Financing Not Fundraising: The Plan

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

Fundraising in its current form just doesn’t work anymore.  Indeed, traditional fundraising is holding the sector back by keeping nonprofits in the starvation cycle of trying to do more and more with less and less. Really, what the sector needs is a financing strategy, not a fundraising strategy.  By that I mean that nonprofits have to break out of the narrow view that traditional FUNDRAISING (individual donor appeals, events, foundation grants) will completely fund all of their activities.  Instead, nonprofits must work to create a broader approach to securing the overall FINANCING necessary to create social change.

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

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

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

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

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

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

Photo Credit: Steve Wampler

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

The Critical Importance of Financial Strategy, Recession or Not

One benefit of the recession for nonprofit organizations is that they can no longer deny the critical importance of finance in what they do. No executive director would say that fundraising isn’t critical to what they do, but I bet a majority would admit that they don’t have an overall financial strategy for the organization. And in a recession that hole becomes ever more apparent.

In flush times it is a bit easier to refrain from analyzing the financial statements every month, predicting cash flow, making hard decisions about whether to end financially draining programs, creating bold (and potentially risky) revenue streams, and so on. The financial strategy of a nonprofit organization often takes a back seat to program strategy. But the recession makes that stance nearly impossible. Because if you turn away from financial reality for too long, you could be out of business.

Clara Miller of the Nonprofit Finance Fund, has some great insights into how the nonprofit sector should be responding to the recession in terms of better financial management. Among her list of things nonprofit leaders should do to be good financial managers are:

• Create a cash flow forecast for at least a year into the future, conservatively estimating what will happen with each revenue source over time and update it regularly
• Conduct a program profitability analysis, which compares the distinct funding sources to the direct expenses of every program a nonprofit operates. When coupled with mission effectiveness this helps inform decisions about what programs to cut or to increase fundraising efforts for
• Understand the relationship between reliable revenue and fixed costs.  If your reliable revenue, or revenue that you are reasonably certain will come in on a consistent basis, is lower than your fixed costs, you’ve got a serious problem.
• Focus every conversation at board and staff meetings on strategic choices that face the organization and the financial implications of those
• Be conservatively realistic about all of your numbers

But nonprofits need much more than just good financial management.  They need a financial strategy for delivering social impact. They need to understand and analyze how program decisions and strategy affect the financial viability of the organization and vice versa.  The two are inextricably linked. It does no good to make program or operating decisions without really understanding the financial implications.  And it is not sustainable to create a strategic program plan without a corresponding and equally strategic financial plan.

Finance has for too long taken a back seat in the nonprofit sector. Fundraising staffs have been separate (physically and strategically) from program staffs. Strategic decisions for the organization (program expansion, new buildings, etc) have been made without a clear understanding of the current or future financial implications of those decisions.  Program goals have been made without knowing what it will truly cost to implement those goals and where that funding will come from.

Nonprofit leaders need to take a bigger view of how their organizations and missions are financed.  It’s not enough to manage money wisely.  Nonprofit leaders need to create a comprehensive, fully integrated financial strategy for the social impact they want to achieve and then execute on it.

Tags: Clara Miller, Fundraising, Nonprofit Finance Fund, nonprofit financial management, program profitability analysis

Can PRIs Support Fundraising and Capacity Building?

Lucy Bernholz is hosting a great conversation on her Blueprint Research and Design website called “What Capital When?” As part of their work with the John D. and Catherine T. MacArthur Foundation in their Digital Media & Learning initiative, Blueprint is hosting this online conversation around the theories and strategies of program-related and mission investing to advance knowledge and research in the field. They asked that I do a guest post on using PRIs (program related investments) to improve the fundraising effectiveness of nonprofit organizations. Below is that post. You can also read the post on their What Capital When site here, and you can read the whole series here.

I think there is a tremendous opportunity that most foundations and nonprofits are missing.  PRIs (program-related investments) are an under-used tool that could provide much needed capital for nonprofits to transform how they finance social impact.

PRIs are loans that foundations make to nonprofits at low, or no interest.  At the end of the loan period (typically 3-7 years) the loan is repaid, or forgiven.  PRIs are usually used for capital projects or land purchases in the nonprofit world.  But they could also be used to increase the fundraising capacity of a nonprofit organization, through increased fundraising knowledge, planning, tools and staffing.  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.

