Charity auctions: Are they a fit for your nonprofit?

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This article was first published by our friends at CharityChannel and kindly shared by CEO, Stephen Nill. The article is by consultant, Abra Annes, and her bio follows the post.

In the realm of event-based fundraising for nonprofits, there are a lot of ways to raise funds. At the invitation of Stephen Nill, CEO at CharityChannel, I’ve been invited to talk honestly about the pros and cons of charity auctions.

As a professional charity auctioneer for six years, how could I resist such an invitation? In my view, when they’re done right, there’s no better way to engage donors in just one night than a fundraising auction.

My goal is to share what I have learned while also setting aside, at least for the “con” part, my natural predisposition in favor of this form of event fundraising. So, with that disclosure, let me dive in!

The Pros of Charity Auctions

Inspire Others to Give by Example

The number one reason for an auction is to inspire others to give. Public displays of philanthropy typically inspire others who have similar capacity to help.

When the formula of a charity event is just right, the energy and the feeling in the room can be contagious. You can’t recreate that energy outside of a fundraising event. The energy will draw out priceless new donors and champions of your cause.iacac-org

Build Valuable Connections with Existing Donors

Charity events are a great way to connect with your existing donors. Personal interactions with your donor base are incredibly valuable. Most organizations focus on their major donors and don’t get to connect with mid-sized donors. Events are the opportunity to connect with them face to face. These are the biggest advocates and champions of your cause.

Think of your charity event as the ultimate first date. Craft every detail so that potential donors fall in love with you and existing donors fall in love with you all over again.

A charity auction can be viewed, and in my view should be viewed, as a key opportunity to cultivate relationships with prospective donors that will lead to a later solicitation of significant individual charitable contributions far greater than what was contributed at the auction itself.

The Numbers Make Sense

Only have an event if you’re committed to covering the cost from ticket sales. That way, all fundraising activities that occur the day of your event go towards the charity directly, rather than paying for the event. Communicate this in the invitation by printing an asterisk next to the ticket price and clearly stating that the ticket price goes toward event costs only. Make it very clear on the invitation that the event is for fundraising.

A Great Way to Share Your Organization’s Vision

Visions are inspiring, and a charity auction is a powerful platform for sharing your organization’s vision. Most charities talk about their mission instead of their vision. Your vision is what impact your organization will have had in three, ten, or more years. These are bigger ideas, fantastical goals, and grand solutions that you hope to obtain.

When you share your vision with donors and invite them to help you achieve it, you create excitement. Excitement and momentum can catapult your event to the next level of attendance and donations.

The Cons of Charity Auctionsyoucaring-com

Charity auctions are not the right fundraising method for many nonprofits. Typically, they are expensive and always have some hidden costs.

They are also time intensive. Charity auctions, like most event fundraising, take an exorbitant amount of time to plan and are taxing on your team.

If you have a small development team that is already maxed out, a charity auction could put some members them over the edge. A common time for staff to quit is after a fundraising event.

They Are Expensive

Charity events take time, money, and energy, so make sure it’s worth before doing one. You want them to be impressive and memorable to the people that have donated and new potential donors. For many of the donors, this is a night out on the town, so make it awesome!

Details, Details

You’ll need a venue, a top AV system, invitations, centerpieces, and a kick-ass auctioneer. And that’s all before you even feed your guests.

Failure to account for staff time is the biggest mistake most development directors make when they create a budget. Most forget to create a line item for number of hours worked for each staff member, including admin, marketing staff, and the executive team.

The Space Is Crowded with Competition

Charity Auctions have become increasingly trendy. Schools, hospitals, churches, synagogues, and other nonprofits of all sizes are holding charity auctions. Due to their increased popularity, they’ve become trendy and there’s a lot of competition.

Face-to-Face Solicitations Have a Better ROI

Direct solicitation of individual donors for large gifts, assuming optimal cultivation over time, will raise considerably more for a nonprofit organization than will any event, including charity auctions.

The risk with a charity auction, as is typical of all events-based fundraising, is that the focus will be on the event itself to raise funds, while missing the important opportunity to cultivate the right individuals.

A Charity Auction Will Not Magically Solve All Your Fundraising Problemscollegebound-org

If you think that a charity auction will be the panacea for your organization’s issues, it won’t.

Charity auctions require a lot of behind the scenes prep work to be successful. You’ll need to fill the room with the right people, who have the capacity to give and the capacity to care. Getting the right people in the seats can be a full-time job.

To have a truly stellar charity auction, you will need to block your calendar for the entire week prior. After the auction, you will need at least one week to process all gifts and logistics.

Another large problem I see are organizations believing that hiring me or another auctioneer will just magically raise tons of cash. I wish this were true, but the only way to get donations at a charity auction is with a fully prepared event and audience. People who have come to dance, get dressed up, party, or just have dinner, usually will not donate.

Sure, part of my job as a consultant is to make the ask, but my real job is to inspire those in the room to dig deeper and care. To inspire people who came thinking they were going to donate $10,000, and get them to give $20,000. The true power of a skilled auctioneer is to not leave a dime on the table.

See also:

Major Gift Fundraising for Small Shops: How to Leverage Your Annual Fund in Only Five Hours per Week

Fundraising the SMART Way™: Predictable, Consistent Income Growth for Your Charity + Website

The Ask: How to Ask for Support for Your Nonprofit Cause, Creative Project or Business Venture

Image credits: iacac.org, roguewinterfest.org, youcaring.com, collegebound.org

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On the cusp of major change for nonprofits

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Special thanks to Thomas A. McLaughlin for this article. McLaughlin is the founder of the nonprofit-oriented consulting firm McLaughlin & Associates.   He is the author of ‘Streetsmart Financial Basics for Nonprofit Managers, 4th Edition (Wiley).  His email address is tamclaughlin@comcast.net. This article first appeared in The Nonprofit Times. 

Lately when we have been facilitating a group at a conference we have made a point of asking the following two seemingly unrelated questions:

How old are you?

At what age do you expect to retire?

Before we move on, answer the two questions above for yourself (in an actual session, responders are asked not to print their names).  Think about the answers your parents’ and your grandparents’ generations would have given to the questions.  If we were able to go back in time it would be a virtual certainty that your answers would look very different from those of your parents and grandparents had they grown up in the United States.

