Reflections on the Downfall of Benefits Data Trust

In late July, The Chronicle of Philanthropy published a story by Sara Herschander titled “Why $20 Million From MacKenzie Scott Couldn’t Save This A.I. Nonprofit”. At the time, I jotted off a “hot take” reaction which I then whittled down to a pithier response letter to the editor.

While my original response is speculative — I don’t have access to Benefits Data Trust’s inside management thinking — I thought I’d share it here with that framing and the caveat that the below is based on my reading of the subtext contained in the quotes based on how we’ve seen similar cases play out in the field. The story provides a platform for a general takeaway about the importance of addressing organizational structure and culture (in addition to voicing my objection to the framing of this story in a way that might flame the fears of donor mistrust).

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Sara Herschander’s recent “Why $20 Million From MacKenzie Scott Couldn’t Save This A.I. Nonprofit” follows a much-loved boom-and-bust arc that may scratch a schadenfreude itch for some, but ultimately feeds a harmful donor mistrust narrative. By framing the headline and story around the mismanagement of a large, unrestricted gift rather than the larger context of the organization’s downfall, especially a mismatched business model, some crucial lessons are missed.

I was, of course, saddened by BDT’s closure – both for the loss of the important direct services it provided and the impact on its laid off employees. But rather than wrap the organization’s closure in a trope that assigns blame primarily to management, I saw a story of venture capitalism uncomfortably stuffed inside a traditional nonprofit. Essentially, an infusion of seed funding capital was invested in a high-risk/high-reward enterprise. In this worldview, where all the Silicon Valley cliches apply (move fast and break things, fail early and often), not only is failure accepted and expected, but the business model necessitates throwing a lot of money (often at tech workers) to see if they can solve a discrete problem quickly. It is not intended to be sustainable.

While I have no insight into BDT’s management and operations, I can understand how, by doubling down on AI to scale BDT’s services, the organization was likely thrust into the position of competing for tech workers whose other options were likely very lucrative.  BDT would need to combine that model and culture with a nonprofit model where return is measured in impact; where long-term impact relies on a funding model that supports ongoing operations; and where hockey stick growth is not rewarded by the market in the form of ongoing revenue that can sustain operations. The tension between these two cultures — disruptive tech v. long view sustainability — is hinted at in Herschander’s sources, and likely exacerbated by the pay disparity between the tech team and other employees.

Given this mismatch, perhaps BDT could have considered a different business model, such as a spin-off subsidiary, which would have allowed each model and culture to operate in their respective contexts — each pursuing distinct strategies while working towards the same mission.

Could BDT have thought through a more focused strategy that didn’t leave its important direct services vulnerable to the failure of a high-risk approach that doubled down on AI? Sure – the absence of a strategic plan coupled with financial abundance can lead many well-intentioned nonprofit warriors to take on more than they can sustain for the long haul. But given that BDT was straddling competing mindsets with one (responsible for much of the funding) equating success with rapid growth, however short lived, and the other prioritizing sustainability, it may have been impossible for management to align on a coherent strategy.

Should BDT have worked to diversify its fundraising stream towards a more sustainable model, anticipating that its one-time grants would run out? Of course. But Herschander’s source indicated that BDT had trouble convincing other funders of their need in light of the highly public MacKenzie Scott gift (an experience we know many fear, but which is contradicted in the macro by the findings of the Center for Effective Philanthropy’s study cited).

Would raising the alarm earlier and asking for help have extended their runway and mobilized other funders to help out? This is a harder one that we’ve been seeing play out in theme and variation across the field. When nonprofit leaders are facing existential crises — especially when they are overworked, burned out, and operating in an always-urgent mindset — it’s hard to cast their view far enough ahead to ask for help before it’s too late. It’s difficult for anyone to admit defeat, but leaders in particular are trained to convey success and optimism because that attracts future funding – especially when they’re talking to funders, supporters, and even consultants. BDT, operating with one foot in the cowboy culture of AI and tech, likely had difficulty letting go of an invincible, we’ll-get-out-of-this-somehow, mindset.

Still, the five points Herschander outlines for “Planning for Sustainable Growth” resonate and are critical. Our firm has supported dozens of Ford Foundation BUILD grantees with similar challenges of rapid growth and sustainability over the past few years. But it doesn’t change the fact that nonprofit leaders need more support, trust, and unrestricted support now more than ever. The sector also requires innovation, with some fields (cough, performing arts, from where I come) potentially needing a full-scale business model transformation. And innovation requires some degree of risk. Framed as a cautionary tale, I worry that the BDT story will not only discourage the laudable investments we’ve seen from MacKenzie Scott, but also that it will discourage innovation and put even more outsized pressure on nonprofit leaders when so many are already fleeing the field.

So, is BDT’s closure a failure? Not when viewed through the tech world’s “failing forward” lens. Should funders stop giving large one-time grants? No! These are essential in providing organizations that do important, yet long under-resourced work with the support they need to build capacity. Does the funding community need to recognize that in addition to exciting, large one-time grants, it should step-up (less exciting) long-term investments? Absolutely.

Funders, please don’t be discouraged. Remember, the vast majority of large cash infusions have been managed quite responsibly. While MacKenzie Scott has stepped into a much-needed seed investor role for the sector, we need more Series A, B, and C funders who will commit to longer-term support to sustain critical work.

And for both my funder and nonprofit leader friends, please stop equating success and impact with growth, and please, please, don’t forget the strategy.