Shareholding in Nonprofits Should Not Be Allowed … NOT!

A basic and fundamental component of nonprofit law prohibits private ownership interest in a nonprofit business. Since a nonprofit operates for the common good and is given tax exemptions, personal financial return is prohibited by law. This law needs to be modified. Granted, much is required for this to happen. However, denying a nonprofit the means to raise capital via shareholder interest keeps this sector from innovation and significant growth.

Nonprofits struggle to secure important capital to build and maintain their business.  This is why most nonprofits operate with a limited vision for the future and more hand-to-mouth.  However, there are ways to allow donors to be more like investors without totally wiping out the purpose, tax exempt component or charitable deduction element of the sector. For example, one idea suggested is to create a “charitable stock instrument” linked to a nonprofit’s charitable outcomes, resulting in a variable charitable deduction for the donor/investor. Returns for share holders can be based on a nonprofit’s outcomes and expressed either in variable tax deductions or in tax credits. The timing of these deductions/credits can also be variable and expedited through a trading marketplace which will create an ongoing revenue stream for nonprofits. As with the for-profit sector a trading infrastructure will develop with appropriate rules, regulation, and oversight to direct this marketplace. The result will be an increase in revenue and funds to assist nonprofit’s in addressing the unmet needs of society for which the sector was created. Additionally added funds will also create innovation and risk-taking in developing programs, a much needed business practice in the sector. 

Connecting a donor’s stock purchase with potential  charitable return will heighten the business operations and effectiveness of nonprofits. The stock holder will be more intimately connected and focused on the performance of the nonprofit in achieving its outcomes. A whole new economic market will also be created adding untold jobs and tax revenues to the economy. It’s time to get serious about the nonprofit business sector and to raise the bar on its efficiency, operations, and outcomes. Providing a means of capital creation through a modified form of stock interest will not hurt the sector but in fact make it better and stronger.

JRR

Nonprofits Should Focus on People Not Numbers … NOT!!!

Peter Drucker, consider by many the father of business management noted, “What gets measured gets managed.”  Most industries have taken advantage of the computation ability acquired in the digital age to collect, aggregate, and analyze data to measure and manage operations. Unfortunately most nonprofit businesses have been slow to do so. Some estimates are that less than 3% of nonprofits use data to analyze and direct their operations. There are many reasons for this low adoption percentage. A primary one,  pointed out regularly in this blog, is the attitude within the nonprofit sector that nonprofits do not operate as a business similar to organizations in the for-profit sector. Add to this the historic nonprofit development cycle as local, voluntary-driven entities and the idea of using numerical metrics to guide decisions, resource allocation, and behavior seems antithetical to their organizational origins. Alas this reticence or lack of recognition in using data to measure and direct nonprofit activity has created a very inefficient sector. Further by failing to make the most of available data nonprofits are undermining their impact and devaluing the human element of their mission. Quantifying and using data to improve impact enhances the important mission of nonprofits as person-centered organizations. Indeed the failure to use data to drive behavior results in a lack of innovation in improving service delivery, staff turnover, and poor donor care. All these are key human-centered elements in a nonprofit’s activity.

The fact that nonprofits are working to meet unmet human need due to challenging economic return and vexing social problems requires that nonprofits raise the bar on making sure that dollars spent have the greatest impact. Efficiency is a must. This requires smart management. And as Peter Drucker pointed out management requires measurable elements to manage effectively. Otherwise resources are allocated based on instinct, guess, or the desires of the HiPPO (Highest Paid Person’s Opinion). Nonprofits must face the fact that if they are truly committed to making the most of donor’s gifts and also provide maximum service delivery they must be managed optimally. This means establishing a system to track and document performance and to use the data in proactive ways. Anything less is a waste of resources and a devaluation of the donor’s gift and the nonprofit’s product or service. You can’t manage what you do not measure.

 

JRR

If Only Everyone Would Donate $10 We Can Meet Our Fundraising Goal … NOT

We have a $1000 goal. If only everyone would give $10 we can meet this goal!” I call this fantasy fundraising. Anyone one who has been involved in fundraising has heard this strategy voiced. You may have felt it at one time or another. It’s natural. If everyone would pitch in it would be much easier to raise the funds needed. But alas this is faulty thinking and not based in reality. It’s fantasy fundraising.

This view is worth unpacking as a means of understanding the nature of human choice and values in economic behavior especially as it relates to the nonprofit fundraising. Using math as a guiding principle one can say if a nonprofit business  had a goal of raising $100 and could get 100 donors to each give one dollar it would meet this goal. However what happens when one of the 100 potential donors does not give? When this happens the remaining donors have to make up the difference. Thus one non-donor changes the allocation needed from the remaining 99 donors to reach the goal. With each non-donor the donor apportionment increases. The unstated fact in this fundraising strategy is revealed by the “If only” modifier in the phrase “If only everyone would donate…”. This modifier points to elements which effect our economic behavior and the reveals the faulty thinking with this strategy.