While we do not yet have enough responses to claim a statistically valid group, the outcomes to date are worth examining.  Here are the averages of the responses we’ve received:

How old are you? 56

At what age do you expect to retire? 70

If these results remain consistent, it confirms that we are nearing the cusp of a major change in nonprofit organizations (not to mention the rest of the economy).   And as our recent column on Gen X Leaders playbuzzsuggested, it won’t be business as usual as we near 2030, which seems to be the projected ‘average’ retirement year of our current 56 year olds.

Because the numbers of Baby Boomers born each year began to drop significantly in the early 60’s, the Gen X and Millennial generations will not come close to the Baby Boomers’ higher birth rates.   In fact, we
are already hearing about an unusual level of shortages of management candidates, not to mention a shortage of qualified Gen Xer CEO’s.  Even entry-level candidates seem scarcer now than ever before.

Nonprofit employee trends aren’t the only ones due for some changes.   Nonprofit entities themselves are another area where long-time patterns seem to be changing.  The chart below shows the numbers of active nonprofit public charities since the 80’s.  The sweep upward is unmistakable – until 2010, when the upward trajectory abruptly shrinks to about 2003 levels.

The pattern is probably not arbitrary.  In all likelihood, the recession that began in 2008 right after the Wall Street crash of 2007 had a tempering effect on the numbers of new nonprofits each year.  Organization creators that had already finished the application process and turned in their request for IRS approval may well have lengthened their intense startup phase, while other potential post-recession applicants for nonprofit status may have deliberately slowed their process in order to begin providing services once the economic conditions improved.  The recession may also have caused some to give up altogether.  Fortunately the upward trend appears to have resumed, although perhaps with less velocity.

Putting the Baby Boom into context reveals some hard-to-see advantages.  The biggest one is that the Boomers were the healthiest generation to reach retirement age.  Most of the Boomers reached full employment age at just about the time that hard physical labor began to decline as a major part of most jobs.  As a result, the Baby Boomers were the first
generation that didn’t have to work largely in the factories.   By the time that the first Boomers were ready to find permanent work, the factories had already begun migrating overseas.

As a result, the Boomers were the first generation in history to be able to work in non-physically stressful environments.   Improvements in health care, communications, education, and widespread motorized travel all contributed to far less physical decline than at any time in the previous two hundred years.

Overall Impactresearchimpactnetwork

Nothing brings as much pressure on a nonprofit organization as the lack of staff.   At the moment we infer from economic reports – and the firsthand observations of CEO’s and others – that the Boomers’ exits are already being felt on both ends of the generational spectrum.   Naturally the first shortage is likely to be felt in the executive ranks as those individuals either reach their preferred retirement age, or move on, but there are also staff shortages in direct care.

Fortunately there are a few sources of labor (and optimism), many of which relate to immigration.  For example, the Pew Charitable Trusts report that the foreign-born U.S. population grew 109% between 1990 and 2012 (the overall impact of immigration varies significantly in different parts of the United States).   Moreover, the Pew Charitable Trusts quote Census Bureau projections that net international immigration will be the major driver behind US population growth between 2027 and 2038.

What Can be Done

If the shortage of available employees follows the predicted trend lines above, it could affect virtually all nonprofits in the country.  A major part of the pressure will come from the fact that the birthrates of bothdhmh-maryland-gov the latter part of the Gen Xers’ generation and all of the Millennials’ generation are half that of the Boomers’, so today’s status quo will eventually feel more like the status squeezed.

If we are right about our analysis, this situation will evolve relatively slowly over a period of time, which should make it easier to accommodate but harder to recognize.  Start your strategy planning now so that it fits the circumstances before you feel the squeeze.  Here are some suggestions:

Re-Work Your Staffing Patterns slantimage

If you are feeling the pressure at the bottom of your workforce as well as at the top, it’s time to re-think your staffing patterns.  While we have no way of proving this, it would not be a surprise if your underlying
assumptions about direct care workers are still embedded in the 1980 to 2000 era.   And while you’re doing this, be sure to apply the same scrutiny to your assumptions about your senior-most executives.  Do you really need a CIO and his full staff now that you have that 24-hour technology company on call?

Re-Think Your Service Models seedshakers

If you don’t already know the year your nonprofit was founded, pull out your most recent IRS Form 990 and look exactly three inches below the word ‘income’ as in ‘Return of Organization Exempt  From Income Tax’.  You’ll find a box labeled ‘L’ and the words Year of Formation followed by the four digit year of your corporation’s founding.  If your organization was founded in the two or so decades since 1970 there is a chance that the organization is still at least partially grounded in that era.  That could mean that some of your service models are similarly aged.    

Consider a Merger

One way to accommodate the realities of the 21st century is to grow your scale.  The combination of declining birth rates (labor) and steady needs for service (aging clients with longer lifespans) will put pressure on many nonprofits.   Lately we have detected less instinctive opposition to mergers than had been true in the past, suggesting that this opposition might lessen.  The advantage of larger scale operations run correctly is that the resulting efficiencies – one ‘back room’, one Human Resources department, etc. – can strengthen the entire organization.

Today’s U.S. economy has never had aging baby boomers like we see today, nor a 50% drop in birthrates.   Navigating the next two or three decades will force many nonprofits to change their models and to try different approaches.   Being wanted will be just part of the terrain.

See book summaries related to this topic:

Nonprofit Mergers and Alliances by Thomas McLaughlin

Fundraising and the Next Generation: Tools for Engaging the Next Generation of Philanthropists

Working Across Generations: Defining the Future of Nonprofit Leadership

Cause for Change: The Why and How of Nonprofit Millennial Engagement

Image credits: researchimpactnetwork, dhmh.maryland.gov, slantimage, seedshakers, and playbuzz

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The worst of economic times brought out the best in nonprofits

“A crisis is a terrible thing to waste,” American economist and NYU professor Paul Romer was credited for saying in 2004. His sentiment, unfortunately, is appropriate again today as nonprofits throughout the sector learn from tough decisions that help them recover from the Great Recession and what we are now seeing will likely be dubbed, “The Great Correction.”

Many of you are familiar with the notion that negative news often gets repeated more often than positive news. This post is an effort to tip the scales toward encouraging information I recently read in The Chronicle of Philanthropy: “How Recession-Racked Charities Emerged Stronger Than Before.”

