Those of us who work for foundations want our grantees to invest in core activities that more efficiently and effectively contribute to desired outcomes. Yet funders may make it harder for grantees to do so, often by focusing exclusively on specific grant-funded activities — as opposed to outcomes — and by underinvesting in core organizational needs.
The National Bureau of Economic Research pegged the official end of the 2008/2009 recession in June of 2009. That may be true, but many foundation leaders recognized then that battered stock market valuations were only the start of what would likely be a multi-year drop in grant making, since payouts were tied to a rolling average of diminished investment portfolios.
That year, I heard far too many colleagues casually suggest that we needed to help our grantees “do more with less.” That remark has been echoed at conferences and convenings ever since. At a foundation event this fall, I challenged a colleague who expressed surprise that grantees still seemed to be doing too little to embrace the fundamental wisdom captured by this phrase. I think I understood the intent behind his lament. But the message he and others may be unintentionally conveying to grantees is unfortunate: that we believe that nonprofits have substantial resources that are being inefficiently deployed, and those of us who work for foundations would do a better job of managing the stress of decreasing revenues and increasing demand for services.
At Wilburforce Foundation, we work with grantees over the long term to protect wildlife habitats in Western North America. Investing in and disseminating science, working with local communities to build support, and convincing policymakers to endorse durable conservation solutions takes time, often years.
Many of our grantees are highly dependent on foundation grants, and we have seen firsthand the consequences of their attempts to do more with less. We’ve been tracking financial data for all of our grantees, including annual revenue and expenses, cash holdings, and net assets. Since the recession began in 2008, more than one third of the groups we support have experienced decreases in net assets of 10 percent or more, and many more have cash-flow cushions that can be measured in weeks, not months.
One of our grantees nearly collapsed in the aftermath of the recession. Many of its programs were funded by restricted grants, and foundations invariably wanted their grant-funded activities to be part of the “more” this group should sustain with “less.” This grantee was shoveling increasingly scarce general support dollars to these programs. The organization only recovered after it jettisoned underfunded projects and sacrificed the foundation grants that had ultimately harmed the organization.
Another grantee relied heavily on one foundation for significant support of its largest program, subject to an arbitrary cap of 15 percent of overhead expenses. The true cost of its organization overhead was closer to 25 percent, and its net assets plunged as the group tapped unrestricted funds to pay for its core needs.
In fact, I see far too many organizations trying to do “more” by sacrificing living wages for its staff, shifting the cost of benefits to employees, cutting professional development budgets, and working with obsolete technology.
An article in the Stanford Social Innovation Review in 2009 described what they called the nonprofit starvation cycle, and attributed much of that problem to funders:
“The first step in the cycle is funders’ unrealistic expectations about how much it costs to run a nonprofit. At the second step, nonprofits feel pressure to conform to funders’ unrealistic expectations. At the third step, nonprofits respond to this pressure in two ways: they spend too little on overhead, and they underreport their expenditures on tax forms and in fundraising materials. This underspending and underreporting in turn perpetuates funders’ unrealistic expectations. Over time, funders expect grantees to do more and more with less and less—a cycle that slowly starves nonprofits.”
So, let’s dispense with tired clichés. Jan Masaoka, director and editor-in-chief of Blue Avocado and former executive director of CompassPoint Nonprofit Services, has better advice for nonprofit leaders: do less with less.
“Of course there is more need, more demand, and we probably have less money. And we love the gritty heartfelt nature of the cry, “We need to do more with less!” Pause. But it’s not only unsustainable, it probably means you will be able to do even less in the future. If a program’s funding has been cut by 30%, you may need to do 30% less.”
The trick, of course, is figuring out which programs are most effective, and make those as sustainable as possible. As funders, we can help our grantees do this in several ways by:
- More clearly communicating with grantees about our own strategies as funders, and the outcomes we hope to achieve. These conversations have the potential to surface more creative, efficient and effective alternatives to the projects or activities that we may have historically funded.
- Forging stronger relationships with grantees, so that they feel comfortable approaching us when trouble arises and before the organization’s financial situation becomes dire.
- Understanding and supporting the real costs associated with running an effective and sustainable organization, including livable wages and quality benefits to recruit and retain quality staff, maintaining adequate facilities with current technology, and building sound financial and fundraising infrastructure.
Paul Beaudet is Associate Director of Wilburforce Foundation and a member of CEP’s Advisory Board.