How can you make the case with funders to invest in staff?

Farra Trompeter: Welcome to the Smart Communications Podcast. This is Farra Trompeter, co-director and member-owner at Big Duck. Today we’re going to ask the question, “How can you make the case with funders to invest in staff?” Now, we don’t always go deep into grantmaking and fund development beyond working with individual donors here at the podcast and at Big Duck, but we do think a lot about the value of your organization and how it’s perceived through our branding work and how you message it, either overall through your organization or make the case for donors to support you. And funders are definitely an important audience. Today we’re going to talk with Rusty Stahl about how you can communicate that value of your organization, including the value of your staff and the value that you should be placing on the people who make that organization operate, and how to get your funders to do the same.

Farra Trompeter: I actually met our guest today, Rusty Stahl, many years ago, back in the 90s when we were both living in Washington, DC and both in college. I was at American University, Rusty was at George Washington University, and we had a shared connection in a wonderful woman named Melissa Bradley when I was interning at a nonprofit called The Entrepreneurial Development Institute, which had connections with Rusty. And since that time, just a few decades later, we’ve had many overlapping lives and pasts, and I’m excited to have him join us today.

Farra Trompeter: Let me tell you a little bit about Rusty, before I officially welcome him. So, Rusty Stahl, he/him, is the founder, president, and CEO of Fund the People, whose mission is to maximize investment in the nonprofit workforce, which they believe is the best thing we can do to increase equity, effectiveness, and endurance in the social sector. Rusty previously served as founding executive director of EPIP: Emerging Practitioners in Philanthropy, the national association of young and new foundation professionals. Prior to EPIP, Rusty served as a program associate at the Ford Foundation where he supported grantmaking to strengthen philanthropy, nonprofit sector, and social justice movements. Rusty holds an MA in Philanthropic Studies from Indiana University, and he served on several nonprofit boards, including Jews for Racial and Economic Justice, or JFREJ, and Idealist.org. Rusty, officially, welcome to the show.

Rusty Stahl: Thank you so much, Farra. Glad to be here on a worker-owned podcast.

Farra Trompeter: There you go. So, Rusty, one of the metrics that donors and funders often use to judge nonprofits is the amount of time they’re spending on programs. And those nonprofits with the lowest percentage of investments in fundraising and administrative costs are often celebrated with high ratings and reviews. This practice actually limits how much nonprofits can pay staff and invest in its own operations. I’m curious how you’ve seen this problem play out in your work.

Rusty Stahl: Yeah, this is a real problem, Farra, and I’m glad we started with this because, you know, this is really this subjective, made-up concept of overhead or indirect cost. Nothing is indirect when you work in a nonprofit, and I don’t think anybody, boards or funders, really want nonprofit people spending their time counting and calculating how they use every 15 minutes. “Is this 15 minutes I spent a programmatic thing or is it an administrative thing or is it fundraising?” Most things have some relationship to all of those things. So, there’s nothing in The Ten Commandments or in the Constitution that says we need to separate out direct versus indirect costs. This is like this made-up concept that somehow we’ve inherited down through, you know, a couple hundred years of philanthropic and nonprofit practice. And it’s unfortunately deeply embedded in the culture of our organizations, both on the funding side and the nonprofit side. And it’s really very, very subjective and not particularly productive. So, I think we need to stop using that as a metric.

Rusty Stahl: And a couple of really prominent groups that sort of track nonprofit and charitable effectiveness came out with a thing back in 2010 or so called The Overhead Myth Campaign where they were trying to bust this myth. And it was GuideStar, it was Charity Navigator, it was the Foundation Center. They did a great letter to America’s donors and a letter to America’s nonprofits, laying out the facts, and unfortunately, that campaign had a limited shelf life. And it’s a shame we have to keep talking about this cause it hasn’t really changed enough.