A nonprofit could use a PRI to improve their fundraising infrastructure in several ways:

• Create a strategic development plan. Many nonprofits don’t have the expertise or time to put together a strategy for how they will bring money in the door.  With funding to hire an outside consultant to put together such a plan, the nonprofit would have a much better chance of increasing their fundraising revenue.
• Get fundraising training for their staff and board. If a nonprofit staff and board have the tools and expertise for successfully raising money, they will be more likely to do so.
• Hire a seasoned Development Director. Many nonprofit organizations can only afford to pay the bare minimum for a Development Director, which means that they are often forced to hire someone with little experience who must learn on the job.  If instead they had enough funding to pay a market rate salary for a seasoned fundraiser, they could hit the ground running, increasing the likelihood of fundraising success.
• Purchase a new donor database. A key element to success in individual donor fundraising is an organization’s ability to capture and use data about donors and prospects.  A good donor database makes this effort easier and more successful.
• Upgrade their website, email marketing, social media efforts. As direct mail appeals (a nonprofit fundraiser’s traditional standby) continues to become less and less effective, nonprofits need to move effectively into the online world.  Funds for technology upgrades and staff could help them do this.
• Launch a major gifts campaign. The vast majority of private funding in the nonprofit sector comes from individuals (80+%), so to stay competitive nonprofits need to move into the world of major gift solicitation.  But that takes expertise, staff, collateral and other infrastructure elements.

These are just a few examples of how nonprofits could make investments to strengthen their fundraising efforts. But currently it is difficult to find funding to support things like this.

But a PRI could provide an initial investment that sets the nonprofit on a path toward more diversified, more sustainable fundraising for the social impact they are working to create.

There are tremendous benefits to a PRI program like this.  First, for the foundation:

• Increases their ability to meet past levels of giving, despite any losses they might have found in the market, because the loaned money will eventually come back to them.
• Encourages their nonprofit grantees to be proactive in creating fundraising streams that will make them more sustainable.  Thus, increasing the likelihood that their nonprofit grantees a) won’t have to come back to them year after year for ongoing support and b) will become more sustainable and thus achieve greater social impact.
• Stretches their capacity-building dollars further. Because PRI money eventually comes back to the foundation, they can increase their level of impact by helping more nonprofits improve their capacity than they could with grants alone.
• Increases the level of accountability among nonprofit recipients because of the expectation of repayment.

And second, for the nonprofit:

• More diversified and sustainable fundraising streams.
• Increased fundraising knowledge and experience.
• Increased ability to work towards social impact.

Although PRIs used in this new way seems, at least to me, to be an obvious win-win, very few foundations are doing it.  PRIs in general are used (according to the Foundation Center) by only a few hundred of the thousands of grantmaking foundations in the country.  And I know of only one example of a foundation using a PRI to upgrade the fundraisng capacity of a nonprofit (the KDK Harman Foundation in Austin just launched a program like this last Fall, but does not yet have any participants).

So what is holding foundations back from launching a PRI program like this?  A number of things:

1. Nonprofits lack the expertise to put a plan together and pitch it to foundations. This is where Social Velocity comes in to help nonprofits create a plan to upgrade their revenue function and pitch that plan to foundations and other funders.
2. Most foundations  have an aversion to capacity building funding and prefer that their money go to direct program service.  However, as more nonprofits can demonstrate to funders that capacity building actually results in even more impact, this aversion can be alleviated.
3. Foundations lack awareness of or experience with PRIs.  However, this is changing, especially in the last year when the poor economy has made foundations increasingly interested in finding alternative ways to maintain community investment levels.
4. Foundations that are experienced with PRIs are not aware of using them to improve a nonprofit’s fundraising function.

So there is a disconnect.  But I am optimistic that as nonprofits learn to put a plan together to upgrade their fundraising function and articulate to funders how PRI’s could finance it, more examples of this new use of PRIs will surface.

Tags: Blueprint Research and Design, Development, Foundation Center, Fundraising, John D. and Catherine T. MacArthur Foundation, KDK Harman Foundation, Lucy Bernholz, nonprofit, PRIs, program-related investments, What Capital When

The Power of a Case

Most businesses that are looking for funding know the power of a case for support, although they probably call it their “pitch” or “deck.”  But most nonprofit organizations don’t have an articulated case for support, and this is a real missed opportunity. A case for support is absolutely critical to any kind of fundraising campaign, in the nonprofit or for-profit world, and whether the money sought is investment capital or operating revenue.