Paul Romer would be pleased to learn the nonprofit sector did not waste the Great Recession. They’re making good use of it and demonstrating impressive resolve. “Hopeful lessons” are shared in the Chronicle article, and one in particular involves Voices for Children. Voices is a nonprofit dedicated to providing every foster child in San Diego County with a volunteer court advocate.

Voices for Children

After laying off a quarter of the staff, the board resigned itself to the fact that it would have to scrap its ambitious fundraising goal set years earlier and rebuild by stepping up with its own members and setting up a skeletal development shop. The executive director courted and hired a seasoned development director from the arts arena and paid the fundraiser more than anyone else. Today the budget is approaching $6 million, double the amount of its pre-recession budget. Payroll has reached 73 employees. Voices is now in a better financial position and perhaps better equipped to handle the next economic downturn.

Administrative and space collaborations

Stronger nonprofits have also resulted from collaboratives to share space and administrative resources. For example, in Denver, international development nonprofits renovated a 19th-century horse and trolley barn, which they call the Posner Center. The Center is a 25,000-square-foot space that now houses 60 nonprofits. According to the Chronicle, “The Center recently awarded $60,000 in grants to fund partnerships among its tenants, including one between Engineers Without Borders and a group that builds footbridges in Guatemala.”

Built to last

In a related article, “Bold Choices in Dark Times,” St. Louis Opera general director Timothy O’Leary was faced with collecting promised pledges on the day the stock market crashed. The donors told him they needed to “trim” their major gift commitments. O’Leary reported, “The difference [between pledges and fulfillments] was not unsubstantial.”

On the heels of these discouraging donor visits, O’Leary, the new board chair and artistic director, set to work creating a long-term strategic plan that would weather a long economic crisis. While other arts organizations were reducing schedules and turning to crowd-pleasing classics, the St. Louis opera committed to commissioning new and creative work. O’Leary was convinced new and exciting material would compel loyal patrons to return and support the opera.

“The downturn hit the opera’s corporate sponsorships the hardest, and revenue slipped further when the company reduced its draw from its $16.5-million endowment. To compensate, it froze salaries, suspended staff 401(k) contributions, and renegotiated deals with its unions. Yet as the opera rallied donors around its commitment to risk-taking productions, individual giving climbed — gradually at first, and then 21 percent in 2011.”

In 2013, a commitment to innovation and collaboration paid off with an unprecedented debut of “Champion,” which generated more ticket sales than any other production in the history of the St. Louis opera. “Champion” was named a finalist for international opera of the year. Today, the endowment is now topping $28 million.

Always in crisis

With the Great Recession over and a market correction that hopefully will be fleeting, it might be tempting to try risky ventures or allow yourself some wiggle room with financials. Perhaps the lesson here is that nonprofits should act as if they’re always preparing for a crisis. Look for ways to work smarter and leaner and focus on what’s working and core competencies. If you’re interested in engaging in financial forecasting or looking at different scenarios, consider contacting us at Execute Now! where we can help you assemble a financial plan you can feel confident about following.

Image credits: nonprofitcenters.org, urpe.wordpress.com, nytimes.com

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Nonprofit technology doesn’t need to be a burden

There are co-ops for everything from farmers to food merchants, and many have existed for decades or longer.  So why not technology cooperatives for nonprofits ?

The simple response to this question is – there already are technology co-ops.  Sort of.  Large hospitals and universities have been quietly operating technology-oriented co-ops for decades.  Not far from where this is being penned there is a substantial cooperative whose members are nonprofits such as hospitals, universities, colleges, a health insurer and a private high school.  What they have in common is that all or a large percentage of each of their operations are within the area served by the co-operative.  This mutual proximity doubtlessly made it easier to initiate and cheaper to run the co-op, a lesson we should apply to other similar ventures.

The institutions that belong to the co-op are mostly large, highly sophisticated nonprofits.   In effect, they succeeded because they were adequately capitalized and served a ‘closed’ market.  No one needed to carry out an expensive advertising campaign because the members themselves decided to build a shared platform and created the co-operative as a way of accomplishing this.

But what about the vast majority of nonprofits, the ones whose smallest bank accounts don’t have six zeroes behind the first digit?  The story is very different for these groups, which are the majority of nonprofits in the country.   Yet their need for technology is proportionately the same and perhaps even greater.  There are three aspects of this riddle that need to be solved in order to improve technology use and access for nonprofits that otherwise wouldn’t be able to afford a complete program on their own.

Fixed costs

Fixed costs are one of the quietest of the Budget Devils.  Most costs rise or fall in some kind of coordination with the demand for a nonprofit’s service.  Direct staff, for example, usually increase if the need for the organization’s service grows.  These are called variable costs, because if one were to chart the arc of growth in the need for an entity’s services, the volume of direct staff hired would almost certainly vary according to the arc of the demand.

By contrast, in an ideal world the growth in the need for administrative services should not be comparable to the growth in service demand because administrative costs tend to be a ‘step function’.  This means that growth in administrative resources is likely to come in ‘spurts’ and frequently over time administrative staff can actually lower the overall administrative costs by creating efficiencies greater than the growth in demand.

At its economic simplest, technology is a fixed cost.  That computer server has the same price tag if it is going to be used 24 hours a day or just a portion of each day.  The upgrades to the wiring system to power the thing also had to be incurred even if it was just intended to be a backup system.  That finicky server needs just the right blend of temperature and humidity, which drives up the utility bills.  And the additional Computer Guy’s salary and benefits are inescapable.  Members of co-ops can better manage the costs by collaborating at the infrastructure level (servers, storage, etc.) or at the software level.  Or both.

Fixed costs abound in technology which is one of the reasons it is so hard for most nonprofits to develop a robust technology platform.  Large nonprofits such as universities and hospitals can absorb a substantial amount of these fixed costs before their budgets start to complain, but smaller nonprofits find it difficult if not impossible to take on such fixed costs.

