INSTITUTIONAL SUSTAINABILITY: Transitioning from “Hunter Gatherer” to a Cultivation-Based Fund Development Strategy
The following article appeared in the Spring 2013 issue of Healthcare Philanthropy Journal, a publication of the Association of Healthcare Professional (AHP). It was based on a June 2011 article posted on this blog site. The full length article is expanded to include TIPS and ACTION ITEMS for transitioning from a hunter-gatherer to a cultivation-based sustainability strategy.
THE RISE AND FALL of ancient civilizations is a subject that has fascinated me since childhood, and after 30 years of working in fundraising, nonprofit management and charitable giving, I can’t help but notice parallels to the rise and fall of nonprofit organizations.
To survive and thrive in the nonprofit world, organizations must transition from a “hunter-gatherer” funding strategy to one that systematically cultivates donors—becoming “farmers” who create long-term sustainability.
CULTIVATION IS KEY
When I was growing up in St. Louis, Mo., I loved going to Cahokia Mounds State Historic Site across the Mississippi River in Collinsville, Ill., to explore traces of the once-thriving community that lived there from 700 to 1400 A.D. At its peak, around 1050 to 1200 A.D., the city of Cahokia covered nearly six square miles, had upwards of 20,000 inhabitants and featured sophisticated developments— including palisaded villages, communal plazas, monumental public structures, symbols and decorations—and a complex hierarchical society. What happened to the prehistoric Cahokians is unknown; by 1400 A.D., the site had been abandoned. In its heyday, however, the site was home to one of the greatest civilizations in North America.
According to anthropologists, prehistoric tribal groups that grew into advanced civilizations, such as the Cahokia, were generally those able to transition from a hunter-gatherer subsistence strategy to an agricultural-based system. The people of Cahokia were the first Native Americans to learn how to cultivate maize. Hunter-gatherer groups generally remained small and moved frequently, following the food source. Because foraging was everyone’s primary occupation, the people in those groups were less likely to develop a complex social structure with full-time specialized skills, such as those found in the Cahokians. Instead, hunter-gatherer groups stayed small, primitive and isolated.
If groups did not eventually become farmers and ranchers, they usually failed to survive. Game became harder to find and hunting grounds were taken over by land cultivators. Some tribes died out, while others were absorbed into larger groups or became victims of hostile takeovers.
FOCUS ON FARMING
In keeping with my metaphor, nonprofit organizations start out small and simple—in modern parlance, lean and mean—without in-house accountants, human resources directors or information technology specialists. They operate as hunter-gatherers, searching for donations to sustain them for the next days or months. These types of organizations are never short on stress. If someone doesn’t go out, “hunt down a donation” and bring it home, the group does not survive—instead either dying out or being absorbed into a larger nonprofit. Those that survive remain relatively localized and obscure. Small, hunter-gatherer nonprofits modify or truncate their mission and values over time, based on the mission and values of potential funders; that is, they follow the food source. This is true even with some faith-based organizations, whose values you would think would be immutable.
In contrast, successful nonprofits develop a predictable subsistence strategy. They learn how to cultivate donors and create large, sustainable organizations that become major forces for good in the world.
Nonprofits that start out as hunter-gatherers do not become cultivators overnight. Skills, knowledge and complex systems associated with cultivators take time to evolve, and the organization must continue to focus on pressing needs—such as finding donations. It’s a gradual transition and not automatic. One of the greatest hindrances to developing the art and science of cultivation is short-term success in hunting and gathering. Because learning how to cultivate as a sustainable resource strategy is so labor intensive, hunters don’t become farmers until they are forced into it.
If someone doesn’t go out, “hunt down a donation” and bring it home, the group does not survive—instead either dying out or being absorbed into a larger nonprofit.
Nonprofit organizations, even large ones, do not focus on cultivating a broad and renewing donor base if they have been able to get by with large public sector grants, funds from a small group of major donors or business-related income. This is particularly true at hospitals, although they are finding that health insurance and public-sector funding are becoming less predictable— similar to the food supply for hunter-gatherers. Both hospitals and universities have historically relied on income from patients and students, but universities have worked longer and harder to cultivate donor relationships. Today, hospitals are trying to quickly transition from relying on customers who are compelled to visit and pay to achieving a sustainable donor base.
