Pros and Cons of Major Donors

Transcript

Jonathan Hicken [00:00]:

I've got major donors on the mind and I want to talk to you a little bit about the pros and the cons of running a major donor program. And I would love to hear about the conversations you're having with your clients as it relates to this particular fundraising mechanism.

Eric Ressler [00:13]:

Should you think about major donors as a partner that you want to assess as if they weren't donating money at all, that you just take money out of the equation and you ask yourself, would I still want this person on my team if it weren't for the financial side of it?

Jonathan Hicken [00:26]:

Major donor programs take a lot of time. I don't think anybody can expect to just spin up a major donor program and see that high ROI gift in their first three years. You need to be developing these relationships over time. So you need to ask yourself, do I have three years of runway? And also as an executive director, how much of my own time literally down to the percentage do I have to dedicate to this?

Eric Ressler [00:49]:

I think a lot of this is around expectation setting. For any of these big fundraising moves, they are often romanticized. It's the is greener fallacy and that might be the right move, but you just have to have realistic expectations around what level of effort is going to be required to make that move and what kind of time span or time horizon we're looking at in order to fully make that transition.

Jonathan Hicken [01:16]:

Eric, we're recording this episode the day after I got news of a major donor making a major investment in my center. So I've got major donors on the mind and I want to talk to you a little bit about the pros and the cons of running a major donor program and I would love to hear about the conversations you're having with your clients as it relates to this particular fundraising mechanism. So what do you say? We get into it. Let's do it. So major donors, major donors. These are people for our organizations who are contributing an outsize ratio of funding, usually an individual, a family, somebody with the resources and the belief in your cause that they're willing to put in a transformational amount of money into your organization. That could be a different number depending on the size of your organization or the work that you do. So I'm not even going to pretend to put a number on that. It's just the people who are really transforming your organization financially. And I want to have this conversation in the form of posing a couple of questions that represent two sides of the major donor coin. So let's get right into it. So major donors, right? One of the benefits of the major donors is that they can become partners, but I have to ask, are these partners deeply helpful or are these partners' missions distracting?

Eric Ressler [02:45]:

Ooh, I mean I've seen it both ways. What my reflections on organizations that are very major donor focused is that there is a certain healthy amount of tension in these relationships. In the best case, these are these transformational partners, these networkers, these connectors, these people, individuals, families who really help elevate and transform an organization. And in the worst version of that, they are sometimes combative, sometimes distracting, sometimes pushing around the team with outsized influence and outsized opportunities to create mission drift or mission creep. I've seen that happen too. I think it, like many things, depends on the quality and the transparency of the relationship. What I can say is that when you don't have major donors, you really want them. And when you do have major donors, you're often looking at the grass is greener over on the what if we had thousands of individual donors or man, what if we just got some grants for this work? So there does seem to be this experience that kind of whatever your fundraising model looks like, you're always curious about what else it might be instead.

Jonathan Hicken [04:03]:

Yeah. Let's unpack this a little bit. So in the best version and related to the specific concept of a major donor being a strategic partner, which is what we all hope for, the best version of that is someone who deeply believes in the cause, particularly believes in the vision. Maybe they believe in you as a leader, maybe they believe in your team, maybe they have a deep history with your organization even before you arrived. There are a million reasons why somebody might be willing to partner with you. And in the best version of that, where the power is kind of on a level playing field that can be incredibly productive. Just like you said, these people can be networkers, they can be strategic advisors, they can bring value to the organization in so many ways other than just their checkbooks. And that is the ideal version.

[04:56]:

That is what we're all looking for. And I do think that anybody considering building a major donor organization should be aspiring to achieve that kind of partnership. The challenge is, and I use the word power moment ago, is that there is inherently a power imbalance in these relationships and intentionally or not, major donors do have the power to withhold funding if programs or impacts don't go a certain way as is their right to do. The challenge is that for us as fundraisers or executive directors, we are constantly faced with this question of is it worth it for me to take that money with particular strings attached? And it is a question that comes up all the time, all the time for me, even in my work today, do I compromise on the vision or our work to be able to bring in this gift which I know is going to be able to pay people, is going to be able to keep food on people's tables? Or do I say, Hey look, this is where we're headed. We would like you to come along with it.

