Nonprofit Starvation Cycle - What's That?
The term “starvation cycle” for nonprofits refers to a chronic underfunding of programs due to a fear that funders will find the program too costly, a reluctance by funders to cover salaries - often the bulk of agencies’ operating budgets, and a belief that nonprofits can easily make up this deficit through general fundraising.
For more, turn to the content developed by the Bridgespan Group and posted on the 9/4/19 issue of the Chronicle of Philanthropy.
Even though temperatures in Dallas remain in the 90s and it feels more like summer than fall, I know cooler days are coming as students are back in school and football season is in full force. With the new season comes a renewed effort on my part to share and create posts I believe are relevant to the world of philanthropy and are appropriate for nonprofits and funders alike.
A passion area for me is opening the dialogue between nonprofits and funders, not just around current programming but around those wild and crazy ideas that just might work. The nonprofits, their program staff, and clients know what it takes to be successful. They have ideas for twists to the “tried and true” but implementing changes takes funding - it also takes a willingness on the part of funders to listen, ask questions, and to walk alongside their grantees on what could be a risky journey.
One place to start this dialogue is for funders to do something they, ironically shy away from - talk about money. Funders should start asking grantees about the true cost of their programs including operations and revenue generation (development) and nonprofits should be calculating these figures. All too often project based funding does not fully cover the cost of the project thus leaving a deficit for the agency to make up.
This deficit situation occurs for three reasons:
1. A reluctance to reveal that program costs don’t fit nicely within the prescribed 70%, 20%, 10% ratios for program, operations, and fundraising that has been considered a “best practice” far too long; coupled with a reluctance on the part of nonprofits to dig through the numbers and come face-to-face with the true cost of their work.
2. A reluctance to fund salaries - if you don’t pay people to deliver a program how else will clients benefit? For most agencies salaries can be as much as 80% or more of their operating budget.
3. The belief that agencies should and can make up this deficit through their general fundraising thus putting a huge strain on the executive director and development staff to supplement programs that are chronically underfunded by donors.
I’m heartened by the recent work of the Bridgespan Group and others to call out what is being termed the “starvation cycle” of nonprofits, a situation brought about by chronic underfunding of indirect costs.
I encourage you to take a look at content prepared by the Bridgespan Group and posted on the 9/4/19 issue of the Chronicle of Philanthropy - it just may change the way you view your grant making and may open new pathways for conversations with grantees.
Funders Pool Resources to Provide Capacity Building to Their Region’s Nonprofits
A fine example of how active, two-way listening between nonprofit organizations and funders led to pooled dollars and the creation of local training around capacity building. Photo credit - Matt Walter.
A fine example of how active, two-way listening between nonprofit organizations and funders led to pooled dollars and the creation of local training around capacity building. The details are outlined in the 6/4/19 blog post on Exponent Philanthropy by Leslie Cheu, executive director of The Troy Savings Bank Charitable Foundation in Troy, NY.
Photo credit - Matt Walter.
What Grantmakers Can Do to Help Nonprofits Thrive
Are there creative solutions gratmakers can and should incorporate into their work to help nonprofits thrive? Read Phil Buchanan’s April 2, 2019 Opinion piece for the Chronicle of Philanthropy to learn his ideas based on research for his latest book, Giving Done Right: Effective Philanthropy and Making Every Dollar Count.
Are there simple, creative solutions grantmakers can and should incorporate to strengthen nonprofits?
In a word…yes.
I see this sentiment gaining traction within the philanthropic arena. In Phil Buchanan’s latest book, Giving Done Right: Effective Philanthropy and Making Every Dollar Count, Buchanan interviewed nonprofit leaders from across the country. What those interviews revealed should come as no surprise …drum roll, please…
One of the greatest challenges nonprofits face is recruiting and retaining quality staff.
