Fundraising doesn’t work anymore (act like a business instead)
Utah, Sheri Gibb says, seems like it should be the perfect place for a creative reuse center: a sort of thrift store/art studio hybrid that encourages members of the community to reuse and repair, rather than throw away household items.
Gibb and her cofounder wanted to do more than reduce the amount of waste that ends up in Utah landfills. They wanted to use education to bring together seemingly disparate subjects, such as art and engineering, to foster creativity. And even more, they hoped to bring the community together around the idea of innovation and art.
When a national organization didn’t return their calls about the need for a creative reuse franchise in Salt Lake City, Gibb took matters into her own hands, and the nonprofit Clever Octopus was born. Thus began Gibb’s quest to master a new art—fundraising.
What many of her would-be beneficiaries did not realize, Gibbs says, is that her startup nonprofit needed money to survive—and lots of it. “That is one of the misconceptions about a nonprofit—that you don’t make money,” she says. “That you do it all for free.”
The founders of nonprofits aren’t in it for the money—indeed, unlike for-profit ventures, the founders cannot own, or derive equity, from the entity they form. Yet many are surprised to discover that running a nonprofit is very much like running a business, except in many ways, it’s much harder.
Nonprofits still need money to operate. But with real estate, labor, and most every other cost on the rise in Utah, local nonprofits are finding that a dollar doesn’t go as far as it used to. Yet, at the same time, the fundraising landscape in Utah is increasingly competitive: new nonprofit startups form every year, but the wealth of local foundations remains more or less finite.
Consumers, at the same time, have become more stingy with their own money in the face of criticism about the wealth and spending habits of some large nonprofits, including Utah’s flagship Church of Jesus Christ of Latter-day Saints.
These constraints have forced many local nonprofits to get more creative about fundraising. But their innovations, coincidently, are making nonprofits more business-like in a time when many businesses are also looking to become more mission-driven and socially conscious.
“In today’s world, which is an amazing place to be, especially in Utah, people really love to invest in their community and be involved. And that is an amazingly rewarding experience,” Gibb says. “But, understanding what it takes, financially, for a nonprofit to be successful—I think there is a lot of misunderstanding here.”
Do we really need another nonprofit?
In Utah, a state renowned for its emphasis on community, it should come as no surprise that starting a nonprofit is a popular exercise. As of last September, more than 10,000 nonprofits called Utah home, and a full third of those organizations formed in the last five years, according to a recent report to the governor by the Utah Nonprofits Association. “And that is an upward trend,” says Kate Rubalcava, CEO of the Utah Nonprofits Association. “It’s not something that’s slowing down.”
But the thing is, Utah’s nonprofit sector is approaching the saturation point—so much so that Rubalcava and the Utah Nonprofit Association actually advise against the formation of new nonprofit organizations. “There are so many nonprofits in the state of Utah that we are competing for board members, resources, as well as financial and human capital,” she says. “It’s really important for anyone who is wanting to start a nonprofit to think about the larger implications for the community, and really find out if there is a need that is not being met… Because there are so many people incredibly interested in starting nonprofits and we just have an overabundance of them.”
While competition is seen as a good thing that promotes innovation in the private sector, in the nonprofit sector it creates unique challenges. A nonprofit, Rubalcava says, is still a small business in the sense that it has to pay bills and recruit employees. But nonprofits lack assets to the financial resources businesses often use to make these endeavors possible.
Getting started can be especially problematic for nonprofits. Nonprofits don’t have access to conventional sources of funding: investors aren’t interested if they can’t take equity, and you can’t even qualify for a loan. Grants may seem like an answer, but they’re not as readily available as one might think, especially in a state like Utah, where a growing number of nonprofits compete for a shrinking pool of financial resources.
Many times, Rubalcava says, would-be founders become passionate about a topic and, particularly in an entrepreneurial state like Utah, imagine that starting a nonprofit is the best solution. But often—particularly if an organization already exists that strives to fill the same role—starting a new organization is not the answer.
“If you have passion and find an organization doing something that you want to be connected to, look at partnering with that organization or becoming a staff member,” Rubalcava says.
If on further inspection, they discover that they have identified an actual service gap, founders still need to consider whether a need exists. In some cases, this may mean that the founders need to let go of their original vision to adapt to the real needs of the community.
Is fundraising really a viable option?
For Salt Lake City’s Warm Spring Alliance, this process happened fairly naturally. Founder, Sylvia Nibley didn’t necessarily set out to start a nonprofit, but when she heard that a developer had its eye on the site of an old children’s museum, park, and natural hot springs area, she started talking to her neighbors. “The more we talked to people, the more we realized that the community was very adamantly opposed to what was happening,” Nibley says.
But to maintain positive momentum, she decided they needed to take their activism a step further. If you’re opposed to the residential development, she asked her neighbors, what would you like to happen instead?
Over the course of a year and a half, Nibley gathered 3,600 signatures, brought the planned development to a halt, and founded the Warm Springs Alliance in order to create the public-private partnership that her neighbors envisioned for the area. Now comes the hardest part: fundraising.
“At the time there was such urgency, so most of the time and attention went to community outreach and getting the word out,” Nibley says. “That was the number one priority, which meant there wasn’t time or energy for fundraising.”
Fundraising, most nonprofit leaders agree, is the most difficult aspect of running their organization. But many founders, Rubalcava says, forget that this is the final step of market research for new nonprofits. Even if the service is needed, the benefactors may be unable to pay for it. Are there enough grants or donors to fund a new venture?
“If a retailer is going to start a store—let’s say a grocery store—they need to pull market research to identify if there are enough homes in any given area to support that grocery store,” she says. “The same thing should occur in a nonprofit space. Are there enough funders out there to give me money to do this? Are there enough grants out there to fund the project I want to fund?”