One of our clients, a Midwestern hospital, discovered that generating $2 million more in annual net income would require investing $100 million to expand the hospital facilities and services. It didn’t take long for the math to hit them: invest $100 million to increase net income by a mere $2 million. In contrast, the same hospital realized it could invest 35 cents in expanded fundraising efforts for each dollar increase in net income—an approach that would be approximately 150 times more cost-effective than expanding the hospital.
STUCK IN THE HUNTER-GATHERER APPROACH
As a consultant to more than 100 hospital foundations, I’ve learned many lessons about how to do things right—and how to fail. I’ve also picked up insights from the recruiting arm of my firm, Thompson & Associates. Here’s evidence I’ve gleaned to suggest that many nonprofits are stuck in the hunter-gatherer mode.
1. The majority of job openings for development directors are at organizations in financial crisis. Instead of looking for cultivators of long-term strategies, they seek big-game hunters who can show immediate results.
2. Most development directors are fired because of lack of short-term results. And when development directors resign, it’s often because they see the shortfall coming before the chief executive and board do.
3. The primary reason donors stop giving is because they feel like the organization loves their money more than it appreciates them. When my organization surveyed 25 major donors about their giving experiences, their biggest complaint about giving and nonprofits was that they “felt hunted.”
4. The average amount of time a fundraiser stays in his or her job is 16 months, according to a study of more than 1,700 fundraisers and 8,000 nonprofit chief executives by Cygnus Applied Research. Most development directors who have been at an organization for a long time have been able to succeed because both they and the organization take a cultivation or farming approach to fund development.
5. Grant-makers find that the greatest and most consistent weakness in the thousands of grant applications they receive is the lack of a credible sustainability strategy. Executives at grant-making foundations are keenly aware of the importance of longterm, predictable sustainability. They know that organizations must learn to cultivate donors and cannot rely solely on hunting for donations. Whenever an applicant comes in seeking a large grant to fund a big proposal, grant administrators always request their sustainability plan—essentially asking, “When are you going to learn how to farm?”
TIPS FOR BECOMING A “FARMER-RANCHER”
Based on my experience in charitable estate planning for health care institutions, I offer a few suggestions and action items to help with the transition.
1. Develop a long-term strategic vision. Answering the question of how to become a sustainable organization is just as important to major donors as it is to grant-makers and investors. Major donors think like investors; they will not waste money on a project that is destined to fail because it cannot be sustained. But some leaders cannot resist the temptation to expand their organizations, and as a result, they perpetuate such pressing needs that they never have the flexibility to develop a cultivation-based system. Other leaders have the idea that they can raise more money when the organization is in crisis, so creating crisis is their development strategy. However, in creating crisis, they also create the conditions that all but guarantee the organization’s eventual demise.
A lot of nice people will make small, one-time donations to your cause. But they will not become committed investors unless they believe in the cause, in the potential for growth and in the long-term sustainability of the organization. Major donors need to see that you have a long-term strategic vision in order to feel confident that the organization will thrive. Typically, this vision is outlined in the sustainability plan you provide on formal grant requests. Unfortunately, many of these plans lack a clear, workable approach for achieving the results you want. The answer to the sustainability question is not simply to raise more money or expand the donor base. You need a plan and a funded strategy to do that.
Action Item: Create an advisory group made up of business professionals and individual donors to evaluate your funding campaigns and sustainability strategy—people who represent segments of your donor base and will be brutally straightforward with you. This can be an ad-hoc group or an ongoing committee, but it should include more than board members and staff, who may be so emotionally invested in the organization that they are predisposed to approve of a long-term strategy or a specific appeal even if it lacks strength. And because they are so familiar with the organization, they may fail to notice that information important to new donors is not provided in the plan. Independent eyes looking at a strategy from a donor perspective is like a spoonful of reality.
2. Promote a cultivation mentality. Leaders of successful nonprofits think like farmers; it’s all about sowing and reaping. If they want to expand the organizational program, they first look at expanding their development program—planting more seed and cultivating more relationships.