There are at least two elements that effect and drive our economic behavior. One  external  and the other internal. Externally, our economic behavior operates in the context of a free market system. An underlying and important principle of this free market system is that individuals can acquire and expend their capital or money according to personal choice (with of course certain legal and social limitations).  Adding to this freedom of choice is an internal element: the values which drive our acquisitions and expenditures. Most of our capital accumulation and expenditures are guided by what we consider important. These choices are limited only by  social and psychological conditions which may restrict the degree to which we are able to pursue our choices and values. While we have a basic need for food, clothing and shelter the amount of capital or money we expend for each of these is determined not only by the amount of money we have but also by our values. Some will spend $15 for a hamburger while others will think it frivolous or ridiculous to pay for something you can get for 99 cents at McDonalds. Others are willing to pay $289 for a pair of dress pants. Others no more than $20. Do you shop for clothes at Brooks Brothers or TJ Max? Either way you get the point. This freedom and diversity of values means that we are all driven by economic equations which are not necessarily the same.

Fantasy fundraising assumes that everyone similarly values a specific nonprofit goal or mission. It is faulty thinking. This assumption does not match reality. Those who espouse this view are in fact projecting onto others their values. A strategy expecting others to give equally to the same charitable purpose violates the fundamental nature of our economic behavior. Such thinking assumes that others value the same economic/social end as you do. It further restricts their personal power of economic choice. Few like to be told what to do especially with their money.

Furthermore, a strategy to ask everyone to give at the same level doesn’t merely limit the idea and feeling of personal power. It also limits the potential amount which can be raised. Why? Because amongst the 100 you are asking for a one dollar donation there exists not just some who do not value the end for which you are asking them to donate. There also exists among these potential donors some who value the need to be met and have the capacity to give not merely one dollar but much more. This fantasy fundraising strategy fails on all fronts. You receive nothing from those who will not or cannot give no matter what your purpose and you receive far less from those who can give more! Bad thinking, bad strategy, bad results.

A better strategy is to match the values related to this need with the values and capacity to give amongst your donors or potential donors. In so doing  you honor a donor’s economic freedom by inviting them to donate according to their values and capacity. By employing this strategy those who can give will give at their highest personal return and those who cannot will be able to say no without feeling unduly pressured to give contrary to their capacity or values. You don’t lose them as supporters but merely as current donors. It’s a win-win strategy. Most importantly a need will be met through the creative value-driven exchange which is a defining aspect of the nonprofit enterprise. Reality not phantasy needs  to guide fundraising strategy.

JRR

 

 

 

 

Nonprofits Should Not Advertise … NOT!!!

The notion that nonprofits should not expend resources on marketing and advertising is a common view held by the public. Its origin lies in the misguided notion that nonprofits are somehow not in business. As I point out in another Nonprofit … Not! blog nonprofits are indeed in business and furthermore operate in a very competitive business environment. Every business must promote its services if it wants to maintain and increase market share.  Securing financial contributions and donations to support a nonprofit’s mission requires providing current and potential supporters with strategic, timely and interest-grabbing information. Nonprofit businesses must invest in marketing and advertising if they wish to maximize their impact.

Why does a nonprofit business need to market and advertise? Marketing and advertising informs donors, prospective supporters, and program beneficiaries about its products and services. Marketing and advertising attempts to convey to stakeholders that the product and services provided are the best in the market. Most significantly, advertising seeks to stimulate a desire to support the nonprofit’s product or service. As economist John Kenneth Galbraith noted almost a half a century ago challenging the conventional wisdom regarding the locus of consumer behavior, advertising stimulates demand. That is, it is not merely the wants and desires generated by the consumer that act as a primary operating element in the demand for goods and services. Advertising and marketing itself generates consumer demand for a product or service. All one needs to do is to take a look around the home or office at the multitude of unused, rarely used, or misfit purchased products to recognize this truth!  It was not enough for Apple to developed the iPad. In order to get the iPad into the consumer’s hand Apple had to stimulate in the consumer’s mind the need for the iPad. Apple utilizes advertising and marketing to stimulate this desire and influence demand.

Any business, for-profit or nonprofit, limits its success if it offers a competitive product or service but fails to create a marketing campaign to inform and form the public’s need for their products. It’s like building a highly engineered, powerful race car and keeping it parked in the garage. Nonprofits must convey to the public the values behind their services and convince the public that supporting its mission will satisfy their interest and values. Developing  a  strategy  to  communicate  a  nonprofit’s   value-match with potential donors via various marketing mediums will increase support and mission impact. This requirement is essential in the current  information age where the public is inundated with messages. Indeed, in today’s information age competition for support is fierce and competition to get a businesses’ message to the public is more challenging than ever before.

Typically what holds nonprofits back from investing in advertising is not just the misperception that a nonprofit is not a business similar to a for-profit business. Additionally, lack of advertising investment is due to a reticence that dollars spent on advertising are unconnected to the delivery of service. This is a misguided notion along with the same thinking that views fundraising and administration overhead as unrelated to mission delivery. These views undermine a nonprofit’s ability to achieve maximum impact. If a nonprofit’s mission is about delivering important and fundamental human gain it must use every effective and responsible means possible to achieve this goal. This includes smart marketing and advertising campaigns to help secure support for its mission and impact. Anything less diminishes its mission and inhibits its capacity to increase and maintain its impact. Its leaving the race car in the garage!