Eric Ressler [06:07]:

What are some of the common flavors of attached strings that you've experienced over the years

Jonathan Hicken [06:15]:

Attached strings, at least in my experiences, it's not so blatant. It's really more of a, with major donors, it's always a conversation. It's the dialogue. And there are moments in these conversations where I realized where we're headed is maybe not exactly where they wanted us to go. Or even for the most sophisticated philanthropists, it's not delivering exactly the right kind of impact that they are looking to fund. And so the strings attached are really, it's not deliberate. I've never experienced a donor looking me in the eyes and be like, I'm not giving you this money unless you spend this program up. It's not that explicit. It's never that blatant, at least not in my experience. I worked with some incredibly generous people and people I'm so grateful to work with. And yet still, even with these relationships, I can tell that we aren't always a hundred percent aligned. And so that has to be a decision that I'm making. Am I going to keep going down this path or am I going to hold my ground?

Eric Ressler [07:20]:

So this to me obviously sounds like a potential pitfall of relationships with major donors, but maybe a more generous framing of that is just a consideration, something to be aware of. And I mean, I'll just throw out a thought experiment and you tell me whether or not this kind of pencils out in the field. Should you think about major donors as a partner that you want to assess as if they weren't donating money at all, that you just take money out of the equation and you ask yourself, would I still want this person on my team if it weren't for the financial side of it?

Jonathan Hicken [07:52]:

I think that's brilliant and really what ultimately happens most of the time is an honest conversation between adults, right? Where it's like, I hear what you're saying and this is where we're headed. I can hear you want X, Y, Z thing. How can we make this all work? How can we build this together? Is there a version of this where we're both achieving the outcome that we desire?

Eric Ressler [08:14]:

How often do you find, and I'm sure this depends a lot on many factors, but how often do you find that major donors have really good intentions with some of their requests or their ideas, but that they just aren't informed enough about the space or the work or the inner workings or the details or whatever it is, and you see them making a potential mistake in their aim that you can kind of see because of your vantage point or your past experience or whatever, that you have to gently and respectfully, I don't want to say educate them on because that feels kind of patronizing, but just involve them in that conversation.

Jonathan Hicken [08:53]:

Absolutely. I mean, I think of myself as somewhat of a social impact matchmaker, and so I'm always trying to approach conversations with major donors from the perspective of I want to help you deliver impact in the way you want. Obviously I think my organization is doing that best, and so you should put your money here, but I want to help you discover to put your money where it's best fit. And sometimes there have been conversations I've had with donors where it's like, Hey, look, I actually think those guys are doing what you want to achieve here. Can I introduce you to that team? And that's part of the trust building, that's part of that partnership that emerges. But the ideal version of it is one where it's I am helping this person or this family achieve their legacy or the impact that they ultimately desire whether or not with me.

Eric Ressler [09:45]:

How did you, in various different experiences that you've had, have you always come into an organization where there was already some kind of major donor program or initiative or network spun up? Have you built one of these from scratch before?

Jonathan Hicken [10:00]:

I have not personally built completely from scratch. I've always worked with organizations that have existed for some time. What I have done is I have grown major donor programs, brought new major donors into the mix, cultivated new major donors. And that actually brings me to the second question, which is a major donor program with a high return on investment or just a shiny distraction? And so this, there's this dream, right? Oh my gosh, I could have this handful of people who are going to fund 50% of my work

[10:33]:

And it's just these three or five families. Amazing. That means I can get back to the impact work. I can get boots on the ground and I don't have to do all this fundraising stuff. And look, there's truth to that. If you have those relationships, you can spend more time as a leader working on your strategy or whatever, helping your team, whatever you need to do. But the pitfall is like major donor programs take a lot of time and a lot of work and relationships and trust take a lot of time to develop. I don't think anybody can expect to just spin up a major donor program and see that high ROI gift in their first three years. You need to be developing these relationships over time. So you need to ask yourself, do I have three years of runway? And also as an executive director, how much of my own time literally, down to the percentage do I have to dedicate to this?

