UNINTENDED CONSEQUENCES OF UNDERFUNDING DEVELOPMENT
by Laurence A. Pagnoni

Johnny Carson was fond of "warning signs" jokes. He would look into the camera with a sly grin and set up the premise with a straight line like: "You know your marriage is on the rocks if..." A witty series of punch lines would follow. The warning signs of underfunding development, however, are no laughing matter.

You know your nonprofit is underfunding development if the executive director devotes more than two days per week to fundraising... If the Board of Directors is not involved in fundraising and doesn't inquire about this function... If cash reserves are less than six months of annual operating expenses... If the organization has no discretionary funds to seize an opportunity, congruent with its mission, to serve clients better. No money, for example, for a healthcare agency to fund a pilot study of a new virus contracted by the clients... If the organization lacks the staffing capacity to cultivate the revenue source that makes the most sense for it.

Too many organizations exhibit one or more of these warning signs. They fail to properly finance the function of raising enough money to realize their long-term visions. Essentially, both nonprofits and their government and foundation funders are complicit in this folly. They cling tenaciously to practices and attitudes that militate against sufficient funding for development.

Most funders will support programs and simply not make an award for development or any capacity-building activity. Grants for capacity-building are too few and far between. Nonprofits have adjusted to this reality by adding administrative overhead to their program budgets. But many funders have generally decreed that the maximum acceptable amount of administrative overhead is 15%. Some have even set the bar lower to 5 and 10%. Nonprofits have meekly accepted these arbitrary rulings. But 15% (or lower) is not enough to cover administrative and development costs. The threshold should be closer to 25%. Larger nonprofit institutions such as universities, museums, and libraries have budgeted for administrative overhead of 35 and 40% for years.

A quarter of a century ago, major cultural organizations made a paradigmatic shift to a realistic appraisal of the development costs of operating their programs. Their funders got the message. Now small and mid-size organizations, through advocacy groups such as the Nonprofit Coordinating Committee of New York and the Human Services Council, have to strenuously make their case for elevating administrative overhead. They need to document exactly what it will take to adequately fund development. The current recessionary era is a very good time to make that case because funders are sensitive to the difficulties nonprofits are facing in weathering the economic turbulence.

To be fair, underfunded development is not entirely the fault of public and private funders. Nonprofit executives and board members seem to be wary of fundraisers. They sometimes lump development professionals in a category with rainmakers and snake-oil vendors, and suspect that the return on their investment will never measure up to expectations. This is generally because they are inclined to project their ROI over a period of 12 months, which is the duration of most grants. Development does not happen in 12 months. It is a relationship-building process that takes more time, in my experience at least 18 to 24 months, to begin to show a healthy return.

Nonprofits too have to examine and correct their assumptions about development funding. The results of clinging to outmoded assumptions can be far more costly than the price of adequate staffing. The perspicacious Dan Pallotta has observed that "Inadequate administrative and fundraising infrastructure have a devastating effect on organizational effectiveness." The most devastating effect is that the organization flat lines. It reaches a certain plateau, typically not too high off the ground, and remains there. It never develops beyond this point and endures years and years of struggle, and may eventually cease operations. This is why, of the 1.4 million nonprofit organizations registered with the IRS in 2005, only half a million secured more than $25,000 in gross receipts. The overwhelming majority never attained annual revenues over $25K! That, in a word, is flat lining.

The flat lining scenario is telling you something. It is telling you that something is intrinsically wrong with the approach you are following to achieve your social goal. To rectify the situation you have to, as Jim (Good to Great) Collins would say, "Confront the most brutal facts of your current reality," and see where your operating concept can be reframed.

To do this requires the skills of a strategic planning expert. If you can't find a strategic planner to tackle the problem pro bono, how will you afford one if you're still underfunding development?

