, America’s hardworking nonprofit leaders know it’s not enough to build a great program without also building a renewable way to support it. And without an economic model to sustain what works, we’ll never be strong enough to tackle the challenges we face.
But I believe three other strategic imperatives are essential to building financially sustainable nonprofits and achieving outsized impact for the long term.
Bigger and better bets. Today’s grant makers provide nonprofits with much less funding than they need to achieve results — often hardly enough to cover the cost of operations, let alone any considerable expansion. A recent study of 23 large U.S. foundations by the Center for Effective Philanthropy revealed that the median grant size was just $123,000. Moreover, many foundations still tie grants almost exclusively to programs, and renewal to short-term achievements. But to scale the best ideas, nonprofits need investment in overhead, evaluation, talent, training, IT, and other infrastructure.
We would never expect a company to embark on an ambitious business path without the funds to see it through. Yet we routinely expect nonprofits to grow without being fully capitalized. Having access to capital in advance — flexible and available over multiple years — frees nonprofits to execute their strategic plans with more certainty and build their options for a more viable financial future.
Better measures. Many foundations that insist nonprofits lay out a plan for sustainability may, by their behavior, actually impede it.
We are doing our job by requiring such plans, but are we directing capital to help understand what works? Not always. In a 2012 study, also by the Center for Effective Philanthropy, 71 percent of nonprofits reported that their foundation donors provided no support for program assessment or evaluation.
By neglecting our responsibility to help our grantees measure and evaluate the programs we fund, philanthropists are shortchanging the very people we exist to help.
In a system of bigger bets, facts matter. High-performing organizations aren’t just financially sound. They are data-driven. By insisting on and investing in evidence building, we can distinguish proven solutions from promising ones, and confidently support nonprofits that create greater social impact.
Bolder thinking. To scale the best ideas, philanthropists must build upon promising solutions already in place and in need of investment. By their nature, many donors love the start-up, so that’s where the money flows. For our philanthropic system to work, they must also sustain solutions that already exist, extend them to help more people, and demonstrate the staying power of the best long-term investors.
Nonprofit leaders, too, need to keep their sights on the road ahead. They must think beyond the current funding cycle to be the organization that foundations bet on. Sometimes this requires saying no to investments tied to short-term achievement rather than long-term mission.
We are all on the same path: seeking to create a better future for our children and our nation. Financial sustainability fuels us on our journey, but it’s not our destination. Together, we can do better and chart a new course for greater social impact.