3 ways philanthropy needs to embrace risk to better meet the moment

Five months into its second term, the Trump administration has cut billions of dollars in healthcare, foreign aid, and other social spending. The president’s proposed budget seeks to eliminate more than $160 billion in additional discretionary spending. 

The result of these cuts will be an onslaught of need across U.S. and global communities. In our lifetime, there hasn’t been a greater opportunity for philanthropy to make an impact. 

Every philanthropic family and foundation has its own idiosyncrasies. At the same time, a few widespread and unconstructive habits continue to hold the sector back from having the impact needed in this moment. 

Donors are too risk-averse in how they approach their giving

All donors want to ensure impact. But for many, this desire to steward resources effectively leads to a cumbersome, overly cautious approach that misses innovative opportunities. The most pressing problems we are facing as a society are thorny and multilayered, made more so by our current political environment. These problems require new, innovative solutions. That means taking more risks on untested ideas and organizations. 

Because of this dynamic, such organizations, usually headed by community leaders, are most often underserved. Donors tend to concentrate their grantmaking on a handful of blue chip organizations or on ones that have had the time to accumulate significant evidence on the effectiveness of their approach.

A track record of success is of course great, but donors who don’t also consider new approaches for which there is not yet evidence are unintentionally stifling innovation. Calibrating risk to incentivize both positive outcomes and innovation is essential.

Donors are too risk-tolerant after grants have been made

Once donors commit to a plan, too many are slow to change course—even when conditions have changed or their approach is falling short. In philanthropy, there is a fundamental difference between leading with ideology versus leading with impact. Many philanthropists commit to an ideology around how to address a particular problem and funnel time, attention, and resources into their chosen approach without taking an honest and hard look at what’s working and what isn’t. 

For some, this can be about wanting to honor a particular philanthropy’s legacy or reputation. Others are held back by the all-too-human desire to avoid failure. But in a lot of these cases, too many philanthropists are sacrificing impact to save face. The savviest donors avoid this by being open about their failures, continually questioning their own biases, and diversifying the voices they are listening to in an effort to bring a more critical lens to their work.  

Donors don’t think creatively enough about how to make an impact outside of giving

While check-writing is the core of philanthropic work, all donors—individuals, families, foundations—have an array of additional ways they can impact the issues they care about. Too few are using those tools. 

One example of a highly effective tool is advocacy. Savvy donors engaging in advocacy recognize that the policy conditions and public funding related to the issues they care about are incredibly impactful and can create leverage for the dollars they are giving. 

A second example is how aggressively donors are activating their peers. The savviest donors are activating money that is currently sitting on the sidelines as part of the solution. And there are many more examples ranging from how donors use their platform to elevate the voices of the communities they are impacting, to donors leveraging mission-aligned investing and more. At a moment when the need for philanthropy far outstrips the sector’s capacity, the most effective donors are finding ways to create leverage that amplifies their giving.  

Solving the most pressing social challenges we face has never been more complex. Unfortunately, there’s no one secret sauce to effective philanthropy. There are, however, common mistakes that too many donors make, while those who avoid these tendencies are seeing real impact. Now is the moment for donors to shed these unconstructive habits.