Capital

Having the financial resources (or ‘capital’) is a second technology hurdle.  Economists refer to technology as a ‘capital-intensive’ operation, meaning that one has to buy a lot of assets such as computer equipment.  Here, capital means something akin to ‘reserves’, or cash that’s not needed for day to day operations.   The problem for nonprofits is that, unlike for-profit businesses, nonprofits can’t invite outsiders to invest in the operation in return for a share of ownership.  The only way a nonprofit can gain resources for capital acquisitions is through profitability or donations (development specialists: which ask would you rather make – requesting that a potential donor ‘buy a few computer servers’ or ‘invest in kids’?).

Productivity

The third need is to run a productive and economically feasible operation.  This is more difficult than one might imagine because staff productivity is not necessarily an automatic must-have unless a nonprofit operates in certain areas of health or human services.  Large for-profit companies, by contrast, often demand a certain number of ‘billable’ hours from each employee whether the company is a law firm, an internet cable company, or a medical laboratory.   No matter what the tax status, low productivity is a Budget Devil itself.

The Co-op Model

The obvious solution to this dilemma for most nonprofits is to buy as little as one can get away with, at as low a price as possible.  But this can lead to disastrous trade-offs in which an organization makes too many compromises.  The formula is to minimize variable costs while managing fixed costs as

tightly as possible, and this is where the co-op model comes in.  In effect, the co-op carries the fixed costs and the burden for falling short of revenue goals (as does any for-profit service provider).  They also assume responsibility for hitting productivity targets.

The co-op model can be viable in this setting because it is not like a drugstore, with items sitting patiently on the shelf, waiting to be scooped into shopping baskets.  Both parties must make a commitment to each other, and it almost certainly will take the form of a written contract.  The composition of their client base gives the co-op not only funds for operations but – if the market co-operates – some level of capital accumulation as well.

Perhaps surprisingly, there are already a number of cooperatives accepted by the IRS, such as co-operatives serving hospitals and educational organizations – and even farmers (who helped originate the model two centuries ago).  This may be good encouragement to begin a technology co-op in your area if there are no comparables in existence.  Perhaps more likely, a nonprofit is free to go out of the sector to find companies that provide these kinds of services.    Whether your information technology supplier is an actual co-op or a for-profit company offering professional services should be largely immaterial: good service is good service.  What is more pressing as a new client is what you will get for your money.  Note that if you and your peer organizations decide to form a co-op you should automatically have an advantage in the value-for-payment transaction.

The models we have sketched are most likely to succeed in an urban or suburban setting because it’s easier to achieve the desired productivity levels when your customers are located relatively near each other.  Sixty percent productivity for your field staff should be a good starting point, though it may be possible to push it higher.   More intriguing is that finding the capital may be easier than you think.  After years of promoting collaboration in general, some major foundations are beginning to experiment with funding certain aspects of collaborative processes.  Program Related Investments may be an option from savvy, well-established foundations.  L3C corporations were designed for social enterprise ventures, and they can be an invaluable structure on which to build a robust new service for the nonprofit field.  And the B Corp, or ‘Benefit Corporation’, offers traditional for-profit businesses an opportunity to convert to a different status as long as they can prove that they seek to create a ‘public benefit’ in tandem with private gain.  In fact, we know a for-profit entity that recently completed just such a switch.

With a little imagination, some energy, and some good financial strategic thinking, it should be possible to develop market-serving entities for information technology purposes and/or find existing suppliers that are effectively doing the same thing.  Good IT may be a cost but it doesn’t need to be a burden.

See relevant Page to Practice book summaries:

Managing Technology to Meet Your Mission: A Strategic Guide for Nonprofit Leaders

Zone of Insolvency: How Nonprofits Avoid Hidden Liabilities and Build Financial Strength

Zilch: The Power of Zero in Business

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Understanding philanthropic capital: How to invest in social causes and gain financial returns (Part 2)

In my first installment on this topic, I discussed why investors are combining financial and social goals and three social investment tools they could use to accomplish this union of interests: Pay for Success (PFS) or Social Impact Bonds (SIB), Program-Related Investments (PRI), and Mission-Related Investing (MRI)). In this final installment, I’ll explore two more tools: Impact Investing and Social Enterprise.

Millennial influence

The thinking driving the more diverse deployment of philanthropic capital is coming from a range of influences including shifting demographics. The receding idea of separate financial and social returns is largely being driven by the changing attitudes of younger generations.

A recent World Economic Forum report on impact investing cites a “study of 5,000 Millennials across 18 countries where respondents ranked ‘to improve society’ as the number one priority of business. This does not imply that the next generation of investors will not seek market returns … However, the emerging generation of investors is also likely to seek achievement of social objectives in addition to financial returns.”

Impact Investing

So just what is Impact Investing? A clear definition is one of the challenges of this emerging sector and the term can be described in many ways. According to the recently published The Impact Investor: Lessons in Leadership and Strategy for Collaborative Capitalism (2015) by Clark, Emerson and Thornley, “Impact Investing is capital management in pursuit of appropriate levels of financial return with the simultaneous and intentional creation of measurable social and environment impacts.” Many impact investors expect market rate and higher financial returns on their investments, noting that organizations that address social and environmental concerns in their business planning and execution will perform better over time as they reduce risks and create stronger workforces.

Examples of impact investments include a $3 million investment by the Colorado Impact Fund (coloradoimpactfund.com) into Bhakti Chai for expansion. The company sustainably sources fair trade, non-GMO ingredients and practices zero waste environmental standards. The company is growing, adding employment to expand its brand nationwide. Another project example is developing an app to help farmers in developing countries better predict weather patterns. This helps them plant and harvest at optimal times, increasing family income and improved food supplies for their communities. The app is easily accessible on cellular platforms, available to millions of customers worldwide.

Social enterprise

Social enterprise is also on the rise in the US and around the world. According to the Social Enterprise Alliance, a social enterprise is a business whose primary purpose is the common good. It uses the methods and discipline of business and the power of the marketplace to advance the social, environmental and human justice causes as well as earning a profit. Support for social enterprise can come in the form of investments, contributions and product purchases, with each form of capital needed at different times of the organization’s development.

The Colorado Nonprofit Social Enterprise Exchange strives to build the field for social enterprise by working with existing nonprofit organizations and engaging philanthropic, traditional and impact investments. Its Social Enterprise Cohort works to develop a business idea that supports both the mission and finances of the organization as well as creating employment opportunities when possible. Businesses in operation as a result of this program include: Art Restart, which supports homeless women through card sales; the Safety Store, which sells supplies and equipment for child safety; and Strong, Smart and Bold Beans, a coffee shop that teaches young women entrepreneurial and business skills as part of its youth development programs.

