How to Build a Sustainable Revenue Stream

Transcript

Eric Ressler [00:00]:

Jonathan, a question I've been thinking about a lot lately is how should nonprofits and social enterprises choose the right revenue model for the work that they're doing?

Jonathan Hicken [00:10]:

I wouldn't take an executive director job at a nonprofit that did not have an earned revenue opportunity in front of it. I think it's really, really hard.

Eric Ressler [00:20]:

Raising money is a form of a market test, right? You're not selling a product, but you're still asking someone to fork over money.

Jonathan Hicken [00:28]:

There's this triangle that exists in fundraising fundraisers. We're selling emotions, right? We're selling feelings, we're selling legacy.

Eric Ressler [00:36]:

Jonathan, a question I've been thinking about a lot lately is how should nonprofits and social enterprises choose the right revenue model for the work that they're doing? And I thought it'd be cool to break down all the different options for revenue models, whether you're a nonprofit or a social enterprise and you earn your revenue or a nonprofit that earns revenue. And think about what are the pros and cons of these different approaches? How do you know which approach is going to be best for your organization? How many different revenue models should you even have? Should you go all in on one or pick a couple and have them work together? And yeah, I thought it'd be cool to talk about it, so let's do it.

Jonathan Hicken [01:20]:

I love this kind of stuff. Let's go.

Eric Ressler [01:22]:

Alright, so the first thing that we should do is just kind of cover what are some of the different revenue models. And I actually want to start with earned revenue A, because I want to make sure that for our social enterprise listeners, we're not going too deep on just donations and gifts, but also because a lot of nonprofits do earn a good percentage of their revenue, and I think that that's a good thing. So one of the things that you see a lot, especially in the social enterprise world, and maybe just one of the more commonly discussed is the buy one, give one. So you think about Tom's shoes or Warby Parker, right? This is a very consumer friendly model where you donate, let's say in the case of Warby Parker, you sell glasses and for every pair of glasses that you sell to a consumer, another pair is donated or given to someone in need who needs a pair of glasses that might not be able to afford them on their own. What do you think about that approach?

Jonathan Hicken [02:15]:

To me, it's meeting the needs of the consumer group in a couple of different ways, right? It's saying, Hey, I am buying from a company I can trust. I can buy from a company that has the right values that align with mine. And so I feel maybe more compelled to purchase their products. And in that sense, it's like a market distinguisher for Toms is to be able to offer this service. At the same time, they're solving a real world problem too, which is access to good eyewear.

Eric Ressler [02:44]:

Yeah. So let's go to the Toms shoes example, because we actually read an article about this, and there's been some case studies written about this too. Tom's actually stopped doing the buy one, give one, model after a certain amount of time. And before they stopped, they actually got a little bit of flack for that model and the flack that they got. And of course, easy to be critical and there's a critic for everything. So I applaud Tom's shoes. I think they're a great brand. I think they've done good stuff, and they've actually expanded beyond shoes now. But the flack that they were getting was about the people that they were giving shoes to. Maybe shoes weren't the biggest thing that they actually needed. They needed access to water, like clean drinking water, healthcare, just basic income in general. And so you see this also a lot when nonprofits are doing charity drives or when there's natural disasters and people out of the goodness of their heart and a place of good and they want to help.

[03:43]:

So they just start sending things that they have and it actually can become a big overhead problem and operational problem for nonprofits. I think the downside to this approach is that you have to be really clear that what you actually are making is going to help a community and not just actually maybe sort of help but not be the highest thing that they need, the highest profile thing they need, the most important thing that they need. And that leads to another option, which is just donating a percent of revenue. And this is almost in the same line of thinking as universal basic income as an experiment. Instead of providing particular services and means testing that and all of that, instead you just say, Hey, we're going to help you out with money and we're going to trust that you're going to take that money and use it as wisely as you can and kind of spend it on the most important high leverage things for you, depending on your needs.