Rusty Stahl: I think recently there’s been some important work to change this. There was a collaborative of about a dozen major foundations, MacArthur, Annie E. Casey, Ford, and I think Robert Wood Johnson, came together to say, “Okay, let’s look at this.” And they worked with a group called Financial Management Associates, which is part of BDO, and they did a great job of looking at the indirect cost ratios of the most effective grantees of those foundations, and they said, “These overhead rates, at your most effective grantees, the groups you love, are closer to 30-something percent of their budget. And your grants to them are, like, something like 10-15%. So, your grants are actually undermining the effectiveness of these highly effective organizations.” So those foundations then started to shift and some of them have increased their overhead rates. I think Ford actually just upped it again from 20 to 25%. So I say, huzzah. Thank you. Keep going. Keep going, philanthropy, we want more of that.

Rusty Stahl: I just came out with a blog post a couple months back with “A Modest Proposal”. Let’s flip the whole formula, right? For the small percentage the foundation says you could spend on overhead, and the big percentage they want you to spend on the program, let’s flip it over. So let’s spend 80% on ensuring we have good salaries and benefits for staff and adequate computers and chairs for them. And let’s spend a little bit, you know, 20%, on the cupcakes, the Zoom fees, and the other things it really costs to actually run programs. So that’s my modest proposal for the sectors. Flip the funding formula, and then those grants will reflect what nonprofit budgets really look like.

Farra Trompeter: Yeah, I love it. Let’s flip the script. We’ll definitely link to that blog you wrote if folks want to read it. We’ll also share some content around The Overhead Myth. I know our friends and former client at the National Council of Nonprofits has a lot of great content about the overhead myth and how it leads to misunderstanding and confusion, and I think we also see it when people give unrestricted or restricted gifts. Invest in the nonprofits to do the work they need without putting a lot of ties on it and limiting their effectiveness. So, I’m sure we’ll have more PSAs for this sector as we go.

Rusty Stahl: I love the National Council of Nonprofits. They’re a go-to group so I’m glad to hear that you’ve worked with them.

Farra Trompeter: Yeah, check out their new tagline and their new brand. That’s a Big Duck example of work-in-action.

Rusty Stahl: That’s awesome.

Farra Trompeter: Yeah. So, on the website for Fund the People you share that the solution to the lack of funding for staff is that we “need to replace the oldness of overhead and martyrdom with a positive new mindset that lifts up the dignity and powerful contributions of nonprofit workers. And we need to make talent investment a widespread practice in grantmaking, fundraising, and nonprofit management.” How have funders reacted when you and your team have put that out there? When you’ve tried to flip that script and flip the dollars? What kind of response are you getting to this call for philanthropy to change how it behaves and the value it’s been placing in overhead and saying, “You need to really put more value in the people who are doing the work.”

Rusty Stahl: Yeah, to me it’s such a common sense thing. As I said earlier, I think there’s such ingrained myths embedded in the practices that so many grantmakers are oriented to when they come to work at foundations or are just oriented to when they join a foundation board or become a wealthy donor. You know, if somebody inherits wealth or decides to really up their funding practices, there are so many myths left over from the past. So it’s been hard. I’m in it for the long haul. I think this is a cultural transformation agenda for foundations and nonprofits, cause nonprofits often screw themselves in how they communicate to donors and foundations about these issues. And so it’s a both/and. Nonprofits have to change and make the case compellingly to their funders and donors, and foundations and donors have to change. So, I would say philanthropy hasn’t reacted or responded as much as I would like to see. I think since we started in 2014, you know, there were foundations that funded us like the Kresge Foundation, which has been with us from the beginning, which said, “We want to see what they produce and how we can use it.” So they were very open to the idea and to change.

