Meredith Emmett and Heather Yandow
Cynthia Reddrick, in her May 7, 2012 Philanthropy Journal article “Individual giving key to stable funding”, states “Individual donors are a vital component to every nonprofit’s fiscal survival and health.” While individual support may be a key component to many nonprofits’ fiscal health – that support is not, and should not be, a key component to every nonprofit’s fiscal health. In fact, the belief that all nonprofits should have significant individual donor support can be harmful if it wastes staff and board time in pursuing funding strategies that just aren’t right for the organization.
The first step to figuring out if your organization really does need individual donors is to identify your business model. There are four business models commonly found in nonprofits that need to attract revenue. But what exactly is a business model? The simplest definition is that a business model defines what an organization does and how it makes money doing those things. Business models link the answers to the following questions into a well-defined model that can be tested and refined:
- Who is the direct beneficiary (or customer) of what your nonprofit offers?
- What do you offer to these customers?
- How do they benefit or what do they gain?
- Why is what you offer the best way for your customers to achieve what they gain?
- What does it cost to deliver your offerings?
- How does your customer pay for the services or benefits they receive or how do you attract third parties or sources of subsidies if your customer cannot pay the full cost?
Once you have answered these questions, you can decide which, if any, of the common business models is best for your organization.
The Four Common Business Models
While each of the following models has unique characteristics, most organizations will identify with one or two as most reflective of their mission and activities.
Service Providers are, as the name implies, organizations that provide a service or connected set of services, usually to a fairly specific audience, the people you identify as your customers or clients. Many nonprofits such as homeless shelters, daycare centers and afterschool programs, are service providers. As is obvious from these examples, the consumers of these services may not have the ability to pay all or part of the costs of the service. The nonprofit may need to find a third-party payer, such as a donor, foundation, or government agency, to help cover expenses.
Solution Innovators are similar to start-up technology companies. Solution Innovators generate new ideas and need investors willing to take a risk to help develop the idea and bring it to market. In the nonprofit sector, the market for a Solution Innovator may be a policy-making body or a program offered by another nonprofit or government agency. Well-known Solution Innovators include the Heritage Foundation and the Center for Responsible Lending. Solution Innovators typically rely on foundations and major donors who are willing to take a risk in support of activities such as research, development, litigation, promotion, and public awareness campaigns.
Cause Connectors are like your favorite rock band. Your favorite band attracts fans by offering a knock-your-socks-off concert experience, easy ways to buy music and t-shirts, and ways to tell your friends how much you love this band. Nonprofit Cause Connectors also attract fans though they call them advocates, supporters, and constituents. Well-known Cause Connectors include Habitat for Humanity and Susan G. Komen for the Cure. Cause Connectors attract the commitment of their loyal donors by offering lots of ways to be influencers in a personally and socially meaningful cause and bring in revenue through individual donor campaigns, events, corporate sponsorships, and even memberships (though without offering special privileges).
Member Motivators have the same business model as the gym where you may work out or the club where you play golf. Like the gym or the golf club, members pay for the privilege and benefits of belonging though membership dues. Well-known nonprofit Member Motivators include the YMCA and Ducks Unlimited. YMCA members pay for the privilege of belonging to an organization that is more than just a health club and Ducks Unlimited members receive the organization’s magazine, special web access, and the chance to hunt on protected lands.
If your organization is a Service Provider or Solution Innovator, you may not have any or only a few individual donors. Although you don’t want to limit your funding strategy to one source, it may be just fine if you don’t spend time and effort trying to build a base of individual donors. However, if your organization is a Cause Connector or Member Motivator, you likely will struggle without significant individual donor support. Cause Connectors need to focus on attracting support from individuals within the community who have a personal interest in their mission. Member Motivators have to continually identify and pursue prospective members and ensure that the benefits they offer meet the needs of those members.
Meredith Emmett and Heather Yandow are Third Space Studio, Inc, a consulting firm that helps nonprofits create clear and focused strategy, including fundraising. We want to give credit to William Landes Foster, Peter Kim & Barbara Christiansen, who inspired our thinking with their article on “Ten Funding Models” in the Spring 2009 issue of the Stanford Social Innovation Review.