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Can Big Philanthropy Hinder Innovation?

August 13, 2012

Pablo Eisenberg writes a rather critical editorial condemning D.C. United Way’s decision to limit its funding to organizations with at least $50,000 in revenue, overhead costs of 35 percent or less and have operated for at least three years. This decision will undoubtedly prove devastating to D.C.’s small nonprofits.

Eisenberg’s critique is powerful and scathing. He points out that the decision means “many small groups with deep ties to low-income minority residents would no longer be able to provide services that no one else could” and denies small groups with innovative practices and potential the chance to grow. D.C. United Way and its supporters say the shift in direction allows United Way to focus on high-performing organizations with the capacity to provide large-scale services and collective impact.

The biggest problem with United Way’s decision is it starves small, emerging organizations of the opportunity to evolve into large, high-performing organizations. It’s interesting to note that William Hanbury, chief executive of the D.C. United Way, and United Way donors conflate “high-performing” with large organizations. But this isn’t a problem unique to D.C. United Way; it’s a problem endemic to philanthropy.

It would be less of a problem if philanthropy possessed a greater, more diverse ecosystem. The greatest feature of philanthropy is its ability to take risk and encourage innovation. DC Central Kitchen grew from a nascent, $40,000 nonprofit to a lauded stalwart of food recovery partially because United Way took a gamble on it and its dynamic leader, Robert Egger. Had it not, perhaps the concept of food recovery and economic empowerment would remain buried in the background.

Too few donors and funders are interested in discovering the next Robert Egger, or DC Central Kitchen or Year Up, because their budgets are too small, they’re too nascent and their impact has yet to be fully realized–and might never be, because they’ve been denied the financial and intellectual resources to do so. Admittedly, I’m being overly cynical. But each time big philanthropy makes a decision that inadvertently (or intentionally…) crowds out small, burgeoning organizations–well, that just means we’ve decreased the likelihood that another Robert Egger will prosper.

D.C. United Way only emphasizes the need for a diverse philanthropic ecosystem that rewards risk and innovation, an ecosystem that also supports organizations with less than $100,000 in revenue and have been around for fewer than five years. United Way and big philanthropy already exist to support the rest.

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