Financing NotFundraising

A S o c i a l V e l o c i t y E - b o o k

Vol. 3

Nel l Edg ington

Financing Not FundraisingVol. 3

Nell Edgington

A Social Velocity E-book

Social Velocity | P.O. Box 300543, Austin, TX 78703 | (512) 694-7235 | www.socialvelocity.net

2013 © Social Velocity. This guide is copyrighted by Social Velocity and may not be reproduced, duplicated, or distributed.

Inside This E-book

WHAT IS FINANCING NOT FUNDRAISING? 1

OVERCOME NONPROFIT TABOOS 3

REMOVE MONEY HURDLES 5

FIND AND KEEP A GREAT FUNDRAISER 7

RECRUIT A MONEY RAISING BOARD 9

SET A HIGH FUNDRAISING BAR 11

ENLIGHTEN YOUR DONORS 13

BREAK FREE FROM THE STARVATION CYCLE 15

CREATE DONOR PERSONAS 17

CALCULATE OPPORTUNITY COSTS 20

STOP APOLOGIZING 22

GETTING STARTED 24

1

What is Financing Not Fundraising?

This e-book is the third volume in the Financing Not Fundraising e-book series. The

idea behind Financing Not Fundraising is that the traditional way nonprofit leaders,

boards and donors have approached funding the work of nonprofits doesn’t work

anymore.

Traditional nonprofit fundraising forces nonprofits to work harder and harder for a

smaller and smaller return.

Nonprofits must break free from this vicious cycle and take a much more strategic

approach to securing the overall financing necessary to achieve their goals.

The first step in this process is to fully integrate money with the mission and core

competencies of the organization. In creating such a strategic financial model for her

organization, a nonprofit leader will be setting her organization on a path towards

financial sustainability, growth, and ultimately change to the social problem her

nonprofit attempts to address.

This e-book, the third in the Financing Not Fundraising series, expands on the basic

elements of the Financing Not Fundraising model and helps those nonprofit leaders

who are ready to start moving away from fundraising to really dive into this new

approach.

Contained in this e-book are new ways of thinking, new tools of analysis, new

questions to ask. All with the intent of pushing your staff, your board, even your

donors, to fund your work in a more effective and sustainable way.

Here are the chapters in this third volume of Financing Not Fundraising:

Overcome Nonprofit Taboos

Remove Money Hurdles

Find and Keep a Great Fundraiser

Recruit a Money Raising Board

Set a High Board Fundraising Bar

Enlighten Your Donors

Break Free From the Starvation Cycle

Create Donor Personas

Calculate Opportunity Costs

Stop Apologizing

Getting Started

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Times have changed. We no longer have the luxury of sticking our heads in the sand

and continuing to do things the way they’ve always been done. My intent is that this

e-book, along with all of the e-books in this series, will help you to see a new, better

way to fund the critical work you are doing for society.

So let’s get started.

3

Overcome Nonprofit Taboos

It is an undeniable fact - the nonprofit sector doesn’t have enough money. There are

many reasons for that, but part of it stems from the taboos the nonprofit sector (and

the staffs, boards and donors within it) perpetuates.

But perhaps if we lay them bare, we can start to break free.

Nonprofit taboos are so insidious because they are unwritten and unquestioned. But

that has to stop. If we want to move the nonprofit sector forward, we must uncover

certain taboos and determine whether they are really unacceptable anymore.

Here are the five most egregious taboos in the nonprofit sector:

Nonprofits Shouldn’t Raise a Surplus

For some reason it is unseemly for a nonprofit to have more money than they

immediately need. If a nonprofit is not just barely breaking even, it is somehow

unworthy of raising more money. To the contrary, a nonprofit that has operating

reserves can invest in a more sustainable organization, conduct research and

development to make sure their solution is the best one, recruit a highly competent

staff, and weather economic fluctuations. It is far better to invest in an organization

that is well poised to attack a social problem than one that is barely able to keep the

lights on.

Nonprofits Shouldn’t Pay Market Rate Salaries

Nonprofits exist within a market economy, that is a fact. If someone is great at what

they do, and they can make more money elsewhere, eventually they will do so. It is

simple economics. I understand that mission is a driving force for people attracted to

the nonprofit sector, but as competition in the social change space continues to

grow, the best and brightest will be lured away by other nonprofits, government

entities, or for-profit social enterprises. So if you want to attract and retain a really

talented employee, you must pay them accordingly.

