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3 Questions To Regularly Ask Your Development Director

Beyond the mistakes nonprofit leaders often make in staffing their fundraising function, the relationship itself between a nonprofit executive director and the development director (or whatever you call the staff person in charge of bringing money in the door) can often be fraught.

In an ideal world, the executive director and development director have a symbiotic relationship: the development director creates the overall annual financial strategy and regularly updates the executive director on where the organization is on achieving that plan, while the executive director works with higher level money prospects and marshals the board to achieve their fundraising responsibilities.

But we don’t always live in an ideal world. And sometimes, as was the case in a recent coaching session I had with a client, an executive director is in the dark about how the organization is progressing on their money raising efforts.

If that is the case in your nonprofit, here are some key questions to ask your head money raiser:

  1. How does the money we’ve brought in to date compare along each revenue line goal? 
    When you create an annual financing plan for your nonprofit (and if you don’t, get on it), you know how much of each type of revenue (individuals, foundations, corporations, government, and/or earned income) you want to come in this year. Then, at any point during the year (and at the very least monthly) you should be asking your chief money raiser, what the organization has actually raised to date for each of those categories. For example, if you are 25% through your fiscal year, but you’ve only raised 5% of your individual revenue goal for the year, that may be a red flag. At the very least it’s cause for conversation with your development director. Perhaps it’s a timing issue (you have a big fundraising campaign closer to the end of the year), and that’s fine. But as the nonprofit leader, you should be able to ask (and get a clear answer to) where the organization’s revenue raising efforts are at any point in time.

  2. How do the numbers and types of gifts we projected compare to what’s actually happening? 
    It’s not enough for a money raiser to have an overall revenue goal for each type of revenue, he also needs to break each of those revenue types down into the number and level of contributed gifts (from individuals), grants (from foundations), or contracts (from government), etc. that will contribute to each revenue line’s overall goal. For example, if your nonprofit has a $250,000 individual donor revenue goal, your development director needs to break that down into the various levels of donors that will make up that $250,000 over the course of the year. You may have both major (one-to-one relationships) and smaller (many-to-one relationships) individual donors. He should project how many donors at each level he will need to hit each part of the individual donor goal. Then he can report to you (again, on at least a monthly basis) how that is progressing. A simple example of such a report (he would fill in the pink areas prior to each update) might look like this:
    And he should create a similar report for the other revenue lines (corporations, government, foundations, etc.) that your nonprofit pursues. The actuals will never completely match what you projected, but this exercise gives you a way to uncover and deal with surprises as they come.

  3. What keeps you up at night?
    Finally, the raw data is not enough. You also want to understand where your development director sees real problems. When you regularly ask this question she may reveal that the board  is not opening enough doors, or her database is inadequate, or the website is not where it needs to be, or her grantwriter needs more help. Then you can strategize together how to overcome those hurdles.

A regular, honest, and data-driven conversation between executive director and development director is the best route to fewer money surprises. And without it, a nonprofit has little hope of achieving financial sustainability .

Photo Credit: Images

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3 Mistakes Nonprofits Make in Fundraising Staff

Before a nonprofit can achieve financial sustainability, the nonprofit leader has to figure out how to staff their money raising function effectively. When I conduct a Financial Model Assessment for a client, one of the sections of my final report is always focused on the nonprofit’s staffing structure and how that contributes to or detracts from the nonprofit’s ability to attract money. More often than not, a nonprofit that is struggling to bring enough money in the door is not thinking effectively about how they staff the money function.

And it typically boils down to three particular mistakes that a nonprofit’s leadership is making. These are:

1. There Is No Financing Strategy
You can’t expect to effectively staff your money raising function if you are not thinking about money in a strategic and holistic way. The very first step in structuring an effective money-raising staff is for a nonprofit’s leadership to figure out their organization’s financial model — how money should flow into and out of the organization. First you must assess what money-raising strategies fit best with your mission and core competencies. And then you need to develop a long-term financing strategy that is directly tied to the goals of your strategic plan. You can’t expect to hire people who will magically make money appear. Effective fundraisers must be driven by a smart money plan.

