Cosmic

8 Signs Your Nonprofit is Starving — and How to Get the Financial Nourishment it Needs

Social impact organizations: You don't have to be chronically underfunded. Learn how to break out of the starvation cycle and create sustainable revenue.

Eric Ressler
November 11, 2020
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All social impact organizations are deeply aware of the importance of funding. Unlike a profit-driven business, your organization relies on grants and donations to bankroll your activities and move the needle on your mission. Too often, however, nonprofits get trapped in a vicious negative feedback loop called the starvation cycle. Without adequate funding, these organizations struggle to raise awareness, scale their impact, and ultimately, attract investors. And so the cycle continues.

If the very mention of the “starvation cycle” makes you wince in recognition, chances are you're caught in its sticky embrace. But it’s not always that straightforward. Some organizations are so good at making do that they can no longer see how dire their circumstances really are. They may have concluded that getting by on scraps is an immutable fact of nonprofit life — the price you pay to run a social impact organization.

But that's a lie you can't afford to believe. You have the power to build up a sustainable stream of diversified funding and scale your impact in the process. Before you can do that, however, you must recognize the starvation cycle's key symptoms — and learn to break free.

How to Break Free of the Nonprofit Starvation Cycle

Ready to create a sustainable revenue stream that no longer leaves you scrambling to achieve your goals? Start here.

Hunger Pangs: What Causes the Nonprofit Starvation Cycle?

First, let’s take a step back and ask why so many nonprofits seem unable to rise above “just squeaking by.” It’s an interesting question, one that until recently the social impact sector failed to properly investigate.

At root, the starvation cycle is mostly a funding problem. Traditional philanthropists have long preferred restricted funding — funding earmarked exclusively for direct program costs. The rub, of course, is that all nonprofits carry a whole host of indirect program and operational costs. And that's a category that too frequently includes marketing and communications.

Consider this: Major foundations usually put a 15 percent cap on overhead reimbursement. Yet a recent study of 20 nonprofits found that indirect costs make up between 21 and 89 percent of costs. The math simply doesn't add up. Without a funding paradigm shift, how can nonprofits ever hope to bridge the gap?

Restricted funding reflects a lack of trust on the part of funders. It conjures up a tired trope of unscrupulous nonprofits in need of supervision. But innovative philanthropists see this problem for what it is. The social impact space is awakening to the fact that nonprofits need to be able to reliably cover their true costs in order to create impact. Thankfully, unrestricted or “true cost” funding is quickly gaining traction. In this model, nonprofits can allocate funds wherever they are most needed, no strings attached.

Why True Cost Funding Isn't Enough On Its Own

The rise of unrestricted funding is a very good thing. But in order to close the loop, there’s another, related shift that must take place. Restricted funding isn't the only culprit perpetuating the starvation cycle. It’s also a product of the average nonprofit’s mindset.

Many nonprofits pride themselves on being lean, mean, and scrappy. Unfortunately, years of enduring in the face of limited restricted funding have conditioned them to think that way. Too many nonprofits think of “overhead” as a dirty word. Moreover, they label marketing communications and brand awareness as optional rather than seeing them for the impact multipliers they really are.

Funders and nonprofit organizations alike must stop viewing marketing and communications as overhead — and start recognizing them as the true impact multipliers they are. But the truth is that it is possible for your organization to gain access to true cost funding and still remain functionally trapped in the usual starvation cycle. To truly break free, you’ll need to place the same level of importance on your branding, marketing, and communications work as you do on the work required to achieve your mission. Because the fact is, they’re one and the same.

Bottom line? If donors are responsible for changing their funding models, then nonprofits are responsible for changing their approach.

The 8 Signs Your Nonprofit is Trapped in a Starvation Cycle

Are you ready to learn where your nonprofit stands? The most common starvation cycle symptoms go beyond a reliable lack of funding. You know you’re trapped in the starvation cycle if your organization:

  1. 1.
    Suffers from a shortage of donors. You can’t seem to connect with a large enough pool of individual and institutional funders.
  2. 2.
    Ekes by without dedicated marketing and communications funds. Your existing grants limit your funding to direct program work. In addition, you treat your marketing and communications programs as second-class citizens. They aren’t much more than an afterthought lagging behind your program work.
  3. 3.
    Is perpetually under-resourced. You’re operating on a budget that doesn’t adequately address your true needs. In addition, because you are motivated to get funding wherever possible, you apply for grants that relate only tangentially to your theory of change. As a result, you are beholden to various grant requirements. Functionally, this means that you must often divide your energies among multiple initiatives, thus detracting from your ability to pursue your central vision for change.
  4. 4.
    Requires staff to run at over-capacity. Each staffer wears multiple hats, making it impossible to effectively perform any one job function. The more you are beholden to restrictive grant requirements rather than your holistic vision, the more this tends to be true.
  5. 5.
    Treats each budget cycle like an emergency. Your team must frequently pull away from program work to scramble for funding, grant writing, or budget allocation. On top of that, you don’t yet have a long-term funding strategy that delineates how you will diversify and strengthen your funding moving forward.
  6. 6.
    Has a hard time finding and retaining top talent. Your offerings simply aren’t attractive as compared with others on the market. To make matters worse, your employees quickly burn out and ultimately move on to other opportunities. They are passionate about the work, but their time, energy, and willingness to accept below-market wages all have limits.
  7. 7.
    Lacks brand awareness. You have trouble getting your target audience to engage with your campaigns, spread the word, or respond to your appeals.
  8. 8.
    Struggles to deepen supporters’ engagement over time. Rather than growing more active in your organization’s work, your supporters tend to stagnate or drop off over time. You can’t seem to inspire supporters to consistently share their time, attention, and resources to your cause. In addition, you don’t have a strategy in place to actively nurture your supporters up the ladder of engagement.

If one or more of these signs describes your organization’s situation, the answer is clear: You’re caught up in the starvation cycle. The good news? With the right approach, you have the power to break the starvation cycle once and for all. Which means that the time to act is right now.

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