The one common frustration shared by the various nonprofits that Social Velocity works with is money. How do we get more of it, how do we use it more effectively, how do we generate it more easily, how do we make it sustainable? My answer to all of these questions is to take a more strategic approach.
The financial crisis and restructuring that we are currently experiencing has the potential to completely transform how nonprofits are funded. We need to seize this opportunity to: move away from the idea that operating funding is bad; restructure nonprofit accounting principles in order to allow money that allows us to build organizations rather than just buy services; make government funding easier to access and with less strings attached; and encourage foundations and individuals to fund nonprofit capacity and growth instead of just direct services. The entire way that we fund the nonprofit sector has got to change.
But while we work towards those larger structural changes, there are things that nonprofit staff, boards and donors can do right now to raise more money.
1. Align your mission and core competencies with your fundraising efforts.
Fundraising is an integral and critical element to the work nonprofits are doing. A nonprofit connects a community to its needs and harnesses the resources of that community to address, and hopefully solve, those needs. A nonprofit is part of its community and is funded by donors who make up that community. Fundraising from that community then, is not a dirty word. Fundraising, when done right, is about connecting those with resources to the results and impact an organization is creating.
The impact should generate the revenue.
Which is why a nonprofit’s mission should be connected to their fundraising. One of the biggest problems the nonprofit sector faces is a misalignment of mission, money and core competencies. For any nonprofit to be successful three things must be aligned:
1. Their mission, or reason for existing
2. Their core competencies–what they can do better than anyone else in the world, and
3. Their revenue engine–all the ways in which they sustain themselves financially.
So that an organization, at equilibrium looks like this:
The mission is supported by the organization’s core competencies which both feed into how it generates money.
Jim Collins calls this the “Hedgehog Concept,” Mark Moore, a professor at the JFK School of Government at Harvard, calls it “The Strategic Triangle.” It’s such a simple and powerful concept, but it seems to be one that is often left on the bookshelf, a better theory than practice. But how transformative would it be if this concept were dusted off and applied to the challenges an organization faces?
It is particularly challenging when the revenue engine is misaligned. This is when an organization has a great mission and can produce great results, but they can’t find a way to make the organization financially sustainable. FORGE, a nonprofit working with African refugee camps is a great example of this misalignment. Their mission and programs are solid, but they struggled with the right revenue engine (switching from individual fundraising to web-based fundraising without having the core competencies to make the switch). The end result was a $100K deficit.
Revenue misalignment is so difficult for nonprofit organizations to overcome because the sector is undercapitalized. It can seem impossible, at times, to nonprofit EDs, who tend to be focused on the program and mission they are trying to deliver, to integrate a sustainable revenue engine into their work. And indeed, many foundations and government funders will pay for programs and mission, but not a sustainable overall organization. The incentives do not reward an organization in alignment.
But there are solutions. If an organization can take a step back and look at all three elements and how they fit together they can start to make strides toward better integrating all three activities. The mission of an organization needs to be one that they can generate financial support around, but it also needs to be something that they can deliver on better than anyone else. And the financial support that an organization generates needs to complement and support, not detract from, the mission and core competencies. And they need to integrate what they can do really well with what their reason for existing and ways of raising money are.
No longer can the fundraising staff be sequestered in a separate part of the building, only spoken to when there is a new program the organization decides it needs to raise money for. No longer can a board of directors say that fundraising is not their role. No longer can a strategic plan be created without a corresponding financial plan that is sustainable. All three voices must be at the table finding a way forward together.
2. Create a plan.
Indeed, if an organization can fully integrate money into their overall organization, it can become a powerful resource which can help the organization do more in a more sustainable way. But how does an organization get there? With a plan.
What does strategic planning have to do with fundraising? Absolutely everything. Without a clear vision and direction for an organization–a clear path forward–what donor wants to invest? No one wants to throw money at a problem. People want to understand what they are buying, or investing in. What is the end goal? How are you going to get there? How do you know this is the right approach? Even the smallest donor will give more and over a longer period of time if they can understand how what they are giving fits into a larger picture and will result in some significant change in their community. So an overall organizational strategy will reap tremendous financial rewards.
But any effective strategic plan must have an integrated financial plan. What are the resources at your disposal (staff, technology, buildings, materials, programs), how much will they cost and how will you generate the money to pay for them? You cannot have a realistic strategic plan without a corresponding financial plan. The financial plan lays out the revenue and expenses over the period of the strategic plan. What is it going to cost to get to your goals (expenses) and how will you pay for them (revenue)? You must weigh your expenses against your realistic ability to raise that amount of money. Can you really raise enough money, given where you are right now, to meet all the goals of your strategic plan?
