A GENERAL THEORY OF FUND-DEVELOPMENT: Five Decisions that Keep Your Organization on the Front Side of the Momentum Curve
Over the last few years I’ve posted a lot of articles on various aspects of the fund-development process. Some articles zoom in on one specific aspect of donor relations while others are more big-picture applications. In this article I’m going to step way back and talk about fundraising from a 20,000-foot perspective. I want to distill out from the whole of our ongoing conversations five big ideas about fund-development, which in one way or another contribute to the single-most identifiable characteristic of highly successful institutions—that is, they stay on the front side of the momentum curve. One of my associates jokingly calls it the “Edwardian General Theory of Fund Development.”
THE MOMENTUM CURVE
Albert Einstein once said, “Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn’t, pays it.” In other words, the compounding principle doesn’t discriminate but will work as powerfully for you as against you. Those accumulating consumer debt (debt for perishable or depreciating items) are considered living on the negative side of the curve while those making strategic investments in the future live on the positive side. Over time the difference in net worth is very significant if not astronomical.
You can also think of the curve terms of the momentum of an ocean wave. Being on the front side of the wave tends to propel you forward with little or no effort. Being on the backside of a wave tends to really suck (you out to sea).
“Organizational momentum is built up over time and very intentionally. It does not happen by accident.”
UNCOORDINATED STRATEGIC PLANS
The function of a strategic plan is to set in place overall principles for decision-making as the institution moves forward into the future. Of the hundreds of nonprofits with which I have worked with over the years, I’ve never found one that did not have a long-term strategic plan for the institution. At the same time, only on rare occasions do I find an institution whose long-term fund-development strategy is governed by a similar plan. Consequently, most development departments are more reactive rather than proactive.
Even though nothing moves forward with much momentum without funding, often the strategic plan of the institution drives the fund-development response. To employ yet another metaphor, it’s like the tail wagging the dog. I’m not suggesting that a strategic plan for fund-development should take precedent over the broader institutional plan. What I am saying is that organizations need strategic plans for both and that they need to work together—not independently or contrary to each other. Everything the organization does affects fundraising, and fundraising affects everything the organization does.
Below are five aspects of a strategic fund-development plan that enables an institution to remain on the positive side of the momentum curve. From a “Policy Governance” perspective, these are five board decisions that set the parameters of executive leadership.
1. The organization will focus primarily on strategies that will contribute to long-term success. In other words, leaders need to think telescopically rather than microscopically. Telescopic leaders continually ask about the impact of decisions ten, twenty, or fifty years down the road. They ask those same long-term questions about both institutional and fund-development policies. The larger the institution, the more forward-focused leaders need to be.
“It’s like the difference between riding a jet ski and commanding the bridge of a 500,000-ton crude-oil tanker. Jet skis are quick and nimble, but a supertanker requires more than a mile to make a 180-degree turn and about fifteen miles to stop. Consequently, when it comes to steering a large institution, the president and board of trustees have to think far into the future. Very large vessels just don’t respond to rapid course corrections. If a leadership team attempts to drive a supertanker like a jet ski, the only noticeable result will be in lost momentum.”
In the same article I cited a comment from a $100 million net-worth donor.
“’Eddie,” he said, “these people are not serious about the future of these institutions. They’re only serious about today.”
“While we would say that the focal length of our vision and the measure of our seriousness are two different things, to this particular visionary leader, they were one in the same.”
Great leaders have to continually fight against shortsightedness in policy and approach.
2. The organization will focus on cultivating donor relationships. Institutions continually stay on the front side of the momentum curve because they’ve made (or are making) the transition from a hunter-gatherer approach to a cultivation-based sustainability plan. Prehistoric hunter-gatherer societies were dependent on bagging the kill (or the donation) in order to survive for another day. They generally remained small, nomadic, and failed to develop a sophisticated social infrastructure.
“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.”
“Organizations that rely so heavily on year-end giving without a concerted effort of planting the seeds of giving resolutions early on are like the poor, going out into the fields, gleaning for leftovers after the crop has been harvested.”
