Nice piece, Paul. I agree - “Unrestricted does not mean unaccountable.” Funders should make smart bets to solve the problems they want to solve, and invest deeply in organizations with unrestricted funds. It’s about impact!
Good blog. I have viewed this now from both a funder’s perspective and a nonprofit perspective. Nonprofits want funding so they work hard to fit their programs into funder’s criteria—often to the detriment of the program and the customer served. Funders need to trust the experts in the nonprofits.
I like the Empire State Building analogy - and there’s more to the analogy that could be relevant. In 2011, the Empire State Building was awarded LEED Gold certification. Maybe unrestricted funding is exactly the bold retrofit that philanthropic giving needs long about now to align from the “outside in”. What might be the “climate change” of the philanthropic world?
Wonderful article and couldn’t agree more. We need to provide unrestricted, long term funding built on trust, and respect. That is the type of partnership that will bring change. We also need to diversify the decision makers.
Absolutely this would improve the efficiency and effectiveness of non-profit work. It does make it less interesting for funders, however. Board members and Trustees and staff who want to feel like they have a bigger role in shaping strategy can feel underutilized, because we are in a unique place to see broadly what is happening in a particular field. And we want to use that knowledge It was once described to me as ” being like a dog in heat on a short leash”. I think the best formula for funders is to find the organizations that you believe in, become trusted partners, and continually share these broader perspectives with NGO’s, as you provide gen. operating support.
There is a larger problem however, that far overshadows this one. And that is how heavily the US relies on private philanthropy to support what should be publicly supported. I’d love to see you write a follow up on this issue, and how foundations could and should play a role in changing that equation..
Love your question, Do we want to be “grant makers” or “problem solvers”? I hope that all funders/donors want to be problem solvers. But when the challenges are so big and complex—in an environment that prizes bold new ideas, quick solutions and immediate results—staying focused and working together for the long term is a challenge in itself.
Great article (and nice to see you have made it back from the SB—at least in body. Not sure how long it takes the soul and mind to recover).
I agree with the non-restrictive funding: it is so hard to juggle chainsaws with your hands tied behind your back. However, I am also finding the work that Banny is doing about how you think and approach a problem very compelling. It definitely has a place in how we all approach/think about/tackle these intractable issues and the type of groundbreaking work is impossible if donors restrict funds.
Like many other readers, having sat on both sides of the funder-nonprofit table over the years this dynamic is all too clear. Amplifying the issue is the lopsided power dynamic in our nonprofit funding system. Nonprofit leaders are heavily motivated to “go along”. Funders are incented to seek the (false) security of restricted giving as a proxy for shared agreements on outcomes or trust in nonprofit leadership teams.
I believe that breaking out of the QDDs dynamic that Paul identifies is a shared responsibility. Funders need to invest the time to truly understand the missions, leadership teams, and outcomes they are supporting. Nonprofit leaders need to have the courage to educate funders on what they are trying to accomplish, why their approach and management team is a good bet, and in some cases the right questions that funders should be asking of them.
Like all good partnerships, this will require common language, commitment, and a bit of vulnerability on both sides of the table to create the change that we all seek.
Paul, thanks for creating the dialogue
with your though provoking piece. I am sure your ideas resonate with all of us who mix and match funds to get our jobs done. In my view, at least two of the major challenges you identified, funding restrictions and short term funding cycles are a direct result of our collective inability to measure results. Without clearly articulated outcomes, funders and grantees alike become preoccupied with the process of how money is spent and how long it takes to spend it. Admittedly, many of us work in areas where metrics are difficult, but not impossible. As for your question about the last play of the Super Bowl…just a question of metrics and probability.
Number 24 had already ready carried the ball over 100 yards in the game, most of which while also carrying a number of Patriots on his back. What was the probability of gaining just one more yard??? Okay, time to get over it.
QDDs are real and are a major obstacle to really, really good results. QDDs are a legacy of old philanthropy and have been propagated with newer strategic philanthropy. It is time for grant-making innovation to match ideas like impact investing. Investment grant making looks like unrestricted funding tied to organizational health and impact, rather than tied to cost ratios and narrow project goals.
Hopefully this article will help grant making catch up to social investment thinking.
Nice work Paul. As a cofounder and executive director of a nonprofit, I can say that having grantors that trust your decisions AND can help with strategic challenges is what works best. The key here is for funders not to do the two things they often do: 1) Assume they are smarter than the nonprofit 2) Give money to bigger nonprofits that they assume are smarter than the community being served.
If you want to read about all the poor practices of funders that just kill nonprofits, check out Vu Le’s blog Nonprofit With Balls (http://nonprofitwithballs.com/).
I agree with Greg Tuke—would love to see a post on what public dollars should be supporting instead of philanthropy.
I think the root of the problem is a lack of appreciation for the (often brilliant) strategic capabilities of great nonprofit organizations. The private sector, the broader public, and unfortunately much of the philanthropy world itself, condescend to nonprofit organizations and seem to imagine that they are inhabited by lesser thinkers.
The question, to me, is how to turn that (perception) around. How to highlight some of the amazing nonprofit leaders, and their ability - given consistent financial support - to identify and jump on opportunities for impact right as those opportunities emerge.
In the world of publicly-held stock investing, you perform a fundamental analysis of a given company. If you’re impressed by the leadership demonstrated by its management, you hand over the money and trust that leadership to make exactly the right decisions with it. You don’t hedge your investment by declaring to the CEO that he has too many secretaries and should cut his admin costs. Imagine how flagrantly patronizing that would feel to a private-sector CEO. Nonprofit CEOs weather that kind of attitude from (often clueless) donors on a regular basis.
As a philanthropic advisor, I can tell you that the conventional wisdom in our profession is to get donors/families to define their philanthropic interests as narrowly as possible. This is based on a positive intention, which is to ensure that a given donor’s limited dollars have true impact in a chosen field. But it is precisely the narrowly-defined interest area - “we fund elephant conservation, but not rhino conservation” - that leads donors to support only one part of a given nonprofit’s mission, leading to the very problems you describe. I think that an alternative vision, with nonprofit thrivability at its center, should be offered up more frequently in the arenas (such as small-foundation conferences) where new donors are earnestly learning how to be good donors.
Spend your due-diligence energy unearthing the greatest nonprofits with the greatest leaders. Give them general, no-strings, multi-year support. And watch them soar.
Paul, you’ve done nonprofits and, more important, their beneficiaries a great service with your article. The five philanthropic practices for which you are advocating are on the money. If they were adopted on a large scale, they would surely lead to better results and greater social impact for people and causes served. You’ve put on the table a powerful challenge to funders. I hope all foundation boards and advisors to donors will take this challenge to heart and give serious thought to how these practices could make them better at fulfilling their missions.
To build on the excellent platform the five practices form I suggest funders provide substantial financial and strategic assistance to grantees to support:
• Courageous and adaptive executive and board leadership – the preeminent factor in mission fulfillment;
• Investing in the building of high performance organizations over just offering program funding;
• Implementing well-designed and well-implemented programs and strategies brought to life by the culture and people who make them work;
• Building better evidence of what works, while stimulating innovation;
• Internal monitoring and external evaluation for learning, continuous improvement, and mission effectiveness.
Thank you for presenting this powerful case for funders. I hope this evolves into a campaign to make these practices “mainstream philanthropy.”
My hat’s off to you – congratulations on this work.
Mario Morino
Just read great link that Trish Millines Dziko posted above: Nonprofit With Balls (http://nonprofitwithballs.com/), on five lessons learned from the Superbowl, to add to Paul’s wisdom.
I would like to add now a sixth lesson for non-profits: We should avoid hasty assumptions about what works, even if it appears, at first glance to be common wisdom.
Yes, handing the ball off to Beast Mode was what everyone in the stadium thought was the logical, best play to win from the one yard line, with 26 seconds left. But when you look at the cold, hard data on risk, and reward, and measure all the variables, it turns out a short pass on that particular down, with that amount of time on the clock was actually reasonable and data supported.
I never would have believed it until I looked, glassy-and tear-eyed at the data now being reported. A good lesson to apply for us running non-profits.
Good stuff. I like the analogy to the private sector CEO. I think funders/trustees of foundations, particularly if they are on investment committees, etc., would also get Lisa’s similar analogy:
“In the world of publicly-held stock investing, you perform a fundamental analysis of a given company. If you’re impressed by the leadership demonstrated by its management, you hand over the money and trust that leadership to make exactly the right decisions with it. You don’t hedge your investment by declaring to the CEO that he has too many secretaries and should cut his admin costs.”
I am proud to work for an organization that provides multi-year, unrestricted, general opperating support for local organizations. I’ve seen what a difference it makes and I am a believer!
Paul, thanks for this great piece. I can’t help but think that two of the factors contributing to QDDs are a lack of trust and a fear of being perceived as an unwise investor on the part of the funders. While trustees and program officers may understand intellectually the case for general operating support, I wonder what we as a sector could do to engender trust and eliminate that fear? Two things that come to mind: 1. Investing more time in the nonprofits funded or being considered for funding, and 2) educating the media about QDDs and false metrics.
Paul,
A most excellent and timely article. Sorry that I can’t provide that naysayer POV you’re looking for, but your points are spot-on.
I absolutely deplore the Guidestar-driven “if-your-overhead-is-greater-than-3%-you’re inefficient” way of thinking that so reminds me of the “small government” folks thinking that “efficient” always equals “good.” As you point out, no one likes to fund bathrooms, but as we all know, they’re critical. As you also note, trust is the key here. Think the org you’re funding has a good mission and good people striving to reach it? Give them the freedom to try (and, gasp, maybe fail a few times) to reach their goals. Ultimately they’ll be stronger.
Great post, Paul. I’m excited to share this powerful argument with donors who are concerned that unrestricted = unaccountable. Your wisdom will be a big help in overcoming this hurdle. I hope this message will resonate and proliferate not only in the social sector but also with federal funders, who also commit the crime of giving QDDs! My kudos.
Reading your article was akin to being enveloped by a comforting breeze and warm shining sun overlooking a beautiful ocean vista on the New England coast. Yes, I am….and sorry for the loss.
But, my analogy is real. I appreciate the candor to how you approached the issue with acknowledgement and research of all sides, the simplicity with which you explain the problems and the pragmatic solutions that you recommend. Obviously it’s much easier to write about it, then to actually do it - but we HAVE to start somewhere because what we got ain’t working!!
I think about what has contributed to my “a ha” moments up until point: 1) Hearing Dan Pallotta speak practically about the constraints put on non profits; 2) feeling grateful for a business leader like Sheryl Sandberg who has openly said she and her husband make it a point to contribute to the operating costs of a non profit because she couldn’t imagine having to defend to the Street on earnings calls the G&A she used to make targets; 3) The ridiculous, and frankly insulting, amount of time that I and some of my team spent on trying to secure a $10K grant from a corporate foundation - and just for one year.
I know there are a variety of lens on these issues and everyone plays a role in solving them. I salute you for furthering the conversation and knowing what I know about you, this is not something you are going to shy away from solving.
Thanks for this great argument, Paul. I especially appreciate this advice: “. . . if you can’t trust them, don’t make the grant in the first place.” If we entrust the leaders of social purpose organizations with our children, our environment, and indeed the future of our communities, how can we justify not trusting them to spend our grant dollars wisely?
It is an energizing pleasure to encounter practical ideas, born of front line experience and expressed with unflinching truth. The natural state of philanthropy is under performance—-precisely because it is not ‘outside in’ and more often than not fails to pursue the supremely essential practices outlined in the article. The shortage of unrestricted grants propels nonprofits into the ‘nonprofit starvation cycle’; short term (and short sighted!) funding undermines what it really takes to get the job done; ‘flying solo’ may stroke the ego, but it robs our communities of impact upside; mediocre boards (and thread bare management teams) are destined to fail and, no business could have a prayer of staying in business if it ignored its ultimate customers in the manner that is all too often the norm in philanthropy.
In philanthropy, excellence is self imposed. Donors who truly want results for society will do well to read this piece and behave accordingly.
Paul, lotsa sense here, as usual; for requiring restricted grants is like having a fine dinner and then specifying that the check be used only for the chefs, after all, they are “program” and the lights and forks and waiters are “admin”. I wonder if Gates was ever asked by early investors in Microsoft as to how much he spent on copier paper? Keep it up. But, look, why did Pete Carroll call for a pass instead of letting #24 handle it??!!? His was a sadly restricted call!
Clearly, the Seattle rivalry with the Bay Area continues post-Harbaugh based on a few of the Bay Area comments on this email. I won’t pile on… but I want to!!
More importantly, this is an outstanding reminder of the value of foundations and basics. I could not agree more with these five key principles. I am struck by the number of references to the way that for profit investors engage in their practice versus the approach taken by social investors. For years, the onus has been on non profit leaders to mirror the business practices of their for profit peers, but Paul correctly points out that non profit investors need to mirror the practices of market investors. Why is this so difficult? If you believe in the model, invest in it without restrictions, let the experts take charge, and stay with them until (and through) the impact you seek.
From my perspective, the broader donor community is at the heart of the chaos and bubble-like environment of the non-profit market. Paul has identified several practices that could bring order and greater impact to this market. It takes strategic and sophisticated philanthropists to model these practices and more. I hope that this piece gets beyond the choir and to those who desperately need this counsel.
First off - great article. We must move towards a more outcomes-based approach, with so many roadblocks from our current culture of giving!
You highlight the difference between Grant makers vs problem solvers. Unfortunately, I believe one of the biggest road blocks are funders who, when it comes down to it, want to be grant makers. They enjoy giving - and the recognition that comes with it. Not to say I think this is all or even a majority of funders, but nonprofits quickly learn which funders fall into which bucket - and treat them accordingly. Unfortunately, this can result in the ‘wrong’ type of funders getting the most recognition - because they demand it to remain loyal funders!
Multi-year unrestricted funding seems like a no-brainer. It puzzles me that so many organizations ‘move on to the next shiny penny’ - especially if the results of their (year/half-year/limited engagement funding) were positive.
I especially appreciated your insistence that we must listen to the customer - the individuals benefiting from the organization. It can be striking how differently a funder vs a benefiting individual will view an NGO solution or program. Our current system of (mostly) bending/appealing to funders (or prospective funders) creates a lopsided world. If the solutions of the ‘haves’ result in more fundraising but the buy-in of the community served results in more impact, how (and to who’s detriment) do we decide who to listen to?
I look forward to sharing this article in the coming weeks and hearing feedback from my various contacts. Some very interesting (and well laid out) ideas!
The paradigm shift you propose in granting unrestricted funds to nonprofits is brilliant in its simplicity and necessary to unleash the creative potential of this sector. Unrestricted funds will accelerate the speed at which nonprofits can adapt to changing conditions of the problems they face. With more nimble nonprofits they have a better ability to strengthen their organizations and create greater positive impact in their communities. Unrestricted funding can unleash social impact. Let the nonprofit sector go “Beast Mode” on our most intractable problems.
