These might include the costs of donation management systems, strategy development, talent recruitment, professional development, fund development, financial management, board development, information technology upgrades, data collection and evaluation, start-up costs, and more.
In an open letter to all U.S. donors, Charity Navigator, GuideStar, and BBB Wise Giving Alliance encouraged all donors to move beyond the myth that low overhead rates mean better nonprofit performance:
In fact, many charities should spend more on overhead. Overhead costs include important investments charities make to improve their work: investments in training, planning, evaluation, and internal systems—as well as their efforts to raise money so they can operate their programs. These expenses allow a charity to sustain itself (the way a family has to pay the electric bill) or to improve itself (the way a family might invest in college tuition).5
Yet most nonprofits continue to feel hamstrung by the philanthropic donations that are supposed to help them. In its 2018 survey of 3,400 U.S. nonprofit leaders, the Nonprofit Finance Fund identified nonprofits' top challenges. These included achieving financial sustainability (62%), raising funding to cover full costs (57%), and offering competitive pay (66%).6
This scarcity mind-set isn't limited to philanthropists in the United States. Italy's history and culture have contributed to societal beliefs that social sector organizations do not warrant infrastructure investment, according to Carola Carazzone, secretary general of Assifero, an Italian association of grantmaking foundations and institutional philanthropy. This includes a culture of Catholic voluntary service and a social services system in which for hundreds of years services have been provided free of charge by the church and, for the most part, by women.
“The spiral of producing [and] reporting projects only to match the priorities of calls for proposals launched by public and private funders, together with the perpetuation of a chronic underinvesting in the organizations, skills, and staff has led Italian civil society to the failure to develop its full potential,” argues Carazzone. This has resulted in a culture of “low pay, make do, and do without.”7
Charitable organizations in Kyrgyzstan, a Central Asian country bordering China and Uzbekistan, face even stricter challenges. They are “… obliged by law to spend 98% of their income on a charitable purpose or purposes within a year after receiving a donation, and thus leaving only 2% of this income to cover general overhead costs, including the salaries of personnel,” according to Dinara Musabekova, director of the Civil Society Initiative at the University of Central Asia.8
How Do You Know If You Have a Scarcity Mind-Set?
Do you suffer from a scarcity mind-set? Don't take this personally, but chances are high that you do. I do, too. We all experience this at some point. I commonly see eight warning signs among philanthropists.
Take this eight-question Scarcity Mind-Set Quiz and see if a scarcity mentality might be holding you back. Give yourself a point for each question you answer affirmatively:
1 You frequently ask, “What's the cheapest way we can do this?” regardless of impact on quality, speed, or your discomfort. For example, you'll take a red-eye flight home to save money on hotel costs, even though it means you are exhausted and unproductive the next day.
2 You don't regularly make investments in your talent and infrastructure, or that of your grantees. This might include getting professional development or coaching, upgrading computer systems, attending conferences, evaluating your impact, etc.
3 Your workplace culture values working harder, not smarter. For example, people are expected to work late hours or on weekends, long meetings are the norm, and there are always lengthy processes for strategic planning or budgeting.
4 You hold a belief that every dollar you raise should go to the people and communities in need. You feel guilty investing in yourself.
5 You believe the real problems you want to tackle are impossible to solve with your funding. Instead of figuring out how to leverage your funding for outsized impact, you choose smaller, easier-to-solve problems. You often fund projects that eradicate the symptoms and not the cause.
6 You know something is critical to the success of your endeavor (e.g., a communications plan, developing partnerships, taking time off), but you never feel you have the time or resources to obtain it, do it, or fund it.
7 You don't invest in the people who could help you navigate your philanthropic journey, avoid mistakes, or save time. These could be trusted advisors, professional services (e.g., attorneys, accountants, donor-advised fund sponsors), content experts, consultants, or administrative support professionals.
8 You or your staff feel you don't have time to regularly think, plan, or build relationships because you're always too busy.
How did you do?
Let's first look at the worst-case scenario. If you scored 6–8, you need an intervention. You might even need therapy! In all seriousness, with a score like that, I'd wager that a scarcity mind-set is holding your philanthropy hostage. You could have greater impact, but you thwart yourself at every turn. But don't panic. Remember, a scarcity mind-set is just that—a mind-set. It's your beliefs. Beliefs can be changed. And just as in Alcoholics Anonymous, the first step is to admit you have a problem.
If you scored 3–5, your scarcity mind-set is certainly holding you back, but it's not strangling you. At least, not yet. Take a good look at the statements to which you answered “no.” If you embrace an abundance mind-set for those questions, think about how you can transfer that abundance mind-set to all aspects of your giving. (I will tell you more about an abundance mind-set in Chapter 9, “You See and Act Abundantly”).
If you answered “yes” to only one or two statements, you are in pretty good shape. But take a hard look at those statements. What's holding you back? Why do you feel scarcity in those areas? What investments in time or resources could unleash your effectiveness?
Now, if you scored a zero, you're likely in denial! Reread this chapter and open yourself up to the possibility that you are holding yourself back in some area of your work or life. In my entire professional career, I can only think of one person who genuinely, consistently, and in all aspects of his life could answer “no” to all of these questions.
Now, if you do truly feel that none of this applies to you, email me at [email protected] and let me know how you do it! Seriously, I'd love to hear from you.
Why Does This Happen?
What causes a scarcity mind-set? In my experience advising hundreds of wealthy donors, corporate executives, foundation leaders, and everyday givers, it comes down to just one thing: fear. Funders feel fear, and this fear causes them to hold back.
In the next chapter, we'll take a close look at how fear contributes to a scarcity mind-set and the different kinds of fear that cause funders to hold back. Once you face your fears, you can overcome them.
Notes