 

JRR

Fundraising Events Are The Best Way to Raise Support … NOT!!!

I‘ve got another fundraising event tonight!” a nonprofit leader exhaled with an attitude of exasperation. Anyone who has worked or heavily volunteered in the nonprofit sector can relate to this attitude. Given the number of nonprofits that operate in most communities one can probably attend a nonprofit fundraising event 365 days of the year! Yet most fundraising events actually net very little net return when compared to other forms of fundraising (annual fund, major gifts, direct mail, planned giving, grants). Which makes us ask why are so many nonprofits are on the event treadmill? The answer is really quite simple. More often than not nonprofits hold events to fulfill the relational return nonprofit’s and their stakeholder community need to affirm their purpose. They serve as social, relational moments that broadcast and highlight a nonprofit’s reason to be. However planned alone, and in isolation from an overall development plan, events can be very inefficient practices in fundraising. Many nonprofit leaders will confess they would celebrate the day when their organization had no fundraising events on the calendar. But most nonprofits have tied their program year to events and find it hard to let go of events. Even those events which actually operate at a loss.

Events can serve a higher goal. The key is for events to fit-in with and serve the overall development purpose. Let’s put this in context. The purpose of development is to establish value-driven relationships between an organization, its donors and recipients of its service. This is measured monetarily in a number of ways but most importantly by the impact dollars raised has on program outcomes.  Results are also measured by the return on dollars raised compared to the costs required in any specific development activity (direct mail, annual giving, major gifts, events, etc … ). Events, unrelated from all the other fundraising activities, provide very minimal financial return. Indeed, given the costly nature of most events in terms of actual dollars and staff/volunteer resources expended, to hold an event that is not integrated into the overall development program can be wasteful. Unless you perceive the event as marketing. If so, it should be measured with appropriate metrics used to determine the efficacy of marketing efforts.

So how do you value events in the development program? First, by placing the event in the appropriate steps of the development cycle. This classic cycle is identification, qualification, cultivation, solicitation, and stewardship. All events and their costs should be weighted against each of these steps. Are you holding the event to identify and acquire new donors? Are you using the event to cultivate future donors? Are you holding the event to thank and show appreciation to existing donors? Are you doing all three? If so, then the organization needs to be measuring these objectives to determine an event’s effectiveness. However, short of an organization whose development program is totally centralized or scalable around events such as performing arts organizations, events are costly and provide limited return compared to  most other fundraising activities.

So the next time your nonprofit Board proposes an event you should ask how does this fit into the development program’s major steps and key activities? How will you measure its effectiveness beyond the net dollars raised? Bottom line: what is the objective of the event? Additionally, what are the opportunity costs? Meaning is there better use of our staff and volunteer resources in achieving our mission than this event?

Events, if done properly can be useful in furthering the mission of the nonprofit. If not they become an “I’ve got to attend another fundraising event!” moment. Costly, with little impact on mission.

JRR

 

 

To Raise Money We Just Need to Hire a Good Fundraiser … NOT!!!

I cannot count how many times I have heard nonprofit volunteers and staff exclaim, “What we need is to hire a good fundraiser to meet our budget!” This view is what I call the Sir/Lady AskALot fundraising strategy. The thinking behind the Sir/Lady AskALot strategy is, “Let’s hire a fundraiser who because of their personality will ask a lot and thus raise more money.”  This seems to be an omnipresent strategy in the nonprofit sector. When asked the specific criteria regarding what makes an individual a good fundraiser few agree on the determining factors. A persistent answer refers to relational and social characteristics and the expectation that the fundraiser will boldly ask where no one has asked before.

The Sir/Lady AskALot thinking is a costly and failed strategy. How costly? The current development hire only lasts on average less than 24 months.  Sadly this is about the average minimal time it takes most professional employees to get comfortable and effective in their position. It certainly takes at least this amount of time for effectiveness in fundraising positions which depend heavily on consistent program and relationship development. This short window of employment is a very costly to an organization. One report estimates that the costs to find a replacement is over $127,000 per hire.

This failure is not the result of bad hires but bad systems.  The expectation is that the Sir/Lady AskALot strategy will be a quick and simple fix to meet budget needs. Unfortunately meeting these budget needs are typically the result of deeper, more fundamental organizational problems and challenges.

The Sir/Lady AskALot strategy is guided by delusional thinking. Delusional because in spite of the costly results this strategy continues to be repeated again and again. Organizations keep tossing the dice hoping for the lucky win instead of addressing the deeper organizational issues related to their funding need.

The Sir/Lady AskALot strategy primarily fails because successful fundraising is NOT the result of an individual’s personality, skills, and experiences.  Success derives from the organization’s culture, plan, mission and impact. An individual is only as effective as the organization. Being good with people, a great asker, and good communicator is not the determining factors in ongoing fundraising success.