Jonathan Hicken [04:37]:

Interesting, right? Because in those two examples, on the Tom's example, as a consumer, it makes much more sense to me. This idea that I'm buying one and giving one. That's a really simple concept, but once you start getting into donation of profits, then it's kind of like, whoa, where does that money go? Who is it going to? What's the problem that's being solved? So I could see how it's maybe simpler to donate a percentage of profits, but I wonder if that's actually weakening your position in the market as having that as a distinguishing factor for your business.

Eric Ressler [05:10]:

Yeah, I've been thinking about this a lot actually, about how important the way that you tell your impact story or articulate your impact model actually affects your ability to be successful and build a sustainable business. And I do think that the more complex your story is, the more difficult it is to raise money against that story, especially for individual gifts or donations or individual purchases in this case. So of course there's pros and cons to all of these. Another model that it almost just doesn't even feel like a model, but it is just a sustainability approach, an environmental impact approach. So brands who are like Patagonia is the classic example of this, but even you think about some t-shirt companies that use a hundred percent organic cotton. These are social enterprises in the sense that they are trying to do no harm or as little harm as possible or working in an industry in a more socially responsible way.

[06:08]:

And that is a form of social impact that is a social enterprise in my opinion, but it's not a model that's as clear cut. However, you look at a brand like Patagonia who has really authentically owned that model and they're wildly successful because they build really good products, they understand their audience and their supporters very deeply. They come through on what they say they're going to do, but they're doing it under this umbrella and this point of view of sustainability, social responsibility, and look, they're not perfect. And they communicate about where they're not perfect, which is something I applaud them for, and they're constantly making innovations to be more socially responsible, environmentally responsible. So that's a model too is just essentially doing business without doing harm. What do you think about that approach?

Jonathan Hicken [06:56]:

Well, I think Patagonia was in this unique position where they could actually feasibly move the market. And I think that's what they did by making Earth their one benefactor. I think it forced other outdoor companies and frankly other clothing retailers to meet that challenge, so to speak, that Patagonia put on the table and they're big enough and established enough that they could move the market in a way that was meaningful across the industry. Now, I do wonder if smaller social impact businesses have that same ability to move the market and do that level of impact or have that level of impact that Patagonia did. And I wonder what the efficacy is of a smaller organization who's making maybe environmentally friendly decisions. Really the end result is I think about that actually in my own work at Seymour Center as we try to make those responsible choices. I do wonder sometimes really what impact are we having when we do that?

Eric Ressler [08:01]:

Yeah, it's a good question because my understanding is that Patagonia started that way. That was a core value of the founder and the organization from the early days. But to your point, the scale of that impact, the depth of that impact is only possible because they became really successful. Were they successful because they were sustainable or are they sustainable because they're successful? I think because if you just don't grow, then your impact is not going to be very large in this kind of a model. There's one more model that is essentially just like a service-based model, and we actually have a couple clients we've worked with who have invented some kind of new technology or who are doing energy efficiency work, and they're just a regular business. They're not even a B Corp, but their mission is moving humanity forward in one way or another, and they've found a way to sell that mission, sell that vision to the consumer often in these kind of organizations and other business.

[08:57]:

And I think that's a really viable, and it's not as sexy as some of these other models, but I think it's probably the most common social impact social enterprise model out there, especially the kind of model that we're going to need to make big strides in some of these big systemic issues like environment and healthcare and public health and sustainability. And so we need businesses to consider themselves social enterprises and to do that authentically and that model can work. And then there's of course branching out from there, essentially limitless models for how to generate revenue depending on the context of the business that you're setting up.

Jonathan Hicken [09:35]:

You brought up this idea of the origin story and were these values or was this model baked in from the get-go? And I have a suspicion that really matters to the efficacy of any of these models. And when we think about cause washing or authenticity washing, I wonder if sometimes that's, we're feeling that when a business jumps into the impact game late, right?

Eric Ressler [09:59]:

Yes.

