Fundraising

Great Waves and L-Curves: Some Thoughts on the nfpSynergy Blogs

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A few quick thoughts on the insightful recent pieces from Joe Saxton at nfpSynergy, which lay out some of the bigger threats and opportunities currently facing fundraising.

The challenges are spot on. Very hard to argue that squeezed incomes, growing public debt, lower Government funding, disintermediation and new technologies allowing more public fundraising are anything else but facts of life fundraisers must learn to live with. Perhaps most concerning is the fall in incomes which, combined with growing debt, will probably reduce confidence to give among a broad swathe of families, especially as these trends are so widely reported that, reporting which could curb confidence to spend. To my mind, these threats deserve far more attention and deliberative discussion.

Great to see Rowenna Fielding use her comment to pick up on the fact that smaller databases need not be a synonym for shrinking income. She is absolutely right to say that “[r]educing database sizes so that they reflect high-quality engagement with supporters rather than large volumes of obsolete data is a good thing”. We now have many years of evidence to suggest that response rates for many charity marketing appeals are well below 1% in many cases. My own view is that sending appeal after appeal to largely unresponsive audiences has been one of the main reasons for the doubling of complaints about charity fundraising in four short years from 2012-2016. This model seems especially futile given that a tiny minority of donor provide a significant fraction of the income for many of our organisations. Many not-for-profit’s income base would look like an L-curve (with the L turned anticlockwise to lie on its long edge), with a third or more of all income coming from just one or two tenths of a per cent of the donor base (this trend also holds in the US, as the work of Peter Wylie has shown). Important to note too that since the 1970’s and 1980’s, when charities began to adopt database-driven marketing activities, the level of donations from private sources to UK not-for-profits has not risen at all (as far as data is available) and, as I wrote recently, has probably fallen as a proportion of economic activity far more quickly than many people realise. It also seems possible that the use of database-driven fundraising has increased inequality within the sector, with a small number of the very largest organisations reaping most of the benefits of marketing-led approaches. This links to Joe’s very pertinent point on mass affluence. Approaches to this group in recent years have often taken the form of ‘mid-value’ fundraising, where a combination of greater ask amounts, bespoke communications and dedicated relationship managers are employed with higher value donors to drive giving. Speeding up growth in this area, and exploring other methods to capitalise on the mass affluent market, will be an important part of solving the puzzle of how to grow overall giving in the coming years.

wileypic

Just 0.1% of the supporter base often give 30%-60% of total donations, as Peter Wylie’s work has shown. See: https://cooldata.wordpress.com/?s=Lopsided

And while it is true that Legacies present a tremendous opportunity for fundraising, it is also the case that the ‘Bank of Mum and Dad’ is the 9th biggest mortgage lender in the country, and that unsecured credit is exploding (again) in the UK, leading to concern from the Bank of England and others that consumer credit growth is a risk to the economy. The estimated £6.8trn (trillion) value of UK homes does have extraordinary potential for to grow fundraising, this does I think have to be tempered by the fact that much of this value is either likely to be tie up in parents’ commitments to support their children to get on the property ladder. Having said this, it’s hard to see why the ‘giving while living’ model popularised for the wealthy by Chuck Feeney should not be rolled out more widely than it currently is, provided ways can be found to unlock value currently tied up in illiquid assets like real estate.

Joe and I share the same major concern, namely, who is going to guide charities towards the major structural changes needed to move from here to there. The ‘great waves’ of funding which have sustained UK not-for-profits over most of the last century originated (as far as I can see) in large measure from outside the not-for-profit sector. World War 2 drove many innovations in fundraising which are still with us today (including payroll giving, door-to-door collections, sponsored activities and selling goods to raise funds for charity). The establishment of the National Lottery was a Government initiative, driven personally by Sir John Major, with the huge increase in spending on and contracts to the Third Sector initiated by New Labour beginning in 1997. The fact that, as Joe says, the Institute of Fundraising, NCVO and other major bodies are showing rather little interest in nudging the sector towards a sustainable growth path should be of concern to all of us. Existing funding models are not in good health, yet the bodies who could help drive moves to new methods are not doing so. Will they ever?

Hokusai

RBKC

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The shock result of June’s UK general election was undoubtedly the victory in the Royal Borough of Kensington & Chelsea (K&C) of the left-leaning Labour Party, when many had assumed K&C, (London’s wealthiest Borough), would, by nature of its affluence, forever remain a safe Conservative seat.

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On closer inspection the shock is not entirely merited, especially given K&C’s “startling” inequality. Simmering grievances in the Borough, at least partly the result of gaping wealth differentials, were exposed just days after the election by the visceral local reaction to a lethal fire at (Council-owned and run) Grenfell Tower in the north of the Borough, and the Council’s abject response to it. Indeed, the yawning gap between rich and poor in K&C is an open secret to locals; as victorious Labour candidate Emma Dent Coad (pictured above, who before winning was a K&C Councillor) said in a powerful acceptance speech, K&C has “areas of extreme poverty…[p]eople [in K&C] are getting poorer, their income is dropping, life expectancy is dropping and their health is getting worse. There is no trickle down in Golborne ward and there is no trickle down anywhere in Kensington”. Dent Coad’s more recent public statements claim Victorian-era diseases like TB and rickets are still present in K&C, and that, so compressed are the Borough’s geographic inequalities of affluence, simply crossing the road can see the average income of residents fall by ten times. While it is an outlier, K&C is not entirely unrepresentative of the modern trend of wide divergences between haves and have-nots.

