Monday, March 23, 2009

Subject Matter Expertise v. Fundraising and Organizational Expertise

When a small nonprofit hits the point in its growth when the Board of Directors can no longer manage its daily operations, it's time to bring in help.

That assistance comes in several ways, but the Board has one key decision: either contract the work out or hire in-house staff.

This article examines the pros and cons of each option (Arrowhead Management exists, in part, because nonprofits choose to contract work out, so we've certainly a bias toward that option; however, we recognize the value of in-house staff and hope we fairly present both sides).

To determine which option is best, the Board needs to identify its core competencies and areas for improvement. The assistance the Board seeks should expand the breadth of, rather than the depth of, the Board's existing strengths.

Which core competencies matter?

In general, nonprofits have three fundamental needs:

  • Subject Matter Expertise
  • Fundraising Skills
  • Administrative Support

Let's explore two different nonprofits to determine whether they should hire an outside contractor or in-house staff.

Scenario 1:

"Happy Homes for Kids" was founded by a social worker who identified a gap in foster care services and created a nonprofit to fulfill this need. Her Board is made up of other social workers and City and County employees who engage with foster care youth.

  • Subject Matter Expertise

Undoubtedly, this Board's subject matter expertise on the issue of foster care for youth is unparalleled. Board members are well-known and well-respected in their communities.

The Board can act as the face of the organization. Programs can easily be carried out with a few extra hours of volunteer commitment by Board members and community volunteers.

  • Fundraising Skills

Happy Homes is funded by a multi-year government grant. In the past, the Board has hired a contract grant writer, who works at the County with the founder, to help with this grant.

The Board is recognizes that Happy Homes is extremely vulnerable to shifts in government priorities and would like to diversify its revenue sources. But, no one is sure where to begin. A couple Board members have hosted house parties and raised about $1,700 over the last two years.

  • Administrative Support

Happy Homes is facing daily operational challenges. No one is really sure what to do with the contact information for people who came to their house parties. The wife of one Board member was handling the books for Happy Homes, but they just moved out of state and no one knows how to run QuickBooks.

Scenario 1 Analysis and Solution:

No one knows the foster care system like this Board. They know which direction they'd like to expand their programs to respond to new and emerging community needs.

However, Happy Homes lacks fundraising and operational expertise. They aren't sure which funders to approach and how to solicit them. The growth of their internal operations is outpacing their ability to function effectively.

Happy Homes is ideally positioned to hire an outside company to manage its fundraising and operational work. For instance, is it really the best use of this Board President's time to focus on fundraising data entry standards?

Shameless Arrowhead Management Plug: For about the same cost as hiring a staff person (salary, insurance, benefits, office space, etc), organizations such as Arrowhead Management bring a team of operational experts to run your organization.

For example, we provide web site designers, graphic artists, grant-writers, annual fund gurus and specialists in: database management, bookkeeping and volunteer/membership management. It's unlikely that a small and emerging nonprofit can easily find all these diverse skill sets, at high levels of competency, in one person.

And, emerging and grassroots in particular are often unable to pay Executive Directors salaries commensurate with their experience, so high turnover is often inevitable. Arrowhead Management achieves economies of scale by working with many diverse nonprofits, so our fee is affordable for a nonprofit with a budget under $1 MM.

Scenario 2:

A group of 10 young professionals believes there's a need for smart, inner-city youth to access professional college counseling. At last year's alumni event, they heard the story of a young man from South LA who struggled through the college admissions process and eventually matriculated to the University to whose alumni group he was now speaking. They were inspired and founded a nonprofit, College for All, that focuses on the high school this young man attended and has started raising funds.

  • Subject Matter Expertise

Although all College for All Board members are college-educated, they graduated from high school about 10 years ago and aren't familiar with the new SAT format or college admissions standards other than the ones at their own alma mater. They aren't sure which students should apply early to which colleges or how to effectively help youth craft compelling personal statements.

  • Fundraising Skills

College for All's Board members make in the low six-figures and work at companies that match their gifts and have robust corporate giving divisions. They are positioned to pretty easily raising $200,000 annually for at least the next few years.

  • Administrative Support

Although the professional expertise of all members includes accounting, finance, consulting and law, all members agree they don't have time to effectively carry out all organizational programs on a daily basis.

Scenario 2 Analysis and Solution:

College for All's core competency is its fundraising potential. The Board has access to high net-wealth individuals and the credibility to secure individual and corporate contributions. They have the financial means to make generous, personal gifts.