The reason organizational leaders with entitlement mentalities react angrily to reduced funding is because they believe something is being withheld that “belongs to them.”
And thinking like farmers means they do not have an entitlement mentality, a pitfall at some nonprofits. I’ve come across organizations in which the leaders seem to think that donors, foundations and government agencies “owe them” support. An entitlement mentality at nonprofits tends to be associated with a relatively small number of funding sources. Some donors have told me that, in the back of their minds, they wonder, how would the organization they’ve been so generous to feel about them if they decided not to give? And those concerns are not unfounded. In my experience, the reason organizational leaders with entitlement mentalities react angrily to reduced funding is because they believe something is being withheld that “belongs to them.”
Action Item: Establish a discipline of planting, harvesting, and adding new fields. Each time you expand your program you should simultaneously expand your fields; that is, expand your funding sources. Do not put a burden on the same donors to give more money.
Then, measure and monitor the expansion of your donor base as precisely as you do the expansion of your program, so you can create realistic projections. Donors want to see growth and broadened impact in the programs they support, but they are wary of expansion plans that rely on the same group of people for funding.
3. Invest in donors. Organizations that transition effectively from hunter-gatherers to cultivators understand the value of planting and cultivating—as well as how the cost of these activities pays off. They know that investing proactively to expand donor relations will produce a financial return. In contrast, some organizations try to keep fundraising expense percentages as low as possible, hoping to demonstrate to donors the efficiency of their gifts. They seek to contain the amount of fundraising expense reported on their Internal Revenue Service Form 990, and in doing so, lock themselves into a hunter-gatherer approach.
The irony is that professional grant makers and donor-investors look for more development and donor-relations investments, not less. Obviously, they want to see organizations using money wisely, but they are not as impressed by low fundraising percentages as many nonprofit executives think. If your fundraising expense is too low, it means you are not investing in broadening your donor base.
Action Item: Every nonprofit organization’s budget should specify an amount to spend on donor relations as well as a percentage toward acquiring new donors. Fundraising expense often is the first thing that gets cut when funds are tight. As difficult as it may be at times to reduce programs or administration expenses, if you cut back on fundraising efforts, it’s like eating the seeds you should be sowing to cultivate future returns. Transitioning to a cultivation-based approach requires discipline and, sometimes, hard choices.
One of our clients had 11,000 donors who had each given more than $5,000. The organization employed only one major gift officer, who had the capacity to manage and personally contact about 175 donors. Our client was thinking, “Wow, look what we have been able to do with only one major gift officer!” Our analysis: “Wow, there are 10,825 donors who have given over $5,000, and you are not cultivating them. Think of how much money you are leaving on the table!”
The board took our advice, made a significant investment in the fundraising budget and hired additional staff. Total revenue quickly surpassed the additional fundraising investments, and the fundraising expense percentage actually went down.
4. Ensure leaders are committed to farming. If your entire leadership isn’t on board and working together with the same agenda, thoughts of creating a long-term, cultivation-based funding strategy can easily be displaced by immediate and pressing organizational needs. Creating a system in which you continually recruit, retain and expand the involvement of donors takes time and consistency. Whether your organization is a one-person operation or a hospital with thousands of employees, that commitment to cultivating donors begins at the highest level.
Action Item: The action here is less defined because it depends on your role. If you are the board chairman or the chief executive officer, you have much more power to shape the organizational culture and fundraising philosophy. Whatever your role, the best way to initiate internal change is by serving and supporting, teaching and learning and—when given the opportunity—leading the way to champion the long-term approach.
STOP AND EVALUATE
In some cases, a vineyard may be a better metaphor for cultivating donors than a cornfield. It takes about five years of careful pruning, irrigating and fertilizing before the vines begin to yield fruit. Nonprofit leaders have to build in enough margin to enable gradual, steady donor cultivation.
In the real world, few organizations are completely oriented to hunting or to cultivating. It is almost always a mixture. However, with the day-to-day pressures of running a nonprofit, it is not unusual for our lives to get busy and our vision blurry. Consequently, we lose track of our priorities and our emphasis. We should periodically stop and evaluate our plans for creating a sustainable future for the organization.
Eddie Thompson, Ed.D