Underfunding Is A Design Choice with Charity Fain [Episode 426]

There is a belief running quietly through most of the nonprofit sector. It says that being underfunded is just part of the deal. That if you chose this work, you also chose to do it with too little money, too few people, and salaries that would never fly in the for-profit world.

That belief feels like realism. It is actually a design choice.

When the rules that govern your funding are unclear, unfair, or built by people who have never done your work, the organizations living inside those rules compensate. They compensate with effort. They compensate with unpaid hours. They compensate by paying staff so little that the staff themselves would qualify for the services the organization provides. Nonprofit financial sustainability does not fail because leaders aren't trying hard enough. It fails because the systems shaping the money were built badly, and most leaders treat those systems as fixed.

They are not fixed. They were designed. And anything that was designed can be redesigned.

I've been thinking a lot about this lately. I recently had a conversation about exactly this with Charity Fain, and it sharpened how I think about what actually creates staying power in nonprofits. Not because the ideas were new, but because they explained why certain approaches hold up over time while others quietly collapse.

Here is the part most leaders miss. The reporting requirements, the admin caps, the grant structures that make no sense on the ground, none of those are facts of nature. They are decisions. Someone sat in a room and decided that 10% of a grant could go to admin, and then defined admin so broadly that it swallowed the actual cost of the work.

That decision becomes your reality. You receive the grant, you read the rules, and you think, whoever designed this has no clue what it takes to do this work.

You're right. They usually don't.

The mistake is stopping at frustration. The structural move is recognizing that the people writing those rules are reachable. They are sitting in committees, rulemaking processes, and advisory groups, and most of those rooms are starving for the exact knowledge your organization holds. They need what you know, even when they don't know it yet.

When you treat funding rules as weather, you adapt to them. When you treat them as decisions, you start influencing them.

The leaders who change their funding landscape do one thing differently. They stop waiting for the grant to show up and start shaping the grant before it exists.

That means putting yourself and your staff on every committee you can find. It means sitting in rooms where you are not the technical expert, saying plainly, I don't know this part yet, and I will learn it, and you don't know what low-income households actually need, so we are going to teach each other. It means being willing to be a beginner in someone else's domain in order to be the expert in your own.

This is slower than writing another grant application. It is also the only thing that changes what the applications ask for in the first place. Influence happens before the rule is written, not after the grant is awarded, and the payoff is structural. You change what future funding looks like, not just what you receive this cycle.

Charity put it more bluntly than I would have. As she described getting her staff onto policy committees, she said:

"I just really wanted us to be sitting in those groups that were making decisions so that people had to listen to us."

What I appreciate about this framing is that it explains the mechanism. Visibility inside decision-making rooms is not networking. It is infrastructure. When your organization is consistently present where the rules get made, your reality becomes part of the design input, and the rules start to fit the work instead of fighting it.

There is a second belief that quietly drains nonprofits, and it is even more damaging than the first. It says that because you are a nonprofit, you shouldn't make money, and neither should the people who work for you.

The truth is, you cannot uplift a community while keeping the people who serve it in poverty. Your staff are not separate from your mission. They are inside it.

When a leader decides to pay well, the usual fear is that expenses are now permanently higher with nothing to show for it. That fear is loud, and it is wrong. Paying people properly reduces turnover. It attracts more qualified people. It keeps the talented person who would otherwise do the math and leave for a sector that pays. Over time, it pays for itself, and then some.

This is not a soft, feel-good position. It is an operational one. A well-paid, stable team is a more resilient organization. Resilience is what you draw on when the hard times come, and they come for everyone eventually.

SSomewhere along the way, the sector absorbed the idea that nonprofits are not real businesses. That if you worry about making payroll, you're doing something wrong. That you should never have to manage cash flow month to month.

Anyone who has run a nonprofit knows this is fantasy. You do worry about payroll. You do manage cash flow. And you do it inside a model that is more complex than the for-profit version, not simpler. I've written before about the things nonprofits can learn from for-profits, and the core point is this. A nonprofit is two businesses in one, a fundraising business and an impact business, each with its own audience and its own demands.

That complexity creates a specific danger. In a for-profit, if you deliver something nobody wants, the bank account drops fast and the signal is unmistakable. In a nonprofit, the signals are weak. You can run excellent programs and still struggle to raise money. You can raise plenty of money and still fail to make an impact. The feedback that tells a business something is wrong arrives late and muddy. The problems have to be hunted proactively, because they will not announce themselves.

So you have to go looking. You cannot wait for the system to tell you something is broken, because by the time it does, the damage is already done. Proactive leaders build the habit of checking their own plumbing before anything floods.

When I ask seasoned executive directors what makes everything else easier, the answers vary. But underneath the good ones is almost always the same move. They stopped trying to be the expert in everything.

You cannot do it all yourself. You were never supposed to. The job is to build a team good enough that you can trust the finance person to know more than you about finance, and the program staff to know more than you about the program. That is the point of hiring them.

New leaders often get caught believing they have to know everything and do everything. That belief is a fast track to burnout, and burnout at the top harms the entire organization, not just the person carrying it. I've talked about this at length in why one person should never carry it all.

A real team is what gives an organization resilience. When the hard season arrives, and it always does, the organizations that hold are the ones where the load was already shared.

When you see underfunding as a design problem instead of a fixed condition, something shifts. The frustration stops being a dead end and becomes a starting point. You stop adapting to bad rules and start influencing the rooms where they are made. Paying your people well stops feeling like a risk and starts looking like the obvious operational choice.

The weight of carrying everything alone lifts, because the team is built to carry it together.

None of this makes the work easy. It makes the work hold.

This isn't about doing less work.

It's about doing work that holds up.

Nonprofits can have enough money.
They can pay people well.
They can stop accepting rules that were never built for them.

Not by suffering more quietly, but by getting into the rooms, building the team, and designing the systems that make it possible.