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All of this matters for fundraising – a lot. In the UK and elsewhere, wealth is held in fewer and fewer hands, with distributions of wealth and income increasingly lopsided. Contemporary fundraising technologies, many with their genesis in postwar fundraising efforts, often rely on broad participation across society. A shrunken middle-class restricts this, with fewer citizens able to afford to support good causes, which in turn means fewer funds raised and less participation. And economic changes are colliding with a tougher regulatory regime in which marketing is increasingly challenging, and which may rule out go-to methods of acquisition-based business models. With such strong headwinds, declining participation in the sector might seem inevitable, and with it any hopes of maintaining donation levels, let alone increasing the amount donated.

The cloud may, however, have a silver lining, in this case the fact that our ability to tailor approaches to higher value audiences has never been greater. Databases like the Luxemburg Income Study and the World Top Income Database offer unprecedented scope to analyse the social dynamics of wealth in the UK and across the world to a remarkable degree of granularity. Much of this information was assembled by a cohort of academics, lead by the eminent Professor Sir Tony Atkinson (who sadly died earlier this year), and including Professors Thomas Piketty (of Capital in the 21st Century fame), Emmanual Saez and Gabriel Zucman, (the latter’s recent work having shone much light on the widespread use of tax havens). We know more, in more detail, than we ever have about how to identify those with the means to support our great causes. And at a more practical level, moves towards data-driven methods have been taken, notably by research consultancy Factary, whose approach to database screening has, they say, been “revolutionised” by the use of data on “socio- and geo-demographic factors” to “prioritise the database” according to ability and likelihood to give. Rather than using a bank of more or less static data produced by desk research work to screen against, Factary now use overlaid data, to indicate those most likely to give. While I am not familiar with the precise data used, such methodologies are surely the future for fundraising research, especially considering that those able to donate major gifts (say of £10,000 or more) are likely to be located in fewer than 10,000 of the 1.8m postcodes in the UK. Data (academic or publicly available) is accessible like never before, making analysis of economic geography sensible and achievable, and could, if used properly, give a much-needed lease of life to British high-value fundraising. Such a pivot towards high-value is not without risks, perhaps the greatest being the chance of the interests of a minority being heard more loudly than those of the majority. However, while the Third Sector would surely lose credibility if it were seen to give undue attention to niche interests, no-one thinks UK not-for-profits face SuperPAC-type capture anytime soon. More likely is the familiar issue of certain causes being harder to raise for than others, which is as old as the sector itself, and probably insoluble. More regulation, or a hard interpretation of the DPA or GDPR precluding analysis like that described above, is another risk, but, by retaining manual elements in analytical processes and taking a truly donor-centred approach, one which should be able to be mitigated.

Navigating these risks would, however, have the benefit of diversifying the income base for a sector whose overall revenue remains stubbornly flat. And if you think that increasing the amount donated to not-for-profits in this way seems unrealistic, is it any more so than, say, Labour winning in Kensington & Chelsea?

Falling Flat?

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The dominant narrative around UK not-for-profit income in recent years has either been of reasonable stability in the face of economic shocks, or of fairly gentle and understandable decline as older technologies become less effective. The release of the latest CAF Giving Report prompted me to look again at this narrative.

Some basic economic analysis of the CAF figures seems to show a different story than the ‘flat income’ narrative . The UK Giving Report usually reports voluntary donations in cash terms, as in the graph below. However, despite there being comparator figures for economic growth, there is rather little comparative analysis of the figures. This matters because economies are dynamic things – the value of a currency changes from minute to minute, and the overall amount of economic activity fluctuates over time, too.

CAF graph

It also matters as it means that the cash figures in the report do not show donations as a proportion of overall economic activity. Despite aggregate GDP growth of 15.7% from 2005-2015, (calculated simply by summing the figures in orange in the graph). Donations are shown as broadly flat, when as a proportion of the total economy they are declining by at least as much as the economy is growing, some 1.5% a year. In 2005, British annual GDP was £1.676trn, with donations at £10.3bn, or 0.0061% of GDP. In 2015, British GDP had grown to £1.889trn, with donations having fallen to £9.6bn, 0.0051% of GDP, an alarming 17.3% drop in donations as a share of the economy in just a decade. Another omitted trend is inflation; voluntary giving in 2005 was £10.3bn – £14.1bn in 2015 money; had charitable giving kept pace with inflation over this time it would in real terms be approximately £4bn higher than it currently is. When I asked them about inflation, CAF said “we have reported on this in previous years and may do so again but looking at it without adjustment is also useful because it shows that the actual amounts people donate are fairly constant, regardless of inflation levels”. Fair enough, though one would think that this type of economic analysis would be included in most years especially as, taken together, inflation and growth mean the same amount of money buys progessively less impact over time. This is especially noteworthy as the rate at which it is happening seems not to be widely realised, running (as it does) counter to the popular (and more reassuring) narrative of stability or gentle, heroic decline.

And consider all this in light of the sectors overall dynamics. I was struck to learn recently that one major national health charity’s income nearly doubled in the 10 years before 2016, at a compounded rate of 7% a year. In light of the above, the point is that this growth has come within a static sector, meaning that while the size of the cake remains the same, the slices for some are growing quickly, at the expense of others. Each year of no growth also reinforces the harmful idea that the current rate of voluntary donations is somehow a natural maximum and that therefore we are in a kind of secular stagnation where the best to be hoped for are year after year of flat numbers. My response to this is the graph below, which I’ve used before and will probably use again, showing steep recent growth in British sales of ethical goods and services. Growth for socially-oriented organisations is not only possible, it is happening:

ethicalgraph

That’s the past and present – what of the future? The declining share of the total economy devoted to voluntary donations suggests that, if the present trend continues, UK not-for-profit’s will by 2025 be able to fund around 34% less good work each year than if donations had kept pace with inflation and GDP growth over the 20 previous years. If unchecked, this would lead to a potential ‘crisis of relevance’ for a sector. I also worry about the financial health of mid-sized not-for-profits, (those with income in the £5m-£20m bracket) who, faced with stricter regulation and larger competitors with more financial firepower, could be forced to shut their doors or seek to merge to survive.