Over the years I have been involved in helping organizations secure support for millions of dollars. None of these dollars donated, I repeat not one single dollar, was the result of merely my effort, personality, skills, or experience. I am not being falsely modest. I am being truthful.

The fact is any fundraising system that asks for support will raise some funds. But the important question is “How effective is the system?” A successful fundraising system is effective if it demonstrates positive sustainable results which supports program impact. In a successful fundraising organization positive results occur no matter who fills the fundraising position(s).

At best organizations that follow the Sir/Lady AskALot strategy will experience episodic results. However, sustainable success occurs when nonprofit organizations integrate philanthropy into its overall culture. This is not to downplay the importance of leadership. Or the role that knowledge, skills and personality have in organizational success. Rather it highlights the fact that success is the result of an organizational system which drives the entire business.

What is an organizational system which supports fundraising? Minimally it is a business system guided by:

  • A value-infused mission that drives behavior,
  • A learning organization which uses solid data and ongoing analysis to maintain and improve outcomes,  and
  • A consistent alignment of  its organizational values throughout the entire structure.

Individuals alone cannot create or sustain this success by using the Sir/Lady AskALot strategy. The Sir AskALot strategy is rolling the dice in a rigged game. The odds of consistent success are low and very costly. 

Giving up this strategy requires more than changing hiring practices. It requires addressing  basics. This means recognizing that the goal of a nonprofit development program is to create a robust, consistent, sustainable fundraising strategy aligned with organizational values. Alignment in which the structure is infused with values committed to philanthropy as an important means of meeting the organization’s values.  If this alignment does not exist then no strategy or tactic will create sustainable success.

Management consultant Peter Drucker is loosely noted to have expressed the phrase  “Culture eats strategy for breakfast.” That is, the best fundraising strategy will die on the office shelf without a belief in the important role that fundraising serves in the organization. It will fail because it does not connect fundraising to the organization’s mission and values. Without this cultural alignment the fundraising task will be perceived as instrumental to the organization rather than fundamental to its cause.

Establishing and maintaining cultural alignment is number one on the essential to-do list required if the nonprofit sector wants to increase its impact. When nonprofit leaders, development professionals, and donors commit to this cultural alignment effective outcomes will result. Donors serve an important role by demanding that their gifts will be connected to the outcomes they value. Nonprofit leadership, especially development professionals and CEOs, must educate and train boards, volunteers, the general public, and program staff to value the fundraising enterprise as an integral component to the organization’s value-driven purpose.

Unfortunately, without these changes nonprofits will continue to limp along, rolling the dice, hoping that some great Sir/Lady AskALot will be the next fundraising messiah who will deliver them from their episodic fundraising woes. Given the faulty basis of this strategy the best I can say regarding this tactic is: “Good luck!”

JRR

Donors Basically Donate For the Same Reason … NOT!!!

Recently a nonprofit leader expressed anxiety regarding a decrease in donations. When I asked what he thought the problem might be his response was “If we did a better job letting donors know what we need we would have more success in fundraising!” A typical answer. Certainly this is a helpful communication point with donors. But believing that communicating organizational need will significantly enhance fundraising will not guarantee success. Why? Because the communication focuses on the nonprofits’s needs and not the donor’s interests. Fundraising success requires a focus on donor’s desires and interests.

As a caveat regarding this point we must dispel any idea that donors as a group will be motivated to give because of one specific factor. This simplifies the fundraising task by objectifying donors and reducing them into a caricature.  Donors are, like all people, unique individuals. Each person’s background, personality and interests are a mixture of intrinsic and extrinsic social and psychological factors. They donate for a multitude of reasons and often these reasons can change.

Given the multivariate nature of donor motivation the best one can say regarding donor motivation is that donor’s charitable behavior is typically the result of their values. Values are quite simply what one considers or believes is important. And it is not merely our words but also our behavior which are the best indication of our values. Therefore sensitivity to a donor’s charitable drive requires nonprofits to first clarify what donor’s value. Why? Because in the nonprofit/donor transaction the donor typically gives (an action) in exchange for positive personal, social, and psychological return (a mental/emotional state). The act of giving and the return desired is connected to a donor’s values.  Values drive their behavior and behavior affirms their values. This personal “exchange channel” requires that nonprofits listen and observe carefully their donors and their donor community. By listening and observing a nonprofit can discover what donors value. The task then becomes connecting the donor’s values with the nonprofit’s values. Of course this strategy implies a nonprofit must:

  • Understand what its values are,
  • Use value-based language in its fundraising work,
  • Accept the fact that not all donor’s values will mesh with the nonprofit’s values, and
  • Recognize that a single issue cookie-cutter strategy rarely achieves maximum effectiveness in securing support.

Finally because donors give out of a mixture of values their giving is not always the result of one specific value. For example, a donor may give because she values belonging and justice. Her gift helps affirm, intellectually and emotionally, her values. Making sure this donor feels personally connected to your organization and is furthering justice through her gift is vital in helping fulfill these values. However this may differ for other donor’s.