Nonprofits Shouldn’t Demand Board Members Fundraise

Why not? Seriously, I don’t get this one at all. If your governing body is free to make

strategic and programmatic decisions without understanding, first hand, the financial

implications of those decisions, you are setting your nonprofit up for failure. Mission

and money must be strategically aligned, and the first and most important place that

alignment occurs is at the board level. There are plenty of ways for board members to

get involved in the financial engine of their nonprofit. Let’s stop apologizing for having

to make money in the nonprofit sector and start requiring that every single board

member get actively involved in the process.

Nonprofits Shouldn’t Question Donors

Since donors hold the purse strings nonprofit leaders are unwilling to tell them how it

really is. But if the sector continues to act like a grateful recipient of a wealthy

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person’s or institution’s largesse, that power imbalance will continue, as will the

dysfunctions that accompany it. If instead nonprofits and funders were equal

partners working together to solve a problem, maybe we could get somewhere. But

this will only happen if nonprofit leaders become more confident at telling their

donors (and board members) how it really is. And if nonprofit leaders are more

strategic about diversifying their financial model, they are no longer beholden to a

few funders.

Nonprofits Shouldn’t Invest in Fundraising

In the nonprofit world, the fundraising function is equivalent to the sales and

marketing function of the business world. No one expects Apple to create amazing

gadgets and then sit back and hope people show up and buy them. They have an

extensive and well-financed marketing and sales function. But nonprofits are

expected to spend as little as humanly possible on fundraising. And nonprofits are

even further challenged because they have two, not just one, set of customers: 1) the

clients they serve who often can’t pay for services, and 2) the funders who pay for

those services. So we are telling nonprofits to recruit and serve two sets of customers

on a shoestring. That’s crazy. We have to get over the idea that investing in

fundraising (high quality staff, technology, expertise, planning, marketing) is a bad

thing.

At the end of the day, we have to stop apologizing for the realities of the nonprofit

sector. It’s time nonprofit leaders stand up and start demanding the end to some

serious strictures that hold them back from doing their jobs.

And, let’s remember, those jobs are to solve some of the most complex problems

facing our communities. Those jobs are probably more easily and effectively done in

the absence of crazy taboos.

So lead by example. Stop believing in and promoting these destructive nonprofit

taboos.

5

Remove Money Hurdles

Most nonprofits that struggle to bring money in the door often don’t know why they

struggle. When you are on the inside of an organization that is used to doing things a

certain way it can be nearly impossible to see new opportunities, or to understand

what you could do differently.

There could be many reasons why your nonprofit doesn’t bring enough money in the

door. But here are the most common reasons a nonprofit struggles financially. See if

any of these fit your nonprofit:

Too Many Programs Drain Money From Your Organization

It sounds like a truism — you struggle with money because your programs cost

money. But the reality is that few nonprofits analyze their programs to determine

each one’s individual impact on the bottom line. Often they will add a new program

because it has an impact on the mission (or because a single funder wants the

program), without understanding how the new program fits into the organization’s

overall financial picture. The end result is an organization that is stretched to the

breaking point. Nonprofit leaders must analyze all of their programs to understand

their impact not just on mission, but also on finances, then they can make decisions

about where to more sustainably focus resources.

You Are Leaving Money Up to One Person

The financial engine of a nonprofit must be a team effort. Yes, it is important, if you

are large enough, to have a staff member whose sole job is to think about money, but

you cannot leave it all up to her. The entire organization, from the front line program

staff all the way up to the chair of the board must understand the critical importance

of money and what role they individually play in securing it. Although program staff

won’t actively solicit donors, they can still share client stories with donors, write blog

or newsletter articles, participate in program tours with donors, and even suggest

new ideas for tying money to their programs. And there are countless ways for board

members to bring money in the door (see the “Recruit a Money Raising Board”

chapter below), but you have to make sure they are aware of and doing their part.

You’re Not Effectively Telling Your Story

It is so common for nonprofit staff and board members, who believe so passionately

in their cause, to think that it’s obvious to outsiders why they should get involved. But

it isn’t. And in an increasingly crowded social change marketplace it is more

important than ever that nonprofits be able to articulate, in a compelling way, what

value they are providing a community.

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You’re Doing What Everyone Else Does

It drives me crazy when a nonprofit that is struggling financially witnesses another

nonprofit’s fundraising activity and tries to replicate that perceived success, without

analyzing if it makes sense. Just because it looks like a recent gala or a new thrift

store rakes in the money doesn’t mean a) that it did actually make a profit for the

nonprofit and b) that it would make a similar profit for your nonprofit. The key is to

make the best use of your specific assets as an organization. Think about what value

you have to offer and who might be interested in paying for that value. For example, a

homeless shelter could financially partner with local businesses to move people away

from storefronts and into more stable and life-changing accommodations. You have

to analyze what you have to offer and who specifically would be willing to pay for that

value.