The case for 100% unrestricted funding is compelling. The question is: Are there any conditions under which restricted grants or partially restricted grants would be appropriate? Accountability and the challenge of measuring outcomes are the key factors. The easier it is to assess outcomes, the easier it is to give unrestricted funding and hold management accountable for measurable success or failure. This seems likely as nonprofits get smarter about measuring outcomes, which is what makes restricted funding an increasingly outdated practice. Still, could it have unintended consequences, just as restricted funding does? Would it put every nonprofit in the position of seeking unrestricted funding from only one grantor, because as soon as a nonprofit obtained unrestricted funding from a second grantor, how could either grantor know whether and how much its support had impact? And if it couldn’t tell, then how would the boards of the grantors know whether they are fulfilling their fiduciary responsibilities? QDD’s no doubt can have a debilitating effect on mission. Will that argument be sufficient to persuade a grantor’s board to move to 100% unrestricted funding? Perhaps. Especially if grantors use restricted funds because of fears of malfeasance or misfeasance by grant recipients. But not if grantors have other legitimate concerns, including their ability to raise more money to put to philanthropic ends by demonstrating the efficacy of their grant-making. Is this a problem, or, if it is, is it solvable?
Dang, I should have been checking in yesterday, I had a busy day (several hours of post-SB counseling took up the majority of the day). I hope you’ll all share the post w/ colleagues and nudge them to comment too, you are helping build a real-time manifesto here! I want to respond to each of y’all, I’ll take my best shot -
TOM T - self-imposed, indeed! That takes discipline. I felt like I was channeling you much of the time I wrote
MARIO - I love the 5 you added. You were a mentor 17 years ago and are to this day. Keep singing your song too, can’t wait to read your next POV
LINDA - staying focused IS the challenge, that’s the gist of the book I’m gonna write this fall
BJC - my mind is already recovered, my soul will NEVER recover
PAUL - agree 100% that is a shared deal, nonprofits have to step up too, it’s just that funders are gonna have to lead / go first
BEN - again, yes about being clear on outcomes. Without that part of the deal, QDD’s will never go away. And yes, just give the ball to 24!!
TRISH - it’s illogical that they are smarter than NGO’s; if they think that they should just run the program too
LISA - focus is the key, but not if focus = narrowing the funding parameters; focus should lead to the confidence to widen the parameters via trust
GREG - sc—w the data!!
NORM - I like the idea of “don’t hedge” a lot. It just emphasizes how absurd QDD’s are
RONA - trust and fear indeed. That is the underlying condition that leads to these crazy power dynamics
LOWELL - thank you for saying it again, unrestricted does not equal unaccountable
KIKI - can someone get this to Sheryl S, please 😊
GLEN - please don’t pile on, I can’t take it. I’ll just crumble
BREE - funders “want to be grant makers,” well said. It’s more fun; the truth is QDDs would eliminate half the program officers in the profession
DAVE - NGO’s Go Beast Mode, that should have been my title
STEVEN M - those are some excellent questions. If the discussion could be about THOSE questions, we’d be have the right arguments instead of overhead percents, etc
Paul, thank you for presenting and sharing such a powerful piece, funder-to-funder. I, too, have heard more stories than I care to about the harmful impact of restricted funding - those QDDs. For me, it comes down to this line in your article: “If you’re worried that grantees might misspend funds, and if you can’t trust them, don’t make the grant in the first place.” If we are going to truly work as problem solvers on our community’s and society’s big problems, then we must support the development of the leaders, structures, strategies, and culture of the organizations working to make change happen.
Thank you for your thoughtful piece and the opportunity to engage in a dialogue on this topic. I look forward to sharing it and hearing thoughts from others.
Thanks for a great article, Paul. I continue to think we will need to expect greater accountability for results in exchange for greater flexibility in how investments can be used. Clearly, in the earliest stages, funds are needed for basic infrastructure. but over time, investors should be able to see how actions are leading to impact and are being improved over time to realize even better outcomes. In order to do this at scale across multiple organizations focused on a common outcome, the backbone function will be needed to create the basic data infrastructure needed to connect actions to outcomes. Here’s hoping communities can find the resources to build this critical capacity that far too often is overlooked, even though it is recognized as being fundamentally important in the private sector.
Really great piece Paul! I especially appreciate the “outside in” approach you describe. I do think the most important question you ask in the piece is the one that philanthropy (institutional and individual) really needs to confront and be honest in answering: “Do we want to be grant makers or do we want to be problem solvers?” At Jackson Ellis Associates we work with those who want to be problem solvers. That fundamentally changes how we then think about the philanthropic effort - the approach we use, the types of resources we leverage, how we partner, how we define and assess success, etc.
Thank you for continuing to push us to think. While I am hopeful that your piece will get traction, I do wonder what it will take for real change to happen. As you say early in your piece, your message is “boring” because we’ve heard it before. GEO, CEP, NCRP and many others have been leading a similar charge for years with modest to little success. To your point about change taking time, I suppose it might just be that…..
As a former Development Director this is of course music to my ears.
I feel as though one element that may be holding many funders back from providing core funding is the fear of being the only one.
Many donors want to have something attractive and specific to say that they gave their money to, whether it’s an individual donor or a large foundation. Likewise, I wonder if funders might be reluctant to give core support because they realize that nobody else is doing it. They don’t want to be the suckers who end up covering the “unsexy” budget lines like administration, rent, and (gasp!) salaries, while the co-funders to the NGO get dibs on school supplies and nutritious meals for poor kids.
We can only hope that discussion around this issue continues to gain momentum and more brave funders take initiative to educate their boards and supporters on how providing core support is the best move forward.
“Unrestricted absolutely does not imply unaccountability.”—exactly!
The concept of funders and organizations agreeing on the goal/outcomes and how those will be measured, and letting the field expert - that is, the nonprofit - choose HOW to get to that outcome is something we should all be working toward. If funders were subject experts in lets say, homelessness for example: wouldn’t they go out and fix homelessness themselves? If a funder feels that they know best, then why not use their own money and do the work themselves?
The assumption of the current structure of giving is that it is for purposes of “accountability”, but in actuality this model of restricted giving often pushes nonprofits to do things in illogical (and inefficient) ways. It creates a power dynamic that dampens innovation and thoughtfulness on the part of nonprofits and encourages mission drift as they chase funding opportunities.
Paul—thank you so much for this call to action! I read it, and imagined a huge auditorium filled with Executives Directors of non-profits of all sizes, in all fields, listening to you as you presented this article and then leaping to their feet and applauding feverishly at the conclusion. Some of them might even be in tears…As the ED of a non-profit I’m applauding!
If you don’t work for a non-profit, I think its hard to imagine the impact and importance of unrestricted funds—that pay for little things like staff to do the work.
My thanks to partners like SVP and others in the community who understand that, and know that a focus on accountability and results and providing unrestricted funding can go hand-in-hand.
Well done. Thanks for sharing your experiences and insights. Just to add to the discussion, I would strongly agree with your comments that “unrestricted should not mean unaccountable.”
With that said, I think nonprofits can do a much, much better job communicating with their funders in a consistent and honest fashion about how their money is being used. I’d suggest that “more communication might ultimately lead to more flexible funding.”
Quite honestly, I think there is a bit of a myth that funders/investors in the private sector don’t care how management teams allocate their money. I know that most successful venture and private equity investors carefully go through business plans and review proposed financials line-item by line-item before handing over any money to a management team. Even publicly-traded investors carefully analyze financials, overhead rates and other financial items before investing in a company. It’s not even uncommon for an investment firm, a portfolio manager or a private equity firm to directly engage in a dialog with a company and their management team to try to influence the way in which they are spending their money. In fact, some of the most successful hedge funds in the world have been “activist” investors (Pershing Square, Icahan Enterprises etc.) and have placed significant restrictions on the way that management teams and boards are allowed to spend their investments.
In the private sector, companies know that if they listen and build trust with their investors and “the street”, they will be able to count on a more consistent flow of flexible capital. Companies also know that having high-performing “investor relations” teams that view their investors as partners, communicate consistently and transparently with the funding community and don’t surprise “the street” are rewarded with more capital from which they can grow. I have a fair amount in confidence in saying that I suspect we agree that many nonprofits have a lot of room to upgrade the way that they communicate with their donors/investors. With such upgrades, perhaps we will see more flexible/unrestricted funding available for nonprofit organizations and less QQD
I was struck by Jeff’s comments about private sector assumptions and expectations about communicating with investors - that those that do so effectively are rewarded with more capital. I don’t doubt that many nonprofits have room to upgrade their communications with investors - that they have “under-invested” in communications because of a whole set of deeply-embedded assumptions among nonprofits and funders about what is and what is not core to the mission and how limited resources can or should be spent. Jeff suggests that more flexible and unrestricted dollars will follow improved communications. I think it’s the other way round: the majority of nonprofits won’t be in a position to invest in their internal capacity without unrestricted dollars and a sea-change in funder attitudes that extends way beyond the big, progressive foundations.
WOW, some VERY critical ideas posited this morning, let me take a shot at amplifying / responding -
JEFF T - let me emphasize to everyone, I agree 100% with the “new exchange” you propose. There is some question of chicken and egg, BUT the key point is if nonprofits don’t get better and better at data and outcomes and truly knowing what impact they are creating, then we won’t see much progress on QDD’s. I feel like funders have to “go first” to a large degree, that’s just the way the power structure is, but nonprofits have to up their outcomes / data game commensurately (using those unrestricted dollars to do so). You knows this ball game as well as anyone, Jeff. Thank you
LISA - YES, this has been out there forever, BUT I honestly think we have more momentum on this than we ever have and the time to PUSH harder on this is NOW. I think people get it more and more, I hear rumblings around the foundation world, etc, etc, we CAN do this. Sometimes it takes a long long time to move the whale, but eventually it can move
RHIANNON - great point! I think another dynamic here is nonprofits ALSO have to have the courage to make the case for why they need more unrestricted funding. Again, funders need to go first but they gotta hear it from their nonprofits, not just from peers like me. What I truly believe is nonprofits have the case, they can make it, and I KNOW HOW HARD it is with the power dynamics at hand, but org’s like CIS have done it.
And JEFF B - all great points, I think you have to keep in mind that all of that diligence and oversight is done with the company playing with a different deck of cards than nonprofits, i.e. they ultimately can decide what to do with their unrestricted investment funding,. I’d love to have the same level of diligence and discussion between nonprofits and funders about THOSE kinds of issues instead of talking about overhead and how the money is restricted. Make sense?
Paul, excellent article and as one who consults with government, nonprofits, and philanthropy and who is also a partner with SVPP, I can be counted among those saying “amen, preach it brother.” The one piece to the puzzle that needs to be more nuanced is in the area of capital where it is not “don’t just do it” when it comes to restricted but knowing with crystal clarity when to apply unrestricted dollars and when to apply restricted dollars.
The idea of unrestricted capital as a framework for operating grants is way more functional that the current system of “quite damaging dollars.” However, I believe that there are critical junctures in a nonprofits developmental stages where it is also appropriate to provide growth capital with expert guidance (read some restrictions) to enable organizations to scale.
I have worked with more than one rapidly growing organization (and serve as board co-chair of one) that benefits from unrestricted dollars to fuel operations and innovation leading to greater impact AND the same agencies also would benefit by capital that comes with the “strings of expertise and guidance” to shape business models and practices to help the nonprofit scale.
It isn’t either/or but rather the use of both unrestricted generally and restricted with surgical precision.
Paul, This article is right on point, as you always are.
Especially this:
If you’re worried that grantees might misspend funds, and if you can’t trust them, don’t make the grant in the first place.
Restricted funding encourages nonprofits to misspend funds - we have to misspend money and time trying to shape our programs to present them in a way that fits funders’ often narrow guidelines and then again when we misspend money and time trying to report to funders specifically on the program outcomes they funded.
In my opinion nonprofits need to speak up, and to ask funders if they would consider unrestricted funding. It’s possible when funders hear more frequently that unrestricted funding is what nonprofits demand, they will change their practices. I have personally been encouraged that when I asked a funder for general operating support, they weren’t always able to give it, but they were open to hearing why I was asking. Same goes for multi-year funding.
Thanks for keeping this issue in front of our sector, Paul.
Jane, if I’d have had that line - “Restricted funding encourages nonprofits to misspend funds” - before I wrote this, I might have made that the tag line 😊
Mark, I’m REALLY glad someone offered a counter-opinion, bring it! So let me answer this from two sides - 1) do I think there is absolutely positively never a reason for a restricted grant? No (though it was hard to type that); it’s just that those cases are rare AND if I’m gonna make the point and hope to make it stick, I need to go all-in; I’m sure you get that 😊, BUT 2) I’ll keep pushing the point - in your scenarios, Mark, I agree with “expert guidance” for sure (SVP tries to do so) and the notion of “guidance to shape business models” makes plenty of sense too. Neither of those REQUIRES restricted funding to make it effective. There is something in the restriction that implies those limits / boxes / lines somehow make for better guidance or guidance that will be better followed or paid attention or something in that vein. I don’t buy that, in fact, I think the restricted funds make it harder for that guidance to be heard in a trusted, candid, two-way relationship. Feel free to fire back, Mark
Thanks Paul for highlighting some key issues. I work for an 11-year-old collaboration of philanthropy. Members of the Fund for Our Economic Future have learned the value of being connected and aligned with our peers. Yet, we too struggle with staying focused on the long term and fall into the QDD trap.
I think Mario Morino’s Leap of Reason brings some other valuable insight to the same issue. It is hard to imagine how QDD results in high-performing organizations committed to answering “to what end?”
The more we can shift the focus of philanthropy/grantmaking to be about delivering value (what Morino would call managing to outcomes) rather than addressing problems (or worse funding a program) the better off we’ll be.
I never thought I would be arguing for restricted funds…. And I am not… I fear we are in the awkward comment-board semantics. I guess I am advocating that there are times when “restrictions,” are more about expectations setting, accountably and in a weird way, trust building. The world of relations-based grant making is evolutionary. I think of most SVP investments. If Seattle is anything like Portland, some investees are “on board from day one with high trust and the reciprocal relationship you portray above. For other investments, the nonprofit doesn’t quite “get” the value-add and it takes up to a year (or more) to get into a trust groove. So in a low trust relationship, some strings to the resources can focus the attention. As trust builds, the nature of the grant making relationship changes and strings disappear.
Great piece of work Paul. Thanks for challenging us as donors, board members and staff. Many of us have worn all three hats with nonprofit organizations. In my work as a foundation director and trustee over the past twenty years we first look at mission alignment and board and ED leadership. If those elements get high ratings and pass muster for us, we work with the organization’s leadership to see how we can best support their mission. Most often it’s been a combination of unrestricted and restricted contributions. Sometimes we make mistakes and sometime the organization does but if you develop trusting relationships it can all be worked out. Sort of like a family!!