The bottom line: If a nonprofit wants to increase its fundraising efficiency it must have clarity regarding its values and develop a fundraising strategy that maximally matches its values with its donor’s values.  This is the core task and responsibility of nonprofit fundraising. This helps achieve the nonprofit’s business purpose — meeting unmet human need by maximizing an effective value exchange between  their organization’s clients and donors.

JRR

 

 

Chartable Giving Is Increasing…NOT!!!

This sadly is not true. While press reports may communicate that total charitable giving has increased over the previous measured period this is only the result of the growing US population and income. But when measured as a part of the US economy’s total expenditures the percentage of charitable giving has stayed the same over the last half century. Gross domestic product (GDP) is the standard economic measure used to determine expenditures and output. This measure includes consumer spending. Charitable giving has consistently hovered at 2% of GDP. The fraction of income we give away has not increased.

Over this time period however the number of nonprofits has grown dramatically. By the end of the 1960s there were approximately 132,000 nonprofit organizations registered with the IRS. As of 2016 there are over 1.5 million tax exempt organizations registered as nonprofits. Over 86,000 were added in 2015, and almost 80,000 in 2016. Indeed, since the 1980s the number of registered nonprofits has grown almost tenfold! The 1.5 million number does not include the great majority of religious congregations, approximately 350,000, and nonprofits with less than $5,000 in revenue. Neither of these two categories are required to file tax returns and/or register with the IRS.

The bottom line: Increased demand for donations is competing for a static percentage of giving to the nonprofit sector. Bottom-bottom line: To increase market share the nonprofit sector must change the way it does business including more investment in marketing, more innovation, better fundraising education and training, and a focus on impacts/outcome as an important component of effectiveness. Nonprofits need to operate as a businesses including changing many of the misperceptions about the sector found in this blog.

JRR

Nonprofits Are Not In A Competitive Business Environment…NOT!!!

Recently the director of a local hunger nonprofit apologized when she let slip her dissatisfaction regarding the fundraising success of another local nonprofit hunger agency. Although her organization is competing for donors somehow she deemed it inappropriate to view this other nonprofit as a competitor. Often such a view results from a misperception that a nonprofit is not in business. It is! Nonprofits are businesses and need to stimulate a healthy competitive spirit when it comes to achieving their mission. 

In the for-profit business sector there is nothing wrong with competition. Indeed, competition is considered healthy. The competitive drive is less prevelant among nonprofit organizations. Often a competitive attitude is considered contrary to the sector’s purpose. Yet one must ask since all nonprofit’s have a mission of doing good shouldn’t each want nothing but the maximum impact? Without wishing failure on other organizations the fact is nonprofits are in the fundraising business and are competing for support.  Given limited resources not every organization is going to gain an equal share of these resources. So striving to be the best is achieved by fostering healthy competitive attitudes and behaviors in the nonprofit business to help reach its business objectives and goals. Striving to be the best needs to undergird all nonprofit action from acquiring donors to service/product delivery.

Again if a nonprofit believes its business objective is important and makes a difference in the world why wouldn’t it want to be the best at what it provides!  In the for-profit sector a local pizza restauranteur wants to provide better pizza and service to its customers than the shop around the corner. Don’t you think every time a Domino’s pizza delivery vehicle passes by the window of a Papa John’s the Papa John’s franchise owner doesn’t feel a little irritated this was not one of his or her deliveries? You bet he or she does! Nonprofit’s need to hold similar views. Each is competing in a marketplace to secure limited and important resources to produce their product or service. A similar competitive attitude is especially important in the nonprofit sector since the demand for donor dollars increases every year in the sector.  It is naive and limiting to operate otherwise.

Nonprofits who instill a healthy competitive attitude in their professional staff and volunteers will gain an edge on other nonprofits since most nonprofits do not take advantage of this important organizational variable. Sadly, many nonprofits organizations are just showing up for the ball game, accepting that they are not playoff contenders, not believing they are operating in a competitive environment. Some believe that doing good precludes operating with a competitive spirit (Doing Good is What Really Matters … Not!). This behavior undermines success. I say don’t get in the game if you do not want to do your best!

A competitive business spirit among nonprofits will result in better outcomes and a more efficient delivery of services within the sector. The market will reward those organizations who do better. And a more efficient exchange of goods and services will increase the sector’s impact.  This is required if the nonprofit business sector wishes to fulfill its important role in meeting human need.

JRR

Volunteers Must Not Be Treated Like Professional Staff … NOT!!!

Recently a nonprofit colleague commented on a volunteer who was not delivering on their commitment.  Time was being spent dealing with the volunteer’s poor performance, or lack thereof, resulting in lost production.  This situation is very common in the nonprofit world. However, the case is not that unproductive volunteers are wasting valuable nonprofit resources. Rather valuable volunteer resources are being wasted by nonprofits!

The nonprofit sector owes a tremendous credit to volunteer contribution. Indeed, most nonprofits are started due to the driving spirit and effort of volunteers. Many nonprofits still depend heavily on volunteers to deliver and achieve their goals. A recent dollar value of volunteer’s contributed services in the nonprofit sector was estimated at over $193 billion! A significant amount.

