Great Ways to Squander Your Money

Last month’s update, “Fool Me Ten Times, Shame on Me,” struck a chord with many of you. (Thanks for the feedback, and keep your reflections coming!) This month, we’ll stay with the theme of unforced funder errors and share five more examples of 💩 that funders routinely step in.

1. Imposing Unnecessary Burdens on Grantees
Of course, funders need to do their due diligence, but they routinely ask for extraneous information that doesn’t really help them or their applicants. Maine Health Access Foundation CEO Barbara Leonard learned through her foundation’s most recent Grantee Perception Report that some nonprofits had to spend 80 hours completing an application for a modest grant. “That’s horrible and completely irresponsible of us as a foundation,” she said. “That [finding] got us digging down into what we’re asking for, how the information is used, and what we’re learning from it. And it forced us to make big changes.” What you request of your applicants should always be in proportion to the size of the grant and no more than is necessary to make a well-informed decision.

2. Making Short-Term Grants with Lots of Strings Attached
Yes, there are situations when it’s wise and appropriate to make a one-year grant or one tailored to a specific project. But if you were to administer sodium pentothal to your grantees, they would tell you that short-term, restricted dollars are worth less than a grant of the same amount that’s flexible and multiyear—especially when it comes to helping the organization deepen its impact. The latter make it much easier for grantees to hire the talent they need, invest in unsexy parts of the budget that are critically important for high performance (e.g., systems for learning and improvement), and plan for the future. When Lowell conducted a series of grantee interviews recently, he repeatedly heard how rare and precious these resources are. “If [name removed] said, ‘We don’t do multiyear, and we don’t do general operating support,’ we’re going to limp along as a field,” one grantee told him. “You can’t build a thriving organization that way.”

3. Going It Alone
A lot of folks in our sector like the saying “If you want to go fast, go alone. If you want to go far, go together.” We think the second half of that equation should be even stronger: “If you want to accomplish and sustain anything of substance, you better go together.” The point isn’t that you should always engage in formal collaborations, which can be very tricky. But if you simply go it alone without regard to the broader funding ecosystem, please don’t expect that your work will magically achieve scale or live on beyond your funding. Melinda Gates once noted that the annual budget for California’s public K-12 schools is significantly larger than the entire endowment of the Gates Foundation. In other words, even the combined philanthropic resources of Gates and Warren Buffett couldn’t fund one state’s school system for a single year, much less have any hope of improving educational outcomes around the country or fighting disease around the world. Having said this, the Gates Foundation forgets this lesson from time to time. When Lowell was at Gates, he once fielded an irate call from the CEO of a peer foundation: “I have to present our reproductive health strategy to my board, and I can’t get any information from your colleagues about the changes you’re making in your strategy. Why can’t we at least make sure that our grants are complementary?!”

4. Jerking People Around with Frequent Shifts
We love continuous improvement. We don’t love sudden, whiplash-inducing stops and starts. We recently had a depressing conversation with the CEO of a nonprofit pharmaceutical firm. Right at the moment when the organization had completed a successful early-stage clinical trial of a first-ever vaccine for a devastating disease, the primary

funder announced that it was no longer interested in supporting vaccine development for that disease. Talk about snatching defeat out of the jaws of victory! Conversely, we had a conversation two weeks ago with a longtime environmental funder who said, “The biggest thing I’ve learned over the past 30 years is be patient. Sometimes it’s taken more than a decade to lay the groundwork, and then we get a huge win that looks like it happened all of a sudden.” If you’re going to make a shift, at a minimum give your grantees plenty of time to prepare.

5. Staying Inside the Bubble
Here’s another saying our sector loves: “When you start giving out grants, you suddenly become funnier, smarter, and more beautiful.” In other words, getting truth becomes very hard—even for foundations that work hard to create space for honest reflection. For example, we’re big admirers of a foundation that regularly scores at the top of the charts on the major relationship measures included in the Grantee Perception Report. And yet one of the foundation’s grantees admitted, in confidence, that he sometimes feels pressure to make unrealistic promises on grant applications. It would be great if all funders acknowledged that the power differential between grantors and grantees makes it incredibly difficult to get the truth, the whole truth, and nothing but the truth—and then engaged grantees in conversations about what the funder could do to reduce the power imbalance and create the right incentives for honesty.