2. No Single Person Is In Charge of Money
Once you figure out your long-term financing strategy, you need to find (or promote from within) a person to oversee the entire money function of the organization. To truly use money as a tool, you can’t hire someone who can just write foundation grants, or someone who can just work with individual donors, or someone who can just secure government contracts. You need a single person who is thinking 100% of the time about all the ways money flows to your nonprofit. And make sure you offer enough salary to attract and retain a rockstar. It amazes me how many nonprofits expect to entice a great fundraiser by offering a salary that is comparable to someone with only a few years of experience. If you don’t have the current budget to pay a market rate, raise capacity capital to fund the first 1-2 years of the position. Once you have a great money raiser up and running, he will not only raise his own salary, but also grow your nonprofit’s overall financial engine.

3. Money Doesn’t Pervade Everyone and Everything
Finally, once you have a financing strategy and the right person to lead that strategy, then you need get everyone in the organization bought into and contributing (even in a small way) to its success — this is sometimes called creating a “culture of philanthropy.” But I would instead call it creating a “culture of mission financing,” which means every single person in the organization embraces the fact that in order to succeed in your mission, you must effectively finance that mission.  Money troubles often happen when nonprofit leadership offloads all money-raising responsibility to the Development Director. You must make sure that everyone in the organization (board and staff) understand their role in bringing money in the door. Create a culture where a staff member who doesn’t have dollar goals in her job description understands that giving donor tours, providing program outcome data, or writing thank you notes are critical to keeping the organization going. And make sure your board is trained in fundraising, has countless ideas for how each of them can contribute to the financial engine, meets a give/get requirement, and achieves specific individual and full board money goals.

How you staff your nonprofit’s money-raising function is directly tied to how much money you will bring in the door. Therefore you must create a smart financing strategy, hire a staff leader to execute on that strategy, and create a culture of mission financing that ensures everyone plays a role in the financial engine.

If you need help figuring out what’s holding your nonprofit back from financial sustainability, check out the Financial Model Assessment I provide my clients.

Photo Credit: Tax Credits

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What Nonprofit Sustainability Looks Like: An Interview with Hilda Polanco

In this month’s Social Velocity interview, I’m talking with Hilda Polanco. Hilda is the founder and CEO of FMA – Fiscal Strength for Nonprofits, a consulting firm that helps nonprofits and foundations develop the fiscal capacity they need to fulfill their missions, including stronger operations and fiscal management, improved foundation grant-making capacity, and increased staff financial knowledge.

In addition to leading FMA, Hilda serves on the NYC Human Services Coalition’s special commission to study the closure of high-profile human services organizations. She was a founding member of the selection committee of the New York Nonprofit Excellence Awards and has served as an adjunct professor at Columbia University’s Department of Health Policy and Management, as well as on the faculty of the Donor’s Forum of Chicago.

Nell: Your career has been about strengthening the financial capacity of the nonprofit sector. Why do you think nonprofits struggle so much with financial sustainability?

Hilda: All businesses struggle with sustainability, as it turns out, but in the case of nonprofits, there are several additional challenges: I think of these challenges as follows:

  • Missions that compete with the business model for attention, creating an unclear vision of what it costs to deliver services and what the revenue and expense drivers are to delivering these services.
  • A lack of focus on the balance sheet, and instead a focus only on annual operating results
  • An insufficient focus on longterm financial planning
  • A lack of common understanding of the meaning of sustainability, among nonprofits and the funders that support them

Mission-driven leaders who are so important to the nonprofit sector are not often motivated by the “business” of delivering services. They care about the issues, the causes, the communities. As a result, they may not understand what a nonprofit’s business model is, or they may have absorbed a popular mistaken notion about nonprofits — that they should not strive to preserve surpluses. In order to be sustainable, an organization needs to understand its revenue and expense drivers and strive to strengthen its financial position over time.

