One of the biggest challenges the nonprofit sector faces is the sometimes dysfunctional relationship between nonprofits and their funders. I’ve talked before about how nonprofits should stop lying to their donors. But now I want to discuss the flip side of the issue–how to respond to some of the crazy things donors demand.
I firmly believe that nonprofits should not sit idly by when donors make crazy demands or give impossible instructions. It is the responsibility of a strong nonprofit leader to stand up to their donors and help educate them about the realities of the sector.
So the next time one of your donors throws one of the below at you, here’s how you can respond:
When a donor says: “Don’t spend any of my money on fundraising or infrastructure.”
“It might seem more effective to have all of your gifts go to support direct services, but actually those services will be stronger and more sustainable if there is a healthy, effective organization behind them. That means our organization needs a capable, well-trained and paid staff; a sustainable financial engine; adequate equipment, systems and space; and efficient technology. Occasionally you might think about supporting those infrastructure items so that your program gifts can go even further.”
When a donor says “I want to know exactly how every penny of my money was spent.”
“I hope that you are investing in our program and our management team because you believe ours is the right solution to this social problem, and we are the right team to execute on that solution. We will be happy to provide you, on a regular basis, results about how the program grows and the impact it achieves, but the kind of extensive, detailed, and funder-specific reporting that you are requiring would take us away from delivering the program and creating impact, and I know you don’t want to do that.”
When a donor says “I won’t fund your program without proven results, but I won’t fund an evaluation study.”
“When you say that you are putting our organization into a catch-22 of needing a key element to get funding, but not having the funding to get the key element. It’s an unwinnable situation. We would love to be able to demonstrate the kind of results you are requesting. However, we have not yet identified a donor or group of donors who is willing to fund that kind of project. Would you be willing to lead an effort to get a small group of funders together to fund such an important evaluation study?”
When a donor says “I want your nonprofit to make huge changes from my $10,000 gift.”
“We agree that the change you would like to see is very exciting. We have done our research on the type of change you would like to see and it would cost approximately $100,000 [insert the correct figure] to bring to fruition. Is $100,000 a gift you would like to make to our organization? If not, would you be willing to identify a group of funders who could join you to fund this change? And if not, then we would gratefully accept your $10,000 gift to support our regular program operations.”
We have to create the nonprofit donors we want to see in the world. When a donor makes an unrealistic demand, use it as an opportunity to educate them about the reality of the nonprofits they support. In so doing, you are creating a better donor for the whole sector.
Photo Credit: Zach Klein
Nonprofit donors, particularly foundations and wealthy individuals, have an enormous amount of power in the sector. Sometimes they use that power for good and sometimes (often unknowingly) they use it for ill. And because of the power imbalance between funder and fundee, it is unusual that anyone ever tells nonprofit donors what they could do to really help the sector and the organizations they love.
So here are the five things I would LOVE to see more nonprofit donors do. And if they did, it might just transform the sector.
- Take Risks
The higher the risk, the higher the potential payoff. A nonprofit organization may not be able to guarantee the outcomes or numbers that they are projecting, but you can’t realize big numbers and outcomes without taking risks. What if instead of always taking the safe route of investing in well-proven programs, you took a chance every once in awhile and funded a new innovative solution? What if you set aside a portion of your giving to invest in those crazy, bold, awesome new ideas? Because the complex problems we are facing require completely new solutions, and those require risk.
- Provide Capital
I know I sound like a broken record sometimes but a nonprofit can not survive on revenue alone. Every once in awhile a nonprofit organization needs money to build or strengthen their organization. Money for technology, systems, staffing, evaluation. You may not think these things are sexy, but they are incredibly necessary. Because how in the world can you have an effective, efficient program if you have no mechanism for tracking data, or evaluating results, or streamlining systems?
- Provide Patient Capital
If you make an investment in something risky or in building an organization, that investment takes time to pay off. You cannot expect a nonprofit to execute on a change plan in a couple of weeks or months. The bigger the investment and change you seek, the longer it takes to see results. Take a deep breath and let your investments pay off, over time.
