Transforming Philanthropy: Moving Beyond Misguided Frugality To Achieve Real Change

In the world of philanthropy, the paradox of thrift often stymies even the most well-intentioned efforts to drive change.

Many philanthropists, in their earnest attempt to maximize the impact of every dollar, fall into the trap of what I term “Delusional Altruism.” This occurs when donors are so focused on minimizing overhead and operational expenses that they inadvertently hinder their ability to make a real impact.

The concept is simple yet profound: by excessively cutting costs in areas like strategy development, talent, technology, succession planning, and advisement, donors and foundation leaders can actually limit their effectiveness and the effectiveness of the organizations they wish to help. Let’s explore how this mindset can be transformed to empower true, systemic change in philanthropy.

The Pitfall of Misguided Frugality

One of the most common missteps in philanthropy is the undue emphasis on minimizing overhead costs. This misguided frugality in philanthropy is typically well-intentioned. Philanthropists often believe that by cutting back on administrative expenses, more funds can be directed toward “real” change. However, this perspective is short-sighted and counterproductive.

For instance, one of my clients, the CEO of a private foundation, refused to allow staff to take laptops on business trips to avoid the cost of potential replacements if they were dropped or damaged. While the intention was to save money, the actual result was a significant reduction in productivity, as staff were unable to work effectively while traveling. This is a perfect example of “saving money on all the wrong things,” a practice that can severely restrict an organization’s ability to operate efficiently and responsively.

The Importance of Investing in Capacity

True transformation in philanthropy requires an investment in both personal and organizational capacity. This means supporting not just the immediate, direct costs of projects but also the systems, skills, and staff that underpin successful initiatives. Investing in nonprofit capacity is crucial. Philanthropists and professional philanthropy leaders must recognize that investing in administrative capacities, technological upgrades, strong governance, and talented personnel is not antithetical to effective giving; rather, it is foundational to transformational philanthropy and sustained impact.

Take, for example, a nonprofit that required multi-year funding to advocate for policy changes related to drug treatment. The potential donor offered only a one-year grant, fearing that longer commitments would tie up funds that could be used elsewhere. This short-term approach neglected the reality that effective advocacy requires sustained effort and secure funding commitments. The nonprofit had difficulty hiring someone to lead the advocacy effort because they could only guarantee one year of funding. Here again, we see how a scarcity mindset can limit the potential for real progress.

Overcoming Fear and Embracing an Abundance Mindset

The root of much delusional altruism lies in fear—fear of waste, fear of inadequacy, and fear of the unknown. To move beyond these fears, philanthropists must embrace an abundance mindset and a transformational giving strategy. This means recognizing that true generosity involves more than just the disbursement of funds. It involves a holistic approach to giving that includes building the capabilities of grantees and investing in the long-term success of their missions.

Philanthropists must trust in the expertise and intentions of those they support, allowing them the flexibility and resources to navigate their unique paths to impact. By doing so, donors can transform their philanthropy from transactional exchanges to transformational partnerships.

Expanding Impact Through Strategic Funding

Consider the transformative potential when donors fund supports multi-year initiatives, allowing organizations to plan longer-term, undertake significant challenges, and innovate in their approach. When funders commit to covering not just project costs but also essential operational needs—from staff salaries to software upgrades—they empower organizations to focus on their missions rather than constant fundraising.

Moreover, supporting professional development for nonprofit leaders and staff can significantly enhance their effectiveness. By offering funding for advanced training or conferences, philanthropists help build a community of skilled professionals who can elevate the entire sector. These measures are essential for transformation in philanthropy, enabling organizations to adapt and respond to changing needs effectively.

Call to Action: Transform Your Giving

As leaders in philanthropy, you have the power to enact meaningful change. I encourage you to assess your own giving practices: Are you inadvertently hampering your impact by holding too tightly to the purse strings in the wrong areas? Are you investing enough in your own capacities and those of the nonprofits you support?

The road to hell is paved with good intentions, as the saying goes. To avoid this fate in your philanthropic journey, I urge you to reflect on how you can reallocate resources not just for greater efficiency but for greater efficacy. Consider the true costs of the outcomes you seek and fund the necessary infrastructure that supports those outcomes, whether they be technological, human, or strategic.

Let us not be delusional about what it takes to make a real difference. Let’s commit to funding not just the work but the engines that drive the work. By embracing an abundance mindset, we can redefine what it means to be a philanthropist in the 21st century and beyond, turning good intentions into lasting impacts. By embracing these practices, we are not just participating in philanthropy; we are part of a global movement toward transformational philanthropy that shapes the future.

Do you need help transforming your philanthropy? My book, Delusional Altruism, will help you uncover self-limiting fallacies and how they may be manifesting in your giving efforts with proven strategies to avoid and overcome these pitfalls to realize your goal for impactful, sustainable change. You can get your own copy by going to my website.

While you’re there, be sure to check out my upcoming events page too! I have a few exclusive events coming up for you to learn how to transform and maximize the impact of your philanthropy.

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This article was originally written and published on Forbes.com.