An additional challenge is pricing. This is commonly subsumed under a discussion of “overhead,” but that term conceals some of the details of the problem. Organizations will face challenges to their sustainability if they are pursuing work or lines of business without fully understanding the cost when compared with what funds they are raising. Where there is a gap between what they raise and what it costs to perform the work, a “structural deficit” takes hold. A structural deficit is not one you can cure with a targeted fundraising appeal –as you could, say, to replace your roof or buy a new school bus. A structural deficit is one that persistently drains resources from the organization until the underlying problem is corrected. It’s a roof that, by design, will collapse every single year.

Having a focus on the balance sheet means having a focus on establishing healthy reserves. We drill our clients constantly on their Liquid Unrestricted Net Assets (or LUNA, for short). LUNA describes an organization’s available reserves for addressing strategic opportunities or unexpected expenses. They appear on the balance sheet. Too many organizations reckon their financial standing by simply comparing income and expenses for a given year. They need to look at a balance sheet. A strong balance sheet allows a leader to address the organization’s future needs. A weak balance sheet creates uncertainty. And this raises the issue of capital. There are several ‘kinds’ of capital—funding that is raised or preserved for different uses, for growth or innovation, for example.

It’s not just nonprofit leaders who need to understand this. Foundation program officers, major donors, and all buyers of nonprofit services need to share in this viewpoint, to arrive at a common understanding of what nonprofit sustainability looks like. The market for nonprofit services is sort of unusual in that we expect the funders, as much as the nonprofit leaders—to be self-reflective about their role in the transaction.

Funders should not expect their grantees to deliver quality services without understanding the full cost of the enterprise. And sometimes, they need to engage in a substantive discussion about business models so they can come to a shared understanding. Funders can have a different conversation with grantees, even if they are only funding a project. The conversation should not be just about what they are “buying”, but also about the organization’s overall capacity. Rather than focusing exclusively on this moment, the question should be “How can we be sure that you will have the capacity to achieve your target outcomes over time?”

What should they be doing to remedy the situation? This isn’t easy to solve. In many ways, it goes against how we think about our roles in a buying and selling relationship. Think about how strange this is: If you value the service your local coffee shop provides, it would be like prodding its owner to charge you more for your coffee so they could stay in business and serve the community who counts on that coffee each and every day!

Of course, the future is unknown. Sustainable nonprofits need to be planning for at least a two year horizon. Decisions made this year will have an impact on future years and preparing for those future years is much more effective with a longer horizon to strategize, rather than pretending that life happens in one year increments in isolation from the following year. For example, new hires, raises, multi-year grants that may come to an end in the coming year. These are all examples of business assumptions that should be taken in the context of their impact on future operations. More broadly, an organization must revisit its financial model over time, understanding what may have changed in the funding ecosystem or what competing organizations are doing.

Nell: There are two parts to financial sustainability: bringing money in the door and then using that money effectively. There have been some strides toward changing cultural norms around how nonprofits use money (with the Real Costs project and the Overhead Myth campaign), but what about on the bringing money in the door side? How do we get smarter about that?

Hilda: Efforts to raise funds for “services” have created a tendency to raise money for particular programmatic activities, rather than for the mission and outcomes of the organization as a whole. When an organization can articulate its target outcomes, and know what financial resources will be required to achieve these, the conversation can shift to an investment in the organization’s vision, rather than the purchase of specific activities. These are requests for investments of capital.

We see a growing trend in capital campaigns lead by a “funder prospectus” – a vision for the organization’s outcomes, with a request for investment in these outcomes; a way to focus the conversation differently. And with a funder prospectus, multiple funders can come to the table to support a common strategy – rather than create parallel strategies to suit the goals of the funder, rather than the goals of the organization. These campaigns can be for the sustainability of current operating levels, or the funding for growth.

Another issue to keep in mind is the concentration vs. diversification strategic conversation. There are a lot of consultants advising nonprofits to diversify their revenue sources, and not put “all their eggs in one basket.” This can be good advice under some circumstances, but it is not a one-size-fits-all solution. Diversification sometimes means building a much more complex—and potentially fragile—business model. For many organizations, concentrating on one revenue source can help focus, strengthen, and build the business model. For example, the skills and capacity to successfully raise funds from foundations and corporations is different from special events, major donors, or government grants. Without sufficient activity in each, the business model may not be able to support the required levels of diverse skill sets. It is somewhat of a balance – a diverse revenue strategy means a diverse skill set and capacity to succeed; often not found in a common staff position or limited organizational infrastructure.

