Roger Craver is a veteran fundraiser who helped launch and build some of the household names nonprofit advoacacy. Amnesty International, Habitat for Humantiy International, Greenpeace, Common Cause, World Wildlife Fund International , and the Heifer Project International. He is the Chief Editor of The Agitator, a daily blog on fundraising trends. Roger is the author of “Retention Fundaising: the new art and science of keeping your donors for life.” (2014, Emerson & Church ). He holds a B.A. from Dickinson College and a J.D. from the George Washington University National Law Center.
Kevin Schulman is the founder and Managing Partner of DonorVoice, a retention and donor experience company serving nonprofits in the US, Canada, Europe, UK and Australia. Before founding DonorVoice Kevin served as CEO of a modeling and analytics company servicing non- profits. He holds a Master’s Degree in Survey Methodology and Bachelor’s degrees in Economics and Sociology from The University of Virginia.
The non-profit sector has grown rapidly n the past decade if measured by the number of organizations. Alas, it is also shrinking as seen by the more meaningful measure of private giving as a share of national income. On this score it is down 11%.
A smaller pie and more mouths to feed is a recipe for disaster and yet, status quo thinking and activity dominate within organizations. The growth curve can be bent but only with a willingness to do business much differently.
In the realms of computer science, operations research and management science lives the world of mathematical optimization, conceptually a very simple concept, with the purpose of finding the best approach from a set of available alternatives.
This definition could just as easily be applied to fundraising strategy, and even life. There is however one insidious concern with optimization; what if the set of alternatives we are optimizing or choosing among is not complete? What if we have unintentionally omitted the best alternative from consideration? Unknowingly the “optimum” isn’t optimum at all, merely the best of our not- so- best options.
Mathematicians call this “local optimization” versus “global optimization” with the former representing identification of a “winner” among a set of choices that does not include the overall (or global) best choice.
This global versus local phenomenon is very useful when conceptually considering the lack of growth in non-profit fundraising and how to fix it.
What growth problem you ask? Look no further than well-publicized statistics pointing out the share of national income going to charities is down 11% while the number of charities chasing this smaller pie is up 47%.
A useful analogy for a much-needed conversation on growth is that of comparing foothills and mountain peaks. The former representing local optimization and the latter, global. The only real growth comes from moving from a locally optimized way of doing business to a global one.
The purpose of this paper is to substantiate three main takeaways:
It is worth noting as a final introductory comment that the growth curve when moving from local to global optimization is the exact same curve experienced by those bringing new innovations to the market -- the familiar, flattened “S” shape (figure 1) . The process unfolds as follows: slow growth to start as the changes in mindset, methods and metrics required for global optimization becomes more ingrained. This phase is followed by massive growth and then a natural flattening but only after reaching the summit.
As figure 2 suggests, only about 15% of the market – the Innovators and Early Adopters – will be first movers in this new way to do business, but their growth will be massive. The rest are followers to varying degrees. This reality means the majority of charities are best served selecting the “Head Down” strategy—staying put in the foothills never to reach the peak, but maintaining their lower position with greater efficiency.
Living in the Foothills
Non-profit strategic planning, fundraising and marketing tend to live in the foothills. For a lot-- dare we say most--of the big charities, they are locally optimized.
Within their conventional world of best practices--A/B testing of incremental changes, strategy by spreadsheet and internal white board sessions --their world is as good as it will get. In fact, the way to stay at the top of this locally optimized place is to stop the incremental changes since they only cause the organization to slip (albeit a small amount) from the locally optimized perch at the top of the foothill when you factor in all the time and cost and the reality that for every “winning”, campaign level test there are far more losing ones. And every losing idea that wasn’t ‘breakthrough’ or innovative in the first place costs money; both hard cost and opportunity cost.
There are three organizational characteristic categories – mindset, methods, metrics – to describe a non-profit that is running its business in the foothills and similarly, to describe and distinguish those from the very few living (or at least climbing) on the mountain peaks.
We need look no further than how strategy is typically thought of today as the (not so) shining example of local optimization and the need for change.
