Raising Money in the Downturn

I attended the Greenlights for Nonprofit Success Town Hall Meeting today about the economic downturn and what it means for Austin’s nonprofit community.  It was very interesting.

Economist John Hockenyos gave a great overview of where we are currently with the financial markets and what the implications for the nonprofit sector are.  Basically, he said our economy has been dealt a significant blow, and the good news is that we’re still standing, but the bad news is it’s going to be rough for the next 18 months or so.  James Landrum of Comerica Bank talked about the importance of communicating with your financial institutions during this time and exploring your options.  Jackie Mata of the KDK-Harman Foundation gave a great explanation of how the downturn in the markets might affect foundations’ ability to maintain their giving level over the next couple of years. However, the good news is that her informal survey of Central Texas foundations found that the majority are planning to maintain their dollars or even increase them over the next year, regardless of the market downturn.  Finally, PeopleFund executive director Margo Weisz talked about creative ways of tapping into your donor base and further engaging and investing them.  She gave a great example of how she has brought together a small group of funders and potential funders who have an expertise in a new financial vehicle they want to introduce.  By getting this group engaged and invested in a new project, she hopes to get them financially invested as well.

There were many implications for the nonprofit sector, chief among them for me, and what I strongly believe, is that you can’t stop investing in your organization even if the economy is bleak.  Yes, you need to tighten expenses, yes raises might have to be lower or nonexistent, and yes open positions may have to stay open for awhile, but don’t cut back on your revenue-generating activities.  In fact, there is a great short article in the Stanford Social Innovation Review that makes the very same point, “Warren Buffett’s Fundraising Advice,” which argues that we need to use Warren Buffett’s approach to investing in our fundraising activity.  Now is the time to strengthen our relationships with our closest donors, get to know them and their interests, make our case for support even more strongly.  In fact, recessions can sometimes be very good for  business.  There is less competition, fewer distractions and the businesses that survive come out leaner and meaner on the other side.

Always the optimist, I really believe that the downturn can hold great opportunity for the social sector.  Not just for fundraisers, but for organizations and the sector overall.  I’ve written about this here and here.

Out of adversity comes innovation.  These are exciting times.

Tags: Fundraising, Nonprofits

A Sign of the Times

There is a fascinating discussion happening on a few social innovation blogs.  It centers around a small (less than $500,000 annual budget) nonprofit that does important work, but is struggling to the brink of closing down.  Given the current economy, this will probably be a more common occurrence in the coming months.

FORGE harnesses the power of refugees in African camps in order to promote peace-building and social stabilization. Founder & Executive Director Kjerstin Erickson has been blogging about the immediate financial crisis FORGE is facing-a $100K budget shortfall for this year (25% of their annual budget).  They recently changed their business model where refugees now create the programs instead of having American student volunteers, who had also been required to raise money, create the programs. At the same time a donor mailing that usually contributes a good bit of money was sent at the height of the recent financial crisis.  Their new revenue model is based on the idea that people would visit their website and create a Kiva-like scenario, where donors find programs that appeal to them and contribute accordingly, but it hasn’t panned out yet.

Other bloggers have taken notice and asked what can be done to help this innovative nonprofit survive.  Sean Stannard-Stockton’s Tactical Philanthropy blog, called Kjerstin’s The Most Important Nonprofit Blog, because “it is a fascinating real world drama of a social media savvy, impact focused nonprofit trying to deal with the financial crisis.”

The resulting discussion here and here has been really interesting.  I was even compelled to join in.  It seems to me that FORGE is a perfect case study, or microcosm, of some of the trends occurring in the social sector.  FORGE is a great example of a social entrepreneur taking a new view of a problem and coming up with an innovative solution that is scalable.  However, that innovation must be paired with strategy, a solid business plan and a sustainable revenue model.  It is interesting to me that in her response to some of the blog comments, Kjerstin says that their strategy is sound, but their fundraising and marketing skills may be lacking:

We (I take most of the responsibility) made some pretty naive/inaccurate assumptions about the way funding would work under our new model, and that says something about FORGE and my judgment. What I am hoping is that those that are out there listening are able to decouple strength in marketing and fundraising with strength in strategy, programming, and impact management.

