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7 Things Funders Don’t Get About Fundraising

By Nell Edgington



nonprofit fundraisingIn the nonprofit world there is often a disconnect between funders of nonprofits and their understanding of the fundraising activity necessary to secure their gifts. Funders (and board members) rarely understand how critical fundraising is, how it works, and what’s required to do it well.

But in the hope that greater understanding leads to better actions, I’d like to offer 7 of the most important things funders (and really the sector as a whole) should understand about fundraising:

  1. Nonprofits Must Fundraise or Perish 
    It seems so obvious, but so many in the nonprofit sector act as if fundraising can be ignored or shuffled to the side. Board members hate to do it, and foundations refuse to fund it. But let’s be clear. Without a strategic, sophisticated mechanism for bringing regular revenue in the door there is no organization and certainly no social change. Fundraising must happen, and it must happen effectively in order for a nonprofit to survive and thrive. So funders (and board members) do not have the luxury of saying they don’t want to talk about, think about, or fund fundraising efforts.

  2. There is a Sector-wide Lack of Fundraising Knowledge
    Because fundraising has for so long been ignored or sidelined, most nonprofit leaders and their board members don’t have sufficient fundraising experience or training. And neither do funders. There hasn’t been enough research into the fundraising discipline broadly and little investment in educating nonprofit leaders about how to do it well. The end result is that few people know how to crack the fundraising nut.

  3. Every Nonprofit Has Two Customers
    Part of the solution to cracking that nut is understanding that unlike for-profit entities, nonprofits have two (not just one) set of customers. Nonprofits provide products and/or services to the first customer (“Clients”), but “sell” those services to the second customer (“Funders”). Therefore “sales” in the nonprofit world is much more complex than it is in the for-profit world. Yet for-profit businesses can spend much more money on their sales and marketing staff, training, systems and materials than a nonprofit is allowed to spend on fundraising.

  4. It Takes Money to Make Money
    So in order to do fundraising well nonprofits must invest in their fundraising function (planning, staff, training, systems, materials). Those nonprofits that develop a strategic financial model that is fully integrated with their mission and core competencies will be more sustainable and more effective at creating social change. So nonprofit leaders must start asking for the money necessary to build effective financial models.

  5. Sustainability is a Funder’s Problem Too
    And funders must start providing it. Funders often want a nonprofit to demonstrate financial sustainability, but those same funders won’t invest in the capacity necessary to create that sustainability. Instead of just pointing out the sustainability problem, funders must become part of the solution. Funders should step up to the plate to help nonprofits create a capacity building plan and then provide capacity capital (along with other fellow funders) to build a more sustainable organization that will survive once a funder is gone.

  6. Earned Income is Not a Solution
    But a more sustainable organization does not mean one based on earned income, or selling a product or service. Nonprofits will always be subsidized, at least in part, by private and/or public contributions. By definition, nonprofits exist to address a failing in the market economy (i.e. not enough food or jobs). Thus, those failings will never be overcome purely by market forces. So while earned income is something every nonprofit should explore, it is not right for every organization and will never become 100% of a nonprofit’s revenue model. So don’t confuse sustainability, which means a longterm financial model, with earned income.

  7. Nonprofit Leaders Fear Funders
    Let’s just be honest. A funder is providing much needed resources to a nonprofit and that automatically creates a power imbalance. Until we figure out a way around that inherent dynamic, funders must limit the hurdles they put in the way of nonprofit leaders and instead give them the financial runway to make their social change vision happen.

Let’s face it, without money there is no social change. But the knowledge, experience and infrastructure necessary to generate enough money is woefully short in the nonprofit sector. That could change if funders lead the way toward more investment in strategic, sustainable financial models.

Photo Credit: 401K Calculator

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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.


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12 Comments to 7 Things Funders Don’t Get About Fundraising

Steve Kussmann
June 18, 2015

Nell,

Your approach is miles ahead of the field and ties nicely to your work on performance improvement. Strategic fundraising is a critical concept as funders increasingly expect social change outcome from the sector. Thank you for your efforts to lead this sea change.

Regards,

Steve

Nell Edgington
June 18, 2015

Steve,

Thanks so much for the kind words.

[…] Here are 7 Things Funders Don’t Get About Fundraising. […]

George Ferrari
June 22, 2015

I find myself constantly straddling the worlds of funder and fundraiser as a CEO for a community foundation which needs to raise 2/3 to 3/4 of our annual operating revenue needs every year. Community foundations could be in a unique position to assist with this dialogue between these two worlds.

Nell Edgington
June 22, 2015

Yes, that’s an interesting point, George. Since they understand both side of this power dynamic community foundations could provide insight.

Nell Edgington
June 22, 2015

Yes, that’s an interesting point, George. Since they understand both sides of this power dynamic community foundations could provide insight.

[…] Here are 7 of the most important things nonprofit funders should understand about fundraising.  […]

Dave Johnson
July 21, 2015

Nell, this is “spot on”. In my over 30 years in the non-profit world and now as a consultant, I continue to be appalled at the lack of understanding of how non-profits must capitalize their operating, capital and endowment budgets. I have come to conclude that most board members are afraid to “look into the mirror” and ask themselves about the depth of their passion and willingness to provide generous financial support. It’s always easier to “raise money from someone else” and then, “spend someone else’s money”. Wish this was not the case, but………

Thanks for a great piece.

Nell Edgington
July 23, 2015

Thanks Dave. Yes, there is definitely much more work to be done!

[…] In the nonprofit world there is often a disconnect between funders of nonprofits and their understanding of the fundraising activity necessary to secure their gifts. Funders (and board members) rarely understand how critical fundraising is, how it works, and what’s required to do it well. (Social Velocity) […]

Jacky Hood
July 25, 2015

Many for-profits have two or more types of customers: advertising-support media (including Facebook and Google), insurance companies (companies or governments choose and often pay but employees/citizens benefit), veterinarians (the critter that’s ill is not the critter who pays), and textbook companies who focus their marketing on professors while students are stuck with the product. Software and electronic companies get users to choose and their companies must pay.

Rollie Cole
August 18, 2015

#3 is incredibly important. I would put it slightly differently, what I call my A to B to C system.

The donors are contracting with the nonprofit to deliver services (and/or goods) to a group of third parties. Ordinarily, the “third parties” are not inert, like plants in a garden, but are themselves human beings with all the complexity that involves. Just to add to the fun, sometimes the A group overlaps with the C group, as in Symphonic Orchestra donors who are also regular attendees of the concerts of that group.

When the C group pays somethings (concert tickets for instance) you do have “two sets of customers.” But when the C group is not “purchasing” services from the nonprofit (B), you do not really have two sets of “customers” but a set of customers (A/donors) and a set of clients (C/service recipients).

There are for-profit parallels — think Google for instance, where advertisers pay for access to Google’s “users.” Or newspapers, where advertisers pay for access to the newspaper’s readers (who may themselves subscribe, so is a “two-customer” situation).

But the existence of at least three groups (my A-B-C) is what makes nonprofits so challenging.

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