Fundraising gets rough: rethinking relationships with donors and funders.

MANY IN THE NONPROFIT sector started to notice in the spring of 2001 a slowdown in revenue generated from fundraising activities. Individual giving, corporate sponsorships, and foundation grants all started to slow. A continued sluggish economy, fallout from dot-com failures, and the events of fall 2001 have taken an additional toll.

And while a recent survey by the Association of Fundraising Professionals reports that 60 percent of charities raised more money in 2001 than in 2000, 40 percent raised the same amount or less. In addition, nonprofit organizations supporting the arts, humanities, or environment have been particularly hard hit.

"Last spring, it became clear that pledges were coming in slower than in years past and that we were not seeing the same level of prior commitments in either number or level," says Catherine Brown, CAE, executive director, Children Affected By AIDS Foundation (CAAP), Los Angeles. "Our board met to reforecast our budget so we could adjust.

"[Then], with the majority of our revenue dependent on fundraising events that are held in the fall, we were hard hit by the events of September 11. At a critical time in our fundraising cycle, donors redirected funding to charities assisting victims. Two of our big events are Halloween parties--one in Chicago and the other in Los Angeles. Attendance dropped in part because people wanted to stay at home but also due to general concerns about security at an event where many would be in costume," Brown explains.

As for other funding sources, "Boys and Girls Club of Greater Washington (BGCGW) has been heavily dependent on foundation and government grants, says Toni McHugh, senior vice president for development. "While we're still seeing grants from these funders, they tend to be smaller as the organizations' investments are suffering in the market. As a result, we are cultivating our individual donors more than we have in the past."

Kathleen Enright, executive director, Grantmakers for Effective Organizations (GEO), Washington, D.C., says, "More and more funders are moving away from the transactional nature that traditionally characterized the relationship between foundations and nonprofits. Some are proactively identifying projects they want to support rather than going through the traditional grant application process. Others are working collaboratively on projects with their nonprofit partners."

Whether due to changes in individual, corporate, or foundation giving, nonprofit leaders are taking stock--and taking action.

A changing landscape

Clearly, there have been major shifts in funding trends, particularly after September 11. The anticipated fallout from those shifts was significant enough that the National Grants Management Association, Reston, Virginia, met in fall 2001 for a strategic planning session. Representing 380 professionals who manage grants after they are approved by federal agencies, NGMA and its members ensure grant compliance by improving and unifying processes for grantmaking agencies and recipients. Two main themes came out of the strategy session, according to NGMA Executive Director Torryn Brazell, CAE.

"First, there was concern that due to recent events, funding would be displaced. Second, we wondered if funding would dry up. In reality, some funding has shifted. More money is being allocated to bioresearch, which means that to some extent it is not available for other areas of research. However, funding overall in the greater health care area is up. Department of Defense funding has increased and the budget for the National Institutes of Health is up 50 percent in the past year."

Regardless of whether funds in a given area show increases or decreases, the costs of going after them are rising. "One of the points not addressed in the reports indicating that funding is up is the chronicling of the cost of fundraising," says Ed Able, CAE, president and CEO, American Association of Museums (AAM), Washington, D.C. "All organizations seeking funding today have to spend more to raise the same amount of money they've raised in the past. As a result, nonprofits are spending more on marketing materials and labor. With respect to corporate funding, organizations are having to add additional development staff and make more of the appeals CEO-to-CEO," says Able. "The question not being asked is whether or not organizations are netting more."

New approaches for support

In looking at all aspects of their fundraising activities, association leaders have recognized the importance of building interactive relationships with potential funders that focus on guidelines for giving, expectations for results, and potential board roles.

Guidelines for the donor partnership. In early 2002 AAM developed a series of guidelines based upon the general provisions of its ethics code covering various aspects of operations, one of which addressed working with the business community and its interest in supporting museums. "AAM is learning to connect itself more effectively to the community we serve, and we're teaching our members that concept at the same time," says Able. "You must be in a true relationship with the community and with partners as opposed to sitting back and assuming what they need. The museum community has been focused on in-reaching--asking those it serves and works with to come in and plan the services for the community," he adds.