Ideas matter. The story we tell of not-for-profits’ place in our economy and society relies to a great extent on how we measure organisational impact, which in turn relies to a significant extent on income – relative and absolute. The above should sharpen focus on the declining effectiveness of some fundraising approaches, a decline which could well be far sharper than sometimes thought.

Some Thoughts After a Summer of Reading & Watching Films

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Numbers Not Words: Towards the end of the film ‘Zero Dark Thirty’, Defense Secretary Leon Panetta (played by James Gandolfini) quizzes his team on the likelihood of Osama Bin Laden being in hiding in the Pakistani town of Abbotabad.  “Is he there or is he not f–––––– there?” he asks. Analysts offer probabilities between 60% and 80%, until the protagonist, Maya (Jessica Chastain), chimes in: “A hundred percent he’s there,” she says. “OK, fine, 95%, because I know certainty freaks you guys out. But it’s a hundred!”

chastainZDT

The scene is notable for the numbers, not the words. Completely unremarked, each person offers a numerical percentage estimate.  This is no accident.  After the 2nd Iraq war, the US Intelligence Community undertook an enormous cross-departmental excercise to improve the quality of its forecasting, which was recognised after the (hugely expensive) war to have been poor at best.  One of the recommendations was to do away with vague, textual predictions (“quite likely”, “probably will happen”, “may not take place”) and forecast using only percentages.  Another outcome of the excercise was the establishment by the US Intelligence Advanced Research Projects Agency (IARPA) of a forecasting tournament pitting teams of experts against one another in a test of forecasting ability.  The shock winner was the Good Judgement Project (GJP), a team of enthusiastic amateur forecasters marshalled by Professor Phillip Tetlock and his team.  Professor Tetlock’s book Expert Political Judgement: How Good Is It?  How Can We Know? caused a sensation some years earlier by showing that political pundit ‘experts’ have less forecasting ability than would a monkey throwing darts at a board, ie. that their predictions were worse than random guesses would be.  Professor Tetlock has said that the landmark 20-year study underlying Expert Political Judgement was inspired by a comment from Noble Prize winning economist Daniel Kahneman that most experts were no better forecasters than the average New York Times reader.  The GJP team easily beat their higher-paid, better-resourced Government opponents, who have now enlisted Tetlock and his associates to teach them how to forecast future events.

The upshot: anyone with any interest in forecasting should read the Tetlock/GJP work, starting with his most recent, Superforecasting.  The next major gift may just be round the corner, but there are lots of corners and it helps to know which one to take to find it.

Occupy Philanthropy: Malcolm Gladwell’s priceless tweet got me thinking about inequality and not-for-profits.  There is surely a thesis to be written on the fact that the British charities sector is one where 0.36% of organisations raise half all funds, while half of all charities raise 0.57% (chart below is from the NCVOs Financial Sustainability Review).  How can we speak with a united voice with such stark divisions?  And when 62 individuals hold as much wealth as half the world’s entire population, how can causes not popular with the (very) wealthy thrive?

NCVO chart charity size_income

The Curious Case of Building 20:  During World War Two, American Universities were required to join the war effort.  The Massachusetts Institute of Technology (MIT) was no different, only they had a problem: after all the major departments had been assigned office space in their re-worked campus, an assortment of smaller, less established departments were left.  These included Linguistics, Electrical Engineering various branches of Military Studies and even a piano repair facility.  Eventually, a ramshackle temporary wooden building was constructed to house the departments, designed to last “until the end of the war + six months”.

But a funny thing happened.  ‘Building 20′, as it came to be known, left a remarkable legacy.  Because it was never considered prime real estate on campus, occupants were free to modify the cheap building at will, making the space more comfortable and useful.  The eclectic departments and oddly distributed seating plan meant academics from unrelated disciplines sat close by and were free to share ideas and listen in to their colleagues’ meetings, and the randomised floorplan and single-storey structure made chance conversations with academics from random departments almost impossible to avoid.  Even a walk to the bathroom gave opportunities to bump into colleagues from completely unrelated disciplines, and for new and unexpected connections to be made between subjects, and people.  “Scientists working there pioneered a stunning list of breakthroughs, from advances in high-speed photography to the development of the physics behind microwaves. Building 20 served as an incubator for the Bose Corporation. It gave rise to the first video game and to Chomskyan linguistics”.  By the time it was finally demolished in 1998, the building was legendary for the extraordinary number of inventions and innovations whose origins lay in the shabby building.

Chance encounters between people with radically different skill sets can be hugely valuable, and are almost free for organisations to engineer.  Why doesn’t everyone do it?

Conviviality: How can not-for-profits help their employees be convivial, learn about one another, and turn the walls built by the working world into bridges?  Theodore Zeldin’s recent book is a reminder that work can and must be about more than a trade-off between ‘real’ life and something called “work” we need to “balance” against.  What if charities not only used donations and grants to deliver services, but  connected their supporters with one another, and their employees, building a mass-movement of people with shared interests and outlooks?  The imperative for this was clear as I looked at a poster in Barcelona of a Catalan charity asking for €3 to help an older person escape grinding loneliness.  While whole global businesses were built in the 20th century to fill houses with furniture, driveways with cars and planes with passengers, the third ‘revolution’ (following those in agriculture and industry) may be to fill far more lives with meaningful relationships, and to facilitate the creation of such links (Zeldin’s ‘conversation dinners‘ are one suggestion ).  This in turn could be a chance for charities (and organisations more widely) to evolve to provide not only more meaningful work, but also a solution to some of the biggest societal challenges of the 21st century, including isolation and poor mental health. Karl Wilding’s comment to the Lords Select Committee on Charities that some charities are reimagining themselves as social movements may prove to be very prescient, and not only because charities are seeking greater social proof of their causes.  The post-war model of donations for services is creaking loudly; movements funded and lead by coalition-networks of the interested, willing and able may be the future.  Am I wrong to think that’s an exciting prospect?