Beyond "Meet the Grantmakers": How to Really Get Through to Foundations
by Sean Jones

For professional fundraisers, it is a common scene. You attend a "Meet the Grantmakers" event and are inspired by foundation representatives that fervently declare: "We are here for you!" Cards are exchanged, calls are scheduled, and you leave with renewed hope that foundations are finally making legitimate efforts to engage with prospective applicants. But all too often you quickly crash to reality. Foundation websites often have no phone numbers listed, calls and emails go unreturned, and you are back to blindly submitting proposals with nothing but vague and often out-of-date guidelines on the Foundation Directory to guide you.

Luckily, there is a way out of this grim cycle. LAPA has noticed that foundations are slowly but surely opening up to communicating with nonprofits. A major reason is the fact that connecting with funder prospects early-i.e., before the proposal is submitted-saves everyone time: nonprofits can get real-time human feedback on grant concepts, and in many cases they can learn that they aren't a fit during a five-minute phone call instead of wasting their time writing a proposal and a foundation's time reading it. Foundations are also using preliminary phone calls to help qualified non-profits tailor their proposals, and are receptive to two-page letters of inquiry that are in accord with the funder's interests and request a telephone chat. In addition, foundation officers seem more willing to help a nonprofit submit a winning proposal the first time as opposed to sending back for revision a good (but not great) proposal.

As foundations open up, it is becoming a necessity for non-profits to take advantage of every minute they can get "in person" with prospective foundation officers. There is no advantage greater to a non-profit's chances of being funded than a foundation officer knowing a nonprofit's development officer or consultant and having an advance understanding of their project.

Even though it is more frequently possible to talk to foundation officers in advance of submissions, it is still certainly not easy. Here are some steps to tracking down a foundation contact:

• Your first thought when approaching a foundation should be to talk to foundation officers that you have existing relationships with (such as your current funders). The world of foundation officers is a small one and often current funders will be able to introduce you to strong prospective funders.
• If a foundation doesn't list a phone number on their website, try checking Foundation Directory Online. If you don't have access to FDO or if you can't find a phone number there, try typing the foundation name and address into Google maps. If all else fails, check the foundation's 990 on GuideStar.org.
• Have a specific person in mind that you want to talk to, ideally a program director or the foundation president. Often your first point of contact is a secretary (or with smaller foundations, a lawyer or accountant) whose job is to screen out "spam" calls. If you know who you want to talk to and why, your "first contact" will take you seriously.
• If you get an answering machine or leave a message with an assistant, don't be content to wait weeks for a response. Foundation officers are deluged with calls and in many cases they appreciate a follow-up. Don't overload an officer's voicemail, but try making follow-up calls at different times of day, and attempt e-mail follow-ups if the phone isn't working. Also, try leaving personal messages for officers with assistants or secretaries instead of speaking to an anonymous voicemail box. Our policy at LAPA is to make three attempts by phone or email and, if we get no reply, to write a memo and ask the officer to call us.

If you do reach a foundation officer, you must be prepared to maximize your time speaking with them. An officer's time is short-they value conversations with non-profit executives who are fully prepared to make the most of an exchange. Here are some tips for maximizing these precious moments:

• Make sure to read everything that is publically available about the foundation's interests before speaking to an officer: mission, grant guidelines, and previous grantees. Make it clear to the foundation officer at the outset of your conversation that you are fully aware of their stated guidelines. Your phone conversation should cover high level and project-specific issues that can only be answered in person. This approach will maximize the utility of your own time and the foundation officer's time.
• Have a full understanding of the concept you want to pitch to the foundation, but be flexible enough to take advice. Write down notes on your proposed project in advance and have them in front of you. You want to be able to answer every question about your project that the foundation officer may have. If you don't know the answer, say you will find out and get back to him or her.
• Have a pen and paper or text file ready to take detailed notes about your conversation. In many cases the officer will give you specific advice that will directly inform your proposal or LOI.

Get the name, title, and contact information of whomever you talk to. You should reference the conversation in your proposal or cover letter so the officer screening the material will remember you and the review board will see that you take your project seriously enough to perform this increasingly vital piece of due diligence.

Good luck and let me know if you too are seeing the change in attitude that I have observed. I can be reached here.

