Financing Not Fundraising: Finding Individual Donors

In part four of our ongoing Financing Not Fundraising blog series, we are focusing on the most untapped, greatest sustainable funding opportunity facing the nonprofit sector. Individual donor dollars make up 80% of the private money entering the nonprofit sector each year, compared to 5% from corporate dollars and 12% from foundation dollars. Yet many nonprofit organizations don’t know how to effectively embrace the full opportunity of that market.

Here are five steps to get you started:

1. Move Beyond Direct Mail. While direct mail used to be the only way to find individuals willing to support your cause, there are now many additional channels you must explore to stay relevant (email, blogs, Facebook, Twitter, etc). Beth Kanter and Allison Fine’s new book The Networked Nonprofit makes a fundamental argument about how nonprofit organizations can use social media to leverage people outside of the organization (donors, volunteers, supporters) to build momentum (resources, funds, mind-share, advocacy, etc) for their cause. If nonprofits more effectively used social media to build their networks, individual donor fundraising could be revolutionized.




2. Don’t Separate Donors From Other Supporters. Just as fundraising is often sequestered from the program work of the organization, funders are also often kept separate from other organization supporters.  Volunteers are often left off funding appeals for fear of asking them to do “one more thing” for the organization. And funders are not asked to become volunteers or advocates. Instead of putting organization supporters into silos, open all opportunities to everyone. Better yet, ask (or allow) supporters to create their own ways to accelerate the work of the organization (like tapping into their own networks to help). Once integrated, the possibilities for building support are endless.




3. Stop Fearing the Major Donor. Many nonprofit organizations would love to have major individual gifts coming in the door, but don’t know how to find and solicit those donors. The process, once understood, is actually pretty simple. You must identify, qualify, cultivate, solicit and, most importantly, steward donors. Use your board, volunteers, supporters to help identify and qualify people who meet three criteria: 1) belief in the organization’s cause 2)connection to a person at the organization 3)personal capacity to give at your major donor level. Once board, friends, supporters are involved in a well-defined process, major donors are sure to follow.




4. Get Your Board Focused. Boards of Directors are often misused in fundraising. They serve on event committees, write grants, make cold calls, or seal envelopes. Instead of using them for these low ROI activities, give them one fundraising job and one job only: to help move major donors through the cycle outlined above. Even if board members don’t have networks of wealthy friends, there is still much they can do to help raise major donor dollars. Board members can help identify major donor prospects, uncover information about potential prospects, invite prospects to a cultivation event, go on a major donor call, send thank you notes or make phone calls. The board is a key part of your organization’s network, put them to their highest and best use.




5. Do Away With the Pity Ask. To effectively raise money from individual donors, especially major donors, you have to move away from the pity donation and toward the investment opportunity. Donations and investments differ in every aspect:
   And investment opportunities are not only for the major donor. Even your smallest donor can be made to understand the broader impact of the organization’s work, how important their dollar is, and what the return on investment can be.

Individuals are able and want to do so much more. If nonprofits more effectively seized opportunities to engage and invest individuals, the sector could become more sustainable and better able to create change.

Tags: Allison Fine, Beth Kanter, financing not fundraising, individual donors, major donor fundraising, nonprofit board of directors, nonprofit fundraising, The Networked Nonprofit

What Social Value Do Nonprofits Really Create?

I have a new post up at the Change.org Social Entrepreneurship blog called “What Social Value Do Nonprofits Really Create?” Here is an excerpt:

There is a concept that good entrepreneurs know only too well, but nonprofits could stand to explore. A “value proposition” is the unique value a product or service provides a consumer. Without a value proposition a business has no place in the market. For a nonprofit, a social value proposition is just as critical to success, but often ignored. In an increasingly competitive marketplace, due in part to the growth of for-profit social entrepreneurs, nonprofits must analyze, articulate, and deliver on a social value proposition.

In the past, nonprofits could exist without a value proposition. Donors wouldn’t argue that a library, homeless shelter, food pantry or school provided a necessary service. But as we move further down the road of social innovation, the assumption that money will automatically follow good works is no longer valid…

You can read the entire post here.

