The 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
John Walker, Finance Director at Echoing Green and Nardia Haigh, Assistant Professor of Management in the College of Management at UMass Boston are investigating social entrepreneurs who went through a process of deciding whether to establish their organization as a non-profit, a for-profit, or a hybrid. They want to understand the range of circumstances under which social entrepreneurs identify which type of business model fits best for different situations.
While they have already interviewed many for-profit social entrepreneurs, they are having a hard time finding nonprofit social entrepreneurs, which is where you come in.
If you are a social entrepreneur and struggled with the decision about whether to form a for-profit/nonprofit/hybrid entity, Nardia would like to interview you about your organization’s strategies, structure, and direction.
According to Nardia, there are many circumstances under which hybrid organizations are established, and to date, two distinct variations of the hybrid business model are evident: Multi-entity and Integrated:
- Multi-entity hybrids link for-profit and nonprofit entities – often through contracts and/or ownership. A nonprofit may establish and own all or part of a for-profit subsidiary (e.g. Embrace and Embrace Innovations), or a for-profit may establish a nonprofit and provide it with equity or other means for it to derive non-discretionary revenue.
- Integrated entities are either for-profit companies with a strong social or environmental mission deeply embedded within its business model (e.g. TOMS Shoes or Maggie’s Organics, and companies registered as L3Cs), or are nonprofit organizations that use for-profit methods to generate revenue (e.g. Ten Thousand Villages or Ecosia.org).
In this study, they seek to understand the decision-making process entrepreneurs go through in choosing which to pursue.
Nardia’s research at UMass Boston focuses on business models and strategies that address large-scale sustainability issues in positive ways. And John has significant experience as an entrepreneur, an executive, and as a board member in a range of industries, where he specializes in financial analysis, capital raising, and structuring acquisition and investment deals.
If you are a social entrepreneur and would like to participate in this research study, contact Nardia at Nardia.Haigh@umb.edu.
Nardia has promised to share the results of the study with Social Velocity readers when it’s completed. I can’t wait to hear what they find out.
Photo Credit: piermario
I’ll admit it, I’ve been on a board fundraising kick lately in the blog (here and here). I just think that if your nonprofit is going to become more strategic and financially sustainable, you have to start from the beginning (or the top, as it were). In my last blog post I discussed how to overcome excuses for why a board member can’t bring money in the door. But the fact remains that a majority of people don’t like to (or simply won’t) ask for money.
The good news is that there are lots of other things board members can do to bring money in the door. And remember, if you are financing not fundraising your organization, your definition of “bringing money in the door” should be very broad.
Here are 9 things you could ask your fundraising-shy board members to do:
- Help create or evaluate a business plan for an earned income venture. If you have business leaders or entrepreneurs on your board this would be a great use of their time and add tremendous value to your organization. If they can help you create a more profitable business, they are directly contributing to your organization’s bottom-line.
- Advocate for government money. You may have a board member that can’t stand the idea of asking their friends for money, but they are well connected in city, county, state or federal government and could open doors to you for government contracts, grants, fee-for-service or other government monies.
- Provide intelligence on prospects. If you have a board member that seems to know everyone in town, but for whatever reason refuses to ask any of them for money, they can still be incredibly useful. You may be getting ready to ask a prospective donor for $1,000, and this board member can tell you what that person has already given to, at what level, who else might know them and so on. When you make an ask, the more information you have going into it, the more successful you will be.
- Set up a meeting with a prospective customer. If your nonprofit is engaged in an earned income venture, you probably always need help with new sales. If you have a board member who is part of, or connected to, the target customer(s) of your business, they could open doors to new customers. Or at the very least, they could help you think through your sales and marketing strategies and make them more effective so that you can attract more customers.
- Email, call or visit a donor just to say thanks. The stewardship of a gift is an often forgotten, but incredibly critical, part of the fundraising process. According to Penelope Burk’s annual donor survey, 84% of donors would give again if they were thanked in a timely way. And being thanked by a board member is a bonus. A donor who renews their gift to a nonprofit is providing more money for the organization.