And lastly, there is the need to balance between raising funds for current operations, vs. raising funds for new and “innovative” programming. Here’s where the “shiny object syndrome” can undermine an organization’s sustainability. The Development Director is excited about new programs, but the organization isn’t raising the necessary funds to cover core programming. Years ago, an Executive Director I know lamented to me: “If I hear ‘innovation’ one more time, I’m going to lose my mind. What happened to tried and true?” This notion of balance need not be confined to the leadership of an organization. Indeed, in healthy and sustainable organizations, this sense of balance is shared across the organization. The development team and program leaders should, effectively, understand the organization’s financial model just as much as the finance team. It is particularly important for development leaders to be able to articulate a coherent and compelling financial story of the organization as a whole, not just respond to the new ideas a funder may be focused on.

Nell: What role does research to understand what works and what doesn’t play? There seems to be a dearth of research in the sector about effective financing models. Do you agree with that assessment? And if so, how do we change that?

Hilda: I agree that there’s not much research, and there should be more.

And the first step toward research is sharing knowledge and lessons learned as these are happening rather than waiting for longer term research and evaluation. We need to build more of a shared understanding of the universe of possibilities. For example, what are Program Related Investments (PRI’s)? We hear about PRIs from time to time, but what are some early lessons learned? Who is making them effectively? More esoteric investments like Social Impact Bonds have made a splash, but there’s little understanding of the risks organizations take on by accepting this type of investment and the lessons learned in getting them off the ground.

Funders who are funding in a more holistic way can help the sector by educating other funders about it. Can a foundation make an investment in an organization’s operating reserves rather than operations? What does that look like?

Funders who are willing to experiment and share their experiences can play an important role here.

Photo Credit: FMA

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Tuesday, February 21st, 2017 Innovators No Comments

5 Fundraising Mistakes Nonprofits Make

nonprofit mistakesFundraising is such a misunderstood enterprise. And it’s not just misunderstood by nonprofit leaders in the trenches.

I was talking to a normally very savvy foundation program officer the other day who wondered if one of his struggling grantees should think about launching a new gala event to raise some additional money. I swallowed my first inclination to scream “NOOOOOO!” in the middle of a crowded restaurant and instead calmly explained why events are a bad money fix, and why any short-term money generating strategy is probably a really bad idea.

But this well-meaning program officer is far from alone in his understanding of financial sustainability in the nonprofit sector. If I had my way, nonprofit leaders would stop making these 5 big fundraising mistakes:

  1. Taking a Short-Term Approach
    If you don’t have enough money today, a single fundraising activity isn’t going to solve the problem in the long-term. If you want to solve your ongoing money woes, you have to create a long-term plan. The single best way to bring more and larger dollars in the door is to create a smart, long-term strategy for your nonprofit. And that long-term strategy must include a corresponding long-term financial strategy. With a compelling Theory of Change (an articulation of the value your nonprofit creates), what you are hoping to accomplish, and how you will get there, you will be better able to convince funders (no matter what your financial model) to come aboard. People invest in a compelling and believable vision for the future. If you are just raising money for the day-to-day, you will always struggle.

  2. Looking Under the Same Rocks
    Often when there is a money shortfall, nonprofit leaders think they simply need to ask the same people to give again or more. If only it were that easy. To attract more people and organizations you have to have a wider net. But not just on your Facebook page or in your mailing list. A wider net means that your board’s networks need to grow, your distribution channels need to grow, your friend-raising activities, your strategic alliances need to grow — the overall network of your nonprofit needs to grow. You need to think holistically about how to grow the reach of your organization and get everyone involved in making that happen.

