Building Nonprofit Capacity, Hand in Hand

The COVID-19 pandemic thrust the needs of nonprofits into view, forcing funders and grantees alike to rethink how they work together, both to tackle unexpected challenges and lay the groundwork for future needs. In the United States, amid calls for more-equitable grantmaking and increasing awareness of economic disparities, many funders continue to grapple with the “best” way to be a responsive partner to grantees.

There’s no question that there’s power in philanthropy providing organizations with general operating support and unrestricted funding. Both are important components of trust-based philanthropy, a grantmaking approach that emphasizes humility and collaboration across a range of dimensions. But nonprofits are also turning to funders for support beyond grantmaking dollars—such as networking, coaching, and advisory guidance—to build organizational capacities that can help them achieve long-term success.

In the name of equity, some foundations have taken a “no strings attached” approach to capacity building, believing that nonprofit skill and competency assessments are misinformed or overly informed by funder preferences. Others are going further and asking whether the philanthropic sector should redefine the ways it supports grantees through capacity building or cancel it altogether, citing a lack of funder reciprocity and the reinforcement of harmful power dynamics in practice.

At Overdeck Family Foundation, which aims to improve educational opportunities for children, we firmly reject this binary, and embrace mutual accountability between strategic capacity building and trust-based philanthropy. Instead of canceling capacity building, foundations should play a more strategic and hands-on role; they should engage in transparent conversations and acknowledge that both grantee and funder have important perspectives to share. As Phil Buchanan, president of the Center for Effective Philanthropy, writes, “Thoughtful donors and foundations reject the notion that there need be a dichotomy between strategy, assessment, evidence, and learning on the one hand and trust, listening, and flexible support on the other. … They realize that, while the knowledge and expertise of those closest to issues should be respected, foundation staff and donors do often possess useful knowledge, too.”

Of course, the power dynamic between funders and grantees impacts how nonprofits receive and experience capacity-building support. But this shouldn’t prevent funders from engaging in conversations about it with grantees, especially if they do so with a learning mindset. According to Candid Learning for Funders (originally GrantCraft), which seeks to improve philanthropy by helping funders be more strategic and effective, best practices for these conversations include establishing a foundation of trust and transparency and sharing a vetted list of recommendations for the nonprofit to consider. It should also be clear that there are no negative ramifications if the nonprofit chooses not to engage in funder-sponsored capacity-building support. In many cases, this transparent communication leads to more efficient and confident decisions that support agency and mutual respect.

In our own work, we’ve seen evidence that strategic capacity building can, in fact, work in concert with trust-based philanthropy to achieve greater impact than funding can alone. A 2019 Center for Effective Philanthropy survey showed that 95 percent of our grantees who received capacity-building support said it provided a moderate or major benefit to their work or organization. Bolstered by this feedback, in 2020, we expanded our support offerings to include regular capacity-building discussions with grantees, lists of vetted experts they might engage, support in developing meaningful scopes of work with consultants, financial support to execute projects, and advice on applying insights in the short-term and long-term.

Over the past few years, we’ve found that the most impactful capacity-building support focuses on helping organizations become more cost-effective, sustainable, and scalable. Here’s a look at why these areas deserve special focus, with some examples.

Supporting Cost-Effectiveness                  

Many grantees naturally aim to improve and communicate the cost-effectiveness of their programs. Funders can help them, through both funding and capacity building, understand whether their model works as intended. In particular, funders can help grantees build evidence of impact by supporting the recruitment and hiring of data analysts, and matching them with researchers who can conduct the necessary studies.

This is the approach we took with LENA (Language ENvironment Analysis), a data-driven nonprofit that seeks to accelerate the language development of children between birth and age five through technology-based coaching. LENA’s “talk pedometer” technology measures the quantity of “conversational turns,” (back-and-forth, adult-child interactions), which are among the most-predictive metrics of child outcomes such as brain function and reading skills. While the organization collected large amounts of individualized and site-specific data, it didn’t have a coherent, streamlined way to view aggregated data at a macrolevel. Hearing that it wanted to better understand the impact of its programs across various sites, our team facilitated a fellowship placement for LENA through the Strategic Data Project (SDP), a two-year program at Harvard University’s Center for Education Policy Research that finds, trains, and places talented future data leaders within education organizations to transform their use of data. We also provided a grant to heavily subsidize the cost of the fellowship for LENA.