3. The organization will maintain a balanced approach to the solicitation of current and future gifts.
“The long-term sustainability of any organization is largely dependent on the foresight and ability of organizational leaders to build margin into their strategic plan and to use that margin to secure the future by cultivating donor relationships.”
“Recently, the CEO of a hospital commented quite matter-of-factly, ‘At this point in my career, I’m not concerned about future gifts. I’ve got four more years before I retire, so I’m only worried about raising cash.’”
“Raising cash is a good thing and so is understanding one’s own timeframe. However, this CEO had abandoned any effort to maintain a balance between current and future giving. As he was congratulating himself for his own sense of clarity and purpose, I was thinking, ‘How deep of a hole will he dig for his successor in the next four years?’”
I was also questioning the board’s oversight. How could they have allowed such a short-timer mentality to endanger their long-term future?
“As part of my dissertation research on the best fund development programs, I went out to lunch with a fundraiser from Pomona College, one of the candidates for my list of best institutional programs. They had a long track record of success with both their annual fund and their endowment. The Pomona executive explained their success by drawing two circles on a McDonald’s napkin. In one circle he wrote “D.I.” and in the other, “N.W.”
“Eddie,” he said, “every nonprofit is asking donors to write a check out of their discretionary income (D.I.). But, that request competes with going out to eat, going to the movies on Friday night, giving to the church, etc. There is strong competition for donors’ discretional spending. A big part of our success is that we have not only solicited gifts from discretionary income, but have consistently gone after gifts from net worth (N.W.).
4. The organization will invest in adequate staffing to effectively manage our donor relationships. Great leaders understand the importance of coordinating stages of expansion in a way that maintains organizational momentum. With a cultivation-based sustainability approach, expansion plans for programs or facilities are preceded by plans to expand the organization’s fields of cultivation (i.e. donor base) as well as plans to increase the number of cultivators (i.e. fundraising staff). What usually happens, however, is that donor relations-capacity (fundraising staff) continually lags far behind program and donor expansion.
“A recent analysis of a new Thompson & Associates client showed 22,000 donors had given in the previous three years to their organization. Current staff had the capacity to visit only about 600 each year. Hiring additional fundraising staff would eventually turn into a significant net funding increase. However, the leadership wouldn’t make the investment because they were so afraid of what a few donors would say about the short-term increase in reported fundraising percentage.”
5. The organization will promote a culture of accountability at all levels of the organization. Organizational accountability is a big idea that has many applications. Externally, it applies to a genuine sense of stewardship for donor contributions. Internally, it applies to how we measure and monitor staff and executive performance. Some staff love accountability and embrace it; others hate it and resist it.
“Modern fundraising software enables development staff to track and analyze donor performance in every way imaginable—most recent gift, giving frequency, annual giving, lifetime giving, average gift, and so on…. However, DONOR PERFORMANCE is a gauge I recommend that you monitor only about once a year, simply because it’s a performance metric you can’t control. All you can control is your development staff performance. Consequently, gauges related to STAFF PERFORMANCE are the ones that should command your undivided attention—calls, visits, touches, and attention to A through D category donors.”
THE CASE FOR ACCOUNTABILITY: Why I Love It and Would Feel Lost Without It
ACCOUNTABILITY CULTURES: Toxic vs. Empowering Systems and the Effect on Fundraising Staff
ACCOUNTABILITY ATTITUDES: Why You Can’t Fool Experienced Donors
Three things I’ve learned over the years: 1) Implementing these kinds of big ideas doesn’t happen over night. Small or newly formed organizations have to grow into some aspects of this approach; 2) that change is difficult and often resisted at older and larger institutions; and 3) whether your organization exists on the positive or negative side of that momentum curve is not accidental. It’s almost always the result of some very intentional strategic decisions and a very consistent leadership philosophy.
Eddie Thompson, Ed.D.
Founder and CEO, Thompson & Associates
Copyright 2016, R. Edward Thompson