Fundamentals of Nonprofit Management
A six-part series on the timeless principles of leading, sustaining, and expanding a nonprofit organization.
To scale up, a nonprofit organization of course needs money. There’s never enough of it. Despite its importance, though, the work of raising money is widely perceived as one of the least pleasant and most difficult aspects of nonprofit leadership. As a consequence, development has become one of the most under-appreciated functions in the nonprofit world.
Most nonprofit leaders, in fact, are uncomfortable with asking people for money. What’s more, in conducting due diligence for the Henry R. Kravis Prize in Leadership over the past several years, we have observed an unfortunate inverse correlation within the nonprofit landscape: The organizations that have the most compelling logic models and the most impressive record of impact (as demonstrated by external impact evaluations) tend to be the worst at raising money—and vice versa. At many bold and extraordinary nonprofits, people cease to be bold when the topic of fundraising comes up. All too quickly, they throw up their hands and say, in effect, “I tried it once. It didn’t work.”
Consider FAWE, a Kravis Prize winner that promotes girls’ education in 33 African countries. FAWE has been responsible for securing educational opportunities for 12 million African girls who otherwise would not be able to attend school. It didn’t attain that level of impact by being the kind of organization whose people give up easily. But FAWE has struggled to gain traction when it comes to undertaking bold fundraising efforts. In 2010, for example, the organization launched a major initiative aimed at raising money from US donors. Its leaders invested a great deal of time and energy in the initiative, and they even brought on-board two costly US-based fundraising consultants. But in the end, they had little to show for their effort. “We understand that philanthropy is much stronger in the US than anywhere else, but after so much wasted effort we could only conclude that it is simply not a good use of our time to try to raise money from American donors,” says Oley Dibba-Wadda, former executive director of FAWE.
Let’s face it: Raising money is difficult, and for most people it’s not very pleasant, either. But nonprofit leaders who want their organizations to grow must redouble their commitment to fundraising, even if their initial efforts on that front have been unsuccessful. Here are three tried-and-true principles that effective fundraisers have learned to follow.
Spend Money to Raise Money
Many social entrepreneurs can’t imagine getting to the point where they have the resources to justify asking somebody for a lot of money. It’s a classic chicken-and-egg problem. Kravis Prize recipient Roy Prosterman, founder of Landesa, explains how his organization struggled with that challenge: “We spent more than 20 years working out of a small apartment on an annual budget of less than $2 million. In fact, for much of that time, our budget was less than $200,000. We were so accustomed to our shoestring budget—on which we still managed to achieve significant impact—that it was difficult to imagine a major step-up.” But winning the Kravis Prize gave him and his organization the impetus to change course. “Our credibility and profile increased, and we invested in development functions. All of this led to various sources of new funding that fueled big efforts to scale,” Prosterman says. Today, he notes, Landesa has an annual budget of about $13 million.
Once a leader like Prosterman demonstrates that a model has impact, he or she often must take on the role of salesperson: To replicate a model on a large scale requires resources, and that means selling the model to donors. To manage this transition and to raise money successfully over the long run, a nonprofit leader simply must hire fundraising professionals and spend money on development functions. A typical nonprofit should have three or four development officers, and each of them should have a portfolio that involves handling relationships with 50 to 250 donors and prospective donors. According to one broadly accepted metric, every dollar spent on development will raise four dollars for an organization. That won’t happen right away. It’s typically a 12- to 18-month process that requires a fair amount of patience. But given the payback that an organization is likely to reap within two years, it’s a no-brainer.
Kravis Prize recipient Johann Koss, founder of Right to Play, expanded his organization’s budget from $2 million in 2001 to $42 million in 2013—and he did so by investing in fundraising resources. “In 2002, we were very fortunate to raise an additional $5 million, but we resisted pressure to spend it all on programs,” Koss says. “Instead, we reinvested 40 percent of it in development.” With that money, he and his team hired a director of development and several major gift officers, along with development personnel who target donors across Canada, the United States, and Europe.
Go Where the Money Is
Willie Sutton, a famous US criminal of the early 20th century, was asked why he robbed banks. “Because that is where the money is,” he famously responded. Nonprofit leaders should seek out donations in much the same spirit. Most of the money in US philanthropy comes not from foundations but from individuals. In 2012, according to a report issued by the Giving USA Foundation, only 5.7 percent of the $316 billion of that was spent on philanthropic giving in the United States came from corporations, and only 14.5 percent came from foundations. In fact 72.4 percent of the total came from individuals—a sum that would be even higher if it included giving by foundations that have living founders. (The remaining 7.4 percent came in the form of bequests, and most of that money also came from individuals.)
