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Financing not Fundraising

By Nell Edgington



Note: This post is the first in our ongoing blog series, Financing Not Fundraising.

As we approach the end of a pretty difficult year for nonprofit fundraisers, and look towards the start of what could be an equally difficult one, I’d like to outline a new vision for how the nonprofit sector gets funded.  Fundraising in its current form just doesn’t work anymore.  Indeed, traditional fundraising is holding the sector back by keeping nonprofits in the starvation cycle of trying to do more and more with less and less.

Really, what the sector needs is a financing strategy, not a fundraising strategy.  By that I mean that nonprofits have to break out of the narrow view that traditional FUNDRAISING (individual donor appeals, events, foundation grants) will completely fund all of their activities.  Instead, nonprofits must work to create a broader approach to securing the overall FINANCING necessary to create social change.

What does this new approach to financing the nonprofit sector look like?  It looks like this:

  1. Nonprofits understand that funding programs and general operating expenses is not enough to survive and thrive.  All activities that bring money in the door (individual donors, foundation grants, earned income, government contracts, loans etc) are integrated and part of a larger financing strategy that supports the short AND long term goals, as well as the programs AND infrastructure of the organization.

  2. Nonprofits no longer segregate fundraising from their other activities (programming, administration).  All elements of a nonprofit’s operations, including the money-making ones, are fully integrated and moving forward together.

  3. Individuals, who make up 80%+ of the private money entering the sector, become a greater focus of fundraising efforts, rather than corporate or foundation philanthropy (which make up 5% and 12%, respectively, of the private money entering the sector).

  4. Fundraising messaging moves from an emphasis on the tin-cup mentality and donor benefit, to an emphasis on the social impact a nonprofit is creating.

  5. Money is raised to support not only the direct services that a nonprofit provides, but also the infrastructure (staff, technology, systems, evaluation, training) of the organization.  Nonprofits understand that they will only get better at delivering impact if they have an effective organization behind their work.

  6. Other types of capital vehicles (like loans, equity) are added into a nonprofit’s financing mix.

  7. Earned-income opportunities are evaluated and, if appropriate, launched.  Earned income is not right for every nonprofit, but it is worth exploring and analyzing opportunities as they come and understanding and being open to the revenue-generation possibilities.

  8. The net revenue of every money-making activity a nonprofit engages in (events, individual fundraising appeals, corporate sponsorships, earned income, etc.) is calculated and evaluated.  Low net revenue activities are replaced with higher net endeavors.

  9. Nonprofits move away from “push” fundraising and marketing efforts that force their message on innocent bystanders (like direct mail appeals) and towards “pull” fundraising and marketing efforts that bring interested donors/prospects to the organization (like blogs, Twitter, Facebook, friend-raising events, etc.)

There really is a better way.  Nonprofits don’t have to wear out their fundraisers, their donors, their staff and their message.  By working towards financing their efforts as opposed to fundraising for them, they can get a lot closer to social impact.

If you want to learn more about applying the concepts of Financing Not Fundraising to your nonprofit, check out our Financing Not Fundraising Webinar Series, or download the 27-page Financing Not Fundraising e-book.


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About the Author: Nell Edgington is President of Social Velocity (www.socialvelocity.net), a management consulting firm leading nonprofits to greater social impact and financial sustainability. Social Velocity helps nonprofits grow their programs, bring more money in the door, and use resources more effectively. For more information, check out Social Velocity consulting services and clients.

Monday, December 14th, 2009 Capacity Building, Financing, Fundraising, Nonprofits, Planning

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22 Comments to Financing not Fundraising

Melinda Lewis
December 15, 2009

Absolutely–maybe this necessity will be the mother of some needed invention! I’d just add that we also need to be strategic and courageous with our advocacy, so that nonprofit organizations are getting what we deserve from public sources, as well, which have largely retreated from their former investments and, in many cases, are at least implicitly responsible for some of the challenges/needs that many nonprofits–at least those in the human services/community development/maybe environmental realms– are trying to fill. Less ‘demand’, in this case, would be a welcome thing!

Nell Edgington
December 15, 2009

I completely agree with you. Just as we need to rethink how nonprofits are funded, we need to rethink how government supports social impact. There needs to be much change there as well.

