We need to rethink the idea of diversified funding

[Image description: Five little ducklings with an adult duck. The ducklings are light yellow with grey stripes. Image by Alex Smith on Unsplash]

Hi everyone. Please grab your favorite beverage and sit down, because we need to discuss the idea of “diversified funding.” It is one of those concepts—like putting out campfires fully and not microwaving metal—that is just taken as gospel. Funders ask about it all the time. Development staff create plans around it. Fundraising gurus hold workshops about it. EDs look at what percentage of their revenues come from grants, and if it’s too high, start panicking.  

I don’t like it. I think the whole concept is problematic and it’s time we move away from it. Yes, I know the main argument for having diversified revenues. What if you rely too much on a foundation, and that foundation decides—like foundations often do—to shift priorities? Well, you and your nonprofit are screwed. Just like with buying stocks (whatever those are)—it’s bad to have all your eggs in one basket and whatnot.

But is this how it should be? Is this working for our sector? I keep seeing our work held back by these ancient ideas that we think are immutable. With the pandemic and everything being on fire, the increase in demands for nonprofit services, and funders seemingly more open to change, we need to reexamine these philosophies and practices. Here are a few problems with having nonprofits constantly chasing after funding diversification:

It forces nonprofits to spend time, energy, and money on ineffective strategies: To be effective, organizations need to focus on what works for them, not be distracted by one-size-fits-all approaches, such as revenues diversification for its own sake. An executive director colleague told me she was trying to hire a full-time staff to engage with individual donors. “We’ve been getting grants,” said, “but it’s been really hard to get individual donations.” So this organization that has been having lots of success getting grant funding is now diverting its resources away from a proven strategy to engage in a strategy that has not really been working and may take years and tons of resources to get it to maybe work? All for the sake of diversified funding? Would it not make more sense to increase this organization’s grantwriting efforts, since it’s been working so well?

It punishes organizations led by and serving racialized and marginalized communities: Grassroots organizations led by Black, Indigenous, Latinx, AAPI, disabled people, rural communities, etc., often cannot diversify our funding to the same degree due to various factors. For instance, the majority of donors are white and they tend to gravitate to white-led causes, while our own communities may not have the same level of wealth to contribute, due to systemic injustice (which is why we’re doing this work in the first place). We often feel lucky if we get any sort of funding in any form at all. The expectation that every nonprofit can diversify funding without understanding cultural and equity contexts contributes to many funders continuing to dismiss these orgs.

It distracts us from challenging the fundamental awfulness of the nonprofit funding system: Expecting nonprofits to diversify funding so they can survive better only reinforces a broken funding system that requires nonprofits to fight constantly to survive. We’ve been talking about the nonprofit starvation cycle for over a decade now, but has anything changed? Not really. We’ve kind of given up that anything significant is going to happen and have deeply internalized that it’s nonprofits’ sole responsibility to figure out how to survive. The concept of diversified funding is indicative of this mindset. The more we buy into it, the more complacent we become and the less we demand that funders resource nonprofits sufficiently so we can do our work effectively.

It lets funders off the hook so they can continue doing ineffective stuff: The diversification of revenues is similar to the idea of nonprofit self-sustainability, which manifests in questions like “How will you sustain this program when this grant we give you runs out?” Forcing nonprofits to answer inane questions like that distracts from the fact that it should be funders’ responsibility to sustain programs and services. It allows funders to do crappy, harmful stuff like provide one-year grants and forcing nonprofits to constantly spend time seeking funding. Asking how nonprofits plan to diversify their revenues similarly allows funders to absolve themselves of figuring out their responsibilities in adequately resourcing the vital work done by nonprofits.

It reinforces the toxic idea of nonprofits as “dependents” of funders: So many frustrating, time-wasting stuff nonprofits have to put up with can be attributed to the fact that many funders still do not see service providers as equal partners, but as freeloaders. True partners focus on what is best to help carry the work forward effectively, even if that means that a nonprofit’s revenues may skew heavily toward one type. So many funders are worried less about successfully addressing systemic injustice with their grantees, and more on ensuring these nonprofits do not become or remain “dependent” on the foundation. This is why the sustainability question is asked, and why so many funders have such visceral disdain when they see that grants make up a huge percentage of a nonprofit’s revenues.

I’m not saying it’s necessarily bad for nonprofits to try to diversify revenues. If it works for you and your organization, great, go for it. What we should fight against is this diversification for the sake of diversifying, even if it is for the purpose of survival. We can’t do our work and make a dent if we keep putting up with archaic philosophies and practices. Our energy can’t be spent mainly on survival anymore. We must stop settling for survivalism and incrementalism.

Nonprofits, do what works best for you and the communities you serve. If you’re great at getting grants, then focus on that. If you’re doing well cultivating individual donors and want to stick with that, that’s fine too. If you’re making a killing generating earned income on Etsy selling macaroni artwork that the kids in your programs are making, that’s awesome. And if you have interest and resources to explore other streams of funding at the same time, go ahead and experiment. But don’t “diversify” when it makes no sense to do so. And if you’re achieving outcomes for your community, don’t feel bad or be apologetic if your revenues lean heavily one way or another.

Foundations, you need to stop creating the very conditions that require the strategies you recommend to deal with the conditions you create. For instance, you create funding instability by giving inadequate one-year grants, then ask nonprofits how they will diversify revenues to deal with funding instability. Instead of asking how nonprofits are diversifying and punishing the ones that don’t, be authentic partners by giving out more funding and doing it in a way that allows nonprofits the resources and stability to get stuff done. And if you see a nonprofit doing kickass work but its revenues are not “diverse,” get over it.

Donate to stop Anti-Asian hate and violence.

Sign the charitystimulus.org petition to get Congress to enact legislation requiring foundations to double their annual payout rate.

Write an anonymous public review of a foundation on grantadvisor.org

Be a supporter on Patreon to keep posts like this one coming.