Jonathan Hicken [10:01]:

No shade on athletic beer. I'm a customer. I love drinking their non-alcoholic beers, and I notice on the can that they have this 2% for trails pledge. And I wonder, right? I wonder did they go into the business wanting to make trail access better or did they go into the business wanting to make great non-alcoholic beer? And what does that 2% trip for trails actually mean to me as a consumer? I just wonder about this origin story and how important it is to bake that in early if you're going to build a social enterprise that is effective on the impact and the revenue side.

Eric Ressler [10:35]:

Yeah, that's a really good question. I mean, I can share from my experience the clients that we've worked with who are social enterprises, especially ones that are doing B2B work, they invented some kind of technology. They're doing professional services work of one kind or another. They have all started with this impact and this mission really core to their DNA. And that's actually something we look for when we bring a client on, especially a social enterprise because we are very committed to doing impact focused work that's real, that's authentic, that's going to make a difference. That's some of the things we're looking for in a new client partnership. And so we get pretty early on pretty direct about that, Hey, how much of this really matters for you? Are you making decisions based on impact instead of or alongside of revenue? Because there is a bit of a tension there in certain cases.

[11:29]:

And all of the organizations that we've worked with have started with that vision in mind, and they've realized that a market-based approach is the best way for them to make an impact. Now, with that said, maybe there's some exceptions to that. I'm just not remembering, and I don't think that that necessarily has to be true. And I think this starts to blur the lines a little bit between there's a B Corp where this is an actual accreditation and you have to get certified and there's a process and you get scored every year or so. But then there's also just businesses that are making a product or selling a service that's good for humanity. You think about a local guitar manufacturer and people need guitars, music is awesome. I think it's good for the world. Are they a social enterprise? I mean, I don't know by whose definition, I guess you could start to look at the impact that they're having.

[12:22]:

Are they doing their work responsibly? Are they exploiting people to do their work? Are they importing goods in a way that is hurting the environment, et cetera, et cetera, et cetera. But I don't think being a social impact organization or specifically a social enterprise is a black and white thing. I think there are a lot of shades of gray there. And I also think you can have even an authentic commitment to being focused on impact or having a mission and unintentionally or sometimes frankly, even intentionally creating harm for a certain population of the world. So this is messy stuff, man.

Jonathan Hicken [12:58]:

Yeah, and I do wonder about this. You work with social enterprises more than I do, right? At what point does the market demands challenge the impact desires, right? There's got to be that tension point for social enterprises at a certain stage of their growth

Eric Ressler [13:15]:

At every stage. In my experience, it is a constant tension. I think this is, in my experience, felt most in the kind of impact investor category where impact investors are looking for financial returns alongside social impact returns. And a lot of times those two outcomes are completely opposite because there are ways, and if you look at a lot of successful, especially larger scaled businesses, if you start to just do a little bit of digging, they're riding a lot on exploitation one way or another. They're either exploiting people or they're exploiting the environment or they're exploiting both to be able to be profitable. And when they're really looking and driving towards growth and profit and revenue as the main things that they're working towards and measuring, and look, I'm not here trying to be anti-capitalist or anything, but you have to also just look at how does that impact the people that you're working with, the rest of the world, other organizations doing similar work.

[14:14]:

So it is attention for social enterprises, and I think it can be hard when you are trying to grow and you're trying to scale. And just like nonprofit organizations, these organizations are trying to build sustainable businesses and they have all the same kind of growth struggles and startup struggles. Sometimes they're taking outside investment and their incentives aren't necessarily aligned with the impact because the investors might just be a bank, not an impact investor or whatever. So I do not envy the social enterprises. I think they've got a really tough job that they're doing, and I applaud all of them. And I also think we have to be mindful of holding two things at once. One is true, authentic accountability for these organizations and some standards, and also not just looking for the first time they mess anything up and just being like, these people are BS, boycott them. So I don't know how to handle that, but I think it's something we should be aware of.

Jonathan Hicken [15:09]:

I'd be so curious to talk to an entrepreneur at the early stages of forming a business that has a vision for the product or the service or the impact that they want and is balancing or trying to decide between a for-profit, social enterprise model and a nonprofit one. If you know anybody, I would love to talk to them, maybe even have 'em on the show someday to understand their thought process behind that.