  3. Chasing A Magic Bullet
    Seriously, listen when I say this: There Is No Magic Bullet to Fundraising. Fundraising, like so many things, often falls victim to shiny object syndrome. From the Ice Bucket Challenge, to crowdfunding, to social media, it seems there is always something new that nonprofit leaders, philanthropists, or board members think will finally solve a nonprofit’s money woes. But the reality is that finding enough and the right kind of money for the results you want to achieve as an organization is hard work. There is no easy fix. Instead you have to get strategic and create, and then systematically execute on, a financial plan for your nonprofit. It may sound boring, but believe me, once you attach strategy to money, the transformation — to your staff and board, to your funders, to your financial model, to your overall results, to your effectiveness and sustainability as an organization — can be incredible.

  4. Giving People a Free Pass 
    When you tell certain board members or certain staff members that they don’t have to worry about money, you are essentially giving them a free pass and placing a larger burden on the rest of the organization. While money must be led by your Chief Money Officer (whatever their title — Executive Director, Development Director, CDO), it must be a team effort. Your money person’s job is to develop an overall money strategy and then mobilize all her resources (staff, board, other volunteers, technology, systems) to bring that money strategy to fruition. She CANNOT do it alone or with only half a board. Money has to be part of the conversation for everyone in the organization.

  5. Not Fundraising for The Fundraising Function 
    If you want to get better at raising money, you must invest in the right strategy, staff, and systems — your fundraising function –to raise that money. You need to pay market rate for a fundraising person who is a smart, strategic leader. You need to put time and effort into an overall financial strategy, and you need to create the infrastructure (technology, systems) to make that financial strategy a reality. To make these investments, you might have to raise capacity capital from your donors, a one-time infusion of significant money that helps strengthen your organization. A capacity capital investment in your fundraising function can more than pay for itself in a few years when your transformed financial engine is running at a much more profitable rate. But failing to invest in your fundraising function means you will continue to struggle financially.

Oh nonprofit leaders, please stop hitting your heads against the fundraising wall. I promise you, a more sustainable financial engine awaits if you simply invest the time and energy into a smart strategy, a broader network, effective staff and systems and a real team effort.

If you want to find out more about the Financial Model Assessment I conduct for nonprofits, download the one sheet.

Photo Credit: hobvias sudoneighm

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Financing Not Fundraising: Assess Your Nonprofit’s Financial Model

moneyI am amazed by the reaction of some nonprofit leaders when faced with a budget shortfall. Some simply shake their head in innocent confusion, some blame an “inexperienced” development director or a “checked-out” board, and others throw together a knee-jerk fundraising event in order to stem the tide.

But a much better approach, when you don’t have the money your nonprofit needs, is to step back and assess the viability of your nonprofit’s overall money function, which is the topic of today’s installment in the ongoing Financing Not Fundraising series.

If you want greater, more reliable funding for your nonprofit, you must get strategic. And the first step to any real strategy is analysis.

Instead of viewing the money that flows to your nonprofit as a side note, or worse, a completely uncontrollable force, you must view money as a very necessary and integrated function that is just as important as your nonprofit’s programmatic function. And in order to determine how well your money function operates and how to transform it, you must assess it.

A transformative financial model assessment uncovers how all aspects of the organization contribute to or detract from money flowing through the doors. It analyzes the financial impact of 7 areas of the organization, like this:

  1. Strategy
    Does your nonprofit have a long-term strategy that integrates money, programs and operations? Does your strategy help articulate the value your nonprofit provides the community in order to compel outsiders to invest? Does your strategy include measures for whether that value is actually being created?

  2. Mission and Vision
    Does your nonprofit have clear, compelling vision and mission statements? The two statements are not “nice to have” marketing language, rather they articulate the very essence of why your nonprofit exists. Does your vision paint a bold description of the social change you seek? Does your mission describe the day-to-day work towards that vision?

  3. Board and Staff Leadership
    Does your board have the skills, experience and networks necessary to execute on your strategic plan? Are they engaged and invested? Are they actively connecting the organization to people, resources, partnerships? Does your staff have the knowledge and experience necessary to make money flow? And are they structured and managed effectively?

  4. Program Delivery and Impact
    As a nonprofit you have two sets of “customers.” Those you serve (or your “clients”), and those who fund those services (or your “donors”). Without a compelling and effective delivery of services to clients, donors won’t fund those services. Is your nonprofit strategic about which programs to grow and which to cut? Do you measure the effect of your programs on clients? Are your programs financially viable, or are too many of your programs mission-rich, but cash-poor?