I find myself constantly drawing parallels – albeit likely forced parallels – between the domestic philanthropic sector, and my previous work in international development. There’s what I think is a common thread connecting your points Paul around unrestricted funding and an approach to foreign aid called Cash on Delivery Aid. In essence Cash on Delivery Aid is an approach where a funder offers a contract to low- and middle-income countries which pays a specific amount for achieving a shared objective. The donor only pays for what the recipient delivers. The basic steps are:
• Two parties negotiate a medium-term contract for payment upon delivery of some outcome
• Recipient party pursues its own strategy
• Recipient party collects and reports data
• Funder arranges independent verification
• Funder makes payment for confirmed results
Application of Cash on Delivery aid has been very narrow, and there are a lot of concerns with the approach (unintended consequences of incentive payments; vulnerability to corrupt officials pocketing the money; how do you come-up with an outcomes measurement that is appropriate, and lots of others). The thread that I think connects Cash on Delivery Aid and the outside-in approach to philanthropy you describe is frustration with funding models that attempt to control the use of their assistance. Cash on Delivery Aid and outside-in philanthropic practices push for the recipients of funding to own the means of achieving impact.
Cash on Delivery Aid of course diverges sharply from what we try to do in its insistence that financing is contingent upon transparent and measurable incremental progress on shared goals. But, but I do still feel that there’s a connection somewhere around the feeling that old systems for delivering aid and philanthropy do not work. That there has been too much energy spent on planning inputs and tracking money, and too little time spent on listening to those closest to the work, and letting those communities decide how to respond to their needs.
I’m so glad to see you talking about this here, Paul. Very nicely said too.
On the question of being “grant makers” or “problem solvers,” I’d like to add a slightly different perspective, and I think that it goes to some of the impetus behind restricted funding. Over my ten years or so running a nonprofit, I ran into a lot of really smart people within the foundation world. In fact, many of the smarter people working in nonprofits eventually end up working in foundations, recruited there because they are so smart and so good at what they do. Then, once at the foundation, these program officers are often drawn back into precisely what they do best, which is run programs; they start to architect very well-planned, what you might call, “proactive” programs that seek to actively shape the work of their grantees. This phenomenon can’t be separated from the trustees, of course, many of whom have strong opinions about how they would like to see the world, and so together, they build funding mechanisms to proactively solve problems.
One of the most powerful tools for doing that is the restricted grant.
In saying this, I don’t mean to say that a problem-solving orientation is a bad thing for funders. Clearly, it’s not. But I think that part of the pressure for restricted grants comes from this desire to be proactive in shaping the work, and sometimes that comes out of a subtle belief that the funder is better able to know what should be done than the grantee. Sometimes that’s true, but as you note, Paul, that’s a sign that you’ve got the wrong grantee.
Congrats, Paul, on presenting these important ideas in such a compelling and practical way! Love all the examples that paint the picture so clearly on how convoluted practices can be, e.g., people who are board members of a funder (with reservations about GOS) and also a nonprofit (loving GOS) and don’t even connect the dots. Are they paying attention? On the board for the wrong reasons?
The truth in this also caught my eye: “…it often ends up being about the ‘illusion of control vs. the possibility of impact’ and there is almost always an inverse relationship between control and impact.” Gideon raises an interesting point too that may be part of this dynamic. Of course this is also tied to the “ease” of measuring outputs in a short time frame vs. longer-term outcomes, and in some cases the lack of capability that nonprofits have to measure impact at all. Imagine if nonprofits could use the time/resources we now spend on doing accounting and reporting for restricted grants on measuring outcomes/impact instead?
The good news is that these practices are starting to shift, but I still hear too frequently from staff of family foundations that they struggle with getting their boards “on board” with even funding capacity building let alone GOS. It would be fantastic to create a toolkit to help them have these conversations. Does it exist?
We’ll definitely be sharing your full piece with our Partners and other grant makers and problem solvers here in LA!
Paul - First of all, as a lifelong Denver Broncos fan, I can offer you no condolences. Nor can I feel your pain as I am still trying to get over my own.
Secondly, congratulations on this article. As a program officer who conceptually supports the direction you are asking us to move towards, I have shared the article with my colleagues.
Perhaps on the margins foundations can and will move in this direction. You have presented evidence of incremental progress. However, based on my experience, I’m not hopeful. The construction practices you advocate would naturally evolve only when funders and grantees have very close alignment in their missions. Many good points have been made above as to why this is not frequently the case. We should try to align missions more such that long-term GO funding increases. But that will be, at best, a long, hard slog.
There is, however, a way for social sector organizations to get this kind of support. It’s just not from foundations. As I entered the field, an article that deeply influenced me was Jon Pratt’s “The Dynamics of Funding: Considering Reliability and Autonomy” (NPQ, Fall 2002) which accurately characterized most foundation grants as having many strings attached and being unlikely to recur.
Pratt identifies individual contributors as a source high autonomy and high reliability dollars. These funds come with no strings and often come year after year. The personal strategy I have embraced to inch us toward the goals you encourage is to move our foundation towards helping social sector organizations achieve greater capacity to tap individuals for high reliability/high autonomy dollars. Rather than suffer with our strings, let’s help organizations find the support that comes without them?
Strikingly, the only significant GO awards we have recently made are matching grants to funds raised by our grantees by individuals on the past two Giving Tuesdays. We’ve made over $300,000 in such grants in each of the last two years (admittedly a small percentage of our grantmaking). Somehow, our foundation views this practice as acceptable in a world of imperfectly aligned missions and the project grants which result. Hopefully, as we continue this, we’ll help drive individual giving upwards of the current plateau of 2% of AGI/GPI.
In Chicago, there are many beautiful tall, shiny towers. There are also thousands of less grand bungalows. Yes, let’s try to build better towers. But let us also open the doors to the bungalows. It may be easier to open a door than to build a tower.
Thanks for a great article Paul and for the great discussion it has inspired.
One important factor to consider in all of this is MOTIVATION. Change is hard and requires leadership and talent. Motivation is the secret sauce that enables people to achieve great things. There are lots of theories about motivation. There is also a body of research. The research is beautifully summarized by Daniel Pink in the youtube posting below.
The research speaks to three primary motivational factors: Purpose, Mastery and Autonomy. If we over-constrain the talent or turn them into contortionists - we directly impact the motivation that sustains our people and our work.
Thanks for your thoughtful article, Paul. I think it’s spot on. It strikes me, though, that after hearing this message over and over - and even agreeing with it in principle - donors are still placing restrictions on their grants. In the spirit of “outside in”, I’m curious to know what reasons donors still have that perpetuate that practice. Some are offered in these comments, but seeking out additional input from those who may not comment on a public blog (e.g., via interviews, focus groups or surveys) could be informative. The answers may offer insights into a new action plan and/or message.
I like the abbreviated version above, but the longer piece is terrific.
I think there is a tectonic shift afoot amongst NGOs and the funders who support them. From the NGO side, I can say each year (back that up at least 3-4 years) at every multi-org meeting or conference there is increasing focus and discussion on core system-level impacts rather than soft donor-plaque outputs. This shift in tenor is big and seems to come at the same time that most multi-funder meetings and conferences (that I am able to sneak into!) have more people asking structural questions about their giving; questions about how their funding can incite the sort of long-term change they envisioned when starting their respective foundations or giving initiatives; discussions about patient capital and commitment to long-term vision rather than immediacy of outcomes and whimsical (and ever-shifting) funding prerogatives…
But how do the noble aspirations of those on the (far more) dominant side of the power equation translate to real-world applications for those on the (far less powerful) implementing side?
As someone who swims in quite a few 1-yr grant cycle pools (sometimes well, and sometimes gasping for breath), I would love to know how this could collect more than nods and backslaps and actually take hold? Any plans to get a core group to trial this out (take two grants side by side for 3 years – one with QDDs, the other without – and see what happens. Bland, but it could be an easy win)?
So refreshing. We all think it, but are hooked into the way it has been for some decades. Think of the money saved by development and accounting departments if they do not have to track all the little grants. Some reservations about larger nonprofits and what they sometimes do with their dough, but in general, this is a change overdue.
First of all, let me say that I agree 100% with your article and I switched my own donations to 100% unrestricted about 5 years ago upon intuiting many of the things you point out in your article, but not articulate enough to map it out as well as you have.
Given that I am late to the party in making comments I don’t have anything earth shattering to add but will cover a couple of points that could potentially be added to your thesis.
I am Board chair of two organizations one of which is small and gets almost 100% unrestricted donations. We simply go ahead with our work and try like the for profit businesses you pointed out, we focus on spending the dollars as wisely as possible to have the greatest impact and trusting that our donors will agree that we are accomplishing our goals.
In the other organization we (to oversimplify) build things. We are supported by very generous donors, some foundation, but mostly HNW individuals. Because we build things, much of our donations are restricted to a “building”. As you pointed out, we then have to sometime make sub optimal decisions when the restricted funding doesn’t align with “the right thing to do”. Happy to provide examples of this in private. This problem compounds when you can’t add in “overhead” to the cost of the “building”. If your donors only want to fund buildings but don’t want to pay the salary of the CEO or the cost of the multi currency ERP system that you need to account for the costs of the building, what do you do?
Part of this had to do w/ recognizing that all of us (some to a large degree, some to a smaller degree) have an ego that needs to be scratched when we make a donation. All dev directors who are good at their jobs know how to stroke our egos. One easy way to do this is to put our name on that building. That seems to be a win/win since it doesn’t cost much to put a plaque on a building w/ someone’s name on it.. But it perpetuates the cycle of restricted funding.
A couple years ago, our restricted funding had gotten to be close to 70% of our revenue and it just about killed us. We almost ran out of cash to pay for all the other things we needed to do. We had to apply for a line of credit (that thankfully we never used and even better, still have access to it if we ever do need it) when it looked like we might not be able to make payroll in the near future even when our funding was up over the previous year.
Since then, we have pushed our donors politely, but firmly to increase their unrestricted donations starting w/ our board members and our longest term donors and moving from there. We still build things and so we will never get to totally unrestricted funding, but we have improved to almost 50% and hope to increase it going forward. (I will pass your article on to our DEV team to help improve their arguments to continue to get this kind of behavior from our donors).
We have also, very reluctantly and on a very small scale, turned down restricted donations that we thought were not enough in alignment with our mission realizing. Hard to do but sometimes necessary.
There are some not for profit accounting rules that are somewhat counter productive in this area too (transfers from restricted to unrestricted and revenue recognition on long term commitments). I don’t want to bore all the nice people on this thread with them, but happy to talk to you about them if you want.
BEN, CoDA sounds sort of like Social Impact Bonds too. I love your closing line - “too much energy spent on planning inputs and tracking money, and too little time spent on listening to those closest to the work, and letting those communities decide how to respond to their needs”
GIDEON, as always, I wouldn’t change a single word you said.
DIANE, amen to “Imagine if nonprofits could use the time/resources we now spend on doing accounting and reporting for restricted grants on measuring outcomes/impact instead?” I DO agree things are shifting AND UNLESS WE GET THIS INTO THE BOARD ROOM, THE CHANGE WILL ONLY GO SO FAR
CLARK, thank you!! I’m not sure which hurts worse, getting crushed 43-8 or losing at the one-yard line ... they are both miserable! 😊 GREAT candor and points in your post
KATHY, I love Pink’s work! In fact, his work around “Purpose” specifically resonates with me as the motivating force why people get more deeply involved in philanthropy outside of work, i.e. where his Chapter 6 ends in “Drive” is where philanthropy should pick up
TRICIA, agreed! I’ll check with you offline
ERIC, as always, you get to the heart of the matter. Let me check with you offline too
SALLY, “hooked into the way it has been for some decades,” yep and time to finally unhook
AND CRAIG, you just chimed in ... “our restricted funding had gotten to be close to 70% of our revenue and it just about killed us. We almost ran out of cash to pay for all the other things we needed to do. We had to apply for a line of credit” god I’m sick of knowing how often that happens. AND YES YES YES to “we have pushed our donors politely, but firmly to increase their unrestricted donations starting…” nonprofits HAVE TO do this!
AND DO THIS - We have also, very reluctantly and on a very small scale, turned down restricted donations that we thought were not enough in alignment with our mission realizing. Hard to do but sometimes necessary.
Nonprofit accounting rules ... I don’t want to ruin my whole weekend, believe me, they drive me nuts, Craig!
Hey Paul,
For those of us who know you, this is a drum you have been beating on for years. The fact that 60+ people, thus far, have taken the time to agree with you is encouraging. Keep beating and maybe we can get more funders to join our band.
Keep writing pal. You have a lot to say and obviously many fans who want to listen.
This is a nice start, but this thinking can be pushed much further. We gain a much simpler and more robust frame by collapsing the many false dichotomies between the world of grant making and the world of for-profit investment.
Treat non-profits as enterprises—social enterprises—that are seeking investment, and all this discussion evaporates.
Foundations will gain a lot of power and clarity if they view their grants as investments. And then it is up to the grantee to sell the foundation on the ROI. Don’t ask for a convoluted grant application—ask the grantor for their business plan (value prop, proof points, metrics, KPIs, financial projections, etc.), and how the funding capital will be deployed to generate maximum, measurable social good.
This will clear out a great deal of fuzzy thinking plaguing the world of philanthropy.
In fact, pushed to the extreme, there is nothing different from the world of investment and the world of “philanthropy” except for the “R” in ROI. In the social space, our “Return” should be defined in quantitatively and qualitatively robust, concrete social progress—not money.
Simple. The terms “restricted” and “unrestricted,” along many other unnecessary and inefficient inventions of the non-profit sector, just go away.
Foundations aren’t particularly driven by market forces, unfortunately—only a few are look hard at ROI at near the scrutiny of their private-sector investor cousins. But when they start to do this, the social sector will greatly accelerate.
There’s a lot of good news here, of course—there are more and more highly encouraging examples of foundations moving beyond small scale, transaction grants in narrow outcomes, and moving toward broad, robust, growth- and transformation-oriented investments.
Our favorite example is the Russell Family Foundation’s Puyallup Watershed Initiative:
Great article, Paul. Thank you. What we also often fail to realize in philanthropy is that just as non-profit executives need to be nimble problem solvers, so do those that support them. When investment philosophies or funding categories are so inelastic, we can fail to see the bigger opportunity in a cutting edge prospect - one that could be heading toward breakthrough or major impact, but for the funding restrictions and guidelines that govern our giving, or a similar set of restrictions that we may place on the operators. Thanks for fighthing the good fight and keep it up!
Paul, I hope this sparks the conversation in philanthropy that is long overdue.
I would ask us to imagine the level of impact and innovation the nonprofit organizations we value could have if we invest in them in a manner that would permit their leadership to focus on solving community problems, instead of spending a majority of their time fundraising or ensuring their programs meet the requirements of our grants, even though the environment around them as changed. I hope that in the future we will consider providing innovative community leaders and organizations with the opportunity, resources, and flexibility to make the real difference they are capable of.
