Time to outsource fundraising?

Peter Haas, the Executive Director of the Appropriate Infrastructure Development Group (AIDG), has a strongly-worded post up on the TED Fellows blog called Show Me The Money – Disasters, Restrictions and The Future of the Fund Raising Industry.  If you’ve ever thought that this “fundraising question” is something off to the side for nonprofits, read Peter’s post.

Peter argues that there’s an untapped business opportunity for professional fundraisers.  The logic goes as follows:

  • It’s really hard to raise money as a small nonprofit
  • Large, capacity-building grants are harder to come by than they were in the 80s and early 90s
  • It’s too expensive for small nonprofits to hire salaried fundraising staff who can raise millions of dollars
  • Many nonprofit CEOs aren’t good at this
  • And, Peter implies, maybe it’s not a particularly good use of nonprofit CEOs’ time to fundraise (in Peter’s words, “I’ll tear through the BS in a system and get to the core error. But I’m not a salesman for high end luxury goods.”)

Peter proposes that professional fundraisers could fill the gap by signing up as fundraisers for hire, taking a cut of the funds they raise. This way, goes the logic, nonprofits don’t have to pay hefty salaries upfront, and fundraisers who have proven that they can raise real money can work their magic.  In Peter’s words: “Somebody accustomed to raising 50-100 million for a big org could probably do a lifestyle changing business, cutting their work week dramatically while earning the same salary, by only raising 10-20 million divided between a handful of smaller up and coming orgs.”

It’s an interesting idea.  In truth there are a handful of these people out there, and I think they and the sector would get a nice shot in the arm if more people stepped up to take this kind of risk and put their skills to use for small, growing nonprofits.

But before we go too far, let’s dig a little deeper into Peter’s post, since he says out loud something that is often left unspoken, namely:

If the mission of the NGO is the service to the community, and fund raising is truly something administrative (as most donors like to classify it in cost analysis), then it should be something an NGO can easily subcontract.

This is where we, our donors, and the sector as a whole go awry – when we think that there’s the “real work” of the nonprofit and this peripheral activity of raising funds.

In 2008 I wrote a Manifesto for Nonprofit CEOs.  Here’s an excerpt:

I’ve met too many nonprofit CEOs who say “I hate fundraising.  I don’t fundraise.”  If you’re being hired as a nonprofit CEO and the Board tells you that you won’t be fundraising, they’re either misguided or lying.

Tell them they’re wrong.  Tell them that your job as a CEO is to be an evangelist for your idea and to convince others about the change you want to see in the world.  Tell them that if this idea is worth supporting then they should jump in with both feet and support it with their time and money and by telling their friends it is worth supporting.

Spending your time talking to powerful, influential people about the change you hope to see in the world is a pretty far cry from having fundraising as a “necessary evil.”

Apparently I still have a few people left to convince.

Which got me thinking, again: why do we keep on running into this wall in the nonprofit sector?  Coke just sells colored sugar water, yet the people who make it a multi-billion dollar company are the storytellers who created and sustained the brand over the past 120 years.

What’s so different in our sector?  Is it because the people we serve (“beneficiaries”) and the people we who are our source of revenues (“donors”) aren’t one and the same person?  And do we honestly think that this bifurcation of stakeholders is healthy or sustainable?  Is there even another sector where we would entertain this kind of dichotomy?

Let me put it another way: if a CEO of anything but a nonprofit said, “I’m starting a new business.  I see a gap in the market and I’m jumping in with both feet and am prepared to sweat blood to make this thing work.  But I don’t want to deal with the whole revenues side of the business.  I’m not THAT guy.”   Could a tech entrepreneur say that they’re not willing to talk to customers and VCs?  Did Kelly Flatley and Brendan Synnott, the founders of Bear Naked, say they’re weren’t willing to talk to the folks at Whole Foods?  Of course they didn’t.  How is this any different?

I’m not saying it’s not hard to raise millions of dollars in grant funding – it is hard. It’s really, really hard.  And this isn’t the same skill as being on the front lines making your programs work.  And, sure, a gutsy fundraiser-for-hire could help.  But funders aren’t cash registers, funding conversations aren’t switches seamlessly from one organization to another, and any nonprofit CEO who thinks he is going to secure million-dollar gifts without seriously rolling up his sleeves and being the person those funders bet on is wishing for a market opportunity that just ain’t there.

So my question for Peter is: are you proposing a short-term solution to a cashflow issue (“I need someone today to help me raise that first million”) or a business model issue (“what I do as the ED is and should be separate from this whole fundraising thing.”)?

If it’s the first one, let’s go for it.  If it’s the second, then I think we’re kidding ourselves.

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26 thoughts on “Time to outsource fundraising?

  1. Well-said.

    I like your analogy with the Coca Cola brand. Raising money for a first time fund is always hard. When you start showing results and your story spreads, the hard work should start to pay off. Both for for profit and not for profit funds.

    There might be an easy with raising money from smaller donors though. The return on effort might not be high enough. The Internet or other channels need to bring leverage.

  2. Thought provoking, yes, but I take issue with percentage based compensation for fundraisers. The Association of Fundraising Professionals (AFP) is the largest such association in the world with over 30,000 members. It, and it’s members, consider this practice unethical as it puts self gain above the interests of both the charity and it’s donors. You can read the position paper here: http://www.afpnet.org/Ethics/EthicsArticleDetail.cfm?itemnumber=734

  3. I have always considered the professional associations’ ban on percentage-based compensation to be well-intentioned but naive. Consider that a development director who goes out and raises huge amounts of money for his/her organization is going to get a much bigger salary than one who gets mediocre results. Why shouldn’t fundraising contractors have the same incentive to perform? Paying “flat fees” for unknown results discourages many nonprofits from hiring top-flight professional development contractors. Instead, they burn through a string of low-priced newbie development officers whose floundering accustomizes the organizations and board members to mediocre development practices and leaves them stuck in a low cost/low benefit system.

  4. I don’t fully agree with fund raising as a business. Over here in Holland a large part of the pie goes to the businesses that raise the money. When I donate to a non-profit I don’t want an exceptionally large piece of my donation to go to the fund raiser…

  5. In the U.S., there are budget guidelines that nonprofits must adhere to keep their nonprofit status. One of those is the ratio of money that goes to providing direct services to money spent on administrative (and fundraising) costs. If you saw how much staff and volunteer time is wasted on well-intentioned but fruitless fundraising activities, you might find it easier to reconcile paying a percentage to the fund-raising professional.

  6. Hi Karen, thank you for your comment. To me the question runs in a different direction: if a CEO and the leadership team of an organization are unable and unwilling to fundraise, then I worry about the long-term health of the organization. To me, “outsource” means taking something that’s not core to the success of the business and having someone else do it. Fundraising is as core as it gets in the nonprofit sector.

    If people want to bring in fundraising consultants to train CEOs, senior staff, boards and the development team then I’m all for it. But if they want to get fundraising “off their plates” so they can get on with the “real” work, then I’m running in the other direction.

  7. The UK has this, and Australia has imported the idea. The pejorative term for them is “chugger” – short for charity mugger. You can hardly walk down a city street without being accosted by a chugger, (usually a backpacker or a student) with a question designed to disarm and engage the target. “Can I ask you a question” or “Are you from around here?”. From there they try to guilt you into signing up for monthly payments to a charity – without telling you that the first year’s payments go to their employer.

    You get caught the first time, then eventually you just tune them out. The problem is that the incentive of profit drives them to harass and annoy the general public until any goodwill has been destroyed.

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