Wednesday
June 6
2018

James Militzer

The Partnership Nightmare: What’s Wrong with the Social Sector’s Approach to Funding – And How to Fix It

Editor’s note: This post is part of the NextBillion series, “A Survival Guide for Raising Capital,” – one of several topics we’ll be covering through special series this year. Click here for more details on our 2018 series.

 

Something is seriously wrong with the relationship between funders and the social impact organizations they support. Whether it involves grants from a foundation to a nonprofit, or investments from an impact investor to a social enterprise, the relationship is too often defined by power imbalances, misaligned expectations and mutual distrust. This is causing untold frustration on both sides – and worse, it’s undermining the sector’s impact.

This dysfunction inspired the new book, “Unicorns Unite: How nonprofits and foundations can build EPIC Partnerships,” by social impact leaders and advocates Jessamyn Shams-LauJane Leu and Vu Le. In it, they discuss what’s gone wrong in a community of changemakers ostensibly focused on the same goals – and how the sector can turn things around. The three co-authors participated in the following Q&A via email, responding to each question as a group – read on for an important, if potentially uncomfortable, conversation.

 

James Militzer: What is a “unicorn,” as you define it in the book, and why did you choose that particular term?

Jessamyn Shams-Lau

Jessamyn Shams-Lau

A unicorn is a rare, magical person that dedicates their life to making the world a better place, often at great sacrifice. We’re fortunate that, while the world, in general, has a shortage of unicorns—the nonprofit, social enterprise and impact investing sectors are filled with them. The unicorn family is diverse and includes executive directors, program officers, entrepreneurs, program managers, impact investors, trustees, volunteers, researchers, academics, community organizers, founders and many other changemakers dedicated to helping communities and the planet thrive.

We chose this term because Vu, one of our co-authors, has been calling changemakers “unicorns” for years, and the 40,000 readers of his popular blog, Nonprofit AF, enthusiastically embrace their unicorn-ness. We love it because it seems to convey both the impact and uniqueness of those who work in changemaking.

 

JM: Why did you write a book about this topic, and what do you hope will change because of it?

Jane Leu

Jane Leu

The world is facing urgent and huge challenges, but changemakers are too busy fighting the wrong battle. We’re stuck in a dysfunctional system that prevents us from making the world a happier, healthier, more equitable place. Changemakers are all about rejecting the inequitable status quo—and that’s got to apply to the way we work, not just the world we work in. The current system grew in a haphazard and organic way over the past decades, as the number of social purposes organizations has exploded. It is NOT even close to a system any of us in the sector would design from scratch today. That system prevents us from being true peers and long-term partners, from being our best selves and thriving. It’s transactional when what we need is transformational.

We wrote this book to start a conversation. First, we need to reinforce and relish our common identity as unicorns, call out in real talk the dysfunction in our unicorn family and the root causes of it (and provide a path to replace the status quo with what we call EPIC Partnerships (see image below). Those are relationships grounded in equality, trust and a commitment to all-in teamwork.

 

JM: Briefly describe the biggest problems you’ve seen among the “unicorn family” of social impact-focused organizations and their funders. How widespread are these issues?

Vu Le

Vu Le

Our nightmares, as we call them, center around money, distrust and double standards. It’s hard to escape these nightmares because they’re everywhere, across organizations of all ages, sizes and profit orientations. Among these issues:

Money is the root problem. We overvalue it as the most important input in social impact. Nonprofits and social entrepreneurs need money to do their work, so we do whatever it takes to get funds—even if that means putting up with time-wasting grant cycles and due diligence processes, and the pervasive and infantilizing power imbalance that favors foundations and investors. For their part, these foundations and investors sometimes abuse the power that is assigned to them as the providers of money. And on the nonprofit and social enterprise side, there is an abundance of undercutting and unhealthy competition (among) organizations seeking money—so we refuse to team up with peer organizations.