Paul, I’ll pile on to say I really appreciate this article and I agree wholeheartedly. I also agree there are other, better, ways to drive impact and alignment than restricting funds. That’s a blunt instrument, not a flexible and useful tool. Kudos also for making this point so simply and succinctly. Really drives the point home.
Having been in this field for more decades than I’d like to admit, I do see progress. Before Paul Brainerd and SVP, there were arguments for general operating support, but they were mostly blowing in the wind; post SVP, there are people who bought the argument and commit to such support.
As a consultant, I’m finding more of my family foundation clients providing unrestricted multi-year support; even at 100% of their grants. Getting more funders to that place requires teaching them how to work with nonprofits to understand and measure nonprofits’ progress as a whole. (Be the change maker you want to be.)
I agree that the field is full of slow, itty-bitty baby steps forward and that can be frustrating. But I wanted to provide some encouragement regarding this “chronic” problem—and also note that the comments your article provoked were just as interesting the article itself.
Right on the mark, Paul ~ Great work. Let’s get this conversation growing (and glowing) across the sector! The social-good sector has long accepted the reductionist frame wherein we somehow “take off the top” some kind of “overhead” rather than that we invest in value creation (just like free markets). At the risk of seeming self-promotional (because I care about this topic so deeply), my congruent thinking is here: https://medium.com/another-lens/truth-transparency-overhead-fadfc113b648
It is ironic that the very issue you feel makes philanthropy not work is also one of the issues that make our pubic schools not work. Virtually every dollar our schools receive comes with some type of string attached. As a consequence, it is virtually impossible to run a school or a district in a manner that is in the best interest of kids.
Sounds to me like our state legislators could learn something from the experiences of non-profits.
Don
Don Nielsen
Former President of the Seattle School Board
Author: Every School
I’m struck by the fact that 98 percent of the comments on this piece are positive. Meanwhile, just 25 percent of funding takes the form of unrestricted support. Which means that a large majority of funders disagree with Paul Shoemaker. Why hasn’t a single one weighed in here to justify how they operate? That’s a good question. I recently invited a funder who’s against general support to outline his views on Inside Philanthropy. So far, no response. Even though I agree with Paul, I’m hoping to air and engage the other side of this debate.
Thanks, Paul, for bringing this critical issue into the light. I will add my voice to the list who understand the rationale and believe in the importance of the foundational architecture of unrestricted funding as a basis for the success of any non-profit—both in the short and long term.
One practical argument in support of the practice of unrestricted giving is that it enables the non-profit to be nimble and proactive as well as responsive to real-time data and input from the populations it strives to serve. Targeted and defined programs outlined in a grant often inhibit innovation and crush the necessary research and development investments that move the mission of the non-profit organization forward.
Perhaps the answer lies in a reflection of what constitutes effective philanthropy and how non-profits can best be supported to develop the infrastructure and capacity to be both thought leaders and entrepreneurs in affecting social change.
I have to call our David C’s note - 98 percent of the comments on this piece are positive. Meanwhile, just 25 percent of funding takes the form of unrestricted support. Which means that a large majority of funders disagree ... Why hasn’t a single one weighed in here to justify how they operate? - I sincerely invite dissenting views openly and / or feel free to email me at .(JavaScript must be enabled to view this email address) if that is easier for someone.
CHARLES, I think that’s a good case in point that illustrates the illusion of control vs. creating impact
RICK, can I just say Amen?! That is so well put, succinctly, emphatically. And I long for that kind of discussion amongst funders, I am looking for that as one tangible next step and am open to ideas
EMILY, thanks! Blunt instrument indeed!
JULIA, thank you very much, I sense the same and it’s great to hear that from someone like you, keep spreadin the word 😊 AND YES, the comments have been thoughtful, awesome, I think they make the argument stronger and stronger with every additional Comment.
PETER, you are one of the best thinkers on this anywhere so thanks for inserting your perspective
DON, you know much I agree and making that point that this is symptomatic of and debilitating to the field of education as well just broadens that point in such a significant way. The examples, stories of restricted funding from the field of education are as absurd as any you’ll find
ELIZABETH, once again, a commenter makes the point as good / better than I do - “Targeted and defined programs outlined in a grant often inhibit innovation and crush the necessary research and development”
Boy, if I had just responded inline to every Comment along the way, we would have broken the all-time SSIR Comments record by now 😊 THANK YOU EVERYONE
Paul,
In addition to a great essay, your Feb 10 comment rings loud, shattering the silence of those not speaking. I think perhaps people worry too much about appearance rather than action and so I wonder if the question of general support is one of those “noble questions” as I like to call them. Noble questions, or perhaps better called noble “answers” are what we give when we respond with what we think is the right answer…at least from the perspective of the person asking the question.
How many times do people, when asked what they watch on television, respond with “I watch PBS…Nova, American Experience…etc” and then they go home, draw the curtains and American Idol tops the charts. And so when asked how you feel about general funding, the noble answer is to respond “it’s a good thing.” Yet when checks are written, it’s all about specific programs that can be seen, felt and eventually highly evaluated. Think Nielsen ratings for television. Do funders fear supporting an organization rather than a program? Do those same people personally support their Public Television station in general or do they only give to help a specific show? Do they write a check of general support to the Little League in their town, or do they say the money can only be used to buy bats and balls, but not the general upkeep of the playing fields? How is general support by philanthropy any different?
I wonder if funders fear not being able to “prove” or “show” they made a difference because they lack the true—the true—commitment to a cause and a willingness to support good organizations working to the same end? Funders: look in the mirror and ask yourself if your commitment is to yourself …. or to the cause you passions drive you to support? Then look at your check register.
Henry, what an emphatic, passionate comment to add to this whole collection of great perspectives! We are NOT done, this blog post will be a beginning, a means to an end. I hope everyone that has ideas on what to do next will contact me and let me know. THANK YOU AGAIN, Henry
What a great collective testimonial to a significant change in our sector everyone! Keep spreading the word, I’m just getting started. THANK YOU EVERYONE
Paul
Thanks for your article. In the daily press of trying to make good decisions or even articulate and understand our own goals as funders, these rules can get lost. First off I want to say that your comparisons to business are spot on. We do have a completely different set of rules it seems for the social sector. On the other hand we lack the incentives that seem to drive mergers as you point out later. We have worked at this with little to show. But on the peer side, we host an annual gathering of funders who work in the same region to make sure we are all talking about priorities and talking to one another. It has led to many shared granting efforts. Another area where we have difficulty not playing the roll of knowing more than our grantees is in very oppressed societies where just the lack of awareness of what is possible makes it hard for people to work on solutions. As a simple example, many individual farmers are unaware of basic livestock issues that were common place a century ago in the states.
As for restricted grants, we do use them a lot to pay for specific projects such as reports. On the other hand, we also fund organization’s own business plan over a five year period. It is their plan, not ours and then we check their progress quarterly with a green, yellow red light analysis and when necessary discuss with them how they can get back on their plan.
I am commenting from the perspective of a few organizations I am involved with. As a grantee, we have been fortunate to start by attracting nonrestrictive funds through events and supporters which has been essential to our work. It is a constant challenge to keep that growing with the increasing size which we have done through earned income. But I have been on the board of organizations that failed because they lacked that base.
I appreciate you raising these topics on which essentially I agree with you. There needs to be constant discussion on them to make sure we are all leaning towards best practices as we go about our work.
Preach it brother Paul! Love this. I’d extrapolate your logic here to also include sustainable, MULTI-YEAR, unrestricted funding. I can’t tell you how many times organizations (including mine) have been told by funders that “we don’t do multi-year funding” and who then go on to invite and fund separate grants each year for many consecutive years. The transaction costs alone (for both the nonprofit and the funder) required to write and evaluate separate grants make this an insane, expensive, and inefficient dance. Funders should be comfortable enough with the up-front due diligence they’ve performed on an organization to be willing to fund a winner for multiple years, and thereby to provide that winner with a stable source of reliable unrestricted revenue to be able to build upon, take some risks with, etc. Multi-year funding can still come with the kind of outcomes accountability and milestones that single-year funding can provide, but at a much lower cost and with much greater impact on mission achievement.
Making a difference, having a meaningful impact, creating a shift that fundamentally changes what isn’t working to something that works long term, helping animals, fellow humans, our planet - it’s what most of us try to achieve when we give. We give because we are generous, compassionate and hopeful.
Reading Paul Shoemaker’s article about how we can reconstruct our giving strategies is the right step in the right direction. It’s a breath of fresh air that gives me hope.
After many years working in healthcare, I became intimately involved in the moving target of philanthropy when I started a nonprofit about 8 years ago. Adopting a successful 20 year intergenerational model with 4 other high functioning replications around the country wasn’t enough to obtain the needed investment to seed or grow our organization. We started at the worst possible time in the economy and family circumstances quickly arose to challenge our efforts. We have been sustained and are gradually growing because of dedication to our mission, financial and in kind contributions from family, friends and acquaintances and 2 main sponsors.
Being a new nonprofit with a model that involves a supportive housing community , we estimated a 10 year ramp-up before the development was complete and programs would be operating. (Yes, I tried to partner or find an established organization to sponsor our model before starting our own 501 c3). We eventually found the right land, housing and service partners. But, like any business, our nonprofit would grow and be sustainable when we could make the necessary investments in our infrastructure and pay our general operating costs. I never anticipated the hurdles we’d encounter.
The main obstacles have always been around operating capital. Last year, we finally received 2 grants with no boxes around them and no hoops to jump through, in essence, unrestricted. These funds enabled us to move ahead in one main area and cover our operating costs with breathing room. This year, we are invited to write a grant to fund 2 key positions for 3 years. We continue to look for general operating funds that allow us to focus on what’s critical to achieve our mission.
We know the people we help initially and the lives we will change forever depend on our dedication to getting the job done…and we depend on the generosity, compassion and hope of others.
Here’s hoping this dialogue continues and that granting organizations and individuals open themselves to the notion of operational and unrestricted funding.
Thanks, Paul Shoemaker for bringing attention to this topic and helping us focus on meaningful change.
Helen Lakeru, Many Lights Foundation
Great thoughts and underline some of the basic difficulties in today’s thinking. I agree that we should be analyzing the realities and than making our decisions rather than founder centric. The founder no doubt can be a insightful person but many times realities are different and those solutions may not benefit at all. I never knew this about Empire state building so thanks for it too 😊 This outside in is similar to out of the box ideas instead of same old traditional ones. Those Ideas may work but at some occasion when we improvise it can be more effective.
Paul, et al. ‘Nice, thought-provoking dialog, and fundamentally why social enterprises are such attractive alternatives (though not always straight-forward in application): pairing economic revenue generation with social change. And the latter rolls off the tongue easier than it is to implement.
Take SLU (South Lake Union) redevelopment… Ever wonder why there’s a conspicous absence of affordable (much more importantly, mere workforce) housing as part of the broader remaking of SLU? There are whopping personal gains at stake. It would be easy enough that for-profit participants shave off a few percentage profit points toward social/equitable outcomes, yet such seems to demand a monumental societal shift.
My inquiry (rhetorical, as it is): can we fundamentally re-engineer profit-mentality such that private enterprise evolves as an ‘engine’ for achieving social outcomes…, and, thereby, offer attractive alternatives to the more limited conventional donor/grant funding relationships presented here?
It’s an encouraging sign that donors are getting more sensitized to the needs of the social sector. Applying the rules of tech funding to philanthropy just doesn’t work.
COMMENTS
BY Ben Klasky
ON February 3, 2015 11:01 AM
Nice piece, Paul. I agree - “Unrestricted does not mean unaccountable.” Funders should make smart bets to solve the problems they want to solve, and invest deeply in organizations with unrestricted funds. It’s about impact!
BY Janet Levinger
ON February 3, 2015 04:38 PM
Good blog. I have viewed this now from both a funder’s perspective and a nonprofit perspective. Nonprofits want funding so they work hard to fit their programs into funder’s criteria—often to the detriment of the program and the customer served. Funders need to trust the experts in the nonprofits.
BY Lisa Van Dusen
ON February 3, 2015 06:15 PM
I like the Empire State Building analogy - and there’s more to the analogy that could be relevant. In 2011, the Empire State Building was awarded LEED Gold certification. Maybe unrestricted funding is exactly the bold retrofit that philanthropic giving needs long about now to align from the “outside in”. What might be the “climate change” of the philanthropic world?
BY Stephanie Heckman
ON February 3, 2015 08:58 PM
Wonderful article and couldn’t agree more. We need to provide unrestricted, long term funding built on trust, and respect. That is the type of partnership that will bring change. We also need to diversify the decision makers.
BY Paul Shoemaker
ON February 4, 2015 03:23 AM
Thanks, Ben, Janet, Lisa, Stephanie, spread the word, I’d love to hear from lots more folks including folks that might disagree
BY Aaron Dorfman
ON February 4, 2015 06:48 AM
Great piece, Paul. I love the challenge to provide 100% unrestricted funding! Sorry about the Super Bowl results.
BY Greg Tuke
ON February 4, 2015 07:07 AM
Absolutely this would improve the efficiency and effectiveness of non-profit work. It does make it less interesting for funders, however. Board members and Trustees and staff who want to feel like they have a bigger role in shaping strategy can feel underutilized, because we are in a unique place to see broadly what is happening in a particular field. And we want to use that knowledge It was once described to me as ” being like a dog in heat on a short leash”. I think the best formula for funders is to find the organizations that you believe in, become trusted partners, and continually share these broader perspectives with NGO’s, as you provide gen. operating support.
There is a larger problem however, that far overshadows this one. And that is how heavily the US relies on private philanthropy to support what should be publicly supported. I’d love to see you write a follow up on this issue, and how foundations could and should play a role in changing that equation..
BY Linda Hendrickson
ON February 4, 2015 07:28 AM
Love your question, Do we want to be “grant makers” or “problem solvers”? I hope that all funders/donors want to be problem solvers. But when the challenges are so big and complex—in an environment that prizes bold new ideas, quick solutions and immediate results—staying focused and working together for the long term is a challenge in itself.
BY Bettijean Collins
ON February 4, 2015 08:12 AM
Great article (and nice to see you have made it back from the SB—at least in body. Not sure how long it takes the soul and mind to recover).
I agree with the non-restrictive funding: it is so hard to juggle chainsaws with your hands tied behind your back. However, I am also finding the work that Banny is doing about how you think and approach a problem very compelling. It definitely has a place in how we all approach/think about/tackle these intractable issues and the type of groundbreaking work is impossible if donors restrict funds.
BY Nancy White
ON February 4, 2015 08:44 AM
Amen! We have inadvertently created a sector of contortionists!
BY Paul Speer
ON February 4, 2015 08:55 AM
Like many other readers, having sat on both sides of the funder-nonprofit table over the years this dynamic is all too clear. Amplifying the issue is the lopsided power dynamic in our nonprofit funding system. Nonprofit leaders are heavily motivated to “go along”. Funders are incented to seek the (false) security of restricted giving as a proxy for shared agreements on outcomes or trust in nonprofit leadership teams.
