A “Change in Funder Strategy:” Improving the Funder-Grantee Relationship to Maximize Impact
This post is adapted from an article that originally appeared in Alliance Magazine.
As we’ve highlighted in the past, research from Open Road’s Roadblock Analysis Report shows that the most likely challenge that impact-focused projects will encounter are their own funders. As a Chronicle of Philanthropy article put it, “When foundations try to identify obstacles to a grantee’s success, they had better look in the mirror.”
When faced with such harsh criticism there are typically two gut reactions. First, it’s easy to be defensive. After all, isn’t it really the nonprofits responsibility to have better budgeting, cash flow projections, or even their own cash reserves and contingency plans in place?
Second, it can be easy to acknowledge the fact, but avoid the mirror. Yes, those examples are horrendous — but my foundation would never be the cause of such problems. Clearly though, neither of these reactions are helpful except to perhaps soothe a bruised ego.
So, what to do?
At Open Road, we see this dataset — which tells us that 46% of the roadblocks that projects encounter are funder-created — as a neon arrow pointing to opportunities for impact. If nearly half of the risks to impact are caused by us funders, then those same risk factors are within our control to change. By just getting out of our own way, the opportunity to minimize risks and maximize the impact of our existing investments is significant.
Last week, Open Road’s executive director Maya Winkelstein wrote a blog post for Alliance Magazine on how foundations can avoid becoming a ‘funder-created’ statistic. In her article, she identifies the top three funder-created roadblocks and how to avoid them. Here we expand on the first of those: Change in a Funder Strategy.
Roadblock: Change in Funder Strategy
The number one cause of mid-implementation roadblocks, is ‘Change in Funder Strategy.’ This is defined as: “a change in the funder’s theory of change, asset allocation, strategic new direction, etc., that affects an existing funding partner.”
For example, the main funder of a community savings project in India does a strategy refresh and decides to no longer target projects in India, cutting off funding one month before an expected grant renewal.
While such a shift is bad for the nonprofit, this scenario might seem both standard fare and completely appropriate. After all, foundations are very much within their right to change strategies and priorities as often as they’d like. So why is this really the funder’s problem?
The hidden story in funder-created roadblocks isn’t the strategic shift itself — it’s the timing and the communications.
As Maya wrote,
“When you talk directly with the affected grantees, the problem isn’t that funders change course; it’s that they don’t offer sufficient communications or time to allow grantees to make alternate plans.”
Sure the permanent loss of a stream of funding is a problem, but what brings organizations to Open Road — what turns a problem into a crisis — is the manner and timing of communications. So what can we do about it?
Opportunity: Give advance notice of changes in funder — ideally 12 months
Many projects come to Open Road having received only 1–3 months notice that the check from an expected renewal or even previously approved multi-year grant is not coming. As highlighted in Alliance,
“most foundations make grant decisions only once or twice a year. So even giving three months’ notice (let alone three weeks) is not enough time for nonprofits to research, apply for, and secure alternate funding.”
Opportunity: Communicate honestly around potential strategy changes
Funders care deeply about the organizations and missions they support. Nobody wants to let existing partners down and perhaps because of this, many funders choose to communicate nicely, rather than honestly. For example, “we are going through a re-org, but I don’t think you’ll be affected.” Or, “I can’t make any promises, but we love your program.” Although these statements include qualifiers, the baseline message conveyed is, “Your chances are good, you can plan on us.” And here’s the thing; nonprofits do plan on it.
It might sound harsh or uncaring, but being honest, specific, and transparent about strategy shifts is much more useful to a nonprofit than vague assurances which may make everyone feel good now, but also set everyone up for disappointment in the future.
So, next time you are reviewing your strategy, instead of: “It’s not a guarantee, but your renewal should be fine.”
Try: “In the past three years, 60% of our grantees have received renewals. So the chances are good, but not guaranteed. Here’s the list of things we look for when considering a renewal grant…”
Instead of: “I can’t confirm it until our Board meeting this fall, but I don’t think this will affect you.”
Try: “I don’t know what direction our new President is going to take. My guess is that some programs will stay and some will change, but I won’t know what until after our Board meeting in December. Right now, I wouldn’t count on us.”
For more, including the second and third most commons roadblocks, head over to Alliance to read Maya’s post.