You’re Not Investing In Your Money-Raising Function

If you don’t have enough or the right kind of staff in place to raise money it is little

wonder that you struggle. And if you’re not giving them effective tools they will be at a

loss. Think about your financial engine and the various revenue streams you employ.

Do you have the technology, staffing, systems, materials, space you need to raise

money well in those ways? For example, if you want to raise money from individuals

you need an effective database system that tracks contact information, interactions,

history, interests. Whatever ways you bring money in the door, you need to ensure

you have enough and the right kind of tools to do it well.

If your nonprofit isn’t raising enough money the reasons probably go far beyond how

money comes in the door. An unsustainable financial engine is merely a symptom of

some larger issues at the organization. Start to analyze which of these issues might

be affecting your nonprofit.

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Find and Keep a Great Fundraiser

Effectively staffing the fundraising function is always a key money hurdle for

nonprofits. And the news is not good lately about how effective the head fundraiser is

at nonprofit organizations.

A recent study by CompassPoint reveals some startling realities about the fundraiser

role in the nonprofit sector:

25% of executive directors fired their last development director

33% of executive directors are lukewarm about their current development

director

More than 50% of executive directors say they can’t find well-qualified

fundraisers

50% of development directors plan to leave within the next two years

And 40% plan to leave fundraising altogether

That sounds like a fundraising crisis to me. And it’s just another example of why

fundraising in the nonprofit sector is broken.

What I find most troubling about CompassPoint’s study is that it makes nonprofits

sound so powerless to do anything about this deep dissatisfaction with fundraising

performance. But that simply is not true.

Here is how to go about finding and keeping a great fundraiser.

Hire a Money Head

Don’t hire someone who can just write grants or someone who can just work with

individual donors. Take a look at the entire financial engine of your nonprofit and hire

someone who can develop and execute a strategy for strengthening and growing ALL

aspects of that financial engine. If you have significant government grants or earned

income, make sure you have someone on board who understands and can work with

those aspects as well as the private money that flows to the organization.

Develop a Financing Plan

Don’t just expect to hire someone who will magically make money appear. Your head

fundraiser has to be in charge of developing and executing an overall financing

strategy for your organization. And that means that you need an overall financing

strategy for your organization. Without a strategy, your chief fundraiser and your

nonprofit are sunk.

Pay a Real Salary

It amazes me how many nonprofits expect to entice a great fundraiser by offering a

salary that is comparable to someone with only a few years of experience. If you don’t

have the current budget to pay a market rate, raise capacity capital (see the “Break

Free From the Starvation Cycle” chapter below) to fund the first 1-2 years of the

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position. Once you have a great fundraiser on board he will raise his own salary while

growing your nonprofit’s overall revenue.

Hire Enough Fundraisers

The rule of thumb is that it takes one full time person to raise $500K, including

anyone who touches prospects and donors (database manager, prospect researcher,

etc.). If you are asking a single fundraiser to raise $1.5 million there is little wonder

why she is (and you are) miserable.

Give Them Tools

Don’t hire a great fundraiser and then fail to give him a donor database, an

interactive website, marketing materials, prospect research, support. It does no good

to hire someone with great ideas but no way to bring those ideas to fruition. If you

don’t have the budget for additional support and tools, raise capacity capital (again,

see the “Break Free From the Starvation Cycle” chapter below) to find it.

Train Them

No one knows it all. In every other profession we expect to send employees to

conferences, enroll them in classes, or coach them along the way. Don’t expect that

your fundraiser automatically knows all there is to know. Give him opportunities to

gain new knowledge, meet others in the field, and continue to grow his skills.

Work WITH Them

It drives me crazy how many times a nonprofit’s lone fundraiser is trying to raise all

the money by herself. If you are going to align mission and money, you have to make

sure that EVERYONE in the organization (board and staff) understand their role in

bringing money in the door. Create a culture of philanthropy among the staff so that

even a staff member who doesn’t have dollar goals in her job description

understands that talking to prospects and donors, giving tours, writing thank you

notes are critical to keeping the organization going. And make sure the board is

trained in fundraising, has a give/get requirement, and has specific individual and

board money goals, which I talk about at length in the next two chapters.

If you want to attract and retain someone who will develop a sustainable financial

engine for your nonprofit, don’t leave her out in the cold. Fully integrate your head

fundraiser into your organization and give her the tools, support and resources

necessary to succeed.