Distrust is everywhere. Foundations and investors don’t trust nonprofits and social enterprises to spend money wisely. They distrust the opinion of other funders and don’t accept other foundations’ or investors’ due diligence. Nonprofits and social businesses distrust these funders’ commitment and ability to be fair and transparent or to understand their work deeply. They also distrust other nonprofits and enterprises around their funders. The circle of distrust just keeps spinning.

Double standards undermine our relationships. This is especially the case with foundations and investors who are largely accountable to no one and can do nearly whatever they want, whenever they choose, disclosing or not disclosing information as it suits them. Nonprofits and social entrepreneurs must operate in prescriptive ways or risk losing funding. They must meet hard deadlines and lay bare all of their information publicly. In many cases, the constraints facing nonprofits even extend to the word (or character!) count in their grant applications.

 

JM: Describe a typical “nightmarish” grant request process from the nonprofit’s side: What traits or behaviors do they most object to among funders?

The funder seems like a great fit and has an aligned mission with the nonprofit, but the foundation doesn’t take unsolicited (uninvited) requests. The nonprofit puts in an inordinate amount of time networking to find a “warm introduction” into the foundation. The foundation does not offer a phone call but invites the nonprofit to submit a letter of inquiry, with complex, repetitive questions that must be answered in less than 50 characters each, and that require 15 different attachments and the signature of three board members. The funder reviews it and invites a short meeting. The nonprofit leader drives two hours to get to their office, answers all of their questions and feels like the meeting went pretty well. The funder says it will provide an answer in six weeks; it takes six months to get it. The funder rejects the nonprofit, bragging in the rejection letter that they received more than 1,000 proposals to make 20 grants. The nonprofit reads this as 979 other organizations wasted their time, too. The nonprofit attempts to follow-up to see if there are other ways to partner since their missions are so aligned. The funder sends back one line, saying no, and requesting that the nonprofit respect the decision of the foundation’s board and not to contact them in the future. Much time wasted, little respect, all the power on one side, no money, no partnership, door closed. Heaps of change left on the table.

 

JM: Describe a similar process from the funder’s side: What do they hate about how nonprofits often approach the relationship?

The foundation is understaffed and overwhelmed by the barrage of requests for funding from nonprofits, despite the foundation’s attempts to reduce incoming requests through publicly stating that, in order to proactively search for nonprofits that fit their mandate, they can’t continue to accept unsolicited proposals. The foundation invites a nonprofit they come across to share materials the nonprofit already has prepared. The nonprofit ignores this and creates personalized introductions, spreadsheets, and proposals for their work clearly integrating exact verbiage on the foundation’s website and the foundation’s logo. The foundation has trouble assessing if the organization is a good fit or if they are just good at describing themselves as a good fit. The foundation asks for a brief video conference with the nonprofit’s leader. The nonprofit insists it’s no trouble for them to go to the foundation office. During the meeting, the nonprofit leader does all the talking and seems to be only telling the foundation what they think they want to hear. It becomes obvious to the foundation that the nonprofit leader thinks of foundations as nothing more than cash machines and doesn’t value them as equally committed to the cause.

The foundation lets the nonprofit know they won’t be getting a grant. They give general reasons for why, but don’t explicitly state their concerns about the nonprofit founder because they have tried to be transparent in the past, and nonprofits ended up bad-mouthing them with many of their peers.

The nonprofit founder emails the foundation and accuses the foundation of leading them on. It’s clear they have taken this personally despite the foundation’s efforts. The foundation asks a few of its longer-term grantee nonprofits what it could have done differently. No one gives any specific feedback. All they hear back is that everything the foundation is doing is great, so the nonprofit must have had their own problems. The foundation knows that it can improve but doesn’t know how to.

 

JM: Do these tensions and struggles also apply to the entrepreneur/impact investor relationship? Do for-profit businesses have any advantages or unique challenges when approaching these funding relationships?

Whether it’s a grant or an equity investment, it’s still an organization doing good with money that is perceived to belong to someone else. For-profit social enterprises aren’t immune to power imbalances with their social investor—in fact, the nightmares can be worse, because there is nearly always a lack of clarity and honesty around expectations, especially around the delicate question of return on equity and the need to balance social impact and financial returns.

