What – Exactly – Is a Foundation? (And 3 Keys to Success)
What – Exactly – Is a Foundation? (And 3 Keys to Success)
I like to be out and about as much as possible. Recently, I was handing out purple t-shirts to incoming kindergarteners at Barberton Primary. The school has Purple Pride Friday, and some students don’t have anything purple to wear! For 10-years now the Foundation has granted money for these t-shirts so every student can take part in community pride.
The extra fun part is that these t-shirts have the students’ graduating year on it – 2037 on this year’s shirts!
During this visit, after seeing the student’s faces light up as we handed out the gift, I was asked a question – “What, exactly, is a foundation?”
Looking back, I think a lot of people ask this, just in different ways.
Because I get this question directly – and indirectly – I want to share what I hope is a useful answer.
Simply, a foundation is a charity. It is a nonprofit that is designed to accept donations, invest and grow those donations over time (in our case forever – literally), and grant as much money as is responsible.
That means a foundation must be clear-minded on the greatest needs of the community, and work to develop creative ways to address those needs – including providing funding – to try and solve for the big challenges we face.
That is what a foundation is. To better understand, it’s useful to know what a foundation is not.
A foundation is not a city government.
A foundation is not a school district.
In the case of the Barberton Community Foundation, we support those organizations. In fact, supporting them is part of what we are required to do according to our founding legal documents.
However, our Foundation does not have unlimited money. I know it can seem like we do, but we have many limitations.
I know this because I’ve been involved with the Foundation for nearly 10 years now, in some capacity. Every single grant cycle we are asked for more money than we have available to grant.
This happens because there are more needs in our community than we have money available to grant.
My goal? I would love to retire here at the end of my career resting in the knowledge that our grant requests are less than what we have available to give! But it’s likely that will not happen.
The only way to achieve this goal is for our endowment to grow. To grow our endowment, there are three keys to success that must be followed.
First, we must control our spending.
As charities go, most spend about 20 percent or more on the “indirect” and administrative costs like personnel, building costs, etc. – not the granting, scholarships, community programs (like economic development, for example), etc. Barberton Community Foundation spent just 14 percent on administrative costs last year and has hovered around this number historically – so this board and team control spending more effectively than our peers. That keeps 86 percent of our budget focused on grants, scholarships, and community programs!
Second, we must invest wisely, balancing opportunity with risk.
Our endowment, and our endowed funds created by donors, are all invested in a variety of ways. We must do whatever it takes to ensure we maximize our gains while trying to avoid negative returns (which is not always possible). The strength of our endowment is our only means of granting, so we must protect it (manage spending) and grow it (invest well and encourage donations).
Third, we watch out for conditions that damage our ability to grant, provide scholarships, and have effective community programs.
A good example of a condition that hurts the Foundation is inflation.
If you aren’t certain, here is how inflation works. In 1997 if you went to buy a candy bar for $1 it would cost $1. Because of inflation, by 2022, that same candy bar that cost $1 in 1997 costs $1.99 – almost double!
In fact, the U.S. Bureau of Labor Statistics identified that the cost of bread has risen 138.68 percent from 1997 to 2024. Yeast makes bread rise, but inflation makes the cost of bread rise!
Inflation is a certainty in our economy that we must deal with, especially when it’s aggressive as it has been recently.
Fortunately, our board can plan for it! We have policies that make sure when inflation gets aggressive, we pull back on spending.
To safeguard our endowment we do our best to make sure it grows enough each year to cover the cost of inflation first, and then our goal is to grow it so we have more money to grant, give in scholarships, and invest in community programs!
I want to make sure that our kindergarteners are always decked out in purple on Fridays, and following these 3 keys to success will help us get there!
In community,
Josh Gordon
Executive Director
Barberton Community Foundation
