#8: Here's how to run a foundation (according to me)
Ok. So for starters, this is not legal or fiduciary advice whatsoever. It’s strategic, and base solely on my experience and observations that have been supported by boatloads of both anecdotal stories and actual third party research (see SSIR’s “Nonprofit Starvation Cycle”, which is one of the most poignant studies out there on nonprofit funding).
Having had my salary and many invoices paid by family, corporate, and standalone foundations, I have seen some strong recurring themes: things great foundations do well and things other foundations could benefit from emulating.
The cliffs notes: Be like my mom giving me an allowance when I was little. She nudged me to save and invest and not blow it all on Totally Hair Barbie dolls. But ultimately she guided and educated me, but never dictated a damn thing. And when I made mistakes, she helped me learn.
Funders should do the same. How? Here are my top tips.
1. Add value beyond money
Just as with for-profit investors, the strongest funders bring way more to the table than money. Whether it be connections, board seats, programming, facilitated networking, conference or professional development discounts for staff, in-kind space or talent, volunteers (if they really add value and aren’t creating more work for the grantee) or whatever else, think about how you can play a bit more intimate role in whatever you’re funding beyond the very transactional check.
That said: You absolutely positively must trust your grantees’ ultimate expertise (see #3). Don’t tell them what to do; you don’t work there day-to-day. ASK what they are struggling with most, and figure out how you may be uniquely positioned to help solve that.
In my last full time job at a nonprofit, which related to entrepreneurship, one of our major funders – a successful entrepreneur himself – not only offered us substantial cash but also lent space, volunteers when it made sense, and he himself acted as a judge and mentor to our program. However, he never otherwise told us what to do with his money. Which was awesome, and leads me to #2.
2. (The crux of it all): Give unrestricted funds
I challenge you to survey ten nonprofits and ask if they prefer restricted versus unrestricted funds. If you have expertise in what you’re funding, there is still a way to be involved without dictating how your funds are spent.
First, your primary focus as a funder should be enabling sustainable growth in impact, and restricted funding generally isn’t a very sustainable model. What if you aren’t able to fund X, Y, or Z in perpetuity? If they’re designed too tightly around your cash, they may disappear when your funding disappears. This is often (not always, but often) a pretty selfish move to make; I have time and time again seen restricted funding not renew, programs tied to it disappear, and social impact dwindle. It sucks.
Instead, think of how to add value and empower the nonprofit with your expertise. If you think it really doesn’t know what it’s doing, fund a staff member or contractor who knows as much as you do. Lead the selection committee and help interview.
If you want your name on something, fine, have your name on something but let the staff and board at the nonprofit figure out how to use that something. Give your advice and candid feedback for free alongside your check but never, ever make an ultimatum (and yes, I know that’s an ultimatum) unless there is a deep strategic or emotional (versus ego-driven) reason for doing so. Usually that emotional reason comes from individual donors; for you and your foundation, strategy should rule.
And restricted funding is generally not strategically wise when it comes to attracting more revenue and driving impact. UNLESS it comes to ensuring that your funds contribute directly to increased salaries. See #4...
3. Empower the grantee’s expertise
See above. Yes, I understand that a lot of nonprofits are overwhelmed, understaffed, and lack expertise. What a great opportunity as a funder; help them grow, develop, and gain all the above with your funds!
Whatever you do and however competent you think the nonprofit is from the outside, approach the nonprofit with empathy and an understanding that the staff there knows the organization’s work most intimately. A good funder is like a good boss and leader; it empowers and develops versus dictating and usurping power.
4. Support equitable salaries and benefits
Would you rather your funds pay the salary of someone badass who stays and impacts the growth trajectory of an organization, or that it pays for program staff to spend time interviewing new candidates instead of running programming?
True story: since moving to Denver, I have been recruited by both nonprofits and for-profits. I have entertained some conversations. Without a single exception, talks with nonprofits have fizzled when I bring up salary; some are actually offering a fairly respectable range but just not what I know I could otherwise make. Others though, are sub $50K for positions like Executive Director; which just is unreasonable in a city where the average home costs north of $400K .
While perhaps unreasonable and even insulting, salary gaps are not always the nonprofit’s fault. Funders just aren’t paying for equitable salary and benefits that attract and retains talent (often resulting with funders’ frustrations at #1-3 above and the lack of expertise on staff).
According to a 2016 study by Nonprofit HR, “being able to pay a competitive wage has been the number one staffing challenge for the past five years among nonprofit employers.” There are umpteen studies out there that supplement this by illustrating the high long-term costs of employee attrition and turnover. Put these two together, and the pay gap in nonprofits is ultimately costing the sector – and you.
5. Fund operations
As is the case with salaries, funders often don’t want to fund operations because it’s not sexy. Funding programs gives bragging rights; funders can pose with kids at a program site and say “look at what we enabled!” Posing with a Xerox machine doesn’t have the same allure.
But again, this is a place to put ego aside. Nonprofits don’t need luxury but they do need modern and working things to get shit done. I can’t tell you how many hours of work I lost and how much potential impact I left on the table at my last job because my Dell laptop weighed about 20 lbs (fact: I would check it in my luggage on work trips) and often it just didn’t work.
This sadly is more the norm than the exception in the nonprofit world, and it’s just silly to me. As a funder, you can change that. And you can still get your on-site photos and bragging rights, storytelling around how your operational support actually enabled impact.
And as funders, you also need to help nonprofits stop considering how much of their funding goes into programming a sign of success; it's not (orgs like Charity Water, who brag that "100% of public donations funds clean water projects" also have a lot of private donations that fund offices and paychecks. I wish they and their celebrity supporters would acknowledge this). Major nonprofit ratings orgs like Guidestar have stopped using overhead versus program funding ratios as a metric indicating success, as outlined in Guidestar’s “The Overhead Myth”, and I applaud them for doing so.
If you need help mapping how funding operations, salary, or whatever else leads to ultimate impact, I encourage you to walk through my metrics exercise; it outlines a framework I use time and time again with both funders and grantees to lay this all out. And as always, I’m here to answer any questions!