Fundraising emerging as ‘strategic’ asset

To survive and thrive, nonprofits need to move beyond treating fundraising as a “tactical” resource and treat it as a “strategic” asset that is core to their operations and organization, a new white paper says.

“With market returns uncertain and spending restraint difficult, the moderate but measurable increase in donations in the last year invites institutions to consider elevating fundraising to a more strategic position within the organizations,” says Essential Not Optional: A Strategic Approach to Fund-raising for Endowments, a white paper from the Commonfund Institute.

“No longer optional, an effective fundraising program, consistently implemented, can become a central pillar of support for the institution,” says the paper, written by John S. Griswold, executive director of the Commonfund Institute, and Bill Jarvis, its managing  director.

After their collapse four years ago, the capital markets recovered slightly but “have not shown clear direction,” and many investors doubt they are likely soon to “resume the double-digit pace that characterized the pre-crisis period,” the paper says.

And while overall giving has shown “subdued growth,” it says, the current period is one of the most favorable ever for endowment fundraising.

But successful fundraising is “invariably the fruit of a building process that takes time, resources and institutional commitment,” it says.

Fundraising campaigns have become “permanent” efforts, “always running in the background, with continuous cultivation of major gift prospects and a prioritized list of defined projects at the ready for negotiation with donors,” the paper says.

And nonprofits have moved to a strategic or “core” fundraising model that “focused on providing endowed support for the core mission of the institution and for a specific number of areas that have the potential to make a major difference in the institution’s future.”

Key to permanent campaigns is the idea that the “relationship between the donor and the institution has also changed and become more strategic,” the paper says, citing a fundraising professional who says asking for money “just alienates today’s donors.”

Fundraisers should be asking donors “how they want to change the world,” the fundraiser says.

And while the “intersection between donor interests and institutional imperatives may not always be obvious,” the paper says, “the strongest relationships seem to be forged from these conversations — or negotiations — that compel the parties to find common ground.”

Donors themselves are changing, the paper says.

They tend to be self-made, “relatively skeptical of broad institutional claims,” “quite specific about their likes and dislikes,” and wanting to “compare the performance of the institution’s existing endowment with their own wealth-creation capabilities when deciding to make a gift.”

Donors in short connect “development success and institutional competence in financial management,” the paper says.

“Institutions with strong missions but weak financial management will receive annual gifts,” it says, “while those with strong missions and strong financial management will be considered for endowed gifts.”

Corresponding to the increased focus on donor interests has been a shortage of unrestricted endowment gifts, the papers says, with the emphasis on new programs and buildings tending to “overshadow the question of how ongoing expenses are to be met.”

That issue has become a “source of anxiety: for institutional leaders, particularly at institutions that lack unrestricted endowment and cannot accumulate free cash flow” through operating surpluses or other sources of revenue, the paper says.

More wealth is being concentrated among fewer donors, it says, with 2 percent of donors at some leading institutions contributing 98 percent of funds, compared to the historical pattern typical at many institutions that saw 20 percent of donors contributing 80 percent of the funds raised.

“This lopsided ration means that, while a broad base of donors is desirable for many reasons,” the paper says, “development efforts are increasingly focused on identifying and grooming those doors who have the capacity to make a significant contribution.”

So building “permanent professional development departments,” which “rarely existed, even at large institutions,” the paper says, has become “an investment, not an expense.”

In addition to “grooming” donors for contributions to the permanent campaign, it says, development staff also “seek to understand the receptivity of donors to planned giving opportunities and to assess the likelihood that they will leave bequests.”

Todd Cohen

One response

  1. Todd, while I completely agree that nonprofits must take a more strategic approach to raising money, I’m not sure endowments are the answer for every nonprofit. I appreciate the Commonfund Institute raising the issue of a need to elevate fundraising in nonprofit organizations. I couldn’t agree more. However, I argue that nonprofits must create an overall financial model for their organizations. And for some organizations endowments make sense as part of their larger financial model, but not for all organizations.

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