Rusty Stahl: I think with the pandemic, the great resignation, the quiet quitting, the way the labor market is now, and what people see happening in nonprofits, I think foundations and funders are trying to be more open to change, and they have tried to be more flexible and unrestrict things and streamline paperwork and all of that. And I think they’re starting to talk about like, “Oh, burnout is a serious issue that we need to do something about for our grantees and leaders that we support.” I don’t know that they know what to do yet still. So, I feel like this crisis is an opportunity to change philanthropy’s practices and attitudes around this, and I’m trying to take advantage of that. So, I’m hopeful that coming out of this period, or moving into whatever’s next, that our message will resonate more. There’s certainly an openness to it, but moving from openness to adoption and adaptation, I see is pretty slow.

Farra Trompeter: Yeah, change can take time, but I’m glad to hear that you’re in it. You’re in it for the long haul and I think you’re putting together some really powerful resources, and one of the things that you were just talking about is “making the case.” Let’s talk about what nonprofits can do. So, when we were prepping for this, you said something that I really took away, which was, “This work is about generating funding that works for the people that do the work.” And I’m just curious, how can nonprofits convince funders to invest in their staff? What’s a good way to get them to actually understand what the problem is, and of course, what the solution is?

Rusty Stahl: Yeah, I think two things I wanted to mention. One is sometimes in politics people say, you know, “If you want to move an agenda through American politics, wrap yourself in the flag.” Even if you’re not a flag waver, use the flag of your country as an analogy. You know, wrap yourself in that to make sure people understand that you’re trying to advance the country as you advance reforms or transformations of that country. Well, it’s the same here. Like, wrap yourself in your mission, your organization’s mission. Show how investing in the staff of your organization strengthens your ability to deliver programs and services and campaigns. And there is such a direct connection because nonprofits don’t take money from foundations, feed them into a machine, the machine goes beep-bop-boop, and out comes social change.

Farra Trompeter: Wait, that’s not how it works?

Rusty Stahl: I’m sorry to tell you, Farra, that is actually not how it works.

Farra Trompeter: I thought there was a robot there that we could just feed it, and it was making all this change happen.

Rusty Stahl: Yeah, yeah, well, that’s how sometimes we act, like, “Oh yeah, you know, 0% of your dollars go to overhead. Everything goes to programs, everything goes to the kids, the dogs, the flowers, whatever that you’re doing.” Well, that’s a lie. So stop lying to your donors, and donors, stop asking people to lie to you. And talk about what it really takes to do this work. So I think there’s a lot of fear wrapped up in that.

Rusty Stahl: Like, now folks will say, “Well what if we talk to our funders about burnout or understaffing or workloads are too heavy, they might not fund us.” So what I say to that is, A, come from a place of strength. Talk about the assets of your staff, how kick-ass they are, how hard they work, how serious they are about the mission, and how much experience they bring. So, really be strength and asset-based, but also be vulnerable. Use strategic vulnerability. Cause funders, sometimes, a good funder will want to help you solve a problem. How can they use their money to help you solve a problem? And a lot of good funders have a good BS radar. They know everything’s not perfect. So don’t try to convince them everything’s perfect. “Here’s a problem we’re having. If you want to fund us, what would be really helpful is if you could help us up the cost of living, COLA, every year for three years.” Or, “Help us figure out health insurance for our staff. Because right now we can’t keep people because they have to leave to go get…” Whatever the thing is that you can identify that’s a gap, how do you enroll your funders as allies in solving that problem? And again, link it to how well you’ll be able to get your work accomplished, even better, and you can already do it so well, but even better if they help you get over this hump.

Rusty Stahl: So I think those are a couple of the things that we talk about. And we have this new online course that we’re beta testing this winter with a small pilot group, and in that course, we’re talking about those things and, you know, really helping nonprofits create a plan of action for how to integrate talent investing into their fundraising. There’s a version of the course for funders as well cause funders need to learn how to integrate talent investing into their grantmaking.

Farra Trompeter: Yeah, I really appreciate what you were saying about, again, the sort of strength-based, asset-based framing coming from “here’s what’s working, and you know what, for us to do even better, for us to expand, for us to scale all the things that funders are asking you to do, here’s what I need for my team. My team is amazing, and in order for them to stay amazing and be amazing and help me with my retention, this is the problem I’m having. Help me think about the solutions. What can you offer?” Really putting it out there. I like the idea of strategic vulnerability. Being real but really focusing on where that is and inviting them to solve the problem with you.