Teofilo Tijerina
December 15, 2009

I love the article Nell. I’m happy to report that we have adopted some and are modifying our approach to align with your recommendations.

I am however struggling to find Philanthropists that think beyond geography. It seems most folks I know are very focused on their hometowns or cities, and not interested in new ideas, approaches, or projects unless they impact their local community. And since we focus in impoverished areas, the existence of philanthropic capital in those communities is low, and often comes with strings attached or favors in return.

Nell Edgington
December 16, 2009

I think the key to raising philanthropic capital in impoverished areas is to find philanthropist who you can convince in a compelling way that the impact you are creating is important to them. As a simple example look at the tremendous amount of philanthropic aid that is going to the poorest areas of Africa right now. The philanthropists who are investing there see no benefit to the communities from which they personally come, however they are very committed to the impact they are seeing in those African communities. You have to figure out how to “sell” the impact you are creating in a way that is compelling to investors.

Michael Gilbert
December 17, 2009

I am a professional fundraiser and I completely agree that the current model isn’t working any more. One key factor is that it has become increasingy difficult to build a volunteer corps to help you go out and raise funds. Getting people to sit on a development committee and take their roles as volunteer fundraisers seriously has become nearly an impossible task.

You’re absolutely right to advise nonprovits to diversify their revenue bases. By doing so they will actually become MORE attractive for donors who will see them as sound recipients for philanthropic investments.

Nell Edgington
December 17, 2009

I agree. Donors want to see sustainability in the nonprofits they fund and diversification is a key part of that.

Raymond J. Mitchell
December 17, 2009

In my humble opinion, there is no reason to disagree with the essence of your hypothesis. In a sense, you are suggesting, as many have for decades now, that nonprofit organizations operate in a more “business-like” manner, and nobody would disagree with that concept.

At the same time, however, I would point out that many, or even most, nonprofit organizations (at least those that are thriving and doing well) already operate with some kind of a general financial strategy and plan in place — one that is fully integrated with a component advancement/philanthropy strategy and plan.

In my own experience over more than 30 years in the nonprofit sector — about half of them as a senior staffer in some large and well-known nonprofit institutions — I never saw an organization that operated solely on the hope of philanthropic income. For any one of those organizations (four of them substantial hospitals), doing so would have been suicidal!

As a consultant over the past 14 years, I have, indeed, experienced some nonprofits that tried to survive without much more than a plan (and a fervent hope) to generate contributed income. Typically, these are the organizations that struggle to survive and thrive. Often, sad to say, they fail.

So, my bottom line is that your hypothesis is “right-on” and, with all due respect, is nothing new, at least from my own experience. It is, at the same time, a subject area always worthy of emphasis and discussion in the nonprofit sector.

Great tips i really like your ideas on moving towards pull fundraising.

Nell Edgington
December 21, 2009

Raymond,

Thanks for your comments. Let me respond to a couple of things. First of all, I wouldn’t agree that nonprofits need to be more “business-like.” Just because an organization is a for-profit rather than a nonprofit doesn’t mean that it is more effective or efficient at how it turns resources into something worthwhile. I wasn’t arguing that nonprofits need to become more business-like, rather, I was arguing that they need to become better financed.

Secondly, I think you are fortunate to have worked with what sounds like some of the largest and most sophisticated nonprofit organizations in the country–organizations that have very large and diversified revenue bases. But sadly, that is the exception, rather than the rule. My experience over the course of my career is that very few nonprofit organizations have a finance strategy, and some don’t even have a solid fundraising strategy. I think that one of the biggest things holding the nonprofit sector back is their inability to adequately fund their work. So my argument was an attempt to help nonprofits see that there is a better path. A path which most are not yet taking.

Raymond J. Mitchell
December 29, 2009

Nell,

On your second point, I think we actually are pretty much in agreement. As I suggested in my original comments, any nonprofits that seek to survive and thrive will need to have some kind of overall -short and long-term financial strategy, including the all-important, integrated fundraising strategy and plan. Otherwise, as I said, they likely will fail. Sadly, I’ve encountered many that had nothing more than a simple fundraising plan and mostly a fervent hope to generate contributed income.