The guidelines address developing policy on business support; procedures for documenting that support; legal, tax, and accounting issues; and public accountability. More specifically, AAM proposes that members develop and approve a process for managing business support that recognizes the importance of such support to the museum's ability to fulfill its mission. Museums should outline how the process will be used in making effective decisions; disseminate the details to staff, funders, and potential donors; and seek board approval for its use. With regard to ethical practices, the guidelines address avoiding conflicts of interest, making proper business use of the museum's name and logo, and appropriate promotion of relationships with partners.

Meanwhile, Boys and Girls Club of Greater Washington, Silver Spring, Maryland, is working on a new partnership program geared toward opportunities other than fundraising events that the business community can support. One such endeavor is the Come on Home program, which will seek to bring alumni back to the clubs. Creating a partnership with the business community to support this initiative will ultimately mean increased emotional and financial support from the alumni when they return. Along the way, the business partners will be recognized publicly for their support of this activity.

A survey of grantmakers attending GEO's 2002 Capacity Building for Impact conference characterized the source of grants decision making as donor-driven, however survey respondents indicated a desire for grant decisions to become more community-driven in the future. The survey also reported that respondents would like to see additional collaboration between government, philanthropic organizations, and corporations as well as an increased focus on results-based accountability. Says Enright, "Some foundations currently provide other types of support in addition to money, such as technical assistance, access to experts, and peer learning opportunities, to help their nonprofit partners access the tools they need to be most effective."

Accountability and results. Measurable outcomes are also high on the list of expectations of many funders. "Nonprofits and associations must focus on their processes and systems, they must hire and reward good leadership, they must focus unrelentingly on achieving results," says GEO's Enright. "Without this, both accountability and effectiveness suffer. Grantmakers have specific social objectives that they are striving to achieve," she says. "They have governing boards that they must answer to. So when they ask for reports or suggest a more rigorous system of outcome evaluation from the nonprofits they support, there is a reason. Their success is inextricably linked to that of their grantees. Their interest in grantee accountability extends from a commitment to being accountable themselves."

With fewer dollars to distribute--due to the lagging economy or September 11--funders must choose the highest-impact investments, notes Enright. A nonprofit organization's ability to show measurable results will help them as they approach potential donors.

Board participation. Some organizations have been concerned about whether or not donors want more for their money, such as a seat on the board of directors--or their names on new facilities. "I don't think this [board participation] is inappropriate," says Able. "But what you are looking for is someone who can be a good board member. If all they can do is give money, it will be a less than successful relationship for the organization. If an organization is considering an individual for board service, Able encourages the nominating committee to review, among other things, the primary board responsibilities outlined by BoardSource, Washington, D.C. (See sidebar, "Tools to Tackle the Fundraising Task.") "When serving on a board," he reminds, "one must put personal and business interests aside to embrace the mission of the organization in a thoughtful way."

BGCGW's McHugh works as part of a team that raises the organization's $11.4 million annual budget, largely from foundation and government funding as well as special events. "Generally speaking," she says, "if someone is going to be friendly to the organization, it might be helpful to have him or her serve on the board of directors. Board members are asked to give or raise $10,000 annually. However, we have a board development committee that reviews all nominations for the board, screens and interviews these candidates, and makes recommendations as to whether or not they will ultimately serve the organization well. We have built a lot of integrity into this process.

"We do consider top donors for our executive advisory board, which acts more as a group of ambassadors," explains CAAF's Brown. "CAAF has a separate board of directors. However, advisory board members understand that we expect to be able to ask them for assistance in reaching other donors. We've also had corporate sponsors for a particular event ask to be cochair or on the host committee. Our position has been that this is OK as long as people understand that by serving in this capacity they are responsible for raising additional support. In reviewing our approach, we've found it to be an effective way to achieve increased support."

Alternative ways to ask

Clearly, nonprofit organizations need to be creative in going after funding. Some are relying on tried-and-true methods, while others are coming up with new initiatives.

Direct mail campaigns. A key point of discussion at the fall 2001 meeting of ASAE's Key Philanthropic Committee (KPOC), says CAAF's Brown, was the success of year-end appeals and the future of direct-mail campaigns, both designed to assist organizations in one last fundraising initiative. "There was a lot of concern about the success of these appeals among the largest philanthropic organizations who rely on this push," says Brown. "On the East Coast, concerns about the slow down of mail delivery as a result of anthrax were more prevalent than here on the West Coast where we were less affected. CAAF will be discussing whether to use direct mail for future appeals to the extent that we have in the past. Others have had better results from direct mail than we have. When our year-end appeal didn't realize the results we had anticipated, we sent out a follow-up mailing at the very beginning of this year--which we had not done before--helping us achieve our goal. The bigger question that our organization is facing, " says Brown, "is addressing whether we are an events-driven organization or the type for which people need to see something more specific for their contribution."