Farra Trompeter: Now you, Rusty, also talk a lot about the idea of talent justice, which I love that phrase. And you’ve got research and a toolkit at TalentJustice.org that really seeks to help change organizational culture to maximize access, advancement, and ascension in nonprofit careers for people of color, women, young people, and others. And I’m wondering if you can share some insights across those areas, access or removing barriers to entry, advancement or providing support and access to promotions, and ascension or providing for equity in executive transitions to leadership?

Rusty Stahl: Yeah, thank you for bringing this up. This is a really important part of our message is that talent investing won’t work unless it’s really intentional about intersectional racial equity. We also make the argument that DEI and the racial equity agenda in our field probably won’t work as well as we’d like it to if it doesn’t include talent investing in some way.

Rusty Stahl: And so yeah, we partnered with a DC-based research group called the Center for Urban and Racial Equity, CURE, a couple years back. Before the pandemic, actually. And we did some framing and research work that, like you said, is available at TalentJustice.org, which is really a part of our overall toolkit that’s up on fundthepeople.org. But you can get to the racial equity stuff directly at TalentJustice.org.

Rusty Stahl: And we found some really, I think, important information out from our survey and interview and focus group work with white people, people of color, funders, and nonprofits. We found some serious barriers to accessing nonprofit work for people of color. For example, white people said they lacked connections to break into the sector at a 29% rate, whereas people of color said, “I lack connections at a 40% rate. There was no recruiting in my community.” 17% of white respondents said there was no recruiting in their community while 28% of people of color said, “There was no recruiting in my community.” And those were statistically valid findings from over a thousand respondents. So there’s a real problem at the access point, and if we don’t get access right, we can’t do retention. We call it a bottleneck because part of the highway effects the other part.

Rusty Stahl: Our argument is slender as nonprofits need to look at ascension, advancement, and access as a whole. In terms of retention, when we asked about competitive starting salaries and benefits, we found 84% of respondents said there was a great need for more competitive salary benefits, but only 41% of foundations said they were investing in competitive salaries and benefits for their grantees. And only 46% of nonprofits said they were investing in competitive salaries and benefits. And that’s so important. It’s one of the important things for retention.

Rusty Stahl: There’s a lot more data in the report. We also looked at the issue of what happens when people of color and women are being promoted or hired into the C-suite–into the chief executive officer or executive director roles. And we found that people, particularly with a recent immigration background, were experiencing a kind of “wait and see” phenomenon where funders are waiting to renew or give grants until they perceive that the person’s already successful. Rather than going in and saying, “Okay, we support this organization. This is a critical pivot moment or transitional moment for the organization. We’re going to go all in, in supporting the outgoing director and the incoming director and the whole team to get through this executive transition.” And so, there are problems at kind of every stage of access, advancement, and ascension. And if we don’t address them, they’re problematic, overall for organizations and their staff, and I think they’re particularly critical for groups that have already experienced marginalization or other challenges.

Farra Trompeter: Yeah, so there’s a lot to dig into. You can go to TalentJustice.org to read that. If you’re a nonprofit or funder who wants to address these issues, I really highly recommend you go to FundThePeople.org. You can get some great resources there, including a podcast that Rusty hosts, which he describes as the nutritious alternative to the nonprofit starvation cycle. You can also connect with their work on Facebook, Twitter, LinkedIn, and Instagram. And you can find Rusty on LinkedIn and Twitter. Rusty, thank you so much for being here. Any other parting words of wisdom before we go?

Rusty Stahl: Fund the people, baby.

Farra Trompeter: That’s right. Keep it simple. Keep that message on point.

Rusty Stahl: Thank you so much for having me, Farra. I really appreciate it.

Farra Trompeter: Thanks for being here.