Your Nonprofit Cannot Grant-Fund Its Way to Sustainability

I get countless inquiries from people who have recently started a nonprofit or are thinking

about starting one and want someone to help them find the grants that will get it off the ground. Basically: I have the idea, now where’s the grant money?

Well… I hate to be the bearer of bad news, but that’s not how this works. Grants are not a magical pile of startup cash waiting for you the second your 501(c)(3) letter hits your inbox. If your entire plan for launching and sustaining a nonprofit is “we’ll get grants,” I’m here today to give you the reality check you desperately need.

Unfortunately, there’s this persistent myth that becoming a nonprofit somehow unlocks access to a giant pool of money. You get the tax-exempt status, foundations start throwing money at you, and suddenly you have the cash to hire staff, rent an office, launch your programs, and change the world. Easy peasy.

Except there’s a pretty major flaw in that plan: most funders want to see that you’re already doing the work before they’re willing to fund you to do more of it. In fact, many of them want to see that you’ve been operating for at least three years before they’ll even give you the time of day! And if they don’t say that outright, they often do it in other ways. 

For example, they’ll take for things a brand-new or very young nonprofit simply doesn’t have yet, such as:

• Multiple years of financial statements

• Audited financials

• Complete Form 990s

• Several years of organizational budgets vs. actuals

• Historical program data and demonstrated outcomes over time 

In short, they want to know that your organization is more than a really good idea. They want to see proof of capable leadership, community support, actual programming, measurable outcomes, sound financial management, and some evidence that what you’ve built today can survive beyond their check. 

Its critical remember, however, that it’s not because your idea isn’t worthy. It’s because you literally just got here. You haven’t had time to build the financial history, outcomes, infrastructure, and track record that funders use to decide whether you’re a good investment. To make matters even more challenging, you’re also not competing for that grant in a vacuum. You’re competing against organizations that have been around the block, sometimes for decades, and already have years of financials, data, donor support, partnerships, and outcomes to put in front of the exact same funder.

As a result, that puts brand-new nonprofits in a frustrating little catch-22: you need money to start doing the work, but many funders want proof that you can do the work before they’ll give you the money.

So, where does that leave you?

It means you need another plan for getting off the ground, and those first dollars have to come from somewhere. Can you guess where?

You. Your board. Your community.

Before you can expect a foundation to invest a single dollar in your organization, you need to show that other people are willing to invest in it, too. That might mean founders putting some skin in the game, board members actually fundraising, individual donors believing in the mission, community partners stepping up, or finding ways to generate revenue through contracts or services.

Is that harder than finding a magical $250,000 startup grant? Absolutely. Is it a whole lot more realistic? Also yes.

And frankly, that same lesson applies whether your nonprofit is six months old or 20 years old.

I love grants. Obviously. I’ve built an entire business around them, and I’ve seen firsthand what a massive grant award can make possible for an organization and the people it serves. However, the reality is that grants are not a sustainable revenue model on their own. They are competitive, often restricted, and ultimately dependent on someone else deciding to keep giving you money.

That’s why I don’t think grants should even be the largest slice of your operating budget.

I want to see a healthy mix of revenue coming into an organization because every funding source has some level of risk. Grants don’t renew. Donors stop giving. Contracts end. Events flop. Corporate partners change priorities. However, diversification means one of those things can happen without immediately putting your organization into survival mode, and in today’s nonprofit world, I think relying exclusively on traditional fundraising is becoming harder and harder to justify. We need to get far more creative about how nonprofits actually make money, including something I think far too many organizations overlook: earned revenue.

Nonprofit does not mean no profit. It means the money your organization generates goes back into advancing its mission versus being distributed to owners or shareholders. So if there is a mission-aligned way for your organization to earn revenue, why aren’t we talking about it more?

Maybe your organization has expertise it can turn into training or consulting. Maybe there’s a service someone is willing to pay for, a government contract you can pursue, curriculum you can license, space you can rent, or a social enterprise that complements your mission. It won’t make sense for every organization, but I think every nonprofit should at least be asking the question because earned revenue gives you something grants never fully will: control.

You’re not waiting for a foundation board to meet or wondering whether a funder is going to completely change its priorities next year. You’re generating revenue because your organization has created something valuable that a person, company, government, or another organization is willing to pay for. Depending on how that revenue is structured, those dollars may also give you more flexibility to pay for the very unsexy things it takes to actually run an organization like payroll, technology, insurance, admin, reserves, and all the other things that aren't particularly exciting to fund but are pretty damn important if you want to keep the doors open.

That’s ultimately what I want grants to do for nonprofits. I want that $100,000 award to help you expand a program, hire another person, serve more people, improve your systems, or do something you couldn’t otherwise do. I definitely don’t want your entire organization to implode if that $100,000 doesn’t come back next year, because that’s exactly what will happen if you don’t diversify your revenue.

And ironically, the less dependent you are on grants, the stronger your organization often looks to funders. When we can show that individuals give to you, your board is invested, you have partners at the table, and you’re generating some of your own revenue, we get to tell a much better story.

We’re not saying, “Please fund us or we can’t survive.”

We’re saying, “Look at what we’ve built. Come help us do more.”

So yes, please keep applying for grants. I would very much like to remain employed, but at the same time, build your donor base, explore contracts and partnerships, get your board involved, and if it makes sense for your mission, figure out how your organization can earn some of its own revenue.

At the end of the day, the goal isn’t to get really, really good at chasing grants. The goal is to build an organization that’s financially strong enough that losing one doesn’t threaten everything you’ve built.

The take away: grants should help you grow your mission but they shouldn’t be responsible for keeping it alive.