Year-end appeals. Although BGCGW's direct mail program had been sporadic, at the end of 2001, the organization did mail a year-end appeal. "We created a unique piece," says McHugh, "starting with a postcard that read 'You'll be hearing from us' and then mailing a letter that focused on leadership." Given the public concern over anthrax, the idea was to give people advance notice of the letter so that they would know it was safe to open it. "The content of the letter," explains McHugh, "detailed how kids in our clubs become leaders. The mailing brought back many donors who had not given in the past seven or eight years--and we were fortunate enough to realize a number of $500 and $1,000 donations. Also, since Washington, D.C., cut funding for sending 22,000 kids to summer camp, we've just sent a direct mail piece asking for support to help get some of those kids into our programs."

New opportunities. Physician Greg Powell, CEO, Shock Trauma Air Rescue Society (STARS), Calgary, Alberta, Canada, must raise $12 million Canadian annually to support its medical transport service, research, teaching and outreach activities, and communication center. STARS' mission is to provide highly specialized, rapid air transport to the critically ill and injured. "Forty-five percent of our fundraising comes from a well-advertised, well-received lottery that provides prizes and cash," says Powell. "We also sell door-to-door 115,000 calendars annually, raising $1 million Canadian." The balance of financial support comes from a variety of sources, including direct mail, online donations, will bequests, special events, and government funding. One of STARS' recent events is the polar bear dip, in which people seek pledges to support their lumping into ice-cold water in the middle of winter. "We've actually attracted a number of corporate CEOs to participate," says Powell.

On STARS' docket are two other large projects that could lead to increased revenue. One is a sophisticated communication center through which STARS will register energy and other industry sites and connect them with an on-call physician in the event of a medical emergency. "We're registering 350-400 sites per day into our system," says Powell. "This allows us to respond more quickly should the need arise. We're looking for a way to make the registration into a revenue generator." STARS is also considering targeting to the corporate community a major gifts campaign that would support the purchase of advanced-technology helicopters (due on the market in 2004), making possible longer range, faster responses.

Sponsoring nonevents. Since so many of its potential supporters attend numerous fundraising galas, BGCGW tried a twist on the concept and asked invitees to stay home. Billed as the Hibernation Ball, the idea was for "attendees" to stop at a convenient Chicken Out restaurant location on the way home and pick up dinner, wine, glasses, flowers--and even cookies for dessert. BGCGW is now assessing results to determine whether the returns on the event make it feasible to repeat it next year.

Moving it online

When it comes to grantmaking, one issue affecting NGMA members is Public Law 106-107, passed in November 1999, which seeks to streamline the grantmaking process. The end result will be an online portal that not only makes it easier for corporations and nonprofits to apply for grants but also aids in the review process after a grant has been awarded to ensure compliance. Once this portal is created, the time to approve grants will be much quicker and the paperwork associated with compliance and reporting requirements will be reduced.

"One of the benefits of this law is that during the past two years, many of the stakeholders in the federal grant making process have come together to design and implement the system, allowing for increased conversation," says NGMA's Brazell. "While it will take a number of years for it [the online portal] to be fully up and running, the feedback we're seeing early on is tremendously valuable.

"As the growth and demand for funds increases, this system will make it more cost effective and more efficient, making the approach to funding much easier," Brazell explains. "This community has also had the benefit of watching the work of the National Science Foundation in this area. NSF is the first federal agency to implement an electronic signature system for the grant application process at this point and they are still refining it."

The response to online fundraising itself has been mixed. AAM does not do any online fundraising, although it has begun to appear in the mix of outreach activities of more museums across the country. Like many associations, NGMA does not have the ability to handle online fundraising but does post all information about sponsorship opportunities within the organization on the Web to better assist business partners.

CAAF's Brown, who is chair of the ASAE Foundation's Annual Giving Task Force, notes, "ASAE's Foundation is trying to kick that [online fundraising] off and really began those efforts with this year's annual campaign, using broadcast e-mail. At CAAF, we have made available online a donation option, but it has not proven successful. We do it because people expect it. Online fundraising may be a little bit ahead of its time, and I also think there is something to the psychology of sitting down and writing a check."