- Leave Your Ego at the Door
Oh please, please, please don’t assume that just because you have money you have all the answers. Most nonprofit leaders are program experts who have been working on their particular social problem for some time. They may not have all the answers, but they probably know more than you do. They live in the trenches. That’s not to say they shouldn’t be open to new ideas, questions and insights, they absolutely should. But at the end of the day, invest in them and get out of the way so that they can do what they do best.
- Support the Sales Function
We all understand that in the for-profit world a business can’t exist if it doesn’t have a process for selling the products it creates. And that process takes money. Whether you hire a sales team, or do advertising, or shout from a megaphone you must have a way to encourage people to buy your product. The same is true in the nonprofit sector. The only difference is that “sales” is called “fundraising.” Nonprofits must have a process for bringing money in the door in order to keep providing programs. And that process has costs–a Development Director, a donor database, materials. Don’t thumb your nose at the sales function. It is absolutely critical to the success of the organization. So help fund it once in awhile.
God love them, but sometimes nonprofit donors drive me nuts. Their hearts are in the right place, there is no doubt. But if we could encourage them to provide more risky, patient, self-less capital it could transform the sector.
Photo Credit: yellowmeansgo
The following list comes from the Resources page of the Social Velocity web site. The page includes social innovation conferences, organizations, funders, blogs, books and other things that anyone involved in the social change space should be aware of. It could be a starting point or an ongoing exploration of what’s going on in the space.
We are constantly adding to the Resources page, so if we are missing something, let us know in the comments.
Organizations Moving Social Innovation Forward
- 130 Ways to Fund Your Social Venture
- Center for Effective Philanthropy
- Dell Social Innovation Competition
- Echoing Green
- New Profit
- Nonprofit Finance Fund
- Public-Philanthropic Partnerships at the Council on Foundations
- Robert Wood Johnson’s Pioneer Portfolio
- Sea Change Capital
- Unreasonable Institute
- Venture Philanthropy Partners
- Accelerating Social Entrepreneurship in the Age of Austerity
- Bottom Billions Bottom Line
- Clinton Global Initiative Annual Meeting
- Conference on Scaling Impact (by Social Impact Exchange)
- FSG and SSIR Collective Impact Conference
- Grantmakers for Effective Organizations Conference
- Harvard Social Enterprise Conference
- Net Change Week
- Net Impact 2011 Conference
- NextGen: Charity
- The Nonprofit Management Institute (by Stanford Social Innovation Review)
- Opportunity Collaboration
- ReVisioning Value
- Skoll World Forum on Social Entrepreneurship
- Social Capital Markets Conference
- Social Enterprise Summit
- Social Enterprise World Forum
- Social Good Summit
- Social Venture Capital / Social Enterprise (Miami)
- Social Venture Network Conference
- Social Venture Partners International Annual Conference
- The Feast
- UST Symposium on Social Entrepreneurship
Philanthropic Thought Leaders
Things to Read
- SSIR Opinion Blog: Social Entrepreneurship
- SSIR Opinion Blog: Nonprofit Management
- Philanthropy 2173
- NFF's Social Currency Blog
- New Philanthropy Capital's Blog
- Money and Mission
- GuideStar: Bob Ottenhoff Blog
- Full Contact Philanthropy
- Deep Social Impact
- Dan Pallotta: Harvard Business Review
- Beth's Blog: How Nonprofits are Using Social Media to Power Change
- Against the Grain
- About.com Nonprofit Charitable Orgs
- A Smart Bear: Startups & Marketing for Geeks
- Beyond Fundraising
- Nonprofit Growth Capital, Building is not Buying
- The Nonprofit Starvation Cycle
- Social Finance
- Social Impact Bonds
- The Task Force on Social Finance
- Understanding Nonprofit Financial Statements
Using Social Media
- Built to Last: Successful Habits of Visionary Companies
- Creating Public Value
- Forces for Good: The Six Practices of High-Impact Nonprofits
- Good to Great
- Good to Great and the Social Sector
- Leap of Reason: Managing to Outcomes in an Era of Scarcity
- Strategic Management of Charter Schools
- Getting to Maybe: How the World is Changed
- How to Change the World
- One Day, All Children…: The Unlikely Triumph Of Teach For America And What I Learned Along The Way
- Social Innovation Generation
- The Power of Unreasonable People: How Social Entrepreneurs Create Markets That Change the World
- The Social Innovation Dynamic
- Work on Purpose
- Franchise Organizations
- Scaling Social Impact: Strategies for Spreading Social Innovations. Stanford Social Innovation Review
- The Five Meanings of Scale
- The Nonprofit Outcomes Toolbox
Photo Credit: annabellaphoto
Even if you aren’t a subscriber to Netflix (the DVD and online streaming video service) you have probably heard about how their bad decisions have cost them thousands of customers in recent months. Although a nonprofit might seem worlds apart from Netflix, there is still much to be learned from their debacle.