A Future To Believe In?: Bernie Sanders has had a busy year.  Two of his notable achievements (other than breaking the internet with a sparrow) were raising almost $230m from 8m donors with an average donation amount of $27, and, in doing so, soundly disproving the notion that low-value fundraising is old news.  Though his tilt at the Democratic Presidential nomination was ultimately unsuccessful, (not entirely due to consummate HRC campaigning), Senator Sanders moved the terms of the political debate by financing his campaign through small contributions from individuals.  This allowed him both to run on previously neglected issues of inequality, healthcare and police reform, political campaign finance and media biases in a way that would have been difficult or impossible had he appealed for major gifts from wealthier constituencies.  He also got political traction against his opponent in painting her as a creature of the Wall Street elite.

 

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Charities take note, especially of Sanders’ teams use of online fundraising, through which they raised the majority of the funds used in his Presidential nomination campaign.  The Sanders case demonstrates that a principled, urgent call to action delivered intelligently to a receptive audience who are asked to support a discrete goal works as well now as it ever did.  It also lends weight to the argument that small donations can have a big impact – a year ago relatively few people outside Vermont had heard of Bernie Sanders; he is now one of the best-known politicians in the US.  Fundraisers can learn much from his innovative, disciplined campaign.

Lastly: States collect revenue through taxes, not gifts; indeed, states who rely on gifts to function are said to have been “captured” by “special interests”, called clientelistic, or even labelled as “failed”.  As James C. Scott’s seminal Seeing Like a State makes clear, states (ie the frequently coercive bureaucratic infrastructures of authority on which nations are built) do this as it is the worst way to collect revenue, except all the others.  Is there enough discussion of the downsides of donations?

#ResearchPride

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First, let me thank Helen for taking the initiative to start #ResearchPride (and also defining what should come after).  It’s a great and timely idea – I think for a number of reasons:
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  • Fundraised income in the UK and elsewhere will struggle to grow until prospect research is more incorporated into fundraisers work and until senior leadership take it more seriously as a strategic proposition.  Prospect research’s raison d’être is to help fundraisers go where the money is, and go there often.  Yet, too often we find conference agenda lacking prospect research content, and thought leaders not discussing prospect research.  #ResearchPride is our chance to change this and tell the world how important prospect research is to funding more of the vital work our organisations do
  • We cannot escape the fact that wealth an income in many countries is now more unequal than was the case 20 or 30 years ago.  This means we cannot trust our fundraising approaches to chance.  Those able to offer truly major support are a very elite group – and we must be directed in finding them among our supporter base.  Even a brief reading of the Sunday Times Rich List shows that 2% of the value of members of the list (in 2015 valued at £587bn) would double to amount of directly donated income going to UK Charities.  And the Coutts £m Report shows that the link between wealth creation and philanthropy in Britain is weak to the point of not existing. UK GDP is £1.5trn (trillion) per year, yet £m+ philanthropy is valued at £1.3bn.  The Big Society has failed to budge this trend – while the UK is by some measures the most generous society in the world, prospect research can and should help fundraising be strategically directed toward key areas of potential growth, including high-value giving.  Important within this is ensuring charities change their habit of not asking for enough, again, something prospect research can help to change
  • Researchers give the sector space to consider new ideas and cross-pollinate.  In an industry where the next deadline is never far away, we can also help our advancement offices to lift their heads, take a look beyond within-year targets to scan the horizon for trends and innovations.  In doing so, researchers can enable fundraising to move from being a short order cook to Feran Adria.  As we’ve seen from recent developments in the UK, this is invaluable – a week (or a couple of months) is a long time in fundraising, and inertia is often not an option.  We must respond to events, and prospect research should be central to this response.
  • Finally I’m hugely proud that researchers help to make the most of donor contributions.  The ROI for investments in prospect research often exceed 10:1, a truly outstanding return.  If nonprofits are ever to overcome perennial donor concerns over admin costs and impact effectiveness, prospect research will surely be at the heart of the answer.
I’ll leave it at that.  However, many others have blogged/ tweeted and commented this month as part of #ResearchPride – some of the relevant links are here, do check them out:

Looking forward to #ResearchPride 2017!

Craig Linton interview: “the market for something to believe in is infinite”

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Craig L

Craig outlines his thinking around the recent Rogare/Professor Adrian Sargeant review of relationship fundraising, why the donor journey needs a rethink, and the enormous challenge facing big charities in breaking down silos in order to put the needs of the donor first.  Craig tweets @frdetective, and you can find his blog on the Rogare review here.  The interview is available to download here.

Also, another (Fund) Raising Voices interviewee, Ken Burnett, blogged recently on the relationship fundraising phenomenon his 1992 book began, and why the subtitle is more important than the title.  Ken’s blog is available here; he tweets @kenburnett1.

