Category: Foundations

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Nonprofits must keep searching for new revenue: “Communities for Teaching Excellence” and Gates Foundation funding

In the L.A. Times, Howard Blume says that a “Gates Foundation-funded education-reform group [is going] to close,” because the organization—Communities for Teaching Excellence—lost 75% of its funding. That 75% came from a single source: the Gates Foundation. This story holds an important lesson for nonprofits: you’re only as good as your current, and next, revenue source.

Actually, Blume says that the nonprofit’s board chair claims that Communities for Teaching Excellence decided to shut itself down:

But Communities for Teaching Excellence was not hitting its marks in terms of generating press coverage and building community coalitions, said Amy Wilkins, chairwoman of the board of directors. She said the board voted to shutter the organization; the Seattle-based Gates Foundation agreed with the decision.

This seems. . . improbable. We’ve rarely encountered a nonprofit that willingly shut down.* But we have encountered lots of nonprofits who ran out of money and then decided that their mission was complete and that they could move on. The situation is analogous to high-level political, military, and business leaders who are told to have their resignations on their bosses’ desks by the morning. All of us have seen that sort of thing in the news: “I would like to spend more time with my family. . .” is usually code for “was fired.”

Nonprofits shouldn’t rely on a single source of income. Plus, once you have income, use that source to leverage more.** A single source source—especially one with cachet like the Gates Foundation—makes it easier to get more, because foundations like a winner and like to be associated with winners.

Foundation and corporate giving programs, like venture capitalists, are herd animals, and they’ll assume that if someone else is funding you, you must be good. Sometimes they’re even honest about it, as an RFP from the Crossroads Fund makes clear: “We fund groups with budgets under $300,000, and look for organizations with diverse funding sources” (emphasis added).  I’ll leave their dubious use of commas aside and point out that they’re just unusually honest. As with the dating market, one victory tends to provide the social proof necessary to beget other victories, and Communities for Teaching Excellence already had one major victory.

But they may have stopped swimming, and as soon as they stop swimming, they died.*** Or they may have tried to keep going and simply done so ineffectively; we can only speculate from the outside. I’m guessing, however, that they succumbed to the disease often caused by success: assuming that you’re golden and can do no wrong.

Communities for Teaching Excellence itself was even doing some interesting work: the Gates Foundation “funded the development of new teacher-evaluation systems,” which is an issue that’s growing in importance. In The Atlantic, for example, Amanda Ripley explains “Why Kids Should Grade Teachers:”

A decade ago, an economist at Harvard, Ronald Ferguson, wondered what would happen if teachers were evaluated by the people who see them every day—their students. The idea—as simple as it sounds, and as familiar as it is on college campuses—was revolutionary. And the results seemed to be, too: remarkable consistency from grade to grade, and across racial divides. Even among kindergarten students. A growing number of school systems are administering the surveys—and might be able to overcome teacher resistance in order to link results to salaries and promotions.

I’m not sure that Communities for Teaching Excellence was working on this particular set of issues, but education reform does seem to have reached a critical mass. Maybe something substantive is actually happening in the field.

By the way, the chairwoman of the board also has a grant writer’s sense of proposal-ese:

“The field was more complex … and building these partnerships was more difficult than anybody had imagined,” Wilkins said. “The inventors of this organization had envisioned more robust activity at the local level than we were achieving.”

What does “complex” mean? What does “more robust activity at the local level mean” in this context? Blume either didn’t ask or didn’t tell us. That he regurgitates this kind of language is indicative of the problems of the newspaper industry as a whole: reporters not only don’t call people on their BS, but they repeat the BS.

* In the rare cases in which a nonprofit willingly shuts down, the shutdown is often caused by the departure of key staff people, or the death or departure of the founder or a major true believer.

** Other businesses face the same basic set of problems. We’ve occasionally been approached by organizations that want to buy the vast majority of our effective grant-writing capacity, and although those discussions have never gone very far, we also don’t want to be beholden to a single client, so wouldn’t take the offer.

*** This is similar to raising money for startups and being an academic (at least until tenure).

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Why nonprofits are more like businesses than you realize

In a Hacker News thread, “guylhem” asked a (very) common question, in the context of firms that specialize in providing services to nonprofit and public agencies: “Why exactly is profit / commerce considered a bad thing?”

Since we’ve been working with nonprofit and public agencies for decades, we naturally have some ideas about the issue (we’ve discussed some of those ideas before, in “Tilting at Windmills and Fees: Why There is no Free Grant Writing Lunch and You Won’t Find Writers for Nothing” and “Why Fund Nonprofits, Public Agencies, and Other Organizations Through Grant Applications At All?“). A lot of people feel nonprofit and public agencies are not supposed to be like other businesses, even though in reality they share a lot of the needs and attributes of for-profit businesses.