Can Nonprofit Organizations Survive the On-Line Application?
by Sheldon Bart, Senior Associate

Among the many benefits of the computer revolution is this one: Information technology has kept struggling nonprofits in business. Word processing made it possible for a development office to turn out finished, presentable applications, grant proposals, and LOIs infinitely faster than could be done on electric typewriters. Grant-seeking, of course, is, in part, a volume business. The ratio of approvals to submissions for most agencies at best is only about 1 in 5, or 20%. A nonprofit organization that depends in large measure on private and corporate foundation support has to send out more than one hundred submissions annually to have any chance of securing significant revenue from this funding source. The "print" button has made this task doable.

But what computers have given to small and midsize nonprofits, they have also taken away. The advances in micro circuitry that have facilitated the circulation of grant proposals to a multitude of funders have also inspired an increasing number of funders to design cushier-tailored online applications. The online application has become as unavoidable and exasperating as the airport security check. Questions about mission, goals, program content, and outcomes are asked in different ways on different applications, and one has to shape one's answers to address the nuances of the question. Further, the answer must conform to a specified length enforced by the programmers, which can vary greatly - 800 characters, 1,000 characters, 2,000 characters-for the same question. The proposal templates which competent development professionals carefully compose of course answer all of these questions. But to complete the online application, sections of the proposal have to be extracted, edited, pruned, rewritten, and revised to fit the ordained length.

I am certain that the funders promulgating the online application believe that their computerized instruments are easy to fill out. After all, they might say, "We're only asking for 800 characters here and 1,000 characters there." They fail to realize that it takes next to no time to download a grant proposal that has already been proofed and vetted, and to customize a cover letter, insert the documents in an envelope, and stick on a mailing label. But it can take days-sometimes weeks-to complete an online application depending on the number of questions asked and the amount of detail demanded by the budget page.

In the nonprofit world, however, time really is money. The time consumed by the online application is time subtracted from the business hours available to contact and submit to other funders. Consider also the amount of time eaten up by computer glitches associated with online applications: the data not saved, the phone calls to "help" lines, the formatting problems involved in adapting the content of written proposals, and the inability in some cases to download a copy of the submission for future reference. Factor in also the price of replacing old computers and upgrading old operating systems in order to access and complete online applications now appearing on the revamped, higher tech Web sites of certain funders. The conclusion is inescapable that online applications are imposing a steep cost on small and mid-size nonprofits (if not all nonprofits).

This means that as online applications become more prevalent the overall number of submissions by the average nonprofit will decrease and the proportion of approvals will likely fall below 20%. The result is less revenue and, inevitably, decreased services for the clients of the organization. These costs are ultimately being borne by the people in need the nonprofit was created to serve. The online application is consequently hurting the very people the funder says it wants to help! This is a serious problem whose seriousness will become more and more apparent as more and more funders fall under the spell of the online form.

As a result, the efficiency experts of the nonprofit sector, Project Streamline, a partnership of 8 stakeholders including the Association of Fundraising Professionals, the Foundation Center, and the National Council of Nonprofits, have published guidelines for grantmakers that employ online applications. In addition to obvious improvements such as downloadable forms, automatic saving of data and clear error notices, Project Streamline also recommends 7 "gold standard" features for online instruments. These include flexibility (allowing applicants to answer only the questions appropriate to them), multiple-stage features (so that an online LOI can be converted to a full proposal without the applicant's having to re-enter data), and extranet capability (to enable applicants to check on the status of their requests online).

"Project Streamline recommends that character limits be used sparingly, if at all," said an authority on the subject, Ronna Brown, president of Philanthropy New York. "There is no substitute for taking a fresh look at information requirements and eliminating unnecessary redundancy or questions that don't yield valuable information. We recommend that grantmakers review Project Streamline's specific recommendations before implementing an online system."