  5. Marketing and Communications
    Do you make a compelling case for your work and for support of it? Once you’ve made the case, are you using the right marketing channels (website, social media, events, email, etc.) to attract and engage your target funders, volunteers, advocates, board members and other supporters?

  6. External Partnerships
    In order to move the mission forward and in order to attract funders, volunteers, advocates you must be strategic about building alliances that make sense. Do you have the necessary external relationships to execute on your strategy? Are you constantly working to strengthen or grow the right partnerships in the right ways?

  7. Financial Model
    And only now do we look specifically at money. Because without all the previous elements (thoughtful strategy, compelling vision and mission, strong leadership) money simply will not follow. Does your funding mix fit well with your mission and core competencies? Are there other revenue streams that make sense to pursue? Are there fundraising activities that are actually costly rather than profitable?

When money isn’t working the way you want it to, don’t stick your head in the sand. Wrest the money sword from the beast of chance by taking a hard look at your nonprofit’s money function.

If you want to learn more about the Financial Model Assessment I provide clients, click here. And if you want to learn more about the Financing Not Fundraising approach, download the newest e-book in the Financing Not Fundraising series, Financing Not Fundraising volume 3.

Photo Credit: Pen Waggener

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Financing Not Fundraising: Calculate Opportunity Costs

Nonprofit Opportunity CostsThere is a calculation (in addition to the cost of fundraising which I’ve discussed before) that I would love more nonprofits to do. And that is to calculate the opportunity costs of a decision.

An opportunity cost is the value (money, time, resources) of the next best option when you make a choice between two options. Understanding the opportunity costs of decisions is particularly important when resources are scarce, as is the case in the nonprofit sector.

And it is the topic of today’s installment in the ongoing Financing Not Fundraising blog series.

In calculating the opportunity costs, you are consciously analyzing two or more options and quantifying the value of the next best option when you choose one option over the others.  So, for example, when you are choosing between two new jobs you’ve been offered, you recognize that in choosing one position you are giving up the value (or salary) of the other position. It seems so simple, yet in the nonprofit world it becomes much more complex.

Because the nonprofit sector is under capitalized, money is king. A driving motivation in many nonprofits is to preserve money, or go after money, at all costs.  So the concept of opportunity costs is often ignored. But if we truly want to put every last nonprofit resource to its highest and best use, we must understand opportunity costs.

Opportunity costs are calculated like this:

Opportunity Costs of Option #1 = The long-term benefits of option #2 – the long term benefits of option #1

If the opportunity costs for a particular choice are positive, you have not chosen the best (most valuable) option.

Let me give you a couple of examples of how opportunity costs can be calculated in the nonprofit world.

Fundraising vs. Friend-Raising Event
This decision came up for one of my clients the other day. They were going to host an event at a board member’s house with 25 potential major donors. They were hesitant to use the event just as a group cultivation of major donors, so they were grappling with the idea of asking attendees to make a $100 donation while at the event (a total of $2,500 in revenue). That would have been a huge mistake because of opportunity costs. If cultivated correctly over the coming year, the attendees all had the capacity to give much larger donations, probably an average of $5,000 per attendee (a total of $125,000 in revenue). But if those attendees were forced to make a $100 donation, they would be done with their giving to that organization for the year.

The opportunity cost of the fundraising event would be:

$125,000 (value of the friend-raiser) – $2,500 (the value of the fundraiser) = $122,500

In other words, in deciding to hold a fundraising event, instead of a friend-raising event, the nonprofit is giving up $122,500 in value.

Needless to say, they decided to make the event purely a friend-raiser, with no fundraising ask. However, it goes without saying that they now need to be sure to do effective follow up cultivation and eventually solicitation with every attendee to the friend-raiser.