I believe that breaking out of the QDDs dynamic that Paul identifies is a shared responsibility. Funders need to invest the time to truly understand the missions, leadership teams, and outcomes they are supporting. Nonprofit leaders need to have the courage to educate funders on what they are trying to accomplish, why their approach and management team is a good bet, and in some cases the right questions that funders should be asking of them.
Like all good partnerships, this will require common language, commitment, and a bit of vulnerability on both sides of the table to create the change that we all seek.
Thanks for giving voice to this Paul.
BY Benjamin de Haan
ON February 4, 2015 09:14 AM
Paul, thanks for creating the dialogue
with your though provoking piece. I am sure your ideas resonate with all of us who mix and match funds to get our jobs done. In my view, at least two of the major challenges you identified, funding restrictions and short term funding cycles are a direct result of our collective inability to measure results. Without clearly articulated outcomes, funders and grantees alike become preoccupied with the process of how money is spent and how long it takes to spend it. Admittedly, many of us work in areas where metrics are difficult, but not impossible. As for your question about the last play of the Super Bowl…just a question of metrics and probability.
Number 24 had already ready carried the ball over 100 yards in the game, most of which while also carrying a number of Patriots on his back. What was the probability of gaining just one more yard??? Okay, time to get over it.
BY Eric Walker, Eric G Walker & Associates LLC
ON February 4, 2015 09:18 AM
Great framing of a key issue.
QDDs are real and are a major obstacle to really, really good results. QDDs are a legacy of old philanthropy and have been propagated with newer strategic philanthropy. It is time for grant-making innovation to match ideas like impact investing. Investment grant making looks like unrestricted funding tied to organizational health and impact, rather than tied to cost ratios and narrow project goals.
Hopefully this article will help grant making catch up to social investment thinking.
Paul, you are now the vanguard!
BY Trish Millines Dziko
ON February 4, 2015 10:04 AM
Nice work Paul. As a cofounder and executive director of a nonprofit, I can say that having grantors that trust your decisions AND can help with strategic challenges is what works best. The key here is for funders not to do the two things they often do: 1) Assume they are smarter than the nonprofit 2) Give money to bigger nonprofits that they assume are smarter than the community being served.
If you want to read about all the poor practices of funders that just kill nonprofits, check out Vu Le’s blog Nonprofit With Balls (http://nonprofitwithballs.com/).
I agree with Greg Tuke—would love to see a post on what public dollars should be supporting instead of philanthropy.
BY Lisa Tracy
ON February 4, 2015 10:07 AM
Well said.
I think the root of the problem is a lack of appreciation for the (often brilliant) strategic capabilities of great nonprofit organizations. The private sector, the broader public, and unfortunately much of the philanthropy world itself, condescend to nonprofit organizations and seem to imagine that they are inhabited by lesser thinkers.
The question, to me, is how to turn that (perception) around. How to highlight some of the amazing nonprofit leaders, and their ability - given consistent financial support - to identify and jump on opportunities for impact right as those opportunities emerge.
In the world of publicly-held stock investing, you perform a fundamental analysis of a given company. If you’re impressed by the leadership demonstrated by its management, you hand over the money and trust that leadership to make exactly the right decisions with it. You don’t hedge your investment by declaring to the CEO that he has too many secretaries and should cut his admin costs. Imagine how flagrantly patronizing that would feel to a private-sector CEO. Nonprofit CEOs weather that kind of attitude from (often clueless) donors on a regular basis.
As a philanthropic advisor, I can tell you that the conventional wisdom in our profession is to get donors/families to define their philanthropic interests as narrowly as possible. This is based on a positive intention, which is to ensure that a given donor’s limited dollars have true impact in a chosen field. But it is precisely the narrowly-defined interest area - “we fund elephant conservation, but not rhino conservation” - that leads donors to support only one part of a given nonprofit’s mission, leading to the very problems you describe. I think that an alternative vision, with nonprofit thrivability at its center, should be offered up more frequently in the arenas (such as small-foundation conferences) where new donors are earnestly learning how to be good donors.
Spend your due-diligence energy unearthing the greatest nonprofits with the greatest leaders. Give them general, no-strings, multi-year support. And watch them soar.
BY Mario Morino
ON February 4, 2015 10:30 AM
Paul, you’ve done nonprofits and, more important, their beneficiaries a great service with your article. The five philanthropic practices for which you are advocating are on the money. If they were adopted on a large scale, they would surely lead to better results and greater social impact for people and causes served. You’ve put on the table a powerful challenge to funders. I hope all foundation boards and advisors to donors will take this challenge to heart and give serious thought to how these practices could make them better at fulfilling their missions.
To build on the excellent platform the five practices form I suggest funders provide substantial financial and strategic assistance to grantees to support:
• Courageous and adaptive executive and board leadership – the preeminent factor in mission fulfillment;
• Investing in the building of high performance organizations over just offering program funding;
• Implementing well-designed and well-implemented programs and strategies brought to life by the culture and people who make them work;
• Building better evidence of what works, while stimulating innovation;
• Internal monitoring and external evaluation for learning, continuous improvement, and mission effectiveness.
Thank you for presenting this powerful case for funders. I hope this evolves into a campaign to make these practices “mainstream philanthropy.”
My hat’s off to you – congratulations on this work.
Mario Morino
BY Greg Tuke
ON February 4, 2015 10:40 AM
Just read great link that Trish Millines Dziko posted above: Nonprofit With Balls (http://nonprofitwithballs.com/), on five lessons learned from the Superbowl, to add to Paul’s wisdom.
I would like to add now a sixth lesson for non-profits: We should avoid hasty assumptions about what works, even if it appears, at first glance to be common wisdom.
Yes, handing the ball off to Beast Mode was what everyone in the stadium thought was the logical, best play to win from the one yard line, with 26 seconds left. But when you look at the cold, hard data on risk, and reward, and measure all the variables, it turns out a short pass on that particular down, with that amount of time on the clock was actually reasonable and data supported.
I never would have believed it until I looked, glassy-and tear-eyed at the data now being reported. A good lesson to apply for us running non-profits.
BY Norm Bontje
ON February 4, 2015 11:06 AM
Paul,
Good stuff. I like the analogy to the private sector CEO. I think funders/trustees of foundations, particularly if they are on investment committees, etc., would also get Lisa’s similar analogy:
“In the world of publicly-held stock investing, you perform a fundamental analysis of a given company. If you’re impressed by the leadership demonstrated by its management, you hand over the money and trust that leadership to make exactly the right decisions with it. You don’t hedge your investment by declaring to the CEO that he has too many secretaries and should cut his admin costs.”
BY Simone Wren
ON February 4, 2015 11:31 AM
I am proud to work for an organization that provides multi-year, unrestricted, general opperating support for local organizations. I’ve seen what a difference it makes and I am a believer!
BY Rona Pryor
ON February 4, 2015 11:31 AM
Paul, thanks for this great piece. I can’t help but think that two of the factors contributing to QDDs are a lack of trust and a fear of being perceived as an unwise investor on the part of the funders. While trustees and program officers may understand intellectually the case for general operating support, I wonder what we as a sector could do to engender trust and eliminate that fear? Two things that come to mind: 1. Investing more time in the nonprofits funded or being considered for funding, and 2) educating the media about QDDs and false metrics.
BY Simone Wren
ON February 4, 2015 11:34 AM
*General operating, that is.
BY Polly Hopkins
ON February 4, 2015 12:04 PM
Paul,
A most excellent and timely article. Sorry that I can’t provide that naysayer POV you’re looking for, but your points are spot-on.
I absolutely deplore the Guidestar-driven “if-your-overhead-is-greater-than-3%-you’re inefficient” way of thinking that so reminds me of the “small government” folks thinking that “efficient” always equals “good.” As you point out, no one likes to fund bathrooms, but as we all know, they’re critical. As you also note, trust is the key here. Think the org you’re funding has a good mission and good people striving to reach it? Give them the freedom to try (and, gasp, maybe fail a few times) to reach their goals. Ultimately they’ll be stronger.
BY Lowell Weiss
ON February 4, 2015 12:07 PM
Great post, Paul. I’m excited to share this powerful argument with donors who are concerned that unrestricted = unaccountable. Your wisdom will be a big help in overcoming this hurdle. I hope this message will resonate and proliferate not only in the social sector but also with federal funders, who also commit the crime of giving QDDs! My kudos.
BY Kiki Johnston
ON February 4, 2015 12:43 PM
Paul!
Reading your article was akin to being enveloped by a comforting breeze and warm shining sun overlooking a beautiful ocean vista on the New England coast. Yes, I am….and sorry for the loss.
But, my analogy is real. I appreciate the candor to how you approached the issue with acknowledgement and research of all sides, the simplicity with which you explain the problems and the pragmatic solutions that you recommend. Obviously it’s much easier to write about it, then to actually do it - but we HAVE to start somewhere because what we got ain’t working!!
I think about what has contributed to my “a ha” moments up until point: 1) Hearing Dan Pallotta speak practically about the constraints put on non profits; 2) feeling grateful for a business leader like Sheryl Sandberg who has openly said she and her husband make it a point to contribute to the operating costs of a non profit because she couldn’t imagine having to defend to the Street on earnings calls the G&A she used to make targets; 3) The ridiculous, and frankly insulting, amount of time that I and some of my team spent on trying to secure a $10K grant from a corporate foundation - and just for one year.
I know there are a variety of lens on these issues and everyone plays a role in solving them. I salute you for furthering the conversation and knowing what I know about you, this is not something you are going to shy away from solving.
BY Rebekah Heppner
ON February 4, 2015 12:50 PM
Thanks for this great argument, Paul. I especially appreciate this advice: “. . . if you can’t trust them, don’t make the grant in the first place.” If we entrust the leaders of social purpose organizations with our children, our environment, and indeed the future of our communities, how can we justify not trusting them to spend our grant dollars wisely?
BY Tom Tierney
ON February 4, 2015 01:20 PM
It is an energizing pleasure to encounter practical ideas, born of front line experience and expressed with unflinching truth. The natural state of philanthropy is under performance—-precisely because it is not ‘outside in’ and more often than not fails to pursue the supremely essential practices outlined in the article. The shortage of unrestricted grants propels nonprofits into the ‘nonprofit starvation cycle’; short term (and short sighted!) funding undermines what it really takes to get the job done; ‘flying solo’ may stroke the ego, but it robs our communities of impact upside; mediocre boards (and thread bare management teams) are destined to fail and, no business could have a prayer of staying in business if it ignored its ultimate customers in the manner that is all too often the norm in philanthropy.
In philanthropy, excellence is self imposed. Donors who truly want results for society will do well to read this piece and behave accordingly.
Well done, Paul!
BY peter hero
ON February 4, 2015 04:06 PM
Paul, lotsa sense here, as usual; for requiring restricted grants is like having a fine dinner and then specifying that the check be used only for the chefs, after all, they are “program” and the lights and forks and waiters are “admin”. I wonder if Gates was ever asked by early investors in Microsoft as to how much he spent on copier paper? Keep it up. But, look, why did Pete Carroll call for a pass instead of letting #24 handle it??!!? His was a sadly restricted call!
BY Glen Galaich
ON February 4, 2015 04:47 PM
Clearly, the Seattle rivalry with the Bay Area continues post-Harbaugh based on a few of the Bay Area comments on this email. I won’t pile on… but I want to!!
More importantly, this is an outstanding reminder of the value of foundations and basics. I could not agree more with these five key principles. I am struck by the number of references to the way that for profit investors engage in their practice versus the approach taken by social investors. For years, the onus has been on non profit leaders to mirror the business practices of their for profit peers, but Paul correctly points out that non profit investors need to mirror the practices of market investors. Why is this so difficult? If you believe in the model, invest in it without restrictions, let the experts take charge, and stay with them until (and through) the impact you seek.
From my perspective, the broader donor community is at the heart of the chaos and bubble-like environment of the non-profit market. Paul has identified several practices that could bring order and greater impact to this market. It takes strategic and sophisticated philanthropists to model these practices and more. I hope that this piece gets beyond the choir and to those who desperately need this counsel.
Great stuff Paul!
BY Bree C.
ON February 4, 2015 04:56 PM
First off - great article. We must move towards a more outcomes-based approach, with so many roadblocks from our current culture of giving!
You highlight the difference between Grant makers vs problem solvers. Unfortunately, I believe one of the biggest road blocks are funders who, when it comes down to it, want to be grant makers. They enjoy giving - and the recognition that comes with it. Not to say I think this is all or even a majority of funders, but nonprofits quickly learn which funders fall into which bucket - and treat them accordingly. Unfortunately, this can result in the ‘wrong’ type of funders getting the most recognition - because they demand it to remain loyal funders!
Multi-year unrestricted funding seems like a no-brainer. It puzzles me that so many organizations ‘move on to the next shiny penny’ - especially if the results of their (year/half-year/limited engagement funding) were positive.
I especially appreciated your insistence that we must listen to the customer - the individuals benefiting from the organization. It can be striking how differently a funder vs a benefiting individual will view an NGO solution or program. Our current system of (mostly) bending/appealing to funders (or prospective funders) creates a lopsided world. If the solutions of the ‘haves’ result in more fundraising but the buy-in of the community served results in more impact, how (and to who’s detriment) do we decide who to listen to?
I look forward to sharing this article in the coming weeks and hearing feedback from my various contacts. Some very interesting (and well laid out) ideas!
BY Dave WW
ON February 4, 2015 07:05 PM
Paul,
The paradigm shift you propose in granting unrestricted funds to nonprofits is brilliant in its simplicity and necessary to unleash the creative potential of this sector. Unrestricted funds will accelerate the speed at which nonprofits can adapt to changing conditions of the problems they face. With more nimble nonprofits they have a better ability to strengthen their organizations and create greater positive impact in their communities. Unrestricted funding can unleash social impact. Let the nonprofit sector go “Beast Mode” on our most intractable problems.
BY Steven Maser
ON February 4, 2015 08:09 PM
The case for 100% unrestricted funding is compelling. The question is: Are there any conditions under which restricted grants or partially restricted grants would be appropriate? Accountability and the challenge of measuring outcomes are the key factors. The easier it is to assess outcomes, the easier it is to give unrestricted funding and hold management accountable for measurable success or failure. This seems likely as nonprofits get smarter about measuring outcomes, which is what makes restricted funding an increasingly outdated practice. Still, could it have unintended consequences, just as restricted funding does? Would it put every nonprofit in the position of seeking unrestricted funding from only one grantor, because as soon as a nonprofit obtained unrestricted funding from a second grantor, how could either grantor know whether and how much its support had impact? And if it couldn’t tell, then how would the boards of the grantors know whether they are fulfilling their fiduciary responsibilities? QDD’s no doubt can have a debilitating effect on mission. Will that argument be sufficient to persuade a grantor’s board to move to 100% unrestricted funding? Perhaps. Especially if grantors use restricted funds because of fears of malfeasance or misfeasance by grant recipients. But not if grantors have other legitimate concerns, including their ability to raise more money to put to philanthropic ends by demonstrating the efficacy of their grant-making. Is this a problem, or, if it is, is it solvable?