I would argue that strength in strategy, programming and impact management INCLUDES strength in marketing and fundraising.  You can’t have a strong, strategic, sustainable program that creates real change without having a revenue model behind it.  A great idea is a start, but unless you can combine that with a business model that works and is sustainable it remains just an idea.

FORGE is definitely on to something, and I admire Kjerstin’s tenacity and courage, especially her ability to document FORGE’s weaknesses and to ask for help.  However, the whole thing reminds me a little bit of the dot com era.  During the boom, the assumption was that there was an “old” way of doing business and determining value and a “new” way that was less interested in profitability, etc.  There are a lot of exciting things going on in the social space and some really great ideas and new ways of looking at things.  But the fundamentals of the space are still the same.  Social mission organizations still exist within a market economy, therefore in order to survive they must find consumers who will pay for the services they provide, i.e. donors.  When FORGE gave up their model of volunteer program directors helping to fundraise for the programs they run, they gave up the revenue piece and there wasn’t much left in its place.  They had hoped that their website would generate donors, but that takes time to build.  They needed, and still do, to build a base of donors who would support them through other means.  Foundations, wealthy individuals, etc.  The “old” line of funds available to nonprofit organizations.

If they were to ask for my advice to get out of this situation I would recommend the following:

1. Start with your board and major donors (if they have any).  Who on that list could make a large donation ($10-25K) or could open the door to such a donation? This would help them cover the shortfall and keep them in business.
2. Put together a new business plan that creates a sustainable, scalable revenue model to replaces the one they lost.  Is there a creative way to generate revenue (earned or philanthropic) that could be on-going?
3. As part of this plan, determine what infrastructure (staffing, technology, etc.) will be required to fully realize this new plan.  I would recommend a Development Director or Business Development Director, or other revenue-generating position be added to the team.  Then put a price tag on that plan and start shopping it around to your board, wealthy donors, foundations, etc.  Determine what the ROI of such an investment would be.  If you could fully implement your new plan and make FORGE scalable and sustainable, how many lives will you change, what is the long-term impact?  Compare that to the investment being made and you start to have a compelling argument for some pretty serious growth capital.
4. Once you have the shortfall money in house and the growth capital in place then put your plan in motion and be ever-cognizant of the connection between strategy, program scale and revenue.  In order not to end up here again, you have to be clear that your business model and any changes to it have to include revenue implications.

The new ideas happening in the social space are exciting, but we have to understand them and implement them within the knowledge we have gained from philanthropy and the social sector over time.  A great idea isn’t enough, you need a solid business model behind it.

Tags: Funding, nonprofit, Social Entrepreneurship

Why Not Austin?

Social innovation is gaining a lot of momentum along the two coasts of the country. San Francisco, Seattle, Boston, D.C., New York are just a few places where these new ideas are taking hold. The Bay Area alone seems to be a hotbed of social investing, venture philanthropy, social enterprise, etc. The Social Capital Markets Conference earlier this month in San Francisco brought together leaders in the social investing, philanthropy, nonprofit, social enterprise space to talk about how to create a social capital market (a market for capital employed towards solving social problems). You can read a roundup of different blogs on the conference here and see video of various sessions here.

At the same time, foundations in the Bay Area, New York, Boston understand this growing movement and are providing growth capital and other incentives to help social entrepreneurs find and solve the root causes of problems.

These cities are witnessing an exciting blend of talent, money, great ideas, energy, initiative and enthusiasm that is resulting in some new ways to tackle the many problems facing our country today.

I’d like to see that similar energy and enthusiasm here in Austin and in the Southwest region of our country. Austin is the 3rd largest venture capital city in the country. I would argue that being a venture capital center makes Austin a ripe candidate for social innovation. San Francisco and Seattle (venture capital cities #1 and #2) have embraced social innovation and are home to several venture philanthropy funds, capacity and growth capital-focused foundations, social entrepreneurs, social investment funds, and social enterprises. Over the last ten to fifteen years these communities have fostered a new way of thinking about and blending the for-profit, non-profit and government sectors in order to find solutions to complex social problems.