Antidisintermediationism

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There are some really long words in the English language.  Maybe the best known is antidisestablishmentarianism. Another is the is the Welsh town name Llanfairpwllgwyngyllgogerychwyrndrobwyllllantysiliogogogoch.  And the film Mary Poppins gave us  supercalifragilisticexpialidocious (even though the sound of it is simply quite atrocious).
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Another, more prosaic, long word is ‘disintermediation’.  A financial term, it simply means ‘cutting out the middle man‘.  Since the credit crunch, the finance sector has embarked on an enormous round of disintermediation, driven by the need to cut costs. While fundraising is yet to follow suit, we may not have long to wait. One example is GiveDirectly. Founded in 2008, GiveDirectly uses ‘unconditional cash transfers’ (translation: giving people money) to communities in Kenya and Uganda to alleviate poverty, boost families’ income and facilitate entrepreneurialism. GiveDirectly use ‘randomised control trials’ (RCT’s; translation: testing if an intervention works by using it on one group but not another comparable group and recording the difference in outcomes) to understand the effectiveness of their work. They claim impressive results, and that cash transfers are very effective in poverty reduction. Others disagree, arguing other interventions including affordable irrigation and micro-credit should be prioritised.  We don’t yet know who is right, but we do know that disintermediation is real and here to stay, in some form or other.  The debate matters for fundraising, whose traditional model is donors gifting money to organisations to do work.  But what if an authentic ‘100% model’ is possible?  (you may already have guessed, but I’m skeptical of Charity:Water’s claims to have achieved this already – I love their website as much as the next person, but there’s no way they have no overheads) .  What if 100% of the donation really could go to the ‘work’?

One way this could happen is by connecting the funder directly to the projects via peer-to-peer or peer-to-business (P2P or P2B).  The Internet makes this more and more possible, as Uber and AirBnB, among others, remind us. A question for fundraising is whether it will embrace the trend to disintermediation or resist and turn to ‘antidisintermediationism’?  Certainly, ‘delayering’ should not be a surprise.  Basic scenario planning or SWOT analysis reveals that peer-to-peer is fast emerging as a rival technology, not least because the traditional donor-led model makes it difficult to effectively scale-up promising ideas, and can be an enabler for ‘founders syndrome’. And beyond P2P, alternative finance channels like crowdfunding and variants of ‘impact investing’ are to the fore, as seen in the recent Cambridge University and EY report on European alternative finance (see Chris Carnie’s recent blog for more on this, and a write up of the recent European Venture Philanthropy Association conference in Madrid).  My takeaway is: start planning for a world with less passive donors and more active investors.

While this change will undoubtedly be disruptive, it could have upsides. Fundraising could seek funds from the capital markets directly, (as Scope have already done) making scaling-up easier; it could evolve its management structures to enable greater varieties (and quality) of governance; it could access more diverse mixtures of funding in order to spend to invest, which could in turn mitigate the endless chase for unrestricted funds which grant-makers and donors alike are often loath to commit; and it could use the greater plurality of funding to develop new types of projects not possible with the traditional binary restricted/unrestricted funding mix.  It could also perhaps encourage a more long-term outlook in developing donor/investor relations. I sensed exasperation in some of the comments of Higher Education attendees at the recent NCVO Fundraising summit, perhaps baffled that a crisis has arisen when most HE institutions have in fact never stopped building long-term donor relationships.  Moving the focus from donations to investments would change charities outlook fundamentally.  Disruptive, yes.  But also potentially desirable.

The Internet has revolutionised many industries, (just ask Borders) and is likely, in time, to revolutionise fundraising. P2P/P2B, crowdfunding, alternative finance and impact investing are exciting or frightening, depending on the viewpoint. But while I’m no gambler, if I had to bet I’d say that to cling to the warm blanket of familiar practice – ie antidisintermediationism, resisting inevitable technological change – would be potentially very damaging for fundraising, if not simply quite atrocious.

Kaytherington

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Oceans of ink have been spilt in recent weeks to describe and explain the causes and likely consequences of the review of fundraising regulation led by Sir Stuart Etherington.  But the fundamental issue has not received the attention it deserves.  This is not the relative (de)merits of a Fundraising Preference Service, the bonfire of the regulators, or even the need for greater trustee awareness of fundraising, necessary as that is.  Rather the key is, I think, a culture of short-termism in parts of the industry.  This is not directly addressed in the report in any length, and, in terms of proposed solutions,  only perhaps greater trustee oversight will help to remedy it.  Neither a FPS nor extra regulatory muscle will make the slightest headway with short-sighted management, nor the confusion of donations for affinity, where these things exist.  Short-termism is not only a problem for fundraising; far from it.  Al Gore, Prince Charles, the Chief Economist of the Bank of England, and US Presidential candidate Hillary Clinton have all commented recently on the perils of ‘quarterly capitalism’, where organisations sole focus is the next quarterly profit statement.  But an important question is whether the Etherington proposals will have traction on thinking that says ‘as long as this appeal washes it’s face, it’s fine. We’ll cross the next bridge when it comes’.  Because the next bridge has arrived and, as the best Prime Minister Britain never had once said, ‘the first rule is: when you’re in a hole, stop digging‘.

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Let’s be clear. Larger and more prominent sectors than our own have struggled with the slippery issue of culture change in recent years, not least financial services and media. Neither, as I write, has resolved the serious cultural issues they sought to change following various scandals and crises. In finance, ‘too big to fail’ is still with us, and, were Lehman 2.0 ever to transpire, the resolution would be no less messy than first time around.  And in media, reforms proposed by Lord Leveson are still far from effecting a paradigm shift in culture.  These major, systemically important industries have spent millions of pounds and thousands of man-hours trying to understand how to regulate away toxic cultures existing in parts of their industries.  And they have failed in important respects.  That failure stands testament to the fact that changing culture is hard because measuring it is impossible. The nearest we have to a unit of culture is a ‘meme’, and no one even pretends to know how to use memes as a working metric, even forty years after the idea was introduced by Professor Richard Dawkins in The Selfish Gene. But it is a modern axiom that ‘what gets measured gets done’. So how to fix a culture which we cannot measure in any meaningful way?

