What would you do if you saw an accident was about to happen? Would you step in and try to stop it? Would you warn someone ahead of time? You probably would. And what do we do with accidents that have happened? We use them as lessons learned, warning signs for others on the road of life.
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What would you do if you saw an accident was about to happen? Would you step in and try to stop it? Would you warn someone ahead of time? You probably would. And what do we do with accidents that have happened? We use them as lessons learned, warning signs for others on the road of life.
For some Connecticut nonprofits, the warning signs of the risk of government funding reliance did nothing to hamper them from their untimely demise. For decades, industry experts raised the red flag on government funding, but many nonprofits ignored the warnings, some defiantly believing that the warnings “did not relate to their services or mission.”Fast-forward to July 2017, when it was reported that Connecticut's governor warned 26 nonprofits to stop providing services as state funding cuts were most likely in their future. What's that sound you hear? It's the person closing the door of their nonprofit for the last time.
Government funding is detrimental to a nonprofit's health. As far back as 2004, research has shown that government funding is “high risk, low return,” with one study finding that the probability of organizational death for nonprofits receiving public funding was 155 times that of organizations not receiving public funding.
Research has also consistently shown that funding streams are not mutually exclusive and reliance on one stream can be to the detriment of the others. For instance, under the often studied “crowding-out” hypothesis, the relationship between government funding and private funding is believed to be negative. Some studies have shown that for every $10,000 a nonprofit receives from government funding, individual donors give $7,500 less. In addition, the nonprofit wholly reliant on government funding may choose to not pursue (or pursue less vigorously) other forms of income diversification if it perceives government funding will remain steady.
This last finding is relevant to the problem at hand for Connecticut nonprofits.
The myopic vision nonprofits have when it comes to state and federal funding and their lack of focus on private funding is frustrating to say the least.
Not only are nonprofits at risk of losing government support, many other Connecticut nonprofits may see cuts in their corporate funding now that the demand to save failing nonprofits is even greater. A failing nonprofit with viable and needed services will certainly win out in the donor equation over a healthy stable one. The result throws all nonprofits into the danger zone for sustainability.
For nonprofits, the move away from the government welfare of contracts and grants, toward individual donors is not an easy one. The transition takes time, strategy and resources. But the results are almost guaranteed. It's been proven that individual giving is where the money is.
Even within a weak economy, individual charitable giving saw a 2.7 percent increase in 2016, as cited by Charity Navigator. They also noted that with the exception of three years — where a decline was noted (1987, 2008 and 2009) — individual giving has increased in current dollars every year since 1976.
Nonprofits have simply not planned for sustained individual giving. Adding further complications is the fact that a nonprofit looking to create or maintain a legislative earmark must develop skills in political advocacy to develop the necessary support. It may hire executive directors or find board members with experience in this area rather than experience in other areas, such as individual giving.
When disaster strikes, such as is happening in the state of Connecticut's budget, nonprofits might employ efforts to raise dollars from their individual donor base through an emergency appeal letter or special event as a temporary solution. But that tactical effort doesn't equate to sustained and reliable individual donor giving.
A sustained approach requires a strategic plan, one that relies on the correct determination of a nonprofit's market domination (yes, nonprofits have terrific competition), the identification of the organization's value and worth, the identification of their donor audience, and planned actions for the cultivation and solicitation of their donor base. This is a strategic process that requires expertise, resources and most importantly time.
Spending time in developing an individual donor base is an investment that comes with substantial, long-term, reliable and method-based results. That's more than can be said for state and federal funding.
Sadly, many Connecticut nonprofits, as well as others across the nation, didn't make this investment in their own future. Nonprofits should run, not walk, away from government funding as a main stream of revenue, and invest in the future that holds the financial key to sustainability — individual giving.
Sondra Lintelmann-Dellaripa is president and principal consultant of Middletown-based Harvest Development Group LLC, which serves nonprofits, social ventures, and government agencies nationally.