Eric Ressler [11:35]:

So let's do a little thought experiment here, which is really relevant to a lot of the work that we're doing and that you've got experience with. So again, always case dependent, right? But let's say you are a $1 million a year organization and you have very ambitious goals to become a $5 million a year organization within the next two to three years. You have a number of different plays. You could make a number of different levers that you could pull to try and get there. And obviously depending on where we're starting from and where we're trying to go, there's not one answer to this, but let's say there's a few big levers. We've got major donor fundraising, we've got trying to get funds from institutional philanthropy, so like grants or gifts from the government or philanthropic organizations and we've got individual giving. If you had to place one bet on those three modalities, which would you think generally speaking is the most sure bet to grow from a million a year to 5 million a year?

Jonathan Hicken [12:35]:

It depends. Factor on that question is through the roof, but I'll try it. So I would say major donor program is the way to go and it's a different kind of competition. So you kind of got to think about where your strengths are as an organization, but there's different levels of competition or rather different levels of selling, if you will, with grants and institutional giving. There's criteria and there's boxes you got to check and you might be competing with hundreds of other organizations for that money. So there's a positioning that has to happen, but you're putting yourself up against a huge competitive risk unless you have a direct line to the program officer, the decision maker there,

Eric Ressler [13:26]:

Some kind of inside track,

Jonathan Hicken [13:27]:

Yeah, grant programs I've been a part of. You put out a hundred out and you win one. If you're starting from scratch with a major donor program, it's a different kind of selling. It's a different kind of competition where really you're competing for the hearts and souls of the people that are standing in front of you. So if you're a really good storyteller, you yourself or someone on your team is good at connecting with people and pulling on those heartstrings that is a vote in favor of a major donor program. If you've got the machine to just crank out a high volume of grant applications, maybe that's your strategy. There's a million other factors that go into it, but that's my gut reaction.

Eric Ressler [14:14]:

Yeah, I think that's a really important distinction. And of course there's all kinds of other factors that play here to your point. So it's definitely a thought experiment, not just general advice. Anyone should take listening to this, but we get this question a lot actually because part of our job is to help figure out where organizations should place bets to grow a lot of work when it comes to strategic communications and branding and design and all the kind of stuff that we do. A lot of it comes down to like, well, what's your fundraising strategy? And that's a little bit of a catch 22. Well, what's the marketing strategy? So I'm glad to hear your, because that's the answer that's rung true for me and that I've seen pan out is that although there is this kind of shiny object of major donors being the fastest way to get funding, and I think people often have unrealistic expectations around how fast that ROI is going to pencil out. I still think that all things equal if you're starting basically from the same level at any of those three modalities that we mentioned, I do believe that major donor fundraising is the fastest way to get the most substantial funding. And maybe we'll get to this in a bit, usually unrestricted funding too, which can be a huge boost to whatever you're doing.

Jonathan Hicken [15:28]:

Yeah. So yes, I mean I do agree, right? All else being equal, I think that is a safe bet. Let's talk about funding flexibility. And I think that is the question, right? Is it flexible funding or are you setting yourself up to get the rug pulled out from underneath you?

[15:46]:

So this is something that I have personally seen where you have a great relationship with this transformational donor and they have been funding you in an unrestricted way for some time, and then at some point it's within their right to change their mind and restrict their money to a specific use. And so if you've built up a dependency on this particular gift coming in at a particular time every year, and you're used to using it in one way and you've built your budget to be able to use in that way, and then the donor changes their mind, it says, Hey, I actually am really excited about this project that you're working on. I want it to go there. The ground beneath your feet can shift with major donor funding, and so you have to build in some fail safes for that. You need to be really confident. It is so stress inducing when you don't know where that money's going to be put when you've built a budget a certain way.

Eric Ressler [16:44]:

Now, that can kind of happen with institutional funding too, is my experience, but it kind of happens on the front end a little bit more, right? Where it's like, Hey, we're going to write you this big grant, but we're going to spend a lot of time figuring out exactly where that money's going to go. We're going to scrutinize your investments and your team salaries for that project and it can't go to any other programs. Now, obviously that's not always true. I think there's a growing movement to trust-based philanthropy and grants being unrestricted in the best case, even multi-year general operating grants that are providing some of that stability, that social impact organizations are traditionally lacking. So there's no hard rules here. There are also major donors who are doing multi-year grants and who understand the benefit of that unrestricted funding. So have you ever been able to fight to keep that funding unrestricted and said, Hey, I'm so glad you're really excited about that program and let's explore that. I'm open to it, but what we actually really need right now is we need some flexibility in that funding for the overall sustainability of what we're doing, including being able to come through on that.