Two works by Professor John Kay could hold some of the answers for fundraising.  First is the report, commissioned in 2011 by the Coalition Government and published the following year, on tackling short-termism in finance. Of the 17 recomendations made in the report, most relevant for short-termism are the abolition of quarterly profit reporting; the development introducing a broader stewardship responsibilities for directors; consulting major, long-term investors in board appointments; and the recommendation that companies “should structure directors’ remuneration to relate incentives to sustainable long-term business performance”.  For fundraising, the takeaways are that management reporting should include metrics on the long-term wellbeing of the organisation, not just short-term financial returns, that investment must be aligned with long-term priorities of innovation and new product development, and that risk analysis should be both granular and broad-view, incorporating current, as well as planned, activity. Using these measures would have a demonstrable effect on the ways our organisations set their priorities and structure their activities, and would help to remedy charity short-termism as it has begun to with business, although there is still obviously more to do.

Another of Kay’s works may be even more relevant.  In his 2010 book ‘Obliquity‘, Kay lays out a convincing case that achieving objectives is often best done by working obliquely.  He lists example after example of businesses focused ruthlessly on quality and innovation being massively profitable, often leading their respective fields for decades.   He also highlights the ‘profit-seeking paradox’, whereby firms, (most notoriously Enron, Parmalat and WorldCom, but also stalwarts like ICI who lost their way), whose explicit focus was profits and growth, failed, often spectacularly.  Fundraising would be wise to heed these lessons.  As an industry whose raison d’etre is profit, the message is loud and clear: focusing only on money will not raise more money.  To grow giving, the industry focus must move to incorporate much more than pound signs, and should, where it does focus on income, use a broader range of more nuanced measures.  Fundraising consultant Nick Mason has spoken persuasively of the need for charities to focus less on a narrow toolkit of ROI/cost per acquisition plus one or two other measures, and to take a broader view of the metrics used in guiding strategy.  These include the Internal Rate of Return, Net Present Value and the Hurdle Rate, all commonly used indicators in other sectors.  This is partly in recognition that income targets alone do not beget income; building donor relationships is vital.  As Kevin Schulman has said, the first not-for-profit who can make each and every donor interaction a joy will clear up pretty quickly in a field where customer service levels are often mixed.  The sooner this happens the better, as stronger donor relationships will enable charities to build a true ‘value proposition’, and move the business model from Primark to Waitrose. This will in turn engage whole new segments of society, for example those neglected groups in middle England who could pretty comfortably donate in the neighbourhood of £2,000-£20,000 on a regular basis, but at the moment are not solicited for those amounts, or not stewarded to at the appropriate level for those sums.  Focusing on relationships could, obliquely, be the direct way to raising more.

obliquity pic

In all this, it is important to consider the role of regulation. Whatever form it takes, the new regulator will be an essentially reactive institution. Cf. the Charity Commission who, as a body, can barely keep up with major regulatory events such as the Cup Trust saga.  The handling of this episode led a scathing National Audit Office to conclude that the Commission “makes little use of its enforcement powers, for example suspending only two trustees and removing none in 2012-13”, adding that “[the CC can also] be slow to act when investigating regulatory concerns…Furthermore, the [CC] does not take tough enough action in some of the most serious regulatory cases. It is…reactive rather than proactive, making insufficient use of the information it holds to identify risk”.  Margaret Hodge MP, then-Chair of the Parliamentary Public Affairs Committee was more blunt in saying that the Charity Commission “[obviously] has no coherent strategy and has been simply buffeted by external events” adding that “[i]t is clear that the Charity Commission is not fit for purpose.”  Even with a smaller remit, the new regulator will be at or close to capacity from day one.  We must recognise, therefore, that culture change among not-for-profits will come not from an army of regulators monitoring our every move.  It will come from performance management and incentives set by the sector itself. The new regulator will be a fire service, (and not a particularly well-funded one), called out to the deal with the most serious accidents or offences, not a police force patrolling the beat.  In important senses, we have to fix our own mess.

How we define and measure success will be at the heart of achieving this.  Internal reporting, governance and performance measurement to prioritise donor satisfaction, engagement and affinity, and to dethrone ROI and  RFV, (indeed, to ensure that “no one metric is sovereign“), will be critical in moving from ‘has this appeal covered its costs?’ to proper relationship fundraising.  Developing governance, management and methdologies to ensure donor relationships are at the heart of what we do will be the oblique, but also the most direct, way to growth.  The proposed Etherington reforms do not address this issue, and they will not cure the myopia suffered by bits of the sector.  The solutions will come from not-for-profits themselves recognising the need to change.  Hopefully, oceans more ink will not be needed before that happens.

Computer Says Yes

/ rymerben / Leave a comment

In a New York office in the early 1980s, a young currency trader listened intently during meetings of newly formed NGO Helsinki Watch. The meetings were taken up with passionate talk of human rights and the need to expand freedoms in undemocratic nations, vital issues to the young financier, who was born and raised in autocratic, Soviet-era Hungary before coming to the US to make his fortune.

The trader was George Soros, and the NGO later became Human Rights Watch.  In 2010, Mr Soros made a donation of $100m to HRW, the largest in its history.  It was a transformational gift allowing them to expand beyond their traditional base in wealthy western countries, into influential developing nations like Brazil and South Africa.