9

Recruit a Money Raising Board

As I mentioned above, one of the biggest challenges for the head fundraiser is often

an ineffective fundraising board. But if you want your board to contribute effectively

to your nonprofit’s financial engine, you have to start from the beginning. And that is

to recruit a money raising board.

In order to assemble an army of volunteer money raisers, advocates, and

ambassadors for your nonprofit you have to get strategic. You must move away from

scarcity-based board recruitment where you beg people to fill vacant holes on your

board, and instead create a recruitment strategy that identifies the right people with

the right skills, experience and networks who will become your partners in bringing

more money in the door.

And that strategy looks like this:

Connect Your Strategic Plan to Your Board

Start by taking a look at your long-term strategic plan and ask the simple question,

“What skills, experience or networks do we need on our board to make each goal of

our strategic plan a reality?” And don’t think in broad terms like “fundraising,” or

“marketing.” Rather, think very specifically about target audiences you want to

access, new networks of people you want to find, specific skills that your strategic

plan requires. A childhood literacy nonprofit probably needs board members who

have key connections to local school districts, possess education-related expertise,

or can talk intelligently about smart program design.

Recruit for Specific Needs

Once you’ve identified what skills, experience, and networks your board must

possess, test that list against what your current board has in order to find holes.

Those holes become the very specific types of people you want to recruit. If a

strategic goal is to expand your program beyond your current region, but no one on

your board lives or has connections outside your region, that’s a hole. Start

brainstorming who might fill that hole and how to gain access to him or her. (For

some help, check out LinkedIn’s cool tool for helping you find prospective board

members within your nonprofit’s network).

Find Each Member a Job

You don’t get people to help bring money in the door by asking them to just bring

money in the door. You first must get them excited about what the organization is

doing (the overall strategy) and then highlight their unique contribution to making

that happen. Be very clear with each individual board member about what they bring

to the table and how you would like to tap into their specific skills, experience, and

networks to drive your strategy forward. People become invested in something when

they believe they are making a real and specific difference. Help each board member

figure out exactly how to do that.

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Tie Everything to Your Financial Engine

Once you’ve figured out each individual board member’s job, brainstorm how that

ties to money. To create a sustainable financial engine for your nonprofit, money has

to be part of every conversation. If, for example, you’ve determined that a particular

board member’s legal expertise is critical to your nonprofit’s ability to launch a new

program in the coming year, then also work with them to figure out how that new

program will become financially sustainable. Perhaps there is an earned income

component to the new program that that particular board member could help you

develop. There are many ways board members can contribute to the financial bottom

line, so think outside the fundraising box and determine how each individual board

member can contribute, not only strategically, but financially.

Inspire Momentum

If you assemble a group of people who contribute very specific skills, experience and

networks to the organization’s overall strategy, and if you effectively work with them

one-on-one to nurture the assets they bring, you will soon see momentum build. Each

board member understands their unique role, is excited about how it fits into the

bigger picture, and has connected that role to the financial engine of the

organization. Once you start to see successes with individual board members, share

those with the whole board. Let them see what individual members are doing and

how it moves the organization forward. They will be inspired to embrace their own

unique role.

Many nonprofit leaders start from the wrong place of cajoling, demanding, begging

(or simply giving up on the idea of getting) board members to fundraise. If instead

you work to find each individual board member a unique role to play, the money will

follow.

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Set a High Board Fundraising Bar

And the money will surely follow if you set a high fundraising bar for your board.

So here’s a radical idea.

What if every nonprofit board were responsible for bringing in 10% of their nonprofit’s

annual operating budget?

That means that if your nonprofit’s budget is $1 million, your board would be

responsible for raising $100,000 each year. They could do that through a

combination of give and get activities, meaning they could all write personal checks

(at whatever level makes sense for them individually) and then use their unique

skills, experience and networks to raise the remaining amount.

That’s a crazy idea, right?

I don’t think so. Here’s why.

The Board Must Really Understand the Money Engine

A board of directors simply cannot separate themselves from the financial engine of

their nonprofit. The entire board must fully understand and contribute to how money

flows to the organization. They cannot argue that money is the purview of the staff;

money HAS to be part of the board’s job. Until we make the board really participate in

making the financial engine run, they won’t be able to have substantive

conversations about how to raise or spend that money.

The Board Must Share the Burden

I’m so tired of silly, small board fundraising goals. Does a 15-member board that

brings in only $15,000 out of a $1 million budget really make a difference?

