Achieving Equity: We Need a New Approach to Funding

Article Highlights:

• If we really want to move the needle on the equity issue, we need to change how grantmakers fund.
• New Approaches to Fighting for Equity: What Nonprofits Can Do
• How Current Practices Undermine Equity
• New Approaches to Fighting for Equity: What Funders Can Do

If we really want to move the needle on the equity issue, we need to change how grantmakers fund.

Lately there has been a lot of focus on the issue of equity. “Equity” is obviously a broad term that encompasses a range of issues including income and wealth inequality, as well as economic opportunity. But at its core, equity is ultimately about creating a level playing field and ensuring that everyone has an honest chance at achieving their potential regardless of their race, gender, economic status, or zip code.

A number of large foundations and organizations including the Ford Foundation, Meyer Memorial Trust, Kellogg Foundation, and Grantmakers for Effective Organizations, among others, have announced new focus areas designed to address the equity issue. They are changing their grantmaking priorities, program areas, and hiring practices, and are pooling resources to advance one of the most vital issues of our time.

While these efforts are to be applauded and encouraged, we need to go deeper. In the end, just changing what grantmakers fund will not be enough. If we really want to move the needle on the equity issue, we need to change how grantmakers fund. As Einstein famously stated, “We can’t solve problems by using the same kind of thinking we used when we created them.”

But this is not just a “funder issue.” If nonprofits continue using the same kind of thinking that promotes organizations spending 90 cents out of every dollar on programs—while starving the organization and its necessary infrastructure—we will get the same kind of results.

New Approaches to Fighting for Equity: What Nonprofits Can Do

Fair or not, much of the responsibility for changing the conversation sits with social sector leaders. Many nonprofits simply don’t advocate for what they really need to deliver quality services. Instead, we train donors to expect more programs and impact for fewer dollars, with little if anything allocated for critical overhead costs. How can we change the conversation?

• Own Your Numbers: Know what it really costs you to deliver on mission. The full cost to fundraise against includes more than just programmatic expenses: it includes your liquidity needs, plus investments in your revenue and fundraising business, reserves, and debt payments.

• Don’t Apologize! Starbucks doesn’t apologize for the price of its lattes, and you shouldn’t shy away from being honest about the costs entailed in your work. After all, nonprofits do work that for-profits cannot do profitably! We tackle complex, multi-dimensional, and intergenerational social challenges. It’s not easy and certainly isn’t cheap when done right.

• Share Real Overhead with Your Board and Your Funders: If your board is to truly be engaged, they’re going to help fundraise for your cause. They need to know what it actually costs to deliver on the mission, so they can ask for the right amount and types of money to ensure long-term sustainability.

• Articulate Your Financial Story: Focus on Communicating Impact: There is an old saying in sales, “If you are negotiating on price, you have already lost the sale.” This means you have failed to communicate your value proposition. Likewise, in the social sector, if you are negotiating on overhead rates, you have not sold the impact and value of your program. Ultimately, donors and funders want to achieve the outcomes and impact. The reality is 100% of every dollar goes to impact.

How Current Practices Undermine Equity

Here, we are getting to the real issue: the persistent myth that somehow, for some unknown reason, nonprofits don’t need to generate profits, pay their people, invest in systems, or put money aside for the future. This archaic, unproven, and inherently illogical myth results in funders, donors, and government all clinging to a set of practices that confuse efficiency with effectiveness.

But in reality, these bad “best practices” result in less funding, wasted money, fewer people being served, and a weakened social sector.

We will never achieve our equity goals with outdated grantmaking practices and policies that focus almost exclusively on programs while neglecting investments in capacity and infrastructure. When funding doesn’t cover the full cost of delivering programs, nonprofits close the gap through sweat equity—we overwork and underpay our people, relying on volunteer and in-kind support. While having people volunteer is fantastic, we continually ask staff to put in 60-hour weeks without childcare benefits, proper healthcare, or retirement plans.

We ask staff to deliver on a wide range of funder, government, and board expectations while using outdated computer systems, with poor internet service and leaking offices. Aiming for “opportunity for all” through exploiting the staff of nonprofits is no path to success. Moreover, by not allowing people to earn a living wage at nonprofits, we deny them the opportunity to move up the economic ladder.

New Approaches to Fighting for Equity: What Funders Can Do

To push forward on the issue of equity, funders and donors must do more than simply change whom they fund; they must work together to take a more holistic look at the organizations tasked with holding together the increasingly frayed social safety net.

As the movement to combat inequity grows stronger, there are three key things that funders can do to ensure they are not building this movement off the backs of underpaid, overworked, and underappreciated workers—let’s all hold them accountable to:

• Engage in open, transparent conversations with grantees about what it honestly takes to deliver on mission both now and in the future. We need to move the conversation beyond focusing solely on programs and overhead rates, to understanding the liquidity, reserves, and investment needs of nonprofits.

• Educate boards and program and grants management staff. We all need to have a common understanding of real costs, a shared language to engage in meaningful dialogues, and the tools and resources to assess financial sustainability and impact.

• Recognize that investing in equity means investing in capacity, infrastructure, and leadership development, not just programs. Donors, funders, and investors all need to acknowledge that without healthy, vibrant, and sustainable nonprofit organizations, we will never be able to achieve the positive social change we seek.

To win the fight for equity, we need organizations that are adaptive, innovative, and flexible with the necessary human capital to get the job done right. It’s going to be a long struggle, but if we want to have real impact, we need to end this culture of scarcity, and we need to end the starvation cycle.

Most of all, we need to change our thinking, and funders need to be partners in this transition to a more just, prosperous, and equitable world.

If we are able to change our mindset and understand what “real costs” really mean, we can change how we partner with funders, unlocking the power and potential of social sector organizations. That is how we change the world.

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