Entries For: November 2007
11/26/2007
10 Things We'd Like to Tell Every New Philanthropist: Lesson 3
Lesson #3 - “I need to be careful to not let the non-profit get too dependent on my contributions”
Logically, how does discontinuing funding to a non-profit make them more “independent” or “less dependent”? There is a reality for most non-profits – they depend on funders (corporate, individual, public) for some or much of their revenue. To the degree that they have fee-for-service, or earned income revenue streams, they can become less dependent on philanthropic sources of funding. But discontinuing their funding is not an action that prevents or reduces their dependency per se. If a funder wants to improve a non-profit’s independence and long-term sustainability, they can focus on capacity building, longer-term and bigger grants, investing in outcomes systems, etc.
On a related topic – sometimes funders / philanthropists will be less likely to give to a non-profit with a strong net asset position, because “they are already financially strong enough and some other org needs my money more.” Yes, there is such a thing as too cash rich (e.g. more than 1-2 year’s annual budget amount held in Net Assets), but a non-profit’s net assets are its working capital, its investment capital, its buffer against the ups and downs of running any organization. It’s not money “just sitting around, doing nothing.”
Paul S.
11/19/2007
10 Things We'd Like to Tell Every New Philanthropist: Lesson 2
Lesson #2 – “It is clear this non-profit needs my support more than the other. This non-profit might not survive without my contribution and that other non-profit has plenty of money.”
There are certainly times where urgent financial need is the right criteria for making a grant decision. But just as often it is not. When presented with this scenario, consider some questions – why are they in such dire need? Why are they so low on cash? Should I fund organizations based on financial urgency or on positive impact? Sometimes a non-profit might be in that circumstance because of poor cash planning, questionable program effectiveness, or ineffective fund development. The point is not to categorically reject or approve giving to an organization in need, but to take a little time to understand why that is the case.
On the flip side, philanthropists will sometimes shy away from funding successful non-profits with a strong financial position because they don’t “need” it as much. But why would we punish successful organizations? Isn’t that what we want? Organizations doing great work, with effective programs, and that have the ability to sustain and maintain funding over time.
Lastly, there can be a tendency for philanthropists to fund need instead of impact because one organization’s mission is more compelling than another’s. We all want to give to what we care deeply about and there is nothing wrong with that. While difficult to measure, at the end of the day the reason to contribute to a non-profit is to get improved academic outcomes, fewer teen pregnancies, a cleaner environment, and other positive changes in our world.
Paul S.
11/12/2007
10 Things We'd Like to Tell Every New Philanthropist: Lesson 1
I’m going to start a series – “Ten Things We’d Like to Tell Every New Philanthropist.” Each of the 10 things will be posted individually every few days and each will open with a title that paraphrases a common misperception or mistake. We plan to follow-up this series with another equally provocative topic – “Ten Things We’d Like to Tell Every Non-Profit”
Important Note – This is written in the spirit of sharing knowledge and helping philanthropists be more effective. Every mistake articulated here has been made by all of us. The intent is not to preach a one-size-fits-all formula or to be arrogant in our viewpoints. Our sincere hope is that it will encourage reflection and stimulate lots of feedback, criticism, and conversation.
Lesson #1 – “I want all of my contribution to go directly to the program and the kids being served and not have any wasted on overhead or administration” (comment frequently overheard from philanthropists)
This desire is well intentioned, but the consequences can oftentimes be detrimental. How so? First of all, what is “overhead and administration?” For example, are staff overhead? Non-profit organizations are businesses just like any for-profit entity, but with a social mission. They have to invest not only in the “product,” but also in the systems, infrastructure and operations to support the end product. Let’s use an analogy here from the private sector: What if an investor in Intel was able to buy shares, but then instruct Intel Co. that they could only spend that money on engineers and chips? Who knows better how to ultimately, collectively invest its capital – an investor or the employees of that organization? Can you have a successful company without a sales, marketing, and finance infrastructure to support the product? A non-profit has to build a successful, holistic enterprise just like any other business.
This kind of “micro-targeting” of some philanthropic dollars can have other consequences: it can lead to under-funded organizational structure with a demoralized staff and reduced internal capacity. It can force the non-profit to play a “shell game” with donors where it rearranges its numbers to create the appearance of 100% program spending, and it can lead to a non-profit executive having to make suboptimal spending tradeoffs. This is not to suggest that a donor shouldn’t care about where their money goes and what the ultimate social benefit is. But the practice of over-controlling and directing a donation to a non-profit is like asking a non-profit to put together a 100-piece puzzle, but having duplicates of some pieces and none of others. The puzzle will never be put together right.
Paul S
11/05/2007
On the road...
I’m heading out on a trip this week to visit:
- Toronto for the kickoff event of the 25th SVP
- Pittsburgh for a Grantmakers for Effective Organizations Board meeting and to meet with Pittsburgh SVP Partners, and...
- Cincinnati to help kick off their new SVP on the evening of the 8th.
Pretty good itinerary, huh?! If you have friend in Toronto or Cincy, let them know. I’ll try to find time to send a post or two from the road.
In the meantime, I want to be sure everyone notes the six blog links in the right column, Blog Roll. They are the best ones I’ve found so far in the philanthropic / non-profit space (which means there are others I’m not aware of, I’m sure). The authors / editors of all six are smart, committed, interesting bloggers. Check ‘em out and I’ll talk to you from the road.
Paul S
