The Limited Returns on Fundraising Support for Nonprofits

When thinking about strengthening nonprofit fundraising capacity, many foundations believe in the old adage, “Give a person a fish, and you feed him for a day; teach a person to fish, and you feed him for a lifetime.” They wish, “If we could only improve nonprofits’ ability to generate revenues, then they would become more resilient…and less reliant on us.” Most nonprofits concur: “Just fund a development director position for us,” they implore, “and it will pay for itself in a year, enabling us not just to survive but to thrive.” Fundraising advisors encourage this support too. At the Council on Foundations annual conference in April, Dan Pallotta, author of Uncharitable: How Restraints on Nonprofits Undermine Their Potential, proclaimed to a ballroom full of grantmakers, “We should be capitalizing on the multiplication potential by funding the fundraising operations that can fund the programs.” He contended that investment—whether it’s in a major gift campaign, a planned giving or special event program, or the expansion of development staff—consistently generates a positive return.

The case for leveraging philanthropic dollars by fortifying nonprofits’ fundraising capability seems like a no-brainer. But is it? According to a new study that TCC Group is conducting of the Packard Foundation’s support for nonprofit capacity-building activities, the answer is no. Since 1997, the Packard Foundation has awarded 1,392 “organizational effectiveness” grants to an array of groups, most of which have annual operating budgets of $1 to $10 million, and operate in the human services, environmental conservation, population, and arts fields. Packard recently surveyed 274 of these grantees from 2007-2009 (grant amounts ranged between $7,000 and $160,000) and analyzed the responses from 169 (a 62% response rate) to ascertain the outcomes. (To see and comment on the comprehensive set of results, visit the foundation’s wiki.) One finding really jumped out at us: Grantees that concentrated on improving fund development capacity reported inferior longer-term outcomes compared to those that focused on strategic planning, organizational learning, or leadership succession. They were not as likely to have met their grant objectives and described lower levels of sustainability of their grant results, as well as less impact on program services.

Essentially, the work was more transactional than transformational.

This evidence is consistent with other research on nonprofit organizational performance that TCC Group has conducted over the past few years. When we analyzed the results of almost 700 nonprofits nationwide that had taken the Core Capacity Assessment Tool survey, and then, through regression analysis, identified the key drivers for those that scored highest on financial sustainability, we determined that fundraising capacity was indeed a substantial factor—but predominantly when combined with robust internal leadership and programmatic learning (see “The Sustainability Formula” report). Likewise, our study last year of 263 nonprofits in Los Angeles County for the Weingart Foundation (see “Fortifying L.A.’s Nonprofit Organizations”) found that fund-development capacity-building tended to lead more to individual knowledge and motivation, while organizational assessment, strategic planning, and board leadership development were more likely to result in institutional change. Fundraising capacity is essential—even a nonprofit with the highest impact programs will not last without it—yet it needs to happen in conjunction with solid leadership and organizational learning.

Although fund development assistance can be beneficial in certain circumstances, it is not a panacea. Oftentimes, fundraising difficulties are a symptom of a deeper underlying problem—such as poor program quality or a checked-out board—that must be addressed beforehand. Funders can help a nonprofit conduct an organizational assessment at the outset so that it can become more self-aware, and can better understand its organizational development needs and priorities and its readiness to undertake change. A foundation also needs to strive to invest in nonprofits that have the most effective programs. In some communities and fields, the potential funding pool may not be able to expand much—meaning that providing development assistance to a select set of nonprofits may cause others to receive fewer resources. 

Fundraising support also has to go beyond plans and translate to concrete action. In the Packard survey and other recent research, TCC discovered that the biggest challenge that nonprofits face with capacity building is implementing the often first-rate strategies that are devised. In other words, too much grantmaker support for nonprofit organizational development is geared for “ready, set,” and not enough for “go.” A fundraising consultant, for instance, may provide top-notch training and an excellent development plan to a nonprofit, but the board and staff leaders might not be engaged or equipped enough to effectively execute it. TCC has learned that the foremost implementation assistance is ongoing action-oriented learning, peer exchange, coaching, real-time tools, and hands-on support to act on wise counsel and get the good work done. 

So, how can a funder move beyond wishful thinking and achieve a high yield through fundraising support? The “book-ends” of any type of capacity-building activity—the upfront diagnosis and the backside implementation assistance—are imperative and frequently neglected. Sufficient program quality and leadership are prerequisites; if they are lacking, they should be enhanced first. An investment made in fundraising capacity will likely have a greater impact if it goes beyond just building technical skills and management abilities, and is holistically integrated with organization-wide activities related to learning, adapting, developing leadership, and decision-making. In a vacuum, it can be marginal. The best work is embraced by a reflective board and staff leaders alike, and is embedded in the organization’s culture and business model.

The Packard Foundation and TCC Group are still in the midst of making meaning from the data through an open “learning in public” process, so please share your comments here or via the wiki and contribute to the collective intelligence. Do you disagree with any of our interpretations? What has been your experience with the efficacy of foundation support for building nonprofit fundraising capability?

Read more stories by Paul Connolly.