Grantwriter vs. Development Director
If a nonprofit leader is deciding whether to spend $45,000 to hire a grant writer or $75,000 to hire a development director they might opt to hire the grantwriter because that is the cheaper option, and in the world of nonprofits, cheaper is always better. But in hiring a grantwriter, the nonprofit would save $30,000 in regular costs (the difference in salary between a development director and grantwriter), but lose many times that amount in long-term benefits. The difference in revenue brought in under the development director, someone who could increase the overall financial engine of the organization, could be in the hundreds of thousands and many times the value of the grantwriter, who would only be able to increase foundation and/or government funding.

So the opportunity costs of hiring a grantwriter would be:

$250,000 (estimated annual increase to overall giving with a development director) – $30,000 (additional cost of the development director salary) – $100,000 (estimated annual increase to foundation giving with a grantwriter) = $120,000

In choosing the “cheaper” grantwriter, the nonprofit is losing $120,000 in value.

I would love to see more nonprofits calculate the opportunity costs of all decisions they make. Indeed, because nonprofits are so constrained for resources they should be even more cognizant of opportunity costs and ensure that every last resource is put to its highest and best use.

If you want to learn more about moving from a fundraising to a financing approach at your nonprofit, check out our on-demand library of Financing Not Fundraising webinars, guides and e-books.

Photo Credit: Krzysztof Poltorak

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Financing Not Fundraising: Break Free From the Starvation Cycle

Break Free From the Nonprofit Starvation CycleThe other day I met with a nonprofit leader (let’s call her June) who has a great idea for an earned income venture that fits directly with her mission, but she doesn’t have the start-up capital to launch. When she explained this to me, she threw up her hands as if to say, “I’m powerless to move forward.”

But from my vantage point she has all the pieces necessary to raise the start-up capital and launch, she just isn’t putting them together. It’s a common refrain — nonprofit leaders complain about being in a catch-22 of not having enough money to raise enough money. But the answer is often right in front of you. To break free from the starvation cycle, assemble the assets you already have in order to raise capacity capital, which is the topic of today’s post in the ongoing Financing Not Fundraising blog series.

The nonprofit starvation cycle is one nonprofit leaders know only to well. Nonprofit organizations rarely have the technology, staff, and systems to function effectively. So they scrape by trying to wring one more drop out of a completely dry rock. But instead of waiting for funders to fix the situation, it is up to nonprofit leaders themselves to break free. And you break free by raising capacity capital.

Capacity capital is a one-time investment of significant money that can help build or strengthen a nonprofit organization so that it can create more social change. Capacity capital funds things like technology, systems, a program evaluation, revenue-generating staff, start-up costs for an earned income business. It is money that strengthens the organization so that it can do more.

But often nonprofit leaders, like June above, don’t recognize that everything they need to raise capacity capital and break free from the starvation cycle is in right in front of them.  Here are the necessary pieces:

A Plan. You know what you need in order to do more, so put together a change plan and figure out what elements you need (technology, systems, staffing) and what they will cost. Do your homework so you can speak intelligently about what it will take to get you from point A to point B. June has a great business plan for her venture and knows exactly how much she needs in start-up costs.

Donors Who Love You. When raising capacity capital you want to go after donors who already love what you are doing and want to see more. You must convince them that a one-time investment of capacity capital will enable you to do even more of what they already love. June has a great network of long-time donors, which she could convince to become capacity capital donors.

A Connection Between Capital and More Impact. Make a convincing argument to those donors that capacity capital will create more of what they already love. For example, having a great Development Director in place can bring hundreds of thousands of new dollars each year which means many more people will be touched by your organization.  Or explain how an evaluation of your program will allow you to focus your resources on highest impact activities. June could describe how a profitable earned income venture could increase financial sustainability while delivering more impact.

June has all of these pieces. She has a great plan for an earned income business that could significantly contribute to a more sustainable financial engine and thus allow her nonprofit to reach more people, a clear articulation of how much capital she needs and for what, and a committed group of donors who love the organization. For her, and for most nonprofits, it is simply a question of connecting the dots.

If you want to learn more about the power of capacity capital, download the Enormous Opportunity of Capacity Capital e-book, the Creating a Capacity Capital step-by-step guide or the Raising Capacity Capital webinar.

