General Ramblings: On Dangerous Ground

August 1, 2008       Paul Clolery      

There were two troubling news items during the past 30 days. The first was somewhat expected, while managers should have seen the second one coming.

Target Analysis Group reported that both the number of donors and revenue declined during the first quarter of 2008. It’s the first time that has occurred since Target started keeping records in the fall of 2001. The fact that the news isn’t startling doesn’t make it less of a concern. The finding was from 72 major nonprofits that use direct response as a major form of fundraising and excludes gifts of more than $5,000.

The number of donors has been declining for a couple of years but those still giving picked up the slack. Many executives argue that the soft economy is the culprit. That’s probably true when it comes to revenue. But when it comes to the number of donors, charities have been feeding like piranha on the current school of donors. The economy has been soft but the impact has not truly been felt until the past six to eight months. Donor files began eroding long before that window of time.

The U.S. population is expanding, yet most organizations are renting lists for solicitation of people who have already given. The strategy is that they have already been trained to give. That makes some sense but charities are spending too much time trying to take business away from each other. Some will say that’s an unfair characterization and that more giving floats every boat. But when the lake has been fished-out, it’s time to restock.

Because the economy is tightening, many charities are pulling back acquisition solicitations. That is the wrong tactic. Super sales people say the way to get out of a tight economy is to sell your way out of it. In the case of charities, it’s expanding the donor universe.

The snippet of information provided on the first day of every beginning fundraising course is that when polled, donors said that the primary reason they gave was because they were asked, not because they had an extra $20 they couldn’t put to better use.

Charities need to start tapping deeper into the expanding U.S. population. Some executives who live and die by direct mail say that it’s gotten too expensive to try elaborate acquisition campaigns in an untried market. That’s a recipe for disaster. The organizations in the Target study keeping afloat are those mailing like crazy on acquisition. They are finding new donors. No business, for-profit or nonprofit, survives without investment in new markets. The Target study shows that it’s time to find a new fishing hole.

The story that is disturbing, but of little surprise, is word of the travel voucher scandal at the Points of Light Institute. I wouldn’t want to be Michelle Nunn right about now. She was running the Hands on Network in Atlanta and doing nicely. Then came the merger with the Points of Light Foundation and the recent renaming of the joined organizations as the Points of Light Institute. They might want to go back to Hands on Network.

A private contractor inherited from the Points of Light Foundation was selling vouchers for air travel and hotels on eBay as part of a Points of Light program. Well, people started not getting their certificates and there might be more than 1,000 clients and tickets in the lurch.

Needless to say, an investigation is under way and Nunn and staff called in prosecutors to sort through the situation. Thousands of tickets were sold at the eBay store yet, according to Nunn, the pre-merger audit showed the business unit generating only $100,000 in gross revenue and netting just $15,000.

This merger is new enough to dump this mess on the doorstep of the foundation’s former management and board. Assuming there wasn’t fraud, how can a business unit only be generating 15 percent on a pass-through transaction?

The board members from the old Points of Light Foundation apparently are writing checks to make everyone whole. This isn’t the first time they have had to bail out bad business decisions of the old organization.

They should keep their pens out once the checks are written and sign letters of resignation from the merged board. They need to give Nunn and her staff the room they need to fix the mess they inherited. NPT

NonProfit  Times
The Leading Business Publication For Nonprofit Management