I see the same opportunity for Austin. We have a wealthy, talented entrepreneurial sector, a diverse nonprofit sector, and complex social problems. If we can embrace social innovation here we can not only solve our own problems, but also, and more importantly, we can add to the national conversation.  We need to come together with new ideas that tackle our problems at the root.  The problems of the economy, education, healthcare, poverty are too large for any single entity or sector to solve. These times call for bigger solutions. Social innovation provides those solutions.

Tags: Austin, Foundations, Social Entrepreneurship, social innovation, Social Investing, Venture Philanthropy

Root Cause of the Girl Effect

If you are interested in understanding what social entrepreneurship, or attacking the root cause of a social problem, means take a look at this Girl Effect video. It is the kick-off of a new initiative of the Nike Foundation and the NoVo Foundation (Warren Buffet’s son’s foundation). Their argument is that if you can change the life of a girl in the developing world you can change the world. By offering her a better education, an opportunity to participate in the economy, etc. the ripple effect for her family, her town, her country and the world is tremendous. This is attacking severe problems (poverty, illness, political instabilities) at the fundamental root, and therein lies the solution.

Tags: root causes, Social Entrepreneurship

Social Entrepreneurship Podcasts

If you want to know more about what social entrepreneurship is or what a social entrepreneur does, or you just feel like being inspired on a Friday afternoon, check out PRI’s (Public Radio International) Social Entrepreneurship Podcasts.  They highlight some amazing people and amazing ideas to solve social problems in an innovative way.  Thanks to Nathaniel Whittemore at Change.org for the tip.

Tags: Social Entrepreneurship

The Convergence of Social and Finance

If you are interested in the dramatic shifts the economy is currently undergoing and what it means for the long term, take a look at the article “Notes from the Leading Edge of Social Finance,” in the Fall issue of Green Money Journal written by Don Shaffer.  Don Shaffer is the CEO of RSF Social Finance, a 20+ year-old, leading-edge, San Francisco foundation that makes loans and grants to nonprofits. He is also the former interim head of Investors Circle, a 200+ member giving circle of venture capitalists who invest in businesses working towards a sustainable economy (social and environmental issues). Don gives a very interesting overview of where the economy is heading, and I think he is right on.

He argues that we are no longer content with an economy focused solely on individual gain, rather there is a new convergence of financial, social and environmental gain, where what is good for the investor is also good for society as a whole. Ultimately he sees the new economy “harnessing the striving energy and entrepreneurial drive of the American people to move more towards collaboration and partnership, instead of maximum individual gain, while honoring the power of free markets.” Here’s an excerpt:

International microfinance is drawing a lot of interest this year from U.S. investors. For good reason, it’s great to see direct investment going to small, growing entrepreneurial ventures in the developing world. But what about our neighbors? As the wealth divide continues to widen in this country, both in urban and rural areas, we are asking ourselves at RSF, “How can our clients best support small and medium-sized, privately held companies in the U.S. that have strong community development and ecological sustainability goals?”…We are creating a learning community that asks hard questions about money and how we use it, acknowledging that money is simply a form of energy that creates a relationship between human beings. What is true wealth…What is the right balance between investment and philanthropy…What does it look like to re-imagine money to serve our highest aspirations? What, specifically, will it take to develop a network of risk and liquidity appropriate financial vehicles that are completely different from the products of Wall Street?

These thoughts and questions are very similar to the conversations that were going on at the Social Capital Markets Conference earlier this month and that are going on around the country.  We are witnessing a pretty dramatic shift, and it is fascinating.

Tags: Economy, Green Money Journal, Investors Circle, RSF Social Finance, Social Enterprise, Social Finance, Social Investing, venture capital

A Better Way to Fundraise

A topic on many nonprofit Executive Director’s minds these days is how to find more money.  With foundation and individual donors poised to decrease their giving, governments strapped for cash, and corporate earnings, and thus their philanthropic giving programs, falling, it is difficult to figure out how to make fundraising programs already in place continue to meet their goals.

But there is a solution.  Strategic fundraising, or comprehensive revenue-generating activities that are based in strategy, can find dramatic results, even in a tough economy.