Jonathan Hicken [17:54]:

I have been in a position where I was really worried that the rug might get pulled out from underneath of us, but thankfully that has never happened to me, and that's due to some wonderful people I work with. But also I like to think that I have the kind of relationship with someone where we can have that conversation

[18:12]:

Before decisions been made. So thankfully I've never had to go back and try to convince them to change their mind. But you talked about the differences between institutional and individual major gifts in this case. And I mean, look, it's like any big bureaucracy or any big organization, they move slowly. They're more mature, they're more deliberate, and you'd expect that you'd expect a little bit more of that upfront also on the backend where sometimes the institution decides that they're going to start moving their money, but they give you three years of headway. So you have some time to cover your bases,

Eric Ressler [18:50]:

But not always. I've seen it the other way too, where an institutional funder has decided, by the way, I know we've funded you for the last seven years, but our funding priorities are shifting away from your niche and we're now focusing on public health or whatever. So in service to our new priorities, unfortunately we're not going to be able to come through on our gift again this next year. And yeah, they do usually have a little bit more headway, but I've definitely talked to social impact leaders who have felt blindsided by that, even if maybe it was even upwards of a year of notice, which is a very respectful amount of time, but still makes it hard to plan.

Jonathan Hicken [19:32]:

I think that's probably the exception, not the rule, but for the ones that are doing that, I challenge those foundations to do better because we need to be able to rely on funding, especially from a mature funder. And so what I would say do better,

Eric Ressler [19:50]:

I think that's fair. And I actually think that is, if we are going to continue to have foundations, which I think that we should and we are going to institutionalize philanthropy, then we need to be challenging ourselves to be the most effective funders possible. And I think there's a lot of research and a lot of experiences and anecdotes at this point that confirm that stability, that unrestricted stability is really the magic secret sauce that a foundation can play a part in a way that's different from even individual family donors or individual donors or family donors who aren't as far along on their philanthropy path and maybe not as informed around philanthropy or maybe just for whatever reason want to give more from their heart and that's their right to do so, and that's okay too. So I think that if we're going to continue to allow for philanthropies and foundations to exist and get the benefits of setting up that way and having requirements around how much they pay out, then I think that there's sort of a, I dunno, burdens may be a little bit of a charged word to use there, but I think there's a responsibility that they are as respectful and as forward thinking in how they give as possible.

Jonathan Hicken [21:08]:

Yeah, I'd hope so.

Jonathan Hicken [21:16]:

You talked about funding being polled unexpectedly, which brings me to my next question about major donor programs, which is, or major donors specifically, I would say, are they singularly impactful or do they create single points of failure?

[21:30]:

So what I mean by that is when you have, again, best case scenario, you've got a handful of major donors who are really engaged and they have a really positive trustworthy relationship, and they are having a singular impact on your mission. And I mean, that is a beautiful thing when you can get there. The challenge with this, especially if you have a small number of these transformational donors, is that you can create these singular points of failure, meaning if one donor drops out, then you are screwed and you're scrambling. And sometimes, especially with major donor programs, you don't know when that's coming. Sometimes those major donors are particularly attached to one staff member. Maybe it's the executive director or the director of development or program staff, and if that staff member leaves now that donors at risk or maybe that family moves to a different part of the country and now they're going to focus their monies elsewhere. And if you have these singular points of failure that can really hamstring an organization that's been relying on them too heavily.

Eric Ressler [22:42]:

Yeah, this reminds me of a concept that I think about a lot in terms of our client roster, which is the concept of a whale client or a gorilla client, which basically means as you're building out your books for an agency, if any client exceeds, and there's different thresholds that people throw out there, but let's just say more than 25 to 30% of your annual revenue, that's a risky situation. And this happens all the time in the agency world where an agency scales because they landed a whale and that whale is 50, 60, 70% of their bookings. All of a sudden that whale client moves on for whatever reason, and now they're faced with the rug being pulled out from underneath them. So I think the concept is basically the same, and I don't know what the metrics should be for a nonprofit or a social impact organization, but probably about the same if you have more than 20, 25% of your revenue for the entire organization, maybe we could even argue for any particular program that's relying on one major donor, there's just a risk assessment that you have to do there.

