Beware the destabilizing donation
How to recognize and avoid the gift that keeps on taking.
“Knowing where the trap is – that’s the first step in evading it.”
— Frank Herbert, Dune
Imagine two donors to your nonprofit lemonade stand: One gives you cash to provide free lemonade to those who can’t afford to pay; one gives you a pony. The former is operating revenue, supporting work you already do. The latter is an asset, to be sure, but it also pulls you into a new line of work with a whole new set of efforts and expenses.
To be fair, maybe you asked for the pony, thinking that pony rides would advance your mission “to engage and inspire a next generation of lemonade enthusiasts.” But if neither you nor the donor had considered the cost and risk of this new pony-owning venture, you’d be saddled with the consequence of change (see what I did there?).
In 2010, venture-capitalist-turned-social-sector-advocate George Overholser flagged this challenge in nonprofit practice. Where for-profit firms make a clear and consistent distinction between customers and investors, nonprofits tend to co-mingle all contributions regardless of their nature or intent.
Overholser distinguished between buy donations and build donations, and encouraged all nonprofits to do the same:
A buy donation is an exchange of revenue for goods or services. It “isn’t about changing what the enterprise does; it’s about asking the enterprise to do more of what it already knows how to do.” Buy donations don’t incur significant risk, nor do they require shifts in strategy.
A build donation inspires or demands change to the enterprise – in scope, scale, category, or quality of service. Such change “requires a patient process of
trial and error. It is highly technical and has a high risk of failure. More often than
not, it requires major shifts in strategic direction, and major shifts in personnel.” Build donations don’t have to be assets or objects – they can arrive as cash that’s wrapped up in restrictions or specific expectations.
In brief, buy donations support business as usual, build donations require the business to change.
Obviously, both forms of donation are essential to a thriving and evolving nonprofit arts organization. But mixing them together in your thinking and your practice will lead to surprise and scarcity. Unfortunately, nonprofit accounting and convention tend to muddle the two.
To avoid the “gift that keeps on taking,” it’s important to discern the “buy or build” nature of a prospective donation (often, it’s a mix); determine what costs, risks, or distractions it will demand; and decide whether you and your team can afford to accept it. And, if you can’t afford to accept a donation, it is entirely appropriate to ask the donor to “pony up” for the full cost of the expected change.
From the ArtsManaged Field Guide
Function of the Week: Gifts & Grants
Gifts & Grants involve attracting, securing, aligning, and retaining contributed resources (also called fundraising or development).
Framework of the Week: Core Mission Support
Core Mission Support redefines "overhead" expenses as essential for nonprofit success, highlighting that strong finance, HR, and governance are crucial for achieving mission goals. This view argues that overhead is not a distraction but a necessary foundation for impactful programs and services.
Photo by Kostiantyn Li on Unsplash
Sources
Overholser, George M. 2010. Nonprofit Growth Capital: Defining, Measuring and Managing Growth Capital in Nonprofit Enterprises. Nonprofit Finance Fund. (PDF).