Donor Mix

Is it better to secure funding from multiple small donors or one single huge donor?

What I really want is a deep-pocketed donor who is loyal to the cause. I want someone who never changes his or her mind. I want someone that is persuadable towards new projects and programs.

But here’s the most important part.

They have to never die.

Realistically though, choosing to secure funding from multiple small donors or one single huge donor, there are two sides here with the question.

Smaller donors mean that you’re going to have to spend more on each dollar you bring in. That’s more mailings, more admin time dealing with the donations, etc. The good side is that you are less reliant on any single donor. In addition, there is the thought that you can cultivate their giving as they grow in their careers.

One big donor is nice. The real big issue is that you become reliant on that donor. If you lose your funder for whatever reason – they have their own money issues, a relationship internally diminishes, there’s turnover at your agency, a new governor comes in and wants to prove his conservative bonafides by cutting social service – and then you have to scramble. So that means that it is nice to just have one relationship to cultivate, but there is a huge risk in dependency.

That’s why ultimately I think that the many small donors is better given the dichotomy, but ultimately you do end up with a mix of donors of many sizes. That means you still have the weaknesses of both of the two extremes, but you have more flexibility because you are not wholly dependent on one funder and you can also have a base to grow and nurture.

Mining Relationships to Grow Your Fundraising

At our agency (CSS – where I work), the vast bulk of the funding comes in through governmental sources. From memory, I think it is something like 67% of our income comes in through the state – like 4.5 million. Another 25% comes in through the township boards. In Illinois there is a government smaller than a county but bigger than a municipality. There are eight of these boards that support us for a total of roughly another million. The rest of the funding is through the development department, eight percent or so where our income is roughly six million dollars. 

So in absolute terms, the development department is not that small, but all of the in-kind and individual donations and grants that come in really don’t look like a whole lot in terms of when you plot up a pie chart. What matters is that the state hasn’t increased rates for reimbursement for some of our programs for ten years or so and each year we have to do more with less (The statutory reimbursement rate for some of our workers is below minimum wage because they haven’t kept up).

What this means is that the development department is a key place because that is the place where it determines if our net assets will increase or decrease (because you can’t say “make a profit” in a nonprofit, but you can’t operate in the red consistently).

So you have to both keep nurturing the people who do give both in terms of foundations and in terms of individuals. I think this is where you board is so important. It’s not just the ask that is important, but it is also utilizing their professional networks. I’m sure there are places you can go online and find calls for proposals that you can write a grant for sight unseen and if you are really good you might hook it. The reality is that relationships are so essential that you need to mine those first before you go taking yourself down blind alleys.

Rolling Back the 80/20 Rule

Talk is in the air that the 80/20 rule should truly become or replace the 90/10 rule. I'm not so sure.

I had always read the Pareto Principle as something that was lamentable – you have all these people working, and you get most of your productivity out of a small set of people. If that is how you want to read it, then in a way the greater concentration is even more lamentable.

In terms of fundraising, it might actually be an advantage. One way is to be looking at the potential donors as being a pyramid, with a broad base and a small amount of people who are at the top and can potentially give you a lot of money. In terms of trying to be targeted, it might be better if you can just target those ten percent of people that you know will give you the 90% of your donated funds.

But here’s the catch: those people have to be both identifiable and consistent. One worry is that your organization’s 10% might shift from year to year. Another related issue is that people die without planning ahead for their death and including your agency in the will.

What makes the bottom majority important is that this is where your future twenty or ten percent is coming from. People move up in the world and get better jobs and access to more resources (and connections to people who also have resources).

To just rely on the minority that is giving the majority now is short-sighted. You need to be constantly developing your development pipeline.

Those Closest Must Set the Pace

Ultimately what this comes down to is belief in you mission. It is possible to see work at a nonprofit as just another job, and to justify that you don’t give because you may already be working at below market rates to be able to work at a nonprofit. The key thing here is optics. As someone who works at a nonprofit, you can be visible in your community – both the place you live or work and the people you serve. Your work can be taken for granted, especially if you are not in a direct service role. 

What is needed from staff is buy in to the agency and the mission. This means that you don’t just work there because it is just a job, but you accept that you will face below market rates and you still give both your time and money to the cause whenever they need arises. 

I was thinking of this as a potential board member when I was reading as well, and the same applies. There are many reasons to work on a nonprofit board, but ultimately you are serving the cause the nonprofit serves as well. You have to give not just your time but your money as well.

Why do we have to do this as both workers and board members? Outside people look and see what the people closest are doing. If you’re going to ask someone for money or time and they will receive no extrinsic reward, you have to model that for potential donors and volunteers. 

It’s pretty simple but easy to lose track of. If I worked for a Ford Manufacturing plant, I’d buy a Ford.

Regulators Need a Better Defender: Joseph William Singer's "No Freedom Without Regulation"

I came across this book on one of my journeys through the library shelves.

I’m not familiar with Singer or his work.

Turns out he’s not a real stylistic writer, but he does get his point across.

Markets are structures of human interaction.

And they’re good.

What’s interesting about this book is that it takes the argument on from the right, trying to convince people who are nominally anti-regulation to the pro-regulation side. I picked up this book as a firm believer in the necessity to yoke the invisible hand.

I just don’t feel he did. I think the core of the book is the end of chapter three, as Singer is summarizing - “Laws prevent us from making demands of each other that should not be made in a democratic society that treats each person with equal concern and respect” (93). Basically I read this that regulations are in place to prevent the race to the bottom that I see in capitalistic markets and what I imagine is the end-point of the libertarian dreams, a war of all against all. So we take this premise, but it is argued with huge blind-spots and counter-arguments that aren’t addressed.

I have to get on one of my particular hobby horses here, but Singer uses the subprime crisis as the central point (It’s right there in his subtitle) showing that if we would have had more and more effective regulation, the subprime crisis wouldn’t have happened. I kept waiting for him to mention the ratings agencies. He mentioned them once.

No matter your viewpoint on the crisis, these middlemen failed - they didn’t verify the riskiness of so many derivatives and they helped create demand and all that made banks and originators make loans to people that shouldn’t have gotten that sort of credit. It was this failure that to me was the crux of the whole problem They are private companies that exist to look at financial products and tell the outside world how good those products are.  They are private, but several of them have been written into laws, so that some institutional funds, for example, can’t buy products that are risky. The ratings agencies say something is bad, and they can’t buy it - and vice versa.

This means that there were regulations in place that could have stopped it, but the enforcers of one part of the system failed and then boom. (None of this exonerates mass failures of supervision at the Federal Reserve, the SEC, or the Comptroller of Currency, I just think this part is missed too often). What this means is that the regulations have to be in place and they have to work and be supervised by indifferent regulators - in terms of having no conflicts.

A parallel issue is regulatory capture. The way the incentives work, a lot of people at the agencies that are regulators will move to the private sector after their stint of supervision is over, This is not just congressmen becoming lobbyists, but it is also Justice Department lawyers going to big polluters or SEC professionals taking their turn on the street. If you have people watching the game who will join the game in a lucrative manner, the incentives as a human are to maybe go just a bit easy on these people, this time.

These are real issues, and to pull back for a moment, as a fan of regulations, Singer doesn’t hit on them. I think he’s more worried about how they work in theory, but there are very real implications to how they work in practice.