[23:46]:

This all reminds me of the third major modality of fundraising, of individual giving, and that I think is the big perk to individual giving is that instead of having tens of major donors, you have hundreds, thousands, hundreds of thousands of individual givers. Now individual giving is trending downward generally with the exception being recurring giving, kind of making up for that general downward trend, and there's retention and all kinds of other things you have to worry about with individual giving. But the major perk there is that losing any one donor is not as big of an issue. It's more the bigger trends that happen. Usually also those individual giving programs and monthly giving or giving circle programs are also unrestricted. So my sense of that modality of funding is that it's the most resilient in theory, but it also requires the most effort and the longest time span to move from zero to fully funded on that model.

Jonathan Hicken [24:44]:

Yeah, agreed. Totally right. You've got a thousand points of failure in that particular model. And I also agree, A, not all organizations I think are suited for that kind of model, first of all. And even if you are, it could take a really long time to get to the place where not only are you making up for the funding is worth it year to year, but maybe you're even having to pay off your investments to get this thing going. So that could be a five, 10 year project.

Eric Ressler [25:12]:

That's usually what I tell people, right, is when people come to us and they're like, we have a very early stage individual donor program. We have a hundred or so people donating to us a year, it's making up 10% of our budget. We want that to be 90%. A lot of my job at that point is to say, Hey, let's first assess whether or not we think that's the right move for you, because sometimes it is, sometimes it isn't. My general sense is that the simpler it is to tell your story, the more intuitive your impact is, the more likely it is that an individual giving strategy is going to pan out. The less intuitive, the less easy it is to tell that story, the harder it is for that to pan out just as a quick aside, but also you are probably going to lose money on that investment before you make money on it.

[26:05]:

And what's the threshold around when you start to break even? And that pays off so many factors, but years, not months is generally my experience on that, which doesn't mean it's the wrong play, but again, I think a lot of this is around expectation setting. For any of these big fundraising moves. I think they are often romanticized, it's the grass is greener fallacy of just like, oh, I'm so fed up with all of our individual donors, our major donors. I'm so fed up with, I'm never writing another grant application as long as I live, I'm going all in on individual giving. And that might be the right move, but you just have to have realistic expectations around what level of effort is going to be required to make that move and what kind of time span or time horizon we're looking at in order to fully make that transition. So let's talk a

Jonathan Hicken [26:51]:

Little bit about how you can counter some of the pitfalls, things you can do as a leader to make sure if you do pursue a major donor program or you want to grow it or improve it or whatever, how can you take the best version of what we've talked about today and keep it that way and prevent the bad stuff from happening? First, I'd say is if you're not there already, get to this. I don't know how else to say it other than just say, get to a really healthy working relationship with the donors that you do have. Find that partnership level conversation. Step into your power and know what your priorities are, have clarity on what you're asking for and how you're going to use it and invite that person to be a partner, but know how to set boundaries and find that honestly, it's the same thing that would happen in any sort of relationship, friendship or romantic relationship or whatever you want to find that pure vulnerability and honesty. I think you need to seek that with your major donors, and that's the first thing I would say to avoid some of the pitfalls here. That makes sense.

Eric Ressler:

Yeah.

Jonathan Hicken [28:01]:

The second thing would be to be disciplined about your donor pipeline. That helps prevent things like having that single point of failure. What I mean by that is making sure, and we can actually, if you'd like, we can share some the templates I use for building a donor pipeline for people to use if they'd like,

Eric Ressler [28:24]:

Yeah, we'll put it in the show notes,

Jonathan Hicken [28:25]:

That'd be great. But having a really clear sense of how much money is in your pipeline and at different giving levels, and also knowing which donors are ready to step into the major donor role if they haven't yet, so that if you do lose one, you've got folks on deck that you're ready to go and approach for that next conversation. The worst thing that can happen to you is you lose a major donor and you have no idea where to start next. So being really disciplined with this donor pipeline can help mitigate a bit of that risk.

Eric Ressler [28:59]:

Who in your opinion, should be responsible for major donor fundraising within an organization? Just generally speaking?

Jonathan Hicken [29:05]:

Executive Director?