Tags: nonprofit, social entrepreneurs, social value proposition

Wielding the Money Sword

A new blog at the Chronicle of Philanthropy site launched this week that I’m pretty excited about. Written by Clara Miller and others at the Nonprofit Finance Fund, the Money and Mission blog will help nonprofits “understand and skillfully wield money as a tool.”  What a revolutionary idea.

As Clara writes in the inaugural post:

Great ideas, deep caring for those in need, creativity, resourcefulness, a service ethic, and an expansive vision for the future are abundant in the nonprofit world. But we lack the financial capacity to meet these ideals, and our financial habits undermine efforts to build it. We need to think of finance as more than a muddle of fund raising, budget monitoring, and compliance with overhead rules. The current, tough economic environment is spurring needed change. Now, understanding money concepts like risk, leverage, and accounting, seems to be a moral imperative.

Indeed, the nonprofit sector has for too long been burdened by a lack of financial literacy and thus an inability to use money effectively. Sure there isn’t enough money in the sector, but if nonprofit leaders better understood the financial tools available to them and how to use them to their advantage, the results could be revolutionary. This is the argument in our Financing not Fundraising series.

Capital campaigns provide a great example of this. Nonprofits have used capital campaigns for years to raise money for a new building or, less often, an endowment. Capital campaign money is raised and used in a very different way from how general operating money is raised and used. A capital campaigns USES money raised to buy a building. An annual fundraising campaign USES money raised to buy additional services that the nonprofit provides (food for a food bank, mentors for kids). An annual fundraising campaign often RAISES money by cobbling together various activities (events, grant writing, some direct mail appeals) hoping that the sum will equal the expenses needed for the year. A capital campaign, however, RAISES money by conducting a feasibility study to determine how much they can likely raise, then creates a plan, budget, and case for support. Then potential donors are cultivated and solicited in a systematic way. This is a deliberate, strategic way to bring capital campaign investors in the door.

However, capital campaigns are often misguided attempts to grow the impact of an organization. A nonprofit thinks that in order to be taken seriously in the community and attract larger donors they need to build a new building. Enormous amounts of time, energy and money are spent to create a building they don’t need, burn out their development staff, and eventually shoulder new building maintenance fees for years to come.

What if nonprofits could pour those same desires–to do more, to make a bigger impact, to attract more resources, to build deeper networks–and that same time, effort and resources into a campaign that will actually help them build a more effective, more sustainable organization that delivers more impact? What if the methods of a capital campaign were instead employed to raise growth or capacity capital that allows the organization to provide more, better services to the community? That would be huge. Enormous.

The Nonprofit Finance Fund turned capital campaigns on their head with their SEGUE (Sustainable Enhancement Grant) program. It is essentially a capital campaign, but instead of buying a building, the nonprofit raises growth capital to scale the organization for greater social impact. NFF takes a concept nonprofits understand and are comfortable with, a capital campaign, and transforms it into a way to raise organization building money, a completely new idea. I’d love to see more nonprofits using financial tools already available to them to accelerate their ability to create social impact.

Like it or not, money is an incredible tool. If nonprofit leaders could better understand it, stop fearing it, and learn how to wield it effectively, the results could be transformative.

Photo Credit: piermario

Tags: capital campaign, Chronicle of Philanthropy, Clara Miller, financing not fundraising, growth capital, Money and Mission blog, Nonprofit Finance Fund, SEGUE

What I’m Reading

Someone asked me the other day how long it takes me to write a blog post. I told them the writing only takes about an hour or two. However, the reading and thinking about what’s being done, or said, or written about and what I want to add to the conversation takes many times longer. So, to that end, I thought I’d give you a list of the blog posts, articles, and books that caught my interest and really made me think in the past month…

• Punching at Your Own Weight in Social Media
• Philanthropy’s Next Decade
• Leadership to the Rescue
• The Social Innovation Fund One Year Later
• The Giving Pledge and the Opportunity of a Generation
• U.S. Lagging, Not Leading, Social Entrepreneurship
• Warren Buffett’s Philanthropic Pledge
• How Can Nonprofits Plan for Growth and Impact?
• The Networked Nonprofit
• Social Media Listening: You Don’t Have To Be Joey Chestnut on the 4th of July!
• Wall Street Saves the World!
• Getting Results: Outputs, Outcomes & Impact
• The Slacktivist Debate Continues
• Is All Entrepreneurship Social?
• Are You Crazy Enough to Change the World?