Volunteer contribution is a double-edged sword. Without diminishing the important role of volunteers a nonprofit eventually must professionalize if it wants to increase impact. By needing to professionalize I mean growing nonprofits require full-time experienced staff to direct operations. I also mean nonprofits need to view and manage volunteers professionally. The bar must be raised on what is expected from volunteers and on the management of volunteers. This includes respecting and treating volunteers with the same intention as the organization cares for professional staff. 

Unfortunately all to often in the quest, or shall I say panic, to recruit volunteers nonprofits are not fully upfront regarding the contribution needed. What perspective guides this behavior?  Typically there exists the attitude that since the volunteer is freely donating and not being paid for their time or talents their commitment is more fragile than that of professional staff. Thus the nonprofit soft sells the actual commitment required due to the fear that revealing too much would overwhelm the prospective, non-paid volunteer.

Some nonprofits recruit volunteers like AmWay in years past recruited prospects. AmWay’s strategy was to invite prospects to a home gathering with friends and not reveal the real purpose of the meeting. The real purpose of the meeting was to recruit the invitee to be an AmWay distributor.  Similarly, fearing a “no” answer to the ask, nonprofits often resort to a watered-down recruitment strategy. Indeed, there is often an apology in the nonprofit’s volunteer ask.  The essence of this ask is kind of  like, “We need your help but if you say yes we won’t require too much of you since you are ‘just a volunteer’.”  This perception of volunteers diminishes their role and contribution. Nonprofits that recruit volunteers with this attitude subtlety and sadly lower their expectations of the volunteer’s contributions. The result is lost production, misspent resources, and mission compromise.

What is required is a change in the recruitment, training, and management of volunteers. A few changes include:

  • Full Disclosure – A prospective volunteer should be told all that is required and  expected to fill a position. This includes full disclosure regarding a volunteer’s time commitment since this is the core opportunity cost metric by which most volunteers value their commitment.
  • Clarity – Volunteers should be recruited to fill “job” positions with specific expectations and requirements. Calling these roles jobs clarifies their contribution.
  • Compensation – Volunteers should be compensated just like professional staff. The only difference is the medium and type of exchange. Volunteer’s return are the affirmation of the values which directed each to offer their time and talents. A key is making sure there is a direct link between the job task, the mission, and their values. Helping the volunteer to see how his or her work is making a difference is the minimal payback expected for their contribution.
  • Planning – Boards and staff must not outpace their resources in their program planning.  All too often program plans do not budget the amount of volunteer staff jobs needed, including the resources required by professional staff in managing volunteer staff.
  • Performance Improvement – Like professional staff, volunteers can be given performance evaluations. As noted above, volunteers must be recruited with their specific talents in mind to fill a job position which helps achieve the mission of the nonprofit. If their participation is not specific how can their contribution be valued, measured, and connected to their mission and values? Adding an annual performance appraisal to a volunteer’s specific commitment will help create and maintain a common focus to their effort. It will also provide valuable feedback to the nonprofit staff and board regarding their work.

When nonprofits respect volunteers by treating them as valuable assets, like professional staff, production will become more effective and additional resources will be developed.

JRR

Return on Fundraising Investment (ROI) Is A Key Measure in Fundraising … NOT!!!

In my fundraising role I lived off the ROI measure for a good part of my nonprofit fundraising career. It was ROI, ROI, ROI when introducing, measuring, or reporting on the results of a campaign. But is ROI the best measure of success? No. Let me repeat this: NO! ROI measures efficiency only in regards to the fundraising campaign.  This is too narrow a measure in determining the impact of funds raised. 

The ROI measure looks at nonprofit fundraising income against the cost of acquiring donations. In this silo, based on the type of fundraising used, ROI results can be incredible especially when compared to for-profit returns. However just because a nonprofit raises a million dollars while only allocating costs of $200,000, a 400% ROI, does not truly reveal how effective a nonprofit is in its operations.

I won’t address the problem nonprofits have with cost accounting which effects this measure. I’ve done this elsewhere. See Fundraising and Overhead Costs Are A Good Measure of a Nonprofit’s Impact … Not!  Lets just assume we have a good grasp on revenues and expenses and focus on ROI as a measure in determining the effectiveness of funds raised. Consider two hypothetical nonprofits: A & B. Nonprofit A may tell you that it raised $100,000 and spent only $10,000 to acquire these dollars, a 900% return. Wow! Nonprofit B reports spending a whopping $500,000 and only raising $1,000,000 in funds, a 100% return. Not too impressive compared to nonprofit A. Didn’t nonprofit A do better? Not necessarily. This is because ROI does not measure the impact of the dollars raised. If it cost both oganizations $9 to serve a homeless meal then nonprofit A’s 900% ROI campaign raised enough funds to serve 10,000 meals. Nonprofit B’s 100% ROI raised enough funds to serve 55,555 meals! In fact, even if Nonprofit B’s cost of meals was $27 per meal, three times the cost of Nonprofit A’s meals, Nonprofit B would still serve over 18,500 meals, 85% more meals than Nonprofit A. Further if both organization’s operate with a 6% net profit margin on funds raised then nonprofit A would experience an incremental net profit of $6,000. Nonprofit B $60,000. Indeed Nonprofit B could operate at a meager .5% net profit on funds raised and still match Nonprofit B’s margin. So in terms of impact nonprofit B’s fundraising has had greater impact and effectiveness.

