Turning the Nonprofit Starvation Cycle into the Nonprofit Nutrition Cycle

In a brilliant presentation at the 2013 conference of Emerging Practitioners in Philanthropy (EPIP), Jessica Prue, then on staff at the Nonprofit Finance Fund, analogized nonprofit funding to water moving through a towering system of buckets and faucets until it finally reaches the operating budget bucket at the bottom. General operating support (GOS) and earned revenue cascade from wide faucets at the top directly into that bucket at the bottom in a pure, steady flow. Restricted funds, however, are ice cubes that slowly melt in specific locations and times. Droplets of water from a frozen endowment drip slowly into the budget, while reserve funds encased in plastic water bottles float in the budget awaiting use.

Let’s face it: many foundation grants are frozen solid. They are restricted by purpose, program, time, even by a set of line items. To borrow language from George Overholser’s great article, frozen funds are great for “buying” programs, but are terrible for “building” the very organizations that run the programs.

Frozen funding is a major part of the nonprofit starvation cycle. As famously discussed by Bridgespan’s Ann Goggins Gregory and Don Howard, heavily restricted funding reinforces a cycle that leaves many nonprofits “so hungry for decent infrastructure that they can barely function as organizations — let alone serve their beneficiaries.”

When exclusively funding programs, funders pretend there is some invisible unicorn funder with less restrictive grant parameters that will follow in their wake and pay for living wages, employee benefits, and professional development. In reality, there is no mysterious “other funder” to fill the gap. In a just and effective system, every funder would, at minimum, contribute flexible funding and, at best, intentionally deploy resources to build strong organizations, rather than just selectively buying a piece of one specific program.

The bottom line is that we need to break the nonprofit starvation cycle. More than that, we need to replace it with what I’ll call a nonprofit nutrition cycle. The nutrition cycle would ensure investment in not just the strategic and financial health of grantee organizations, but also partner with those organizations to advance their human health: a productive workplace, competitive and equitable compensation and benefits, a nourishing organizational culture, robust support systems for employees, and a thriving staff and volunteer base.

Unrestricted support is a major ingredient needed to give rise to such transformational change, but it alone is not sufficient. I would argue that general must be blended with specific support for staffing issues. Fund the People, the organization I lead, has dubbed this support “talent-investing” — grantmaking or other resources that are intentionally deployed to bolster and develop nonprofit leaders and workers, as well as the systems within and around organizations that support the staff team.

To illustrate why this blended approach is necessary, I’ll use another liquid analogy. Imagine each grant you make is a smoothie. Smoothies blend many ingredients into one cohesive new flavor. When we make smoothies in my household, my wife, Sarah, and I always throw in a big handful of kale. Our two young kids won’t ask for leafy greens in their sweet fruity drinks. But they (and we) benefit from the infusion of valuable vitamins, minerals, antioxidants, iron, and other nutrients they deliver.

The act of blending the fruits and vegetables is what makes this formula work. Multiyear GOS is the fruit; talent-investing is the kale. Blend them together, and you’ve got the sweet and healthy grants that nonprofits want and need.

After months of responding to the COVID-19 pandemic and the economic collapse that has accompanied it, many nonprofit workplaces are riddled with burnout, under-staffing, budget cuts, and trauma. This is layered on top of struggles to create more equitable organizations in the face of an ongoing racial reckoning in the sector and in the nation. Which is layered on top of four years of public policy crises and their impact on communities preceding the pandemic. Which is layered on top of generational and demographic changes in the nonprofit workforce, marked by a slow-motion wave of executive transitions that began at least 15 years ago. Which is layered on top of the aforementioned starvation cycle that has been a constant for as long as anyone can remember.

With all these layers of pressure bearing down on the nonprofit workforce, a mix of GOS and talent-investing is more essential than ever.

While the funding community ought to offer more multiyear GOS, funders should not assume that such support in and of itself addresses the need for developing nonprofit staff. We all know that GOS funds may be used to fill budget shortfalls, fill gaps left by delays in government funding, or be put into new initiatives or existing programs. There is likely tremendous internal pressure (spoken or unspoken, rational or irrational) not to invest GOS into improved salaries, bonuses, benefits, professional development, or staff support systems. It is rarely going to be used to advance what Fund the People refers to as talent justice — investing in intersectional racial equity within organizational staffing.

So while funders ought to leave it up to grantees to decide how to use funds as needed, grantmakers should not assume that by providing GOS they are relieved of the duty of investing in grantee staff. (In fact, in an unpublished study in 2015, the Bridgespan Group has found that the type of funding that nonprofits value most highly for cultivating their senior management team — and which they find extremely difficult to obtain — is what they called overhead funding for talent management. That particular word combination is not familiar in the sector, but it sure sounds to me like a blend of GOS and talent-investment.)