Consider similarities. Nonprofits need their toilets to work. They need an IT guy or gal. Though they obviously don’t face the profit drive that businesses do, they still need to “make” more money than they spend, either to invest in new services or build a small but prudent reserve. If they don’t make more than they spend, the nonprofit will eventually be shut down. Nonprofits only have four basic ways of making money: grants/contracts, donations, fees for services, or investment income.

Because nonprofits, like other businesses, have a wide array of needs, they buy goods and services they can’t productively make or do themselves. We’re fond of the plumber analogy: most nonprofits do not have a plumber on staff, and, when their toilets clog, they hire someone to unclog the toilet. When the plumber is done with the job, she or he presents a bill and the nonprofit pays it.

That’s straightforward. But many people seem to feel that grant applications are more like a college admissions essay, in which hiring a consultant is somehow cheating.* We obviously don’t think so, since our entire job involves preparing grant applications. Nonetheless, those people don’t really think that grant writing is like plumbing (at least until they need a grant writer). Regardless of feelings, however, nonprofit and public agencies that submit better proposals tend to get funded more often than those that don’t—so feelings about the purity of the grant writing process get weeded out by the “market,” which still exists for nonprofits. People who think they’re good grant writers but turn out not to be eventually find they can’t run their nonprofit, or they can’t expand it, just like people who think they’ve got a great business idea but can’t sell.

We’ve also argued before that there’s no reason in principle why a nonprofit grant writing agency can’t exist, but in practice none do, and, even if they did, the demand for their services would far outstrip supply, as usually happens when something is given away. If you want to know why you generally can’t get something for nothing, well, look around: few people or firms give valuable things away, while many people or firms are selling valuable things, and prices tend to show what people in the aggregate think is valuable and what people think is less valuable.

Demand for “free” grant writing services would be especially high because grant writing is very boring, difficult, and tedious—a troika that makes free grant writing especially unlikely, since grant writing doesn’t give people the good feelings they might get from, say, doling out soup at a soup kitchen, or providing pro-bono legal work. Volunteers have their place, but most organizations that operate on more than a shoestring basis are quickly going to discover the limitations of volunteers.

Even nominally low-cost grant writing services often turn out to be quite expensive. As most of us have discovered the hard way, it’s not at all unusual to get what you pay for. Yes, there are exceptions, but for the most part higher prices imply higher quality, at least up to a point. We’ve been hired by innumerable nonprofit and public agencies to attempt to salvage jobs prepared by “low-cost” grant writers, and we’ve also had nonprofits call us, hire someone else, then call us back for the same program in the next funding round and hire us instead of the other firm.

In response to the ideas above, “pbreit” replied: “I would think that a nonprofit reasonably considers grant writing a core competence or at least well closer to a core competence than, say, plumbing.” Maybe that’s true. But many nonprofits are good at delivering human services, and less good at writing proposals. Those skills do not necessarily co-occur, and if there’s any overlap between the skill of delivering human services and the skill of writing, it’s pretty slender. Plus, becoming a great writer is a “10,000-hour skill” that takes a lot of deliberate practice to develop. That’s why you have to take so many years of English classes in school (though I realize many of those English classes are bad, but that’s another topic). The average person who decides, “I want to become a competent grant writer” is probably looking at a couple of years of effort.

Sufficiently large nonprofits usually do have a grant writer on staff, but smaller ones usually don’t. A really good grant writer will probably cost at least $70,000 per year in salary alone, and is likely to cost much more. That big number helps explain why relatively few small- to mid-sized organizations have one. In addition, hiring a grant writer who turns out not to be particularly good at his or her job can really hurt a nonprofit. We’ve been hired by many, many nonprofit and public agencies who have grant writers on staff—sometimes for positive reasons (the in-house grant writer is overwhelmed or on leave) and sometimes for less positive ones (the in-house grant writer isn’t very good at writing proposals, is scared of the RFP or the Executive Director wants to play “shoot the consultant,” if the proposal is not funded). For small nonprofits, hiring a full-time or even part time grant writer might actually be outside their core competency.

What we’ve described in the last two paragraphs is a specific instance of a more generalizable question about whether one should hire a consultant, learn a skill, hire an employee, or not have it performed, and we’ve written about that issue in “Consultants, Employees, and More: Should We Hire a Grant Writer? And How Will Our Agency Complete Proposals?” Different organizations will deal with these questions in different ways, depending on a variety of factors.** These problems recur in the business world and in the personal world: Do you want to learn how to cook, hire someone else to cook through going to a restaurant, or not eat? Do you want to learn bike maintenance, take your bike to a shop, let your bike degrade over time, or not ride?

