Part II: Leverage the benefits of recognized financial models
By Sidni Shorter In Strategic Finance Posted March 4, 2014 0 Comments

Part II: Leverage the benefits of recognized financial models

My early professional career was in the corporate financial world, so I’m aware of how the corporate sector has long benefited from a common language that facilitates an easier discussion with potential investors. Both parties share an awareness of successful strategies such as “low-cost provider” or “fast follower,” which short-cuts the potentially lengthy process of courting funding.

In contrast, nonprofits don’t enjoy the benefits of a shared understanding of funding models despite the fact that they also have to enlist stakeholder support. Foster, Kim and Christiansen addressed this dilemma and created the nonprofit equivalent to corporate business models by grouping these funding models according to the dominant type of funder. I synthesized their taxonomy in my last post because I found their rationale very compelling and potentially useful for executives making “the ask.”

You can begin to share this “named model” with your board and constituency so they can follow your plan with greater confidence and enlist other stakeholders to share their trust in a recognized model. The purpose of identifying with a particular funding model also allows you to seek out peer organizations that might share your structure so you can compare and contrast what’s working for each of your nonprofits.

This week, I’d like to expand upon these useful categories by sharing some of the questions nonprofits should be asking themselves in order to identify which funding model they follow. Foster, Kim and Christiansen suggest you use the following to determine if your nonprofit connects with each type of funder:

  • Heartfelt connectors resonate with existing concerns of a large donor audience. Examples are Make-A-Wish Foundation and the Komen Foundation.
    • Have a large cross section of people already shown it will fund causes in this domain?
    • Can we communicate what is compelling about our nonprofit in a simple and concise way?
    • Does a natural avenue exist to attract and involve large numbers of volunteers?
  • Beneficiary builders rely on donors and funders who have benefited in the past from services. Examples of this model are universities and hospitals.
    • Does our mission create an individual benefit that is also perceived as an important social good?
    • Do individuals develop a deep loyalty to the organization in the course of receiving their individual benefits?
    • Do we have the infrastructure to reach out to beneficiaries in a scalable fashion?
  • Member motivators compel donors to give to the issues that are integral to their lives. Churches and associations are good examples of this model.
    • Will our members feel the actions of the organization are directly benefiting them, even if the benefit is shared collectively?
    • Do we have the ability to involve and manage our members in fundraising activities?
    • Can we commit to staying in tune with and faithful to our core membership, even if it means turning down funding opportunities and not pursuing activities that fail to resonate with our members?
  • Big bettors have a primary donor who’s often the founder and tackles a deeply personal issue. This model is evident in many nonprofit types.
    • Can we create a tangible and lasting solution to a major problem in a foreseeable time frame?
    • Can we clearly articulate how we will use large-scale funding to achieve our goals?
    • Are any of the wealthiest individuals or foundations interested in our issue and approach?

Refer to Foster, Kim and Christiansen’s article for the remaining six funding models and corresponding questions you can ask of your nonprofit. I’m highly encouraged by the fact that these questions center on sustainability as it relates to financial stability. Questions surrounding scalability, foundation support, and support of direct beneficiaries are the basis of a sound analysis for claiming a funding model and nurturing it. What’s more, the authors pose these questions as guideposts for maintaining your funding course and avoiding mission drift, which is very tempting and can be the result of accepting atypical funding sources.

The authors of this article assure nonprofit leaders that if they learn to adopt this shared language and an understanding of how peer organizations leverage the same model, conversations about financial matters may come easier at board meetings and with stakeholders and fundraising prospects.

As our communities look to the nonprofit sector to solve highly complex social problems, we must also raise the bar in our financial management and establish a comfortable discourse around funding models. Savvy philanthropists have higher expectations of nonprofits and they will greatly appreciate efforts toward a common understanding of proven and recognized methods for financial sustainability.

By Erica McGeachy Crenshaw, CEO of Execute Now!

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