Better Funder/Grantee Dialogue: From Elusive to Imperative

I’ll admit, I seek external validation as much as the next person. When I was a Rockefeller Foundation program officer, I wanted to be valued as more than a walking wallet. Who doesn’t? So when we went through the Center for Effective Philanthropy’s Grantee Perception Report process, I wanted to “win.” I wanted to be perceived as responsive and supportive and insightful and open.

But reading this year’s Nonprofit Finance Fund State of the Sector Survey, generously supported by the Bank of America Charitable Foundation, made me realize how much higher the stakes are becoming; it’s about much more than a personal win. Open, truthful dialogue between funders and grantees has always been important (if elusive).

It is now imperative.

The nonprofit sector’s ability to adapt and meet growing social needs depends on nonprofits and funders having frank conversations and, together, making tough decisions about how to move forward.

The Survey results affirm what many of us working in the social sector in the United States already recognize: that demand for services continues to increase faster than available funding.

Seventy-eight percent of organizations reported increases in demand for their services in 2012 and 83% anticipate even greater demand this year.
A majority of organizations reported that they could not keep up with demand last year and do not think they will this year.
For self-identified “lifeline” organizations, the situation is worse—almost two-thirds anticipate they will not keep up with demand this year.
Government payments fail to cover the full costs of services for four out of five organizations that receive government funding

None of this is new news. And despite the gloom and doom, most organizations are managing to survive. After the shipwreck of the great recession they are treading water, if not exactly getting ahead.

But the full Survey results point to a growing understanding that treading water is not going to be good enough. Treading water is a good-enough response if the storm is breaking up and you can see land nearby. But what if the storm is just gathering and we are out on the open ocean?

Many Survey respondents recognize that we cannot hunker down and wait for the clouds to clear. They have taken stock of demographic pressures and economic realities. They are not waiting for government funding to return to pre-recession levels or for demand to subside. Almost 40% plan to change how they raise and spend money in 2013.

For these leaders, the Era of Adaptation has dawned. What does Adaptation entail? Some organizations are partnering and merging, shutting down programs they cannot run independently. Others are tapping new revenue sources, ramping up private fundraising efforts, or starting revenue-generating enterprises. They are engaging volunteers in new ways, contemplating taking out loans, and investing in their capacity to measure and demonstrate their impact.

Unfortunately, while the Era of Adaptation is upon us, the financing conversation stays stuck in the Cult of the New and Different: “program expansion” remains by far the one financing need that most organizations (60%) report comfort discussing with their funders. Few report comfort discussing issues that become more pressing when an organization is seeking to adapt: operating reserves, cash flow, and facilities investment.

We do not know exactly how we will adapt. But we do know adaptation requires nonprofits to invest in building and sustaining their organizations, not just running programs. They will need to understand how the money they raise and spend connects to program results. They will need to communicate that link better. And they will need to have funders equipped analytically and culturally to understand these financing needs.

In this Era of Adaptation, the open dialogue, mutual respect, and productive collaboration that the Grantee Perception Report tracks are not just ways for task-oriented program officers to keep score. They are the foundation on which we will build the relationships that can navigate the hard choices ahead of us.

Author: Antony Bugg-Levine, CEO, Nonprofit Finance Fund