A case for support lays out a clear, articulate, compelling argument for why someone should invest in the solution you are providing the marketplace.  Nonprofit organizations do tend to put together a case for support when they embark on a capital campaign to raise significant money for a new building.  But a case for support should be the fundamental building block to ANY fundraising campaign.  Without a case for support, nonprofits are just holding out a tin cup.

I’m not suggesting that a nonprofit create a case for support and then trot it out whenever they meet with, mail or talk to a potential donor.  Rather a solid case for support is a starting point from which the nonprofit can pull arguments and language for use in every aspect of their fundraising operations:  website, appeals, thank you notes, presentations, major donor calls, foundation proposals, etc.

The very exercise of a nonprofit board and staff creating a case statement can be, in itself, transformative.  It makes the organization as a whole articulate why someone should invest in them and what the payoff is.  This articulation can energize and focus the organization and make their fundraising efforts that much  more effective.

A case for support has some key elements:

1. The Need (Market Opportunity)
   What social problem exists in your community, region, state, country, world that needs to be addressed?  Why is this problem significant, why should people care?
2. The Solution
   What is your solution to the social problem? Why is this the right solution?
3. Competitors and Competitive Advantage
   Why is yours a superior solution to other alternatives out there? Something that is often missing in nonprofit articulations of their case is how their solution fits into the competitive landscape.
4. Value Proposition
   Why is your organization uniquely positioned to deliver on this solution?  What is the value proposition you offer and how do your core competencies feed this solution?
5. Resources Required
   How much money, what type, and over what timeline do you require for this particular project (start-up, growth, increased capacity, general operating, etc.)? This section will vary based on the fundraising campaign.
6. Projected Social Return on Investment
   What does the potential investor get by investing in your organization (change to a social problem, increased breadth or depth of service delivery, etc.)?  If you can demonstrate a social return on investment, that’s great.  If you can demonstrate an increase in program and operational efficiency (in the case of a capacity building fundraising campaign) then do.

A full case for support is not something you would normally share with potential donors.  However, the process of articulating your case for support and then using elements of it in all of your fundraising work can dramatically increase your ability to effectively communicate with and secure investments from donors.

Tags: capital campaign, case for support, Fundraising, nonprofit

Losing the Charity Mindset

Along with the burgeoning social entrepreneurship movement comes a bit of hubris that social entrepreneurs know better how to create social change than do the nonprofits that have been working toward social change for years.  Some social entrepreneurs argue that nonprofits are too set in their ways to embrace a new way of creating solutions.  I tend to disagree.  We can’t, nor should we, discount and dismiss an entire sector of people and organizations that have been working on social problems for centuries.  However, I do think that there are some things that nonprofits can learn from social entrepreneurs.  One of those is how to lose the charity mindset.

Nonprofits are sometimes referred to as “charities,” and it is a real misnomer.  But beyond semantics, the word, and more importantly the mindset, does a real disservice to organizations working toward change  A charity mindset is when an organization, its board, its funders or others promoting its work have a narrow view that the organization is benevolent, but not critical, to the world at large.  The charity mindset assumes that a nonprofit starts from the position of need, inadequacy, and burden, rather than a position of opportunity, strength, and effectiveness.  The charity mindset differs from a social entrepreneur mindset in a number of ways:

• Symptoms vs. Solutions: A charity, by its very definition, exists to provide aid to the needy, not to solve the underlying cause of the need.  This is not to say that every nonprofit can work toward solving an underlying problem; there will always be organizations that exist simply to provide basic needs (food, shelter, safety, etc.).  But I wonder if too many nonprofit organizations view their work as residing in the “charity” camp, instead of working, as social entrepreneurs do, to understand the cause of the need and how how they may be able to attack and solve it.




• Fundraising: A fundraiser in the charity mindset apologizes for the burden of asking someone for money, but a social entrepreneur offers investment opportunities to prospects.  Wendy Kopp from Teach for America went around evangelizing the Teach for America story and sought investors who wanted to get in on the ground level of an incredible opportunity to change the American public education system.




• Investment in Infrastructure: Charities spend every last penny on the program and leave little money for building the organization.  Social entrepreneurs understand that it takes organizations, infrastructure, systems, and talent to effectively execute on a solution to a social problem.




