Opportunity Lost

I’m frequently asked if I think the fundraising horizon is looking better.   Depending upon whether you believe the economy is in recovery, is doing a double dip recession, is spiraling out of control, nonprofits most likely have at least one—or several–more tough years.

So, as harsh as this sounds, now would be a good time for funders—from individuals to foundations—to review their giving goals and make sure their strategies align with those goals.  And it would be a good time for nonprofits to honestly assess their need to exist.  I’ve been thinking about this a lot of late, as I come across nonprofit after nonprofit that really shouldn’t exist for a variety of reasons, from lack of or ineffective leadership to poor delivery of services to a non-existent or dwindling customer base,  yet continue to do so because a funder continues to give money or an executive director or board isn’t willing to face the facts.  Throwing good money after bad is a phrase I hear myself using far too often these days, and to a degree never heard before.

In 2009, many foundations and corporations reassessed their giving priorities, not through a strategic process, but in reaction to the economic reality, and targeted their giving to nonprofits that addressed the needs of food, shelter and jobs.  But while the what to fund may have changed, I did not see or hear of a change to the how to fund.   Funders were not suddenly scrutinizing the fiscal health and well-being of organizations more closely, assessing their long-term viability, looking more closely at rates of success and demonstration of impact, or delving into the nature of the board-executive director relationship.

Here is an opportunity lost.  At the start of the economic collapse, Paul Light predicted that 100,000 nonprofits would close their doors, victims of the economy.  It is the trickle down effect:   foundations, corporations, governments, and individuals had less money to share with others so nonprofits got less money.  But what I didn’t hear from any of the funders with whom/which I have spoken over the last several years is that their criteria for funding have become more rigorous or selective in judging the “giving-worthiness” of the organization—which is vastly different than the giving-worthiness of the mission.  Thus, to the extent that there has been a reduction in the size of the nonprofit sector, it is the result, in part, of indirect action on the part of funders, not their direct action.

But that change may be coming, and it is more than time.  When I think of change in the philanthropic sector, generation to generation, I often think of a local philanthropic family, where the patriarch has a foundation and so do several other members of his immediate family.  The founding generation has a very different approach to grant giving than does the next generation:  the former relies on relationships to guide where to give while at least some in the latter only support organizations with documented outcomes, regardless of relationships.

Howard Warren Buffet, the 27-year-old grandson of Warren and recently appointed executive director of his father’s foundation, the Howard G. Buffet Foundation, is focused on changing that old-guard approach.  Buffet wants to take the principles that his grandfather used to become so successful and in leading the company (Berkshire Hathaway) that has the highest price per share of stock ever (almost $104,000/share, as of this writing) and apply them to giving out money.  IF, and that is the operative word here, he can retain the best of the nonprofit sector and combine it with what he perceives to be the best of the for-profit world, he might just develop a model that others should readily adopt.

Whether this can be done and he will do it, however, remains to be seen.  But he is proposing to try.  First, he is taking on the issue of food security and seeking to fund an integrated network of experts working on different aspects of this issue.  He won’t fund independent organizations that “tug at your heartstrings” but only organizations that are collaborating together to create a systemic approach to resolving food insecurity.

Second, he wishes to eradicate redundancy.  You know the drill:  Organization 1 that does a, b and c right around the corner from Organization 2 that does a, b and c, which is two blocks over from Organization 3 that, surprise, surprise!, does a, b and c.  Been around the nonprofit sector for not that long, and you’ve seen this scenario again and again.  Unfortunately, in the nonprofit sector, survival of the fittest doesn’t always work because funders have their pet leaders, pet projects, pet organizations and don’t look beyond the pet part.  The thought of not funding these organizations is more horrific than the reality that these organizations are not delivering on their promises to the community and providing a good “return” on the donor’s investment.  But he also sees takeovers and mergers, absolutely done as in the corporate world, as another means for taking care of nonprofit sector redundancy.

Third, he wants to completely remove emotion out of grant-making decisions and have it be totally rationally based.  Thus, he has created what he refers to as an “issue agnostic” tool—it can work regardless of organizational mission–that assesses a proposal’s scope, relevancy, risk, and cost-efficiency—and impact.  In part, he is defining impact and scope by the number of people served, with a project proposing to reach more than one million people receiving three points, while serving less than 100,000 gets you only one point.

Fourth, he wants to get charities to understand their “comparative advantage” and to move away from selling heart-wrenching stories and start selling their solutions.  Though a bit more than semantics, it is about identifying your product—the solution—marketing it and selling it.

Funding collaborations to address systemically an issue:  great idea, hard to execute.  Having everyone work happily together is far easier said than done.  Reducing redundancy:  absolutely good, much needed, important.  Go for it.  Assessing scope and impact based on the number of people served to determine funding-worthiness:  stupid.  But assessing true impact and change to determine funding-worthiness:  absolutely necessary.  Let’s go for this, too.

Truth be told, there is nothing novel in anything that the young Buffet is proposing.  Perhaps his couching it explicitly in for-profit terminology and saying they are the business lessons he’s learned from his most revered grandfather will make it resonate more with other funders and accepted by nonprofits.  There is an opportunity to be had in the ashes of the economy and it would be a waste to let it pass.  The winnowing has begun, the pain and suffering already experienced.  It is up to nonprofits and funders to do everything that we can—including saying no and let’s merge/close down—to come out on the other side a stronger, more vibrant sector.