Eric Ressler [15:30]:

We could do it. Okay. So let's talk about more nonprofit focused revenue models. And I think we should also just reiterate that a lot of nonprofits do have some kind of mix of gifts and earned service fees or products sold. I mean, the Seymour Center is an example of this, right? You guys have a gift shop and you guys also do rentals for weddings and other events. So you have a pretty mixed model there. Maybe before we dig into some of these different models, how do you think about that in terms of the pros and cons to earned revenue versus gifts?

Jonathan Hicken [16:15]:

I think about this in a couple of ways. One is that the earned revenue is unrestricted revenue and unrestricted revenues king. So in that sense, I prefer to be making our money through our earned income channels because then we can channel that to where we need to in terms of our programs. Granted, lots of philanthropy comes through unrestricted too, and we always pursue that, but it's a sure thing when you go through the earned revenue track. Now, I wouldn't take an executive director job at a nonprofit that did not have an earned revenue opportunity in front of it.

[16:52]:

I think it's really, really hard unless you've got just a rock solid level of assurance that you have funders or donors who are with you to the end, I would be looking for a business that has that earned revenue opportunity in front of it to have that balance. Right now as we're about to learn, there are lots of models that don't rely on earned income at all and more power to you. Maybe it's a personal choice. I like building businesses where we have value to offer to a customer that wants to pay for it and also be able to promise impact when they spend their money with us.

Eric Ressler [17:34]:

Yeah, let's hang on that thread just for a bit longer before we get into the different models. I think it's an interesting one, and I think sometimes people even are sometimes judgmental about how nonprofits are relying on donations to power their work almost like it's easier than having to build something that has market value that people are willing to pay for. I don't know that I necessarily agree with that, but I do think there is something special about the market, the free market, people actually choosing to purchase something and that value exchange, it's a test, right? There's this just proof of concept and you really don't know if it's going to work until you actually ask someone to buy. You could have a great idea, it could sound awesome on paper. You can have discussions and people will say they're so excited about it, people even say they will buy it, but until you actually put it in front of someone and say, well, it's time to go, you don't really know if that's going to be true or not.

[18:31]:

So in certain ways, the kind of market test, even if that's not a huge element of your fundraising strategy, is an interesting way to just test out ideas and just see if you're doing a good job with your branding, with your marketing, with your messaging. Now, should you be running a side experiment if that's not your main approach to revenue, but probably not a good use of your time and energy. But I do think there is something interesting about that. You could argue that raising money is a form of a market test, right? You're not selling a product, but you're still asking someone to fork over money, whether they're an individual donor or a very high net worth donor who's writing a big check, a major donor or even a foundation or a government grant. There's always some kind of financial transaction and people are going to do that mental calculation. Do I think that this, whatever I'm investing, however I'm investing is worth it, whatever that means to them, and we can go deep on how people make that decision and kind of the thought process and the emotions behind it, the logic behind it. But there's something about the market driven approach that I think definitely has value.

Jonathan Hicken [19:34]:

There is a corollary in fundraising where you're putting out value to a donor and they're going to tell you yes or no. The difference is if I'm selling a product, the person buying it is getting the value from it. In fundraising, oftentimes the beneficiary of the investment is not the person giving the money. So there's this triangle that exists in fundraising fundraisers, we're selling emotions, we're selling feelings, we're selling legacy, we are selling something. But oftentimes it's not the donor that's getting the benefit directly at least.

Jonathan Hicken [20:11]:

So there is a corollary, right, where you can go and you can kind of measure your effectiveness against the market, so to speak. It's a philanthropic market. It's different. Nevertheless, there is something simple and satisfying about saying, I've got something, will you buy it?