Absolutely not. That’s pennies. If they are truly going to lead the nonprofit that they

serve, they must share the financial burden. Ten percent of the operating budget

starts to make a significant dent, so let’s start there.

The Board Must Tap Into Their Unique Assets

I am not suggesting that we force every board member to ask individuals for money.

Far from it. Rather, I’m arguing that nonprofits start getting really strategic about

tapping into each individual board member’s strengths and assets in order to make a

bold fundraising goal a reality.

But you can’t just turn to the board and tell them to bring 10% in the door. Some

things are going to have to dramatically change within your organization in order to

make 10% a reality.

Here’s what you have to do:

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Work one-on-one with each individual board member to create an annual plan

for how they will meet their part of the goal. Start this process by scheduling a

meeting between the executive director and/or development director and

each individual board member at the beginning of each fiscal year.

Give the board lots of different ideas for how they can meet their goal. Create

a one-pager with various options for board members to consider. It can

include everything from hosting friend-raisers, to writing thank you notes, to

negotiating with a vendor for lower costs, to providing intelligence on donor

prospects, and the list goes on.

Provide the training, materials, and education they need to execute on that

individual plan. Make sure that your board knows how money works in the

nonprofit sector and the various ways your particular nonprofit raises money.

Take the fear out of the equation by making sure they feel confident and

comfortable with money.

Hold each individual board member accountable for their individual plans and

goals, check in with them every month to see how they are progressing and

what they need to be successful. And get the board chair involved when a

board member isn’t pulling their weight.

Have the board report at every meeting about their progress on the 10% goal.

Once you set a goal make sure everyone is constantly mindful of it. Celebrate

successes whenever you have them and provide ideas and assistance when

they are falling short. But most importantly, make the board own their goal.

If we really want to see a shift in how the nonprofit sector is funded, we need to make

some pretty radical changes to business as usual. So start to entertain the idea.

What would it look like if your board brought in 10% of your annual budget?

At the very least, put the question in front of your board at the next meeting as a topic

for discussion and see what happens.

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Enlighten Your Donors

Speaking of new topics of discussion for the nonprofit sector, let’s talk about some of

the long-held assumptions many of our donors have.

It used to be that a nonprofit leader receiving a check from a donor would smile

politely, say a big “Thank You” and go on her way. But just as (seemingly) every

aspect of the world as we know it is changing, so too is philanthropy. We are starting

to question traditional beliefs about how money is given and how it should be spent.

As a nonprofit leader, if you want to start securing and using money in a more

strategic way, if you want to move from fundraising to financing, you need to bring

your donors along with you.

It is up to you to enlighten your major donors about how they can use money more

effectively. So that instead of being merely the recipient of your donors’ largesse, you

become a true partner in putting their money to work for real social change.

We simply can’t sit around and wait for philanthropists to suddenly understand the

hurdles nonprofits face. So the next time you meet with a major donor (an individual,

foundation, or corporate donor with whom you have a one-on-one relationship), make

time to have a deeper, different conversation aimed at enlightening them about the

realities you face.

Here are some ways to start that conversation with your donors:

“Overhead Isn’t a Dirty Word Anymore.”

The notion that “overhead” expenses, like administrative and fundraising costs, are

unseemly in the nonprofit sector is becoming antiquated. Instead there is a growing

effort to evaluate nonprofits based on the results they achieve, not the way they

spend their money. And effective nonprofits need strong organizations behind their

work. Take some time to educate your closest donors about this growing movement

to support all aspects (including staffing, systems, technology) of a nonprofit

organization.

“These Are The Hurdles Standing In Our Way.”

Let’s face it, most nonprofits struggle with some key organizational challenges.

Perhaps you struggle to secure sustainable funding; or you can’t recruit and engage

an effective board; or you want to grow, but lack an effective growth plan. Whatever

your challenges are, start being more open with your funders about those challenges.

It is a risky conversation, to be sure. But I bet that your long-term funders have

probably already recognized some of those roadblocks you face, and your open and

honest approach to facing them might start a new conversation about solutions.

“Here Are Some Solutions to Those Hurdles.”

You don’t want simply to tell your donors a laundry list of woes. As my mother always

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said “Don’t come to me with your problems, come to me with your solutions.” So

before you tell your close donors what is holding you back, do your research about

how you might overcome those hurdles. If you struggle to bring enough money in the

door, perhaps a Financial Model Assessment could help. If you can’t effectively track

and communicate with donors, you may need new technology and systems. If you

don’t have enough staff to grow your programs, analyze the additional expertise you

need and calculate how much it would cost. Put together a thoughtful plan for how

you can overcome the obstacles you face.

