A Fund Raising Matters Special Report:

Shaping a Successful Endowment Program

Why is endowment so hard to sell?

© 2004, Goettler Associates, Inc. All Rights Reserved.
Fund-Raising Matters is a registered trademark.

(click here to download a pdf copy)

Shaping a successful endowment program through planned giving appeals, as we all know, is by far the most effective way for an organization to build a substantial endowment fund. The various mechanisms of deferred giving are especially helpful to donors who want to maximize the size of their gifts over the long term, while minimizing their financial sacrifice in the short term. Many of these donors will designate their gifts for endowment; others may provide no instructions at all. Well-managed organizations, however, put as much of this money into endowment as they possibly can—realizing that long-term financial viability must always be a top organizational priority.

These days, many major capital campaigns also include a substantial endowment objective. As we help to put together these campaigns, we invariably hear the same complaint from professionals and volunteers alike: “Endowment is hard to sell.” And indeed, many prospective donors are reluctant to make a five-year pledge to an endowment program. “Why should I give my principal to you to invest,” they ask, “when I can invest it just as well, or better—and then use the income to make my annual gift?”

Many of us would be hard-pressed to come up with a good answer. As donors can surely guess, a big operating endowment is the dream of every development officer who’s straining to meet the goal of this year’s annual fund. From the donor’s old-fashioned perspective, however, there are better ways to support operations, such as controlling expenses, increasing earned income, and raising current funds!

When an organization wants to endow a brand new program or staff position, donors may become especially wary. One major foundation we’ve worked with, for example, prefers to provide annual support to new programs for several years before considering an endowment gift. That allows the foundation to maintain a voice in the program, and gain confidence in its value as a long-term investment.

Other foundations, corporations, and individuals, of course, won’t support endowment programs at all.

Truth be told, the problem with “selling” endowment generally lies not with the donor, but with the organization. Most of them simply haven’t taken the time to do their homework, and develop effective marketing tools—so they end up presenting a case that’s weak and self-centered. Organizations, for example, claim that they “need a cushion” to protect them from the unpredictable ups and downs of the economy. Or they present charts which suggest that compared to other institutions, their endowment is too small.

Now, let’s be honest: Would these arguments convince you to make a major gift? You are, after all, being asked to pledge, say, $100,000 in endowment funds, rather than the $5,000 per year that an investment of that size might generate!

Shaping a Successful Endowment Plan

The most effective way to develop and market a successful endowment program is to produce an endowment plan—a coherent and well-documented agenda of program elements (both existing and proposed) which endowment income could help to support. The plan includes specific financial targets and a credible case for support of each program element (i.e., “If we reach this target, here’s how that will benefit the people we now serve, or could serve”).

These program elements, of course, must represent key organizational priorities, both short-term and long-term. The priorities, in turn, should reflect a shared vision of what the organization aspires to become in the future, and how it proposes to make the community (or the world) a better place. That’s what will make your case compelling and your programs exciting. Ideally, then, this is where your work should begin—with some kind of strategic visioning/planning process. The more the organization’s “stakeholders” participate in this process, the more likely it is that the vision will actually be realized.

The process of developing the endowment plan itself is a job for a smaller group—an ad hoc task force involving selected board members, perhaps other volunteers, the chief executive officer, chief financial officer, and appropriate development staff.

In essence, each of the organization’s key priorities must be translated into a set of attractive and “fundable” program elements, with detailed descriptions and dollar amounts attached. These should be basic items, integral to the pursuit of the organization’s mission and goals, rather than “fluff” added because of its imagined appeal to donors. Program elements which could be endowed (fully or partially) might include faculty or staff positions, professional development or enrichment, scholarship funds, support for public programs and services, etc.

General operating support, by the way, has minimal appeal to prospective major donors, and does not qualify as an organizational priority. The idea, rather, is this: As the real priorities become endowed, they will no longer require operating support (or at least will require less). Those funds will then be freed for other purposes (paying off debts, increasing salaries, etc.).

The program elements should be “packaged” and presented in accordance with the known values, preferences, interests, and aspirations of donors and prospective donors. If such people have been actively involved from the beginning of the process we’ve described, you won’t need to guess what those interests and aspirations are; you’ll already know!

One of your task force members, for example, might propose to include in the endowment plan a scholarship program to benefit women interested in math and science. Coming from an action-oriented person of means, such a proposal usually reflects a more than philosophical interest in the idea. It suggests a willingness to provide concrete support for it, if asked.

Marketing your Endowment Plan 

If your organization is in a capital campaign posture, the members of your steering committee can use the endowment plan to help secure some of the largest investments. On an ongoing basis, the marketing of the endowment plan should become the responsibility of a permanent planned giving committee—including selected board members and planned giving specialists (attorneys, financial advisors, etc.). The experts can help to identify and “open the door” to prospects, as well as provide technical advice. This committee could include key staff as ex-officio members.

One advantage of an endowment plan is that you have a financial target for each program element, so that you always have the option of launching a special gifts campaign. If a donor, for example, makes a significant commitment to a given program, he or she might be interested in helping to secure further support for that objective. With the help of a small group of donors, then, you may be able to reach your target within a relatively short period of time.

Donors to endowment funds deserve special stewardship. Provide them with progress reports on the programs they support, and look for concrete ways to involve them and show them the positive results. It’s not unheard of, for example, to involve the donor in the process of deciding who will occupy an endowed faculty chair. Another very effective method is to introduce donors personally to actual beneficiaries of their philanthropy (scholarship students, artists in residence, recipients of human services, etc.).

Once you’ve built a close working relationship with a major donor to endowment, and understand what his or her true “passions” are, you can then begin to work toward an “ultimate gift” or a lifetime giving plan—facilitating, with sufficient planning, the great philanthropic act for which he or she, deep down, truly wants to be remembered. In this context, don’t forget that naming opportunities (frequently utilized in capital campaigns) can raise the perceived value of a program element to a figure much higher than its actual cost!

You’ll want to revise your endowment plan regularly, based on your organization’s changing priorities, new opportunities, and progress to date. Over time, as your program elements attract more donors, your organization should begin to find that it can do more with its limited operating budget. You should also find yourself attracting more planned gifts which are both unexpected and undesignated. Although these gifts can become part of your general endowment fund, it’s better if they’re used not merely to support operations, but for a specific purpose—such as creating a reserve fund for future capital improvements.

Planned giving and endowment building are certainly among the most challenging areas in major-gift fund raising. With the right groundwork and the proper tools, however, they don’t have to be as daunting and difficult as they may seem. Ultimately, in fact, this enterprise is all about attracting the kind of gifts that will not only make a dramatic difference to the organization, but also provide the greatest satisfaction to donors. So it’s well worth the extra effort it may require!