Using ROI alone to measure return severely limits an organization’s ability to gauge success. Marginal profit to deliver services are a better measure of effectiveness. This takes into account all the cost of production against total revenue to deliver the service.  Again the reason nonprofits focus so intently on ROI is because they fail to recognize they are in the business of delivering maximum marginal service at effective marginal profit.  So the important question to ask regarding a fundraising campaign is what impact the dollars raised will have on outcomes.

JRR

 

Doing Good is Really What Matters … NOT!!!

 

We’ve all heard the proverb: “The road to hell is paved with good intentions.” It is ascribed to a French saint from the 12th century, St. Bernard. So it’s been around a while. Having spent most of my career in the nonprofit sector I learned early on that good intentions and desires are admirable qualities. However, good intentions are only helpful if refracted into reasonable action which effectively meets a human need.

In my role as a nonprofit consultant I’ve met many wonderful well intention people dedicated to doing good. All of these nonprofit staff and volunteers operate with a sentimental assumption that because they were doing good the public should unequivocally support them in their effort. This passion and personal commitment is to be commended. However, this assumption behind the notion of doing good can limit the capacity to actually do good. This is because the desire and the act involves two distinct human qualities. One comes from the emotional and passionate part of our humanity (pathos). The other from the rational part of our humanity (logos). The two must come together in a careful balance for effective action. The passion to do good must use logic and reason to craft workable action and effective results. To paraphrase Ben Franklin “let passion drive you and reason hold the reins.” Indeed one of the many barriers to increasing the effectiveness of nonprofit organizations and many for-profit businesses is passion without reason holding the reins.

Wanting to do good, whether it is feeding a homeless person or opening a great French restaurant, requires more than good intentions or passionate desire. It requires innovative questioning and analysis of the need to be met. It requires determining what is needed to meet this need. And if this analysis leads to success the satisfaction from achieving this effort will far outweigh the emotions from the intent. So the desire to do good is actually really not what only matters. Rather what also matters is building a workable process which effectively meets the need which the good intention hopes to address. Otherwise the result will be failure or a host of negative unintended consequences creating a road to hell paved with good intentions.

JRR

All Nonprofits Are The Same … NOT!!!

 

Often we tend to group nonprofits into one category. This is a mistake. All nonprofits are not the same. The US nonprofit sector is defined by Federal tax legislation. The tax code lists a diverse mix of nonprofit organizations conducting economic and social activity within the US economy. This can include the local country club, Kiwanis club, credit union, hospital, nursing home, chamber of commerce, child care center, foundation, college, professional association, church, Elks Club, cemetery, and even insurance company. Indeed, the Federal tax code lists over 27 types of nonprofit entities. All receive special tax exemptions and all are part of the economy. That is, all are doing business. But as you may notice not all are in the same line of business. Each of these organizations by tax code, behavior and business subsector are distinctive.

Most of the nonprofits registered by the IRS, which is required by all nonprofit organizations to receive special tax treatment, are charitable nonprofits defined under section 501(c)3 of the Federal tax code. These 501(c)3 nonprofits comprise over 70% of all nonprofits. Typically, these nonprofit organizations are what most people think of when they hear or use the word “nonprofit” or “charity.” These are the organizations where donors can deduct their donations on their tax returns. Yet even within this category not all operate similarly.  Especially in terms of their source of revenue. For example, a nonprofit nursing home or hospital’s revenue derives mainly from fees charged to its users. The local soup kitchen or homeless shelter depend more heavily on donations to cover its cost of operation. All of the above mentioned nonprofits seek support but philanthropy impacts their outcomes differently.

Recognizing the diverse nature of nonprofits and the varied means by which they secure their revenue is important in how you view and judge a nonprofit organization. Not all require public fundraising to keep their doors open. Many operate more like a for-profit business in terms of revenue acquisition, salaries, overhead and administration, etcetera. Others like the local church or food pantry must make their “sales” revenue primarily via fundraising. Neither is better than the other. Philanthropy serves a role in both. So the next time you are approached by a nonprofit it helps to know what their product and outcomes are along with a breakdown in their revenue stream. Not all are the same.

JRR

 

 

Overhead and Fundraising Costs are a Good Measure of a Nonprofit’s Impact … NOT!!!

 

Recently I heard a nonprofit leader proudly report that his organization spent only 10% on overhead and fundraising. The rest of the organization’s costs went to program. We hear such reporting all the time. Not only from those in the nonprofit community but from the press and the public. It’s a pervasive communication. The focus on this measure needs to be corrected! This measure alone is a poor proxy for determining a particular nonprofit’s impact. Even the leaders from three of the nation’s nonprofit “watchdog” organizations dubbed it a myth to use this data to measure a nonprofit’s impact. You can find these expense allocations on any nonprofit’s 990 tax form. The IRS encourages this thinking by requiring nonprofit filers to divide their expenses into three categories: program, management and general, and fundraising.

