Solving the age-old battle between fundraising vs grantwriting

It is the end of the year and for many non-profit organizations it means:

  1. constructing an agency budget for 2013, and
  2. putting together a comprehensive resource development plan to add meaning and depth to the revenue side of the agency budget.

In the last few weeks as I’ve talked with various agencies about their resource development planning efforts, I’m reminded of age-old battle:

Fundraising vs. Grantwriting

Donors see government grants as “wealth redistribution” and a substitute for their charitable contributions. Fundraising volunteers (and even fundraising staff) get squeamish about asking other people for money, and they prefer asking government and private sector foundations over soliciting family, friends, co-workers and neighbors.

crowding1This phenomenon is called the “crowding out effect” and I wrote about it in the following blog posts in 2011:

While I would love for you to go back and read those posts, I also encourage you to read an awesome 2009 research paper written by James Andreoni and  A. Abigail Payne titled “Is Crowding Out Due Entirely to Fundraising? Evidence from a Panel of Charities“. They do an awesome job of looking at this from a data perspective, and they conclude the following:

Using instrumental variable techniques, we estimate total crowding is around 73 percent, and that this crowding out is almost exclusively is the result of reduced fund-raising. A $10,000 grant, for instance, reduces fund-raising expenses by $1370, which in turn reduces donations by $7271. Adding this $1370 savings in fund-raising expenses reduces the estimate of crowding out to 59 percent. If charities had maintained their fund-raising efforts, our estimates show that donations would have risen by the full amount of the grant.

hell2The crowding out effect is real, and it is something non-profit organizations need to understand and deal with. If not, then I advise putting the following age-old expression in a frame above the boardroom door: “The road to hell is paved with good intentions.”

I’ve been doing a lot of thinking lately about how to put the “crowding out effect” in check, and the following few paragraphs are just a few ideas. I think some are good thoughts and others are a little out there, but let’s work together on refining these ideas.

Planning – Planning – Planning

The planning process is not about the executive director putting stuff in writing and handing it over to volunteers for implementation. Planning is an engagement activity.

So, why not introduce volunteers who are involved in the resource development planning process to the research paper by James Andreoni and  A. Abigail Payne and ask them: “What should we do about this? How should we accommodate for this in our plan?

Simply stated . . . planning is the antidote for the crowding out effect.

policiesFundraising policies

I’ve always seen “policies” as a way of creating hard and fast rules for things that board volunteers and non-profit staff might otherwise find hard to implement if it weren’t “required“. Since so many people find grantwriting easier and preferable to fundraising, I started wondering if there weren’t some policies we could create that could put the “crowding out effect” in check. The following are just a few thoughts:

  • A written policy prohibiting government and private foundation grant revenue from exceeding a certain percentage of the agency’s overall revenue.
  • A written policy that commits board members to increasing their personal contributions by a certain percentage whenever grant revenue exceeds a certain level.
  • A written policy that commits board members to asking a certain number of new prospective donors whenever grant revenue exceeds a certain level.
  • A written policy that ties the agency’s annual campaign goal to the level of grant revenue. (e.g. every 1% increase in revenue goals from grant writing results in a 2% increase in qualified individual giving prospects and corresponding campaign infrastructure)

Truth be told . . . I’m not a huge fan of this approach, but I do think it is worth continued discussion and dialog.

Board development

I suspect that the best solution is the simplest solution — recruit the right board members.

Smart business people will understand a simple concept like the “crowding out effect”. Put this challenge in front of them and ask them to solve it.

I suspect they will simply conclude that more “fundraising-minded volunteers” need to be recruited to off-set the effects of grantwriting on the agency. After all, isn’t that what they’d probably conclude when it comes to their sales force staff and their business if confronted with the same challenge?

Are you in the middle of writing your 2013 resource development plan? Are you facing some of the same challenges with volunteers regarding the question of more fundraising versus more grantwriting? If so, how are you tackling this challenge? Do you have any suggestions on how to improve upon the recommendations I’m providing in this blog post? Please use the comment box below to weigh-in with your thoughts and suggestions.