Eric Ressler [29:07]:

Yeah.

Jonathan Hicken [29:07]:

Development director in partnership with the executive director. Absolutely. Board chair or anyone on the board, certainly as contributors, but I think it should live with the executive director CMO type role. Once again, I want them to be telling stories and feeding me content and feeding me things to talk about, but I want to have a seat at the table for the major donor conversation.

Eric Ressler [29:32]:

Are major donors born from small donors?

Jonathan Hicken [29:38]:

I would say more often than not. Yes.

Eric Ressler [29:39]:

Yeah, that's my perception too. And there's all kinds of tools out there that are built around wealth engines and identifying potential major donors. I mean, my sense is that those tools are a helpful tool. They're not necessarily the only or the main way you should be assessing major donors and that we want to be looking for donors who are aligned around generosity and not necessarily just wealthy people. And that sometimes people will give more than you expect them to, and other times people will give significantly less than you expect them to. So how do you think about that?

Jonathan Hicken [30:16]:

We treat our lower level higher volume givers as the basis of our major donor pipeline. So we are looking at the behaviors of all of these lower level givers and trying to identify using some wealth screening technology to identify people who may become those major donors. And we have a stewardship process that we run people through. But again, like you said, it's not a perfect tool, but it is incredibly helpful. And also for us, we also look at visitation behavior and other kinds of things that help surface those people.

Eric Ressler [30:55]:

I was going to ask just real quick for our listeners, what are some of the key signals you guys are looking for to identify individual donors who are potential major donors?

Jonathan Hicken [31:04]:

So for us, it would be institutional, the history of giving and we have a unique advantage is that we're also tapped into the uc, Santa Cruz giving system, so we can see if they've given to other parts of the university. So we have a little bit of a unique advantage there.

Eric Ressler [31:18]:

Sure.

Jonathan Hicken [31:19]:

So giving history is one of those things. Wealth estimates, some sort of capacity estimates. We factor that in. We also factor in engagement with basically visitation. So are they coming to the center? Are they attending events? And then digital engagement too. Are they in conversation with us digitally?

Eric Ressler [31:41]:

Yeah, I mean these all seem really good foundational practices to put in place. And so if you are going to invest in some kind of major donor or major giving program, to me it seems very natural that you should start to build some of these basic foundational systems from the get go versus just kind of shooting from the hip at first. Would you say that's true or is it okay to get out there and just start having conversations?

Jonathan Hicken [32:04]:

Do both.

Eric Ressler [32:05]:

I mean, look,

Jonathan Hicken [32:06]:

If you're really, really, really truly getting started fresh, get out there. You don't need to build a process. The process will come. But if you've got some history and some systems with giving, you have to be disciplined with that pipeline. You must be disciplined. Otherwise, what ends up happening is you get into this hope based fundraising model where you're just crossing your fingers hoping that that major donor comes through and you really don't know how much they're going to give or when they're going to give, and you're living on a prayer. And that is a really dangerous way to do this kind of work.

Eric Ressler [32:39]:

Yeah, I cannot remember for the life of me who said this, but the quote is, hope is not a strategy. And I think that that's true for many things in life, but especially as it relates to fundraising. So to wrap it up, first of all, thank you. This has been super helpful as we're looking at how we can help advise clients around some of these different fundraising modalities and have recently, especially in light of a lot of federal funding disappearing overnight, been helping clients build out some of these programs and start to build out some of the marketing and the activation work around these programs. All of this is super helpful for me and I know it is going to be helpful for some of our listeners and clients. What I'm taking away from this is the pros, the main pros of major donor fundraising is that even though it's not necessarily fast, it's one of the faster modalities to raise significant money quickly if you're primed for it, and that it can lead to unrestricted funding, which is obviously a huge boon to any of these social impact organizations, and that a lot of the work that you need to be doing for major donor fundraising is going to be synergistic with some of the best practices of just developing meaningful relationships and responsive relationships with your community anyway.

[33:49]:

So even if you don't get major gifts right away, it's still worth doing.

Jonathan Hicken [33:53]:

Absolutely. That's a hundred percent it. Well, thanks for wrapping with me on this one, Eric. I really appreciate you.

Eric Ressler [33:58]:

Yeah, this is fun.

Pros and Cons of Major Donors

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