“Here is How You Can Help.”

Which brings me to the key conversation you need to have to enlighten your donors.

You cannot execute on a change plan if you don’t have the resources to do so. That’s

where your key donors can play a role. If you’ve spent the time educating them about

organization building, the key obstacles in your way, and your plan for overcoming

those obstacles, then the next logical step is to ask them for help. If you have

invested them in the need and direction for change, you are ready to ask them to

invest in the solution.

I know it’s difficult for nonprofits and their major donors to have open and honest

conversations. But we will never move forward if nonprofit leaders don’t start

initiating some difficult, but potentially game-changing conversations with their

donors. Indeed, effective social change depends on it.

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Break Free From the Starvation Cycle

Let me give you an example of how a game-changing conversation with a donor can

result in the money you truly need to make your nonprofit more effective and

sustainable.

Recently 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. 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

squeeze 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 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.

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.

Let’s first remember that there are two types of money in the nonprofit sector:

revenue and capital.

Revenue is the day-to-day money required to run programs.

For a literacy program, revenue buys books, materials, curriculum,

volunteer coordination, and program staff time.

Capital is the one-time infusion of money that builds or grows an

organization.

For a literacy program, capital purchases a better system for gathering

data on students, a donor database, the first 12-18 months of a

Development Director’s salary.

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Capacity capital funds things like technology, systems, a program evaluation,

revenue-generating staff, and 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 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, whom 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 the 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.

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Create Donor Personas

Beyond your close, long-term donors who can invest in building a stronger

organization, you also want to continually be acquiring new donors who believe in

your on-going programs.

It is a great fallacy in thinking among nonprofit fundraisers that anyone with money is

a potential donor to their organization. Nothing could be further from the truth.

There’s a key practice in business marketing, creating buyer personas, which I think

nonprofit fundraisers would be wise to adopt and could help them get more strategic

about which prospective donors to go after.

Smart marketing is about reaching a specific target of people whose values intersect

with your nonprofit’s unique ability to address a community need, like this:

This means that you don’t want to send your message out to everyone and anyone.

Rather, you want always to target a specific communication to those unique people

for whom it would resonate.

In the business world, this is called creating “Buyer Personas.” And I think nonprofit

fundraisers should develop “Donor Personas.”

Creating Donor Personas means organizing your donor base into groups of people

based on demographics, interests, lifestyle choices, etc. Then you want to find out as

much as you can about those groups in order to clone them.

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So, for example, an animal shelter might have the following beginning list of Donor

Personas:

Animal Activist

These donors are 16-30 years old, highly motivated, interested in advocacy

and changing laws and systems to make the world a safer place for animals.

Pet Lover

These donors are 25-65 years old and have adopted a pet from the shelter in

the past few years. They aren’t politically active, but rather are very grateful for

the newest member of their family.

Dog Devotee

These donors may have may or may not have adopted a pet from the shelter,

but they are fierce dog lovers. They don’t understand cats and are not

interested in them.

Cat Fanatic

Again these donors may or may not have adopted a pet from the shelter, but

they are obsessed with cats and their welfare.

So how do you go about developing your Donor Personas? Start with these four

steps:

1. Group Current Donors

Take a look at your current donor base. Can you place people into profile

groups like I did with the animal shelter above? What do some of your donors

have in common? Do patterns and groupings start to emerge around a

combination of demographics, lifestyle choices and/or worldviews?

2. Ask Questions

Select a handful of current donors in each donor persona group and give them

a call or send them an email. Tell them that you simply want to understand

their motivations for giving so that you can find more like-minded people. Ask

them a handful of questions like “Why do you give to us?” “Where did you

hear about us?” “What do you do in your free time?” “What’s the best way to

communicate with you?” Anything that will help you understand better what

motivates them to give, how they make decisions, where they hang out, etc.

3. Create Profiles

Armed with a deeper understanding of what makes these different groups

tick, flesh out your donor personas. Give each group a descriptive name, like

“Pet Lovers” above, and list their various characteristics (demographics,

interests, anything you know about them). Then circulate these donor persona

descriptions to your staff and board. You might even want to attach a fictional

picture to each persona to make it more visually captivating.

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4. Market to the Personas

Now that you understand your donor groups better, create different content

and opportunities that resonate with these different groups. For example, you

might want to engage your “Animal Activists” via social media when the city

council is threatening to pull some of your shelter funding. Or, you might ask

“Pet Lovers” to virtually adopt shelter animals with a monthly contribution.