At the time of his attending Helsinki Watch meetings Mr Soros would not have scored highly on a recency, frequency, value (RFV) giving model, and he would not have matched on a wealth screening.  His gifts became significant only after years – decades – of involvement with HRW and it’s predecessors.  However, during this time, he formed an enduring attachment with not only HRW, but the cause of human rights more widely.  By 2010, he saw himself (and was) an integral part of the movement; rather than just handing over a cheque, he was funding a project with which he was intimately involved.  The question in his mind when making the gift would not have been ‘how much do they want from me this time?’ but ‘what do we want to achieve, and what will it realistically cost?’.  Indeed, when the call came for a transformational gift, Soros actually bargained up, arguing that to achieve their aims HRW needed more than the $50m they thought. The only explanation for this is that he is deeply committed to and trusting of the organisation and their project.

This story matters for at least two reasons.  First, the number of major gifts made in the UK,  including really large ones such as that of Mr Soros, should be growing — but aren’t (indeed, there has never been a nine-figure gift from a British philanthropist to an operational UK charity).  The wealth of members of the Sunday Times Rich List and value of £m donations in the Coutts Million Pound Report bear no relation, with UK top wealth doubling since 2009 but £m gifts static:

Coutts £m 2014
Also, the majority of such gifts are concentrated in a few sectors such as Arts & Heritage and Higher Education, missing other important areas; of 197 £m gifts in the most recent Coutts Million Pound Report, ‘Human Services’ received 10, ‘the Environment’ six,  and ‘Government’ one.  Vital though it is, non-university education received exactly zero £m donations in that year:
Coutts £m 2014 no2
Wealth alone obviously does not predict donations, but the lack of association between the two in this case is worrying, and indicates issues with the nature of philanthropic engagement, and perhaps the profile of philanthropy fundraising, in the UK charitable sector.

Secondly, and relatedly, charities’ methodologies often direct fundraising appeals  toward those supporters giving smaller, regular gifts.  Indeed, this is a striking absence from recent commentary on UK charities; a critical reason some donors come to be contacted repeatedly is that, time and again, transaction-focused methodologies lead back to those giving recently and/or often.  Major gifts result from major involvement and affinity; but transaction-obsession gives no insight into this causal connection.  Seeing gifts as a synonym for affinity is wrong, rather like measuring the number of leaves on a tree to understand its health, rather than the roots.  Confusing the two is part of the reason charities, like the Red Queen in Through the Looking Glass, must run ever faster just to stand still; RFV always reveals the same pond, and often leads to over-fishing.   Success depends upon asking, and acting upon, the right questions, and our current toolkit often leads us to bad explanations, bad conclusions, and, even worse, may even prevent us from asking the right questions.  This matters because, (as Professor Adrian Sargeant and others have proven), “charities exist as an expression of their supporters’ will to make a difference“, so measuring affinity must be the challenge to tackle in identifying those supporters most likely to increase giving.  Recognising this is crucial to identifying those most connected to the cause, and therefore to stepping off the transactional treadmill (or is a hamster wheel?).  Donations are means, not ends in themselves.
red queen
So, what to do?  We need the computer to say ‘yes’, and be right.  That is, a methodology to identify affinity/connection and capacity to give at higher levels.  My suggested agenda for practical, insightful Philanthropy prospecting, and what Adrian Salmon recently called ‘leadership giving‘, is based not only on donations, but also on the range and frequency of touch-points with the charity, such as spontaneously offered comments and feedback, survey sign ups, questionnaire responses, petition signatures, as well as measures of estimated capacity.  Critical to this is the degree of activity supporters show in their interactions and that the fact that in many cases engagement does not take the form of donations.  In thinking about identifiable forms such engagement can take, I often ask myself things like:

Who is responding to more than one in ten appeals? (‘responding’ not necessarily meaning sending gifts)
Which supporters contact us unprompted to update details, chase us to re-send something or ask unprompted questions about our work?
Do we have petition signatories from affluent areas who may want to uplift their giving or become a supporter?
Who donates via active methods, ie internet donations, cheques, telephone calls or mail donations?
Who attends our advocacy events?  Are there repeat visitors?
Which households have more than one family member who is a supporter?
Who is supporting us in memory? Who among our supporters has direct experience of the cause we work to support?
Whose giving is uplifting spontaneously?

These are just examples, the point being that thinking analytically about supporter engagement can be done with some simple data and a willingness to try.  Stuart McCoy’s useful presentation to the IoF Insight group a couple of years ago gives many more ideas for such data-driven prospecting.

Combining measures of affinity and capacity can be done quickly, cheaply and to great effect.  When this is understood, the case becomes clear for fundraising appeals and products designed for those passionate donors and volunteers able to offer support in four, five six and seven figures.  But this is not ‘just ask more’ for the 1%; it is responsible, evidence-based practice that can and should profitably guide donor relationship-building by aligning fundraising with society’s evolving wealth dynamics and supporters’ strength of feeling.  Contrary to recent coverage, it would be hugely irresponsible for charities not to try to understand who may want, and be able to, offer more significant support.  Because, by doing so, data driven fundraising can be a path to growth, for the sector as well as individual organisations within it.  Unless and until charity fundraising aligns better with the social dynamics of wealth, and incorporates insights on affinity and capacity to grow giving at the top, charity secular stagnation will continue.

Change often follows a positive message: Barack Obama did not say ‘No, They Can’t’, and Dr. Martin Luther King did not say ‘I have a nightmare’.  And in a sector forecast to be heading for a £4.6bn shortfall (around a third of current total income) within the next four years, an achievable, sustainable way to grow overall giving through enduring donor relationships surely fits the bill.