Complexity

There is a lot of excitement and energy surrounding all these tools to advance social change, and rightly so. These tools can allow for the engagement of more dollars to address big issues, to support organizations that prove their impact and to advance several goals at once.

However, the use of a diverse range of financing tools does not make problems less complex or easily solved. The development of the right deal with the right partners at the right scale takes time and resources.

But I look forward to the day when I can live in a state of optimism, believing both in our ability to make the changes we need as well as our ability to engage the right philanthropic capital to do the work effectively.

See Page to Practice summaries related to this article:

The Impact Investor: Lessons in Leadership and Strategy for Collaborative Capitalism

Zone of Insolvency: How Nonprofits Avoid Hidden Liabilities and Build Financial Strength

The Nonprofit Business Plan: The Leader’s Guide to Creating a Successful Business Model

Cash Flow Strategies: Innovation in Nonprofit Financial Management

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Understanding philanthropic capital: How to invest in social causes and gain financial returns

Combining financial and social goals

Being an optimist and a pessimist at the same time may seem contradictory. But, I believe we can make real progress on some of the big issues that face us today including poverty, the environment, education and equality among others. However, I don’t believe the way in which we have approached these issues in the past will make the progress we seek.

As the focus in philanthropy shifts from activities to outcomes, and we all expect more impact from change efforts, we can expand how we think about financing this change and what instruments will be most effective. The world is changing at a faster rate than ever before, and even though we have focused on these issues for many years, there is still much work to be done. Have we been looking at these issues and their solutions through too small a lens?

In the past, most philanthropic capital has been distributed in the form of contributions to nonprofit organizations. These have high social return but no financial return. And traditional investments often have high financial return and questionable social impact. By thinking in a one-dimensional way, we have limited the range of solutions available and squandered opportunity by not engaging the full capital markets in making change.

New partners in problem-solving

In order to address the more complex issues that now exist, it’s time to shift the paradigms of how to address these big, complicated problems. And those shifts are happening all around us. No longer is it the sole realm for nonprofit organizations to tackle social problems; social enterprises and businesses are proving capable as well. Many investors no longer separate social and financial return when looking at how to best deploy their dollars. As many billions of dollars as foundations have in their endowments (estimated to be $850 billion), these pale in comparison to the trillions in mainstream capital markets (estimated to be $34 trillion).

Now more than ever, it is appropriate to bring a range of financial tools to create change and to think more expansively about how to support organizations beyond just providing monetary contributions.

Problem first, tools second

Grants and contributions will always be part of the funding portfolio to support organizations working on important issues, but they can be one tool in a toolbox full of options to provide capital and support the work that makes a difference. Thinking more about stacking capital instead of a one-size-fits-all model can be more effective. Additional tools include Pay for Success/ Social Impact Bond Financing, Program-Related Investments, Mission-Related Investments, Impact Investing and Social Enterprise development. Each tool has different applications and strengths. With a variety of tools, we can think about the problem first and the tool second instead of approaching every challenge with only one funding solution. I will cover the first three tools in this installment. Tune in to the next installment for an explanation of Impact Investing and Social Enterprise.

Social investment tools

Pay for Success (PFS) or Social Impact Bonds (SIB)

These financial instruments use private capital for upfront investment in social programs where a governmental entity agrees to pay for specific measurable results after they are achieved. This money is the bridge financing or working capital that allows prevention programs to prove their worth in saving government funds by using outside money. Most government resources are used to provide intervention, such as incarceration or remedial education. PFS switches the model and focuses on prevention services, such as housing and job training or early childhood education, that provide both more effective and compassionate services to people as well as providing cost savings once they are delivered.

This tool was originally developed in the United Kingdom with the first deal closed in 2010. Since that time, there have been almost 50 closed deals using this model (payforsuccess.org/pay-success-deals-united-states). For PFS projects to work, a collaborative group of partners must come together, including: a governmental entity willing to purchase outcomes, investors willing to invest for a risk-adjusted return, an intermediary that raises capital and manages the project, program provider(s) that scale up programs and deliver outcomes, and an evaluator that can play the auditing role by measuring the projected outcomes. Projects in the US include a $10 million program in New York to reduce recidivism by delinquents on Rikers Island, a $7 million program in Salt Lake City to expand high quality preschools, and a $8 million program reaching the final stages in Denver to provide supportive housing and services for the chronically homeless.

Program-Related Investments (PRI)

Program-related investments are another tool that foundations can use to support organizations, both nonprofit and for-profit. These are investments made by a foundation in support of charitable purposes with the explicit understanding that those investments will earn below-market rate returns adjusted for risk and mission. These investments can be applied to the foundation’s minimum payout requirement and become recyclable capital, being redeployed once they are paid back. PRI were made possible as a result of the Tax Act of 1969, but have not been widely used. That is beginning to change. The IRS outlines a few conditions for these investments, and there are many ways to apply them. The PRI option can save organizations significant dollars in interest payments while offering access to capital that might otherwise not be available.

A foundation can offer a below-market rate mortgage to help an organization purchase a building and save on interest expense over the life of the loan. In Denver, the Alliance Center (sustainablecolorado.org) received a PRI from a donor-advised fund at The
Denver Foundation that will save the organization $4 million in interest over the life of the loan and the original capital of $7.5 million can be used again for another investment. In another scenario, a foundation can make a loan to a company that works with poor farmers to help them create a cooperative and market for their products that will eventually generate enough revenue to pay back the loan.

Another way to use philanthropic capital to advance community change is through Mission-Related Investing (MRI). This tool takes the endowment or long-term assets and aligns investments with the specific mission and social benefits of an organization. For example, if a foundation was funding in health prevention and education, the investment portfolio might contain companies focused on health food production instead of tobacco companies. The same might be true for an organization working to improve the environment. Investments could be focused on renewable energy and weatherization instead of fossil fuel production. Typical investment portfolios at foundations are much larger than their charitable distributions, so investing to support the work being done instead of contributing to the problem can address issues using two different avenues of capital, thereby increasing impact.

