There is an article in Forbes this month that bothered me. Carrie Rich, co-founder and CEO of The Global Good Fund, argues that more nonprofits should move from a “donor-driven organization” to a “revenue-producing social enterprise.” Instead of “relying on donor funding” more organizations should “create revenue-producing services.” In essence she is encouraging more nonprofits to figure out how to sell their services.
The problem with her argument, though, is that it encourages nonprofits to think one-dimensionally about funding sources instead of developing an overall financial strategy that may or may not include earned income.
Rich’s argument is that earned income, or what she calls “revenue-producing social enterprise” is a more sustainable and impactful way to create social change. She goes on to list all sorts of reasons (10 actually) that revenue generation (or earned income) is better than contributed income. These reasons include that revenue generation allows nonprofits to be “more responsive to change,” “attract employees who seek growth,” “accelerate growth and impact,” “become more financially sustainable and mature,” and the list goes on.
Rich is echoing a repeated dichotomy in the social change space between traditional, broken nonprofit approaches, and new, more sustainable and impactful social entrepreneurship approaches. Her line of argument stems from a distaste for fundraising done badly.
Believe me, I get it. Fundraising is broken. But just because traditional fundraising is flawed doesn’t mean we should eschew all contributed income.Yes there is deep dysfunction within the nonprofit sector – I talk about it all the time. But the answer is not to simply dismiss the sector and all of its trappings (and revenue sources).
Let’s remember that a nonprofit organization is often created to provide a public good that is not offered by the market. In other words, nonprofits are selling what someone is unable to purchase.
Thus, nonprofits typically have two customers:
- Those who benefit from the services (“Clients”), and
- Those who buy the services (“Donors”)
When social change organizations are able to conflate the two – when the client becomes the buyer – a social enterprise is born. And while that is great, it is rarely the case. Therefore, market-based solutions will never provide all the social change we need.
Every social change organization must analyze their overall strategy and develop a financial model that best delivers on that strategy. That financial model may have earned income elements, contributed income (individual, corporate and foundation grants) elements, government funding or, most likely, some combination of all of these. And every nonprofit should at least analyze whether earned income is right for their financial model. But social enterprise will never be right for all nonprofits, or even a majority of them.
Instead of completely throwing out “traditional charity models,” let’s make them better. Rich argues that one of the many reasons earned income is better is that it allows organizations to “afford the best technologies to help them succeed.” If social change organizations need more capital investments for technology (which they definitely do) then let’s make capacity capital ubiquitous in the sector. But let’s not erroneously assume that more earned income equates to more capital investment.
Let’s move past these social enterprise vs. charity debates and instead focus on helping social change organizations develop smart, sustainable financial engines that include the right revenue (and capital) mix.
Photo Credit: Yoel Ben-Avraham
I have to be honest. I am so sick of hearing about the ice bucket challenge that I am loathe to write about it. But I wonder if many in the nonprofit and philanthropic sector are falling victim, yet again, to shiny object syndrome, so I feel compelled to say something.
To me the ice bucket challenge is yet another example of what happens so often in the world of fundraising. Nonprofit board members and staff hate fundraising, so they desperately search for a magic bullet to make it all go away.
Sometimes that magic bullet is “an endowment,” sometimes its “earned income,” more recently it has been “crowdfunding.” This month it’s a form of crowdfunding taken to the extreme, the ice bucket challenge. Some have been so swept up in the hype that they have gone as far to say that the challenge is “rewriting the charity model.”
The reality is that if you want to create social change you need to develop a sustainable financial model that aligns with your long-term goals. It’s not sexy, it’s not easy, and I’m probably one of the few people on this planet who thinks it’s fun. But there it is.
While many nonprofits are scrambling to figure out how to create their own ice bucket challenge, and some thought leaders are offering tips along the way, maybe we should all just take a step back.
Let’s be very clear. ALS’s close to $100 million windfall is not a revenue stream. It is a one-time infusion of money. Yes, ALS may try to replicate the ice bucket challenge on a regular basis, but the stars will never align in quite the same way, people will move on to the next shiny object, and the money will eventually fade.
Because this pile of money is not a revenue stream, ALS can’t and shouldn’t add long-term staffing or programming because the money won’t be there next year. At the same time, they probably can’t create an endowment because the donors’ intent was not for the money to sit in a bank account. Regranting the money is also tricky, again because donor intent was for it to go specifically to ALS. In all of this ALS will be under the microscope, because as Ken Berger of CharityNavigator cautioned, a year from now everyone will be asking where the money went.
One of the few paths that I see for ALS is to treat the money like capacity capital. This could be an opportunity to invest some of the windfall in building a stronger organization by investing in technology, infrastructure, and systems. And they could do the same for their affiliates. They could require capacity building plans and budgets and invest in those plans accordingly. They could, in essence, create a $100 million capacity capital investment fund for the ALS system.
But the point is that far from being a great thing that all nonprofits should strive to emulate, the ice bucket challenge creates a complex and potentially damaging problem.
So instead of spending board and staff time trying to dream up the next ice bucket challenge, please, please, please spend that time and those resources building your financial model, by creating a long-term financial strategy, raising capacity capital to build your revenue-generating function, developing a compelling strategic plan in which people will want to invest, and growing and educating your board.
These are the ingredients for a robust, sustainable financial model. Not a bucket of water, a video camera, and a social media stream.
Photo Credit: StoiKNA
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.
Here are even more ways board members can raise money without fundraising.
If you want to learn more about getting your board to bring more money in the door, register for the How to Build a Fundraising Board 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
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