What caught your interest this month?  Add to the list in the comments.

Photo Credit: pixel0908

Tags: nonprofit growth, nonprofit leadership, nonprofit outcomes, Philanthropy, Social Innovation Fund, social media, The Networked Nonprofit, Warren Buffett

Can Reactive Clark Kent Become Strategic Superman?

For the nonprofit sector to truly climb aboard the social innovation train, as opposed to being abandoned by it, nonprofit leaders need to move past the reactive toward the strategic.

But is that possible? Have nonprofits been stuck in a resource-constrained, charity mindset for too long to be made strategic, bold, big thinkers? It’s been a vicious cycle. Nonprofits lack adequate resources so they become very protective of what they have and wary of any actions which might threaten those resources. Therefore they become exceedingly risk averse and fearful of innovation. They focus more often than not on keeping the doors open as opposed to investing time, energy and resources in long-term strategy.

But that’ s just not going to cut it anymore. These times demand a radically different mindset and approach. The nonprofit sector must move from the reactive to the strategic. So how does a reactive approach differ from a strategic one? It looks like this…

This is an excerpt from my latest post at the Change.org blog. You can read the entire post here.

Tags: nonprofit charity mindset, nonprofit sector, nonprofit strategic plan, nonprofit strategy, social innovation

Bringing Small Nonprofits to Scale

English at Work could be a poster child for social innovation in the nonprofit sector. An Echoing Green fellow, founder Maile Broccoli-Hickey is a social entrepreneur, but like most of them, she doesn’t even know it. Her tireless work to build an organization that can effectively and efficiently transform the English language skills of hotel and restaurant workers is a model to other nonprofits who have a great solution, but lack the capacity and strategy to grow it.

Maile started English at Work in 2004 when she was a waitress in an Austin, Texas restaurant. She realized that her co-workers needed customized English language instruction to ensure their and their employers’ success. Why not bring customized English classes to the workplace in a focused and systematic way? These courses, paid for largely by restaurant and hotel owners who see the value in having a more fluent workforce, get dramatic results. English at Work creates greater proficiency and fluency gains in a shorter amount than their closest ESL instruction rivals. The program works so well because it is a win-win. Students become more fluent and successful at work, paving the way for promotions and a way out of poverty. Employers get more productive, loyal and customer-service oriented employees.

But like most nonprofit organizations hit hard by the recession, a year ago English at Work was struggling to make ends meet. Although employers paid for the classes, those fees didn’t cover all organization costs. The additional necessary revenue came from individual donations and foundation grants, both hit hard by the recession. At the same time Maile knew that the program had the potential to transform the lives of so many more people. Despite financial troubles, she had big visions for growth.

With funding from a couple of key donors who understood the value of investing in infrastructure, capacity and planning, Maile enlisted Social Velocity to determine what was holding the organization back and to create a comprehensive revenue plan to get the organization on firm financial footing. Over the first two months of the engagement we interviewed board and staff members and reviewed all organization policies, by-laws, finances, collateral, plans and documents. We then created a detailed analysis of each area of the organization (strategy, program, finances, marketing, staffing, board, etc.) with recommendations in each area for how the organization could be more effective. Once completed, we worked closely with Maile over the next 3 months to create a detailed plan for increasing how money flowed to the organization from individuals, foundations, corporations and earned revenue. Finally, we trained English at Work staff and board on raising money.

Now that English at Work is on much firmer financial ground, they are ready to plan for growth, and so we are in the midst of creating a strategic plan for significant growth of the program. The hope is to take this great solution and bring it to scale.

English at Work is a great example of the many little-known nonprofit organizations that toil away under the radar. They may have a fabulous model for creating real change, but lack the infrastructure, capacity and strategy to grow their impact to scale. Although the Social Innovation Fund and other venture philanthropy funds that exist to bring solutions to scale are great, no ecosystem exists for the smaller nonprofits that may have equally important solutions. But there is a way. By combining a few key donors who understand the bigger picture, a smart strategy for growth and sustainability, and a determination to execute effectively, even the smallest nonprofits with a great solution and a vision for growth can get there.