Now that you know your Donor Personas better make sure you target all of

your marketing and fundraising activities accordingly.

Stop telling your story to anyone and everyone. Start figuring out what motivates

those who already love you and use that information to build an army of additional

supporters.

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Calculate Opportunity Costs

In focusing your efforts on donors with the best potential fit with your nonprofit (as in

the “Create Donor Personas” chapter above) you are making a conscious choice to

put your organization’s limited resources to their highest and best use. I would love to

see more nonprofits making those kinds of conscious choices more often, and there

is a calculation that can help you do just that — opportunity costs.

An opportunity cost is the value (money, time, resources) of the next best option

when you make a choice between two options. Understanding the opportunity costs

of decisions is particularly important when resources are scarce, as is the case in the

nonprofit sector.

In calculating opportunity costs, you are consciously analyzing two or more options

and quantifying the value of the next best option when you choose one option over

the others. So, for example, when you are choosing between two new jobs you’ve

been offered, you recognize that in choosing one position you are giving up the value

(or salary) of the other position. It seems so simple, yet in the nonprofit world it

becomes much more complex.

Because the nonprofit sector is under capitalized, money is king. A driving motivation

in many nonprofits is to preserve money, or go after money, at all costs. So the

concept of opportunity costs is often ignored. But if we truly want to put every last

nonprofit resource to its highest and best use, we must understand opportunity

costs.

Opportunity costs are calculated like this:

Opportunity Costs of Option #1 = The long-term benefits of option #2 – The long term

benefits of option #1

If the opportunity costs for a particular choice are positive, you have not chosen the

best (most valuable) option.

Let me give you a couple of examples of how opportunity costs can be calculated in

the nonprofit world.

Fundraising vs. Friend-Raising Event

This decision came up for one of my clients recently. They were going to host an

event at a board member’s house with 25 potential major donors. They were hesitant

to use the event just as a group cultivation of major donors (a “friend-raiser”), so they

were grappling with the idea of asking attendees to make a $100 donation (a

“fundraiser”) while at the event (a total of $2,500 in revenue). That would have been

a huge mistake because of opportunity costs.

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If cultivated correctly over the coming year, the attendees all had the capacity to give

much larger donations, probably an average of $5,000 per attendee (a total of

$125,000 in revenue). But if those attendees were forced to make a $100 donation,

they would be done with their giving to that organization for the year.

The opportunity cost of the fundraising event would be:

$125,000 (value of the “friend-raiser”) – $2,500 (the value of the “fundraiser”) =

$122,500

In other words, in deciding to hold a fundraising event, instead of a friend-raising

event, the nonprofit is giving up $122,500 in value.

Needless to say, they decided to make the event purely a friend-raiser, with no

fundraising ask because the friend-raising event, in this case, was much more

valuable. However, it goes without saying that they now need to be sure to do

effective follow up cultivation and eventually solicitation with every attendee to the

friend-raiser in order to realize that value.

Grantwriter vs. Development Director

If a nonprofit leader is deciding whether to spend $45,000 to hire a grant writer or

$75,000 to hire a development director they might opt to hire the grantwriter

because that is the cheaper option, and in the world of nonprofits, cheaper is always

better. But in hiring a grantwriter, the nonprofit would save $30,000 in regular costs

(the difference in salary between a development director and grantwriter), but lose

many times that amount in long-term benefits. The difference in revenue brought in

under the development director, someone who could increase the overall financial

engine of the organization, could be in the hundreds of thousands and many times

the value of the grantwriter, who would only be able to increase foundation and/or

government funding.

So the opportunity costs of hiring a grantwriter would be:

$250,000 (estimated annual increase to overall giving with a development director)

– $30,000 (additional annual cost of the development director salary) – $100,000

(estimated annual increase to foundation giving with a grantwriter) = $120,000

In choosing the “cheaper” grantwriter, the nonprofit is losing $120,000 in value.

I would love to see more nonprofits calculate the opportunity costs of all of the

decisions they make. In fact, because nonprofit leaders are so resource constrained

they should be even more cognizant of opportunity costs and ensure that every last

resource is put to its highest and best use.

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Stop Apologizing

It becomes increasingly obvious to me that the nonprofit sector suffers from a lack of

confidence. Centuries of being sidelined as "charities" while the real work of the

world (business) took center stage has made the nonprofit sector continually

apologize for the work they do and how they do it.

Nowhere is this more true than in the financing of their work. But for the nonprofit

sector to start to demand a seat at the big table (or better yet to create a brand new,

better, bigger table) the sector must stop apologizing for needing money.

