I still laugh every time I think about the dog in the movie “Up!” He’d be doing one thing and suddenly…
…he’d be distracted and totally focused on the potential squirrel.
While it still makes me laugh, I sometimes think that maybe we here in the social sector start acting a bit like that dog. Distracted and totally focused on a shiny new object.
I have worked with a lot of innovative and forward-thinking leaders who are being so creative with their funding to meet the real-world needs of the nonprofits they support. But unfortunately, there are too many decision makers who are holding on to an old way of thinking and continuing to promote a series of bad ‘best’ practices that actually undermines impact.
When funders start talking about wanting their grants to be transformative, catalytic and how they want to see real impact, I start to get a little nervous. And then when they say something like, “They do great work and I know they need the money, but it doesn’t feel ‘transformative.’ It isn’t catalytic.” I start to get very nervous.
I am a fervent believer in the need for nonprofits to adapt and deepen their work to stay relevant and sustainable as we live in a rapidly changing world. I think developing new fundraising and revenue generation models is vital. However, when funders start to demonstrate this unconscious bias towards doing something new and different, I start to worry that we might have a case of shiny object syndrome (SOS).
Normally being highly motivated, craving new technology and new developments, and being unafraid to start new projects and create new things are great characteristics. But in philanthropy they can be taken too far. And when SOS sets in, it forces funders to chase project after project, and major initiative after major initiative, never settling with one option.
But we need to remember, adaptation doesn’t always mean launching a new program or buying a building. Scaling or growing impact does not always mean getting bigger. This bias towards visible action, while understandable, creates a number of unintended and undesirable consequences in the social sector.
For those out there who don’t think funding working capital reserves is sexy enough for you, I have some tips for you.
Just think about how much time the Executive Director, CFO, Board Chair or Board Treasurer spends dealing with cash flow and whether or not they are going to make payroll. Executive Directors who are dealing with IT issues, fixing the copier, and broken plumbing. What are they not doing? This opportunity cost is a hidden cost that is sinking nonprofits. Take that off their plate and how much more time can the Executive Director spend on strategy, building partnerships, and fundraising?
That release of energy and time and potential has the potential to radically transform that organization and the work that they do. New program ideas. New collaborations. New Funders. Instead of treating the symptoms of the starvation cycle, you can be addressing the root cause! That’s transformation.
2. Jumping Off A Ledge Is Not Catalytic!
Doing something new is inherently risky. In the for-profit world, more than 50% of small businesses fail in the first 3 years – and in some sectors the survival rate is only 35%. When we ask nonprofits with limited liquidity, limited staff and capacity, and dysfunctional boards to launch a new program or embark on a capital campaign to buy a new building, we are asking them to take on tremendous risk. If the new venture fails (and most of them will), will it take down the organization along with it? The majority of nonprofits are operating with less than 90 days of cash on hand and nearly 25% have less than 30 days of cash. How much risk would you take if you had 30 days of cash in the bank? Probably not a lot.
But in order to get our funding, we are asking nonprofits to jump off the ledge. We are asking them to take more risk, do more with less, and pile new programs or services on top of an already strained and stressed staff.
And in addition to that, the funding doesn’t cover the full cost of the new program or services, there are restrictions that limit how much can be used for “overhead,” and the funding is short-term one-year grants for something that can take years to achieve the impact and outcomes we need.
Not only are we asking them to jump off the ledge but to do so without a parachute. That is Cataclysmic not Catalytic change.
3. Real Change Requires Trust and Authentic Relationships
One of the major stumbling blocks when it comes to nonprofits adapting a true full cost approach to their organization is that they are afraid they will lose funding. If nonprofits price their work to cover full cost, that will make them too expensive and funders will choose the “cheaper” nonprofit. If nonprofits invest in their staff and pay living wages, that will raise their overhead rate. If nonprofits really told funders what it cost to do this work, they would never fund them. That is their FEAR. And then funders go and make it a reality.
We need to have nonprofits asking for what they really need. We need them to tell funders what it will really cost to achieve outcomes.
We need funders to know the programmatic and business needs of their grantees, so they can make better grantmaking decisions. And we need funders to respect that nonprofits know the work, the community and how to achieve real change. Just like you would never tell Starbucks how they can spend your money when you buy coffee, you don’t need to tell nonprofits how or when they can spend your money.
But that kind of relationship requires trust. It requires having open and authentic conversations. It requires having conversations around financial and business needs from an investor’s perspective not from a punitive, elimination criteria perspective.
So, can funding the copier and new plumbing and covering their cash flow needs be transformative? You better believe it. We need our social sector leaders focused on their impact, strategy, and financial sustainability, not their leaking roof, broken printers and past due bills. That is how we unleash the amazing potential of social sector organizations and we will start to create a more resilient, vibrant and just world.