Beyond the Obvious: What a “Funding Problem” May Reveal about a Nonprofit

Note: This article was published on the CausePlanet website on March 31, 2013.

Ask any nonprofit board member or executive director what poses the greatest challenge to their organization and you are likely to hear this: “our greatest challenge is lack of adequate funding.” While they may not be able to offer a complex analysis of their circumstances, the conclusion is…well, obvious: not enough money is coming in the door to meet the cost of delivering our programs.

It is my belief that for most nonprofits, funding shortfalls are not always the core problem. For some, fiscal stress is a symptom of other, more deeply-rooted problems that lie beneath the surface of monthly profits and losses. If your organization falls into the category of the financially-challenged, what might this reveal about other aspects of the organization? Below are four questions a board should ask to properly diagnose the root cause of the seemingly obvious.

1. Do we have a coherent resource strategy? 
“Writing more grants” isn’t always the solution to a budget deficit, though it seems to be a popular response among nonprofits. The same is true for traditional fundraising: the answer isn’t always to “go out and raising more money.” The fact is that grant writing and fundraising are pieces of an overall resource strategy that may include government contracts, fee-for-service, earnings from investments, even in-kind gifts, volunteers, and bartering arrangements. Some nonprofits have generated revenue through alternative ventures, such as the mental health agency in my hometown that opened a sandwich franchise that produces revenue while providing employment to its clients. A full exploration of all funding options will help the organization identify the possibilities and the limitations before it, which in turn provides the proper context for the development of a fundraising strategy.

2. Do we have a targeted fundraising strategy?
Deciding that your organization needs to raise money from individuals and corporations as part of its resource strategy is a good start. But the real work of strategy development is in deciding where you are likely to be successful raising the money – identifying who is likely to support you, deciding what they need to know about your organization, and selecting the best means of soliciting the actual gifts. And while nonprofits like to claim to be the best kept secret in town, the ability to craft and deliver a compelling story is what separates the successful organizations from the frustrated ones. Absent these deliberations and subsequent choices, nonprofits will continue to “fish with a net,” hoping to nab the big fish that just happens to be in the right place at the right time.

3. Do we have the infrastructure to support the fundraising strategy?
Having the board instruct the executive director to “go raise money…and let us know if you need our help” does little more than increase the pressure on him or her to do even more with already-constrained resources. Indeed, some nonprofits view fundraising as the addition of an another glass of water into the large bucket of organizational activity. But fundraising is an orientation, more akin to adding a drop of food coloring into that bucket of water. It changes everything. So before rewriting the executive director job description or hiring a development director, nonprofit boards need to engage in a realistic inventory of the human, financial, and technological resources available to support the fundraising strategy. Especially in the age of social media, the ability to connect the right message to the target audience becomes central challenge. Without adequate infrastructure, fundraising may actual deplete more resources than it produces.

4. Are we still relevant?
In the for-profit environment, the market will determine the relevance of a particular business. Are there too many gas stations? Not if they can all make a profit. Is the family-owned hardware store relevant in the age of the big box store? Again, the market will answer that question. Having no similar market mechanism in place, nonprofits may continue to function long after their market position has begun to evaporate. Loss of funding or the inability to attract additional funding may indicate an external perception that the social good produced by your organization no longer matters, relative to other priorities. Complicating the analysis of relevance is the ability of struggling nonprofits, through desperation appeals, to attract just enough funding to live to see another month or year. But nonprofit boards need to recognize that maintaining an organizational pulse is not the same as meeting a social mission.

Conclusion
Even in good times, the unpredictability of external funding requires vigilance in monitoring the financial standing of nonprofits.  And there is no reason to expect that funding challenges will subside any time soon. Only through proper and thorough diagnosis will nonprofits be able to respond effectively to the root causes of the financial challenges they face.