Strategic fundraising always starts with a plan.  In order to raise more money, you need a game plan to get there.  Many nonprofit organizations don’t have a comprehensive fundraising plan that details exactly what the goals are and how and when they will be met.  A fundraising plan should have 3 to 5 broad goals. For example:

1. Raise $XX from philanthropic sources
2. Raise $XX from earned-income or fee for service sources
3. Create or refine the infrastructure (technology, staffing, marketing, etc.) to meet these goals

With your goals determined you can then delineate the various deliverables, people responsible and timeline that will get you to each goal.  Such a plan drives your strategy for the entire year and tells you where to allocate resources most effectively.

Speaking of resources, strategic fundraising also necessitates that you look at each fundraising activity and determine its return on investment.  What does it cost to put on your annual fundraising gala? Not only the direct costs (food, decorations, etc.) but also the financial value of the staff time that goes into it.  When you factor all costs in, how much do you really raise?  Are there better ways to spend staff time that could raise more money?  For example, a major gifts campaign has the highest return on investment of any philanthropic fundraising activity.

You also want to look at your entire revenue picture and the sources of each piece.  If you are heavily dependent on one or two revenue sources (government funding, foundation grants) you could be hit harder when that source changes.  Diversifying your revenue strategically, for example launching an annual fund campaign to increase individual investments, looking at corporate sponsorship opportunities, getting your board of directors to invest time and money in fundraising, can strengthen your organization and cushion you from difficult periods.

And as you diversify revenue you want to look beyond typical philanthropic sources.  Earned revenue, fee-for-service, social enterprise, are all different names for the same thing:  selling a product or service to generate unrestricted income. Nonprofits have found success in generating revenue by selling something.  Museums (entrance fees) and schools (tuition) have been doing this for a long time, but other nonprofits are moving into the arena as well.  Job training nonprofits use their workforce to staff a restaurant, bakery, ice cream store.  Public broadcasting stations sell their television and radio programs on CDs and DVDs.  The list goes on.  Nonprofits have assets that they can turn into saleable products or services.  And the unrestricted revenue that successful earned income businesses generate can get them further along the path to financial sustainability.

There is an answer to a down economy.  It means thinking strategically, exploring new opportunities and being open to change.

Tags: Economy, Foundations, Fundraising, Nonprofits, Social Enterprise

Discussing the Downturn

My last few posts have focused on the downturn in the economy and how it already is, or soon might, affect the social sector.  It seems to be a topic on everyone’s mind.

I wrote an article that was just published today in Texas Nonprofits online magazine, entitled, “Social Innovation Provides Hope in the Uncertainty,” that explores how new models like social entrepreneurship, social enterprise and strategic fundraising could actually be very helpful, especially in times like these.

Also, Greenlights for Nonprofit Success, Austin’s nonprofit management center, is hosting a panel and discussion on October 30th to talk about how the economy may affect the sector and what can be done.  It should be very interesting; I plan to attend.

Tags: Economy, Fundraising, Nonprofits, Social Enterprise, Social Entrepreneurship

A Crazy Idea?

While everyone is thinking and worrying about the economic crisis and the potential detrimental effects on the nonprofit sector, an idea occurs to me.  With the continuing volatility in the stock market and a dark economic forecast at least for the next few months, perhaps the next year, foundations and individuals won’t make money on their investments in the market.  What if a foundation took say $100,000 from their corpus and made a program-related investment (PRI) in a nonprofit hoping to build their capacity to raise unrestricted dollars.  A PRI is basically a loan to a nonprofit at low interest rates.

What if a foundation, or a wealthy individual, loaned a nonprofit $100K+ for a 2-3 year term.  Then, the nonprofit could use that capital to invest in their fundraising infrastructure in order to diversify and be more strategic in raising unrestricted dollars.  They could hire a seasoned Development Director, purchase a new donor database, upgrade their website and email marketing efforts, launch a major gifts campaign, train their board, and so on.  The idea is that all of these investments would pay for themselves in 2 or 3 years, at which time the nonprofit could pay back the individual or the foundation.

We did something like this at KLRU, however it wasn’t with PRIs, but with donor investments, which in a market like this might be harder to come by.  With investments from a handful of donors totaling $350K we completely revamped our fundraising function and increased annual revenue by $1.6 million, a 40% increase.  That’s a pretty amazing ROI.  And donors loved it.

If you applied this idea to PRIs, donors could help nonprofits increase their capacity and sustainability, while the donor protects his corpus in a down market.

Just a thought.

Tags: Foundations, Funding, PRIs