Strategy for the charity living in the foothills quickly devolves into a spreadsheet exercise. The larger the spreadsheets, the more confident the local optimization organization is in its process. All those numbers and data feel analytical, even scientific.
So why do managers and those on the front lines responsible for executing the “strategy” tend to dread the annual strategic planning ritual? Why does it consume so much time and have so little impact on organizational actions? The reason; those people responsible for delivering on the plan recognize the process as it exists today does not produce novel strategies.
Instead, it perpetuates the status quo.
But, if the alternative is ideation sessions and off-site retreats to come up with radical, big new ideas then these same managers and directors make the right choice in sticking with the process that at least produces some short term comfort versus the 1 day of talking with no action.
The short term comfort (along with a certain amount of resignation) lasts until the returns start coming in and we see – to nobody’s actual surprise - that revenue is not as predictable as Excel would lead us to believe – though the costs are dead on.
So what is the alternative? What does strategy look like if an organization is attempting to globally optimize its world? For starters,
The View from the Mountain Peak
The difference between the global and local optimization nonprofit is a function of mindset, methods and metrics but these categories are not equally weighted. Or more accurately, mindset is the foundational layer for better methods and associated metrics. As Peter Drucker correctly observed, “culture eats strategy for breakfast”.
In a research project conducted by Adrian Sargeant and Jen Sheng, noted experts in charitable giving, and published under the title “Great Fundraising” by Clayton Burnett they set out to determine what causes great fundraising. Their definition of “great” is doubling, tripling or quadrupling income. They did extensive interviewing and analysis among the tiny handful of charities that met this threshold and discovered,
“In most cases a fundamental cultural shift needed to occur at the level of the organization (not just at the level of the fundraising team). Even basic assumptions and norms about how the organization operated frequently had to be challenged and changed, either by the CEO or the fundraising director and their peers. In a number of cases, for example, the organization had been failing to meet its fundraising targets for several years and thus it was now assumed that the target would not be met and that it was acceptable not to meet it. Such assumptions were unacceptable.”
Organizations that accept the status quo are highly limited in their potential to move to the peaks. The real mental or cultural barrier is not assigning risk to status quo, which for most charities is a flat to downward trendline on net growth.
If this trendline is implicitly accepted then any process, product or thinking that deviates from the current order is seen as more risky than doing nothing different and the implied risk level of zero assigned to it. It is easy to see why change is unlikely in these organizations.
So what does it look like from the mountaintops? Here are two illustrations.
NSPCC Case Study (per the research project conducted by Adrian Sargeant and Jen Sheng, noted experts in charitable giving, and published under the title “Great Fundraising” by Clayton Burnett)
The National Society for the Prevention of Cruelty to Children (NSPCC) is a very large charity in the United Kingdom. At the turn of the millennium they launched a campaign (“Full Stop”) with the goal of raising £250 million pounds (roughly $419 million dollars). During the first phase they raised half the total, £125 million, more than twice the size of any comparable effort in the history of UK fundraising.
However, the revenue started to flatten and little more was raised for about 2 years between 2002 and 2003. This represented a significant barrier to growth. There were many observers – internally and externally – arguing the campaign had reached a “natural” saturation point. Surely this was sufficient, right? Enormous success by any historical measure and it running out of ‘energy’ was to be expected.
The local optimization organization would surely have let this campaign wither on the proverbial vine and likely resort to a myriad of incremental, package level changes that only serve to take up time, hard cost and opportunity cost and deliver no breakthrough results.
What was required was a change in mindset to lead to a new approach and a way to reinvigorate the internal team. The fundraising director sums up the new thinking that led to a new way to organize and ultimately, raise the second half – the other £125 million.