Many of my LAPA colleagues have concluded that the online application is here to stay and that Philanthropy New York ought to step up as it did in the pre-WiFi era when it created the Common Application Form. A Common Online Application Form would certainly be an improvement if universally adapted. On the other hand, as a leading member of the Luddite persuasion, I consider that the right of the nonprofit to submit a written proposal should not be abridged.

Both factions agree, however, that a call to 911 is no substitute for self-defense. An action step is needed. Those who discern the hidden costs of the online funding mechanism (and who pay some of those costs in increased workload) have a social duty to assist their colleagues on the grant making side of the divide to understand how their philanthropic devices really operate in the world.

We suggest that the following words be politely included in the "remarks" section of online applications, or included in e-mail to the purveyors of these instruments:

The time spent completing this online application has significantly reduced the amount of time available to apply to other funders.

Word will get around, and the funders who depend on online applications will be induced to do something they have not heretofore done: Think.

Government Grant Conundrum: The Real World Versus The Proposal World
by Corinna Lohser, MPH

One of the few blogs that I personally subscribe to is Grant Writing Confidential by Seliger and Associates. It is dedicated to government grant writing and maintained by a grant writing consultancy firm in Tucson, Arizona.

The blog has some wry, often hilarious, and occasionally instructive things to say about this highly specialized field of technical writing and the process that writers go through whenever we craft a proposal. One of the most interesting and helpful ideas they've come up with is the difference between the "real world" and the "proposal world" of government grant writing. The "real world," according to Seligman, "roughly corresponds to what a funded applicant will actually do if they're funded. The "proposal world" refers to what the RFP requires that the applicant say she'll do, along with a stew of conventional wisdom, Kabuki Theater, prejudice flattering, impractical ideas nicely stated, exuberant promises, and more."

A great example has to do with the inevitable outreach section of every RFP in which the agency must explain how they will outreach to the local community to inform them about the project and recruit them for activities and services. But as Isaac Seliger observes: "In the proposal world, elaborate outreach efforts are necessary to make the community aware of the proposed project. In the real world, almost every provider of services is so overwhelmed with people who want those services that, even with additional funding, the provider still won't be able to accept everyone who might be helped."

The premise here is not that we're required to be dishonest in the proposal, or even to elaborately embellish the truth about how the program will operate and what lofty goals it will accomplish. Rather, it speaks to the fact that proposals for government funding, especially federal government funding, must be written in a very particular way, almost in code, if they are to be competitive. A very specific language has to be used. This is an unwritten rule and the expectation is that it is understood by writers and the organizations they are employed or retained by; the individuals or team who wrote the RFP; and the government agency that is funding the program. This unspoken agreement is then backed up by a team of reviewers armed with a detailed scoring matrix and trained to determine if all of the specifications of the RFP are met.

It is this ability, to write a proposal according to these specifications, to recognize the critical difference between the real world and the proposal world that separates the winning writers and agencies from those who are passed by.

This is one of many reasons why it can often be a wise investment, particularly for large government grants, to retain the services of an external grant-writing consultant; even better if he or she has experience with the particular agency your organization will be submitting to, or at least in that service area. Veteran grant writers know about the real versus the proposal world and do not experience the same cognitive dissonance that a rookie might when confronted with RFP language ("There is no way we could possibly do what they're asking for!"). A good, seasoned grant writer can see the forest for the trees and can balance the real world capacity of the organization with the demands of the RFP and look good doing it.

For Grant Writing Confidential, please see http://blog.seliger.com/2010/04/11/the-real-world-and-the-proposal-world/

Save $6,000 on Donor Databases

Save $6,000 for your organization by using ebase, a free donor database developed by the Rockefeller Family Foundation.

Created by a nonprofit for nonprofits, ebase can be accessed by a free online download. It works off Filemaker Pro and is fully compatible with both Windows and Mac operating systems. An online users group is available for support.

For further information, please see www.ebase.org.

Did You Know . . .

Did you know that the resource page of the LAPA Web site provides over two dozen links to practical information about everything from board development to cash flow loan programs, and from risk management to legal assistance?

Please see www.lp-associates.com/resources.php