If not, then one of two things has to change. The first option is to limit the goals of your plan to make them more affordable. The second option is to increase your revenue engine to meet the cost of these goals. Therefore the strategic plan and financial plan have to be created in conjunction with each other. It is a back and forth process where one plan feeds and is altered by the other.
Once you have a realistic financial goal, you need to create the annual revenue plan to get there. Notice we didn’t say “fundraising plan.” Nonprofit organizations need to elevate how they think about the money required to reach their organizational goals.
Fundraising, raising money from private sources (individuals, foundations, corporations), is just one part of the revenue options available to nonprofits. Other options include: earned income (selling a product or service), government grants, fee for service, corporate sponsorships, debt, and so on. By using the term “revenue plan,” as opposed to “fundraising plan,” a nonprofit begins to explore other revenue opportunities. That is not to say that every nonprofit should explore every revenue opportunity. Nonprofit organizations do, however, need to expand their options.
Just like a strategic plan, a revenue plan should have 3-5 broad goals, basically your various revenue areas. Then create the road map for hitting those revenue targets in each area. What infrastructure needs to be in place, what campaigns will you take on, how will you go about bringing that money in the door, who is responsible for each activity, what is the timeline? And you begin to craft a comprehensive revenue plan. It can seem like an overwhelming process, but if you are strategic and systematic about it, you can break an overwhelming goal down into manageable chunks and pretty soon you are raising more money that you thought possible. Social Velocity is helping several of our clients do just that.
3. Upgrade your fundraising function.
But sometimes it takes money to make money. Sometimes nonprofit organizations are caught in a vicious cycle where they don’t have enough money to invest in raising more money. They can’t afford to hire a Development Director, or upgrade their website or buy a donor database. Capacity capital is the money required to upgrade a nonprofit’s capacity, or in this case, their fundraising function. Upgrading your fundraising function might necessitate money for:
A Development Director, database manager, or other staff
A new/upgraded website
A donor database
Improved messaging and collateral
Fundraising training or outside expertise
But where can a nonprofit find this capacity capital? Right in your backyard. I have yet to meet a nonprofit organization that doesn’t have at least a handful of people who are passionately committed to the organization. And those people, when convinced in a compelling way of what it is going to take to increase the organization’s infrastructure and thus their sustainability, more than likely will want to invest themselves, or connect the organization to people in their network who can invest.
Let us give you an example. When Nell Edgington joined KLRU, Austin’s PBS station, in 2005, their revenue picture was bleak. Individual donors were declining, much as they were at PBS stations across the country. At the same time, the number of days KLRU interrupted programming to fundraise on-air had grown to an all-time high, among the highest in the country. Online giving was almost non-existent and there were few major or foundation donors. Nell put together a fundraising function upgrade plan which cost $350,000 over 3 years and included a new donor database and online giving software, a Webmaster, staff training, and market research. They secured a handful of foundation and individual donors (who were already KLRU donors) to fund the project. The result at the end of 3 years was an increase of $1.6 million in annual operating revenue per year.
So the capacity capital investment of $350,000 to upgrade fundraising and marketing efforts translated into an annual increase of $1.6 million. That is a pretty impressive return on investment. And it can work for a smaller nonprofit organization and a smaller fundraising function. A $50,000 investment in the fundraising capacity of a nonprofit could translate into perhaps a $250,000 annual increase in revenue. That additional revenue could transform a $1 million nonprofit. Social Velocity regularly works with our nonprofit clients to put together a pitch for capacity capital, helping them determine what they need money for, what the goals of the plan are, how much it will cost, how to approach donors about it and who to approach. Many of our clients have been pleasantly surprised at how well they have been able to convince their own donors to invest in capacity.
4. Message impact not need.
But in order to get people to step up their investment in your organization, you have to revolutionize your fundraising messaging. Fundraising often uses the messaging of need. “We need $100 to provide our programs.” “We need $1,000 to meet our goals.”