Here’s to your health!

Erik Anderson
Founder & President, The Healthy Non-Profit LLC!/eanderson847

Sir Isaac Newton was right about nonprofit organizations

We all learned as kids in school that Sir Isaac Newton stipulated in his Third Law of Motion that for every action there is an equal and opposite reaction. Thanks to Newton, I was not surprised earlier this week by anything I read in The State of Grantseeking Fall 2011 report conducted by GrantStation and PhilanTech. This excerpt kind of sums up the entire report:

“While nonprofits remain optimistic about their ability to raise funds and deliver services,” said Dahna Goldstein, Founder of PhilanTech, “many organizations – particularly smaller organizations – are applying for more grants but receiving smaller grants.”

Surely, none of you are surprised by this. Right? Anyone who thinks about it for a moment will see the following:

  • Government funds have dried up in “The New Norm” (aka this new economic paradigm that we’re living in).
  • Government debt levels mean that the “golden days of government funding” are probably over for a long time.
  • The difference between writing a government grant and a foundation grant is almost non-existent.
  • Non-profits are shifting their attention and efforts to foundation grant opportunities.
  • The pool of money available from foundations doesn’t magically expand because interest increases. So, you have more proposals chasing the same pool of funding and there are only two possible outcomes (unless the pool of funding expands):
    1. you either get more rejected proposals, or
    2. you get more funded proposals at smaller gift levels

While some people are asking questions like “how can we write better grant proposals and become more competitive,” I think these types of questions all miss the mark. I think the better question is:

“Why the heck aren’t non-profit organizations overhauling their resource development plans to better position themselves to secure more sustainable funding from individuals (e.g. people like you and me) rather than from institutions (e.g. corporations, foundations and government)?”

After all, when you look at the charitable giving statistics for the as long as they’ve been published, you clearly see that the vast sum of all charitable giving come from individuals.  When I scratch my head and ponder this question, I can only come to a few disturbing conclusions:

  • Asking people for money is scary, and it is hard to get board members and volunteers to move beyond this paralyzing fear.
  • Many non-profit professionals (e.g. CEOs and fundraising staff) aren’t practicing the 9-keys of volunteer engagement and as a result there are many disengaged volunteers and board members sitting around our board room tables. So, mobilizing our “people resources” in the name of individual giving seems like a non-starter to many non-profit professionals.
  • It is always easier to travel the path of least resistance. This was what Robert Frost was saying in his famous poem “The Road Not Taken”. In other words, it is far easier to shift your efforts from writing proposals for government agencies to writing proposals for foundations.

Here is my word of caution to the entire non-profit sector . . . It is important to remember that foundations don’t give away magic money, and they don’t typically spend down their fund balance. Their year-to-year contributions are based upon their “investment income,” which usually means that when the stock market goes down so does the pool of available dollars from foundations.

I would draw a comparison to Isaac Newton’s first law of motion that most people have come to know as “what goes up must come down,” but I won’t because I just know there are argumentative investment professionals reading this blog who don’t think this law applies to the stock market. However, ask yourself this question: “Is it possible that the stock market in this ‘New Norm’ might experience adjustments and contractions if the economy doesn’t start dramatically improving soon?”

My point is simple . . . Read The State of Grantseeking Fall 2011 report . . . come to grips with the realities of “The New Norm” . . . engage your volunteers using the resource development planning process . . . and start asking tough questions around “What if?” and “How do we re-align our fundraising efforts, adjust to The New Norm and start asking individual donors for their support?”

There are many different individual giving models out there. Please tune in next week and we’ll talk about a few of those models.

Has your non-profit organization experienced some of the same things that the 900 respondents reflected in the grantseeker report? If so, what is it specifically? If not, what are you experiencing and what do you think accounts for your success against this industry trend?

Please use the comment box below to weigh-in.

Here’s to your health!

Erik Anderson
Founder & President, The Healthy Non-Profit LLC!/eanderson847