To truly begin to use money as a tool, nonprofit leaders have to stop regretting their

need of it and start demanding that they receive enough and the right kinds of money

to successfully accomplish their work.

But you can't simply decide to stop feeling bad about asking for money. Instead you

have to find the confidence to identify and secure the right financing for your work.

Here's how:

Ask for Change, Not Your Organization

You shouldn't be asking for money for your organizational needs, rather you should

be asking for money as a vehicle to help your organization create social change.

Everyone is uncomfortable when asking for a handout. If instead you are asking for

resources to make positive social change, which a donor cares about, it is much

more powerful, compelling and confidence-inspiring.

Find the Right People

It surely can be awkward asking for money if you are asking the wrong person. Don't

fall into the trap that many nonprofits do by thinking that anyone with money is a

potential donor to your nonprofit (see the “Create Donor Personas” chapter above).

People give based on values, therefore you only want to target people for whom your

mission and your work resonate deeply. No matter who your target is (an individual, a

foundation, a corporation) think about whether they have the Capacity to give at the

level you need, have a Connection to someone at your nonprofit, and have a Concern

for your nonprofit’s mission. Being strategic about who you are targeting makes you

much more confident when you finally make the ask.

Tie Money to Your Goals

If you know as an organization what you are trying to accomplish and how much that

will cost, you will have much more confidence asking for money. Instead of just

asking for money, you will be asking for the financing necessary to accomplish your

strategic goals. If you have a smart organizational strategy you can confidently ask a

potential donor to invest in a solid, well-thought out plan for creating change to a

problem they care about. And that's much less awkward than asking someone to just

give, right?

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Take Out the Middle Man (or Event)

So many nonprofits sidestep the awkwardness of asking for money for their mission

by holding a big gala event instead. The thinking is that if they camouflage the ask

inside twinkly lights, great music and food, and a loud band that people won't mind

opening their wallets. Aside from the very real fact that you are leaving money on the

table (see the “Calculate Opportunity Costs” chapter above), events simply enable

the lack of confidence I am describing. Instead of feeling so guilty about asking for

money that you run your board and staff ragged by staging a huge event, take out the

middle man and identify, cultivate and solicit donors who truly care about your work

and will give more significantly through a major donor campaign.

Share Your Results

If your nonprofit is truly creating social change, then you can very confidently ask

others to join you as partners in making that change continue to happen. Collect,

analyze and share the results of your nonprofits programs. Demonstrate the change

that you are creating and that donors care about. With solid results to point to, you

can confidently ask other people to invest in your successful work.

At the end of the day, if your nonprofit is creating positive community value then you

should confidently be asking for the money necessary to make that value grow. Stop

apologizing for needing the financing necessary to do the work and start finding and

confidently inviting interested investors to partner with you.

In so doing you will be moving your nonprofit from fundraising to financing.

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Getting Started

We live in a new reality. The old ways of raising money in the nonprofit sector just

simply won’t work as they once did. It is time to take a much more strategic,

integrated approach to creating a sustainable financial engine for the social change

you seek.

Here are some ways you can start to move your nonprofit from fundraising to

financing:

If you want to learn more about the Financing Not Fundraising approach,

download the Financing Not Fundraising, vol. 1 and Financing Not Fundraising

vol. 2 e-books from the Social Velocity website.

If you want to read case studies of other nonprofits that moved from

fundraising to financing and dramatically increased their financial

sustainability, go to the Clients page of our website.

If you’d like to explore whether our Financial Model Assessment or Financing

Plan consulting services are right for your nonprofit, email

info@socialvelocity.net to schedule a free consultation.

If you’d rather get started on your own, download our Creating a Financing

Plan Step-by-Step Guide.

Check out the other Social Velocity e-books, guides and tools at the Tools

page of our website.

I hope you found this e-book helpful. As always, I welcome your feedback or

questions about any Social Velocity tool. Please email info@socialvelocity.net with

questions, comments or feedback.

Good luck!

This e-book was designed to help you think about transforming your nonprofit. If you

want a customized approach, or need help engaging more board, staff and donors in

the change process, call (512) 694-7235 or email info@socialvelocity.net to

schedule a free consultation with Nell Edgington.

Social Velocity is a management consulting firm that helps nonprofits become more

strategic, sustainable, and above all, more effective at creating social change.

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Social Velocity I www.socialvelocity.net I (512) 694-7235

© 2013 Social Velocity. This e-book may not be duplicated or distributed.