Through his conversations, Buchanan found many nonprofit leaders not only have vision and passion for their work, but also employ tremendous management skills. In his April 2, 2019 Opinion piece for the Chronicle of Philanthropy Buchanan states, “To spend time with these leaders is to recognize the utter fallacy of the caricatures of nonprofits that they are undisciplined, that their leaders couldn’t make it in business, or that the work is somehow easier than in for-profit organizations.” “Wrong, wrong, and wrong again.”
Over my 20 years in the funding world I am slowly but surely seeing change in the tried and true funding methods of requests in the door and dollars out. I am seeing funders who are actively involved in setting strategy for their work, finding ways to partner with nonprofits, and finding ways to partner with each other.
My theory is that In order to effect change the entire philanthropic community must work together and this work starts with inviting nonprofit partners to the table and giving them an equal voice. I also believe it is time for funders to open their eyes to the true cost of providing services including that dreaded word…overhead. In return, agencies must take the time to understand all that it takes cost wise to run their agencies and be up front with funders, without fear of push back .
Buchanan offers three simple solutions funders can employ:
Have conversations with nonprofits regarding employee salaries and benefits. Are agencies aware of benchmarks? Do they know the dollar figures it will take to reach and maintain those levels? Are they aware of the true costs of operating the nonprofit? Are they willing to share those figures? Are funders willing to listen? Are funders wiling to support staffing and operational costs?
Give general operating grants to organizations with budgets under $3 million. How about making it foundation policy that for every project grant awarded, the agency will receive the same amount for general operating support?
What about foundations flipping the model so that multi-year support is the default with one-year grants requiring special justification?
What do you think? Do you agree? Do you disagree? As a nonprofit, are you experiencing any changes in the traditional funding model? As a funder, are you having these discussions within your board and staff?
Let’s start the conversation….
The Foellinger Foundation Introduces a New Evaluation System
The Indiana based Foellinger Foundation redesigned their evaluation system to better align with the outputs and outcomes measured and reported by their grantees. More food for thought. What is your reaction to this work? Have you been involved in a similar project? If so, tell us about it.
For over 60 years, the Foellinger Foundation has been providing resources to support residents of Allen County, Indiana to increase their self-reliance by moving from dependence to independence. A challenge faced by the foundation and their grantees is measuring how clients make this transition and creating a common system of measurement.
The Foellinger Foundation wanted input from the individuals working directly with children and families in creating this new system, so they turned to program staff for ideas. The system took two years to develop and the Foundation landed upon the Independence Continuum as the tool used visualize the system. The Continuum represents the setbacks and triumphs of individuals who receive services from grantee organizations.
Take a look at the Foellinger Foundation and the Independence Continuum. What do you think? As a nonprofit, how do you feel about working with a funder to develop a common measurement tool? As a funder, what are your thoughts regarding building relationships with grantees beyond grant dollars? Have either of you been involved in similar work? If so, tell us about it.
Serving Communities Better Through a Collaborative Data Lens
Here’s an example of funders and nonprofits working together for the common good.
An excellent example of collaborative philanthropy taking place in Frederick County, MD. The local community foundation, United Way, county government, and private funders are walking side by side with nonprofit organizations to simplify grant applications and to piece together a common set of outcomes and analysis to showcase the impact of their work. Thank you to Exponent Philanthropy and Foundant Technologies for sharing these efforts including the pivotal role of Foundant’s software for grantmakers and grantseekers in this work.
Seven Game-Changing Things Nonprofit Can Learn from For Profits
We often hear that nonprofits should act more like for profits, but how? Read a post by Vu Le.
Vu Le is the Executive Director of Ranier Valley Corps, a nonprofit is Seattle that promotes social justice by developing leaders of color, strengthening organizations led by communities of color, and fostering collaboration between diverse communities. Each Monday Le posts on his blog, Nonprofit AF, thoughts or ideas for the week. This post is from a few weeks back, but is relevant especially when we hear the idea that nonprofits should act more like for profits. Read what Le thinks.