Photo Credit: English at Work

Tags: Echoing Green, English at Work, Maile Broccoli-Hickey, nonprofit capacity building, nonprofit growth strategy, Social Innovation Fund, venture philanthropy funds

Fixing the World Requires Disruptive, not Incremental, Change

The nonprofit sector has always been, at its core, about social disruption–some sort of disequilibrium exists in the market (poverty, unequal access to healthcare, segregation, homelessness, hunger) and a nonprofit organization is born to correct it. But somewhere along the way the big changes nonprofits sought to make in social norms, inadequate institutions, and unfair systems shrunk to small, incremental changes. Visions of disruption gave way to plans for the incremental. But we need to find our way back to disruption.

Incremental change is when a small portion of a problem is addressed.  It’s the idea that 10% of hungry children are fed, or 15% of at-risk youth go to college. Incremental change is small, endless steps toward solving a huge problem. At an incremental rate you begin to wonder if the problem will actually ever go away.

Disruptive change, on the other hand, is about reaching a tipping point where the solution, rather than the problem, becomes the norm.  It’s the vision of giving every kid a bright future. Or the goal of ending hunger.  Disruptive change is not just about the idea of scale, a key component of the social entrepreneurship movement where solutions are expanded to other cities or other people who could benefit. Disruption is in essence about reaching a point at which there is no going back. The old way yields to a new one.

A great example of disruptive change is the charter school movement. The American public education system is quite broken. But charter schools like Aspire, Green Dot, and KIPP have disrupted that broken system and are creating a new model of getting kids, who would otherwise drop out of the system, to college. None of these three charter school will ever reach all kids who need them, but rather these schools are demonstrating how to educate poor, at-risk kids. And the idea is that their model will be adopted as the norm by the American public education system. And given the Obama administration’s interest in these models, that could actually become a reality.

Or take homelessness, another seemingly intractable problem. The goal of  Common Ground, a nonprofit in New York City focusing on homelessness, is to “change the social and economic forces that undermine stability and health, and produce homelessness.” They want to completely end homelessness by changing the underlying systems that cause it. And it looks like they are doing just that in New York City. They have already reduced homelessness in Times Square by 87% and throughout the city by 47%.  Eradicating homelessness in the largest city in the country, that’s pretty disruptive.

But charter schools and Common Ground are the exceptions, rather than the rule in the nonprofit sector. Nonprofits are encouraged to think and act incrementally because they don’t often know where funding will come from year to year. It is difficult to make huge goals or attack big problems if the resources for execution are uncertain.  An undercapitalized, highly competitive market like the one in which nonprofits operate does not incent disruptive change.

But disruption, by its very nature, is uncertain and risky. More than anything else it involves a change in mindset. A commitment to disruption is a determination not to let fear and resource constraints hold you back from the disruption the market requires. The nonprofit sector needs to get back to its roots. Incremental change just doesn’t cut it anymore. Let’s get back to the disruption that defines the sector.

Photo Credit: tcpix

Tags: Aspire, Common Ground, Green Dot Public Schools, KIPP, Obama, Social Entrepreneurship

Financing Not Fundraising: The Plan

A few months ago I argued that nonprofits need to stop fundraising and start financing for social impact. As I wrote:

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.

The idea is that nonprofits can no longer work towards social impact on one side and throw a gala event (or send out a direct mail appeal or write a grant) on the other side and think that this disjointed, haphazard way of funding their work is sustainable. To truly achieve social impact, nonprofits need to take a huge step back and figure out how to employ all of the financial tools available to them in an effective, integrated way.  This is how you finance, rather than fundraise for, social impact.

Over the next few months, in an occasional series titled Financing Not Fundraising, I will elaborate on this argument and demonstrate what financing, as opposed to fundraising, for social impact looks like.

Today I will launch the series with the core element of the idea, which is a financial plan. In essence, a financial plan is a key element of, not separate from, a nonprofit’s strategic plan. That means that the goals of the strategic plan are created with the full knowledge of 1) what it will cost to reach those goals and 2) how the money to cover those costs will be secured.