LENA’s SDP fellow created data dashboards that provided city-level views of each site’s recruitment, retention, reach, and impact metrics, revealing who the program reached and the impact it had on them. The dashboards provided a new, holistic view of the organization’s metrics and allowed decision-makers to more effectively deploy resources across sites. Since all the cities shared key performance indicators, sites could easily see successes from other sites and engage in conversations with them to understand what actions they took to increase their impact. For example, the Birmingham, Alabama site saw that children at the Virginia Beach, Virginia site were experiencing gains when the organization used LENA Grow, LENA’s tool for early childhood educators and childcare settings. As a result, it chose to shift more resources toward childcare and away from home visiting, which was showing smaller impacts during the pandemic.

Overdeck Family Foundation has continued to work with LENA to expand how it measures impact, going beyond outcomes for individual children to illuminate larger trends and influence data-informed practices more broadly. Together with SDP, our support has helped LENA craft clear data narratives to effectively communicate with a range of target audiences—including educators, district leaders, and policy makers—and has increased the organization’s influence in the early childhood field.

Strengthening the Revenue Model

Another core challenge for grantees is generating reliable revenue to cover the full cost of current and future operations. Without a strong revenue model, programs may not be sustainable over the long term.

Learning that our long-time grantee EdReports, a nonprofit that aims to improve the quality of classroom instructional materials, wanted to improve its organizational sustainability, we covered its participation in a set of facilitated RevJen Fuel Series workshops focused on identifying and building strategies for revenue growth and diversification.

Through the workshops, EdReports determined that it needed to decrease its dependency on philanthropic dollars and identify new pathways to earned revenue. The experience helped EdReports’ leadership understand that, rather than refreshing the organization’s strategic plan, it needed to develop a plan that included new sources of earned revenue. Since then, our foundation has continued to help EdReports explore the market for new earned revenue streams, better understand what its target customers want, and shape its unique value proposition, including through the facilitation of partnerships with other providers and consultants.

Boosting Demand and Market Building

Ensuring that organizations have a clear understanding of the competitive landscape and future opportunities for growth is another aspect of capacity building that can be catalytic. Supporting nonprofits through market analysis and financial planning helps them secure sufficient financial resources to sustain growth and navigate challenging economic times.

Take our grantee EiE, the curricula division of the Museum of Science, Boston, which was looking to expand its market share within pre-K to eighth-grade curriculum and professional learning. To support this goal, we facilitated a partnership with EdSolutions, an organization that specializes in helping organizations navigate educational markets and scale. EdSolutions worked with EiE to conduct an analysis of existing providers and services that were available to districts and states, in particular those interested in purchasing supplemental science, technology, engineering, and math (STEM) curriculum. From there, they created a synthesis of the states and districts most likely to be interested in the type of supplemental STEM programming that EiE provides—specifically, programming that states and districts could integrate into core math and science curriculum and build into existing professional learning opportunities for educators.

As a result of this work, EiE was able to target outreach to states that were already interested in core curriculum integration, leading to a much more efficient sales strategy and process. Our foundation continues to advise EiE as they execute this new strategy, helping it grow its earned revenue through a deeper understanding of its competitive position in the market.

How Funders Can Lean In

With so much change on the horizon for nonprofits, now is not the time for foundations to walk away from capacity-building support. Instead, funders should play a more strategic and hands-on role that involves engaging in transparent conversations with grantees, acknowledging valuable perspectives on both sides, and co-creating plans to address agreed-on challenges.

Succeeding in these efforts requires trust, shared respect, and mutual accountability, all of which grantees and funders can develop in concrete ways. Showing up with humility and a learning mindset, for example, makes space for both parties to share their unique perspectives and expertise. After identifying the challenges nonprofit leaders are facing, as well as their needs and gaps in support, funders should offer a limited set of vetted, high-quality capacity-building opportunities, with clear explanations for why each option may help address the challenge. Funders’ engagement with grantees should also continue throughout the length of the capacity-building work, especially if it involves outside partners. It’s important for funders to follow up during check-ins to support ongoing, strategic decision-making with the grantee and to ensure that the capacity-building support they are providing is both useful and being used. This is an opportunity for both parties to learn and continue to improve.

This doesn’t mean funders need to be present during every conversation, but they should endeavor to be a resource for processing information that comes out of capacity-building projects and planning for what comes next. We have found that letting external experts and consultants work directly with grantees while being present as a thought partner and trusted advisor is effective for building both trust and long-lasting change. By working together, foundations and grantees can engage in capacity-building work that leads to exponential results, strengthening grantees’ impact on beneficiaries for many years to come.

Read more stories by Anu Malipatil & Lucy Brainard.