Starting Small

Foundations learn as they grow

Eliot Spitzer, the New York State attorney general, has asked Congress to consider banning independent foundations with less than $20 million in assets. This proposal would squelch one of the most vibrant and dynamic sectors in philanthropy today.

Most successful businesses do not emerge overnight as full-scale operations. They start small. They learn how to serve customers, how to manage their internal systems. They engage in continuous test-marketing and trial-and-error experimentation. They build on their successes, reinforcing what works. They learn from their mistakes, abandoning what fails. And over time, they develop their most precious asset: a culture of excellence, and a reputation for quality performance.

The same can hold true for philanthropy. Many of the most successful foundations start small. They are started by living donors who want to be as successful in their philanthropy as they have been in their business or professional lives. These donors don’t wait until death to establish their philanthropic legacy. They start small, then build up their foundation over time, as their financial situation permits, and perhaps they make a very large contribution on their deathbed. But first they learn how to advance their philanthropic values during the course of their lives. And should they want their foundation to outlive them, they first do the trial-and-error spadework necessary to establish the foundation’s enduring values and culture.

Starting small, and experimenting over time, gives foundation donors four specific advantages.

First, it helps donors to clarify their philanthropic intent. Writing a clear mission statement is hard work, but it is usually necessary for philanthropic effectiveness. The process of giving over time, in a setting such as a foundation that encourages donors to reflect on why and for what purposes they are engaged in philanthropy, helps to clarify a donor’s most deeply held values. A donor should be able to answer: what do I most want to change about my community or my country? What values and institutions do I cherish most deeply and want to reinforce? Starting small, and then learning by doing, helps a donor to find answers to these questions and build them in a mission statement, so that when the foundation grows, it is in a strong position to achieve the donor’s objectives.

Second, starting small helps donors find the advisers and trustees who best share their values, who can serve as trusted sounding-boards while the donors are still alive, and who will faithfully carry out the foundation’s mission statement after the donors’ death. Sometimes, family members will make the best trustees, sometimes not. The critical question is, who best shares the donors’ values and can translate those values into concrete philanthropic objectives. Starting small helps donors ascertain the answer, and also establishes a record of lifetime discussions, of donor likes and dislikes, that can guide trustees after death.

Third, starting small forces a foundation that wants to make a difference to focus. All too many foundations squander their resources by spreading their contributions too thinly. Developing the habits of focused giving while small can make a foundation all the more effective when it grows bigger.

Fourth, starting small enables a donor to learn how he or she can make the greatest difference through a foundation, as opposed to other instruments. Donors have many choices for their giving: donor-advised funds, community foundations, supporting organizations, venture philanthropy partnerships, and direct gifts and bequests are just some of the options. If structured correctly, foundations can be excellent instruments for maintaining donor intent, and for accumulating institutional wisdom about effective grantmaking in a chosen field. Starting small helps a donor decide what he can do best through foundations, and what he can do through other vehicles.

Learning by doing is the hallmark of an entrepreneurial, creative society. Philanthropy will lose its can-do, learn-from-mistakes, spirit if donors aren’t free to establish small foundations.

President’s Note from September / October 2003 issue of Philanthropy magazine

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