Eric Ressler [20:27]:

Yeah, right. No, I think that last point though is super important, which is that when someone's buying a product or a service, it is usually to benefit them directly or at least their organization directly. And if someone's making a gift or a donation, they're getting something out of it. Certainly that feeling of generosity, the deep knowing that they're making a difference and helping, but it is different because they are not the end beneficiary of the impact. So that is an important distinction. When we think about revenue models for nonprofits, I see this as a kind of a spectrum and a scale, and on one side of the spectrum is small donors, many individuals high scale, and on the other side of the spectrum is large donors, fewer individuals and small scale, but large gifts. And there's a whole bunch of plots on that spectrum that we can go over. But does that spectrum track for you? Do you think about it in that way at all?

Jonathan Hicken [21:25]:

Yeah. Oh, totally. Right. I mean, you can even think about for-profit businesses, often you think about SaaS businesses. Am I going after the small business market lots, high volume, low contract amount, or am I going after enterprises, few contracts, really high dollar amount?

Eric Ressler [21:48]:

So let's talk about these different models and who they might be a good fit for. So I think the model that most people think about when they think about nonprofits is many individual donors making small gifts. And those gifts could be one-time gifts or they could be recurring gifts, which is very timely, and everyone's talking a lot about recurring giving right now. They could be a membership, which is basically just a more formal version of a recurring gift, which of course you're very familiar with. But basically this is, I think often how people think nonprofits are funded and structured, which sometimes is true, but actually often is not. Most nonprofits are not mostly funded. If you look at the just actual breakdown of their funding and the amount by many, many, many small donors. There's exceptions to that of course, but who is this good for in your opinion, and who is this maybe not good for? And should a nonprofit ever just completely write this audience off? What do you think about that?

Jonathan Hicken [22:50]:

In fact, Seymour Center might be an example of one of these that would benefit from lots of smaller donors, right? Because tens of thousands of people are experiencing our offer every year, and that is a built in baseline, a built in community that if we were able to mobilize effectively, we could generate meaningful income to the organization. And we do in some ways. And so for me, my gut reaction is if your reach is inherently large, you are by the nature of what you're providing, touching a lot of people at the same time that you're probably in a better position to go after that high volume, low dollar amount approach.

Eric Ressler [23:33]:

So I agree with that. And I think the other thing I think about a lot is if this is going to be a major part of your fundraising strategy, I think it is important that your impact is simple and clear. I think you can do it if your impact is not simple and clear, but I think it's a lot harder, and we've had to help some people figure out how to take a very complex murky story and figure out how to frame a narrative around it that makes it feel more simple and clear. But I think the more tangible, the more simple the impact is here, I think the more likely that this model could be successful for you. So yes, I think reach is part of it, but I also think the way that you make an impact is really important too, because if it's hard to tell a story about that, if people who aren't deeply involved in your organization can't just kind of get it pretty quickly, I think you have an uphill battle to fight here.

Jonathan Hicken [24:22]:

I think it's a great point because at that high volume of audience members or contributors, your story is going to be entering lots of ears and being interpreted in lots of different ways. So you need to make sure that that story is clear and concise and consistent across no matter who's hearing it.

Eric Ressler [24:40]:

Let's talk a little bit about recurring giving and membership. This is very timely. There's been a lot of recent reports coming out about giving overall being down, individual giving, being down, but recurring giving actually going up, and because of that, generating more lifetime value and revenue for nonprofits. I know that you have a membership model at the Seymour Center. You've mentioned before that you guys are really good at signing up new members, but retention is a struggle for you. Tell me a little bit about how you think about recurring giving and memberships and maybe what could be helpful for listeners who are looking at spinning up recurring giving or membership model for their organization.

Jonathan Hicken [25:22]:

This is good. This is juicy. Yeah, let's get into this. So look, the way that we think about our membership is first of all, a community to activate in some way. So we are asking for people to put some skin in the game to join this community, to fuel the impact together, and we are reaching out and trying to activate that community for all sorts of things, not just attending events and participating in programs, but even notifying people about opportunities to take action in the community and mobilize this. Lots of people in our community who care about the ocean and care about climate conservation, we have this community to activate. I think a, that's the most important component of it. We think of it as a community also when it comes to fundraising, I think about it very much as a pipeline for major giving. So everybody that becomes a member at the Seymour Center, we are taking a look at and deciding if we want to approach that person or that family to get involved more deeply.