STARS' Powell says, "We added the ability to donate online about 1.5 years ago. While we're getting regular monthly donors, we never anticipated it to be a major source of revenue."

While BGCGW recently launched a new Web site, the organization opted not to include online processing of funds at the advice of its accountants. "We're looking at whether or not the return will be there, given the additional security that would have to be put in place to process credit cards online," McHugh says. "For now, when someone is interested in donating via the Web site, I receive an e-mail when they click on the 'donate here' button, and then follow up."

Working more closely with donors

Those interviewed for this article indicated that they were generally communicating more than ever with donors and members. As donors ask more about administrative costs as well as to whom the funds are being given, increased communication about these topics has been important to furthering the relationship with funding sources.

"CAAF is working to ensure a collaborative relationship between donors and our organization," according to Brown. "We're working with donors in different ways to continue their excitement about giving to and through our organization. One way this is being done is by inviting program people from funding organizations to work with our program staff in selecting grantees. Their involvement in this process is critical to making sure we meet their giving needs."

Powell and McHugh report that their organizations have stepped up communication to donors and prospects--with positive results. "In the past," explains McHugh, "we mailed a newsletter sporadically to those who had given at a certain level. This year, we'll send at three different points a newsletter to almost the entire database. Typically the letter explains what the kids have been up to, what the board is undertaking, and includes a mailer so that individuals can donate. With the most recent mailing, I identified those who had given in recent months and wrote a personal note to each thanking them for their support. Since all donors have choices as to where to give, and all volunteers have the choice as to where to serve, it is important to make sure that they feel connected to our organization."

As for STARS, Powell says that its newsletter is an extensive report of activities and is mailed to 60,000 donors twice a year. "The newsletters include a mailer, and we raise more than $50,000 Canadian per issue," says Powell.

Reviewing budget expectations

Able advises [that particularly in lean times] organizations should "think through what you are doing before you do it. Have a policy in place before seeking business community support; say no when it is in the best interest of the organization; and don't modify a program to chase funding. Finally be of the mind-set that you may not be able to do everything you want to do or that it may take a little bit longer."

The budget review that CAAF undertook turned out to be an effective move. Eliminating some expenses was a short-term necessity coupled with a conservative budget for this year. "We're doing a little better than expected," says Brown, "and every indication points to attendance [at our events] being back to previous levels. In addition, two corporations have stepped forward with the seed funds to launch a New York City Halloween event in 2002." Brown expects the New York event to be quite helpful in terms of revenue. "Our earlier cuts," she says, "were non-mission-related expenses including my education allotment, dues, and subscriptions, some of which I am now able to add back. However, the first place it made sense to cut was in the area of items not directly helping children affected by HIV/AIDS."

Moving into the future, it will be incumbent upon all nonprofit organizations to carefully review fundraising initiatives, seek new ways of securing funding, and be more accountable to donors--individual and corporate. "Above all, funders want to see results," Enright concludes. McHugh adds, "We have to be mindful that we have a public trust when volunteers give of their time and individuals offer financial support. They need to know that their time and efforts are well managed."

RELATED ARTICLE: Tools to Tackle the Fundraising Task

Resources referenced in "Fundraising Gets Tough" are included below, along with sources for statistics and legislation relating to charitable giving.

* AMERICAN ASSOCIATION OF MUSEUMS. To review AAM's guidelines for developing and managing business support, go to www.aam-us.org and click on "Museum Ethics."

* BOARDSOURCE. Formerly the National Center for NonProfit Boards, this organization specializes in building better boards. Go to www.boardsource.org for more information.

* GRANTMAKERS FOR EFFECTIVE ORGANIZATIONS, www.geofunders.org.

* NATIONAL GRANTMAKERS ASSOCIATION, www.ngma.org.

* CHRONICLE OF PHILANTHROPY. Go to philanthropy.com/states for facts and figures on fundraising.

* CARE ACT OF 2002. The Charity Aid, Recovery, and Empowerment Act (S. 1925) calls for reinstatement of tax incentives such as the charitable deduction for donations by nonitemizers. For information regarding proposed legislation, visit the Independent Sector Web site at www.independentsector.org/programs/gr/tax_issues.htm and click on "Charitable Deductions for Nonitemizers."

James Zaniello is director of organization and executive development, Association Strategies Incorporated, Alexandria, Virginia. E-mail: [e-mail]