Philanthropy’s Drag Coefficient: When Process Costs More Than Failure

Every philanthropic dollar is a loss. This is not a critique. It’s math.

The moment a grant leaves a foundation’s account, it is gone. There is no equity position. No convertible note. No return on capital. Philanthropy is not venture capital with a mission statement. It is money set on fire in the hope that the heat does something useful.

Yet the sector behaves as though the money might come back. Foundations impose layers of process—applications, budgets, logic models, quarterly reports, site visits, final evaluations—as if these rituals of control could somehow unspend the money if things go wrong. They can’t.

What they can do is consume a staggering share of the resources they were meant to deploy. This is drag, with a measurable coefficient. Yet nobody’s measuring it.

The Appointment

In philanthropy, the grantee writes the diagnosis, proposes the cure, submits to the panel, and waits—all on their own dime, with no guarantee of funding.

Imagine you’re sick—not dying but struggling enough that you need help. You go to the doctor. But before you can be seen, you’re told: “Write your own diagnosis. Research the treatment options. Propose a course of care. Justify it against peer-reviewed literature. Submit it to an authorization panel that meets quarterly. Wait four to six months for a decision. If approved, you’ll receive 80 percent of the treatment you requested, minus the cost of the paperwork you completed to apply. Then you’ll need to file reports proving the treatment worked in a format the insurer designed and no one else uses. If you’re managing care from multiple providers, each one has a different form and a different reporting cycle.”

That’s a grant cycle.

Every nonprofit leader knows this. It’s just another Tuesday for them. It’s the $50,000 foundation grant that required a 25-page proposal, a site visit, a board resolution, two rounds of questions, a revised budget in 12-point Times New Roman, quarterly narrative reports, and a final evaluation—all administered by a staff of three who are also running the programs the grant is supposed to fund.

The party seeking help bears the overwhelming cost of being evaluated. We would not expect the patient to do the doctor’s job and then get billed for it. But in philanthropy, the grantee writes the diagnosis, proposes the cure, submits to the panel, and waits—all on their own dime, with no guarantee of funding.

No One Rolls It and Smokes It

This is the fear that drives the entire apparatus: What if we fund the wrong grantee?

I get it. I’ve been on both sides of the table for decades as a philanthropy advisor, as a foundation president and trustee, as a nonprofit CEO, and as a funder who makes bets on people. The fear is that a grantee takes your money, rolls it, and smokes it. I say this in rooms full of program officers and people guffaw because the language is too blunt for a sector that prefers to say “suboptimal outcomes.” Everyone knows exactly what I mean, yet virtually no one can name a grantee with zero ROI. No one actually smokes it.

So, let’s do the math. You fund 10 grantees. You’re a decent judge of character and capacity—not perfect, but attentive. One of the 10 turns out to be a disaster. They misuse funds, or they simply fail to execute. That’s a real loss. Call it 10 percent of your portfolio, gone.

Now look at the other nine. In a low-drag environment—where you trusted them, gave them room, didn’t bury them in reporting—those nine got to do their work. They spent their time on programs, not paperwork. They adapted to conditions on the ground instead of performing compliance for your quarterly review. They had a greater positive impact, and did so faster, because they weren’t throttled.

And here’s the part the sector refuses to see: One of those nine—maybe one in every two or three cohorts—is exceptional. They’re not just competent, but transformative. They’re the leader who sees around corners, who builds something you didn’t know was possible, who delivers way more than what you funded. You only see this person in a low-drag environment because in a high-drag environment they look exactly like everyone else. They’re filling out the same forms, hitting the same milestones, performing the same compliance. The reporting regime doesn’t just slow people down; it flattens the distribution. It makes everyone look mediocre and calls it accountability.

Think about where the lines cross. Ten grantees, 10 units of good each, 100 total. One fails completely, making that a total loss. You’re at 90. Now run the same portfolio with 20 percent drag: no failures, but every grantee operates at 80 percent capacity. That’s 80. You prevented the disaster and still ended up worse off. The drag cost more than the failure.

Moreover, that scenario assumes your worst grantee produced literally nothing. In my experience, this is never the case. Even the disaster probably did some good, just badly. This means that the low-drag portfolio isn’t 90, but closer to 95. Against 80.

And we haven’t even talked about your best one. She wasn’t a 10. Ungoverned, she was a 14. The low-drag portfolio isn’t 95. It’s 99. The high-drag portfolio is still 80. You governed the Porsche at the same speed as the Prius and lost the gap from both ends.

Here’s the key: You have to be paying attention. Low drag doesn’t mean no engagement. It means you’re watching the work, not the paperwork, and interrogating whether your judgment about who the rock star is reflects their performance or your pattern-matching. Program officers already know who their best grantees are. They’ve always known. Low drag doesn’t eliminate evaluation. It eliminates the pretense that paperwork is evaluation.

You can’t eliminate drag entirely—but you can measure it, design for it, and reduce it.