• Respect: Charities may be beloved by their supporters, but they may not garner a lot of respect from them.  Social entrepreneurs behave as equal partners with funders in creating solutions, and, as such, they command and receive real respect from investors, volunteers, partners and others.




• True Costs:  Charities like to claim that as much money as possible goes to direct services, but social entrepreneurs recognize the true costs of their endeavors and are open and honest with funders about those costs.  In fact they demand that funders understand and support those true costs.

I think the old adage is true, people will treat you the way you ask to be treated.  If a nonprofit acts like a charity, people will treat it like one.  Nonprofits need to stand up and demand to be treated as critical, equal partners in creating solutions.

Tags: charity, Fundraising, Nonprofits, Social Entrepreneurship, Teach for America, Wendy Kopp

Financing not Fundraising

As we approach the end of a pretty difficult year for nonprofit fundraisers, and look towards the start of what could be an equally difficult one, I’d like to outline 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.

Really, what the sector needs is a financing strategy, not a fundraising strategy.  By that I mean that nonprofits have to break out of the narrow view that traditional FUNDRAISING (individual donor appeals, events, foundation grants) will completely fund all of their activities.  Instead, nonprofits must work to create a broader approach to securing the overall FINANCING necessary to create social change.

What does this new approach to financing the nonprofit sector look like?  It looks like this:

1. Nonprofits understand that funding programs and general operating expenses is not enough to survive and thrive.  All activities that bring money in the door (individual donors, foundation grants, earned income, government contracts, loans etc) are integrated and part of a larger financing strategy that supports the short AND long term goals, as well as the programs AND infrastructure of the organization.




2. Nonprofits no longer segregate fundraising from their other activities (programming, administration).  All elements of a nonprofit’s operations, including the money-making ones, are fully integrated and moving forward together.




3. Individuals, who make up 80%+ of the private money entering the sector, become a greater focus of fundraising efforts, rather than corporate or foundation philanthropy (which make up 5% and 12%, respectively, of the private money entering the sector).




4. Fundraising messaging moves from an emphasis on the tin-cup mentality and donor benefit, to an emphasis on the social impact a  nonprofit is creating.




5. Money is raised to support not only the direct services that a nonprofit provides, but also the infrastructure (staff, technology, systems, evaluation, training) of the organization.  Nonprofits understand that they will only get better at delivering impact if they have an effective organization behind their work.




6. Other types of capital vehicles (like loans, equity) are added into a nonprofit’s financing mix.




7. Earned-income opportunities are evaluated and, if appropriate, launched.  Earned income is not right for every nonprofit, but it is worth exploring and analyzing opportunities as they come and understanding and being open to the revenue-generation possibilities.




8. The net revenue of every money-making activity a nonprofit engages in (events, individual fundraising appeals, corporate sponsorships, earned income, etc.) is calculated and evaluated.  Low net revenue activities are replaced with higher net endeavors.




9. Nonprofits move away from “push” fundraising and marketing efforts that force their message on innocent bystanders (like direct mail appeals) and towards “pull” fundraising and marketing efforts that bring interested donors/prospects to the organization (like blogs, Twitter, Facebook, friend-raising events, etc.)

There really is a better way.  Nonprofits don’t have to wear out their fundraisers, their donors, their staff and their message.  By working towards financing their efforts as opposed to fundraising for them, they can get a lot closer to social impact.

Tags: direct mail, Financing, Fundraising, nonprofit, Philanthropy, social change

Building a Stronger Organization

We all know the nonprofit sector is really struggling.  Particularly in the midst of a deep recession it can be difficult to figure out how to get out of a vicious cycle of increasing demand for services, relentless fundraising, diminishing capacity and so on.

But there is hope.  In order to break free of the starvation cycle of trying to do more and more with less and less, nonprofits need to make big change.  And in order to do that they need to figure out what is holding their organization back.

Most consultants offer nonprofits what they call an Organizational Assessment.  But I hate the term, and I don’t hold much stock in the results. The solutions they offer to what’s holding a nonprofit back tend to be rooted in what the nonprofit sector has been doing wrong for too long.  Most Organizational Assessments are not bold enough, they don’t push nonprofits to understand and articulate their own theory of change, look at entirely new revenue streams, get rid of non-performing board members, completely revamp their mission, focus their marketing efforts, create a real strategic plan, and so on.