 

JM: Talk about the “two sets of standards” for funders and grant/investment recipients. Is there any way to get around the power imbalance created when one side has the money, and the other side is asking for it?

Yes. And it’s not complicated. Focus on the needs of those you directly serve.

Foundation or investment professionals must acknowledge the power dynamic is real, and that it’s not your money, the board’s money, or the founder’s money anymore. Then pay very close attention to where the power dynamic shows up. If you aren’t sure, ask a nonprofit that you know will tell you the truth. Let them know you need and are ready to hear what would make your support of fundraising organizations truly epic and enable them to move faster and more efficiently. They may need permission, encouragement and a bit of time to trust the conversation, but once it’s clear you want to hear their honest opinion, they’ll give you the ideas and feedback you’ll need. Then as a funder, do it. Whatever pieces of their suggestions you can implement, you should implement. Keep asking for real feedback on what you implement and iterate on it. And keep going back for more. Your grantees or investees are your clients and most important stakeholders and partners. Treat them as such, with honesty, truth and appreciation – and focus on their needs.

Nonprofits and social businesses must regard money similarly: as a valuable input that doesn’t belong to anyone specifically, but that organizations can access if they do great work. If and when a funder asks you for feedback or input on their process, you must be prepared to be courageous and honest. You must let funders know how their decisions or processes actually affect you and your organization’s ability to achieve your and their common goals. You also need to recognize and reinforce where and when funders are effectively making efforts to address the power imbalance. Funders are your partners, but they are not your clients. It’s the communities that are your clients, so keep your focus on their needs.

These changes aren’t hard to make in one relationship. Try it with your most trusted funder or nonprofit/social business. Keep practicing, see what works, and then try it with someone else too. As this is a mindset issue, it has to be driven by individual funders and reinforced by individual fundraisers in tandem. And remember, money is only one input of social change; equally important inputs include leadership, creativity, optimism, perseverance, technology, community, experience and more.

 

JM: What are the main obstacles that could prevent that vision from becoming reality?

Selfishness: Some unicorns may only care that they have a few decent partnerships themselves and not care about making it the norm for all players in the social impact sector. This is the biggest obstacle that will prevent the vision from becoming reality – which is ironic for a sector of people dedicated to causes beyond themselves.

Fear: Some unicorns seeking funding tell us that they have been “burned” in the past and are so beaten down by the power dynamics and dysfunction that they are afraid to try again.

Low expectations: Some unicorns expect fundraising to always cause tension between those offering capital and those seeking it, and to color the relationship. They will settle for the status quo because they don’t expect more of themselves or our sector.

 

JM: Let’s end on a positive note: In spite of all these challenges and tensions, what gives you hope that the relationship between social impact organizations and their funders can significantly improve?

The extraordinary reception in only one month to “Unicorns Unite” gives us hope. Three major conferences have featured the book and its message, several funding networks have hosted conversations with their networks and several more are in the works. Networks of grantmakers are buying the book in bulk to share with their membership. Every day more people sign on to the Unicorn Manifesto (https://www.epicpartnerships.org).

We are also seeing a trend in other groups promoting the same message. The National Committee for Responsive Philanthropy just released Power Moves, Open Impact’s new report The New Normal urges foundations and nonprofits to reconsider how they work together to respond to the challenges of today, and FSG’s The Water of Systems Change points out how foundations must be prepared to change their own ways of working and thinking if we are to accomplish systems change. People seem receptive to the message of unicorn unity and willing to take action!

 

Note: You can buy Unicorns Unite here, or read an excerpt in NextBillion’s weekly e-newsletter, NextBillion Notes, throughout June – click here to subscribe today!

 

Image: The Scream by Edvard Munch, via Wikimedia Commons.

James Militzer is an editor at NextBillion. 

 


 

 

Categories
Entrepreneurship, Investing
Tags
books, entrepreneurship, fundraising, impact investing, nonprofit, nonprofits, social enterprise, social entrepreneurs, social entrepreneurship, social impact