Making Lemonade from Lemons: Grant-Making in a New World 

The Great Recession's impact was felt everywhere as grant-makers and grantees adjusted to the new reality. Many funders couldn't support agencies the way they had historically; many charities couldn't provide services as before. Executives and boards faced tough choices about what they could and could not do: what people they served; who they funded and how; and what programs they supported. Painful as this situation was, it was a catalyst for nonprofit leaders to focus more clearly on their missions and support higher-impact initiatives that may strengthen the field further.

In our last issue, we focused on steps leaders could take to keep their charities vital, actions that philanthropists can encourage and support. In this newsletter, our attention shifts to what grant-makers can do, though the practices we share can apply to grantees, too.


Informed, Targeted Grant-Making to Maximize Impact

In our work and conversations with foundation leaders, we have seen approaches that use grant-making dollars wisely and serve grantees even better. We share some with you below:

Focus on the organization as an enterprise, not just its programs.  

A program doesn't operate in a vacuum: an organization needs leadership (including the board), infrastructure and financial resources. A foundation is no different: its leadership sets goals for the institution and creates structure for its programming (grant-making). Its endowment provides the financial resources needed both to make grants and operate the foundation. Whether a foundation or a charity, each has to be strong in all three areas.

We found that foundations that view an agency as an enterprise - program, leadership, and finances - frequently make grants that support their grantees differently. They often provide general operating funds as well as program support. They respond to a specific need. It could be strengthening a development or fiscal department, underwriting an important new position, or providing coaching to bolster board or senior team effectiveness.

Manage expectations.

In a tighter funding environment, it is important for funders and grantees to have frequent, thoughtful and constructive dialogue on issues including:

  • What funders can expect from grantees. As funders, you can recalibrate your goals and desired outcomes to fit within your and the grantee’s reduced budget. Many foundations can't continue grant-making at pre-recession levels, and it's impossible for charities to deliver the same quality program to the same number of people with fewer dollars. Assess, too, whether the proposal budget is really sufficient to deliver the promised program; we have seen funders actually increase grant awards to make sure programs are adequately resourced. Remember that nonprofits will often say or do whatever is needed to get funding; you need to decide whether a proposal is realistic.
  • What grantees can expect from funders. Funders want grantees to communicate early and often about their situations, and grantees want the same in return. It's better to tell your grantees what you do – and do not – know as soon as possible so they can begin to adjust. Most important, tell a nonprofit early, clearly, and often if you are making its last grant. This message is not readily heard or believed, so a step-down grant might be a good strategy. Reluctance to communicate early about future grant-making practices, slower decision-making, and payment delays all harm your grantees' ability to deliver their programs, however unintentionally.
  • Grantees need cash. Many nonprofit executives, even reasonably healthy ones, are struggling to have sufficient cash to deliver their programs and pay their bills. Social service agencies, heavily dependent on government contracts, experience long payment delays for services already delivered, sometimes 6-8 months. Foundations can structure grants to encourage grantees to build cash reserves. Funders can also disburse grant dollars promptly: identify and address any points in the payment cycle where delays might occur - for example, numerous approvals before disbursement, infrequent check runs, mailing instead of electronic funds transfer, etc.

Take advantage of your unique role as funder.  

Foundations can influence the sector in ways that others can't. Besides structuring grants to provide grantees critical resources, you can bring others to the table to address a particular sector’s challenges. Individually or in concert, you can provide in-kind resources such as consulting and technical assistance as well as information on best practices, comparative performance, and highly effective organizations. You can bring charities together for peer-group discussions of common concerns and how they might address shared issues. You can devote some resources to advocating on behalf of the field, bringing government agencies, corporations, and other foundations together to address critical issues.


Making Tough Choices

Foundations don't have the resources to continue grant-making at their 2007 levels and aren't likely to for the foreseeable future. Like charities, you can't be expected to have the same impact, so you face tough choices in your future grant-making. Some questions to consider as you decide include:

What are your funding priorities?  

As with many charities, you as a foundation may have experienced "mission creep" in the program areas you support. Now is a good time to revisit your mission, identify those program areas - new or old - and prioritize them, based on why you want to support each. Your revised priorities will become the basis for any adjustments to your program portfolio.

Who are you trying to serve?  

Based on your mission, history, accomplishments, and your outlook for the future, what is the population you want to support? Where do you believe you can achieve the greatest impact and why?

What impact do you want to have?  

What are your desired outcomes and success indicators and why they are important to you? You may opt to have a relatively small but strategic impact on a large group of people or a sizeable impact on fewer. Think, too, how you want to measure your success as an enterprise: your leadership, staff, and administrative resources. Finally, decide how will you measure the effectiveness of your grant-making, program areas and organization. You want your measurement to be simple, realistic and doable, drawing upon readily-available information.

How will you achieve that impact?  

Based on your decisions above, you can confirm or revise your grant-making practices. For example, some funders are shifting to more multi-year grants, others to more general operating support, and still others to providing more (or less) technical assistance support. How will the type of grant-making you make lead to the impact you seek?

These questions will help you define your foundation's theory of change, which is what you want your grantees to do. Just as you appropriately hold your grantees accountable for their theory of change and using your money wisely, so too it is fitting for the public, whose money you hold in trust, to expect the same of foundations.


We Want Your Knowledge!

Let us know what you are doing to improve your grant-making or and program effectiveness. Your insights can help strengthen the sector.


Bad Leaders' 10 Most Common Failings

A lack of energy and enthusiasm topped the list of most common leadership shortcomings according to a Harvard Business Review article. Gleaned from a study drawing upon 360-degree feedback data on over 11,000 leaders and evaluating the least effective ones, the worst leaders:
1) lack enthusiasm and energy
2) accept their own mediocre performance
3) lack clear vision and direction
4) have poor judgment
5) don’t collaborate
6) don’t follow the standards they set for others
7) resist new ideas
8) don’t learn from mistakes
9) lack interpersonal skills, and
10) fail to develop others.