"Such as We Are Made of, Such We Be”: How income portfolios shape strategy

• All charities need to get their money from somewhere. That money comes with trade-offs.

• The type of money you raise does not just shape your fundraising, it shapes your whole organisation.

• Fundraising strategy and business models shape strategies, organisations and cultures.

“Such as we are made of, such we be.”
Viola, Twelfth Night

All charities need to get their money from somewhere. That money comes with trade-offs. At its very (very) simplest, charities can get their money from the public, different parts of the government (in contracts or grants), rich people or companies. Some charities have an endowment that generates income. Others earn money from trading and other activities.

This is a hugely simplified and incomplete model, and mostly drawn from our experience in the UK, but it illustrates some of the potential trade-offs:

• Money raised from members of the public is normally unrestricted, so charities can spend it as they think best, but it can be expensive to raise.

• Government money can unlock impact at scale, but it’s likely to come with conditions and tight margins. It can be hard to win, serve and report upon.

• Support from high-net worth donors can be transformational, but they can be idiosyncratic and unpredictable partners.

• Organisations who generate a lot of their income from endowments have incredible freedom, but endowments don’t demand accountability.

There are all sorts of caveats and qualifications and nuance to this model in practice. For example, the level of restriction demanded by rich donors varies by person. The money from the public comes in lots of different ways, including regular gifts, legacies, community and sporting events. Some government contracts do allow for innovation.

Every fundraiser knows that every type of income in a charity’s portfolio comes with its own costs, benefits, conditions and trade-offs. There is no such thing as money with no strings.

It is less well appreciated that the type of money you raise does not just shape your fundraising, it shapes your whole organisation. Every type of money has its own flavour.

That’s why when we work with clients developing strategy, it’s often the case that the behaviours, boundaries and conditions of their income shape their strategic direction more than they realise. If they see a peer organisation doing something they themselves can’t do, it might be because that peer has access to a different type of money.

Charities should be thoughtful about how their income portfolio shapes their strategy, and how ambitious shifts in strategy often demand new types of income, which in turn, demand new capabilities.

“What nourishes me destroys me.”
Christopher Marlowe, Doctor Faustus

Choices made in fundraising shape a business model, and business models shape organisations.

Recognising the trade offs inherent in different types of income, and maintaining a balanced portfolio across them, is really hard and requires intention from leaders.

To explore two examples, consider charities that generate their income from contracts, and charities that have large endowments.

Some charities are largely contract-funded. In recent years, most contract-dependent charities the UK have got used to working on thin margins for demanding commissioners. They typically have fewer unrestricted resources to pursue their own priorities. As a result, they may have less money to pursue system-level work like campaigning, advocacy or policy. They can identify systemic issues facing their beneficiaries, but don’t have the capacity to tackle them. Culturally, they may be more risk averse as they seek to protect client relationships.

Those charities with big contract bases and some publicly fundraised voluntary income work hard to protect their voluntary income, because although it might be a small (and possibly expensive) part of their overall funding portfolio, it gives them the ability to invest in their own ideas and priorities.

There is some academic evidence that increases in contract income in charities over time tend to reduce the amount of voluntary income raised, not because the public don’t give to charities with government money, but because charity leaders reduce their investment in their public fundraising capacity. Possibly because the fundraised public income is so hard to raise compared to the contract income. But there are big consequences if a charity can’t pursue its own strategic objectives.

In contrast, some organisations lucky enough to have substantial endowments have the opposite set of opportunities and challenges. Their income is more unrestricted and less accountable. This gives them incredible freedom of action to explore, take risks, and pursue innovation. They can take risks no-one else can. They can fail with less consequence.

But without careful governance, there is a risk that these freedoms become as much of a weakness as a strength. There is always a risk that they become unmoored from any need to justify their actions to third parties, beneficiaries or funders. They may tend to be less strategically disciplined or slower to make decisions, as they are under less pressure to make tough choices.

There are similar trade-offs for charities with big individual donor bases, corporate partnerships, or reliance on trusts, foundations and rich donors.

“What’s your flavour?”
Craig David, Slicker Than Your Average

If money comes in different flavours, what is the right recipe for you?

A well-thought-out income strategy should align with your charity's mission, goals, and long-term sustainability.

It is helpful to be explicit about how your strategy is helped or hindered by the strategic consequences of different income types.

Leaders should consider:

• What your organisation does: Ensure that your income supports your core mission and allows for growth in areas that matter. What’s the change you want to see in the world? How do the features of your current income portfolio help or hinder the pursuit of your mission?

• Your flexibility and freedom: Identify income sources that give your organisation the room it needs to operate effectively, without overburdening staff or creating unnecessary constraints. How much unrestricted funding does your organisation need to innovate and respond to emerging needs? How do your funding sources impact your ability to make quick decisions or pivot strategies when necessary?

• Balance across the portfolio: Recognise the right balance between different sources of funding, each with its own trade-offs, to build a sustainable, resilient organisation. How diversified is your current income portfolio today? How do changes in one funding area impact other areas, and how would you respond to changes in the mix?

Income diversification is often harder than it looks. Fundraising skills seem less transferable in practice than they might appear, and senior leaders who bring a full suite of experience across all forms of income generation are rare. We’ve seen many fundraising teams with world-class skills in individual fundraising struggle to crack major gifts markets, or teams good at major gifts fail to exploit commercial partnerships. “Income generation” as a concept covers a multitude of activities that demand fundamentally different skills, cultures, relationships and propositions. Deciding to broaden an income portfolio and making it happen demand a serious commitment.

There are almost always knock-on impacts beyond the fundraising team. If new activities often require new flavours of money, new flavours of money require new organisational cultures and capabilities. For example, a charity that has historically raised money from the public might decide it’s important to grow by winning grants from government, bilateral and multilateral donors. This not only needs a new set of fundraising skills, but also a whole new set of relationships. Beyond the fundraising team it would also need new teams to report on monitoring, impact and learning for these donors, as well as a change in the way programmes are managed.

Fundraising strategy is almost never just about fundraising strategy. It’s not just about the money, it’s about what you sign up for when you take it.

Fundraising strategy and business models shape questions of strategy, organisation and culture because “such as we are made of, such we be.”