Does Funder Risk Aversion Stifle Innovation?

Thursday, September 12, 2013
by Lukas Haynes, Vice President, Mertz Gilmore Foundation and 
Nancy Lublin, CEO,
Lukas Haynes: A few weeks ago, I had a fun conversation with Nancy Lublin, one of America’s great social entrepreneurs, who founded Dress for Success and turned into a national powerhouse platform for youth driving social change.
It began as many discussions between grantmakers and grantseekers do: she described an exciting start-up, Crisis Text Line, that uses phone texting to help people in crisis, and I listened to all the various reasons why most foundations had either declined her funding proposal or whittled her request into a tiny “pilot” or “seed” investment.
As she paraphrased the familiar and tired foundation reasons for saying no, I could feel her frustration. And I don’t think she is alone. In fact, I confess to sharing that frustration as a supporter of innovative, high-performing nonprofits, like Independent Diplomat and ioby, that struggle to find major funding partners. Our shared frustration about foundation risk aversion led to the following dialogue. Our goal is to share the perspective of a proven, social entrepreneur who has wasted far too many days of her productive life in fruitless attempts to pry dollars from risk-averse donors.
We don’t just aim to broadcast familiar gripes, but to examine funder logic and participate in a civil conversation that rarely occurs between funder and grant applicant.
Having recommended foundation grants for 11 years, I am familiar with most of the rationales for declining brand new initiatives. For her part, Nancy has started not one, but two ground-breaking social ventures while taking a third from death’s door to resounding success and mainstream cultural relevance. She is a “safe bet” — and if she can’t land funds, imagine how hard it must be for others.
We hope this discussion proves useful to funders and grantseekers alike but we concede failure if it doesn’t produce a little more risk-taking that might breathe life into a nonprofit sector that too often rewards the familiar while continuing to pour money into obsolete organizations.
Lukas Haynes: Nancy, let me start this chat by stating, with deliberate provocation, that the foundation I work for won’t fund your new project because it falls outside existing Board-approved program priorities — and therefore I can’t even engage you on the merits of what appears to be a vital new service. How many times have you heard this before and what do you really want to say when you hear this from funders who feel similarly constrained?
Nancy Lublin: LOL. I could have drafted that for you, Luke. Of course this new idea doesn’t fit what you guys fund — that is the nature of a NEW idea. And if you funders keep sticking to your careful little buckets, you will never fund anything truly disruptive.
My experience with foundations points to a number of problems. First, people who work in foundations are naturally risk-averse. These are safe, stable jobs. Your brain just works differently from mine and my social entrepreneur colleagues. We see a tradition or a constraint and we ask, “How do we change that? How could that be better?” We run towards the burning building. Maybe foundations should hire more people who share our approach or have had our experience?
LH: I would split your argument in half and agree with the first point. Whether it is big foundations or much smaller ones, any endowed institution offers secure and stable employment to those who don’t violate legal or ethical rules or rock the boat too hard. If a risk-taking social entrepreneur even sought such a job, I’m curious what that choice and the foundation culture might do to their previous risk calculus. But that doesn’t apply across the board. I have seen a fair number of creative grantmakers who seek out disruptive approaches or technologies. They may not fund “creative destruction” as the private sector conceives of it — we are pretty terrible at letting groups dissolve or encouraging mergers — but many foundations at least pay lip service to innovation.
I’ll offer a couple of somewhat dated examples. Foundations have played a useful role in supporting the use of mobile phone technology to foster human development in poor countries with lousy access to financial services. They have also unleashed a lot of creativity with competitions such as the X Prize and programs like it. Unfortunately, these are exceptions to the norm. There are not enough internal foundation incentives for grantmakers to offer the kind of risk capital that fails more often than it pans out. This is a board-level issue whereby more foundation leaders need to be empowered to take risk.
NL: Oh, I don’t doubt that foundations have done an enormous amount of good. Foundations have supported phenomenal programs like the two you mention above and thousands more. But you guys made small bets on those ideas. Here is what I mean by big, bold, disruptive work: the next CEO of the Ford Foundation should sell that ridiculous building, lay off the entire staff except for maybe 10 people, and have those 10 people each make one $20-30 million investment per year. Back those 10 projects and really put Ford’s might/muscle behind them. Take a board seat. Get to know each organization’s entire space and force some merger and acquisition activity around it. Go hard or go home!
You will never get massive change by making small bets. And, by the way, in the world of technology, there is no such thing as a “local” launch. When something is live online or mobile, it’s global.
LH: Your idea for Darren Walker certainly is a bold approach. I would love to see what kinds of big bets they ended up making, but I also wonder how many civil society leaders around the country and the world, working in relatively small — but politically vital — organizations (human rights activists, for example), would miss Ford’s historic support over the years. But whether foundations are supporting big new ideas with major investments or individual leaders with small, start-up grants, let’s talk about the current preoccupation with “metrics” and “impact”. How do you respond when asked the predictable questions from funders about how you will measure your progress?
NL: Impact is different from metrics. It is possible to outline something at the start of a pilot and then, 6 months later, it leads somewhere else — that somewhere else could be amazing! But if it doesn’t match your metrics, you guys shiver. PayPal started as something else. took years to find its way. Most great things evolve — you follow the data, the target market, the advances/changes in the world. Foundations should be open to that kind of iterative evolution and support it, even if the final product is very different than the original proposal. The question should be about impact, not whether you meet arbitrary numbers picked a year earlier.
LH: I agree with you and I try to be open to natural, organic evolution in both the work of organizations we support over many years and in making adjustments to our funding strategy. There are far too many meaningless metrics. Grant reports are full of quantifiable activities these days because funders want to measure something and lack patience for truly meaningful, unforeseeable outcomes. Take, for example, the funder who made it possible for Obama’s father to study in the U.S. How long did it take for that program to pan out? More foundations should fund leaders — like you, Nancy — and their bold ideas and expect great impact, whether you can easily predict precise outcomes or not.
Nancy Lublin is the CEO & Chief Old Person of, one of the ten semifinalists for the 2013 New York Community Trust-New York Magazine Nonprofit Excellence Awards (you can read a recent interview with Lublin on the Nonprofit Excellence Awards blog). Lukas Haynes is Vice President of the Mertz Gilmore Foundation and a board member of the LCU Fund for Women’s Education. The views expressed are those of the authors and not their employers.
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