Photo Credit: PublicDomainPictures

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Financing Not Fundraising: Find and Keep a Great Fundraiser

handshake2The news is not good lately about how effective the head fundraiser is at nonprofit organizations. A new study by CompassPoint reveals some startling realities about the fundraiser role in the nonprofit sector:

  • 25% of executive directors fired their last development director
  • 33% of executive directors are lukewarm about their current development director
  • More than 50% of executive directors say they can’t find well-qualified fundraisers
  • 50% of development directors plan to leave within the next two years
  • And 40% plan to leave fundraising altogether

That sounds like a fundraising crisis to me. And it’s just another example of why fundraising in the nonprofit sector is broken. So in today’s installment of my regular Financing Not Fundraising blog series, I’m talking about how to find and keep a great fundraiser.

If you’re new to this series, Financing Not Fundraising recognizes that fundraising in the nonprofit sector just doesn’t work anymore. 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 and instead work to create a broader approach to securing the overall FINANCING necessary to create social change. You can read the entire series here.

What I find most troubling about CompassPoint’s recent study is that it makes nonprofits sound so powerless to do anything about this deep dissatisfaction with fundraising performance. But I think it’s not staff, board or donors who are lacking, rather it’s the entire fundraising approach.

Here is how to go about finding and keeping a great fundraiser.

  • Hire a Money Head. Don’t hire someone who can just write grants or someone who can just work with individual donors. Take a look at the entire financial engine of your organization and hire someone who can develop and execute a strategy for strengthening and growing ALL aspects of that financial engine. If you have significant government grants or earned income, make sure you have someone on board who understands and can work with those aspects as well as the private money that flows to the organization.

  • Develop a Financing Plan. Don’t just expect to hire someone who will magically make money appear. Your head fundraiser has to be in charge of developing and executing an overall financing strategy for your organization. And that means that you need an overall financing strategy for your organization. Without a strategy, your chief fundraiser and your nonprofit are sunk.

  • Pay a Real Salary. It amazes me how many nonprofits expect to entice a great fundraiser by offering a salary that is comparable to someone with only a few years of experience . If you don’t have the current budget to pay a market rate, raise capacity capital to fund the first 1-2 years of the position. Once you have a great fundraiser on board he will raise his own salary while growing your nonprofit’s overall revenue.

  • Work WITH Them. It drives me crazy how many times a nonprofit’s lone fundraiser is trying to raise all the money by herself. If you are going to align mission and money, you have to make sure that EVERYONE in the organization (board and staff) understand their role in bringing money in the door. Create a culture of philanthropy among the staff so that even a staff member who doesn’t have dollar goals in her job description understands that talking to prospects and donors, giving tours, writing thank you notes are critical to keeping the organization going. And make sure the board is trained in fundraising, has a give/get requirement, and has specific individual and board money goals.

  • Hire Enough Fundraisers. The rule of thumb is that it takes one full time person to raise $500K, including anyone who touches prospects and donors (database manager, prospect researcher, etc). If you are asking a single fundraiser to raise $1.5 million there is little wonder why she is (and you are) miserable.

  • Give Them Tools. Don’t hire a great fundraiser and then fail to give him a donor database, an interactive website, marketing materials, prospect research, support. It does no good to hire someone with great ideas but no way to bring those ideas to fruition. If you don’t have the budget for additional support and tools, raise capacity capital to find it.

  • Train Them. No one knows it all. In every other profession we expect to send employees to conferences, provide them classes, coach them along the way. Don’t expect that your fundraiser automatically knows all there is to know. Give him opportunities to gain new knowledge, meet others in the field, and continue to grow his skills.

If you want to attract and retain someone who will develop a sustainable financial engine for your nonprofit, don’t leave her out in the cold. Fully integrate your head fundraiser into your organization and give her the tools, support and resources necessary to succeed.

If you want to move your nonprofit from fundraising to financing, check out the Financing Not Fundraising page of our website with articles, e-books and webinars to get you started. Or if you’d like to find out more about how I could help your nonprofit develop a financing plan or coach your fundraising staff to greater success, send me an email at nell@socialvelocity.net.

Photo Credit: Sahaja 

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