BY Paul Shoemaker
ON February 5, 2015 05:24 AM
Dang, I should have been checking in yesterday, I had a busy day (several hours of post-SB counseling took up the majority of the day). I hope you’ll all share the post w/ colleagues and nudge them to comment too, you are helping build a real-time manifesto here! I want to respond to each of y’all, I’ll take my best shot -
TOM T - self-imposed, indeed! That takes discipline. I felt like I was channeling you much of the time I wrote
MARIO - I love the 5 you added. You were a mentor 17 years ago and are to this day. Keep singing your song too, can’t wait to read your next POV
LINDA - staying focused IS the challenge, that’s the gist of the book I’m gonna write this fall
BJC - my mind is already recovered, my soul will NEVER recover
PAUL - agree 100% that is a shared deal, nonprofits have to step up too, it’s just that funders are gonna have to lead / go first
BEN - again, yes about being clear on outcomes. Without that part of the deal, QDD’s will never go away. And yes, just give the ball to 24!!
TRISH - it’s illogical that they are smarter than NGO’s; if they think that they should just run the program too
LISA - focus is the key, but not if focus = narrowing the funding parameters; focus should lead to the confidence to widen the parameters via trust
GREG - sc—w the data!!
NORM - I like the idea of “don’t hedge” a lot. It just emphasizes how absurd QDD’s are
RONA - trust and fear indeed. That is the underlying condition that leads to these crazy power dynamics
LOWELL - thank you for saying it again, unrestricted does not equal unaccountable
KIKI - can someone get this to Sheryl S, please 😊
GLEN - please don’t pile on, I can’t take it. I’ll just crumble
BREE - funders “want to be grant makers,” well said. It’s more fun; the truth is QDDs would eliminate half the program officers in the profession
DAVE - NGO’s Go Beast Mode, that should have been my title
STEVEN M - those are some excellent questions. If the discussion could be about THOSE questions, we’d be have the right arguments instead of overhead percents, etc
BY Jennifer King
ON February 5, 2015 07:17 AM
Paul, thank you for presenting and sharing such a powerful piece, funder-to-funder. I, too, have heard more stories than I care to about the harmful impact of restricted funding - those QDDs. For me, it comes down to this line in your article: “If you’re worried that grantees might misspend funds, and if you can’t trust them, don’t make the grant in the first place.” If we are going to truly work as problem solvers on our community’s and society’s big problems, then we must support the development of the leaders, structures, strategies, and culture of the organizations working to make change happen.
Thank you for your thoughtful piece and the opportunity to engage in a dialogue on this topic. I look forward to sharing it and hearing thoughts from others.
BY Jeff Edmondson
ON February 5, 2015 08:01 AM
Thanks for a great article, Paul. I continue to think we will need to expect greater accountability for results in exchange for greater flexibility in how investments can be used. Clearly, in the earliest stages, funds are needed for basic infrastructure. but over time, investors should be able to see how actions are leading to impact and are being improved over time to realize even better outcomes. In order to do this at scale across multiple organizations focused on a common outcome, the backbone function will be needed to create the basic data infrastructure needed to connect actions to outcomes. Here’s hoping communities can find the resources to build this critical capacity that far too often is overlooked, even though it is recognized as being fundamentally important in the private sector.
BY Lisa R. Jackson
ON February 5, 2015 08:30 AM
Really great piece Paul! I especially appreciate the “outside in” approach you describe. I do think the most important question you ask in the piece is the one that philanthropy (institutional and individual) really needs to confront and be honest in answering: “Do we want to be grant makers or do we want to be problem solvers?” At Jackson Ellis Associates we work with those who want to be problem solvers. That fundamentally changes how we then think about the philanthropic effort - the approach we use, the types of resources we leverage, how we partner, how we define and assess success, etc.
Thank you for continuing to push us to think. While I am hopeful that your piece will get traction, I do wonder what it will take for real change to happen. As you say early in your piece, your message is “boring” because we’ve heard it before. GEO, CEP, NCRP and many others have been leading a similar charge for years with modest to little success. To your point about change taking time, I suppose it might just be that…..
BY Rhianon Bader
ON February 5, 2015 08:50 AM
As a former Development Director this is of course music to my ears.
I feel as though one element that may be holding many funders back from providing core funding is the fear of being the only one.
Many donors want to have something attractive and specific to say that they gave their money to, whether it’s an individual donor or a large foundation. Likewise, I wonder if funders might be reluctant to give core support because they realize that nobody else is doing it. They don’t want to be the suckers who end up covering the “unsexy” budget lines like administration, rent, and (gasp!) salaries, while the co-funders to the NGO get dibs on school supplies and nutritious meals for poor kids.
We can only hope that discussion around this issue continues to gain momentum and more brave funders take initiative to educate their boards and supporters on how providing core support is the best move forward.
BY Ashley
ON February 5, 2015 08:54 AM
“Unrestricted absolutely does not imply unaccountability.”—exactly!
The concept of funders and organizations agreeing on the goal/outcomes and how those will be measured, and letting the field expert - that is, the nonprofit - choose HOW to get to that outcome is something we should all be working toward. If funders were subject experts in lets say, homelessness for example: wouldn’t they go out and fix homelessness themselves? If a funder feels that they know best, then why not use their own money and do the work themselves?
The assumption of the current structure of giving is that it is for purposes of “accountability”, but in actuality this model of restricted giving often pushes nonprofits to do things in illogical (and inefficient) ways. It creates a power dynamic that dampens innovation and thoughtfulness on the part of nonprofits and encourages mission drift as they chase funding opportunities.
BY Maureen Massey
ON February 5, 2015 08:54 AM
Paul—thank you so much for this call to action! I read it, and imagined a huge auditorium filled with Executives Directors of non-profits of all sizes, in all fields, listening to you as you presented this article and then leaping to their feet and applauding feverishly at the conclusion. Some of them might even be in tears…As the ED of a non-profit I’m applauding!
If you don’t work for a non-profit, I think its hard to imagine the impact and importance of unrestricted funds—that pay for little things like staff to do the work.
My thanks to partners like SVP and others in the community who understand that, and know that a focus on accountability and results and providing unrestricted funding can go hand-in-hand.
BY Jeff Berndt
ON February 5, 2015 08:57 AM
Paul -
Well done. Thanks for sharing your experiences and insights. Just to add to the discussion, I would strongly agree with your comments that “unrestricted should not mean unaccountable.”
With that said, I think nonprofits can do a much, much better job communicating with their funders in a consistent and honest fashion about how their money is being used. I’d suggest that “more communication might ultimately lead to more flexible funding.”
Quite honestly, I think there is a bit of a myth that funders/investors in the private sector don’t care how management teams allocate their money. I know that most successful venture and private equity investors carefully go through business plans and review proposed financials line-item by line-item before handing over any money to a management team. Even publicly-traded investors carefully analyze financials, overhead rates and other financial items before investing in a company. It’s not even uncommon for an investment firm, a portfolio manager or a private equity firm to directly engage in a dialog with a company and their management team to try to influence the way in which they are spending their money. In fact, some of the most successful hedge funds in the world have been “activist” investors (Pershing Square, Icahan Enterprises etc.) and have placed significant restrictions on the way that management teams and boards are allowed to spend their investments.
In the private sector, companies know that if they listen and build trust with their investors and “the street”, they will be able to count on a more consistent flow of flexible capital. Companies also know that having high-performing “investor relations” teams that view their investors as partners, communicate consistently and transparently with the funding community and don’t surprise “the street” are rewarded with more capital from which they can grow. I have a fair amount in confidence in saying that I suspect we agree that many nonprofits have a lot of room to upgrade the way that they communicate with their donors/investors. With such upgrades, perhaps we will see more flexible/unrestricted funding available for nonprofit organizations and less QQD
BY Ruth Jones
ON February 5, 2015 09:36 AM
I was struck by Jeff’s comments about private sector assumptions and expectations about communicating with investors - that those that do so effectively are rewarded with more capital. I don’t doubt that many nonprofits have room to upgrade their communications with investors - that they have “under-invested” in communications because of a whole set of deeply-embedded assumptions among nonprofits and funders about what is and what is not core to the mission and how limited resources can or should be spent. Jeff suggests that more flexible and unrestricted dollars will follow improved communications. I think it’s the other way round: the majority of nonprofits won’t be in a position to invest in their internal capacity without unrestricted dollars and a sea-change in funder attitudes that extends way beyond the big, progressive foundations.
BY Paul Shoemaker
ON February 5, 2015 11:54 AM
WOW, some VERY critical ideas posited this morning, let me take a shot at amplifying / responding -
JEFF T - let me emphasize to everyone, I agree 100% with the “new exchange” you propose. There is some question of chicken and egg, BUT the key point is if nonprofits don’t get better and better at data and outcomes and truly knowing what impact they are creating, then we won’t see much progress on QDD’s. I feel like funders have to “go first” to a large degree, that’s just the way the power structure is, but nonprofits have to up their outcomes / data game commensurately (using those unrestricted dollars to do so). You knows this ball game as well as anyone, Jeff. Thank you
LISA - YES, this has been out there forever, BUT I honestly think we have more momentum on this than we ever have and the time to PUSH harder on this is NOW. I think people get it more and more, I hear rumblings around the foundation world, etc, etc, we CAN do this. Sometimes it takes a long long time to move the whale, but eventually it can move
RHIANNON - great point! I think another dynamic here is nonprofits ALSO have to have the courage to make the case for why they need more unrestricted funding. Again, funders need to go first but they gotta hear it from their nonprofits, not just from peers like me. What I truly believe is nonprofits have the case, they can make it, and I KNOW HOW HARD it is with the power dynamics at hand, but org’s like CIS have done it.
And JEFF B - all great points, I think you have to keep in mind that all of that diligence and oversight is done with the company playing with a different deck of cards than nonprofits, i.e. they ultimately can decide what to do with their unrestricted investment funding,. I’d love to have the same level of diligence and discussion between nonprofits and funders about THOSE kinds of issues instead of talking about overhead and how the money is restricted. Make sense?
BY Mark Fulop
ON February 5, 2015 01:32 PM
Paul, excellent article and as one who consults with government, nonprofits, and philanthropy and who is also a partner with SVPP, I can be counted among those saying “amen, preach it brother.” The one piece to the puzzle that needs to be more nuanced is in the area of capital where it is not “don’t just do it” when it comes to restricted but knowing with crystal clarity when to apply unrestricted dollars and when to apply restricted dollars.
The idea of unrestricted capital as a framework for operating grants is way more functional that the current system of “quite damaging dollars.” However, I believe that there are critical junctures in a nonprofits developmental stages where it is also appropriate to provide growth capital with expert guidance (read some restrictions) to enable organizations to scale.
I have worked with more than one rapidly growing organization (and serve as board co-chair of one) that benefits from unrestricted dollars to fuel operations and innovation leading to greater impact AND the same agencies also would benefit by capital that comes with the “strings of expertise and guidance” to shape business models and practices to help the nonprofit scale.
It isn’t either/or but rather the use of both unrestricted generally and restricted with surgical precision.
BY Jane Leu
ON February 5, 2015 02:14 PM
Paul, This article is right on point, as you always are.
Especially this:
If you’re worried that grantees might misspend funds, and if you can’t trust them, don’t make the grant in the first place.
Restricted funding encourages nonprofits to misspend funds - we have to misspend money and time trying to shape our programs to present them in a way that fits funders’ often narrow guidelines and then again when we misspend money and time trying to report to funders specifically on the program outcomes they funded.
In my opinion nonprofits need to speak up, and to ask funders if they would consider unrestricted funding. It’s possible when funders hear more frequently that unrestricted funding is what nonprofits demand, they will change their practices. I have personally been encouraged that when I asked a funder for general operating support, they weren’t always able to give it, but they were open to hearing why I was asking. Same goes for multi-year funding.
Thanks for keeping this issue in front of our sector, Paul.
BY Paul Shoemaker
ON February 5, 2015 02:19 PM
Jane, if I’d have had that line - “Restricted funding encourages nonprofits to misspend funds” - before I wrote this, I might have made that the tag line 😊
BY Paul Shoemaker
ON February 5, 2015 02:25 PM
Mark, I’m REALLY glad someone offered a counter-opinion, bring it! So let me answer this from two sides - 1) do I think there is absolutely positively never a reason for a restricted grant? No (though it was hard to type that); it’s just that those cases are rare AND if I’m gonna make the point and hope to make it stick, I need to go all-in; I’m sure you get that 😊, BUT 2) I’ll keep pushing the point - in your scenarios, Mark, I agree with “expert guidance” for sure (SVP tries to do so) and the notion of “guidance to shape business models” makes plenty of sense too. Neither of those REQUIRES restricted funding to make it effective. There is something in the restriction that implies those limits / boxes / lines somehow make for better guidance or guidance that will be better followed or paid attention or something in that vein. I don’t buy that, in fact, I think the restricted funds make it harder for that guidance to be heard in a trusted, candid, two-way relationship. Feel free to fire back, Mark
BY Chris Thompson
ON February 5, 2015 04:02 PM
Thanks Paul for highlighting some key issues. I work for an 11-year-old collaboration of philanthropy. Members of the Fund for Our Economic Future have learned the value of being connected and aligned with our peers. Yet, we too struggle with staying focused on the long term and fall into the QDD trap.
I think Mario Morino’s Leap of Reason brings some other valuable insight to the same issue. It is hard to imagine how QDD results in high-performing organizations committed to answering “to what end?”
The more we can shift the focus of philanthropy/grantmaking to be about delivering value (what Morino would call managing to outcomes) rather than addressing problems (or worse funding a program) the better off we’ll be.
BY Mark Fulop
ON February 5, 2015 04:19 PM
Paul,
I never thought I would be arguing for restricted funds…. And I am not… I fear we are in the awkward comment-board semantics. I guess I am advocating that there are times when “restrictions,” are more about expectations setting, accountably and in a weird way, trust building. The world of relations-based grant making is evolutionary. I think of most SVP investments. If Seattle is anything like Portland, some investees are “on board from day one with high trust and the reciprocal relationship you portray above. For other investments, the nonprofit doesn’t quite “get” the value-add and it takes up to a year (or more) to get into a trust groove. So in a low trust relationship, some strings to the resources can focus the attention. As trust builds, the nature of the grant making relationship changes and strings disappear.
Thanx for enriching the field.
M
BY Paul Shoemaker
ON February 5, 2015 04:51 PM
Mark, we agree 100% on “As trust builds, the nature of the grant making relationship changes and strings disappear.”