What nonprofits need is an Organization Building Plan. It can transform a nonprofit, give them an understanding of where they stand currently and what it will take to really strengthen the organization and their ability to make social change.  An Organization Building Plan gives a nonprofit a clear, executable road map for making their organization work better, smarter, more effectively, more sustainably.  It demonstrates how to integrate better all aspects of the organization (program, funding, marketing, operations, board, etc), make the organization more sustainable, expand the net of supporters (funders, volunteers, board members, friends), deliver programs in a way that increases social impact, and increase the strengths of the organization, while addressing the weaknesses.

If a nonprofit can strengthen their organization, they can deliver more social impact. Indeed, I would love to see every nonprofit organization with a well executed Organization Building Plan.  So what does a good one look like?

An outsider (it must be an outsider, because, as we all know, someone close to the organization won’t have the heart or the vision to see what is really wrong and how to fix it) interviews board, staff and funders, reviews organization processes, policies, procedures, documents. They then analyze and create detailed recommendations for improvement in the eight key areas of a nonprofit organization:

1. Mission and Vision: How these basic pillars of the nonprofit galvanize internal and external people to create change.
2. Strategy: How the organization comes up with and executes on a plan for the work of the organization.
3. Program delivery and impact: How the organization delivers social change.
4. Governance and leadership: How the board and key staff drives the organization forward.
5. Finances and revenue generation: How financially strong and sustainable the organization is.
6. External relationships: How strong and effective important collaborations and partnerships are in the work of the organization.
7. Marketing and communications: How well the organization gets in front of the right audiences in a compelling way that drives action.
8. Operations, systems and infrastructure: How well the organization makes use of resources.

Doing Organization Building Plans is one of my favorite services we offer at Social Velocity.  When I deliver the results to a client’s board and staff it is thrilling to look around the room and see the mix of shock, awe, relief, excitement, energy, innovation.  Finally someone has taken a hard look inside the organization and come up with a new direction that opens a whole new world to the organization.  Ideas start flying around the room “We could do this…”, “What if we did that…”  It serves as a rallying cry to begin to build the organization.

At Social Velocity we are all about big, not incremental, change.  An Organizational Assessment can make a nonprofit incrementally better.  An Organization Building Plan can transform how an organization works, dramatically increasing productivity, sustainability, and ultimately, social impact.

Tags: Fundraising, mission, nonprofit starvation cycle, organizational assessment, vision

Calculating the Cost of Fundraising

It seems that almost every nonprofit I talk to either has or would like to have some sort of fundraising event.  There is a rampant misconception that a successful fundraising event can be the answer to a nonprofit’s money woes.  That is sadly not the case. Events do not make money for nonprofits.  Sure, they might generate some gross revenue, but when you look at the net revenue raised and the cost to raise a dollar, they break even if you are lucky and lose money if you are not.  And those two calculations, net revenue and cost to raise a dollar, if employed by more nonprofits, could transform how effective fundraising could be for the sector.

At the risk of boring you with the math, let me give you an example. Let’s pretend that a nonprofit organization with a $500,000 annual budget throws an annual gala with a band, nice catering, and an auction.  They have a staff member that spends half of their time getting the event together, and there is a board committee that helps sell tables and provides oversight for the event.  At the end of the event the organization grosses $100,000.  They are thrilled that they have made 20% of their annual budget in one night, right?  Wrong.

Let’s dig a little deeper.  They have grossed $100,000, but what did it cost them to raise that money?  The direct expenses for the event (the band, location, food, decorations, invitations, etc) cost them $50,000.

But they also need to factor in the indirect expenses.  Their event coordinator spent half a year preparing for this event. Their Executive Director came to some meetings, met with the event coordinator, made phone calls to invite people and other activities.  The Development Director also worked on the event.  And the board committee put in many hours on the event.  So if we calculate the hourly rate of those staff member’s time (salary and benefits) and multiplied it by the hours they each worked, we’d get the cost of their time.  We also need to do the same for board members.  We can use the standard value of volunteer hours ($20.25) multiplied by the number of board members who worked on the event and the average number of hours they spent.  If we add all of this up we get:

Event Coordinator: $15,000
Executive Director: $4,000
Development Director: $5,000
Board Members: $3,000

Total Indirect Expenses: $27,000

So the total of the direct expenses ($50,000) plus the indirect expenses ($27,000) is $77,000.

