Building Strategic and Sustainable Donor Bases for Nonprofits
This summer, I had the opportunity to work with a nonprofit called Technology & Entrepreneurship Ladder (T&E Ladder), which focuses on teaching entrepreneurship and bridging the gap in technology to kids in developing countries, specifically Kenya (as of today). T&E Ladder was launched in 2020, and the nonprofit started its work with various professors, entrepreneurs, investors, and mentors teaching workshops on Zoom to high school students in Kenya. T&E Ladder’s mission is“to provide high school students with a platform and resources through which they can create breakthrough solutions using the power of technology.” One of the founders, Khushi Malde, was inspired by her experience attending the Berkeley Method of Entrepreneurship Bootcamp, which made her “appreciate the importance of an entrepreneurial mindset and spirit.” Wanting to give students the opportunity to ascertain the same entrepreneurial mindset, Malde and Megan Cistulli, a fellow UC Berkeley alum, created T&E Ladder. I was tasked with helping the team find ways to fundraise and more effectively manage their budget.
The resources nonprofits have to work with are generally always limited. Recent spikes in inflation, turmoil in the banking sector, and the possibility of recession have challenged the already tight nonprofit financial landscape. It’s possible that a meaningful share of would-be nonprofit donors may lack the discretionary funds to donate until the economy stabilizes. Thus, it’s imperative that nonprofit leaders be thoughtful and strategic in how they seek funds.
Some of the most common challenges nonprofits face pertain to their finances, which typically relate to finding donors, building lasting and trusting relationships with donors, and diversifying sources of revenue.
Based on my research, three guiding principles of fundraising can steer nonprofit leaders away from common financial challenges and toward sustainability and success:
Understand the different types of capital and the kinds of capital you need and diversify donors and grantmakers accordingly. In 2001, the Rockefeller Foundation and Fannie Mae Foundation distilled the types of capital every nonprofit should have down to three categories:
- working capital: funds for covering regular expenses during periods of limited cash flow, or for making calculated investments to enhance the potential for expansion of its services,
- permanent capital: funds given for an organization’s endowment, and
- facilities capital: funds allocated for the construction or purchase of properties intended to be spaces for nonprofit offices and programs.
When leaders have identified how much money they need in each of the three categories to achieve goals, they can then seek donors who want to give to a specific category.
- Understand what motivates donors. Once you know the donors you need in order to satisfy your three categorical capital requirements, the challenge becomes compelling them to donate. Charity Navigator, an organization that evaluates hundreds of charitable organizations in the United States, conducted research to understand the information donors typically seek before donating to a nonprofit. They found that, firstly, donors want to know if the nonprofit is having a positive impact. They also want to know how their donation will be used and how it will support achievement of the mission. Charity Navigator also found that donors like reading anecdotes that detail how the nonprofit helped a specific person or solved a specific problem. These stories can provide a personal and meaningful connection between the donor and the nonprofit. They also foster the donor’s sense of trust in the nonprofit to use their donation effectively.
- Understand the different funding models and choose the one most suited to your nonprofit. In the Spring 2009 edition of the Stanford Social Innovation Review, William Landes Foster, Peter Kim, and Barbara Christiansen outlined ten different types of nonprofit funding models used by the largest nonprofits in the United States. Because a nonprofit’s beneficiaries (those or what they seek to help through their mission) are different from its customers (donors), the standard for-profit business models are a fundamental misfit for nonprofits. Unique to nonprofits, finding a source of money is not directly connected to the way it creates value for its beneficiaries, and when funding sources and nonprofits are not “well matched,” money tends to go to the wrong place and can prevent nonprofits from making progress. Thus, following a specific funding model based on certain goals and target donors can help optimize growth and funding.
For example, nonprofits that follow the local nationalizer model focus on causes important to local communities, where governments by themselves cannot solve the problem. One example of an organization that follows this model is Teach For America (TFA), which depends on 26 regional TFA offices to raise over 75% of its funding.
In matching a model appropriate for a nonprofit’s mission, operational structure, and target donor base based on categorical capital requirements, leaders can be intentional and avoid the wasted time and resources that so often stem from suboptimal fundraising and efficient financial allocation. Furthermore, they can increase their likelihood of success and, hopefully, encourage donors to give repeatedly and over the long term.
My Fundraising Recommendation to T&E Ladder
T&E Ladder is still a small and young nonprofit. Malde operates the nonprofit out of California, where she lives, and the nonprofit presently has no physical office. Most of their money currently goes toward resources such as technology, pitch competitions (which include location hiring fees, event planning costs, prizes, and speaker stipends), legal costs, and programming costs (which include in-person events, access to tools and resources for students, and workshop development costs). Malde has intentionally sought to keep overhead low and devote as much of the financial resources as possible to directly serving students. That said, she wants to help more students, and this will require growing her team, technology resources, and capacity to promote the nonprofit on the ground in Kenya. To experience their first stage of meaningful growth, they will primarily need working capital. As of now, there is no plan or need to purchase or build property, so the team has no foreseeable need for facilities capital. Nor is there a need for an endowment at this stage.