BY craig stewart
ON February 5, 2015 06:22 PM
Great piece of work Paul. Thanks for challenging us as donors, board members and staff. Many of us have worn all three hats with nonprofit organizations. In my work as a foundation director and trustee over the past twenty years we first look at mission alignment and board and ED leadership. If those elements get high ratings and pass muster for us, we work with the organization’s leadership to see how we can best support their mission. Most often it’s been a combination of unrestricted and restricted contributions. Sometimes we make mistakes and sometime the organization does but if you develop trusting relationships it can all be worked out. Sort of like a family!!
Keep the inspiration and passion coming!
BY Janet Boguch
ON February 5, 2015 08:01 PM
Amen, Paul. Thanks.
BY Ben Mitchell
ON February 6, 2015 06:19 AM
I find myself constantly drawing parallels – albeit likely forced parallels – between the domestic philanthropic sector, and my previous work in international development. There’s what I think is a common thread connecting your points Paul around unrestricted funding and an approach to foreign aid called Cash on Delivery Aid. In essence Cash on Delivery Aid is an approach where a funder offers a contract to low- and middle-income countries which pays a specific amount for achieving a shared objective. The donor only pays for what the recipient delivers. The basic steps are:
• Two parties negotiate a medium-term contract for payment upon delivery of some outcome
• Recipient party pursues its own strategy
• Recipient party collects and reports data
• Funder arranges independent verification
• Funder makes payment for confirmed results
Application of Cash on Delivery aid has been very narrow, and there are a lot of concerns with the approach (unintended consequences of incentive payments; vulnerability to corrupt officials pocketing the money; how do you come-up with an outcomes measurement that is appropriate, and lots of others). The thread that I think connects Cash on Delivery Aid and the outside-in approach to philanthropy you describe is frustration with funding models that attempt to control the use of their assistance. Cash on Delivery Aid and outside-in philanthropic practices push for the recipients of funding to own the means of achieving impact.
Cash on Delivery Aid of course diverges sharply from what we try to do in its insistence that financing is contingent upon transparent and measurable incremental progress on shared goals. But, but I do still feel that there’s a connection somewhere around the feeling that old systems for delivering aid and philanthropy do not work. That there has been too much energy spent on planning inputs and tracking money, and too little time spent on listening to those closest to the work, and letting those communities decide how to respond to their needs.
BY Gideon Rosenblatt
ON February 6, 2015 08:14 AM
I’m so glad to see you talking about this here, Paul. Very nicely said too.
On the question of being “grant makers” or “problem solvers,” I’d like to add a slightly different perspective, and I think that it goes to some of the impetus behind restricted funding. Over my ten years or so running a nonprofit, I ran into a lot of really smart people within the foundation world. In fact, many of the smarter people working in nonprofits eventually end up working in foundations, recruited there because they are so smart and so good at what they do. Then, once at the foundation, these program officers are often drawn back into precisely what they do best, which is run programs; they start to architect very well-planned, what you might call, “proactive” programs that seek to actively shape the work of their grantees. This phenomenon can’t be separated from the trustees, of course, many of whom have strong opinions about how they would like to see the world, and so together, they build funding mechanisms to proactively solve problems.
One of the most powerful tools for doing that is the restricted grant.
In saying this, I don’t mean to say that a problem-solving orientation is a bad thing for funders. Clearly, it’s not. But I think that part of the pressure for restricted grants comes from this desire to be proactive in shaping the work, and sometimes that comes out of a subtle belief that the funder is better able to know what should be done than the grantee. Sometimes that’s true, but as you note, Paul, that’s a sign that you’ve got the wrong grantee.
BY Diane Helfrey
ON February 6, 2015 10:00 AM
Congrats, Paul, on presenting these important ideas in such a compelling and practical way! Love all the examples that paint the picture so clearly on how convoluted practices can be, e.g., people who are board members of a funder (with reservations about GOS) and also a nonprofit (loving GOS) and don’t even connect the dots. Are they paying attention? On the board for the wrong reasons?
The truth in this also caught my eye: “…it often ends up being about the ‘illusion of control vs. the possibility of impact’ and there is almost always an inverse relationship between control and impact.” Gideon raises an interesting point too that may be part of this dynamic. Of course this is also tied to the “ease” of measuring outputs in a short time frame vs. longer-term outcomes, and in some cases the lack of capability that nonprofits have to measure impact at all. Imagine if nonprofits could use the time/resources we now spend on doing accounting and reporting for restricted grants on measuring outcomes/impact instead?
The good news is that these practices are starting to shift, but I still hear too frequently from staff of family foundations that they struggle with getting their boards “on board” with even funding capacity building let alone GOS. It would be fantastic to create a toolkit to help them have these conversations. Does it exist?
We’ll definitely be sharing your full piece with our Partners and other grant makers and problem solvers here in LA!
BY Clark McCain
ON February 6, 2015 11:10 AM
Paul - First of all, as a lifelong Denver Broncos fan, I can offer you no condolences. Nor can I feel your pain as I am still trying to get over my own.
Secondly, congratulations on this article. As a program officer who conceptually supports the direction you are asking us to move towards, I have shared the article with my colleagues.
Perhaps on the margins foundations can and will move in this direction. You have presented evidence of incremental progress. However, based on my experience, I’m not hopeful. The construction practices you advocate would naturally evolve only when funders and grantees have very close alignment in their missions. Many good points have been made above as to why this is not frequently the case. We should try to align missions more such that long-term GO funding increases. But that will be, at best, a long, hard slog.
There is, however, a way for social sector organizations to get this kind of support. It’s just not from foundations. As I entered the field, an article that deeply influenced me was Jon Pratt’s “The Dynamics of Funding: Considering Reliability and Autonomy” (NPQ, Fall 2002) which accurately characterized most foundation grants as having many strings attached and being unlikely to recur.
Pratt identifies individual contributors as a source high autonomy and high reliability dollars. These funds come with no strings and often come year after year. The personal strategy I have embraced to inch us toward the goals you encourage is to move our foundation towards helping social sector organizations achieve greater capacity to tap individuals for high reliability/high autonomy dollars. Rather than suffer with our strings, let’s help organizations find the support that comes without them?
Strikingly, the only significant GO awards we have recently made are matching grants to funds raised by our grantees by individuals on the past two Giving Tuesdays. We’ve made over $300,000 in such grants in each of the last two years (admittedly a small percentage of our grantmaking). Somehow, our foundation views this practice as acceptable in a world of imperfectly aligned missions and the project grants which result. Hopefully, as we continue this, we’ll help drive individual giving upwards of the current plateau of 2% of AGI/GPI.
In Chicago, there are many beautiful tall, shiny towers. There are also thousands of less grand bungalows. Yes, let’s try to build better towers. But let us also open the doors to the bungalows. It may be easier to open a door than to build a tower.
BY Kathy
ON February 6, 2015 11:12 AM
Thanks for a great article Paul and for the great discussion it has inspired.
One important factor to consider in all of this is MOTIVATION. Change is hard and requires leadership and talent. Motivation is the secret sauce that enables people to achieve great things. There are lots of theories about motivation. There is also a body of research. The research is beautifully summarized by Daniel Pink in the youtube posting below.
The research speaks to three primary motivational factors: Purpose, Mastery and Autonomy. If we over-constrain the talent or turn them into contortionists - we directly impact the motivation that sustains our people and our work.
https://www.youtube.com/watch?v=u6XAPnuFjJc
BY Tricia McKay Lincoln
ON February 6, 2015 11:55 AM
Thanks for your thoughtful article, Paul. I think it’s spot on. It strikes me, though, that after hearing this message over and over - and even agreeing with it in principle - donors are still placing restrictions on their grants. In the spirit of “outside in”, I’m curious to know what reasons donors still have that perpetuate that practice. Some are offered in these comments, but seeking out additional input from those who may not comment on a public blog (e.g., via interviews, focus groups or surveys) could be informative. The answers may offer insights into a new action plan and/or message.
BY Eric Stowe
ON February 6, 2015 03:33 PM
I like the abbreviated version above, but the longer piece is terrific.
I think there is a tectonic shift afoot amongst NGOs and the funders who support them. From the NGO side, I can say each year (back that up at least 3-4 years) at every multi-org meeting or conference there is increasing focus and discussion on core system-level impacts rather than soft donor-plaque outputs. This shift in tenor is big and seems to come at the same time that most multi-funder meetings and conferences (that I am able to sneak into!) have more people asking structural questions about their giving; questions about how their funding can incite the sort of long-term change they envisioned when starting their respective foundations or giving initiatives; discussions about patient capital and commitment to long-term vision rather than immediacy of outcomes and whimsical (and ever-shifting) funding prerogatives…
But how do the noble aspirations of those on the (far more) dominant side of the power equation translate to real-world applications for those on the (far less powerful) implementing side?
As someone who swims in quite a few 1-yr grant cycle pools (sometimes well, and sometimes gasping for breath), I would love to know how this could collect more than nods and backslaps and actually take hold? Any plans to get a core group to trial this out (take two grants side by side for 3 years – one with QDDs, the other without – and see what happens. Bland, but it could be an easy win)?
Great work, Paul.
BY Sally Bailey
ON February 6, 2015 06:08 PM
So refreshing. We all think it, but are hooked into the way it has been for some decades. Think of the money saved by development and accounting departments if they do not have to track all the little grants. Some reservations about larger nonprofits and what they sometimes do with their dough, but in general, this is a change overdue.
BY Craig Bruya
ON February 7, 2015 07:47 AM
Hi Paul,
First of all, let me say that I agree 100% with your article and I switched my own donations to 100% unrestricted about 5 years ago upon intuiting many of the things you point out in your article, but not articulate enough to map it out as well as you have.
Given that I am late to the party in making comments I don’t have anything earth shattering to add but will cover a couple of points that could potentially be added to your thesis.
I am Board chair of two organizations one of which is small and gets almost 100% unrestricted donations. We simply go ahead with our work and try like the for profit businesses you pointed out, we focus on spending the dollars as wisely as possible to have the greatest impact and trusting that our donors will agree that we are accomplishing our goals.
In the other organization we (to oversimplify) build things. We are supported by very generous donors, some foundation, but mostly HNW individuals. Because we build things, much of our donations are restricted to a “building”. As you pointed out, we then have to sometime make sub optimal decisions when the restricted funding doesn’t align with “the right thing to do”. Happy to provide examples of this in private. This problem compounds when you can’t add in “overhead” to the cost of the “building”. If your donors only want to fund buildings but don’t want to pay the salary of the CEO or the cost of the multi currency ERP system that you need to account for the costs of the building, what do you do?
Part of this had to do w/ recognizing that all of us (some to a large degree, some to a smaller degree) have an ego that needs to be scratched when we make a donation. All dev directors who are good at their jobs know how to stroke our egos. One easy way to do this is to put our name on that building. That seems to be a win/win since it doesn’t cost much to put a plaque on a building w/ someone’s name on it.. But it perpetuates the cycle of restricted funding.
A couple years ago, our restricted funding had gotten to be close to 70% of our revenue and it just about killed us. We almost ran out of cash to pay for all the other things we needed to do. We had to apply for a line of credit (that thankfully we never used and even better, still have access to it if we ever do need it) when it looked like we might not be able to make payroll in the near future even when our funding was up over the previous year.
Since then, we have pushed our donors politely, but firmly to increase their unrestricted donations starting w/ our board members and our longest term donors and moving from there. We still build things and so we will never get to totally unrestricted funding, but we have improved to almost 50% and hope to increase it going forward. (I will pass your article on to our DEV team to help improve their arguments to continue to get this kind of behavior from our donors).
We have also, very reluctantly and on a very small scale, turned down restricted donations that we thought were not enough in alignment with our mission realizing. Hard to do but sometimes necessary.
There are some not for profit accounting rules that are somewhat counter productive in this area too (transfers from restricted to unrestricted and revenue recognition on long term commitments). I don’t want to bore all the nice people on this thread with them, but happy to talk to you about them if you want.
BY Paul Shoemaker
ON February 7, 2015 07:55 AM
Some more great feedback, thank you everyone -
BEN, CoDA sounds sort of like Social Impact Bonds too. I love your closing line - “too much energy spent on planning inputs and tracking money, and too little time spent on listening to those closest to the work, and letting those communities decide how to respond to their needs”
GIDEON, as always, I wouldn’t change a single word you said.
DIANE, amen to “Imagine if nonprofits could use the time/resources we now spend on doing accounting and reporting for restricted grants on measuring outcomes/impact instead?” I DO agree things are shifting AND UNLESS WE GET THIS INTO THE BOARD ROOM, THE CHANGE WILL ONLY GO SO FAR
CLARK, thank you!! I’m not sure which hurts worse, getting crushed 43-8 or losing at the one-yard line ... they are both miserable! 😊 GREAT candor and points in your post
KATHY, I love Pink’s work! In fact, his work around “Purpose” specifically resonates with me as the motivating force why people get more deeply involved in philanthropy outside of work, i.e. where his Chapter 6 ends in “Drive” is where philanthropy should pick up
TRICIA, agreed! I’ll check with you offline
ERIC, as always, you get to the heart of the matter. Let me check with you offline too
SALLY, “hooked into the way it has been for some decades,” yep and time to finally unhook
MIKE, YES!
BY Paul Shoemaker
ON February 7, 2015 08:06 AM
AND CRAIG, you just chimed in ... “our restricted funding had gotten to be close to 70% of our revenue and it just about killed us. We almost ran out of cash to pay for all the other things we needed to do. We had to apply for a line of credit” god I’m sick of knowing how often that happens. AND YES YES YES to “we have pushed our donors politely, but firmly to increase their unrestricted donations starting…” nonprofits HAVE TO do this!
AND DO THIS - We have also, very reluctantly and on a very small scale, turned down restricted donations that we thought were not enough in alignment with our mission realizing. Hard to do but sometimes necessary.
Nonprofit accounting rules ... I don’t want to ruin my whole weekend, believe me, they drive me nuts, Craig!
BY Alan Sorkin
ON February 7, 2015 06:04 PM
Hey Paul,
For those of us who know you, this is a drum you have been beating on for years. The fact that 60+ people, thus far, have taken the time to agree with you is encouraging. Keep beating and maybe we can get more funders to join our band.
Keep writing pal. You have a lot to say and obviously many fans who want to listen.
Sorry about Sunday.
BY Donald Summers
ON February 8, 2015 08:01 PM
This is a nice start, but this thinking can be pushed much further. We gain a much simpler and more robust frame by collapsing the many false dichotomies between the world of grant making and the world of for-profit investment.
Treat non-profits as enterprises—social enterprises—that are seeking investment, and all this discussion evaporates.
Foundations will gain a lot of power and clarity if they view their grants as investments. And then it is up to the grantee to sell the foundation on the ROI. Don’t ask for a convoluted grant application—ask the grantor for their business plan (value prop, proof points, metrics, KPIs, financial projections, etc.), and how the funding capital will be deployed to generate maximum, measurable social good.
