In philanthropy, what does it really take to achieve the results that we and our communities seek? What can funders do to support and encourage organizations that will endure and adapt? These are the questions that we, along with many of our colleagues in the sector, have been exploring. We all share the goal of having a strong, healthy, and resilient nonprofit sector that meets the needs of our communities. This goal requires that funders take a flexible approach to providing the support nonprofits need to achieve their missions.

Nonprofits of all types — whether working in direct service, community organizing, arts and culture, research, policy, or systems advocacy — are remarkably resourceful. But often they lack sufficient funding to cover all the costs of their work. As research from The Bridgespan Group, the Real Cost Project, and the Full Cost Project shows, current grant-making approaches underfund the true cost of projects and underinvest in what nonprofits truly need to thrive. In turn, that prevents them — and philanthropy — from maximizing impact. The 2018 Nonprofit Finance Fund “State of the Nonprofit Sector” (https://nff.org/learn/survey) survey of 3,400 nonprofit leaders across all 50 states found that 62 percent cite financial sustainability as their top challenge. Eighty-six percent indicated that the demand for their services keeps rising, and nearly two-thirds reported that they cannot meet that demand. This reality deeply constrains nonprofits’ ability to deliver on their mission.

Nonprofits need to be fully supported in doing their work, meaning they need access to flexible funding and sufficient overhead funding to cover their actual costs and to adapt to emergent, real-world challenges. Often, when funders talk about providing flexible dollars, the conversations that follow revert to wanting to achieve the most impact with limited resources and restrictive foundation policies. But nonprofits need resources they deem necessary to deliver their day-to-day work. In practice, this includes:

1. Creating space for candid conversations about finance

 It is critical to disrupt the inherent power dynamics between funders and grantees so that nonprofits can ask for — and receive — the resources they truly need. Funders who do this well create a space for candid financial conversations and employ empathetic listening, building upon relationships that are rooted in mutual respect and acknowledged interdependence. Within that context, and over time, funders and nonprofits can work together to create a dialogue about programmatic and organizational, as well as the foundation’s, needs and expectations.

2. Recognizing the role of culture and process 

To do things differently and see the results in the communities we serve, we must also look inward and take stock of our standards and practices that may sabotage best intentions. For example, we may recognize the needs of our communities, yet our process, ingrained for decades, asks grantees for complex proposals and reporting in return for limited funding that only scratches the surface of the issue. All too often, we default to restrictive funding with narrowly defined parameters rather than taking a more expansive view of the relationship. While these internal conversations can be tough, we need to change our organizational cultures and processes, our relationship with capital, and what we require from grantees in return — and this takes time. 

3. Aiming first for progress, not perfection

As funders, our sector continues to talk about the need for impact, yet we struggle with how we need to change to get there. We realize this might be challenging for many institutions, and the changes that are needed won’t happen quickly or without sustained effort. Truly achieving candor in conversations with our grantees is both an organizational and a cultural shift within institutions — and the sector. It might mean changing our grant-making structures, prioritizing additional staff training, and rethinking how we address reporting. There is no one-size-fits-all approach, and what makes sense within the context of one organization may need to be adjusted for another. But if we approach it as a journey, we can strive for progress, not perfection. To start, let’s begin having honest dialogues both internally and externally so we can move from awareness to action.

The time for us to lead this movement forward is now, and everyone — whether program officers, CEOs, or trustees — has a role to play. When we lead with our values, we are more nimble in a rapidly changing environment and are responsive to the needs of the field and the communities we serve. We can no longer wait. We invite you to join us in action.

Ellen LaPointe is president and CEO of Northern California Grantmakers, Sandi Clement McKinley leads the Consulting practice at Nonprofit Finance Fund, and Sara Davis is director of the Grants Management department at the William and Flora Hewlett Foundation.

All three authors have been involved in the Full Cost Project — an initiative launched in 2015 by Philanthropy California, an alliance of the California-based regional associations of grant makers, in partnership with the Nonprofit Finance Fund — to change perceptions regarding the types of capital that organizations need to deliver on their missions and be sustainable.