I’m a big baker, but it wasn’t until a year ago that I made my first pumpkin pie.
You see, creating a perfect pie is actually pretty complex. You have to pre-bake a crust that’s durable, but also delicate. It shouldn’t be undercooked or burnt.
Then the custard has to be cooked enough so that there’s a little jiggle in it when you take it out of the oven. If you overbake it, you’re going to have a huge crack running down the middle.
Nonprofits face fundraising fears
My baking dilemma reminds me a little of some nonprofits I know that are struggling to get a bigger slice of the fundraising pie.
They’re uncertain about which fundraising strategies to use. They worry about how to properly balance and mix these ingredients. And some are not preparing for both their short-term and long-term needs.
My partner Terri Shoemaker and I spoke about this topic at the ASU Lodestar Center’s Nonprofit Conference on Sustainability Strategies. We presented four models that financial experts consider when constructing investment portfolios: growth, stability, alternative and balanced.
In the investing world, growth is often associated with stocks. But as we’ve seen recently, stocks also experience sharp and unpredictable downturns that can wipe out gains entirely.
This reminds of us of the emotional roller coaster ride some nonprofits take when they rely too heavily on grants.
Like stocks, there’s a temptation to allocate a majority of your time and resources to these strategies. But in the end, you have little control over whether they’ll be there tomorrow, or not. That’s up to the foundations and corporations.
And if you don’t make good on the deliverables, the whole relationship could be in jeopardy – along with any future growth.
Bonds quietly provide stability in most people’s investment portfolios. They tend to gain a little each year, but they’re not as thrilling as stocks.
What are the bonds of the nonprofit world? Individual giving programs. This means a nonprofit cultivates a steady, long-term relationship with its donors, inviting them to give to a cause they love in increasingly meaningful ways.
And the best part? Nonprofits retain a high degree of control over whether these donors continue to give, as individual donors are far less volatile. As a group, they continue to give through thick and thin, and don’t typically restrict their giving when donation amounts are modest.
In recent years, we’ve seen a lot of alternative strategies. These range from social enterprise to all those digital fundraising fads that clog our inboxes.
The ROI on these is less certain for most nonprofits, though we do see people spending a lot of precious staff time trying to test them. Anyone raising a ton of money on Alexa Donations? Amazon Smile? How’s that latest crowdfunding campaign going?
In the investing world, alternatives are some of the highest-risk strategies that require special knowledge to make pay off. Think private equity, managed futures and commodities. Despite the potential for high rewards, many financial advisors won’t even touch them.
The bottom line? Alternative fundraising strategies may have their place, as long as they stay in the right category with an appropriate dedication of resources.
Which brings us to the fourth model: balanced. Financial advisors often recommend a portfolio of 60% stocks and 40% bonds, so that investors benefit from both growth and stability.
We think more nonprofits need to be thinking about fundraising in this way. What is the right allocation of resources to seek growth through grants, but protect themselves from sudden downturns with a robust individual giving program?
One way to think about this is to look at how giving actually breaks down in the United States. Then, allocate scarce nonprofit resources in similar proportions. In other words: follow the money.
According to Giving USA, of the $410 billion donated in 2017:
- 70% came from individual donors
- 9% was from bequests (read: also individual donors)
- 16% was foundation money
- Only 5% was donated by corporations
Given this information, a good starting place for most nonprofits is to invest at least 70% of their resources in cultivating a strong individual giving program. That leaves 30% to invest in growth.
We should point out that the Giving USA report is just a one data set. Just like investing, a nonprofit should consider its tolerance for risk and whether it needs the money now or in the future.
And remember: each situation is unique, just as every nonprofit is. A new nonprofit may need riskier funding to get started, but rebalance its mix as it becomes more mature. An older organization needs a different mix altogether.
For example, a nonprofit with an endowment may be able to invest more of its energies in growth strategies, while one that is struggling and less established may be better served by investing more in stability.
Both Terri and I like to point out that when it comes down to it, all giving comes from individuals. After all, who works at those corporations, foundations and even in the government? (Not to mention, who funds the government? Individuals.).
And individuals like relationships. That’s the fundraiser’s job, and it’s important to consistently cultivate those relationships no matter the mix of risky growth vs. strong and steady.
Speaking of strong and steady, I have to confess that my first pie favored stability in the end. My mother, a master pie baker, gave me two perfectly formed crusts.
All I had to do was fill and bake them correctly. (Sometimes it pays to have a little outside help, so don’t be afraid to ask!)
That removed some risk from my holiday baking, and made my ultimate success taste that much sweeter. And yours can, too.