Unlike for-profit companies that have only one customer group, nonprofits actually have two. First are those customers to whom nonprofits provide services — their clients. For a homeless shelter these “customers” are their homeless clients. Their second customer group is those who pay for the services — their funders. So for nonprofits, customer management is much more complex. I would argue that nonprofits generally do a good job of understanding and taking care of their client customers. But their second customer group, funders, can sometimes get lost in the shuffle.
Which makes the lessons from Netflix even more important. Here’s what Netflix teaches us about taking care of your supporters:
Listen to Your Supporters
Netflix assumed that their customers were so in love with their services that a 60% price hike wouldn’t phase them. When customers flooded the Netflix blog and took to Twitter to complain, Netflix largely ignored their customer’s anger. Then Netflix was shocked when customers started leaving in droves. Organizations make mistakes and will at times irritate their customers, the trick is to listen to your customers and quickly correct any missteps. This is particularly important now that social media is so prevalent and is often the first place people go to vent about an organization. Listen to your funders, volunteers, supporters and other community advocates wherever they are and respond to their feedback, concerns, ideas. Don’t build walls around your nonprofit and ignore the outside world. Meet people where they are talking about you and listen and engage in a conversation with them.
Understand How Your Supporters Tick
It’s not enough, however, to simply listen to your customers, you have to understand what they want and need. Netflix assumed that separating DVD rentals from online video streaming was no big deal to customers. Boy were they wrong. The introduction of Qwikster, a separate DVD-only service from Netflix, threw an already angered customer base into a tailspin. Netflix failed to understand how their customers operate. Having two separate websites, two separate passwords and two separate queues for movies was completely untenable to their customers. As a nonprofit you have to understand how your supporters operate and what makes them tick. What about your mission and programs appeals to your supporters? How do they want to be involved? Invest some time in getting to know your donors, volunteers, board members, friends, advocates and what makes them passionate about your nonprofit, how best to engage them, what they’d like to do to support the cause, and how to make it easy for them to do so.
Acknowledge That Your Supporters Ultimately Run Your Business
Netflix forgot that their customers run their business. Without customers, there is no Netflix. Similarly for nonprofits, you may like to think that you exist solely to achieve your mission, but you have no mission without a way to fund it. You cannot separate your mission from how you financially support it. You need to take a step back and understand what types of funding and funders your mission would appeal to (Is your organization a good sell to individuals? Is there an opportunity for school or other government contracts? Is earned income an option?) and then develop a plan for going after and sustaining those funders.
Figure Out a Viable Business Model
Netflix used to have a very viable, profitable business model. But movie studios have realized that there is more money to be made in content, so their financial demands on Netflix have increased dramatically. Which pushed Netflix to increase customer prices. Now Netflix’s business model is out of whack. I’m not a media content expert, so I have no idea what a viable business model is for Netflix, but I don’t think they do either. The trick is to figure out how to get revenue and expenses to create a net positive. For nonprofits, the same is true. Funders will be more likely to support a viable entity with a bright future. Get your financial house in order by aligning your mission with a way to bring sustainable money in the door and funders will be more likely to support you.
Netflix’s missteps have almost been painful to watch. But watch we must if we are going to learn how to avoid their pitfalls. Whether you run a for-profit or nonprofit organization, you must be ever-cognizant of your customers and constantly work to fully integrate them into a successful, viable financial model.