“And the thing that was fundamental was, people were saying, what did you do with the money? They wanted to know exactly how their money was being used. And for us - we’d previously been organizing ourselves by how you reach people – segments and so forth - and that obscured how the money was used. We’d missed something. And what we’d missed was that there was a better way of getting to people, designing the approach to talk to groups of people who were passionate about the same thing!” “I was at home considering this and I thought that’s profound. Rather than building teams around our sectors, corporate, regional, sport etc; could we build teams around our programmes.” “So we built a volunteer team raising money for our helpline, a volunteer team raising money for our treatment programmes, overall we built another group of (6 or 7) what we called project focused teams. And then we went back to the same principle we’d adopted previously: strategy then structure, form follows purpose. So we would aim to raise money for programmes, build our teams around the programmes, and have the volunteer and importantly the staff structure follow that strategy. We reorganised our staff teams in the same way to retain the staff/leadership mirror.”
The part of the answer that lies in employing donor input to provide the necessary new thinking it not coincidental. One of the significant markers of a global optimization organization is looking outward versus inward to develop new ideas and testable hypotheses.
As demonstrable proof of the need for constituent input versus exclusive reliance on transactional data (local optimization) or worse, internally derived and subjective input, consider the Norwegian Cancer Society and their “radical” (from the foothills vantage point) website redesign.
The following excerpts from The Agitator (you can find the full Agitator post, here) provide a good and entertaining summary.
Excerpts from the Agitator:
WAGER: I’m betting there’s no more than one out of every 10,000 nonprofits in the world with the guts or patience to follow the process I’m about to report. It’s donor-centric but also so very, very counter-intuitive to what most fundraisers would do if they were in charge of re-making a website. I’m pretty certain (sadly) my bet is a sure thing.
Please prove me wrong. Because, if you implement this process you’ll likely see:
The Norwegian Cancer Society and a user-consulting firm witness…convinced they weren’t realizing the potential of the web for fundraising and public education set out on the task to remake their website.
They drew up a list of 70+ ‘tasks’ they thought the website performed.
Then they asked actual website users to vote on what features were the most important to them. Here’s what they found in order of user priority:
Tiny Tasks at the bottom of the priority list:
3. Annual report
4. Press release
That’s right. Out of 70+ tasks, users voted ‘donations’ as about the 66th most important priority.
So … fighting a tidal wave of denial, the group met again, discussed the finding and agreed (there was a lot of gnashing of teeth, lest I over-simplify this stage) they would remake the website to reflect the users’ priorities.
I reached Beate Sørum, head of Digital Fundraising for the Society, and we had a great chat.
Here’s how Beate summarized this marvelous and extraordinary adventure:
“So Beate”, your intrepid Agitator asked, “How has this worked out for you?”
As The Agitator surmised, very few charities operating at the locally optimized foothills would undergo such seemingly radical change and yet, it is required for real growth of the 250% variety. The risk is only too high if a ‘do-no-harm’ mindset assumes status quo is not violating this precept already.
How to Make the Climb
So what is a charity in the foothills with an even middling level of interest in breaking out of the low/no growth realm to do? How does one climb to the peaks?
It is a function of Mindset, Methods and Metrics.
Here is an admittedly Zen-like description of the shift in mindset required for global optimization; recognition that your current understanding of your fundraising reality (i.e. the flat or slightly declining growth) is only a partial understanding of the real reality.
In other words, the foothills provide a limited vantage point. To start the climb one must start looking at the world differently and as a result, asking different questions.
Organizations must start looking at the forest instead of the trees by recognizing events that are unfolding (e.g. response rates dropping, acquisition costs going up, mobile phone usage, changing demographics) are interrelated parts of a pattern that is occurring over time. As a short hand rubric organizations can assess whether they are climbing or even capable of it by placing themselves on the following continuum of thinking:
This is a catch all for methodologies, processes and approaches to doing business. There are too many examples and too much detail for each to be overly expansive in this paper. Therefore, what follows is a non-exhaustive, summary list of Methods for the global optimization organization.
There is evidence in the academic literature that strong systems and processes can trump talent – to a point. Therefore, organizations only setup for local optimization today can start to adopt the methods of the global optimization organization and begin a slow but meaningful climb.