We won’t delve deeply here into the fact that the numbers reported across the nonprofit sector on this form are anything but accurate. We know from comprehensive studies of nonprofit tax forms that, in spite of generally accepted accounting principles, nonprofits find it difficult to consistently parse their expenses into program, management and general, or fundraising. However, none of this really matters because the very concept itself fails to recognize what should be measured. The important measure is a nonprofit’s outcomes and impact.

It is not the process leading to the service or product which ultimately is important but the product or service itself. If I go into the local Apple store to buy the latest and greatest iPhone I don’t ask the salesperson how much Apple spent in the last fiscal year on management and sales (fundraising). I’m sure the salesperson would think I was being silly asking such a question. And correctly so. This metric is not a valid measure of the satisfaction I will receive from their product. What I want to know is will the iPhone do what Apple says it will do and what I want it to do.

Similarly in nonprofits, in spite of the fact that there is asymmetry in the economic exchange — the donor may or may not be the recipient of the service or product — what needs to be measured is impact. And the specific overhead and fundraising costs incurred by a nonprofit to produce its product in no way guarantees the quality of its impact. As in a for-profit business the quality of their product may or may not be determined by these expenditures. Typically success is measured by customer satisfaction, sales, margins, and maintaining or increasing market share. So too with a nonprofit. What donors should be asking is: Based on your organizational objectives, how well did you deliver? What was the volume and quality of your service? How satisfied are your customers (beneficiaries and donors)? Compared to other nonprofits in the region or sector how do you compare? Are you listening to the beneficiaries of your service to continually  improve your service? The list can go on. The point being the overhead and fundraising metric should go way down the list of measures used to determine a nonprofit’s impact. Indeed making this a guiding principle actually limits a nonprofit’s ability to achieve maximum return.

JRR

Nonprofit Work is More Meaningful Than For-Profit Work … NOT!!!

Recently I was commended for my work in the nonprofit sector. Often underlying these compliments is the notion that I was sacrificially answering some higher calling than a typical for-profit job.  These perceptions help neither the nonprofit or the for-profit effort. Whether you work in a for-profit daycare center or a nonprofit daycare center your job is equally important and beneficial to society. Whether you are a nurse in a nonprofit hospital or a for-profit hospital your care for patients in equally significant and important. Whether you manage a local soup kitchen or the local Denny’s you are providing a valuable service to society. The value and importance of one’s work is not defined by whether all the profits must be retained by the organization as in  the nonprofit’s case or retained by the owner(s) in the for-profit case. The clientele served by a nonprofit org or a for-profit org may be different. Or they may be the same. But at the end of the day the time, talents, and service provided are equally important.

Holding a higher view of work in the nonprofit sector as opposed to the for-profit sector handicaps the effectiveness of both workforces. In the nonprofit sector it helps perpetuate the notion and practice that the nonprofit organization’s staff should be paid less than similar jobs in the for-profit sector. This derives from the sacrificial notion of nonprofit work.  It propagates a “do with less” philosophy within nonprofits. In the for-profit sector it comparatively undermines the value of work done by its workforce. All work is important if it produces a good or service which meets societies’ needs. And all should be rewarded equally! The only difference is the type of business vehicle society has designed to meet these needs. One is the nonprofit organization, the other the private for-profit organization.  We need to reframe our views of both sectors by recognizing that both are conducting equally valuable business designed to meet societies’ needs.

JRR

 

Nonprofits Do Not Operate to Make a Profit … NOT!!!

An employee of a nonprofit recently expressed to me that he or she left the business sector to work in the nonprofit sector. The gist of his reason for the change was a desire to work in an environment that was less “business-like”. I didn’t ask for specific aspects of nonprofit work which was less business-like than work in a for-profit company. Mainly because I didn’t need too. A common misperception in the US work world is that nonprofit work is different from for-profit work. One of the reasons for this misperception is the very name given to organizations in the sector: “nonprofit”. Sadly, this title creates confusion regarding a nonprofit’s economic function.

So, let’s get this misperception out of the way from the start: Nonprofits are not nonprofits! Got it? To extrapolate: a nonprofit is about being profitable. Otherwise a nonprofit cannot consistently produce a quality product. The fundamental difference between a nonprofit’s net income and a for-profit’s net income is who owns these earnings. In the nonprofit’s case they are retained by the nonprofit. In the for-profit’s case they are available to specific persons (shareholders or partner/owners). However, both must make a profit to be, as accountants say, going concerns. Otherwise they are limited in their product quality and eventually become neither nonprofit or for-profit but out of business!

So, let’s drop this unnecessary ballast which we heave onto nonprofits. This ballast limits their effectiveness. Nonprofits are about making a profit. It will be a new day for the sector when in asking about a nonprofit’s impact the question includes a nonprofits … profits!

JRR