The Genesis of the Nonprofit Starvation Cycle

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Mark Hager, Arizona State University

The nonprofit starvation cycle was named by Ann Goggins Gregory and Don Howard in a popular article in the Stanford Social Innovation Review in 2009. They did a lot to put the ideas on the map, but they are not the originators of the cycle. All the credit for the nonprofit starvation cycle goes to a guy named Ken Wing. Ken Wing? Yes, Ken Wing.

You’re maybe familiar with that SSIR article, or have heard the starvation cycle described. The idea is that too many nonprofits spend too little on administrative capacity like human resource and financial systems, information technology, and fundraising. Their low spending on these overhead costs (or, *ahem* fudging on how they report their spending) reinforces expectations among funders that non-program costs are not essential. This circles back to further disinvestments in administrative capacity.

I was working with Ken Wing when he first articulated his “circle” idea in the mid-2000s. He’s never gotten the credit he deserves for ideas that have been pretty popular over the past couple decades. I’m hoping that changes with publication of a new NVSQ article (ChiaKo Hung, Mark Hager & Yuan Tian), which features the unearthing of the “Wing Model.” However, you don’t get the full rundown of the genesis of model in that paper. So, I thought I’d Zoom with Ken and get more of his recollection.

The Wing Model of Limited Nonprofit Effectiveness

Hager:  Hello, Ken!  Thanks for agreeing to reminisce with me today.

Wing:  You’re welcome, Mark. And thank you for including my model in your NVSQ paper.

Hager:  I think it’s useful and important to get it out there. You and I worked together on the Nonprofit Overhead Cost Study back in 2003 and 2004. I was at the Urban Institute at the time, but you were independent. How did you come to be involved?

Wing: I kind of latched onto the overhead thing early on, before you and I met. I wrote an editorial for Foundation News and Commentary where I coined the term “peanut butter philanthropy” to describe foundations’ practice of limiting funding for overhead. They thought they were extending their impact by focusing on program spending when it was really limiting their own effectiveness. That got a lot of play—it struck a chord. So, I started talking to people about how I might do some further work in this area.

I had a conversation with folks at the Rockefeller Brothers Fund about capacity spending and effectiveness, and they told me they were already funding work in this area. They put me in touch with Patrick Rooney at Indiana University and Tom Pollak at the Urban Institute, who were already at work on the Nonprofit Overhead Costs Study. I joined the team soon after.

Hager:  I remember working with you on several guides, and several practical research briefs. However, I never really saw the evolution of your thinking on the starvation cycle. Where did those ideas come from?

Wing: Several places, I think. One, I was a confirmed systems guy due to my graduate work with Russell Ackoff. For the theoretical model I drew on Peter Senge, whose Fifth Discipline introduced me to the systems dynamics notation and several archetypes. I was also influenced by Eliyahu Goldratt, whose book It’s Not Luck had a methodology for building qualitative models that could have causal loops in them.

Another important input was the case studies we did for the Overhead Cost Study. We used them to try to understand the conundrums that emerged from the 990 analysis and survey phases. We could see that funders weren’t adequately funding infrastructure, and that underreporting of overhead costs was rampant, but we didn’t know why. The case studies helped us understand the why. Building the model was an attempt to formalize the findings from the overhead cost project.

Hager: Where did you first present your model?

Wing: There were a couple different versions, and I am not really certain which came first. As you note in your NVSQ paper, I presented the full version in May 2004 at a management systems conference. In August 2004, I presented a simplified version at the annual conference for the Alliance for Nonprofit Management. That Alliance session got a great reception. That’s where the four-point “Bottom Line is a Circle” graphic came from.

Hager: I’d forgotten that! I incorporated that slide in our November 2004 ARNOVA presentation. And now I see that your August Alliance presentation is the first thing that Gregory and Howard cite in their SSIR article. I wish I had noted the Alliance presentation in the NVSQ paper.

Wing: That presentation had legs. I got several speaking invitations and was interviewed by the media. But, and you make this point in your paper, presentations are very ephemeral. Unless your ideas get published in an article or book, they quickly disappear with time. A couple of years later, the folks from the Bridgespan Group picked up on our ideas from the project and I started collaborating with them on what became the SSIR article.

Hager: What did you make of that Gregory and Howard article that came out a few years later?

Wing:  I had shared everything that we had at the time, discussed their work, and reviewed drafts. I was excited to have this work getting out there. That said, I was a bit disappointed at how little the article acknowledged the years of thinking we had put into the topic.

Hager: I’m glad we can get your model in front of people now.

Wing: I think some big things came out of our work back then. In the NVSQ paper, you mention the 2013 Overhead Myth website. That was a huge shift for watchdogs to change their tune about overhead. That never would have happened without our work. I recall the Ford Foundation changing their funding policies to focus more on funding capacity costs. These were huge changes in watchdog and funder thinking and policies around overhead.

Hager: Thanks for talking with me, Ken. It’s great to reconnect and remember those days.

Wing: You’re welcome. And my thanks again on getting this out in front of people. It’s important.

Watch a short excerpt of the interview here

Read the paper here: Hung, C., Hager, M. A. & Tian, Y. (2022). ‘Do Donors Penalize Nonprofits With Higher Non-Program Costs? A Meta-Analysis of Donor Overhead Aversion’. Nonprofit & Voluntary Sector Quarterly, doi: 10.1177/08997640221138260.

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