Keeping the advertising, invoicing, fundraising, and donor stewardship running was an expensive investment for an organization that relied primarily on monthly giving from tens of thousands of donors.

While that funding model was clearly our strength, it also lost us donors who determined which organization they chose to support solely on the basis of  overhead ratios. Because we didn’t have lots of low-fundraising-cost government grants and commodities passing through our books, our overhead costs were already slightly higher than our colleague agencies that did.

(Note: Why overhead ratios tell only a tiny part of the story).

In particular, we had our eye on “development education” grant funds awarded by the US Agency for International Development  (USAID). Those funds supported programs that taught US audiences about global issues, especially those facing the world’s most poor and vulnerable people. We wanted to expand our outreach in this area but those tight overhead ratios were stopping us.

We also saw that those agencies that received USAID development education grants seemed to have a “more favored” status than those of us who didn’t. We wanted to be in the “in crowd.”  Being “in” often led to more media exposure, more opportunity for partnerships with our colleagues, and, ultimately, more donors and more funding to support our programs overseas.

But year after year (before I arrived), our proposals kept getting rejected. And we couldn’t understand why.

And to put the frosting on the cake, we kept hearing the funder and our non-sponsorship colleagues talk about the need to personalize international development for US citizens by sharing the stories of communities and families overseas.

But but but… each and every day, we were sending very real and personalized stories about those very same communities and families to tens of thousands of donors in the US.

What were we doing wrong?

Lesson One: Get involved with your colleagues

Luckily, my boss was determined to shift the perception of our agency in the eyes of his international colleagues. So he became very active in the US international development community. He joined committees in strategic networks. He lobbied our  international program staff to participate in the US as well. He brought onto our Board of Directors  individuals with international development expertise and got them involved in those networks as well.

Through those activities, he also got to work with and come to know the staff in the development education division at USAID. And that’s how we learned what was wrong with us.

Lesson Two: Find out what funders think about you.

Without getting into too much detail, suffice it to say that child sponsorship organizations like ours — the  ones that invested in active communications between donors here in the US and their sponsored families overseas — were not seen by many of their colleagues as serious international development organizations.Yep. It didn’t matter so much about our programming on the ground.  Our donor communications were seen as purely “marketing” or “fundraising” and thus we not credible.

While this stung us terribly, finally, we had an opportunity for a breakthrough.

Lesson Three: You have to have and discuss a THEORY OF CHANGE

So, we decided we needed our USAID colleagues to understand better the what and why’s of our donor communications program. We were sure if they did, they would have a different opinion of us.

You see, one of the reasons that USAID was funding development education was to build more support for international aid. Leaving government aid aside, individual giving overseas rarely reaches 3% of all philanthropic dollars contributed in the US.

Yet, among the 400 largest US charities, you’ll find many child sponsorship organizations.

Why is that?

Remember that cliche that readers are only interested in local news? (Sadly, you only have to look at the very first news stories coming from the Haitian earthquake to find the truth in this).

Over 50 years of experience demonstrated the power of child sponsorship to motivate people to give by connecting them with images and stories of real people that they could learn about and maybe even communicate with.

So we had invested pretty heavily in our communications program. It included:

• an annual photo of the sponsored child and his or her family
• an annual profile of that child and family and their local community
• a description of the country, economy, and culture of the regional and country in which the family lived
• quarterly updates from our field staff describing their programs or interesting challenges in that community
• four to six updates from the child and/or family, written with the help of dedicated field staff, an offering a glimpse of daily life.  (This was the most controversial part, but a story for another forum)
• the ability of donors in the US to send correspondence back to their sponsored family, sharing a glimpse of life in the US.
• Specialty information, particularly about the world’s religions and their practices.

We had also just discovered academic research that outlined a five stage model of how individuals became more culturally aware.  That research supported many of our practices and offered a platform to explain our communications to our potential funders.