A financial plan differs from a fundraising plan in a number of ways. A financial plan, unlike a fundraising plan:

• Includes ALL activities that bring money in the door (individual donors, foundation grants, earned income, corporate sponsorships, government contracts, loans, etc.) and fully integrates them into an overall strategy and execution plan.
• Supports the short AND long term goals of the organization
• Funds the programs AND infrastructure of the organization. It recognizes the necessity of and supports not only the nonprofit’s direct service activities, but also, the infrastructure, systems, planning and other organization building that will ensure that those services thrive and grow
• Understands the characteristics and uses of different kinds of money (i.e. revenue versus growth capital, loans versus grants) and employs each available financial vehicle in the most effective way
• Employs money-securing activities that are in line with, not opposed to, the core competencies of the organization

What I am suggesting is that nonprofits stop exhausting their boards, staffs, donors, friends, and clients with a series of disjointed activities that are meant to raise money, but actually just end up making poor use of a nonprofit’s already limited resources. Instead, nonprofits need an integrated, thoughtful, strategic financing plan that makes social impact a reality.

Photo Credit: Steve Wampler

Tags: direct mail appeal, financing not fundraising, Fundraising, gala event, growth capital, nonprofit, strategic plan

The Strategy of Disruption

Competition is often a dirty word in the nonprofit sector.  Indeed, playing nice is the norm. But to truly solve social problems, nonprofits have to  not only compete, but compete well.  This means understanding how their strengths compare to their competitor’s weaknesses, and how to take advantage of that.

Umair Haque, Director of the Havas Media Lab, writing on the Harvard Business Review blog argues that rather than trying to beat their competitors at their best game, businesses need to follow the “golden rule” of competitive strategy, which is “What your fiercest rival does badly, do incredibly well.”

He finds fault with the normal competitive strategy in the business world, which is to compete on similarities. This kind of competition leads to mediocrity. To truly be disruptive, innovative, game-changing, businesses must be markedly, competitively different: “In difference lie the seeds of disruption. In similarity, only obsolescence, and decay.” He cites the auto, food and media industries that were suddenly overtaken by competitors who realized that disruption was the way to go:

Ford, Chrysler, and GM spent a decade trying to best another at churning out the biggest, hungriest SUV — but none tried to do what all sucked at: make a smaller, cheaper, more fuel efficient car instead…Big Food has spent half a century trying to make food cheaper, with artificial flavors, colors, and ingredients — but none tried to do better what all sucked at: make food more nutritious instead…[Media] incumbents tried for decades to lock down content in walled gardens — but none tried to open it, unlock it, and free it. Enter a new set of revolutionaries, wielding the Golden Rule like a superweapon. Who did well what auto incumbents did badly — making a smaller, more fuel efficient car? Tata, with its revolutionary Nano. Who did well what food incumbents did badly — delivering healthier food? Whole Foods. Who did well what media incumbents did badly — freeing and unlocking content, so it was easily discoverable? Google.

Nonprofits can learn a lot from this argument. The sector is by definition about disruption. It exists to change some sort of disequilibrium, to right some wrong, to fill some gap not addressed by the market. Disruption is the name of the game.

But in order to be truly disruptive, nonprofits must be strategically competitive. It is of no use to recognize a gap in the market (children who are not being fed, elderly people who are not being housed, sick people who are not receiving medical attention), create a solution to address that gap, and then sit back and “collaborate” with other nonprofits or government agencies who are delivering a mediocre solution.

Don’t get me wrong. I understand that the nonprofit sector, unlike the business sector, is based on concensus and collaboration. But sometimes those concepts serve as a crutch rather than a tool.

If the ultimate end goal is to solve a gap in the market, doesn’t it make sense to analyze the other solutions out there, their strengths and weaknesses, and then create a strategy accordingly?  If a nonprofit exists alongside another nonprofit that is delivering an inferior solution, doesn’t it make sense to compete in order to make better use of the funding, support, volunteers and other resources that the inferior organization is collecting?  The alternative is that solutions become mediocre instead of disruptive. And we need a lot more disruption right now.

Photo Credit: Tony the Misfit

Tags: competitive strategy, Harvard Business Review, Havas Media Lab, nonprofit strategy, Umair Haque