- Explain to a prospect why you serve. A board of directors is a group of volunteers who care so much about the mission of the organization that they are willing to donate their time (a precious resource) to the cause. As a donor, it is affirming to see that a volunteer is contributing time, but it is even more motivating to hear, in the board member’s own words, why they feel compelled to serve this organization. That story can be enough to convince someone to give.
- Host a small gathering at your home. Over the course of a year, most people invite a gathering of friends and/or family into their home at least once. A board member could take a few minutes at their next dinner party, birthday celebration or Super Bowl feast to talk about something that is near and dear to their heart: the nonprofit on whose board they serve. They don’t have to ask people for money, but they could simply say, “If you’re interested in learning more, let me know.” And then the nonprofit’s staff could take it from there with those who are interested.
- Recruit an in-kind service. If a board member could remove an expense line item from a nonprofit’s budget that would directly contribute to a stronger bottom-line. For example, if a board member works at an ad agency, could they convince their company to provide some pro-bono marketing services to their nonprofit? But keep in mind, these in-kind donations must be of value to the nonprofit and provide an offset to a direct cost that the nonprofit would otherwise have to bear.
- Negotiate a lower price from a vendor. Do you have a board member with great negotiating skills (think of all of those lawyers on your board). Could they negotiate with your insurance providers, office space rental company, or printers, for a lower price? If so, that’s more money in the bank.
If you think of a board member’s “get” responsibilities in these much broader terms, then I find it difficult to imagine a board member who cannot bring money in the door. You just have to get strategic about how each individual board member can best contribute to the organization’s bottom-line.
If you want to learn more about getting your board to bring more money in the door, register for our “Getting Your Board to Raise Money” webinar.
Photo Credit: DeeganMarie
I’m delighted to announce that, by popular demand, we are releasing today the Financing Not Fundraising, 2011 e-book. This 27-page e-book is a compilation and expansion on the 11 blog posts from 2011 in the Social Velocity Financing Not Fundraising blog series.
In the midst of an incredibly challenging economic situation that is not getting better any time soon, the Financing Not Fundraising, 2011 e-book outlines 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.
What the sector needs is a financing strategy not a fundraising strategy. 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.
This 27-page e-book is a compilation and expansion of the Social Velocity blog series Financing Not Fundraising from 2011. The blog series is ongoing, with new posts added throughout each year. We’ll begin adding new posts to the series in the new year, but in the meantime, this e-book captures and expands on the posts from 2011 in one place.
The 12 chapters of the Financing Not Fundraising, 2011 e-book are:
- What is Financing Not Fundraising?
- Create A Financial Strategy
- Align Money and Mission
- Find Individual Donors
- Develop a Message of Impact
- Raise Money for Building Capacity
- Explore New Types of Money
- Evaluate Earned Income
- Calculate Net Revenue
- Move From Push to Pull
- Stop Lying to Donors
- Getting Started
You can download the Financing Not Fundraising, 2011 e-book here.
If you want to learn more about how to apply the concepts of Financing Not Fundraising to your nonprofit, check out our Financing Not Fundraising Webinar Series
If you’ve been a fan of our popular, ongoing blog series, Financing Not Fundraising, you’ll want to participate in our upcoming Financing Not Fundraising webinar. The webinar will give you the tactical steps for breaking free of the unrelenting fundraisng handcuffs and bringing more money in the door.
Fundraising in the nonprofit sector doesn’t work anymore. In fact, 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. What nonprofits need is a financing strategy, not a fundraising strategy. That means 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.
This webinar will show nonprofits what this financing approach looks like, including:
- How to align your nonprofit’s mission with the money needed to deliver on it
- Why a message of impact results in more money
- How to understand the critical difference between revenue and capital
- Why overhead isn’t a dirty word anymore
- How and why to calculate the net revenue of money raising activities
- When to explore new revenue streams
If your staff, your board, and your donors are worn out, if you’ve been following the Social Velocity Financing Not Fundraising blog series and you want to learn more, or if you want to put this new approach in motion, join us for this webinar.
In part 8 of our ongoing blog series, Financing Not Fundraising, we are discussing earned income opportunities for nonprofits.
If you are new to this series, our Financing Not Fundraising blog series argues that fundraising in the nonprofit sector is broken. In fact, 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. The nonprofit sector needs a financing strategy, not a fundraising one. That means 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. You can read the entire series here.
