The Overhead Myth

Many of us in the nonprofit community have gotten messages like this:

Nov 19, 2015, at 11:26 PM
Subject line: Charities

My firm is matching donations for the next few weeks. I was thinking that, given your job, you might have insight about the best places to give money. I’m hoping to maximize the charitable bang for my buck — looking for low-overhead organizations, I think.

Thanks, X

At our best, we see these messages as a “teaching moment”: a chance for us to explain that core costs are critical investments in an organization’s ability to achieve its mission. At our worst, we despair: why don’t people get it?

We have seen very real progress in tackling this misguided perception—this “Overhead Myth.” More donors are focused on results. Leading institutional funders like the Ford Foundation are raising the amount of overhead they cover in project grants. Journalists are seeking not just stories of fraud but stories of sophistication and success.

But we still have a long way to go to shift the attention of the donating public to the things that matter in social change. Key to that is empathy for well-meaning people like the friend above. They simply desire to give to a highly effective organization and lack the language or the framework to find what they are looking for. They want more than to avoid fraud; they also seek excellence. Yes, you want to go to a restaurant that has passed a health and safety inspection. But you also want delicious food and great service. It is incumbent upon us in the nonprofit sector to provide a new framework for donors and for ourselves.

It’s been two years since the release of the last Overhead Myth letter, and the economy has shifted toward a sharing model, creating more intimate connections between consumer and producer. From Airbnb to Uber we’re seeing the power of technology to transform marketplaces.

In many ways the same is happening with nonprofits both through new and previously existing intermediaries. We are seeing many resources that use whatever information they can mine to make judgements about which nonprofits get to participate or get featured. This will continue as newer streams of data become available. Our two organization continue to look for ways to paint an accurate picture of activities and practices of nonprofits.

  • GuideStar’s new platinum level offers nonprofits an opportunity to share quantitative metrics on their progress towards their mission. And for the first time ever, those are on a platform that will allow us to see natural clusters of common metrics.
  • The BBB Wise Giving Alliance is exploring more collaborative approaches that enable deeper and richer understanding of the quality of nonprofit work in the areas of fundraising, governance and finances, all critical proxies for consistently high performing nonprofits.

Many in the nonprofit sector recognize these new realities and are striving to support the needs of donors, funders and collaborators to more easily determine high performing and trustworthy organizations in which to invest their hopes. But we still have miles to go. Getting more of us up to speed on modern donor, funder and collaborator needs involves responsibility at both the organizational and sector level.

As individual organizations, nonprofits must ensure they’re delivering on the fundamental challenges we originally outlined in our letter to the nonprofits of America. We argue that they must:

  • Demonstrate ethical practice and share data about their performance
  • Manage towards results and understand true costs
  • Help educate funders on the real cost of results

As a field and as a community, we have to step up to a shared challenge. First, we need a new default around transparency. Nonprofits and foundations must be willing to have open conversations about our mission, vision and values, and must also have the ability to back up our words by sharing evidence. We also recognize that there are good reasons of safety or ethics or strategy to keep some data private. Ultimately, greater transparency about our outcomes and operations, successes and shortcomings will make it easier for all of us to collaborate for greater impact while achieving new efficiencies. But this goes beyond just bilateral cooperation. Let us imagine a new kind of field—one defined by multilateral sharing and collaboration.

Technology and new social structures are an accelerating agent driving innovation in social good. All of us who care so much about mission based work live at a time when if we work together we might soon solve some of the longest standing problems in the world. To build the trust we need for a deeper kind of field-level collaboration, let us begin with a willingness to share information. And with time perhaps we will no longer get notes from our friends about overhead.

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