For Better Results, Wealthy Donors Need to Meddle Less and Collaborate More

When it comes to philanthropy, ambition is not in short supply. Great fortunes come from entrepreneurs, investors, and celebrities who have taken risks in their careers and enjoyed odds-beating success. And a growing number expect nothing less dramatic from their personal philanthropy: to end poverty or reverse climate change or cure cancer.

Philanthropists will always support their favorite causes with a portion of their wealth, but simply writing checks to organizations that do great work won’t create these ambitious changes.

Donations from foundations and the ultra-wealthy account for only 6 percent of the total revenue that America’s nonprofits receive in a year. So ambitious philanthropists need an approach that creates many dollars’ worth of results for each dollar invested. Yet all too often, they limit themselves by focusing almost exclusively on the results they hope to see in solving a problem or focusing on a cause.

What’s the missing link?

Donors tend to fall in love with a “program model”—an idea (say, charter schools) that they believe will deliver results. They don’t pay nearly enough attention to defining their “investment model”—what it takes to create change.

That means thinking about what that will take (such as expanding the reach of high-performing nonprofits or designing effective social-media campaigns). It also means thinking about how they as philanthropists can best support those efforts (through the roles they play, the resources they assemble, and the relationships they develop).

Even sophisticated donors can fall into this trap. Many donors meddle excessively in the design of programs. They don’t know how to help grantees deal with tough organizational challenges, or they pressure nonprofits to develop programs that don’t have much to do with their missions.

It’s a scenario as hopeless as a venture-capital firm working to create a compound with a biotech company that lacks the skills to help navigate approval from the Food and Drug Administration, hire a sales force, raise the next round of funds, or negotiate with a pharmaceutical business to manufacture and distribute a new drug.

As a result, these donors often add little value to their grantees and, sometimes they even impose a high cost on nonprofits as the organizations try to fulfill the donors’ unrealistic expectations. What should philanthropists do?

Effective philanthropists merge smart program ideas with the pragmatic techniques it takes to make change happen—and learn to identify and support grantees in both dimensions.

First, philanthropists need to find a suitable way to accomplish their goals. The four most common methods of change:

Building great nonprofit organizations. Some problems require strong nonprofits that can effectively deliver services to large numbers of people.

In supporting fledgling social entrepreneurs, the Draper Richards Foundation, in San Francisco, offers a powerful illustration of how to do this well.

Draper Richards identifies nonprofit leaders with the greatest potential to create large-scale change, regardless of what type of cause—improving health, protecting the environment, or promoting culture—or what approach. Then it focuses on organizational needs like building boards, identifying key people to hire, devising ways to measure results, and attracting additional support.

Over three years, the average Draper Richards grantee grows from a budget of $160,000 per year to $1.6-million per year. The foundation’s portfolio has included highly regarded organizations such as Education Pioneers, Global Citizen Year, Kiva, and Room to Read.

Changing public will and government. Some problems require changing public beliefs or government policies.

The conservative businessman John M. Olin exemplified this ambition. Alarmed by the political events of the 1960s, and convinced that the very existence of America’s free-enterprise system was at stake, Olin supported the creation of legal associations and law schools specifically to promote his conservative philosophy and financed conservative think tanks engaged in scholarly and legal advocacy.

As a result, the Olin Foundation—with only a handful of staff members and an endowment that never exceeded $118-million—is widely recognized as a key player in institutionalizing the conservative movement in the United States over the past 30 years. This, five years after it formally shut its doors.

Establishing new “intermediary” organizations. Some problems require influencing the actions of many institutions in a system. In such cases, a donor may establish an organization to build coalitions to work toward a shared goal.

As an example, ConnectEd, created by the James Irvine Foundation, seeks to improve education in California by leading pilot projects; promoting collaboration among education, labor, and industry; advising policy makers; and calling attention to important concerns through research and advocacy. Over time, ConnectEd has built a coalition of more than 60 organizations to promote its approach to improving education.

Researching and developing solutions. Sometimes an innovation is needed. The Michael J. Fox Foundation for Parkinson’s Research invests nearly $50-million per year but knows these resources are vastly insufficient to cure Parkinson’s disease. So it focuses on influencing researchers around the world to improve their performance, which not only helps scientists get closer to discovering a cure but also lowers the investment risk for others interested in developing Parkinson’s drugs.

It has assembled a blue-chip scientific advisory panel, a team of in-house scientists with the technical savvy to vet ideas and ask tough investment questions, a patient council that represents the voice of the beneficiaries in the priority-setting process, and an executive team with deep strategic planning expertise.

The National Institutes of Health and venture capitalists, among others, now consult with the foundation as they assess proposals and allocate research dollars—a powerful testament to the foundation’s value.

Second, after philanthropists get clear about the appropriate methods of change, they need to organize their approach accordingly. Three particularly important elements:

Defining the right role. The best role is the one that matches the philanthropist’s capabilities with the grantee’s needs. Money is the most obvious need, but other roles can draw on the philanthropist’s time and influence.

In the case of the Michael J. Fox Foundation, the founder brought not only money but also a unique public persona that attracted supporters.

Assembling the right resources. Some philanthropists worry that they can’t carve out a distinct role because they are not big enough. And it’s true that some philanthropists “build” their own staffs. But it doesn’t take a foundation with 100 staff members or a billion-dollar endowment to create results. Smart philanthropists flexibly “buy” capacity by investing in their grantees and “borrow” expertise from contractors.

Forging the right relationships. The inherent power dynamic between donors and grantees makes it hard to get honest feedback about what adds value and creates costs. And while it’s exciting for donors to dream big with nonprofit leaders, philanthropists must understand the cost of capital they are imposing.

Focusing on what it takes to deliver change can increase the odds of honest conversations about grantees’ real concerns and ensure that expectations of donor and nonprofit match. The key is keeping the cost of capital proportionate to the value of the benefits created, for the grantee and for society.

Most traditional foundations don’t hire employees or finance projects with an eye on what it takes to bring about real change.

But every philanthropist can do a better job of reaching his or her goals by understanding what is needed beyond a great program or idea. Paying attention to that issue does not have to be complicated or expensive, just deliberate—and it necessarily evolves as philanthropists learn from their investment experiences and get better over time.

No external force will make philanthropists forge the missing link, only their own relentless drive for results.