Earned income for nonprofits, or the sale of goods and services, is a somewhat misunderstood and unexplored financial opportunity for nonprofits. Yet there are countless examples of nonprofit organizations that sell goods or services to supplement their revenue. These include Goodwill, museum gift shops, hospitals, charter schools, theaters, and much more.
Unfortunately there are many fears in the nonprofit sector about earned income. Some of these include fear that earned income will:
- Detract from the mission of the nonprofit
- Undermine the organization by introducing “market forces”
- Be too difficult or complex to manage
- Put their nonprofit status at risk
And if mismanaged, earned income has the potential to do some or all of these things, but so does any other mismanaged activity. Earned income is not right for every nonprofit, but every nonprofit should at the very least analyze whether earned income is a potential opportunity.
Let me be clear. Earned income is not a panacea, it cannot transform a shaky financial model into a sustainable resource engine, it cannot provide fast cash. Earned income should be explored only when your organization is relatively stable and you are planning for the long-term. Earned income ventures could take years to reach profitability.
Here are some questions to get you started in thinking about earned income. If you answer yes to a majority of these, you might consider earned income as potential new revenue source for your organization:
- Are we in a fairly stable financial situation?
- Do we have core assets that could be transformed into saleable products or services?
- Is there a potential market with a willingness and ability to pay for these products/services?
- Would the sale of these products/services be a compliment to, not a distraction from, our mission?
- Is our staff and board, for the most part, open to risk and experimentation?
- Do we have access to funders who could potentially provide some startup capital for an earned income venture?
Once a nonprofit decides to explore earned income, there is a multi-phased process to undertake which includes:
- Analyzing assets to determine potential products/services to sell
- Conducting market research to determine competitors and consumers
- Pilot testing a product/service
- Creating a business plan including marketing, staffing, financial model, risks and mitigations
- Launching the business
One of my favorite examples of a nonprofit where earned income really works is English at Work. Their mission is to provide English language instruction at the worksite for employees of hotels, hospitals, and restaurants. But the really interesting part is that they charge the hotels, hospitals and restaurants for these classes. The full costs of English at Work are not covered by those class fees, but they are working toward a financial model where 50% of the organization’s budget is funded by that earned income source. Theirs is an example of a very successful, innovative and mission-tied earned income stream that will provide them long-term financial sustainability. That’s when earned income really works.
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.
Photo Credit: sergio_leenen
I am so excited I can hardly contain myself. There is something pretty amazing going on in the world of philanthropy in Austin, Texas. I have been talking for awhile about how PRIs (Program Related Investments) could be used by foundations in new ways to build the revenue sustainability of a nonprofit organization.
Just to recap, PRIs are loans that foundations make to nonprofits at low, or no interest. At the end of the loan period (typically 2-3 years) the loan is repaid, or forgiven. PRIs are usually used for capital projects or land purchases, among other things. But they could also be used to increase the revenue-generating capacity of a nonprofit organization, through improved fundraising function or launch of an earned income enterprise. The current economic climate seems like the perfect opportunity for this new use of PRIs when foundations are trying to hold on to their dwindling corpus while maintaining their past level of community support.
As I wrote in an earlier post here’s how it could work:
What if a foundation, or a wealthy individual, loaned a nonprofit $100K+ for a 2-3 year term. Then, the nonprofit could use that capital to invest in their fundraising infrastructure in order to diversify and be more strategic in raising unrestricted dollars. They could hire a seasoned Development Director, purchase a new donor database, upgrade their website and email marketing efforts, launch a major gifts campaign, train their board, and so on. The idea is that all of these investments would pay for themselves in 2 or 3 years, at which time the nonprofit could pay back the individual or the foundation.