Entrepreneur identifies five primary donors for nonprofits: prospective donors, individual donors, corporate donors, major donors, and foundations. Given T&E Ladder’s relatively modest financial needs in the near future, Malde and Cistulli could focus primarily on smaller individual donors who could become repeat donors. The team would likely find fundraising success by starting first with those in their personal networks who might feel a personal obligation to donate. This would include friends, family, professors and teachers from their past who might care about providing education and entrepreneurship education to impoverished communities. Furthermore, since the idea for T&E Ladder was inspired by Berkeley’s Method of Entrepreneurship bootcamp, Malde could seek donations from those who also took part in the bootcamp or the educators who led the program by directly appealing to these people’s fondness of the bootcamp to influence people across the world.
Overall, from my assessment, the heartfelt connector model is likely to be most effective for T&E Ladder, as their work lends naturally to appealing to people’s compassion. Nonprofits that follow the heartfelt connector model are those who support a cause that can be broadly appealing to large numbers of people of all income levels. For example, the Make-a-Wish Foundation follows the heartfelt connector model. Make-a-Wish helps children with terminal illnesses achieve a dream they’ve always had. While not everyone — and certainly not every Make-a-Wish donor — can relate directly to the experience of caring for a terminally ill child, most people can be moved by stories of ailing children and understand the value of supporting such a cause. In other words, Make-a-Wish can appeal directly to people’s hearts and humanity and build community around a cause.
The average American likely cannot relate directly to children in Kenya. Yet, the T&E Ladder team can tell a story in such a way that even people on a different continent from the students the nonprofit aims to help can appreciate the value of teaching them entrepreneurial knowledge. Marketing will require some education about the Kenyan students’ circumstances, the local economy, and why entrepreneurial education is invaluable to the students’ future economic prospects. From there, T&E Ladder will have to find a way to connect on the human level, to tap into prospective donors’ emotions and compassion, and make an inspiring case that is specifically relevant to a donor segment for supporting a community on the other side of the world.
T&E Ladder could launch its fundraising efforts with a newsletter campaign and also invite email recipients to forward the information to those who would be interested in their work. From there, they could apply standard email marketing tactics to organically grow their subscriber list. Critical to the success of their newsletter is clarifying to each donor segment why they are getting the newsletter, showing why T&E Ladder has some relevance to them, and appealing to the compassion of each recipient. Throughout the newsletter campaign, T&E Ladder would be wise to include personal stories of students they work with in Kenya to showcase the impact the nonprofit is having, the potential of donors to directly serve real people, and share success stories.
I advised the T&E Ladder team to target three prospective donor segments with the following tailored messaging:
- Friends and Family: For this segment, Malde and Cistulli can thank friends and family for their friendship throughout the years and their support as they started T&E Ladder. In addition, they will need to explain why Kenya is important to them personally and what inspired them to build the organization. Ultimately, Malde and Cistulli will be appealing to this segment’s heartfelt desire to see Malde and Cistulli — people they know and love — succeed.
- Berkeley Method of Entrepreneurship Bootcamp professors and fellow students: For this segment, Malde can authentically and directly link her time at the Berkeley bootcamp to what she and the T&E Ladder team are striving to achieve in Kenya. Since this audience already appreciates and values entrepreneurship, Malde can spend more time educating about the education and economic circumstances in Kenya explaining how and why entrepreneurship is uniquely critical for young Kenyans’ future wellbeing. In doing so, she can directly appeal to this segment’s natural enthusiasm for and belief in teaching entrepreneurial knowledge, especially through the bootcamp model.
- Teachers: Across their education, Malde and Cistulli have amassed a network of teachers and professors who taught and inspired them. For this segment, they can appeal to their inherent devotion to children and desire to help children grow into successful adults. In this case, the T&E team can emphasize the deficits in education and educational opportunities in Kenya and why and how their program is attempting to compensate for some of those deficits. The point here would be to appeal to this segments’ deep beliefs in the power of education, which all children all over the world deserve. Malde and Cistulli can thank those in this group for inspiring and educating them, for each played a role in launching them to where they are today, and ask that they forward the newsletter to colleagues who may appreciate it.
Finally, in every newsletter, the T&E Ladder team should include a T&E Ladder student’s personal story to showcase the program’s positive impact on his or her education, career, and life. Whenever possible, they should also share success metrics — such as growing enrollment, the purchase of new tools, the training of more instructors, etc. — to repeatedly demonstrate that donations have a material effect and are used to directly improve the program and benefit more students.
