Fundraising 2.0: How to Get Really Big

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To help nonprofit organizations grow and sustain their operations, well-meaning fundraising professionals and foundation program officers often urge them to diversify their sources of support.

An important new study from the Bridgespan Group turns this conventional wisdom on its head:

Diversification may seem like a good idea, but in practice most of the organizations that have gotten really big over the past three decades did so by concentrating on one type of funding source, not by diversifying across several sources of funding. Bridgespan obtained solid financial data for 110 of the 144 high-growth nonprofits we identified. Of the 110, roughly 90 percent had a single dominant source of funding — such as government, individual donations, or corporate gifts. And on average, that dominant funding source accounted for just over 90 percent of the organization’s total funding.

Bridgespan studied nonprofits founded in the U.S. since 1970 with $50 million or more in annual revenues.  Some, like Habitat for Humanity and the Make-a-Wish Foundation, are household names, others less so.

But caveat lector (let the reader beware): Be sure to read the study’s fine print before throwing out that old fundraising manual.  The authors of the study remind us that “[s]ecuring large-scale funding generally involves some programmatic trade-offs. And large sources of funding appear to be more readily available for—and appropriate to—some missions than others.”  Try raising large dollars from individual donors for prisoner re-entry programs, for example.

I would add that:

1. The authors provide a snapshot in time   The funding mix appropriate to a mature, $50 million organization might not be appropriate to a community-based organization on the starting edge of its growth curve.

2.  Small can be beautiful   Don’t equate scale with effectiveness, or efficiency, or benefit to society, or any other good you can imagine.

3.  Know your organization’s business   To borrow a page from Clara Miller, take time to understand the capital structure appropriate to your nonprofit.  (Here’s a pop quiz: Why is a nonprofit youth theatre more like an airline than a youth soccer league?)

And finally ...

4.  Secondary funding sources are still important   The authors of the study give the example of the Metropolitan Boston Housing Partnership, which receives less than one percent of its funding from unrestricted foundation and corporate donations: “[A]ccording to Executive Director Julia Kehoe, those funds ‘allow us to do critical prevention work that is not currently funded by government programs.’”

Comments

[Bruce Trachtenberg]

In answer to your pop quiz, I would venture a guess that the youth theatre and airline are alike because, unlike the soccer team, their basic business goal is filling seats with "butts." And without a full house or plane, neither scores.

[Albert Ruesga]

Congratulations, Bruce, your prize is already in the mail: a facsimile of the screenplay to Beyond the Valley of the Dolls signed by screenwriter Roger Ebert :o)

[Bruce Trachtenberg]

I want it on the record, kind sir, that I took your challenge with the expectation I would not profit. I'd like to believe that's the case.

[Paul Curtin]

I've worked for two legal services orgs, and I've noticed when we diversify we end up spending much more on keeping track of the funding requirements/service restrictions and much less on actual services for the poor. The sad thing is the trend towards diversification also provides the illusion that a certain group is being helped thus blocking other initiatives aimed at real services. Short-term grants further complicate this by creating the false impression in activists' minds that your organiztion covers a certain problem even years after you have been defunded.

[Albert Ruesga]

Legal service providers are an interesting case. In my experience, it's difficult for them to raise money from individual donors, and corporations are also an unlikely source. If only attorneys were a tad more generous -- with their $$, rather than their time :o)

[fundraising ideas]

These are some great fundraising tips here. Thanks!