Create your funding strategy with these 3 ingredients

Gareth Blackstock is a character in one my favorite British comedies, “Chef”. Verbally explosive, quick-witted and a definite food snob (think Gordon Ramsey of Hell’s Kitchen), he often leaves his boss, staff and the occasional unsuspecting diner quaking after one of his tirades, predicated by the most innocent, albeit French foodie-ignorant comments. I must admit these are the most entertaining moments of the show.

Gareth fashions himself as a temperamental “artiste” surrounded by unsophisticated palates who can’t possibly appreciate the mastery that epitomizes the 80 covers of gastronomic delight he creates daily at Chateau Anglais.

However, there are moments in between the raining expletives where Gareth does sprinkle some sage cooking advice on his over-wrought kitchen staff.

In one episode he barks, “What’s the most important thing in cooking?!” Before they can respond, he answers his own question:

“Ingredients!”

Of course, there are other important things (like timing, which he mentions in another episode) but within the context of his teaching moment, he chooses what fits best.

As in cooking, there are a number of essential “ingredients” in creating a financially sustainable nonprofit organization. Among those ingredients is a viable, transformative mission. The other is a donor base willing to fund it.

How to best formulate these ingredients so that none loses its significance sometimes depends on the size of the organization; finding and fine-tuning a formula can be evolutionary.

For instance, we know that most nonprofits are focused on attracting any funding they can from whomever they can, because the main objective is to keep the doors open in order to serve clients.

However, appropriately matching funding with the nonprofit’s mission must always be top of mind to prevent interruptions or elimination in programs—or perhaps even the failure of launching. It will also ensure there will be no chaotic fundraising scrambling going on.

In the for-profit world, leaders develop a method or strategy within which they operate in order to clearly chart how they will make their money. The strategy, also known as a business model, can be so well defined that it can be explained in just a few words—” low cost provider”, “big-box retailer,”etc.

Nonprofit organizations don’t tend to identify with any type of business model to describe their long-term funding strategy to potential donors. This leaves a chasm that can hinder clear and succinct communications between donor and NPO and indicate a fuzzy understanding on the part of the organization as to how best to create achievable resource development goals.

To address this deficit, the Stanford Social Innovation Review devised 10 funding models based on research conducted by the Bridgespan Group. That research revealed that as NPOs grow larger, their funding streams become less diversified, resulting in them raising most of their revenue from one or two sources that matched their missions most favorably, and catering much of their organizational operations to managing that particular type of funding.

Characteristics of funding models

These 10 models are grouped into five categories of dominant funder—many individual donations, single donor or few donors or foundations, government, corporate and diverse. I’ll leave you to read through the categories at your leisure as the point of this post is geared to the small grassroots organizations that I work with and on behalf of; that point being that it is important that your leadership start now creating development programs positioned for sustainability first, then growth.

While it is suggested that organizations with revenues in excess of $3 million could benefit most from developing a funding model, the authors, in a followup article identified, three characteristics of funding models (page 40), which should provide a great starting point for small nonprofits to begin building tailored donor prospect approaches to grow on. They are:

Types of funding: The model typically revolves around a single type of funding such as government or an individual, which constitutes the majority of the organization’s revenue and which the organization invests disproportionately in developing. Other smaller sources often play complimentary supporting roles, but are not the focus of investment.

Ingredient for growth: Know thyself—In the case of a founder-funded organization or one that serves constituents or missions evidenced as best performed in partnership with a government agency, small organizations that know their constituents, know their needs, know the environment within which they operate, know their competition and know what they do best should be successful in attracting attention of the right funding partners that over time can help the organization achieve positive recognition and sustainability.

Funding decision maker: Within that principle source of funding, the model focuses on a particular type of decision maker –perhaps the government administrator or a few wealthy individuals.

Ingredient for growth: Get up close and personal—build their interest (and eventually longevity) in your organization by engaging them in conversations around their current and future organizational or personal visions, missions and objectives. Show how investment in your organization puts you both on the same trajectory.

Funder motivation: A funding model takes advantage of the natural matches that exist between funder motivations and a nonprofit’s mission and beneficiaries. These motivations range from altruism and collective interest to self-interest.

Ingredient for growth: Find your tribe—a 1994 social science study analyzed the motivations of individuals in relation to their support of nonprofit organizations and categorized these motivations into seven distinct groups or faces. The Seven Faces of Philanthropy is a definitive indicator for melding mission with motivation and small nonprofits would do well to develop a system of donor relations using this tool that will get them more familiar with not only their current donors, but facilitate future cultivation activities.

Now, in the oftentimes long and challenging moment in an organization’s life cycle that is organizational infancy, “the most important thing” for growth is a diversified funding mix. Once an organization has grounded itself in its community, established a formidable track record with its mission, and gained leverage with and as a result of its stakeholders, then developing a funding model may well be the most important thing. Growth is a measured process and, as in French cuisine, must incorporate a number of most important things.

What are your thoughts? Is your NPO already using a funding model or do you think it’s even relevant?