H.L Mencken famously said, “There is always a well-known solution to every human problem — neat, plausible, and wrong.”
One problem facing nearly every nonprofit organization is a shortage of operating money. And, sure enough, there are well-known solutions that are neat, plausible… and, yes, in most cases, very wrong.
Here are three of my favorites. Or, perhaps I should say, least favorites.
- Just Get a Little Something from Everyone
A nonprofit organization is $100,000 short of meeting its budget. A trustee speaks at the year-end board meeting about the importance of balancing the budget. “This service is so vital. Everyone in the community needs to recognize that. So I think we should start a mini-campaign to raise $100 each from 1,000 people! We can do that!”
Well, no, we can’t.
Some people have told me that I have original insights into the nonprofit sector. I’m flattered if that’s even occasionally true. But it takes no special wisdom to say this: trying to fund a charitable cause by getting $100 from a thousand people – or $1,000 from ten thousand people, or whatever – makes little sense and is doomed to failure.
Nonprofits want broad support, of course, and they want to attract as many gifts as possible. But if you ask each donor for $100… well, that’s exactly what you’ll get, if you get anything at all. For some people – I would say, 80% of the population or more – giving $100 is a stretch, or even a hardship. They won’t respond, or they’ll be resentful, embarrassed, or all three. For many other people, $100 is just right. And for the folks at the top of the socio-economic pile, $100 is way less than they could or should donate if they care about the cause. In other words, if you ask everyone for $100, you will be leaving money on the table from the folks who might otherwise donate $1,000, $5,000, or $10,000, or more.
We have to keep in mind that there’s a dramatically rising wealth inequality in this country. As I’ve written before, nonprofit fundraisers used to reference the “80/20 Rule,” where 80% of the money came from 20% of the donors. That’s now routinely called the 90/10 Rule, and I think we’re actually much closer to 95/5, and on our way to 98/2. Bigger and bigger gifts are coming from fewer and fewer hands. I’m not saying that’s a good thing – in fact, I think it’s terrible, for a host of reasons – but it’s reality. So don’t let your very wealthiest donors off the hook by asking for too little.
Meanwhile, it’s highly unlikely that you’ll round up those 1,000 $100 donors. Soliciting charitable contributions is not like selling $10 raffle tickets. Successfully raising mass contributions at modest levels is rare – and much better suited to a political campaign (where, remember, there are limits on the amount a single person can contribute, and broad interest) than charitable fundraising. So don’t go there. If you need $100,000, look first around the board table and see if people there can start you off with $5,000, $10,000, or $20,000. And go from there.
- Endowing Your Organization to Prosperity
Here’s a common refrain as nonprofit executives and board members stare numbly at challenging budget numbers: “If only we had an endowment of $X million! That would really take the pressure off of our annual campaign!”
Yes, it would. But it’s not going to happen – or, if you focus on building a big endowment when you’re struggling to balance the budget, you’re putting the cart dramatically and illogically before the horse.
Let’s take an organization with a $2 million budget, half of which needs to be raised each year in donations. Certainly, if you had an endowment as part of your income stream, that would be helpful. But it’s unlikely to be transformational. If you were to raise $1 million in endowment, which is a pretty big number for a small organization, that would produce (using the standard draw of 4%) about $40,000 a year – or all of 2% of your budget.
So a modest endowment wouldn’t make much of a difference. And the effort to raise it (unless it came by bequest, rather than by direct appeal to living donors) means that you will be redirecting your donors from giving other, more vital and immediate funds for the operation of your organization. The donor who usually gives you $5,000 a year might instead give you $25,000 for your endowment. In the short-term, that actually increases the pressure on your operating budget. And that $25,000 will then produce only $1,000 a year in income. Again, not transformational, and a redirection from your current needs.
But, someone might say, what if you raised $20 million in endowment, not $1 million?! Well, sure, $20 million would indeed make a difference. That would spin off $800,000 or so a year, which, being some 40% of your budget, would indeed be transformational.
But: You’re highly unlikely to raise $20 million in endowment. Certainly, not right away.
Yes, you should absolutely explain how your donors can leave you money through their wills and trusts. Work to encourage legacy giving. If large bequests come in, it may make sense to invest them as a permanent endowment. Over time, you can build up that endowment. It might even eventually be large enough to help underwrite your operations in a noticeable way. But it won’t happen overnight. You’re much, much better off focusing on raising major gifts for your current needs than asking those same people to put their gifts into endowment funds.
- Funding Your Budget Through Special Events
Other board leaders and executives take note of successful fundraising events put on by other organizations and assume that replicating that model would work for their organization. “I know an auction that my prep school does,” says one board member. “It raised $3 million in one night! We can do that, too!”
Well, maybe you could if you had the same donor list as the prep school. In that case, you’d probably have auction items like a week’s stay in a villa on an Aegean island, and audience members willing to pay $100,000 for the experience. More likely, if you’re a small, local nonprofit, you’ll have silent auction items like $25 gift certificates to the local pizza place. A gala at Lincoln Center raises a lot of money. A gala for a youth services organization in Millinocket, Maine, doesn’t.
Event envy is a rampant disease in the charitable world. Yes, the Jimmy Fund raises tens of millions for cancer research though a two-day bike event called the Pan-Mass Challenge. But that doesn’t mean that if you start a bike event, you’ll raise tens of millions of dollars. Why? Because you’re not the Jimmy Fund, and you haven’t been doing this for decades.
One of the reasons special events are attractive to board members is that people generally have a much easier time asking friends to buy a ticket for a gala, concert, art auction, or to support a bike ride than simply to write a check to the organization. And sometimes special events are worth the time and effort and distraction they demand. But usually, not. If you need more money, ask for it. Directly.
* * * * * * *
I’d love to get your reactions to my three examples of bad ideas, and I welcome your own nominations for seemingly good ideas that aren’t. Number Four for me would be a Kickstarter campaign What do you think?
Copyright Alan Cantor 2018. All rights reserved.