But that’s not how to raise money effectively. To raise significant money you need to focus on impact. The messaging of impact is very different from the messaging of organizational need. The messaging of need gets you donations. The messaging of impact gets you investments. And the two are very different:
Focus on organizational needs
Tend to be smaller in size and shorter in length
Are a response to an apologetic ask (the “tin cup” mentality)
Focus on the impact (the change in outcomes) that an organization makes in the community
Tend to be larger and longer
Are presented as an opportunity
To raise significant, sustainable revenue, nonprofits have to move towards developing investors. Here is how raising investments differs from raising donations:
A successful fundraiser looks for investors who share the organization’s values and theory of change, and then demonstrates to them how their nonprofit creates that change in the community. The organization is merely a conduit for investing in change in the community.
For example, an afterschool program for at-risk children translates dollars into positive outcomes for the children in their charge (increased student achievement, fewer high-school drop outs, lower crime rates, etc.). If the organization were to fundraise around the organization’s needs, “Help us reach our goal of raising $100,000 for our program,” they would raise far less than if they were to fundraise around impact, “Invest in our organization so that we can improve opportunities for children, which creates fewer burdens on our community, more contributing members, and a healthier overall community.”
The first message is about strengthening an organization; the second message is about strengthening a community. Which is more compelling? Which would make someone give more and continue to give if the promised impact is actually delivered? We help clients transform their fundraising message from need to impact and the results are tremendous.
5. Effectively harness your board.
And it is not only your donors that you want to invest, but also your board members.
Too often nonprofit board members are one of two things. They are disengaged (bored, not invested, only in it to benefit themselves or their career, or simply missing in action) or overly engaged (micromanaging the nonprofit staff, clamoring to move the organization towards their own personal gain).
If a board of directors can become more engaged, more energized, invested and committed to the organization, the nonprofit can expand its network and increase its revenue.
But it takes some work. First, determine what kind of board you want. Don’t leave board recruitment up to the board. Create a board matrix that analyzes what skills, experience, networks the current board has and where the holes are. Then actively work with the nominating committee of the board (another must) to research and network with good potential board candidates who fill these holes.
Second, create and enforce a stretch give/get requirement. If a nonprofit’s board is not giving or fundraising in a significant way (let alone at all) then how can an organization expect any other donor to make an investment? The board of directors should be a nonprofit’s closest friend and staunchest supporter. They must demonstrate this support through financial means in order for the organization to have any hope for financial sustainability. Some nonprofit organizations argue that they want some board members from their client community and sometimes those board members can’t afford to make an investment. First, anyone can afford to contribute $1, which simply says I believe in this organization and am putting whatever I can into it. Second, a client board member would be an excellent fundraiser. Take them on major donor fundraising visits and have them passionately explain the impact the organization is having.
Third, constantly remind the board about the impact the organization is making. Just as you want to focus your messaging to donors on impact, you want to focus your board members, at every meeting, on the impact the organization is having. This reinforces why they got involved and how they are helping to make change in their community.
Fourth, use the board wisely in fundraising. Don’t have your board pick decorations for your next fundraising event. Rather, use them to open doors to major donor asks.
One of the key things a board of directors provides is access to a desirable network of people in the community that have resources. Use them to connect you to those people. Don’t squander that resource on things your staff could be doing.
And finally, effectively train the board. Many boards of directors focus on the tactical because they are afraid or don’t know how to tap into their network. So train them. Find a good fundraising trainer to educate the board on the importance of their role and make it easy and exciting for them to open doors to the organization. We work with boards of directors all the time to make fundraising less scary, more exciting and much more doable.
The board is one of the most important, and typically ineffectively used, resources a nonprofit organization has. An effective board provides a nonprofit a broad network and long-term financial strength.
Put it all together. The recession is, no doubt, a difficult time to raise money. And funding in the nonprofit space is getting ever more competitive. But within these structural constraints there lies opportunity. By aligning fundraising with the mission and core competencies of your organization, creating an overall plan, upgrading your fundraising function, moving an organization’s messaging from need to impact, and harnessing your board, there is an opportunity to raise much more money and in so doing, deliver much more impact.
The five steps outlined above are not easy, but if done right, they have the potential to exponentially grow the amount of money your nonprofit raises. And more money means an increase in the services you provide, the people you serve, and the impact you create. If you would like to learn more about how Social Velocity can help you do this, contact us at firstname.lastname@example.org.
About Social Velocity
Social Velocity helps social impact organizations (nonprofits and social businesses) create stronger, more sustainable organizations and find more resources. We do this by working as a strategy consultant helping organizations to raise more money, effectively use limited resources, integrate their money, mission and operations, hire and train top staff, communicate more effectively with potential donors and investors, launch or grow revenue streams, and ultimately deliver more social impact. To find out more, visit us online at www.socialvelocity.net.