Jonathan Hicken [26:25]:

We have some data that is available to us to make those decisions, but we think of it as a pipeline knowing that let's say out of a hundred members, there might be 10 members that look like possible major donors. And of those 10, there might be one that actually does become a major donor, but that it starts with bringing in a lot of people at that low giving level. It's a low barrier to entry. It gets people started, gets their feet wet, gives us an opportunity to get them know them and invite them deeper into the organization. So I really do, and we are very disciplined about this. We are looking at that membership pipeline weekly to identify who might become bigger donors later down the line.

Eric Ressler [27:09]:

So pragmatically, what I've seen other people do here is look at a combination of data points, family wealth being one of them just straight up and you tell me if that's not right for you all, but I think it probably is. And then also connection to the cause, right? How engaged are they? How involved are they? How much overlap is there between your values, their values, the impact that you're creating, how much they care about that impact? How do you hold both those things true at the same time?

Jonathan Hicken [27:42]:

Well, I mean, we use all of the data at our fingertips. So whether that's, did this person attend some event and what was that event about? Or what campaign did they give to? And maybe that's going to tell us a little bit of information about what they care about. But ultimately, the real meaningful qualification happens as part of a relationship, right, as part of a real conversation. So we also have a system for vetting those initial touch points.

Eric Ressler [28:11]:

So this is a good argument for some kind of donor engagement platform or CRM and having that data. But my sense is that you don't need a super crazy complex system to be able to do this well because it is, like you said, really about community, really about relationships, really about listening to your community and your supporters. But I like this tie in between small donors being the first step, a pipeline to potential major donors. So let's talk a little bit about major donors, whether they came from a small donor pipeline or a membership program or recurring giving. I know you have been a major donor fundraiser and still are. How do you think about the difference between small donors and major donors, whether or not you're making that transition or starting right at the major donor level, what's the difference in terms of who might this be good for and who might it not be good for?

Jonathan Hicken [29:06]:

I think that organizations that are solving big problems in general are better suited to go after major giving really big problems. When I work with major donors, they're often thinking deeply and very thoughtfully about the legacy that they want to leave on their community or their state or their country or whatever their area of interest is. And again, more often than not, being very selective about where they're investing to maximize their impact.

Eric Ressler [29:37]:

Yeah,

Jonathan Hicken [29:38]:

I've met with some absolutely brilliant philanthropists who are thinking about these problems in ways that I really admire that I learn from.

Eric Ressler [29:44]:

Sure.

Jonathan Hicken [29:46]:

So when you're approaching a major donor, you need to be confident and you need to be sure that the organization and the impact that you're having is helping deliver on the vision that the philanthropist has, which is often pretty big, right? It's kind of like family legacy stuff in a lot of ways. This is more reason to nail that story, to nail the niche, to nail the messaging, to understand exactly what makes your donors tick so you can go into those conversations ready to talk big dollars.

Eric Ressler [30:22]:

My sense from working with clients who have major donors and having some exposure to that is that a lot of times the reasons that people give even large amounts of money usually comes down to some kind of personal connection to the cause, right? Either they really care about the work that you're doing, they have some kind of personal connection in that way, or it's about the community, it's about their legacy to your point. So my sense is that major donors, there's a box that needs to be checked before anything else matters, which is that they really care about the work that you're doing, and they cared about that work probably even before they even met you at some level. And then from there, there's probably, and it probably is very case dependent on the donor and what makes them tick, but for major donors, especially individual donors who might not be professional philanthropists, but they have wealth and they're philanthropists in the sense that they want to give back to their community or give to a cause that they care about, but they maybe don't even have a family office, so they certainly don't have a foundation.

[31:25]:

Does data matter to them? Do they need proof of impact and metrics and numbers, or is it really more about they're kind of doing a more intuitive assessment of whether or not your organization's going to come through or fit alignment between values? What makes 'em tick in your experience?