The most reasonable middle ground for nonprofits, for-profits, and people in general is to work to expand your range of basic and advanced skills while simultaneously acknowledging that you’re not going to learn everything. Things you don’t know how to do but want done you’ll probably have to pay for, one way or another. This isn’t always true—family members generally don’t charge each other when one person makes dinner—but as a general rule it’s pretty good, since strangers very rarely give valuable things to other strangers without a reason. Attractive women have told me that men will often do things for them and buy drinks for them and so on, without any or much prompting, but I definitely don’t qualify that as being “without a reason,” since the reason in most cases is probably obvious.

I don’t think most people are consciously thinking about the choices between learning, buying, and not having. But if you want to run a successful nonprofit, public agency, or business, you should start thinking about them now.

* Actually, hiring an admissions essay consultant starts to make sense when one thinks about how much money might be on the line in terms of scholarships, but that’s another issue for another day. The higher the financial stakes in a one-time event that doesn’t allow repeated attempts at practice, the stronger the incentive to make sure one does everything one can to win.

** If you’re curious about how this works in an academic context, check out Coase’s famous essay, “The Nature of the Firm,” in which Coase describes why firms exist at all.

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Time Banks, Barter, Community Gardens and More: Economic Misery Provides Opportunities for Nimble Nonprofits

As we’ve written about before in “What Budget Cuts? The RFPs Continue to Pour Out,” “One, Two, Three* Easy Steps to Start-Up a Nonprofit Upstart,” and “Grant Writing from Recession to Recession: This is a Great Time to Start a New Nonprofit,” the Great Recession and continuing economic malaise present tremendous grant opportunities for nonprofits—provided they are fleet of foot and keep their eye on the prize.

The Wall Street Journal’s “For Spain’s Jobless, Time Equals Money” offers a case on point. The story details self-help efforts by desperate unemployed Spaniards, particularly those in their mid-20s to mid-30s (their unemployment rate is over 50%, which is similar to that of African American young adults), to overcome jobless and essentially cashless lives. In addition to the ever popular community gardens and direct barter systems (“I’ll give you a chicken for a haircut”),* these efforts include time banks.

A time bank is essentially a formalized barter system in which hours worked or stuff provided by one member are quantified and “banked” to be used in exchange for goods or services from another member. Thus, if you have a chicken and need a haircut, you don’t have to find a hungry barber. Rather, you find another member who wants a chicken, get credit for the transaction, and spend the credit with a member who is a barber. The barber gets credit for the haircut and uses it to have his scissors sharpened.

The article cites other permutations of barter systems, including gardening co-ops, in which people garden together and trade their labor for shared produce. Free stuff exchanges, which are easily facilitated by social media, are also becoming popular. At itinerant locations, like somebody’s basement or an actual storefront, people bring piles of stuff they don’t want in order to pick through piles of other people’s stuff they might want, all without exchanging money. The ultimate expression of these ideas is to develop locally accepted script that takes the place of currency, a concept that bloomed in America during the Great Depression (“Hoover Bucks”).

Some or all of these make dandy project concepts for foundation grants—particularly for organizations working in extremely disadvantaged communities. As we’ve written about before, grant writing is largely the art of telling funders what they want to hear. Any of these time bank or barter-style ideas will warm the stone-like hearts of foundations with preconceived notions of how services should be delivered to the poor folks—through methods like sweat equity, bootstrapping, using local resources to reduce carbon footprints, and the like. A thousand programs and communes have been started with similar ideals, but why not begin a few hundred more?

Although ideas about time banks and bartering spring to life when the economy is sufficiently rotten, to most funders barter and self-help projects will seem like new ideas if they’re pitched carefully. In taking these project concepts and running with them, you’ll keep your staff busy, build neighborhood social infrastructure, and you might even help a few people in need.

While the trend toward time banks, barter, co-op gardens, free stuff exchanges, and the like help keep people afloat, they are of course disastrous for a modern, currency-based national economy, which is underpinned entirely on people being willing to accept pretty pieces of government issued paper for their labor. It also makes tax collectors unhappy, since the vast majority of these transactions are “off the books,” even though the value is supposed to be reported.**

* Even Seliger + Associates has bartered before. When we were starting out about 20 years ago, we had little money for equipment and were struggling to make do with a single PC and its 12-inch screen. But a computer recycling nonprofit appeared, and we traded grant writing services for a couple of somewhat out-of-date but serviceable PCs with luxurious 15″ monitors. About 12 years ago, I came across a party company run by a fellow who also had a nonprofit on the side that worked with at-risk kids. At the time, I had teenage twins, so we traded grant writing services for a party—which is surely a one-time trade in the annals of barter. And, yes, I reported the value of goods and services received on my tax returns. I’m still open to the idea, if someone has an interesting trade to make. Grant writing for a Porsche 911, anyone? Send me your ideas and maybe a trade can be made.

** For a great description of how the underground economy works in poor communities, see Sudhir Venkatesh’s seminal Off the Books: The Underground Economy of the Poor.