How funders can get out of their own way

REDWOOD CITY, Calif. — Funders may be their own worst enemy in the pursuit of impact, according to a new report revealing that they are behind nearly half of the obstacles that get in the way of nonprofits achieving their goals. Open Road Alliance, which provides capital to social impact organizations that face unexpected obstacles, released its Roadblock Analysis Report last month. Its analysis of 102 applications for support over the last five years found that funder-created obstacles — such as change in funder strategy, delay of disbursement, or change in grant cycles — accounted for 46 percent of the challenges that came up during project implementation. One visual from the report has been making the rounds at recent conferences on philanthropy, with organization misfortune in green, “acts of god” or economics in shades of red and orange, and funder-created obstacles in blue taking up nearly half the graph. “While that blue rectangle is bad news, I also try and look at it from the solutions standpoint, and it’s good news because it means we can fix 46 percent of things that go wrong,” Maya Winkelstein, executive director of Open Road Alliance, told Devex at the Global Philanthropy Forum in Redwood City. “Had it been 46 percent of obstacles are ‘acts of god,’ then you could chalk it up to costs of doing business, but we don’t have to accept these obstacles as the costs of doing business, because it’s in our control.” The research points to some of the unintended consequences of efforts to professionalize the field of philanthropy. For example, some funders have moved from unrestricted to restricted grants as a way to ensure fiscal accountability, which means less financial flexibility for organizations when things do not go as planned. And in many cases, nonprofits are reassured that a change in funder strategy will not affect them, and when it ultimately does, they find themselves unprepared to adapt. “By examining the individual stories told by applicants, we have found that most applicants cited failed communication or poor expectation-setting with their original funder,” the report reads. This trend does not appear to affect funding from the growing number of family foundations, however. For the rest of the philanthropic sector trying to bring down the number of funder-created obstacles, these groups could offer some lessons as they tend to be smaller, enjoy more flexibility, and offer more direct communication with the organizations they support. “This flexibility and direct communication help family foundations avoid the poor expectation-setting and policy burdens that seem to contribute to many funder-created obstacles,” according to the report. Winkelstein said Open Road Alliance is working on both short-term and long-term solutions. Short-term fixes include grants and loans the initiative offers. After a funder creates an obstacle, the organization provides money to the grantee to help them get through it. But that response is beginning to feel a bit like a temporary Band-Aid. “In many cases, we are pulling the foundation out of the trouble just as much as we might be pulling the nonprofit out of trouble,” Winkelstein said. “In our loan portfolio, our delay of disbursement category can act almost as a bank for the foundation, because in a lot of those situations where the money is coming but not until the grant cycle, we’re serving as the foundation’s working line of credit.” In response, Open Road Alliance has started to charge interest on the loan that the foundation has to pay in some cases, but in the meantime, it is also focused on more lasting strategies, such as advocating for better practices by donors. Winkelstein called the Roadblock Analysis Report the first empirical dataset on “what goes wrong” in impact-focused projects. With 102 projects, the sample size is limited. But the findings have driven important conversations for the sector, including at the recent Global Philanthropy Forum. At the forum and similar conferences, one of the themes that comes up time and again is the value of unrestricted funding, which provides nonprofits with the working capital they need to sustain their day-to-day operations. Winkelstein explained that this funding is important because it gives nonprofits the flexibility to build, strengthen, and maintain their infrastructure, making them less likely to need to go to groups like Open Road Alliance. Yet what she hopes to see at conferences moving forward is both funders and nonprofit organizations talking about the role of risk in the social sector, and the need to consider that risk in grant-making. Investment is all about balancing risk and return, and nonprofits can’t maximize impact if they don’t take risk into account, said Winkelstein. “Not that anything in the blue [in the report visual] is an easy fix, but comparatively speaking, as funders, we have some control — even if change is hard — to make unilateral changes in that blue space,” she said. “Unpredictability will always be there, but if we have made risk management part and parcel of the process, there will always be a plan B, there will always be contingency funds, there will always be resiliency.” Even aside from the more controllable funder-created obstacles, if funders and grantees work together on mitigating risk and building resiliency, they can also reduce the consequences those “acts of god” have, added Winkelstein.