The Silver Bullet to Building the Capacity of the Not-For-Profit Sector

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Charities and other not-for-profit organizations are often created to address society’s most persistent challenges (e.g. homelessness, hunger, poverty) – those that neither governments nor for-profits have historically been able to solve.

According to the latest research, changing demographics and an aging population, is significantly increasing demand for charitable services while available funding is set to decreasei. Therefore, it is a critically important time to build the capacity of not-for-profit organizations.

In folklore, a silver bullet is often the only effective strategy to ward off werewolves, witches, and other monsters. It is a metaphor for a simple, seemingly magical solution to a complex or persistent problem.

So, we have to ask ourselves, is there a silver bullet that could create additional capacity in the sector without additional funding? Vantage Point has been talking about the concept of the abundant not-for-profit for many years – the opportunity to move our missions forward through knowledge philanthropy.

I would like to propose another opportunity – let’s work to resolve the issue of restricted fundingii and the Overhead Mythiii. The Overhead Myth posits that spending on programs is good and spending on overhead is bad. As a result of the Overhead Myth, many governments and foundations provide direct funding for programs and heavily restrict spending on overhead expenses and capacity building.

All – and I mean all – of the research that has ever been done on overhead spending has come to the opposite conclusion. The research is best summarized in the following quote from the Nonprofit Overhead Cost Projectiv (sponsored by the Ford Foundation, the David & Lucille Packard Foundation, and the Rockefeller Brother Fund):

“One of the important findings of the Nonprofit Overhead Cost Project is that overhead, far from a “necessary evil,” is the basis for mission effectiveness.”

Through over 20 years of research, Grantmakers for Effective Organizations (GEO) has long been advocating for fewer restricted grants and more grants specifically for capacity building . They have arrived at the view that organizations have generally been forced by funders to spend too much on programs today and not enough on building strong, sustainable, efficient, effective organizations. They are also of the view - supported by all of their research - that investments in capacity buildingv result in significant returns on those investments and result in higher levels of mission achievement. As organizations become more efficient and more effective, they can grow and deliver more services.

So, is there a simple, seemingly magical solution to creating more capacity in the charitable sector? Absolutely. The silver bullet is unrestricted funding and funding available to build organizational capacity.

Even without increasing funding available, funders can create more capacity in the sector by reducing restrictions on their funding and allowing organizations to invest more in leadership, governance, technology, financial management, higher salaries and more training for staff. This will allow organizations to become more efficient and more effective. It will allow them to grow and provide more services to more people.

 

Emmett, Brian. “The Social Deficit: How Much Faster Will Charities Have to Run to Stay in the Same Place?” Imagine Canada, 18 Oct. 2016, www.imaginecanada.ca/blog/social-deficit-how-much-faster-will-charities-....

ii “What Financial Challenges Do Nonprofits Face?” Grantmakers for Effective Organizations, 5 Mar. 2015, www.geofunders.org/resources/what-financial-challenges-do-nonprofits-fac....

iii BBB Wise Giving Alliance, et al. “Moving Toward an Overhead Solution.” The Overhead Myth, overheadmyth.com/.

iv Urban Institute Center on Nonprofits and Philanthropy, and Indiana University Center on Philanthropy. “Nonprofit Overhead Costs Project.” Aug. 2004.

“How Can We Be More Supportive of Nonprofit Financial Sustainability?” Grantmakers for Effective Organizations, 5 Mar. 2014, www.geofunders.org/resources/how-can-we-be-more-supportive-of-nonprofit-....

About the Author

Gordon Holley is President and CEO at Humanity Financial Management, where he brings hard-won experience and insight from more than 20 years in accounting and financial services to his own financial management company serving Not-for-profit Organizations and Charities. While working as a Chartered...

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