Subject matter expertise is College for All's weak spot. Although the Board members are smart and could eventually figure out the answers to many of the questions about the SAT or admissions, it would be time-consuming and ultimately ineffective.

College for All is ideally positioned to hire someone who can lead the organization, design and execute its programs and unite all community stakeholders. College for All will not be able to transition to a professionally managed and credible nonprofit without hiring a subject matter expert in the field of college admissions as its Executive Director.

College for All should consider hiring, for instance, a former Admissions Director from a college or a current SAT and college admissions consultant.

Arrowhead Management certainly hopes that you can find the right person for your organization. Also, we hope that, should the situation be right, you will consider working with us to help advance your organization's mission!

Sunday, March 1, 2009

Yes, Fundraising is About Relationships…No, Not Those Relationships!!!

For years, Development Professionals have repeated the same, tired mantra "fundraising is about relationships."

This mantra suggests that donors give only because they have a good relationship with the nonprofit's Development staff, and not because they have a passion for the cause.

There are at least three fundamental flaws with this so-called "truism."

First, if fundraising is about relationships, how come the average donor exists long before the average Development Director and remains active long after the average Development Director?

Second, characterizing giving as about relationships discounts donor intentions. If fundraising were about relationships, how come so many donors make "restricted gifts?"

In fact, a restricted gift for a cancer treatment ward for youth reflects a deep passion for care and treatment of cancer, rather than for finding a cure. Both are important, but the donor's value of treatment shines in such a restricted gift.

Third, if fundraising is about relationships, how come the business model for a nonprofit development office isn't havinge an army of Development Officers who meet with as many random people as possible to develop "relationships?"

For more information on donor motivation, we recommend an article by Paul Schervish, Ph.D (Boston College Center on Wealth & Philanthropy):

Inclindation, Obligation and Association: What We Know and What We Need to Learn about Donor Motivation.

When Development Professionals say "fundraising is about relationships," they could very well be right; the only problem is that some Development Professionals don't know which relationships are about fundraising.

At Arrowhead Management, we believe that the strongest relationships your organization can form are ones that can be identified by observing donors, their experiences, a host of data and several other characteristics of the donors' lives.

We call these experiences, data and characteristics "variables."

There are two types of variables: dependent variables and independent variables.

Dependent Variables
are the changes in behavior that occur as a result of independent variables. In a fundraising case, a dependent variable can be: that people give to your organization, how much money people give or how often people give.

Independent Variables
are characteristics that we can observe that MIGHT have an effect on the dependent variable. Independent variables can be: donor age, income, educational status, how long they have lived in the community or whether they are married.

Let's say you want to find out whether a donor's education level (Independent Variable) influences his/her decision to make several gifts each year to your nonprofit (Dependent Variable).

We combine these variables in the following formula, which by the way, we all learned in 8th grade Algebra 1 (but don't worry, no quiz at the end):


In this model:
Y=dependent variable
M=slope (or the relationship; we'll discuss in a moment)
X=independent variable
B=starting point on the graph

If you're looking at more than one independent variable, then the equation looks like:

Each independent variable is labeled "x1, x2."

Our next question is to determine whether the independent variable is "statistically significant" or not. One thing to know is that either an independent variable is statistically significant or it is not; there's no "in between" or "sortas."

Statistical significance is a way of asking "does this independent variable have an effect on the dependent variable or not."

You can determine whether a variable is statistically significant using a "fancy" formula on MS Excel (we'll discuss at a later time).

Now, it's important to understand at the outset that most independent variables are NOT statistically significant.

The next thing you need to know is that the relationship between the independent variable and the dependent variable is measured by an "R Squared (R2)" value. Independent variables that are statistically significant—or matter—have an R2 value that ranges between 0 and 1.

Click here for a Wikipedia definition of R2, but, briefly, the R2 is found from an analysis between the independent variables and the dependent variable primarily through regression analysis (fancy pants math that Excel can do for you).

An R2 that equals 0 means that the relationship between say, a donor's education level, isn't significant in determining how frequently s/he gives.

An R2 that equals 1 exists only in theoretical, math models (there are no perfect statistical relationships).

An R2 that is not between 0-1 indicates that the independent variable(s) is/are not statistically significant.

However, with statistically significant independent variables, the closer to 1 the R2 is, the stronger the relationship.

So, if your analysis reveals that a male donor who is retired, married, has lived in the community for 10 years and has attended three events your organization sponsored with an R2 of .8, that means 80% of his giving can be attributed to those relationships.

Imagine if you know this example to be the case and that you can go into your database and find other donors with the same attributes!

Now, in that case, fundraising is a lot about relationships…