Jonathan Hicken [31:42]:

I don't think I could paint a picture with broad strokes on this. I think every donor has such a different story and such a different reason for being involved. There was this one donor, I love this story who was engaged, and when we found out why they wanted to give it was because they just didn't want their sister to get the money when they died, and they trusted someone on the board, and it was like, I don't want my sister to get the money. So there are so many reasons why someone's going to dig deep to support an organization. So I think it'd actually be a disservice to try to coach people in any one way or the other. What I will coach is to have that conversation and to think of yourself as almost like a matchmaker. You're like, I'm not here even really to talk about Seymour Center. I'm here to talk about STEM education and climate solutions. Do you care about that stuff? I want to hook you up with the organizations that are going to help you have the impact you have. I kind of think it's going to be Seymour Center, but even if it's not, that's okay. I just want you to fuel this cause because you have the resources to do so.

Eric Ressler [33:00]:

So let's talk about another category of major gifts, which is really more in that what I like to call institutional philanthropy. So this might be a foundation, this might be a government grant. So these are organizations that are professional firms that are set up to support nonprofit organizations, a family office, in my opinion, I've seen all flavors of them. They could be more institutional or they could be essentially more just an estate for a wealthy family as a philanthropist family, and they could act extremely with extreme rigor and process, or they could be just a little bit more fast and loose with how they donate. And I'm not here to judge either approach, but when we're talking about more institutional philanthropy, my sense is that institutional philanthropy is really best fit for organizations that have some kind of established need. There's a model that's proven, and it's really just the funding is there to fund that project.

[34:03]:

So it's like public health is a good example of this. Community-based organizations, I think a lot to do with education and some of these public good initiatives that basically a lot of society has agreed this is an important issue, this is foundational work. But I also think investment in infrastructure and some of these problems that not any one organization are going to solve, where it's going to take a network of organizations across the entire spectrum or across a pipeline or some kind of multi-step thing. So you think about public infrastructure projects, and sometimes these might even be government employees doing this work or government contractors. So I think my sense is that government grants, broadly speaking here, are best for organizations that fit nicely into that category. Does that ring true for you?

Jonathan Hicken [34:56]:

Yeah, it does. When I had a short stint in homelessness and housing advocacy, the major funding was coming from state and federal grants, some private foundations. Again, this was a long established problem with some established solutions, and it was just kind of like we just got to do the work and we got to do it every day. When I think about grants, particularly from institutions, I'm often thinking about it in terms of piloting something new, trying to launch something new, and getting that influx of cash that allows us to prove the concept. For us, that has been, now we've had varying levels of success and actually bringing those in, but I know that I had a grant consultant who I was working with who was coaching me to do that was like, Hey, let's get this institution excited about launching something new with you and pilot it out together.

Eric Ressler [35:54]:

So just to be clear, you're talking about a government grant to fund some of that initial work?

Jonathan Hicken [35:57]:

No, my apologies. No, that was actually a private foundation on a case.

Eric Ressler [36:01]:

Yeah. Okay. Because that tracks more with my understanding is that those types of organizations are a little bit more likely to fund new ventures, new ideas, even some experiments, whereas government grants and whether it's state or federal, typically are coming in to fund proven organizations. They've got some kind of proven model. There's some early success of impact, and they're there to help scale in a lot of times, not always true. We could talk about there's been some amazing government moonshots, government funded moonshots. Let's talk about corporate giving. So corporate giving is interesting, they don't really fit in nicely into any of these categories in my experience. And I think similar to institutional philanthropy, there's not just one flavor of corporate gifts. You think about CSR arms to large corporations. I've seen a trend of a lot of corporations actually having a separate impact arm or even impact fund where they are acting a little bit more like a foundation within a corporation. Have you guys gotten any corporate gifts at the Seymour Center, like big or small?

