As part of OSA Impact’s threefold mission to inform, invest, and inspire, we will continue to have a clear preference for investing in social enterprises. These are for-profit companies with social impact at the core of their missions who have created innovative business models and incorporated disruptive technologies. It is well documented that social enterprises can create more sustainable impact than traditional charity models, however, some sectors have yet to see the development of sustainable business models. And while there are various charities that are truly making a difference, a change is required in the conversations that individuals have around funding.
Understandably, donors are most concerned with the specific and direct impact their money has had. They want to know exactly how many children received food with the money they donated, for example. In other words, they are concerned with program building.
Donors, however, do not often emphasize the strength of internal structures of the organizations themselves. This includes financial stability, strategic planning, IT, staff development, rent, and travel. In other words, donors are not concerned with capacity building.
And yet capacity building is crucial. The Ford Foundation, in conjunction with the Bridgespan Group, recently examined the recipients of their grants — below is an excerpt:
We reviewed nearly 1,500 financial statements spanning the years 2009 to 2014 from organizations with big budgets, professional staffs, and successful programs. Given the prominence of these nonprofits, many of which are household names, the results came as a surprise. More than half (53 percent) suffer from frequent or chronic budget deficits—defined as at least two of the past five years. And 40 percent have fewer than three months of reserves (specifically, liquid unrestricted net assets) in the bank to cushion financial shortfalls. In fact, 30 of the 300 organizations showed no reserves—making them technically insolvent.
Largely as a function of donor priorities, these charitable organizations focus on building programs while underlying infrastructure is ignored. The Ford Foundation, Gates Foundations, and others are aware of this phenomenon and are taking steps to move towards more balanced and sustainable impact via capacity building. However, this same mindset must be adopted by each and every individual looking to donate money to a charity.
Grantmakers, like the Ford Foundation, are pushing their grantees to strive for organizational excellence alongside social impact. But since their grantees are often larger organizations, it is the rest of us individuals who must take responsibility in pushing the smaller organizations we are involved in or the NGO’s in our neighborhoods to have a more candid conversation about capacity building — about their needs in leadership, governance, IT and infrastructure, financial stability, and more.
While capacity building does not make for good marketing material, it is necessary for strong organizations, and therefore, ensuring sustainable impact.
Footnotes
1. Bridgespan’s Michael Etzel and Ford Foundation’s Hilary Pennington present the work Ford Foundation has been doing with BUILD and the new paradigm of grantmaking that underlies it.
Read more: Time to Reboot Grantmaking – SSIR: https://ssir.org/articles/entry/time_to_reboot_grantmaking