See Cindy Willard’s upcoming installment to discover more about Impact Investing and Social Enterprise.

See Page to Practice nonprofit book summaries related to this topic:

The Impact Investor: Lessons in Leadership and Strategy for Collaborative Capitalism

Cash Flow Strategies: Innovation in Nonprofit Financial Management

The NON Nonprofit: For-Profit Thinking for Nonprofit Success

Image credits: qualitymatters.ie, eoi.es, metabusinessanalyst.com, charitable-nation.com, peakstravelelite.co.uk, colorado-construction.com

 

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Don’t go it alone: Turn your nonprofit board into fundraising partners

I conducted a straw poll that confirmed my suspicions: Other consultants, executive directors and development directors get the same blank stare from board members that I do when I tell them their job includes an active partnership in raising money. We all know that the economy has created a situation of higher human service needs and, at the same time, a decrease in foundation resources. 

Now, more than ever, board members need to tap into the community philanthropy base that’s out there: individual donors. And they are out there. Giving USA’s latest annual report reaffirms a consistent trend–more than 70 percent of philanthropy comes from individual donations.

In this article, I’d like to offer some simple ways to increase your board’s comfort zone and strengthen your board members’ partnership with you and your organization to impact the bottom line. I’ll be relentlessly repeating the three important components of a successful individual donor effort: Acquire, Retain and Upgrade. Your board may need some support in cultivating donors. Make their job as easy and effective as possible. As with any motivational strategy, the more your board members get positive results, the more enthusiastic they will be to continue their participation.

 

Develop your key messages

 

Work with your board on simple, consistent messages that will convey to prospects that your organization:

Is differentiated and unique from other organizations;

Will use their investment efficiently;

Provides programming with measurable results; and

Has a compelling mission and vision that you believe in.

Leverage your board’s strengths

 

Not all board members are good or comfortable at all aspects of fundraising, and there’s no sense trying to fit a square peg into a round hole. Help your board choose their own action steps – all with the goal of Attracting, Retaining and Upgrading donors. Possible ways to contribute include:

Give a significant “leadership” gift

Identify prospective donors

Design and participate in fundraising activities and events

Engage in media and community outreach

Recruit other people who can join your work

Once your board members select areas of participation, move on to your strategies to Acquire, Retain and Upgrade your donors. It will be important to identify a collaborating “champion” or champions on the board to shepherd its development activities, ensuring that the work plan moves toward the organization’s funding goals.

 

Setting the stage in your community

 

Raise your organization’s visibility with strategies that need not be complicated or costly. Using the key messaging your organization has agreed on, board members should be actively involved in garnering attention, reputation and donor prospects by helping with:

Media coverage: Plan for four newsworthy events or photo opportunities during the year; match each event/opportunity with a compatible reporter (i.e., the education editor or the sports editor); then make a phone call and send him or her a compelling press release. You are doing them a service by offering them great fill for their assignments.

 

Community events and visibility: Get invited to host a table at a community-wide event, join committees and task forces, show up at affairs and network continually throughout the community.

 

Constant ambassadorship: I am like the old stereotype of an insurance salesperson. I am always on the lookout for prospects. Sell, sell, sell. If someone is interested, make sure you know how to contact them to send them follow-up materials.

Personalize every strategy you and your board uses

Take care that each interaction with prospects is culturally sensitive. (You may want to refer to my article on fundraising in diverse communities if you have questions about this).

 

Infuse a sincere passion into the key messages you have developed. Whether making a personal visit or sending a letter of appeal built around a template, you will be asking an individual to support a cause to which your organization is deeply committed. It’s worth spending time on an activity that reminds your board why your mission is important to them, so that those feelings are potent and compelling when they promote the organization.

 

Using the messages that you have agreed on, help your board members customize them to an individual prospect, emphasizing common values and playing to people’s self-interest. If you will be approaching a business person, he or she may care about community economic stability; if it’s a parent or caregiver, he or she may care about access to services. The question is, “Why would they care?”

Acquire new donors

Have your board members make a list of at least 20 people each that they know who also believe in the organization’s mission. That means anyone, without presumptions about finances or life situation. It is critical here to remember that you will be giving someone an opportunity to invest in a cause they believe in. If they choose not to, for whatever reason, they are free to do so.

 

Provide specific guidance to the prospect regarding what level of giving he or she might consider. For instance, you might create levels of giving that resonate with the services you provide, such as a Heritage Patron level of $2,500 to support cultural programming or a Legacy Patron level of $500 to support citizenship education activities.

 

Retain

Whether they donate or not, continue to keep prospects informed about your organization’s plans and accomplishments. Remind board members to leave calling cards at places of business that they frequent (i.e., a copy shop or local restaurant) to convey your organization’s appreciation of their contribution in the community.

 

Continually acknowledge donors. Have your board thank donors promptly and personally with a phone call and handwritten note, acknowledge them in your materials (unless they wish to remain anonymous), invite them to events and involve them in other ways in your organization.

Upgrade

Identify a few dependable donors, including board members, who can give generous “leadership gifts” and, with their permission, leverage that information as motivation when you approach other prospects to join on or to increase their gift.

 

Provide past giving data to your board members, and have them identify individuals or businesses that they know. It may be time to suggest an increase to past donors. Use your judgment here, but it’s reasonable to believe that after several years, a $50 donation could be doubled and so on.

 

These loyal donors are also a great source for special board appeals when your organization embarks on a specific, short-term or emergency campaign.

 

The reality is that raising sufficient money to help your organization achieve its mission can be a relentless and daunting task regardless of the rewards. Your ability to engage your board as a partner in your efforts could be a “four-way win” situation: Your board members become inspired because they personally are making a difference, your donors are able to make an impact on a cause for which they believe, your job is just a little bit easier and, of course, your organization and the constituents you serve are the overall winners.

 

Learn more about Page to Practice nonprofit book summaries related to this article:

A Fundraising Guide for Nonprofit Board Members

Fundraising the SMART Way™: Predictable, Consistent Income Growth for Your Charity + Website

Super Boards: How Inspired Governance Transforms Your Organization

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Balancing urgent and important: How to be more effective

Have you ever wondered why it is that with all the advances in technology and communication in the workplace, we seem to get less done than before? And not only that, we seem to be more and more stressed about the things that we haven’t got round to doing. We get swept away by a torrent of emails and attachments, knocked off course by interruptions and phone calls, and bogged down in the daily scramble to achieve more with less resources.