Jonathan Hicken [37:03]:

Yeah, little ones. Now. I think for most especially small and mid-size nonprofits, corporate giving is a dangerous game. Look, in my experience, corporations are giving for one of two reasons. It's coming out of the marketing budget or it's coming out of the HR budget, and oftentimes those impact arms will live within the marketing business unit. And so really the investment in causes is driven by brand and public awareness and public perception, reputation, that kind of thing, which fine, I'll take their money, but let's be honest about why that investment's happening and it's for marketing and for brand recognition. And then on the HR side of things, it's like, hey, they want, maybe a company wants to build a great experience for their employees and wants to create a better employee sense of meaning or fulfillment at work. So those are the two budgets in most cases where corporate giving is coming from

Eric Ressler [38:08]:

That tracks. And it's interesting because I've seen a couple of organizations that have been really successful with corporate giving, and we've broken down a case study of an organization that grew massively with corporate giving in another episode, which we'll link to in the show notes. But I also do agree that it is potentially kind of a fickle space, and I think especially when you start to see market conditions change for the worse, in my experience, this is one of the first things to go in the budget. This feels kind of elective in these organizations. It's not necessarily driving their bottom line. Now, there's probably exceptions to that. There's probably some corporations out there that have a really solid corporate giving arm and program, and it's like a core part of their business. They wouldn't cut it quickly, but it does feel like a little bit, I don't know, just exposed to trends in culture, trends in the market in a way that feels a little bit risky to go to all in on corporate giving.

Jonathan Hicken [39:04]:

I agree. Look, I imagine there are some amazing corporations out there that are having a real impact. I actually think that Benioff and through his work in Salesforce and the fortune he's amassed there, I'm a fan of some of the work that he's doing and funneling it through the company, but I think that that's the exception and not the rule. And so I caution nonprofit leaders to put too much time or energy into that unless they have a really clear line of sight to some return.

Eric Ressler [39:35]:

Let's talk about capital campaigns, which is the last model that we have for today. So in my experience, capital campaigns can be incredible, but only when the time is right and when the organization is set up to do so. In my experience, capital campaigns have been most helpful when an organization is at some kind of huge growth or inflection point, right? They want to build a new center or they're trying to fund a new arm to their organization. Some kind of big, bold, but also easy to grok mission that the campaign donors can really understand and kind of feel like they can be part of building and not just at large for the organization, but a project or a very tangible outcome. Is that basically your experience with capital campaigns as well?

Jonathan Hicken [40:24]:

Yeah, exactly. And there's capital campaigns that are large and small and everything in between. But I think what you've described, I would agree with.

Eric Ressler [40:30]:

The other thing that's interesting about capital campaigns is that by the time they go public, they're usually between 70 to 90% funded already. So this is basically another form of major donor fundraising, but a little bit more tightly scoped to a project versus the mission at large. And then it is nice that there's an opportunity in certain cases to do some kind of public campaign to open it up to smaller donors to hit that last 30 to 10% of funding it. And that can be a good awareness campaign too, right? So it serves that purpose as well. Okay. I want to leave listeners with something kind of more actionable they can take away, and I thought it'd be nice to just have five questions that you can ask yourself if you're playing around with these different revenue models and trying to figure out what's the right one for your organization. So here's the five questions and I'll let you weigh in. What model aligns best with your mission? Who is your target audience and what model is going to align best with them? What are the resources and the capacity that you have to actually execute on any of these models? What are your short and long-term goals as it relates to? And how might these models support those goals? And then how can you balance stability, long-term stability with short-term growth? Any other questions you would ask if you're kind of thinking through this?

Jonathan Hicken [41:44]:

Yeah, I would say, what problem am I solving? Who am I solving it for and who's willing to pay to solve that problem? That's ultimately what I think it comes down to. Are the people trying to solve the problem? The same people who are buying are the people who are trying to solve the problem, different people who aren't getting the value. And you can break it down from there, but I think that's, that's ultimately what comes down to am I solving an important problem and is there anybody out there to pay for it? And just be really honest with yourself about who those people are.

Eric Ressler [42:14]:

So we could go deep on any of these revenue models and probably we'll continue to hit some of these in future episodes. But for today, Jonathan, I think that will do it. Thank you.

Jonathan Hicken [42:23]:

All right, thanks Eric.

How to Build a Sustainable Revenue Stream

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