Which we did. We took a “dog and pony” show down to the development staff at USAID and walked them through our communications program step by step. We answered all of their questions. We presented our challenges very truthfully.

Did we completely convince them? No. But we could see the cracks in their skepticism.

Which was a significant step forward to winning the grant.

For next time … lessons we learned about program development, target audiences and donor portfolios.

A typical conversation might sound like this:

Volunteer 1: What about Mr. Potential Donor? I think he might be capable of a larger gift than he’s been giving.

Volunteer 2: Oh no. He’s got a son in college (or substitute another reason such as “just remodeled their house,” or “bought a new boat”) and couldn’t possibly do more right now.

I was reminded of the lost opportunity when we make assumptions of what our donors will or won’t do when browsing through my Sunday newspaper a few weeks ago.

A photo caption caught my eye:

“Home Sweet Home Gala raises $400,000”

Whoa! I had to look again. Yes. It said $400,000. I figured the newspaper must have added an extra zero.

If you live in New York City, raising $400,000 probably sounds like no big deal for a charitable event. But the paper I was reading was the Providence Sunday Journal. The organization was Crossroads Rhode Island, formerly Travelers Aid of Rhode Island, the largest nonprofit provider of homeless services organization in our state.

To put this fundraising total into perspective for you, you’ll need a bit more data about Rhode Island.

• The total state population is just over 1 million, making up just over 400,000 households.
• The largest city, Providence, has a population of just 174,000.
• There are only two Fortune 500 companies in the whole state. And one community foundation.
• The unemployment rate, at 13% in September 2009, is one of the highest in the nation.

Even in a booming economy, $400,000 is a huge fundraising gross for an event in Rhode Island. If I had to guess, it’s probably in the 10 top events in total funds raised.

Very impressed, I had to learn more. So I went straight to the top and called Karen Santilli, the Vice President for Marketing and Development at Crossroads.

“Yes, our September gala raised just over $400,000.” Karen informed me.

No, they didn’t have a Hollywood celebrity or famous speaker, which the other events that raise the biggest money often have.

Seven Years and a Winning Formula

This event started seven years ago when Travelers Aid of Rhode Island changed its name to Crossroads Rhode Island. “The event chair at the time felt strongly we had to do something unique to celebrate the name change and help people remember who we were,” said Karen.

So they put their heads together to create a truly WOW event that would keep people talking and eager to see what they’d do the next year.

They found a winning formula. The event is always held in a distinctive place, like the top deck of a parking garage, or an airplane hanger, and on the unfinished 3rd floor of a factory under renovation.

The theme – while based on the concept of “home” to remind everyone of Crossroads mission – inspires or is inspired by the event location.

The production formula

“Our event is quite a production,” Karen explained. “Costumed actors from the community theatre RISE on Broadway donate their time to help create the theme. Our incredible designer, Richard Pascarelli, creates the most extraordinary setting.

“For example, this year’s theme ‘Home Sweet Home’ was designed around the book, Willy Wonka and the Chocolate Factory. Guests signed in at a candy shop and truly felt like they were in the book. It’s hard to describe just how creative everything is but you can see a slideshow of this year’s event at Home Sweet Home.

“We have about 60 volunteers who help Richard and Crossroads’ special event manager, Pat Campellone, create the decorations, arrange the tables, set up the space and keep things flowing throughout the evening. That includes many of our staff that get a paid day off in exchange for their service. Staff like the event so much they recruit friends and family members to volunteer that night.”

The event has great food, a sit down dinner, and a live band and dancing. The speaking program, limited to the CEO and the Board Chair, is “very, very brief,” Karen explained.

The fundraising formula

The event has always been targeted to RI businesses and corporations. “This year we had two top corporate sponsors at $30,000 and four at $25,000, all the way down to $2,500 for sponsors,” said Karen.

She told me the event tickets in demand because companies use them to reward their top employees. Earlier this year, when she asked a friend who had been at the 2008 event if he’d be there again this year, he lamented how hard it is to get invited to the company table.