Now, here’s where it gets interesting.  First of all, you see that the net revenue on this event is only $23,000 ($100,000-$77,000 = $23,000).

But how much did it cost to raise that $23,000?  It cost $77,000 to raise $23,000, or if you boil it down it cost $3.35 to raise $1.00.  That’s insane, right? Although this organization actually made money, the cost of making that money is far larger than the money they made.  And how does the cost of making this money compare to their other fundraising activities?

These two simple calculations, net revenue and cost to raise a dollar, could transform nonprofit fundraising efforts.  If nonprofit organizations understood the net revenue and cost to raise a dollar of every fundraising activity they engaged in, they could determine the most effective use of fundraising resources and could focus their resources on those activities.  The bottomline revenue to the organization would increase dramatically, while fewer resources would be expended on low net revenue activities.  It could be transformative.

So let’s take another example. An organization hires a major gift officer at $65,000 per year plus benefits who raises $500,000 per year in major gifts.  If you include in major gift activities the costs for the Executive Director’s and board members’ time to go on fundraising visits and send thank you letters the total indirect and direct costs for major gift fundraising would be $100,000.  So the net revenue ($500,000-$100,000) would be $400,000.  And the cost to raise a dollar would be ($100,000/$400,000), $0.25, so it takes a quarter to make a dollar.

Then if the nonprofit compared that cost to raise a dollar to the $3.35 cost to raise a dollar with a gala, they could make a conscious and reasoned decision to forgo the fundraising event and focus more efforts on major gifts.  They could take the $77,000 they spent on the fundraising event and hire another major gift officer.

I’m not suggesting that nonprofit events go away completely.  I think they absolutely have a place as friend-raising, stewardship, and cultivation activities.  An event can be a great way to celebrate the impact an organization is having and get more people to learn about them, or to thank donors who have been instrumental in the results an organization has achieved.  But in terms of pure revenue-raising abilities, fundraising events are very inefficient.

And a sure path to greater efficiency begins with analyzing the effectiveness of your current activities.  I’d love to see more nonprofits running the numbers on all of their fundraising activities and then making some hard choices about the best use of resources.  The end result could be more money at less cost.

Tags: cost to raise a dollar, events, Fundraising, gala, net revenue, nonprofit

Don’t Go Blindly Into That Social Media World

Seth Godin has gotten everyone talking (some are even yelling) about his latest post that chastises nonprofits for not embracing change and getting on the social media bandwagon. Godin is irritated at nonprofits for not embracing these new tools to “focus attention and galvanize action” around their cause.  And the overwhelming amount of debate about the post  (Beth Kanter, Chronicle of Philanthropy, Tom Watson, to name a few) , has focused on whether or not nonprofits have embraced social media, whether they are “deer in the headlights,” whether they are risk averse, whether they “blow people away,” and so on.

This is a good debate, to be sure, but what interests me in all of this is a bigger question about the role of social media in a nonprofit’s overall resource engine. Social media is just marketing, right?  Some organizations have figured out how to tap into social media to spread the word, build a following and so on.  Some businesses have even seen a spike in sales.  That’s great.   But marketing through social media, just like any kind of marketing, has to have a bigger goal in mind.  You don’t market for marketing sake, and you don’t Tweet just because it’s cool and “everyone” is doing it.  Rather, you have to understand how that marketing activity (whether it is “free” or not, it still takes resources) is going to contribute to, or perhaps detract from, your bigger goal, which for nonprofits is to raise resources to execute on their mission.  So, in essence, nonprofits should be using social media to build donors, volunteers, advocates, supporters, right?  And as such, their use of social media has to be part of a larger resource plan.  Social media is another channel for the distribution of your message. You should not just go blindly into the social media world.  But don’t sit on your hands either, I get it.

I would argue that social media must be one component of a larger overall resource plan for a nonprofit, that brings dollars, volunteers, advocates, etc. in the door.  But first we need to take a step back to understand that resource plan.  Which brings me to a misunderstanding of fundraising in the nonprofit world and to my usual hero Dan Pallotta.  Pallotta’s blog posts are wonderful, and usually I read them while silent “Right Ons” and “Amens” stream through my head.  But his recent post on fundraising left me frustrated that Pallotta wasn’t stepping far enough out on the limb that he usually does.

