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Philanthropists and Nonprofits Should Think Differently About Scale

Date: April 18, 2023

Nick Grono

CEO, The Freedom Fund

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The challenges that nonprofits take on — hunger, disease, climate change, armed conflict, racial injustice, gender inequality, and human rights abuses, to list just a few — are amongst the toughest that societies face. The odds often seem insurmountable, particularly when you compare the scale of the challenge to the resources at hand.

At the Freedom Fund, a nine-year-old global fund that aims to end modern slavery, one could argue that our ambition far outweighs our budget of $27 million and staff of under 100. We’re trying to tackle a severe violation of human rights that afflicts an estimated 50 million people globally and generates hundreds of billions in illicit profits every year. In order to make progress, we’ve had to think differently about achieving scale.

In the early days, I spent a great deal of my time pitching potential donors on the concept of the Freedom Fund and asking them for the initial investments that would allow us to move from an idea to an organization. I shared our mission to tackle slavery and the way we planned to achieve it: raising philanthropic capital, investing it in concentrated clusters of grassroots organizations, working with partners to both prevent and tackle modern slavery, and generating data and evidence about what works best to reduce its prevalence.

Many donors rightly jumped right to asking about scale. They wanted to know how we could possibly have a measurable impact given that tens of millions of people were victims of extreme exploitation. Some presumed that our goal, were we to be effective, would be to fund as many organizations in as many corners of the world as possible. Others, especially those with a finance industry mindset, insisted the greatest impact would come from finding a small number of high-performing organizations and funding them to scale massively. They were not necessarily sold on our approach of long-term, steady investment and close accompaniment of clusters of small, locally-led groups. “I don’t think your model will work,” one hedge fund billionaire told me point-blank over dinner. But we must have done something right, because enough of these philanthropists, the hedge fund billionaire among them, were willing to swallow their skepticism enough to write multi-million-dollar checks.

Much of the discussion on scale in the nonprofit sector is not fit for purpose because it is transposed from the business world. For an ambitious corporation, the primary objective is to maximize financial returns — if there are other objectives, they come second. In most cases, the goal is to grow massively, dominating the sector to grow earnings while reducing marginal costs. In contrast, a nonprofit’s overall objective should be to maximize impact in pursuit of purpose. Growing the organization massively is not necessarily the best way to do this. In fact, it can be counterproductive, because unlike businesses, nonprofits don’t earn income — rather they have to persuade donors to give it to them. And the marginal costs of fundraising grow as nonprofits get bigger, meaning that a greater percentage of their income is spent on fundraising, reducing the percentage available for their programmatic work. It’s quite difficult and uncommon for nonprofits to grow massively AND efficiently, and when they do, they often aren’t sustainable in the long-term.

So the focus should be on scaling impact. There are two powerful ways nonprofits can do this. The first is by enlisting others to their cause, and the second is by changing systems. The odds are even better if you can bring both approaches together, which is what we strive to do at the Freedom Fund.

By aligning others with our cause, we ensure that we have company in our ambitious mission. The more organizations that work to end slavery, the greater progress we achieve, collectively. Hence, collaboration is built into our DNA, from top to bottom. This starts with our structure as a collaborative fund. We have a small group of generous funders, many of whom provide unrestricted funding and a number of whom are represented on our board. We then use these resources to fund over 120 frontline, grassroots organizations. We incentivize them to work together by committing to multi-year funding and consistent support. We periodically convene partners in areas with high prevalence of modern slavery, creating a space for shared trainings and discussion. We provide technical support for advocacy, so that disparate groups can come together, build a platform based on their shared interests and speak to government with a collective voice. All of this is key to bringing about the systemic change required to tackle deeply entrenched patterns of exploitation.

And we have come to understand that we can have the greatest impact at the systems level. Like many of the thorniest issues of our day, modern slavery is both upheld and reproduced by a series of interconnected systems: from global economic systems that incentivize the production of cheap goods by treating workers as expendable, to legal systems that allow perpetrators to traffic children with virtual impunity, to social systems that devalue women and undercut their agency. Our work can have much greater and longer-lasting impact if we target shifts in the systems that affect entire populations rather than focusing solely on service delivery to individuals. We support groups that take a systems change approach, aiming to shift corporate behavior, set legal precedent, and change policy.

The systems that enable slavery are not the only ones we are seeking to change. We are also working to influence the system of philanthropy. Along with other collaborative funds, we endeavor to demonstrate that philanthropists who embrace collaboration and trust-based philanthropy as a path toward scale have the potential to support, and even accelerate, transformative change — and they don’t have to be MacKenzie Scott to do so. Pooled funds and donor collaboratives enable donors of any size to contribute to something bigger by concentrating funding and ensuring it gets to those who will have the most impact.

The Freedom Fund is in the good company of a number of high-impact pooled funds working on a wide range of issues, like Co-Impact, Blue Meridian, END Fund, Luminos, and Fund for Global Human Rights. New research has shown enormous growth among collaborative funds, with three out of four formed in the last decade. And they have even greater untapped potential: while the 97 funds surveyed by Bridgespan made grants totaling between $2 and $3 billion in 2020, they estimate they could disburse up to $15 billion a year with minimal growth in staffing. These platforms tend to have a stronger equity focus, more diverse leadership, and more of a movement building focus than traditional philanthropic vehicles.

So what does scale look like so far? The Freedom Fund has raised over $200 million to date. We’re translating those resources into something exponentially greater: deep, long-term support for more than 120 NGOs around the world, direct impact on over a million people and plans to indirectly impact an estimated 10 million. We have a lot of work ahead of us, and we know we’ll have a much greater chance of success by collaborating to change the systems that enable extreme exploitation. We hope others will join us.

Nick Grono is CEO of The Freedom Fund and is currently writing a book on nonprofit leadership. Find him on LinkedIn.

Editor’s Note: CEP publishes a range of perspectives. The views expressed here are those of the authors, not necessarily those of CEP.

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