Can Your Fundraising Operation Pass a Stress Test?

    You might have heard that a major Chicago nonprofit institution, Hull House, founded in 1889, recently shut its doors and laid off 300 employees. The collapse has been much debated (as in this Chronicle of Philanthropy story), but as Rick Moyers said in the Chronicle:

    “Hull House is a sobering case study of governance failure in which neither the board nor the staff seems to have recognized the crisis while there was still time to turn things around.”

    This, too, was the case with our financial services industry and so the Federal Reserve has recently been putting banks through stress tests to see how they fare under various drastic scenarios.

    I started to think: maybe fundraising operations should have to go through stress tests. If Hull House had done any scenario planning whatsoever, it would have seen the writing on the wall. It was $2.3 million in the red in 2007 before the recession hit.

    What would a stress test look like for a fundraising operation? The scenarios for fundraising would be dire:

    • Losing all the government funding in one year
    • Finding the organization in the Washington Post being investigated for scandal
    • The retraction of a significant pledge by an unhappy donor
    • A spike in unemployment that is large enough to affect public perception
    • A major downturn in the market that leaves your foundations funders running for cover

    (All of these things have really happened).

    How can you protect yourself so that your fundraising operation can survive?

    Diversification: Just like in our own investment portfolios, the key to lowering risk is to diversify funding sources. Some people ask me if there is a secret formula for how much should come from foundations, individuals, and government sources, but the real question is what is the right balance for your organization given your mission, funding strategy and risk tolerance. What could you survive with if one funding source or channel went away completely?

    Get rid of your dogs: I don’t know how many of you are familiar with the Boston Matrix, but in a nutshell dog programs are those where you have a small market share and the growth potential is low. These are programs that are just pittering along, taking up resources, but not really performing and with little promise of performing without a lot of investment. Reduce your risk by cutting these programs now and reinvesting the money in something with promise for the future.

    Create benchmarks beyond dollars: So often I hear that the dollars are the only goal for fundraising. “We just want to raise the money. That’s our only goal.” Really? Well, when a big chunk of your change is pulled out from underneath you, how are you going to adapt? How are you going to know where the growth opportunities are or where you were headed strategically if you’ve never set strategic objectives for your fundraising operation?

    Build one solid communications channel that can move quickly: In 2003, the Nature Conservancy (TNC) weathered a terrible media storm when a Washington Post reporter did a three part expose on the organization’s fundraising practice. Within a couple of days, the organization had created and send out a direct mail letter to all of its donors alerting them to the crisis. They had the ability to turn around and talk to their donors in a way where they knew the donors would hear. Today it would be an e-mail in a couple of hours, but the point is do you have a channel where you can talk to your donors and you know they would be listening?

    Grow a board that can mobilize: And not just by giving money to fill any holes, but by having the connections, the energy, and grit to see any downturn through. Most important, do they know where the risks are in your fundraising program and have they purposefully approved the strategy?

    Have a tight case for giving: You have to have an inspiring, proven, documented case for giving that can be adapted in hard times. If your case isn’t made before a crisis or downturn, yours will be one of the first organizations to get crossed off a donor’s list in harder times.

    Really know your donors: You can’t build relationships with donors in a crisis. It just doesn’t work to start cultivating gifts from individuals when you really need the money. Fundraising from individuals is something that takes patience and investment. Once you’re in financial trouble, it’s too late.

    Invest now: Or at least make a case for it. Take a look at your fundraising operation. Where are the opportunities? Where is the dead weight? What would you need to take an exponential step? It is your responsibility as a fundraiser to put this information in front of your leadership. If the staff at Hull House had done this, I guarantee they would still be in business.

    No nonprofit is too big to fail. There is no government bailout for any organization in our sector. We have to be strategic, flexible, agile, and resilient. We don’t have a Federal Reserve to test our stress, and for heavens sake the charity watchdogs seem to actually discourage investment in their obsession with fundraising ratios. So it’s up to us.

    What’s your dire scenario and can your organization survive it?


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