All of these pitfalls are grounded in the “most terrible truth of all” from Tom Tierney and Joel Fleishman’s Give Smart: “Excellence is self-imposed…. Philanthropy has no built-in systemic forces to motivate continuous improvement.” So what are you doing to encourage excellence for yourself? What more could you do to learn from the unforced errors of others?

With warm wishes as the temperatures drop,

Mario and Lowell

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Mario Morino is chairman of the Morino Institute, co-founder and founding chair of Venture Philanthropy Partners, and author of the lead essay in Leap of Reason. Lowell Weiss is president of Cascade Philanthropy Advisors, co-editor of Leap of Reason, and advisor to the Leap of Reason initiative.

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Updates From Around the Leap Community

We were delighted to learn that five of the country’s largest foundations— Ford, Hewlett, MacArthur, Open Society, and Packard—are joining forces to encourage all funders to help nonprofits pay for operating costs and end the “nonprofit starvation cycle.” In the words of The Chronicle of Philanthropy, the leaders “learned that many of the organizations they supported—including large, prominent, household-name organizations—face major deficits because of stingy policies that provide just a sliver of the money they need to operate and run projects.” The Bridgespan Group played a big hand in motivating this development. Its research on the financial health of 300 grantees that account for 30 percent of the combined spending of the top 15 US foundations showed that “more than half suffered from frequent or chronic budget deficits, and 40% had fewer than three months of reserves in the bank. Among a sample of their own grantees, verified indirect costs exceeded what the foundations actually paid by 17 percentage points.”

If you feel like you’re drowning in bad-news stories when you read your morning paper or news feed, please be sure to read the New York Times article “Almost Everywhere, Fewer Children Are Dying.” Did you know that governments, international NGOs, foundations, and other key players in global health have cut child mortality in half in just two decades? “Two decades ago, nearly 10 million children did not live to see a 5th birthday. By 2017, that number—about 1 in every 16 children—was nearly cut in half, even as the world’s population increased by more than a billion people.” What powerful evidence that changemakers can create good on a massive scale! For a lot more nuance and detail, read the Gates Foundation’s 2019 Goalkeepers’ Report.

In the Forbes column “We Can Challenge Systemic Racism One School District at a Time,” philanthropist Jeff Raikes once again shared brave, inconvenient truths about the ways America stacks the deck against those who aren’t born white or middle class. “I think of school funding the same way I think of redlining,” he wrote. “We outlawed that form of systematic discrimination 50 years ago, but somehow, we’ve continued to allow a fundamentally unequal and discriminatory model for funding public schools to live on.” Raikes cited five states, including New Jersey and North Carolina, that are making progress on changing traditional funding formulas to reduce inequities between areas with high property values and those with lower ones. We should also note that Jeff and his wife, Tricia, were just profiled in glowing terms in “Brain Trust,” by The Chronicle of Philanthropy’s Alex Daniels.

Kudos to Tim Delaney and his staff at the National Council of Nonprofits on their landmark report and website Nonprofit Impact Matters. The report found less than three percent of nonprofits engage in lobbying, despite the fact that 100 percent have the legal right to do so. It also found that if the White House had succeeded in cutting $193B from SNAP (food stamps), the resulting funding gap would have been the equivalent of wiping out all the assets of the 15 largest foundations.

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Events/Webinars for Raising Performance

Sept 26 — Online
“Internal Culture, External Change: Lessons from Two Foundations’ Culture-Change Journeys” webinar; Grantmakers for Effective Foundations

Oct 1 — Online
“Design Thinking for the Social Sector: People, Programs, and Systems” webinar; SSIR

Oct 2-4 — St. Louis, MO
“2019 Connect” conference; Exponent Philanthropy

Oct 3 — Online
“The Makings of a Great Development Director” webinar; Candid

Oct 11 — New York, NY
“Feedback+New York: The Case for Listening” summit; Feedback Labs

Oct 16-18 — Chicago, IL
“National Forum on Family Philanthropy” conference; National Center for Family Philanthropy

Oct 23-25 — St. Louis, MO
“Facing Power and Privilege in Capacity Building” conference; Alliance for Nonprofit Management