Pallotta argues that fundraising is a dirty word in the nonprofit sector and organizations work as hard as possible to spend as little as possible on it:

Fundraising is the black sheep of the nonprofit sector. Charities spend as little as they possibly can on it. They talk as much as they possibly can about how little they spend on it. The watchdogs, the IRS, and donors deduct goody-two-shoes points from nonprofits in direct correlation to every dollar they spend on it. Institutional funders penalize charities for spending on it… By extension, fundraisers are the black sheep of the sector’s workforce; second-class citizens to the program staff who are in the trenches every day doing the real work of social change.

He laments this reality and suggests that we better integrate fundraising into the costs of the programs that nonprofits operate:

This is ass-backwards. Without fundraising there are no programs. The less we spend on it the less money there is for programs…We should make fundraising a program domain in and of itself — every bit as important as the medical research, social services, advocacy, and everything else it makes possible. We should consider all spending on it to be a critical “program” expense. Instead of disdaining it, we should invest in understanding and developing it, because unless we do, we’ll never have anywhere near the money we need to address the massive social problems we confront.

These are all valid points, but then I lose him at the end when he claims:

Institutional funders should take the lead…Fundraising should be every bit as prevalent on the lists of their program interests as health, human rights, and global poverty. And when they are, they won’t need to be giving program grants to health, human rights, or global poverty anymore, because the fundraising arms of the organizations they support will be able to fund them on their own.

Huh?  I agree with Pallotta that there needs to be more risk and experimentation with fundraising.  But I would take this much further.  Fundraising isn’t just a “necessary expense,” rather a nonprofit’s resource engine must be fully integrated with and equal to its programs and operations.  We have to move away from the term “fundraising,” which has come to mean galas, direct mail campaigns (which Godin abhors), and foundation grants that are conducted in a vaccuum completely separate from and organization’s programs and operations.  Fundraising has become akin to a gerbil on a treadmill where nonprofits go from grant to grant, direct mail response to direct mail response, email campaign to email campaign, working their fundraisers to the bone trying to make the dollars coming in the door equal the dollars going out the door to run their programs.

That is “ass-backwards.”  The only effective way for a nonprofit to achieve its mission, and ultimately social impact, is to fully integrate their programs (the social impact they are trying to achieve) with their core competencies (what they do better than anyone else) and their overall resource engine.  This overall resource engine must be a diverse combination of activities that generate support for and work with, not detract from, the mission of the organization and the organization’s core competencies, like this:

I’ve written about this critical alignment before, and it seems to me that this integration of the three core activities of a nonprofit are rarely integrated effectively, or even recognized by those commenting on the sector, like Pallotta and Godin.  Any marketing or revenue-generating activities that a nonprofit embarks on must be chosen and invested in–with resources like money, staff, board and volunteer time–in accordance with the organization’s mission and core competencies.  And the marketing and revenue-generating activities from which a nonprofit can choose include things such as: individual donor cultivation, solicitation and stewardship; direct mail acquisition; online fundraising; foundation grants; earned income businesses; and yes, even social media.  Just as nonprofits should not shy away from social media because they are afraid of risk and change, they also shouldn’t run towards it if it doesn’t make sense in the overall picture of how they can effectively integrate their mission and core competencies to create a sustainable resource engine.

Nonprofits shouldn’t fear social media, nor any other technological, social, or financial shift in our world.  Nonprofits, just like any other entity, need to be aware of their environment and adapt their business to survive and thrive in that changing environment.  But it all has to be based on an integrated strategy.  Yes, be open to new things like social media and experiment to see how this new development might enhance or contribute to your mission, and your resource engine, while working with your core competencies.  But don’t blindly go there without understanding how it fits.

The bottomline is that the pace of change is speeding up for all of us.  Nonprofits have to be more open to change, yes, but any change still has to be digested and made part of an overall strategy that integrates mission, competency and resources.  I think Godin would be the first to agree that we are nothing without an integrated strategy.  So don’t jump on that bandwagon without one, just because Godin tells you that you are “paralyzed in fear.”

Tags: Beth Kanter, Chronicle of Philanthropy, Dan Pallotta, Fundraising, Marketing, nonprofit, Seth Godin, social media, Tom Watson