This will clear out a great deal of fuzzy thinking plaguing the world of philanthropy.
In fact, pushed to the extreme, there is nothing different from the world of investment and the world of “philanthropy” except for the “R” in ROI. In the social space, our “Return” should be defined in quantitatively and qualitatively robust, concrete social progress—not money.
Simple. The terms “restricted” and “unrestricted,” along many other unnecessary and inefficient inventions of the non-profit sector, just go away.
Foundations aren’t particularly driven by market forces, unfortunately—only a few are look hard at ROI at near the scrutiny of their private-sector investor cousins. But when they start to do this, the social sector will greatly accelerate.
BY Donald Summers
ON February 9, 2015 06:20 AM
There’s a lot of good news here, of course—there are more and more highly encouraging examples of foundations moving beyond small scale, transaction grants in narrow outcomes, and moving toward broad, robust, growth- and transformation-oriented investments.
Our favorite example is the Russell Family Foundation’s Puyallup Watershed Initiative:
http://www.trff.org/puyallup-watershed/
BY Charles Hiteshew
ON February 9, 2015 08:09 AM
Great article, Paul. Thank you. What we also often fail to realize in philanthropy is that just as non-profit executives need to be nimble problem solvers, so do those that support them. When investment philosophies or funding categories are so inelastic, we can fail to see the bigger opportunity in a cutting edge prospect - one that could be heading toward breakthrough or major impact, but for the funding restrictions and guidelines that govern our giving, or a similar set of restrictions that we may place on the operators. Thanks for fighthing the good fight and keep it up!
BY Rick Williams
ON February 9, 2015 08:42 AM
Paul, I hope this sparks the conversation in philanthropy that is long overdue.
I would ask us to imagine the level of impact and innovation the nonprofit organizations we value could have if we invest in them in a manner that would permit their leadership to focus on solving community problems, instead of spending a majority of their time fundraising or ensuring their programs meet the requirements of our grants, even though the environment around them as changed. I hope that in the future we will consider providing innovative community leaders and organizations with the opportunity, resources, and flexibility to make the real difference they are capable of.
BY Emily Parker
ON February 9, 2015 10:05 AM
Paul, I’ll pile on to say I really appreciate this article and I agree wholeheartedly. I also agree there are other, better, ways to drive impact and alignment than restricting funds. That’s a blunt instrument, not a flexible and useful tool. Kudos also for making this point so simply and succinctly. Really drives the point home.
BY Julia Kittross
ON February 9, 2015 11:27 AM
Paul, well said, as always.
Having been in this field for more decades than I’d like to admit, I do see progress. Before Paul Brainerd and SVP, there were arguments for general operating support, but they were mostly blowing in the wind; post SVP, there are people who bought the argument and commit to such support.
As a consultant, I’m finding more of my family foundation clients providing unrestricted multi-year support; even at 100% of their grants. Getting more funders to that place requires teaching them how to work with nonprofits to understand and measure nonprofits’ progress as a whole. (Be the change maker you want to be.)
I agree that the field is full of slow, itty-bitty baby steps forward and that can be frustrating. But I wanted to provide some encouragement regarding this “chronic” problem—and also note that the comments your article provoked were just as interesting the article itself.
Keep it up.
BY Peter Drury (Splash)
ON February 9, 2015 11:51 AM
Right on the mark, Paul ~ Great work. Let’s get this conversation growing (and glowing) across the sector! The social-good sector has long accepted the reductionist frame wherein we somehow “take off the top” some kind of “overhead” rather than that we invest in value creation (just like free markets). At the risk of seeming self-promotional (because I care about this topic so deeply), my congruent thinking is here:
https://medium.com/another-lens/truth-transparency-overhead-fadfc113b648
BY Don Nielsen
ON February 9, 2015 12:13 PM
Paul:
It is ironic that the very issue you feel makes philanthropy not work is also one of the issues that make our pubic schools not work. Virtually every dollar our schools receive comes with some type of string attached. As a consequence, it is virtually impossible to run a school or a district in a manner that is in the best interest of kids.
Sounds to me like our state legislators could learn something from the experiences of non-profits.
Don
Don Nielsen
Former President of the Seattle School Board
Author: Every School
BY David Callahan
ON February 9, 2015 02:02 PM
I’m struck by the fact that 98 percent of the comments on this piece are positive. Meanwhile, just 25 percent of funding takes the form of unrestricted support. Which means that a large majority of funders disagree with Paul Shoemaker. Why hasn’t a single one weighed in here to justify how they operate? That’s a good question. I recently invited a funder who’s against general support to outline his views on Inside Philanthropy. So far, no response. Even though I agree with Paul, I’m hoping to air and engage the other side of this debate.
David Callahan, Editor of Inside Philanthropy
BY Elizabeth Bonbright
ON February 9, 2015 08:13 PM
Thanks, Paul, for bringing this critical issue into the light. I will add my voice to the list who understand the rationale and believe in the importance of the foundational architecture of unrestricted funding as a basis for the success of any non-profit—both in the short and long term.
One practical argument in support of the practice of unrestricted giving is that it enables the non-profit to be nimble and proactive as well as responsive to real-time data and input from the populations it strives to serve. Targeted and defined programs outlined in a grant often inhibit innovation and crush the necessary research and development investments that move the mission of the non-profit organization forward.
Perhaps the answer lies in a reflection of what constitutes effective philanthropy and how non-profits can best be supported to develop the infrastructure and capacity to be both thought leaders and entrepreneurs in affecting social change.
BY Paul Shoemaker
ON February 10, 2015 02:50 AM
I have to call our David C’s note - 98 percent of the comments on this piece are positive. Meanwhile, just 25 percent of funding takes the form of unrestricted support. Which means that a large majority of funders disagree ... Why hasn’t a single one weighed in here to justify how they operate? - I sincerely invite dissenting views openly and / or feel free to email me at .(JavaScript must be enabled to view this email address) if that is easier for someone.
BY Paul Shoemaker
ON February 10, 2015 03:02 AM
CHARLES, I think that’s a good case in point that illustrates the illusion of control vs. creating impact
RICK, can I just say Amen?! That is so well put, succinctly, emphatically. And I long for that kind of discussion amongst funders, I am looking for that as one tangible next step and am open to ideas
EMILY, thanks! Blunt instrument indeed!
JULIA, thank you very much, I sense the same and it’s great to hear that from someone like you, keep spreadin the word 😊 AND YES, the comments have been thoughtful, awesome, I think they make the argument stronger and stronger with every additional Comment.
PETER, you are one of the best thinkers on this anywhere so thanks for inserting your perspective
DON, you know much I agree and making that point that this is symptomatic of and debilitating to the field of education as well just broadens that point in such a significant way. The examples, stories of restricted funding from the field of education are as absurd as any you’ll find
ELIZABETH, once again, a commenter makes the point as good / better than I do - “Targeted and defined programs outlined in a grant often inhibit innovation and crush the necessary research and development”
Boy, if I had just responded inline to every Comment along the way, we would have broken the all-time SSIR Comments record by now 😊 THANK YOU EVERYONE
BY Henry Berman
ON February 10, 2015 06:48 AM
Paul,
In addition to a great essay, your Feb 10 comment rings loud, shattering the silence of those not speaking. I think perhaps people worry too much about appearance rather than action and so I wonder if the question of general support is one of those “noble questions” as I like to call them. Noble questions, or perhaps better called noble “answers” are what we give when we respond with what we think is the right answer…at least from the perspective of the person asking the question.
How many times do people, when asked what they watch on television, respond with “I watch PBS…Nova, American Experience…etc” and then they go home, draw the curtains and American Idol tops the charts. And so when asked how you feel about general funding, the noble answer is to respond “it’s a good thing.” Yet when checks are written, it’s all about specific programs that can be seen, felt and eventually highly evaluated. Think Nielsen ratings for television. Do funders fear supporting an organization rather than a program? Do those same people personally support their Public Television station in general or do they only give to help a specific show? Do they write a check of general support to the Little League in their town, or do they say the money can only be used to buy bats and balls, but not the general upkeep of the playing fields? How is general support by philanthropy any different?
I wonder if funders fear not being able to “prove” or “show” they made a difference because they lack the true—the true—commitment to a cause and a willingness to support good organizations working to the same end? Funders: look in the mirror and ask yourself if your commitment is to yourself …. or to the cause you passions drive you to support? Then look at your check register.
BY Paul Shoemaker
ON February 11, 2015 12:50 AM
Henry, what an emphatic, passionate comment to add to this whole collection of great perspectives! We are NOT done, this blog post will be a beginning, a means to an end. I hope everyone that has ideas on what to do next will contact me and let me know. THANK YOU AGAIN, Henry
BY Paul Shoemaker
ON February 12, 2015 07:50 AM
What a great collective testimonial to a significant change in our sector everyone! Keep spreading the word, I’m just getting started. THANK YOU EVERYONE
BY Bill Clapp
ON February 17, 2015 09:14 AM
Paul
Thanks for your article. In the daily press of trying to make good decisions or even articulate and understand our own goals as funders, these rules can get lost. First off I want to say that your comparisons to business are spot on. We do have a completely different set of rules it seems for the social sector. On the other hand we lack the incentives that seem to drive mergers as you point out later. We have worked at this with little to show. But on the peer side, we host an annual gathering of funders who work in the same region to make sure we are all talking about priorities and talking to one another. It has led to many shared granting efforts. Another area where we have difficulty not playing the roll of knowing more than our grantees is in very oppressed societies where just the lack of awareness of what is possible makes it hard for people to work on solutions. As a simple example, many individual farmers are unaware of basic livestock issues that were common place a century ago in the states.
As for restricted grants, we do use them a lot to pay for specific projects such as reports. On the other hand, we also fund organization’s own business plan over a five year period. It is their plan, not ours and then we check their progress quarterly with a green, yellow red light analysis and when necessary discuss with them how they can get back on their plan.
I am commenting from the perspective of a few organizations I am involved with. As a grantee, we have been fortunate to start by attracting nonrestrictive funds through events and supporters which has been essential to our work. It is a constant challenge to keep that growing with the increasing size which we have done through earned income. But I have been on the board of organizations that failed because they lacked that base.
I appreciate you raising these topics on which essentially I agree with you. There needs to be constant discussion on them to make sure we are all leaning towards best practices as we go about our work.
BY Matt Kouri
ON February 19, 2015 09:48 AM
Preach it brother Paul! Love this. I’d extrapolate your logic here to also include sustainable, MULTI-YEAR, unrestricted funding. I can’t tell you how many times organizations (including mine) have been told by funders that “we don’t do multi-year funding” and who then go on to invite and fund separate grants each year for many consecutive years. The transaction costs alone (for both the nonprofit and the funder) required to write and evaluate separate grants make this an insane, expensive, and inefficient dance. Funders should be comfortable enough with the up-front due diligence they’ve performed on an organization to be willing to fund a winner for multiple years, and thereby to provide that winner with a stable source of reliable unrestricted revenue to be able to build upon, take some risks with, etc. Multi-year funding can still come with the kind of outcomes accountability and milestones that single-year funding can provide, but at a much lower cost and with much greater impact on mission achievement.
BY Helen Lakeru
ON February 22, 2015 05:08 PM
Making a difference, having a meaningful impact, creating a shift that fundamentally changes what isn’t working to something that works long term, helping animals, fellow humans, our planet - it’s what most of us try to achieve when we give. We give because we are generous, compassionate and hopeful.
Reading Paul Shoemaker’s article about how we can reconstruct our giving strategies is the right step in the right direction. It’s a breath of fresh air that gives me hope.
After many years working in healthcare, I became intimately involved in the moving target of philanthropy when I started a nonprofit about 8 years ago. Adopting a successful 20 year intergenerational model with 4 other high functioning replications around the country wasn’t enough to obtain the needed investment to seed or grow our organization. We started at the worst possible time in the economy and family circumstances quickly arose to challenge our efforts. We have been sustained and are gradually growing because of dedication to our mission, financial and in kind contributions from family, friends and acquaintances and 2 main sponsors.
Being a new nonprofit with a model that involves a supportive housing community , we estimated a 10 year ramp-up before the development was complete and programs would be operating. (Yes, I tried to partner or find an established organization to sponsor our model before starting our own 501 c3). We eventually found the right land, housing and service partners. But, like any business, our nonprofit would grow and be sustainable when we could make the necessary investments in our infrastructure and pay our general operating costs. I never anticipated the hurdles we’d encounter.
The main obstacles have always been around operating capital. Last year, we finally received 2 grants with no boxes around them and no hoops to jump through, in essence, unrestricted. These funds enabled us to move ahead in one main area and cover our operating costs with breathing room. This year, we are invited to write a grant to fund 2 key positions for 3 years. We continue to look for general operating funds that allow us to focus on what’s critical to achieve our mission.
We know the people we help initially and the lives we will change forever depend on our dedication to getting the job done…and we depend on the generosity, compassion and hope of others.
Here’s hoping this dialogue continues and that granting organizations and individuals open themselves to the notion of operational and unrestricted funding.
Thanks, Paul Shoemaker for bringing attention to this topic and helping us focus on meaningful change.
Helen Lakeru, Many Lights Foundation
BY Paul Shoemaker
ON February 22, 2015 05:10 PM
THANK YOU Bill, Matt and Helen for jumping in on the end of this string!!
BY Linda Simmons
ON February 23, 2015 04:28 AM
Great thoughts and underline some of the basic difficulties in today’s thinking. I agree that we should be analyzing the realities and than making our decisions rather than founder centric. The founder no doubt can be a insightful person but many times realities are different and those solutions may not benefit at all. I never knew this about Empire state building so thanks for it too 😊 This outside in is similar to out of the box ideas instead of same old traditional ones. Those Ideas may work but at some occasion when we improvise it can be more effective.
BY Stephen
ON March 26, 2015 07:38 AM
Paul, et al. ‘Nice, thought-provoking dialog, and fundamentally why social enterprises are such attractive alternatives (though not always straight-forward in application): pairing economic revenue generation with social change. And the latter rolls off the tongue easier than it is to implement.
Take SLU (South Lake Union) redevelopment… Ever wonder why there’s a conspicous absence of affordable (much more importantly, mere workforce) housing as part of the broader remaking of SLU? There are whopping personal gains at stake. It would be easy enough that for-profit participants shave off a few percentage profit points toward social/equitable outcomes, yet such seems to demand a monumental societal shift.
My inquiry (rhetorical, as it is): can we fundamentally re-engineer profit-mentality such that private enterprise evolves as an ‘engine’ for achieving social outcomes…, and, thereby, offer attractive alternatives to the more limited conventional donor/grant funding relationships presented here?
BY Sameer K
ON October 1, 2015 02:56 AM
It’s an encouraging sign that donors are getting more sensitized to the needs of the social sector. Applying the rules of tech funding to philanthropy just doesn’t work.
Good luck with your book, Paul.