CRISIS FUNDRAISING: The Growing Reliance on Emergency Funding
The story of Chicken Little originated as a European folk tale that had been told for centuries in various ways with varying moral applications. The best-known version concerns a chick hit on the head by a falling acorn. The chick sets off on a journey to inform the king of the impending disaster. Other animals join the chick’s journey as, likewise convinced of the impending disaster, they all cry with one voice, “The sky is falling; the sky is falling!”
Relentless optimism in the face of seemingly insurmountable obstacles is an essential ingredient of effective leadership.
Optimism may not prevail every day or through every season. However, history demonstrates that optimists eventually succeed, while the prophets of impending doom fade away.
It’s much easier to join a chorus singing a dirge than it is to be courageously optimistic. Relentless optimism in the face of seemingly insurmountable obstacles is an essential ingredient of effective leadership. When courageous leadership and philanthropic innovations are at the forefront of generous giving, I am an incurable optimist.
GLOBAL TRENDS OF 2023
Undoubtedly, the number of emergencies occurring at home and abroad is escalating significantly—civil and ethnic wars accompanied by systematic genocide, unprecedented migration with refugees seeking safety and asylum, weather-related disasters, and past and future epidemics like COVID-19. Any one of these crises pose its own serious challenges to global health and economic stability. However, evidence from the past few decades tells us that rarely are these emergencies isolated. Each crisis generates other disasters that interact and multiply in increasingly unpredictable ways. This volatility puts healthcare and humanitarian assistance organizations under enormous stress concerning staff, volunteers, and emergency funding.
As we enter 2023, the number of people in need of humanitarian relief has increased by almost 25% compared to 2022 with a record 339 million people requiring urgent assistance—many of whom are at risk from disease outbreaks, nutritional crises, and a lack of access to essential medical services.
That’s one in 23 people globally—the highest level in a generation, according to the United Nations. 1
The last three years’ challenges may seem to have taken the most severe forms they could. However, any one of those situations could have been much worse. What if COVID-19 had been a rolling Ebola epidemic; what if the economic crisis related to sub-prime mortgages had caused the collapse of our financial institutions (as it almost did); or what if the Russian invasion of Ukraine or the crisis in the Middle East were to turn into an escalating use of nuclear weapons? Not to minimize the grief of our recent tumult, but the tireless work of thousands of dedicated professionals has provided relief and curtailed disaster.
RELIANCE ON EMERGENCY FUNDING
In a recent article for The Chronicle of Philanthropy, Chris Maddocks, previously Vice President of Digital Communications at UNICEF USA, commented on nonprofits’ inability to convert an influx of emergency-fund donors to repeat donors. 2
Nearly all humanitarian organizations issue disaster-specific appeals following major disasters such as the earthquakes…Unfortunately, these groups rarely translate one-time donors into a loyal base of support. Only 8 percent of donors acquired this way continue giving to the organization in the years following a disaster, according to the Center for Disaster Philanthropy. 3
Humanitarian and medical relief can become so pressing that nonprofit leaders feel they have no choice but to begin dipping into operating funds with the intention of replacing those funds over time or in a less intense financial crisis. Eventually, reliance on emergency funding begins to change the organizational culture—from a well-run, donor-cultivating, forward-thinking, strategically effective institution to one that exists month-to-month with one desperate appeal after another sent to donors. Even if the crisis subsides within a year (which it seldom does), the nonprofit begins the next fiscal year with a huge deficit.
Eventually, reliance on emergency funding begins to change the organizational culture—from a well-run, donor-cultivating, forward-thinking, strategically effective institution to one that exists month-to-month with one desperate appeal after another sent to donors.
Everyone applauds the commitment to helping in seasons of disaster. However, emergency giving is usually unsustainable. Nonprofits that rely more and more on emergency funding are setting themselves up for their own financial crisis.
NONPROFIT STARVATION CYCLE
“It takes money to raise money.” That is an axiom of institutional sustainability and donor cultivation. The data has consistently shown that, on average, each additional fundraiser increases annual giving by 3.5 times their employment cost. If I have the opportunity to realize 350% return on investment, I’d make that deal every day. Of course, that kind of ROI comes with some risk, but they are risks that the nonprofit can manage. The productivity of additional fundraisers depends on the clarity of their mission, sufficient support staff, and their ability to fully focus on fund development. 4 However, when organizations begin to rely on emergency funding to meet humanitarian needs, infrastructure upgrades, additional fundraisers, and corresponding support staff become a lower priority. If not resupplied quickly, organizations start down the road known as the “nonprofit starvation cycle,” where sustainability, needed infrastructure, and staffing upgrades are postponed or eliminated. The need for emergency funding can force even the most well-run nonprofits into this cycle.
Institutional sustainability requires leaders to play the long game.
Rarely do nonprofit institutions have an emergency fund sufficient to respond to an unprecedented disaster, let alone a cascading series of disasters. Without workable solutions, they may be able to continue with mass appeals for one-time donations, but those one-time contributors are difficult to renew if for no other reason than limited staff to follow up with them.
Below are a couple of potential strategies for organizations forced to rely on emergency funding.
