Diana R. Sieger is the president of the Grand Rapids Commmunity Foundation. For more information, visit Diana's President's pages or view her biography.

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President's Point of View: Financing the nonprofit sector - current methods may be short sighted and inadequate

June 12, 2008

I just read in the online edition of today’s Grand Rapids Press that the Public Museum of Grand Rapids was denied funding from the Downtown Development Authority to expand and update their kitchen facilities to increase their ability to host larger catered events. This may increase the museum’s revenue which is needed to help offset the gap in their budget created when the facility transitioned from a city operated one to a private nonprofit organization.

The reasoning behind the denial had to do with using public funds that would be used to potentially create competition with other for-profit catering services and the museum was encouraged to explore those options first.

My purpose here is not to comment on this decision but to underscore that a great of deal of writing and thought has been put into how the nonprofit sector is financed particularly in the past five years. Trying to find revenue sources is increasingly challenging and I question if we are tying the hands of the sector by limiting our notions of funding mechanisms that may or may not help keep organizations healthy and vital. All funders - governmental, foundations, and others - need to take more seriously the challenge that befalls the nonprofit sector in its efforts to find sustainable revenue sources - which is actually an oxymoron these days!

In Jim Collins’ monograph entitled Good to Great and the Social Sectors (with the subtitle that is important here: “Why Business Thinking is Not the Answer”) he made many astute observations but one notion in particular has stayed with me since I first read the monograph back in 2005. (This publication is available on Jim Collins’ website.)

“I find it puzzling how people who clearly understand the idea of investing in great companies run by the right people often fail to carry the same logic over to the social sectors … social sector funding often favors “time telling” - focusing on a specific program or restricted gift … But building a great organization requires a shift to “clock building” - shaping a strong, self-sustaining organization that can prosper beyond any single programmatic idea or visionary leader… If an institution has a focused Hedgehog Concept and a disciplined organization that delivers exceptional results, the best thing supporters can do is to give resources that enable the institution’s leaders to do their work the best way they know how. 1

Clara Miller, the president and CEO of the Nonprofit Finance Fund, addresses another interesting aspect of this in an article entitled The Equity Capital Gap found in the Summer 2008 edition of the Stanford Social Innovation Review . (A subscription is required to read the article.)

Ms. Miller explores the premise that current methods of revenue generation for nonprofits are short sighted. These methods may include traditional grants, debt financing, and donations. She is encouraging funders like this foundation to find ways to tackle this challenge collectively. As she states, “Creating an equity capital equivalent - and an equity ethic - for nonprofits is a critical first step in this process.” 2

As I stated before, all funders - governmental, foundations and others - need to THINK harder about what we can do to strengthen the financial standing of the social sector. This has been on my mind for quite some time and I am still trying to grasp how to address this challenge.

1 Jim Collins, Good to Great and the Social Sectors (Jim Collins, 2005) 24-25.
2 Clara Miller, “The Equity Capital Gap,” Stanford Social Innovation Review, Vol. 6, No. 3 (Summer 2008): 41-45.