This section is best summed up by pointing out that local optimization organizations focus almost exclusively on campaign metrics (i.e. response rate and average gift) and acquisition over retention. The campaign metric obsession is made worse in that it arguably drives most if not all of what passes as “strategy” for many local optimization organizations – namely internally generated, incremental change ideas that get A/B tested to try and improve a control that is the control by default (i.e. it is locally optimized too). It leads to no sustainable growth and as previously pointed out, actually creates net loss when factoring in the ratio of winners to losers and the time and effort to generate the former along with the opportunity cost.
In short, what gets measured gets managed.
Beyond pointing out that lifetime value, revenue growth at the individual donor level and retention rates are the metrics of choice for those living in the mountain peaks it is worth sharing one simple way to recast acquisition results in a way that may help change what (or how it) gets managed.
Instead of leaving acquisition reporting in a completely artificial silo why not tie it to the retention requirement to actually make money from the investment?
A simple illustration:
To break even on this acquisition mailing, the organization needs to raise $183.33 from each of the 300 donors you acquired. Some organizations do break-even analysis to come up with a number of months until the acquisition loss is recouped. Setting aside the errors often made in this calculation the dollar figure per donor approach may cause the organization to ask better and different questions such as:
There are two cautionary tales in this pursuit of global optimization amounting to the modern day equivalent of sirens on the cliff tempting the mythological Odyessus. Homer’s hero like the organization seeking global optimization, is intellectually curious. And the sirens of Greek mythology promised gifts of wisdom and knowledge much like the modern day equivalents claiming to be the answer to ascending the mountain. Two to be especially on the lookout for are:
If your organization is appending external data to the house file and slicing and dicing to find differences in historical responders and non-responders then rest easy; you will find those differences and plenty of them. But, chasing this falsity or noise with test ideas is expensive, time consuming and a recipe for failure as you invariably slip and slide up and down the foothill guided by an endless set of meaningless differences emerging from all that big data. Without a theory and point of view to guide your “big data” efforts you should prepare to crash into the cliffs.
How to Make the Climb
So where does this leave us? What are the strategies for thinking about local versus global optimization? Here are three alternatives. They are mutually exclusive and require the organization to climb fast, slow or not at all. The choices presented allow for only one choice to be made.
This strategy is about being cost effective while deciding to stay locally optimized. Roughly half the nonprofit market fits here. This is not an indictment or judgment, merely the recognition of the reality that Lake Wobegon does not exist in the nonprofit world.
Approximately one-third of the market will or should make this choice. It is a slower climb but a climb toward the peak nonetheless.
As a cautionary and pragmatic note we remind the reader of the innovation curve and the distribution of charities along it with roughly only 15% of the market being likely “Climb the Mountain” candidates.
And for those who think they might be in the 15% we end with a reminder of just how important the mindset piece really is by referring back to the Sargeant and Shang paper and a quote from the leader of the charity that made history with the successful campaign (yes, one campaign) to raise £250 million (approx. 420 million dollars).
All the leaders of the charities studied by Sargeant and Shang (“Great Fundraising”) acknowledged the culture of the organization when they started could never achieve the desired (and achieved) growth. In short, their thinking was tied up in local optimization based on the current ways they did business. It required a fundamental shift and beyond just the fundraising team. The expectations needed to be raised about what was possible, it required new talent with more original thinking, greater flexibility, a desire to move fast, take risks and foster a culture of shared learning that also encourages critical debate.
To quote directly from the report and one of the interviewees,
“… it is a culture of change, it’s about describing the existing culture and it’s building a narrative towards what it might look like. So, whether that’s a hill to climb an enemy to beat, you know, you’ve got to have a vision if you like, for how things can be different, so that people will come with you on that journey. You need to do that with the people below you, so that they feel enthusiastic and get behind you; but you also need to do that with the people in front of you and above you, in order to get their buy in, to give you the tools, the investment, and not to put barriers in the way that would prevent you from doing that.”
“We just started to change the culture into a culture that moved much quicker. I think people that are able to work in a setting that is quite fast paced, they’re comfortable with a fairly high degree of change. They enjoy being a part of it. It’s not just that they’re subject to it. They want a high degree of personal autonomy or want empowerment, will take some risks and are usually energetic, just personally energetic.”