Start a Conversation with Funders; Nonprofits are Getting Squeezed

Pay-What-It-Takes Philanthropy published this month in the Stanford Social Innovation Review is the latest phrase in a conversation that's slowly picking up momentum, but which also has a long long way to go.  

It is yet another article on how funders need to rethink their practices regarding how so-called "overhead" expenses are funded.  It adds to the growing pile of research, op/ed statements, and case studies that point to a basic truth - nonprofit organizations of different scales addressing a diversity of issues are necessarily going to have an equal level of variation in their economic models and funding structure.  And that funders continue to use a flat one-size-fits-all approach to addressing the issue of overhead or indirect costs flies directly in the face of that basic reality.

This isn't new stuff. The idea of the "Nonprofit Starvation Cycle" has been around since 2009. GuideStar, Charity Navigator and the BBB Wise Giving Alliance teamed up to write "The Overhead Myth" letter back in 2013.  They (and many others) all say the same thing: funders need to better understand what it truly costs to manage different types of nonprofit organizations, and nonprofits need to have a clearer understanding of how their real costs connect to desired impact.  And all of these articles and postings have agreed that while the nonprofits have a role in finding a solution to this situation, the funders are the ones who can and should take the first step.

Funders have to start addressing this with their nonprofit partners.  Nonprofits must work with their supporters in ways that lead to greater understanding and a more useful financing of their missions.

The trick is to make this happen in ways that are real.  The big foundations - Ford, Irvine and the like - are taking some first, important steps.  And research is continuing to be developed (led in part by the article's authors from The Bridgespan Group) to help craft better language, benchmarking data and tools through which conversations can happen using shared terminology and context.  But philanthropy can't wait.  The people and causes being served by nonprofits can't wait. There are steps to be taken now.  And if funders appear reluctant to take them, then it's up to nonprofits to be brave and make the first move.

Nonprofits: it's time to seek out one of your funders and start a dialog that raises such tough issues.  These conversations do not have to be confrontational or argumentative.  They should be framed as ways that you both can collaborate more closely to achieve the impact that everybody wants to achieve.  

Go into such meetings with a plan; know what message you want to relay to your targeted funder.  Have a clear objective for the engagement that relates to mission impact.  If it's useful, bring along a neutral party - your accountant, a consultant or academic.  Such a person can serve as an "honest broker" to help facilitate the conversation.   Have available resource documents that provide data and perspective from other funders.  Help increase your funder's understanding by adding to their body of knowledge.

I do not want to suggest that this is a simple or easy step. But I do think that it is one that every nonprofit can take with at least one of their funders.

The potential: better, more effective philanthropy.  And that will lead to stronger funding for your mission.