Well, the KDK Harman Foundation, an Austin foundation started by Janet Harman, who has been on the cutting-edge of Austin philanthropy before, just launched a PRI program to do just this. According to their website:
KDK-Harman Foundation is seeking proposals from current grantees for Program-Related Investments (PRI) for its August and November board meetings…to (1) develop or expand their social enterprise efforts; or (2) expand their development and fundraising team. Although PRIs are used primarily for real estate loans for affordable housing or community facilities, the KDK-Harman Foundation will utilize PRIs to support loans to established, financially strong nonprofit organizations within the Foundation’s program areas to help grantees expand their scope of services and/or to become more sustainable. Specifically, the Foundation is seeking ways in which grantees could embrace social enterprise as a means to financial stability. Through a loan from KDK-Harman, the grantee could develop or expand its revenue generating operations and within three years repay the loan. Another example is to enhance the development team whereby the Foundation loans funds to hire additional fundraising staff. Within three years, the loan can be repaid through the additional funds raised. Over time, the organization should be much more financially secure with either a financially successful revenue stream or a larger development team.
I love it. KDK Harman is doing two things with this new program. First, they are increasing their ability to meet past levels of giving, despite any losses they might have met in the market, because the loaned money will eventually come back to them. And second, they are encouraging nonprofit organizations to be proactive in creating revenue streams that will make them more sustainable. Did I mention I was excited about this?
PRIs are used by other foundations (although according to the Foundation Center only a few hundred of the thousands of grantmaking foundations in the country use them), but I haven’t seen PRIs used in exactly this way before. If you know of other examples of PRI programs elsewhere in the country that are used to increase a nonprofit’s revenue-generating ability, let me know. But in the meantime, I’m so impressed with KDK-Harman. They are seizing the opportunity of challenging times to create a more sustainable nonprofit sector.
Continuing my argument from previous posts here and here about how nonprofit finance must change, today I want to focus on the other side of the story: how nonprofit organizations themselves can be smarter about funding. I want to explore a couple of ways that nonprofits are inefficient in generating revenue.
First, foundation funding. The Foundation Center has been compiling a detailed list of various foundations’ responses to the economic downturn. This is interesting and helpful to a point. But the vast majority of nonprofit organizations probably will never receive a grant from any of these foundations anyway. In fact, according to Giving USA’s annual survey of nonprofit charitable contributions, foundation funding made up only about 12% of the $306 billion that nonprofits received in charitable contributions in 2007. And if you look at the overall sources of revenue for the nonprofit sector, earned income and government funding make up a much larger piece of the overall revenue picture than charitable contributions.
Foundation funding is a small piece of the entire nonprofit revenue landscape. So I’m not sure why some nonprofit organizations spend so much time and money hiring grantwriters, going after long-shot grants and worrying about the state of the foundation community. Nonprofits would be better served to take a more holistic view of their revenue engine and opportunities for growth. Is earned income a possibility? Can they tap into more individual giving, which makes up 82% of the charitable giving pie? Instead of hiring a grantwriter, how about hiring a seasoned revenue generator who has experience and results in all aspects of revenue creation, who could take a look at the assets (relationships, donor base, mission, services, etc.) a nonprofit has and how they could be translated into a more diversified and sustainable funding mix. Such a person would cost more than a grantwriter, but the return on the investment would be far superior.
Which brings me to one of the favorite and lowest ROI fundraising activities in the sector: events. Galas, fun runs, parties seem to be a staple of the nonprofit sector, but are they really generating much net revenue? Indeed, the net revenue of nonprofit events is often not calculated. That is to say, when you factor in the direct (food, band, decorations) and indirect (staff time, value of board/other volunteer time, etc.) costs of the event, what is the true profit? I think most nonprofit fundraisers would be surprised. And there are two other drawbacks to events. First, there is an increasingly competitive landscape for events. Each weekend in my city there are several nonprofit fundraisers. How many invitations must philanthropists get per month? Surely they are exhausted by it.
But secondly, and even more disturbing, is that events move a nonprofit away from their core mission, their reason for being and thus their reason for raising funds. Instead, the nonprofit asks their donors to focus on the party and what’s in it for the attendees. Through a gala, a nonprofit teaches its donors not about the important change the organization is creating, but rather that the organization exists to provide them a good time.
In order to transform how nonprofits are financed and thus to increase our effectiveness and productivity at solving problems, two things have to change. First, the legal and financial structures that hold nonprofits back from innovating, growing and becoming sustainable must change. And second, nonprofits themselves have to be smarter about using the tools they do have more effectively. They must calculate the return on investment of the revenue generating activities they undertake and discard those that are no longer productive.
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