Avoid an “Utter Waste of $1 Million”
We are living through historic growth in charitable giving vehicles, which might tempt you to pursue some big requests. You’ll want to remain aware of a major—and preventable—risk that I call a nonprofit hijacking.
This is my term for funder-induced mission creep, a subdued phrase given the chaos it can provoke. I've seen organizations become infatuated with their first million-dollar award, a celebrity donor, or a high-profile foundation, only to lose sight of their focus.
While major donors who derail nonprofits can make headlines, foundations can cause equal damage. Some funders even masquerade as high-net worth individuals. No matter the source, the lure of these prizes can send organizations careening off course.
Prevention is the job of the chief executive, development staff, board, and anyone with access to potential funders, so I hope you’ll use these stories as conversation starters. Some details that follow have been changed to protect what I know were well-meaning staff.
A $1 Million Mistake
When I first engaged with a former client, a VP for Development, I witnessed what she would later call “an utter waste of $1 million”.
She and her CEO met with a tech titan who had a specific vision for his foundation’s seven-figure grant. During a meeting at his estate, he spun an enticing but fanciful plan. He ignored the nonprofit’s legacy of legal prowess and proposed a massive organizing campaign. Like a spool of cotton candy, he spun up a thin string of ideas that came together as his sweet, airy pleasure.
When the CEO debriefed me, it was clear his meeting had strayed far from the talking points we had prepared. Mr. Tech’s proposal took center stage.
I waited for the CEO’s sugar high to subside. It did not. The $1 million on offer would amount to his organization’s largest gift by a factor of two. It would be matched in year two if the grantee met the project goals.
The CEO knew better than to accept an agreement that ignored his nonprofit’s goals and lacked administrative support.
We discussed ways in which this CEO could negotiate with Mr. Tech. He attempted to do so, at which point I learned one of the most important lessons of my career: Never underestimate the will of the funder to impose their vision.
The CEO was seduced by this celebrity’s wealth and promise to engage his network after the project’s first year. He and his team charged ahead, only to crash a year later into a wall of unmet expectations and wasted resources.
Then the real damage began. Staff resigned. Reputational damage ensued. Donors retreated. Mr. Tech moved his philanthropy and his network elsewhere.
This was the worst of the derailments I’ve witnessed, but others have inflicted similar pain. Sometimes the turbulence results from the simple offer of big money, before the check even lands. And sometimes, the funding source is in your midst.
An Internal Threat
A theater spent a decade serving a local population. Suddenly, conversation turned to a new location in a far-flung locale. A board member, flush with funding from her family foundation, envisioned this troupe thriving near both her summer and winter homes.
The board let this idea simmer for months, untethered to any strategic or other plan. When a trustee spoke up about the risks, discussion turned to argument, and members split into factions.
The board members who sided with the family foundation chair saw little harm in letting their peer seed a new location. They viewed it as mission-aligned work, even though the mission specified one geographic priority.
Those on the opposing side saw a breach that threatened the theater. They warned of the ongoing need to fund and administer an entity in a random location. This group prevailed, saving the nonprofit from some but not all related harm.
While no ground ever broke at the second site, board division festered, as did funding in the nonprofit’s hometown. Trustees had been significant donors to the theater, and their turmoil directly impacted the bottom line. Their anger spread through their social circles, too, further diminishing philanthropy.
Avert Disaster
Before your leaders sit down with their own tycoon, empower them to challenge questionable funder suggestions. Let them know what others have experienced. Talk about how to respond when things go awry. Have your own bold, investible plans to entice funders.
None of us wants to squander once-in-a-career opportunities. We also don’t want to cause the damage that comes from a nonprofit hijacking.
Yes, it’s your job to generate revenue. You must also ensure that funders trust your organization’s decision-making. Sometimes, you get to be the hero when you know when to walk away.