Grants are increasingly competitive due to the growing number of nonprofits in Utah. And many other traditional sources of nonprofit funding are increasingly difficult to come by, according to Susan Spiers, CEO of the Utah Association of Certified Public Accountants.
Many nonprofits have seen a decrease in individual donations in recent years, Spiers says, largely thanks to the 2017 federal tax reform that increased the standard deduction. As a result, fewer households itemize expenses and nonprofits have lost a major selling point to individuals. On top of this, donors have become both savvier about vetting nonprofits and pickier about the organizations they support.
“Many organizations go out and try to fundraise before getting a designation,” Spiers says, “but if it’s not listed on the IRS website, they’re not getting a donation.”
Memberships, Spiers says, have also become a tough sell, with many would-be members concluding they don’t need to pay a subscription for training or professional development because they believe they can access any information needed online. “We’re entering a time where we think we’ll go online to find the answer rather than calling another human being because we’re not as social as we used to be,” Spiers says. “It used to be, when I first started practicing, you kind of knew who to call, but people just Google stuff anymore.”
Nonprofits, Spiers says, must learn to adapt by emphasizing what the nonprofit provides that cannot be accessed online—community and networking, in the case of UACPA. “There are opportunities to better grasp our member’s needs,” she says. “We have a generation coming up that is actually kind of lonely—they’re wanting more human interaction… I do think it’s a constant rebranding, a constant strategic issue if you will. There is no one answer that fits all anymore.”
Operating as a business might be better
Clever Octopus was lucky to align itself with a local business that saw the organization’s mission as beneficial to its own, prompting the corporation to help with startup costs. Last year, they also brought on board two AmeriCorp Vista members—volunteers who are paid a government stipend or offered student loan forgiveness in exchange for their service to charitable ventures.
“That increased our level of functioning four-fold because that’s two full-time positions that you as an organization aren’t paying for,” Gibb says. “To have them as administrative roles that you can depend on for a year is huge. And there are a number of nonprofits that rely upon that heavily.”
While foundations and government grants can help fill in the gaps left by declining individual donations, they aren’t always enough, Gibb says. One of the greatest challenges she faces is finding money to cover basic operating costs like rent and utilities. Most grants and philanthropists want to support programming, Gibb says, which can make finding money to keep the lights on difficult.
On top of the shrinking funding pool, local nonprofits must also combat rising operational costs—particularly labor costs. “When you think of compensation, and you think of advertising, and you think of overhead in nonprofits, there’s this norm that we should keep salaries and overhead low and no advertising because we want everything to go to programs,” says Donna McAleer, executive director of the Bicycle Collective.
“Well, why is it that in the business sector, we encourage high compensation to attract people? We need to do the same thing here. I have professional, skilled mechanics. I have people who manage huge pools of volunteers. We need staff to put on great programs and if I want to retain those, I’ve got to pay competitive wages.”
In the past year, McAleer says, the Bicycle Collective has introduced full healthcare and medical benefits to compete for employees with private sector businesses. In the meanwhile, the neighborhood around their primary location is being developed, and while the rent remains reasonable, McAleer understands they will soon be priced out of the market. To relocate to a more permanent location, she says, the Bicycle Collective needs to raise $4 million.
Most nonprofits, Rubalcava says, understand that grants are a poor source of long-term funding. To achieve sustainability, she says, most learn to diversify their sources of income. Beyond individual donations, she says, many organizations have turned to creative solutions such as charging for events, products, or services.
“For example, here, we have a pretty diverse revenue stream that comes in,” she says. “We charge for our services. We also give discounted services to our members in exchange for membership dues. All of those monies are coming from the community. They’re not coming from a corporation, not from the government.”
As a result, as it comes up on its 30th year, the Utah Nonprofits Association has a tradition of generating “net revenue” each year—“we don’t call it a profit like in the private sector,” Rubalcava says. And it’s not uncommon for nonprofits to run a net revenue and build a reserve in case of a rainy day. In fact, she says, it’s something that should be expected of a well-run nonprofit service.
“Year after year, we should expect those services to continue to be a safety net for our community,” she says, “and without cash reserves, nonprofits are susceptible to folding and not being there to provide that critical need in the community.”
This blended fundraising model is foundational to the Bicycle Collective’s operations. To raise money for bicycle giveaways and educational clinics, the collective sells donated and refurbished bicycles and bicycle parts and rents bench time in their workshop to the general public. They offer a bike valet service to companies and local events.
Even with all this outside income, the collective’s retail operations only cover about 40 percent of its budget. Grants cover the remaining 60 percent. McAleer remains optimistic that they will eventually attain a 50-50 split as they scale their community outreach and marketing.
Nonprofits increasingly make use of a host of increasingly targeted marketing tools, just like private businesses, Spiers says, enabling them to locate prospective customers, donors, and volunteers much more rapidly than in the past. But with these opportunities come greater expectations from the public, who Spiers says demand greater transparency about how funds are used than in the past.
McAleer views this as an opportunity rather than an obstacle. For those who attend their workshops or lectures, it can seem like the services provided by a nonprofit are free of charge. “But just because the program’s free of charge doesn’t mean there’s not a cost to it,” she says.
Learning to balance the need to raise funds with the desire to advance their mission has been an eye-opening experience for the Warm Springs Alliance. “Every nonprofit is formed around a mission, so how do you fulfill that mission while at the same time making sure you’re sustainable?” Nibley asks.
But seeing the community rally around the cause, Nibley says, has been worth the current learning curve. “A lot of people didn’t believe it was possible,” Nibley says. Their success so far, she says, has “given people a sense of empowerment. It just takes perseverance. It just takes not giving up.”