#1. Focus on Strategic Philanthropy
In the novel, The Silver Skates by Mary Mapes Dodge, Hans Brinker discovered a hole in the levee and plugged it with his finger. The heroic little Dutch boy stayed there throughout the frigid night and saved the town from a catastrophic flood. You can probably think of many occasions in which donors have responded to a crisis by plugging a leaky levee and continuing to do so until others arrived to help stabilize the organization. 5
Imagine a scenario, we’ll call it Silver Skates 2, in which holes developed in hundreds of levees throughout the Dutch countryside because of the constant ebb and flow of rushing seawater. The situation required hundreds of people to periodically insert their fingers into the weakened dams. With a tactical response to each crisis, heroes would avert the impending disaster and save the day. Eventually, a forward-thinking visionary devised an outrageous idea—a storm surge barrier. The tremendously expensive barrier took many years to construct but indirectly solved the problem of a thousand levees. The innovative approach created prosperity throughout the land for generations to come. All the people rejoiced and built a statue of the great strategic thinker.
- Strategic giving is almost always visionary and future-oriented, while tactical giving is usually a response to an unexpected obstacle (or emergency) standing in the way of strategic objectives (healthcare, safety, economic opportunity, etc.).
- Consequently, strategic giving is more often proactive, while tactical giving is usually reactive—i.e., a tactical response to an emergency.
- Strategic giving usually has a residual impact. The strategic gift to build a storm surge barrier didn’t avert one crisis but a hundred.
- Strategic gifts are usually far larger than tactical-response gifts to solve an immediate crisis.
- Strategic gifts are also far more efficient because their return on investment (ROI) is measured over the years, decades, or generations of residual impact.
- The ROI of a tactical-response gift to avert a crisis is measured only in the time frame of that immediate need.
Giving that is strategically effective requires a high level of experience, flexibility, and innovation—just the kind of things that nonprofits are uniquely able to do. Strategic philanthropy could be expressed as addressing hunger by teaching people to fish rather than simply giving them fish. Donor fatigue can set in quickly among strategic donors being repeatedly asked to throw money at emergency situations. They would much rather put their philanthropic investments into long-term solutions than band-aiding systemic problems.
In every national or international crisis, the solution regarding strategic vs. tactical giving is not “either-or” but “both-and.” A possible solution would be collaborating with other nonprofits to create a tactical response fund (providing fish to eat) along with the opportunity to contribute to more strategically oriented solutions (teaching the art of fishing).
#2. Cultivate your monthly, quarterly, and yearly giving—growing it to a level that provides a predictable annual income close to (if not over and beyond) the increasing frequency of emergencies.
A dedicated cultivation strategy operates under a basic assumption: the longer you give an A-List donor to think and plan for a significant gift, the greater that gift tends to be. As a fundraiser, I scheduled appointments with the top 25% of the organization’s largest donors in the first quarter of each year. I met with my number-one donor as early as possible in January; next, with my second-largest donor, and so on. By the end of March, I visited the top 25% of my donors.
The initial objective of those first quarter meetings with donors is to thank them for what they had done. My second objective was to provide an investor report, explain what we will try to do in the coming year, and ask them to pledge what they will fulfill by the end of the following December.
I devoted the second quarter to the next quartile of donors, the third quarter to the third 25%, and the last quarter to lower-level donors I was trying to cultivate. I spent October through December planning for the next year and making phone calls to follow up on pledges. I followed a similar cultivation strategy for about 35 years—since my first job as a fundraiser when I scribbled my annual development plan on a 12-foot roll of butcher paper.
Genevieve Shaker, Associate Professor of Philanthropic Studies at the Indiana University Lilly Family School of Philanthropy, comments,
“Recurring gifts can provide a predictable and reliable source of income for a nonprofit. One study showed recurring gift programs had retention rates around 90 percent—a much higher recurrence rate than when you are making new gifts from year to year.” 6
By planting seeds in my most productive field early in the year, I could predict what the organization could expect to receive with remarkable precision. Since 20% of the donors typically give 80% of the money, by meeting with the top 25% of my donors in the first quarter, I knew by the end of March what 90% of our annual income would be.
Recurring givers often give more if asked, says Michelle Boggs, executive nonprofit industry adviser at Classy.
“It would be a mistake and a missed opportunity to think: They’re giving to us monthly. We don’t want to ask them to give to an emergency response initiative. We have found that they’re actually more likely to support in other ways if they’re already a recurring donor.” 7
If not stipulated, donors tend to respond to emergency appeals by diverting dollars from annual or planned giving. These exchange gifts result in zero net gain for the nonprofit. A dedicated cultivation strategy, as described above, helps donors separate special gifts from annual giving.
Giving USA’s Annual Report on Philanthropy for the Year 2022 has one main takeaway: “Charitable giving in the United States dropped by 10.5% after inflation, which was only the fourth decline in 40 years,” which is all the more reason to cultivate your monthly, quarterly, and yearly giving. Prioritizing strategic giving to complement tactical giving and helping donors separate special gifts from annual giving can provide hope in even the direst of emergencies your organization may face. Relentless optimism is realistic when coupled with workable solutions.
Eddie Thompson, Ed. D., FCEP
Founder and CEO
Thompson & Associates
“If we merely aim for the industry standard, then our goal is mediocrity. Emulating the average nonprofit, we are destined to live with all the problems the average nonprofit faces. So, we suggest you aim to be exceptional in your approach to fund development.”
- Global Humanitarian Overview 2023
- Growing Reliance on Emergency Fundraising Puts Nonprofits at Risk
- U.S. Household Disaster Giving in 2017 and 2018
- PERFORMANCE METRICS: Navigating the Murky Waters of Fundraising ROI
- HARD SELL: Making the Case for Large Investments with Unpredictable Results
- and 7. Monthly Giving Can Help Nonprofits Weather Economic Uncertainty. Here’s How to Do It Well.
copyright 2023, R. Edward Thompson