Most time management gurus have tried to convince us that we can somehow shoehorn more into our day, so enabling us to take on that other project, attend that urgent meeting, digest that important report.

By contrast, management guru Stephen Covey asks us to look at things in a different way. His key work, The Seven Habits of Highly Effective People, first published in 1990, remains a bestseller and was voted the most influential business book of the 20th Century by Chief Executive magazine. Covey suggests that, instead of focusing on getting more done (being efficient), we should focus on getting more important things done (being effective). And therein lies the key to facing the challenges we all face in the not-for-profit sector of “producing champagne results with beer resources,” as the saying goes.

Urgent versus important

We can characterize any activity we do in our day in terms of its importance and urgency.

An important task simply means one whose completion would significantly contribute to an individual’s or organization’s key aims and objectives. An urgent task is defined by Covey as one that “appears to require immediate attention.” Note the word “appears.” Somebody interrupts you at your desk with a question. The phone rings. A little window pops up on your computer announcing the arrival of yet another email. All of these place an immediate demand on your time, but they may not actually require your attention straight away. They are urgent, but are they important?

Covey presents us with a two-by-two matrix showing all the combinations of urgent and important:

Fig 1. Covey’s time management quadrants.

Quadrant 1: The tasks outlined in this quadrant are both important and urgent, and typically this means panic or problems! This is the funding application that needs to be submitted today to meet the deadline, sorting out the server that’s just crashed or dealing with a complaint from a key partner. All these things appear to require immediate attention and really do require immediate attention!

Quadrant 2: These tasks are important but not urgent. Completing these tasks would make a significant contribution to your objectives, but you can easily get away with not doing them today (because they’re not urgent). Tomorrow will be fine. Or even next week … So, typically these tasks are about planning ahead, preventing problems before they happen, and building relationships with people (i.e. customers, colleagues, volunteers or partners).

Quadrant 3: These tasks are urgent but not important. To keep the “p” theme going, Covey characterizes them as being proximate or popular. These are all things that aren’t important but which come and get us, even if we’re hiding in an office. Phone calls, emails, interruptions, reports landing in your in-tray — anything which tries to grab your attention. And doing them often makes you popular, since people generally want you to give up your time just when it suits them. Conversely, saying “no” can be hard, and we fear it will make us unpopular.

Quadrant 4: These tasks are neither urgent nor important. In Quadrant 4 we are idly surfing the Web, flicking through magazines, chatting at the water cooler. It’s pleasant in Quadrant 4 … and the chance would be a fine thing!

How does all this help us?

Are we supposed to be spending all our time planning and making sure we never read any magazines? Not quite. Covey is a realistic kind of guy. He doubts whether most of us are spending much time at all in Quadrant 4. But, this is where those other time management gurus would have us focus, filling every bit of downtime with worthy endeavors. “Waiting for a train? Then you’ve got space to digest the strategic plan!” We need to be realistic about the time we spend in Quadrant 1. The world’s a messy place, and the world of nonprofits is no exception. So, with the best will in the world, we can expect to be putting out fires on a fairly regular basis.

What’s the key?

The key to personal effectiveness is cutting back on the time we devote to tasks in Quadrant 3 and shifting that time to Quadrant 2 activities. So, rather than saying “yes” to everything that comes along, challenge yourself to focus on the importance of what’s being asked. In other words, it’s all about “exercising integrity in the moment of choice.” That means taking just a second before you choose to start a task to ask yourself, “Is this the most important thing I can be doing right now? Or is it just the next thing?”

Think ahead

Covey argues that consistently spending even one percent more time in Quadrant 2 will start to have a significant impact on our lives. A bit more time thinking ahead and building relationships should help prevent crises from happening in Quadrant 1 and allow us more valuable time in Quadrant 2. And focusing on the important rather than just the urgent tasks can leave us with the lasting satisfaction that today we have made the biggest difference we could in our role. And isn’t that why we work in this sector?

See also:

Driven to Distraction at Work: How to Focus and Be More Productive

Fired Up or Burned Out: How to Reignite Your Team’s Passion, Creativity and Productivity

Let’s Stop Meeting Like This: Tools to Save Time and Get More Done

Smarter, Faster, Better. Strategies for Effective, Enduring, and Fulfilled Leadership

Image credits: money.usnews.com, celebratingthejourney.com, inspirationboost.com

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Do your board recruitment goals reflect your evolving nonprofit?

Your organization’s board recruitment goals will change depending on where your nonprofit is in its life cycle. There’s just one problem. Perhaps there was a time when people could describe a fairly predictable, steady trajectory for the life of a nonprofit board. Not so in today’s economy.

Today, an organization that is thriving one day can lose a major anchor funder the very next day. For example, a key funder could be a company that shuts down or is acquired, or an individual whose finances are wrapped up with the wrong investor, or a city government that has lost its commercial base. On the other hand, I am seeing nonprofits receive significant infusions of cash that are game-changers. For example, there are nonprofits receiving substantial new federal grants or contributions from individual donors or private foundations that are shifting their focus to fewer causes and organizations.

Organizational life cycles are also radically affected as nonprofits enter a multitude of strategic alliances – a more and more common phenomenon. Even more game-changing are nonprofit mergers.

When organizations go through such dramatic revenue changes, as well as strategic alliances, the pressure on boards to adapt can be fairly fierce. New pressures are driving some boards to be clearer about board member expectations, board assessment, plans for leadership succession and board composition.

Assessing where your organization stands

1) Before deciding whom you need to recruit for your board, think about the following:

2) What was the driving purpose to establish your organization in the first place, even if that was long ago? It’s valuable to put today in a historical context.

3) What’s your mission today? Is it still relevant and compelling?

4) What’s your vision for the organization’s greater potential over the coming years?

5) What’s your revenue model – your key sources of revenue (government, fees for services, philanthropy; corporate, individual, foundation)?

6) What are key challenges and opportunities going forward?

Assessing where your board stands

Based on numbers two through five above (the mission, the vision, the revenue model, and key challenges and opportunities), consider the extent to which your board has the diversity of expertise, experience, perspectives, networks and relationships to:

Ensure there is a strategy for financial and programmatic success, and plans to update the strategy in an iterative way (board in collaboration with the CEO).

