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Are We Buying or Building Organizations?

Posted by Lynn Coriano

As a liberal arts major and then a graduate student in nonprofit management, I was never particularly drawn to topics in finance and capital.  Imagine my surprise when, after attending the Money Matters conference in New York, I came back eager to talk with Paul about all things finance and the implications for SVP’s work.

The topic on my mind:  Is SVP Seattle buying or building the organizations we fund and support?

National thought leaders from both the financial and philanthropic sectors attended Money Matters, which was hosted by GEO and the Nonprofit Finance Fund. This was late October, so news of significantly decreased endowments and reserves were known, and folks came eager to engage in important discussions about financing the nonprofit sector.  Among those present were Clara Miller, Executive Director of the Nonprofit Finance Fund (NFF) and George Overholser, Founder and Managing Director of NFF Capital Partners.

One of the concepts introduced early on was the idea of whether funders are “buyers” of services and programs, or “builders” of a nonprofit enterprise.  It is a compelling theory and one I keep coming back to as I think about SVP’s funding model.

Overholser introduces these concepts in his working paper titled, “Nonprofit Growth Capital: Defining, Measuring, and Managing Growth Capital in Nonprofit Enterprises. Part 1:  Building is not Buying.”  He defines the terms as follows:

Buyers

  • Provide reliable revenue to pay for what an organization is already doing.
  • Do not intend to help the organization expand or experiment with impact or innovation.
  • Are the life-blood of reliable, high quality services.

Builders

  • Provide capital to help an organization change
  • Intend to help the organization expand, use different technology, respond to changing market conditions, merge, downsize, etc
  • Builders’ capital is essential to attract reliable, consistent buyers (and more of them).

Clara Miller drew upon this in her opening remarks at the conference: “Buyers are not builders.  Providing the funds to support programs year in and year out is different from building the enterprise that delivers them.  Many investors think they are ‘builders’ contributing to the establishment of a stable organization.  In reality, however, they are buyers whose money goes to purchasing more services for more users.”

With SVP’s multi-year general operating support, strategic volunteers and outside consultants, I wondered is SVP a buyer or a builder?

“In the philanthropic world everyone wants to be a builder – it just sounds more important. The majority of grants are too small to get the favorite organization all the way up the growth curve.” – Clara Miller

Looking through a strictly financial lens, I was fairly convinced SVP was more buyer than builder – especially with Investees where SVP’s contribution represented a very small percentage of a budget.  However, in some cases it did seem like SVP was a builder, with organizations whose budgets were in the $300,000 – $500,000 range, it was hard to argue that an investment of $225,000 over five years didn’t have a significant impact on the organization.

But what about SVP’s non-financial resources? Does strategic volunteering play a role in determining whether a funder is a buyer or a builder?

I think it does.  There have been many cases over SVP’s history where volunteers were able to engage in projects with an investee that were clearly transformative and contributed to efficiencies in a lasting manner regardless of the size of the organization or its budget.  Database development and training, human resource planning, new fund development strategies, and leadership development work can all have lasting impacts.

This combination of volunteers and capacity building support, plus the multi-year general operating support that SVP provides, definitely influences how we define ourselves in terms of Builders vs. Buyers.  What cannot be overlooked as well is the significant influence the investee brings to the table:

  • Leadership & Degree of Engagement (strong, transparent leadership that’s willing to engage on a variety of levels)
  • Stage of Organizational Development (Is the organization as a whole ready and committed to doing the work and really focus on capacity building?)
  • Type of volunteer engagement  (Is the organization identifying projects that have the potential to transform the organization, its people and/or the way it does its work?)

To be a true builder and a smart buyer, a funder must work in partnership with the organization it is supporting.  Thus our role is in part defined by the nature of this relationship.

We introduce these concepts, not to force SVP into one camp or another.   It’s a way for us to think about SVP’s partnerships with nonprofits through a different lens – and consider the implications for our model as we pursue new opportunities and collaborations to support the nonprofit sector in a very different economic time.

What Do You Think?

In terms of buyers vs. builders, how do you define SVP?  How important is this differentiation to you?

What are some ways in which we could improve our approach to augment our role as a builder or a buyer?

Please provide your comments below.  We’d love to hear your thoughts!

Learn More

To learn more about these concepts and to hear Clara Miller’s opening speech from the conference, check out these resources:

3 Comments:

  1. Dennis Montgomery

    As I understand your mission, SVP is a builder. You don’t “buy into” organizations to support their efforts so much as you invest in their capacity to achieve their goals on a larger scale. That plus your work to develop future philanthropists… I’d say SVP is definitely a builder.

  2. Rick Farmer

    From our earliest days I believe we have been builders even if we didn’t categorize ourselves that way. We have always been about a limited period of direct engagement with our investees working toward making our them more efficient / effective in using and obtaining resources to accomplish their social service objectives. The most notable change in our philosophy has been our shift away from our early practice of funding for program specific (almost line item) grants to a program of general unrestricted grants for the period of engagement. Otherwise, of Overholser’s three criteia listed in the builders definition we are a direct fit. I don’t think we’d ever have the leverage we do with the assets we provide if we were buyers.

  3. Vu Le

    Thank you for a very thoughtful post. From a new investee’s standpoint, I would say that SVP is a builder. Our organization, with a budget less than 500K, has spent years pursuing both buyers and builders. Both are important, but builders seem to be much rarer. We’re really glad that SVP is taking on this important role.

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