08/05/2013 08:35 am ET Updated Oct 05, 2013

The Power of a Challenge Grant

Many arts organizations are now facing the same scenario: following the stock market crash of 2008 and the subsequent great recession, fundraising revenue has fallen precipitously and ticket sales have stagnated. As a result, boards across the nation (and the world) are convinced that the world has changed, funding will never regain past levels, and budgets must be cut severely.

This must be the reason why so many regional orchestras are seeking massive wage cuts from their musicians and why many other arts organizations are looking to reduce, reduce, reduce.

Anyone who has read my writing before knows I think this is a recipe for disaster for these organizations and for the arts ecology in general.

I also think the logic is flawed.

The stock market is at record levels, most arts donors never saw their incomes fall or lost their jobs, and those arts organizations that have continued to do great work and market well are doing just fine, thank you. The organizations that have yet to recover are the ones which have tried to "save their way to health." They have pruned budgets so far and so often that they are no longer the dynamic institutions they were before the recession.

So what to do?

First, these organizations must change their mindsets immediately. They must plan the exciting projects that get people talking about them again. They must reenter the conversation.

But they must also find the resources to pay for these new projects.

My favorite technique for jumpstarting fundraising is a special challenge grant. I ask one or several of my best donors to guarantee their gifts for a period of three to five years. I then ask that this pledge take the form of a challenge grant that must be matched with new and increased gifts. This provides the impetus, and the confidence, for organizations to pursue fundraising with more vigor.

I came upon this approach by accident. When I arrived at American Ballet Theatre we were drowning in debt (over $5 million of it). I asked Chairman Peter Joseph, who was also our biggest donor, to guarantee five years of his annual pledge of $1 million. I announced this $5 million Peter T. Joseph Challenge, which astonished my board and donor base and did not cost Peter any more money than he would have given us anyway. And we matched the entire amount with new gifts and increased gifts from existing donors in less than two years, thereby eliminating the entire deficit of the organization and funding many new artistic and educational initiatives.

Turning around arts organizations is mostly about changing the psychology of an organization. If we can get people who are closest to us to believe in our work and proceed with confidence, we can find the resources we need. (After all, for most organizations, the amount of extra money we need to raise to return to health is rather modest.)

A major challenge grant is one easy to implement tool for inspiring excitement and hope.