By Richard Marker

Why the “Fund for Success” Series:

To “fund success” is not the same as to “fund for success.” Many funders are very risk averse, and are only are willing to fund the most proven, evidence based projects, or the most prestigious institutions. While there is nothing necessarily wrong with that approach, that is not what is intended by “fund for success.” It means that funders should assess what would be necessary for the highest likelihood of a program or project or organization to succeed. One should look at financial and non-financial requirements, fund what is realistically adequate and not simply fits a funding formula, and create an atmosphere of openness with grantees that guarantees that realistic information is shared in a timely fashion. The purpose is not to avoid failure; that inevitably happens sometimes. But it shouldn’t happen because a funder’s funding practice makes success impossible.

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In a previous post, we discussed a case where a seemingly overly generous and undisciplined funder gave so much without concomitant planning that the project ultimately failed. Admittedly, that is not the typical case.

More typical is the case of funders who give too little.

There are lots of reasons for that:

1. A funder or a foundation may assume that all proposal requests are padded so giving less than what is asked for is simply “part of the game.” Regrettably it is often true. In the process of automatically discounting every request, many projects end up getting less than they realistically need to have a fighting chance to succeed. In other words, being punished for playing it straight. We have written elsewhere about this vicious cycle and that only funders can make it safe to break this counterproductive practice.

2. A funder and the foundation he/she endowed exhibit a business mindset and not a philanthropic one. In business, a successful negotiation is when you can pay less than the original asking price and still get everything you want. While negotiations are sometimes called for in the philanthropy sector, that approach overlooks the tremendous power imbalance and the reticence of hard pressed nonprofits to ever say “no” to a funder. To do so requires courage and conviction, and an awareness that a funder can always walk. Therefore, even when an organization is very aware that a funder is giving less than a project genuinely needs, the organization accepts it anyway. It should not be surprising when the project does not meet its potential, and the grant is money down the drain.

I know that some might take issue with my characterization of the difference between the business and the nonprofit sectors. In our field, there are many who would like the nonprofit sector to be more business-like in many ways. Perhaps. But here I am speaking of the power imbalance that often presents an uneven playing field and leads otherwise well-run nonprofits to accept grants that may not be in their best financial interest.

3. Many funders believe that they should never be on the hook for more than a certain percentage of the cost of a program or project. There is surely some implicit prudence and wisdom in this approach. But too often they leave the grantee high and dry by not providing introductions to other funders, or without the professional capacity to do so, or by requiring restrictive conditions that make fellow funders reluctant to partner. It is one thing to impose a strategic funding model; it is quite another to impose that expectation without providing the human or financial resources to do so. Alas, too often the results are less than stellar.

4. Many experienced funders look at a proposed budget and know up front that it is not realistic. This is particularly true with young organizations or untested programs. Too often a funder will say “that is their problem; maybe they’ll figure it out.” Indeed, they know that the money requested is far too little for the project to reach its potential but since it is what was requested, it is easy to just give that amount. A funder is not doing that organization much of a favor by funding that way. Why not give more than is asked? Or at least provide a supplementary consulting grant to help the organization do more realistic budgeting and planning in the future?

5. Some funders have locked themselves into providing fixed amounts to many organizations. If it is a grant toward unrestricted support and is one of many such grants a recipient organization receives, there is nothing wrong with a fixed dollar grant that is not connected to any specific program. But a fixed grant for a specific project, without careful analysis, may guarantee its mediocrity or even failure. Funders sometimes need to be reminded to have the grantmaking discipline to distinguish between the two kinds of grants. [I am sympathetic; oft-times there are too many requests and not enough time to do due diligence on every request every year, especially among long time grantees. A seemingly good idea from a known entity can make the cut even when careful analysis might have yielded a different funding recommendation.]

6. Money can be stretched only so far. It is really hard to stop funding long time grantees so it is much easier for many funders to keep doing so even at a reduced level when the more constructive response would be to discontinue the grant. Money can be stretched only so far. Funders have a tendency to stretch their funding priorities over time, especially during flush years. But, as we saw in 2008-2009, that doesn’t always continue. Suddenly there are harder decisions. It is really emotionally hard to stop funding long time grantees so it is much easier for many funders to keep doing so even at a reduced level when a healthier response might be to discontinue the grant. [For a “how-to” on exit strategies, please be in touch directly.]

7. NPO’s/NGO’s also have priorities. They are not always the same as those of their funders. Creating a new program focus that doesn’t align with the core competencies or strengths or priorities of the NPO/NGO may satisfy the current [sometimes faddish] interest of a funder, but may be a distraction, or worse. Yes, there are indeed times when funder knows best [sorry about the pun], but insisting on funding something outside the priorities of a grantee should only happen after a serious and mutually respectful discussion. Substantial money may be provided to the new area, but, too often too little is provided for the core operating or infrastructure needs of the implementing organization. Without that infrastructure support, the money given for any new project will almost always be inadequate.

What is common about all of these is that a funder may give too little for a program to have a chance to succeed. In such a case, whatever you give may be too much – that is, insufficiently unhelpful to an organization. In such circumstances, giving too little may actually be too much.

Funding for Success is largely a matter of right-sizing our giving, a challenge for all of us on the funding side. We need to learn not to waste our well-intended and thoughtful grant funding by giving too little to accomplish what we, and our grantees, hope to do.

Richard Marker advises funders and foundations on their philanthropy strategy through Wise Philanthropy, and teaches philanthropists and foundation professionals at both Penn’s Center for High Impact Philanthropy and NYU Academy for Funder Education.