The sector is loaded with funders who know exactly which grantee is a 10 (or a 14), yet fund them the same as everyone else. Program officers say it out loud: “We know you’re the best, but we have to spread it around.” In what other context would you say that? To your best surgeon? Your best mechanic? It’s not equity. It’s performative egalitarianism. It sands everything down, flattens the curve. It’s shaking the sugar over the whole tray instead of picking up the one extraordinary cookie and making a whole batch of those.

This is often called diligence, but for most funders it’s actually anxiety management, and they’re billing the grantee for it.

You are governing your entire fleet at the same speed, Porsche and Prius alike, because the system never let you see which was which. Everyone looks fine at 35 mph on a flat road. But you never take them up to 280; and because you don’t, you never see the Porsche redline, and you never see the low performers wheeze on the hill. The separation widens on the incline, as the strong pull away and the weak fall behind. The compliance regime doesn’t just cap your best grantees. It hides your worst ones. A system built to produce information is destroying it. And for the executive director who came into this work to go hard at something that matters—wind in her hair, open road, the whole promise of the sector—you have just told her to keep to slow, flat routes forever. Just don’t be surprised when she leaves.

The Physics

In aerodynamics, a drag coefficient is a number that quantifies the resistance an object encounters as it moves through fluid. A brick has a high drag coefficient. A teardrop has a low one. You can’t eliminate drag entirely—but you can measure it, design for it, and reduce it. It’s why cars all have sloped hoods. No one cares about the chunky trunk.

Philanthropy has drag. It is the cumulative friction between a funder’s intention and a grantee’s impact. Every step of the grantmaking process that consumes time, energy, or resources without proportionally increasing good—that’s drag.

This isn’t an abstraction. The data already exist, the sector just hasn’t named what they describe. The symptoms have been documented for nearly two decades: the Nonprofit Starvation Cycle, Project Streamline, Pay-What-It-Takes. But we haven’t named the force itself. What’s been missing is the drag coefficient.

High drag: 25-page applications, restricted funds, quarterly reports in proprietary formats, site visits that consume a day of staff time. Low drag: a phone call, unrestricted funds, annual check-ins, trust.

Every funder has a number. Most have never calculated it.

The Cost, and Who Bears It

Every dollar a foundation spends is philanthropic overhead. The sector has built an elaborate fiction in which foundation overhead is “investment in effectiveness” while grantee overhead is “waste to be minimized.” A program officer who spends three months evaluating a $100,000 grant is doing due diligence. A grantee who spends 20 percent of that same grant on the staff who administer it is being inefficient. The funder’s overhead creates the grantee’s overhead and then the funder penalizes the grantee for having it. The drag coefficient of this arrangement is recursive. It feeds on itself.

No single requirement caused this. Real estate disclosure laws work the same way: each one was a rational response to a real fraud, a real harm. And now the disclosures are so long that no buyer reads them. They click through 40 pages on Docusign, initialing documents designed to inform them, and are informed of nothing. The protection became the ignorance. Philanthropic process accreted the same way—one defensible requirement at a time—until the reporting no longer surfaces problems. It surfaces compliance. But at least in real estate, the person clicking through all that disclosure is ostensibly the person being protected. In philanthropy, the grantee bears the entire cost of a system designed to protect the funder.

The grantee writes the application. The grantee builds the budget in the funder’s format. The grantee tracks the metrics the funder chose. The grantee writes the reports. The grantee hosts the site visit. The grantee does all of this for every funder, in every funder’s format—often before a single dollar has been awarded. This is not diligence. It is a power dynamic dressed up as diligence.

And it is a regressive one. There is a difference between a funder’s stress and a grantee’s stress. The funder lies awake wondering whether she made a good bet. The grantee lies awake wondering whether he can make payroll. The compliance apparatus is built by the person losing sleep over the bet and imposed on the person losing sleep over payroll, and it falls hardest on the organizations with the least capacity to absorb it, often led by people who have been historically locked out of capital and closest to the communities philanthropy claims to prioritize. Drag is regressive by design, not by intention. That doesn’t make it neutral. It makes it invisible.

What’s Yours?

I am not proposing a universal formula, nor building an index or a rating system. I am a practitioner, not an econometrician, and I have no interest in creating another compliance tool that becomes its own source of drag. What I am proposing is a name.

Every funder imposes friction. Most did not design it. It accumulated, and now we can see it. Not every grantee needs the same coefficient—a first grant to an unproven organization is not the same as a tenth renewal to your strongest partner. The question is not whether you have drag. It is whether the drag matches the relationship. And continuing without calculating—choosing drag without naming what it costs—is no longer an oversight. It is a decision. If it’s yours, own it.

Others will take a look and realize they’ve been billing their grantees for their own anxiety, that their diligence isn’t producing better outcomes but only more paper. They’re spending 31 percent on administration and it isn’t protecting them from failure. It is the failure.

What’s the drag coefficient of your philanthropy? Your grantees already know the answer. They’ve known it for years. They just haven’t had permission to say it out loud. This gives them the language.