Ensure there are metrics for the board and funders to monitor financial and programmatic progress (board in collaboration with the CEO).

Provide financial and fiduciary oversight.

Select board members with leadership potential for leadership succession planning.

Determining whom you need on your board to advance the mission

Based on “where your board stands” (above), consider the qualifications you seek as you identify and recruit new board members. Think about recruiting new board members with:

Leadership potential.

Diversity of perspectives.

Experience and expertise in particular areas such as: finance, accounting, public relations, law, strategic planning and the mission area on which the nonprofit focuses.

Ability to directly provide support or make valuable introductions in key revenue areas that are relevant to your nonprofit – for example, government relations, corporate funding, private donors, foundations, or pricing for fees for services.

A firm commitment to meet the board’s expectations to be engaged productively in the ways you discuss and define together with the candidate.

Less predictability requires greater dynamism

The era of lengthy terms of board service and board leadership are over. Historically, board chairs served for many years, and board composition remained stagnant sometimes for decades. In today’s challenging and enterprising environment, boards and their CEOs need to be engaged in iterative organizational planning, a highly dynamic process of assessing the board and identification and recruitment of board members who can and will commit to advance the organization in serving the community.

See also:

Leveraging Good Will: Strengthening Nonprofits By Leveraging Businesses

Super Boards: How Inspired Governance Transforms Your Organization

The Invisible Yellow Line: Clarifying Nonprofit Board and Staff Roles

The Practitioner’s Guide to Governance as Leadership: Building High-Performing Nonprofit Boards

 

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Due diligence and advice for grantseekers

A few years ago, I was engaged in the process of conducting workshops for program officers and foundation executives who were seeking ways to more skillfully approach due diligence in grantmaking.

At LaPiana Consulting, we collaborated with Grantmakers for Effective Organizations (GEO) to update their guide, Due Diligence Done Well, and many grantmakers have embraced the principles we presented since then.

As an Executive Director, I didn’t always embrace this process. With some foundations and program officers, I felt we were developing a relationship designed to create positive community change. In other cases, I felt as though I was being quizzed without a clear sense of what the questions were designed to reveal about my organization and its work. Even today, the grantmakers I talk with experience this dichotomy in a similar way, with the most successful experiences yielding strong relationships and the most frustrating never getting beyond a “sales pitch.”

Although one part of the due diligence process might be considered “good hygiene” – collecting the basic legal and financial documents needed to ensure that the foundation can comply with its own requirements – due diligence should primarily be about building a shared understanding of how the grantmaker and grantseeker can work together to benefit the field or community about which they both care.

Given that, how can you as a nonprofit leader participate in the due diligence process to ensure that it is mutually beneficial?

Submitting a proposal or letter of inquiry is just one point in the process. Foundations ask for information in the proposal or LOI to make a basic determination regarding fit with the grantmaking focus of the foundation. If there is a fit, the next steps are all about deepening their understanding of your organization and gathering the additional information to make a funding decision. Even in the presence of an existing relationship, there’s more to learn. Here’s some of the advice we give to grantmakers and its application to you as a grantseeker:

Get clarity regarding the process:

Unspoken assumptions about how the process will unfold will almost certainly lead to misunderstandings or disappointment. Ask the grantmaker about his/her information needs and the best way for you to supply information. Discuss expectations and timelines.

Red flags:

One program officer said that an immediate red flag comes when a grantseeker (wrongly) claims that his/hers is the only program in the region, state or country that provides certain outcomes or works with a particular population. Grantmakers invest time in understanding what is happening in the field and community; you should too. You can point out what differentiates you from similar work done by others, but be realistic in the depiction of those differences. Grantmakers should and will spend time talking to foundation colleagues and others in the field and community as they gather information.

Build a relationship based on mutual respect and trust:

Engage in a dialogue. A meeting with a program officer shouldn’t be regarded as a sales meeting or one-sided communication. Ask the program officer about the information he/she is seeking and discuss the best way to convey that information. If you do plan a presentation, make it short and leave plenty of time for discussion. Also, think about what you want to know, especially if this is a foundation that you haven’t worked with before. What are the expectations regarding measurement and outcomes? What does the foundation know that can help you be more effective?

Be honest. If you’ve had struggles in delivering programs or have faced organizational challenges with your board or in retaining staff, talk about it. What have you done to address these problems? You need to pass the “smell test” – if you are painting an unrealistically rosy picture or trying to gloss over any problems, the truth will eventually emerge and if it comes from another source, it will harm your credibility.

Be respectful. Program officers understand the power differential and most want to “level the playing field” by demonstrating that they – like you – are concerned about how to achieve your mission. Also, just like you, program officers work hard and are juggling multiple demands on their time. I have heard more than one story from program officers about prospective grantees who call the program officer to criticize the time the decision is taking or complain that the program officer is talking to others in the community. I don’t know of any program officer who has decided against making a grant based on the poor manners of the Executive Director, but it sure doesn’t help the relationship. Frame your questions in nonjudgmental ways.

The grant decision isn’t the end — it’s the beginning of a new stage:

If the decision is affirmative, there’s a lot of work ahead. What benchmarks or requirements are set in the grant document? What do you need to do if there’s a change in the budget or if something isn’t working? How often will you “check in” with one another about the grant? You should expect different answers to these questions based upon not only the significance of the grant in terms of your budget, but the significance of the grant in relationship to the foundation’s grantmaking budget.

Always think about the future:

If the decision is negative and your grant application was not accepted, seek an opportunity to learn how you might better communicate your work in the future. But don’t seek that discussion as a way to convince the grantmaker that he or she should reconsider the decision. You may need to accept his/her decision as a learning experience and move on, but you should also conduct a final conversation in a way that can leave the door open for reconnecting in the future. 

See also:

Storytelling for Grantseekers: A Guide to Creative Nonprofit Fundraising

The Ask: How to Ask for Support for Your Nonprofit Cause, Creative Project or Business Venture

The Ultimate Insider’s Guide to Winning Foundation Grants

Image credits: flickr.com, bluenose.com, aicpa.org, greeklaw.gr, thecriticalpath.info.com

 

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