On your first point, I would point out that I certainly was not suggesting that a for-profit organization is, simply its nature, “more effective or efficient at how it turns resources into something worthwhile” than a nonprofit can be.

What I was suggesting is that nonprofit organizations that operate with the kind of financing strategy and income-source development activities that you recommend are, in fact, acting more “businesslike” or operating more like for-profit organizations, because no for-profit business would be operated in any other fashion. Otherwise, they, too, would fail!

Keep up the good work! Thanks for the opportunity to chime in on this subject.

Angelina Musik
January 1, 2010

For a decade my husband and I have been working with social entrepreneurs, corporate companies and even launched http://MOMtrepreneurs.com as our own.

This past December we launched the Red Dress Society’s ‘Angel’ award process to provide an opportunity for women behind social causes to be nominated/recognized and then demonstrate their assertiveness behind their passion as part of the judging process.

One of our goals is to make the process of matching donors with progressive causes that embrace change, technology and view funding opportunities from an ROI perspective, instead of the ‘beggar’ for more donations mentality.

Our first event was in San Antonio, Texas and our next four events are in Portland, Seattle, then Tampa Bay & Miami.

Nominate a woman behind a social cause here http://TheRedDressSociety.com

Vipul
June 24, 2010

Totally agree Nell. Fundraising poses a lot of limitations on the operations. Financing will have to be the new mantra and the way to go.

[...] Financing, Not Fundraising [...]

Olayinka
July 4, 2011

This piece is really thought provoking. Fundraising tends to box you into a corner. Having to align your project to donors vision and discard it when you have finished spending the money. Financing strategy is the way to go but then this shift will take time to mature.

Nell Edgington
July 4, 2011

Olayinka,

I absolutely agree, this approach definitely takes time. But I believe that nonprofits really don’t have a choice. The status quo is a dead end.

Ron
July 5, 2011

Interesting! This is not a new concept and the more progressive non-profits have been working on this for many years with limited success. Yes, it will take time, but I believe a change in philosophy is needed not only within the staffing of these organizations but by the large volunteer base. It is a culture change that is needed and this can only successfully be initiated by strong focused leadership – staff and volunteer leadership.
The term “non-profit” is totally misleading. Without “profit” (revenue exceeding expenses) no non-profit can fulfill its mission. Leaders in this industry have to think like business leaders and entrepreneurs if they are to make an impact on the fortunes and success of these organizations. Focus on the mission is critical. This focus needs to drive a strategy which can clearly demonstrate to potential “investors” the “return” they will get from their “investment” in the mission. Not an easy task, but attainable.
This is just a sample on my thoughts and research on this sector.

Nell Edgington
July 5, 2011

Thanks Ron. It is definitely a culture change, let’s hope it takes hold!

Mary Kuria
October 13, 2011

This is great piece, very encouraging. It is not fair for organisations to ‘beg’ for funds to undertake what should be everyone’ s responsibilities.

As fundraisers we need to convince our investors that the return to their funds are worth their investments.

I believe we need to be better at marketing our products, with no apologies.

Great work and good luck

Nell Edgington
October 13, 2011

Thanks Mary. I absolutely agree, we need to move from begging to marketing around the social return on investment, with no apologies.

Jonathan Howard
November 29, 2011

Great series. I totally agree we consultants need to refocus clients on their whole financing picture. I have mixed feelings about the title “Financing Not Fundraising.” It’s a solid, challenging heading for the series, yet to most of us, a focus on individual giving, as you recommend, is the essence of traditional “fundraising,” even when we use, as many already do, a social investment case for giving. It might be more apt, if less striking, to say “Financing AND Fundraising.”

Nell Edgington
November 30, 2011

Jonathan,

I’m not arguing at all that nonprofits should “focus” on individual giving, rather I’m arguing that they see individual giving as one possible revenue stream in an expanded, diversified and more sustainable overall financing plan for their organizations. To me, traditional fundraising is a very narrow, exhausting, low-return series of activities that results in nonprofits continuing to live in a starvation cycle. Financing, on the other hand, encourages nonprofits to break free from that cycle and develop a strategic, thoughtful, systematic way to bring enough money in the door to reach their goals.

[...] Financing not Fundraising, by Social Velocity [...]

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