Portfolio strategy

What does a sustainable fundraising strategy look like?

It’s a question commonly asked by boards and executives of charities and not-for-profit (NFP) organisations.  I know full well how difficult this is to answer.  There is an answer though, a surprisingly simple model that can help a board and management to understand how their fundraising streams, or as we like to call it ‘portfolio of products’, are positioned now and into the future.

While studying my MBA I came across a very well known model for analysing a product portfolio.  Created by Bruce D Henderson for the Boston Consulting Group in 1970, the BCG Matrix or the Boston Matrix uses market share, market growth and value of sales to plot product performance. I’ve taken the basis of that model and modified it to be relevant to the NFP sector.  The NFP sector has some peculiarities that don’t apply directly to for-profit businesses so the BCG matrix isn’t useful in it’s original state.  Here’s some key differences:

  1. NFP organisations don’t like to budget for a net loss on fundraising activities, short or longer term. This hesitancy to ‘invest’ in longer term is a major impediment to growth.
  2. Main business activities for NFP’s (the cause) are not attached to fundraising costs only fundraising revenue. For-profit’s spend money to make money, charities make money to spend money – primarily on non-income generating activities (ie their cause).
  3. There is little known information on market share of fundraising activities – no reliable data at least.  The BCG matrix uses market growth and market share to identify portfolio performance.

There are plenty of for-profit principles that do, or should apply to NFP’s when considering a portfolio of income generating ‘products’.  These are:

  1. Success is a longer-term game and you need to spend money to make money
  2. Products (fundraising activities) will follow a product lifecycle curve over time
  3. Innovation is critical for success
  4. Sentimentality for non-profitable products can slowly kill a business
  5. Invest in developing great products before promotion
  6. When you have a great new product, throw everything at growing market share as quickly as possible to capture the largest customer base before competitors produce copy-cat products
  7. If you’re making money, know that there will be copy-cat products to challenge your market share
  8. Now and in the future a great marketing strategy is critical
  9. As more players enter your market your profit margins will come under pressure as your promotional budget will need to increase to attract the same volume of customers.

And the list goes on but these are critical ones worth considering in light of this article.

Let’s get stuck into the portfolio model.  Have a look below and then we’ll talk it through.

BCG base

A theoretical product lifecycle should see a product follow the path from A through to E.   Let’s look at those steps now.

A) the product is being developed, costs are incurred in product development including research and testing.  It is here that a product is launched. The main cost is in developing the product/campaign, the creative, the research, the systems and testing to ensure the user needs are met and ultimately the experience is great. At this point there is no profit, there might be income but the costs will outweigh them, this is investment. Invest enough here and the rest gets easier.  Skimp here and you’ll spend more later or worse still, not realise the potential.  Check out the CIR dilemma page for more on this.

B) Rising stars are often misinterpreted.  It is here that investment ramps up, not backs off. Rising stars mean growth and ideally maximum growth.  Growth means promotion and investment in promotion.  A product in this phase has anywhere between 20 – 50% of forecast income invested into promotion.  Don’t be confused, this phase is not about profit, it’s about growth to maximise market potential.  In the matrix above, this phase determines the size of your ‘bubble’. It’s here that charities get nervous.  They worry about their cost to income ratio (CIR) and they stop promotion to take the maximum ‘profit’. Stop investing here when you see your recruitment numbers starting to decline.  If they are growing, keep investing.

C) Cash Cows.  Your sacred source of funds to invest back into innovation (A). Your cash cows will not be here for long, if you’re successful, copy cats will come hard and fast. Hopefully you’ve invested enough to lock them out of the market for a while by your market dominance. The rule of a cash cow is efficiency.  You’re mastered your basic product, you’ve grabbed market share and now you must be focused on return on investment – ie maximise your profit margin.  It is here you will recover your costs and deliver greatest value to your cause.  You must however keep innovating and keep your product current, every year you must respond to changes in your market’s needs.

If you don’t keep innovating you will progress your product into…

D) This is the slow dying death zone.  With no new ideas or regeneration, products languish in this zone.  Gross income is declining below Inflation or Consumer Price Index CPI rates, so unless you’re getting super efficient it means net income (profit) is also likely to be declining. This means less money year-on-year to invest back into your cause and it means less money for innovation.  Your product is going backwards and this is not a sustainable strategy. Before too long, your product will move into quadrant…

E) Don’t panic though.  It’s too late to panic, way too late.  It’s time now to think about the needs of the consumers using this product and how you can meet their needs in another way, with another product.  If your consumer group is large enough then re-designing or re-launching your product is another option.

The trick to staying out of this quadrant is tracking your income and expenditure accurately.  I dare say many organisations have products in this quadrant if they correctly factored their time and resources accurately.  This can be hard to do and it can feel a bit embarrassing to stop doing an activity that you’ve heralded as a success but it’s critical for sustainability.  Charity balls can be a classic in this space.  Every dollar, every minute, ever staff member you allocate to this space is effort not going into innovation.  It is very hard to pull a product out of the ‘dogs’ into a rising star or back to a cash cow.

The vertical axis (Gross income growth) has two critical points.  The ‘x’ is your long-term sustainable growth rate. It doesn’t take a rocket scientist to work out then that in order to achieve sustainable long term growth you need products above the line to achieve it.  The larger the size of the ‘bubbles’ above the line, the greater your chance of sustaining growth.  If all of your products are below the line then it makes sense that your growth will be difficult to achieve.  The only way to achieve this is to invest heavily into one of your cash cows to push it up above the line either through product development (innovation) or significant increase in promotion.

The exception to this rule is if your Cash Cows are growing ahead of your long term growth rate in which case you’re very lucky that your board has allowed you to get away with such a low growth forecast. Ramp things up, raise the bar and start stretching yourself.  You’re in the role to do great, not just good.

Here’s what I hope is a handy cheat’s diagram summarising the key focus areas for each quadrant.

BCG focus

I have had a few comments over time about how to plot this matrix. Where do bequests fit into this? What if we had great growth one year and poor growth the next? Well the answer is a simple one. This is a model and as the great statistician George Box said ‘all models are wrong, some are useful’. This model is useful in considering your portfolio and sustainability of your income streams.  In my General Management, Business Development role at Cancer Council I plotted this taking three year average gross income growth (longer than that and it becomes less relevant) and current net income.

A word of caution is don’t try to be precise about where within the quadrant to place any particular product.  If it’s in the quadrant, it’s in the quadrant.  The more precise you try to be, the more wrong you will be.  It’s a model, it’s not the truth.

So that’s the portfolio strategy approach we teach as part of our Experimenteur Game Changer Sessions.  It’s taking MBA thinking with a well established tool for product portfolio planning and adapting it to charity.  I’ve used it for boards to reinforce the need for investment in innovation.  I hope it’s of use to you.

We’ve provided this insight to you free-of-charge, we’d love you to reference us if you’re talking with others about it.  We can also help fast-track your goals through our consultancy services – we’re here to do awesome work, for you, with you!

If you’d like more advanced thinking or advice get in touch. First coffee’s are free. If you’ve read this far, please do us a favour and add to the conversation below.

Have an awe-inspiring day!


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