Luckily, a small but diverse and growing set of funders has developed some recipes for this type of funding that others can learn from. Here are just a few examples:

Evelyn and Walter Haas, Jr. Fund provides ongoing core support to grantees in a slate of movement-building fields, such as immigrant rights. On top of this, for 15 years, their Flexible Leadership Awards (“FLA”) have provided long-term, custom-tailored support to address internal leadership opportunities and challenges over a three-to-five-year period. The program allows the board and staff of organizations to step back and think expansively about what they want to achieve, and then to use funds to develop the leadership and staffing they need to achieve those goals. A five-year evaluation found that the program was critical to helping participating organizations meet and exceed program and fundraising goals.

Ford Foundation has launched BUILD, an initiative to strengthen the organizational capacity of hundreds of grantees across the Foundation’s program areas. BUILD offers flexible funding for a five-year period. Ford enables BUILD grantees to work with consultants to assess and develop their organizational capacity needs and establish priorities among them (the Haas, Jr. Fund effort does this as well). According to a BUILD blog post, Ford’s grantees have made a high priority of two interrelated capacity issues: “human resources” and “organizational culture.” The Ford team has pointed out the direct link between the ubiquity of restricted funding and the challenge of creating healthy nonprofit workplaces. As Ford’s Karim Babouder-Matta writes:

The prominence of these categories affirms some of our suspicions about the structural challenges many nonprofits face. When funding is mostly short term, tied to specific project outputs, and doesn’t cover indirect costs, it can be difficult to invest adequately in your people and systems over time. One of our goals with BUILD is to enable grantees to make those investments and strengthen their operations, while also providing general support for their vital programmatic work.

The Robert Sterling Clark Foundation has made a point of cultivating trust-based grantmaking practices, which include minimizing paperwork and maximizing multiyear core support for grantees. They’ve gone so far as to help launch the Trust-Based Philanthropy Project to advocate and help other funders learn. As the pandemic took root in the U.S., they worked with the Council on Foundations (COF) to launch the pledge to get grantmakers to commit to offering increased flexibility in grantmaking. Yet, as much as Clark is an evangelist for unrestricted support, they pair their GOS with a $5,000 portion of grant funds specifically for staff professional development.

These are just snapshots of sophisticated grantmaking strategies for blending GOS with talent-investments. As you can see, there are various ways a funder can reach this objective. Some offer a hearty serving of GOS with a shot of restricted talent-investment on top. Some facilitate their talent-investments with a guided process or a menu of training options, while others define an amount of money for this use but offer maximum flexibility.

Of course, there are many funders that don’t feel they have the budget to add talent funding on top of GOS, or don’t have the capacity to deploy staff development and support resources for grantees. These funders can still do lots to infuse their GOS with incentives for talent-investing.

If you’re one of these funders, at a basic level, you can send a signal on your website, and in the grant negotiation process, that you are concerned with the well-being of staff at grantee organizations. During grant negotiation conversations with grantees, and in your grant applications, ask questions about the human health of the organization — questions about compensation, benefits, professional development, career pathways, staff turnover, preparation for executive transitions, support for staff during the pandemic, etc. You might deploy anonymous surveys to grantee staff to understand their perspectives (only do this, though, if you are deeply committed to listening and responding to what you hear from the groups!). Sending these positive signals, and asking questions with a supportive rather than a punitive stance, can help create the nonprofit nutrition cycle by offering the incentives and cultivating the political will needed within grantee organizations to use GOS for talent-investments.

Rea Carey, executive director of the National LGBTQ Task Force Foundation, is one of the leaders who has participated in Haas Jr., Fund’s Flexible Leadership Awards. On the program’s evaluation website, Carey is quoted:

I can’t say enough about how important leadership development is. (I)t’s like adding protein powder to your other grants. If you want your other grants to be successful, if you want your grantees to do the best job in meeting their deliverables and moving the ball forward in their movements, you have to invest in leadership development.

You can choose to think of talent-investing as kale or protein powder. Either way, you can use it as a primary ingredient for supporting grantees. They’ll be more energized from the general support and they’ll be healthier from the talent support. This blend may be just what organized philanthropy needs right now to unfreeze funding, infuse it with valuable nutrients, and transform the nonprofit starvation cycle into the nonprofit nutrition cycle.

This nourishing approach could fuel the powerful people and organizations we desperately need to make enduring social change in our troubled society.

Rusty Stahl is founder, president, and CEO of Fund the People and host of the Fund the People Podcast. You can follow Rusty on Twitter at @rustystahl and the organization at @fundthepeople.