When to Take Risks: Is Your Nonprofit Penny-Wise and Pound-Foolish?

Is your nonprofit penny-wise and pound-foolish? What’s your organization’s risk tolerance, and when is it a good idea to take risks?

This big-picture post provides the answers to those questions.

Risk Aversion (i.e., The Path Untraveled)

No doubt, you’ve heard the expression:

It takes money to make money.

But what does that even mean? And how much money does it really take?

These are questions you and your board members probably struggle to answer. That’s because the answers aren’t always immediately clear or simple. Often, you won’t really know. After all, who knows what happens on the path untraveled?

But sometimes the answer is clear — or at least clearer.

Another expression you might know is:

Penny-wise and pound-foolish.

Mirriam-Webster defines penny-wise and pound-foolish as something that is done to save a small amount of money now but that will cost a large amount of money in the future.

Which of those expressions sounds more like your nonprofit?

Penny-Wise and Pound-Foolish — A Perfect Example

Let’s use capital campaigns for example. If you’ve been reading my blog for a while, you know I’m the CEO and Co-Founder of the Capital Campaign Toolkit, so regularly I’m knee-deep in capital campaigns.

Recently, I’ve been emailing back-and-forth with an Executive Director who needs to plan a capital campaign in addition to raising money for some shorter-term emergency projects. They currently raise about $300,000 per year for their annual fund, and they need to raise an additional $4.5 million over the next three years.

The board decided they “would wait and see” what the current staff could do before considering additional resources. The current staff has no substantive campaign experience. They are going to be making it up as they go. They won’t even know when they are stuck (or why).

It is known what the current staff can raise. They do it every year — about $300K. Why would the board believe they can suddenly raise five times that without any additional support or resources?

This is a great example of being penny-wise and pound-foolish.

Here’s the thing — I’ve worked with organizations that have tried to “wing it” and make it up as they go. They make simple, yet critical mistakes, which could be easily avoided. These mistakes cost them time and money, and often lead to disaster.

So how do you recognize when a risk is worth taking? I’m so glad you asked!

3 Tips to Recognize When a Risk is Worth Taking

I’ve done pretty well as far as taking worthwhile risks throughout my nonprofit career. As such, here are my top three tips for when you should invest in fundraising and when you might hold back.

1. Take Calculated Risks

Not every risk is a good one. But no risk means no growth. Weigh the pros and cons of critical decisions. Unless the cons greatly outweigh the pros, go for it. You’ll be glad you did. Even when a decision doesn’t pay off, you’ll learn from your mistakes and have more knowledge and experience as a result.

2. Don’t Reinvent the Wheel

If there’s something out there that solves the problem you’re looking to solve, don’t reinvent the wheel. For example, there are dozens of great donor management software companies, which provide good services at reasonable costs. You wouldn’t try to build your own CRM when you can invest in one that already works.

3. “Winging It” is Never a Good Strategy

While it’s important to try new things, it doesn’t mean you’re the first to try them. Most problems have solutions. And someone has encountered the same problem you’re facing. A quick Google search will often get you pointed in the right direction. There’s no need to “wing it” when there’s already a solution out there.

Aim for “Low Risk, High Reward” Opportunities

To dip your toe in the water, I urge you to find something low-risk, high reward to invest in this year.

One example is Mastering Major Gifts, my online program for nonprofit fundraisers who are tired of always feeling isolated while struggling to raise money. When you join now, the first 30 days are free (it doesn’t get lower-risk than that). After the first month, it’s only $197 per month — which is a steal considering the ROI.

If you raise only one new major gift of $1,000 each month, you will have raised five times what you invested in the program. So the risk is low, but the reward is high. In fact, there’s no ceiling to what you can raise.

Most participants raise many, many times what they invest. That’s the definition of low-risk, high-reward. So if you’re looking for those low-risk, high-reward opportunities, you’d be doing yourself a great disservice if you didn’t at least take a look at Mastering Major Gifts.

Taking the Plunge vs. Holding Back

Everyone has a different tolerance for risk. I’m happy to travel by plane, but you won’t catch me skydiving anytime soon. I weigh the risks and rewards, and make a calculated decision.

To help you figure out when you might hold back, ask yourself two questions:

1. What’s the worst thing that could happen as a result of taking this risk?
2. Would you take the risk if you knew you couldn’t fail?

You never know the upside of a decision until you make it. 😉

Do It — Take a Calculated Plunge!

Every year, push yourself to take one or two calculated risks. I’m not talking about something low-risk, low reward. Do your research and take a leap of faith. Take a chance on something. If you don’t, how will you and your organization grow?

As mentioned above, Mastering Major Gifts is a great low risk, high reward opportunity for many fundraisers. But if it’s not your cup of tea, keep searching. Find something that will help you and your organization grow — then take the plunge!