The organizations that are most successful at fundraising rely overwhelmingly on donations from a relatively small number of individuals. They might also pursue a mass-marketing strategy that involves direct-mail campaigns and the like, but that’s a difficult and time-consuming affair. The real money lies in tapping high-net-worth donors with whom an organization has a deep relationship. Targeting a small number of individual donors has the additional advantage of minimizing the need for laborious grant applications to foundations, and it makes organizations less vulnerable to political shifts that lead to cuts in government funding. “The major gift officers that we hired helped us to cultivate relationships with individuals,” Koss says of fundraising efforts at Right to Play. “Individuals’ giving currently comprises approximately 38 percent of funds raised, and will continue to increase in the future.”
A cardinal rule of nonprofit fundraising is to start with members of your board. There should be an expectation that board members will not only make a major financial gift to your organization, but also help to identify, cultivate, and approach other potential donors. If members of your board aren’t contributing in these ways, then you need to get a new board. The organizational culture of Right to Play reflects that principle. “Expectations of board members regarding development are very explicit,” Koss says. “Every board member is expected to make Right to Play one of their top three priorities for charitable giving, and also is expected to help us raise money from others. Every year, the board chair and I have a conversation with each board member about what they’ve given, what they’ve raised from others, and plans for next year.”
Sometimes it’s not enough to go where the money is; you also need to go where the money will be aligned with your mission. For that reason, nonprofit leaders should consider taking money only from funders that form a good fit with them. Like it or not, your funders will shape your future. Do not assume that you will be strong enough to resist pressure from them. An unaligned funder will chip, chip, chip away at your sense of mission. “It’s incredibly difficult, but we have turned down big money either because the funding had too many strings attached or because the funder’s expectations would have taken us off-mission,” says Robin Smalley, cofounder of the Kravis Prize-winning organization mothers2mothers. “My experience is that funders really respect it when an organization puts mission and constituents’ needs first. I feel blessed because our funders are people who genuinely care about the same things we do: the mothers and babies we serve.”
Conquer Your Fear of Asking for Money
To overcome the discomfort that you feel when talking about money, start by changing your mindset. If you really believe in your organization’s mission, then think of it this way: You’re doing potential donors a favor by inviting them to support your work. “Of course, every nonprofit leader is uncomfortable asking for money,” says Koss. “By definition, our passion is making change in the world, not asking for money. The best way to deal with this is by talking mostly about the passion: Bring the donors along on the journey.”
You have to ask people to make a donation; it won’t just happen automatically as a result of cultivating a relationship with them. Be specific and concrete. And ask for the actual amount that you hope to receive. There are some fundraisers who believe that you should ask for twice as much as you want, so that if you get half that much, you’ll still be happy. That’s one approach, to be sure, but it’s not one that we favor. How authentic will you seem to donors if you play that kind of game with them?
You need to make a plan for each of your top prospects, and the plan should include a detailed survey of their interests, their passions, and the sequence of steps that you will take to cultivate them. It’s a game of chess, not checkers: You need to think three, four, or five moves ahead, and that means planning your fundraising activity 12 months, 24 months, or even 36 months in advance of when you hope to make a formal “ask.”
If the circumstances are right, ask for a matching gift that will help you raise additional funds from others. Make sure that the terms of the match are reasonable and not too restrictive, and that the match reflects your priorities as an organization. Sometimes a donor will urge you to accept a matching gift that suits the donor’s priorities, and not yours. In that case, we advise you to say no. In structuring a matching gift, remember: The easier it is to explain, the better off you are. A one-to-one match ratio, for example is always the best way to go.
Thank your donors for their gift, and take care to be a good steward of that gift. Thanking people isn’t just the right thing to do; properly done, a thank-you also sets the stage for the next gift. Indeed, the best fundraisers always assume that the first gift is never the last gift. Stewardship, meanwhile, is by far the most ignored and overlooked aspect of fundraising. If you thank your donors and steward their donation with care, you’ll find that asking them for money gets easier, not harder.