Cargo Cult Fundraising

/ rymerben / 2 Comments

During World War Two, a tribe in the Pacific Islands saw American supply planes disembark their cargo onto a landing strip.  Having a strong belief in the divine, they reasoned that the planes were sent by a God, and that, were they to build a replica airstrip, correct in every detail, the God would send them planes laden with valuable supplies (‘cargo‘).  So they set about building wooden huts, a wooden airstrip, painting their chests with ‘U.S.A’, even staffing the huts with people and building fires alongside them to mimic guide lights.  But the planes were not sent by a God, they were built and flown by the American army, and none brought the hoped-for cargo to the Islanders’ airstrip.

cargo cult pic

Cargo cults are a famous example of ‘magical thinking’, where a conclusion is reached that evidence does not support, or even suggest.  Fundraising seems to be suffering from a classic case of magical thinking.  The patient is serious but stable, although the long-term prospects are dim.  Exhibit A: digital fundraising.  By looking for the next ice bucket challenge or #nomakeupselfie — in effect praying for free money to fall out of the sky — we may as well build our own plywood airstrips.  No doubt a strong digital brand is a prerequisite for many organisations in this day and age.  However, in scrambling to co-opt the next trending hashtag, we are diverted from the demanding, but rewarding and necessary work of building enduring donor relationships of long-term value.  We are also labeled cynical and opportunistic by the very audience we sought to engage; ultimately, this is not an arms race with a winner, it ends in scorched earth and attrition.  Exhibit B: certain types of direct fundraising, including philanthropy and individual giving.  In these areas, for different reasons and in different ways, wishing harder seems to be an accepted methodology.  At major donor seminars, the almost palpable hope is for a wealthy philanthropist to come to the first event they are invited to, immediately write a huge cheque with no expectation of reporting or stewardship, and do the same the next year.  And individual giving keeps a-wishin’ — despite continued 90%+ non–responder rates — for a white knight (looking at you, behavioural economics) to come and save the day, despite no evidence that either response rates nor overall giving will grow, or even remain static, with current methods.  The gifts keep not coming or coming more slowly, but we still build our wooden airstrips, light the fires and wait for the cargo to arrive.

These are off-the-cuff examples — there are more. The point is that growing giving will be disruptive and require a complete refutation of the ‘churn and burn’/’just ask more’ mindset which is “as baffling as it is persistent“.  Innovation always bears risk.  But the risk posed by business as usual is surely greater still.  To mitigate it, we could do worse than follow Rene Bekkers’ suggested agenda to increase donations, proposed recently at the University of Kent:
  1. A serious political discussion about the role of philanthropy in public policy.
  2. Decent research informing policy decisions, paying attention to undesirable side-effects.
  3. An Impact Philanthropy Lab (IPL): creation and evaluation of new philanthropic / business investment instruments.
  4. Knowledge about what works in fundraising, and about failures

My addition to the list would be to discuss failure openly and constructively.  Learning from failure is fundamental to progress and innovation but often, it seems, we brush it under the carpet or quietly shelve ‘failed’ projects.  Organisations such as Glass Pockets and Fail Forward, taking their lead from initiatives like Engineers Without Borders Canada’s ‘Failure Report’, are helping not-for-profits learn that, as NPC said recently,  “the public wants to see charities use evidence to become more effective and don’t mind hearing about past failures as part of this process”.

failure report

Choosing whether to take these lessons on board may now not be a matter for charities, in the UK at least.  The British Government announced this week that, following recent high-profile scandals and tragedies, it would back new laws to limit charity fundraising communications; the first step in this being a review of charity self-regulation by NCVO Chief Executive Sir Stuart Etherington.  Charities’ Minister Rob Wilson has left no doubt that charities are losing control of their own destiny in saying recently: “[c]harities need to take more responsibility for their […] fundraising, and ask themselves how they would feel if they were on the receiving end of their organisation’s fundraising practices..[n]o one should try to deny that there is a problem here or that there are indefensible practices taking place..[charities] do not have the luxury of time. There are demands for immediate action not words…I urge you to take that window of opportunity seriously as [it] may not remain open for much longer.”

The calls for actions should not be a surprise.  As previous interviewee on this site Charlie Hulme pointed out in a brilliant polemic this week, their causes have deep roots in our methodologies, particularly the singular failure to understand donor motivation: “[w]hat do we actually know about the people we systematically bombard with requests for more money? We know their transactional history and demographic profile. But knowing who gave, what they gave, when they gave and how they gave tells us nothing, nothing, NOTHING about why they gave or would give again….As a sector growth is stagnant. Retention rates are catastrophic. And fewer and fewer people like, much less trust, us.  Our jaded, complacent, timid sector is mired in bad business and bad ethics. Bad business because, despite the rhetoric, we do nothing to change a set up that, by definition, precludes the concept of being ‘donor centric’ from being anything more than a buzzword. Bad ethics because this stops us growing and making the slightest dent in mission.”  These are strong words, but to quote economist John Maynard Keynes, to have their full impact “words ought to be a little wild”.  Charlie, Kevin Schulman, Roger Craver, Ken Burnett and others have warned for years (and decades) of the risks associated with ‘just ask more’.  They are surely being proven right now, and deserve to be listened to.

wright bros plane

Charities can persist — as cargo cults do — or they can change and thrive.  The causes we represent are the best imaginable, but as Sir Stuart Etherington said this week, “[c]harities can only do the work they do because of the trust, confidence and overwhelming generosity of the British people”.  Not regaining this trust and confidence will be the death knell for ambitions to grow, or even maintain, giving.  Nobel Prize-winning physicist Richard Feynman famously said that to avoid ‘cargo cult thinking’, “the first principle is that you must not fool yourself–and you are the easiest person to fool”.  Rather than fooling ourselves, we should dare to know why our supporters choose the charities and causes they do, and dare to break the ‘ask less’ taboo.  Rigorous use of evidence, learning from ‘failure’, being honest with ourselves and donors, and actively seeking out disruptive innovation will all be key parts of our being able to raise, and do, more for those who need us.

The planes will not land unless we have the courage and skill to build them.