Do nonprofits and funders collude to fail?

Does anyone working for a nonprofit organization set out to build a poorly functioning organization? Are funders actively planning the demise of the organizations they invest in?

In an article in the Stanford Social Innovation Review, The Nonprofit Starvation Cycle, Ann Goggins Gregory and Don Howard stated,

Organizations that build robust infrastructure—which includes sturdy information technology systems, financial systems, skills training, fundraisingprocesses, and other essential overhead—are more likely to succeed than those that do not. This is not news, and nonprofits are no exception to the rule.

Despite this accepted truth, my experience during the 12 years since the article was written, is that many nonprofit organizations fail to invest sufficiently to be successful. They may do so out of an honorable intention: trying to save money on overhead to spend more on the beneficiaries of their program. But, by doing so, they make life harder for their own team members and ultimately limit the impact they could offer the intended beneficiaries.

Funders have unrealistic expectations about the operating cost of the nonprofit. The nonprofits live down to funders' expectations in order to secure funding and underreport actual costs in tax filings and in their reports to funders. That underreporting "perpetuates funders’ unrealistic expectations. Over time, funders expect grantees to do more and more with less and less—a cycle that slowly starves nonprofits."

The pattern Goggins Gregory and Howard found in 2009 continues. Because funders also want to have their investments make the most difference for the most people, when they partner with nonprofit organizations skimping on investments in infrastructure (and people), a downward spiral of impact occurs.

I've observed the same patterns in government agencies serving the public. And limited operating efficiency multiplies the effects in both nonprofits and government agencies.

So, whether you're in a nonprofit organization, a philanthropic or other organization seeking to make a difference in communities, I encourage you to do the following:

1. Read The Nonprofit Starvation Cycle,

2. Conduct a candid assessment of your operating or investing patterns, and

3. Decide what changes you can make to make a bigger difference for more of those you intend to serve.