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Cultural institutions need to rethink their financial models. Philanthropy can help.

In college, I was fortunate enough to spend a semester abroad in London. With unlimited access to London’s nationally supported museums, I discovered the magical world of art.

That experience inspired me to devote my career to museums and to the principle of access to art for all. That’s why the economic impact of COVID-19 on our cultural institutions is heartbreaking to me. Many of us have seen the statistic: an estimated one-third of our museums may never reopen.

I found myself asking: Why are so many cultural institutions finding it nearly impossible to manage the current financial crisis? The revenue losses are staggering, of course, and are crippling every profit and nonprofit sector. As civic pillars, though, museums have a special role as the heart and soul of our communities. They stand for permanence, ingenuity, and determination. How can they fail?

The answer is simple, and is now widely recognized: Many cultural institutions are operating on unstable financial foundations. The issues pushing museums to the brink have been laid bare: years of boards allowing ongoing structural deficits; capital projects executed with no plan of how to support their operation; debt financing; an overreliance on earned income, gala events, and a small handful of donors to meet the operating budget each year; leadership with little or no training in sound financial management; and not enough investment in their endowment.

The COVID-19 crisis has made clear that cultural institutions need to turn the corner and begin resetting their financial model. There will be many facets to this reset. But one thing is abundantly clear: Philanthropy is one of the few tools that cultural institutions have to manage the current financial crisis. It will also be a key driver for a stable future.

This realization led me to my next question: How can I help?

Fortunately, I have the tools and expertise to take action. While there are no easy solutions or quick fixes, below are a number of concrete steps that can help fundraisers strengthen their programs, and begin building a more sustainable financial model.

Fundraising in a time of crisis

With so much advice out there, it can be hard to know where to start. We suggest keeping these three basic principles in mind:

  • Focus on mission. Now is a moment to emphasize what is most important about your institution. Focus your communications and engagement activities on your core mission. This will help to demonstrate your relevancy and impact, while reminding donors why they love your organization.
  • Keep fundraising. Past crises have proven that those organizations that continue their forward momentum emerge stronger (read GG+A CEO John Glier’s article “How philanthropy may recover from the COVID-19 crisis”). Donors want to help, and they want to help organizations they care about.  Give them the chance to feel useful and have an impact. We have heard numerous stories of donors making transformational gifts over the past month to universities, cultural institutions, and other nonprofits. This is the power of relationships built on trust.
  • Reimagine business as usual. The path forward will be through innovation and collaboration. The institutions that are shining brightest right now are those that were able to quickly pivot to a new reality. Sound business practice now relies on creativity, risk-taking, and nimbleness in thoughts and deeds.
A staged approach to creating a more sustainable future

It is an oft-repeated axiom in the museum world that a strong financial model is a rule of thirds: one-third contributed revenue, one-third earned income, and one-third endowment revenue. But a review of even the largest museums shows most institutions rely more heavily on earned income than on endowed funds.

Philanthropy is an attainable solution to healthier, more stable cultural institutions in the future. More than $427 billion was given to charities in the United States last year; of that, arts, culture, and the humanities realized only $19.49 billion, or 5%, of that charitable giving. Fundraising must become a more focused, disciplined, and institution-wide activity so that our cultural institutions begin to attract a larger percentage of philanthropic dollars.

Now is the time to put in place the fundraising best practices of high-performing institutions. We believe that the single most important thing fundraisers can do is to build a stronger major gifts program.

For overall success, institutions should move from project-based, near-term fundraising based on institutional need to focus on long-term strategies for engaging prospects around their interests and in their time frame.

Below are some steps to consider in the near-, mid-, and long-term that will help to expand major giving now and in the future.

Near-term

Continue gift conversations that began pre-pandemic. Approach your donors thoughtfully to build confidence and trust.

Be transparent about the financial impact of the crisis on your organization. Create a document that states the business case and articulates your institution’s impact—on your visitors, the community, the museum field, and the world. This will help leadership and your team articulate the need in a compelling way, across audiences. Continue to update this document.

Invest in relationship building. Develop a six-month arc of engagement for members, leadership annual giving (patron groups), and major gifts donors and prospects that does not rely on in-person events. Be consistent in your communications by developing an overarching communications strategy.

Make your donors feel special. Find ways to be creative in how you engage donors. You can bring your team together to brainstorm ideas. Include curators, conservators, and educators, and widen the circle as much as possible—sometimes the best ideas come from unlikely places. This also engages the entire staff in being part of the solution for your organization. You are building an internal culture of philanthropy for the future while strengthening your major gifts pipeline.

Mid-term

Conduct a data-driven assessment of core programs such as membership, events, patron groups, and travel programs. Museums often heavily invest in these programs without a clear path to move participants up to donors. That’s why it is important to ask hard questions, including:

  • Do these programs engage people who have the capacity to make major gifts?
  • Is there evidence that participation makes them more likely than others to make a gift?
  • How much staff time do these programs really take?
  • How reliant are you on your board to make goal?

There may be more efficient, and effective, ways to raise funds traditionally brought in through these programs. A data-driven analysis will help you to focus on your prospect pool that matters most and build out your major gift portfolios.

Realign resources. Refocus staff on relationship building with your major gifts prospects and donors. Put goals and metrics in place and ensure systems are efficient. Continue brainstorming as a team to find creative ways to meaningfully engage donors.

Build a plan. If planned giving has not been a focus of your fundraising, begin building a plan. Incorporate more blended asks into your major gifts program, and educate staff so they are comfortable doing so.

Long-term

Focus on future sustainability. As you continue deepening and broadening relationships with major gifts prospects and donors, your attention should be on future sustainability. The organizations that emerge the strongest from this crisis will undoubtedly be the ones with the largest endowments. Never has the case for endowment been stronger. Begin planning a funding initiative focused on growing the endowment. This initiative will rely on the principal and major gift donors that you stewarded in thoughtful and caring ways throughout the crisis.

Educate donors on endowments. We know that many younger donors are not convinced about the importance of endowments, seeing them as too restrictive and tying up money they could better invest. While you will not be able to convince everyone, institutions must do a better job of educating donors about nonprofit financial structures, their institution’s impact, and the power of endowments.

With an uncertain future and an unprecedented reliance on philanthropy, development leaders face daunting challenges ahead. Strategic decisions about resource allocation, staffing and messaging are all critical to your success.

As you contemplate these decisions and how to move your program forward, GG+A is here to support you. If you would like to arrange a time to speak with me about ways to tackle these challenges, please email cbegley@grenzglier.com. With discipline and focus, together we can ensure your organization emerges from this crisis stronger than ever.

Special thanks to GG+A President Suzanne Hilser-Wiles for her contributions to this article.

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About the author

Chris Begley

Senior Vice President

Chris Begley, Senior Vice President, has spent her career advancing prestigious arts institutions, including The Metropolitan Museum of Art and the American Academy in Rome. Chris joined GG+A to bring her deep museum experience to a wide variety of arts and culture clients. She enjoys collaborating with clients to find…