Because you can’t count on having your boss invite you, Karen said, Crossroads has sold more and more individual tickets at $150 each. Individual sales totaled about $35,000 in 2009.

“We had 625 people at the event this year … so many that we had to stop selling tickets because there wasn’t enough room for everyone,” Karen said.

Karen explained that there is also a raffle – they start selling raffle tickets in advance and continue through the night of the event. There are only three raffle prizes, all pretty big, and all donated. This year, the top prize was The Ultimate Chocolate Lovers Dream: A Trip to Switzerland. “We raised $23,000 between the raffle and the 300 wonka bars in which were hidden 5 golden tickets for smaller prizes. We sold all 300 of those during the cocktail hour.”

The solicitation plan

I asked Karen how they solicited for tickets.

“This year, because the economy was bad, we sent our sponsorship pledge letters in January, which was earlier than usual. In late May, we hand-delivered a sponsorship confirmation package to secure our sponsors’ pledges for the event. Those packages are a tease to get everyone excited … their design hints at the theme without ever disclosing it. This year, the packages were based around top hats filled with candy.

“After that package is delivered, a team made up of our CEO, Anne Nolan, our board chair Howard Sutton and his wife Kim, our special events manager, and myself call or personally connect with each of the sponsors on our list.”

Karen told me that the event invitation is mailed in July. This past year it was a really sparkly package with top hat and candy wrapper designs. Last year’s invitation looked like a travel packet.

I wondered if they used any electronic media to support the event. Because Crossroads sends out an eNewsletter every week or every other week or so, they are able to include “save the date” notices promoting the event.

About a third of the individual tickets were sold online this year.

Thoughts of canceling

Some of you might wonder about the decision to hold such an event in this economic climate.

Karen told me that they, too, had reservations about running the event this year, given its joyful themes and the bad economy. All around them, other organizations were canceling their events.

At one point, Crossroads even considered switching this year’s event to one of those non-event events where people just send money but don’t come to anything. “You can only do that kind of thing once,” Karen said.

“In the end, canceling or changing the event simply was a bigger risk. Our work depends on the money we raise.”

Proceeds of this event make up about 20 percent of Crossroads’ total annual fund of $2 million.

So, they forged ahead, expecting corporate sponsorships to be down this year, which they were. But what they didn’t expect, and it was a wonderful surprise, was the strength of the individual ticket sales. The growth in individual tickets made up for the drop in corporate sponsorship, and then some.

A friend raiser too

Karen told me that this event introduces a lot of new potential supporters to Crossroads. Everyone who comes is always wowed by the event and can’t stop talking about it. First timers are interested to learn more about Crossroads’ mission and programs. They spread the message to their friends and family.

This year, Crossroads acquired 400 new names and emails as a result of door prizes and other sign ups at the event.

And in a small state that seems to have at least two charity events on any given night, this is an event that people actually look forward to from year to year.

And next year?

“Of course, it’s a surprise” Karen reminded me. “But it will be fabulous and we hope that you’ll come.”

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A version of this article Thinking Big with your Special Event recently appeared in Gayle’s column in Contributions Magazine

That’s what “Looking at Life as One Big Subscription” by Damon Darlin of the New York Times got us thinking about recently.

Magazines, gym memberships, cell phone plans, online computer backup services and cable TV all rely on variations of the subscription business model. Netflix has used this old model to transform the movie rental business. The details vary but the basic subscription model has the consumer pay (or at least commit to pay) up front for access to a product or service over a period of time.

Consumers get reliable and often privileged access to the offering, usually at a compelling discount. Providers get an assured revenue stream and reduced marketing costs. Even better, they get paid whether or not customers actually use their cell phones or gym memberships.

As Isaac Newton taught us, bodies at rest tend to stay at rest. Subscribers must get off the couch and take an action to cancel the agreement. As long as providers don’t anger them with bad service, most subscribers will sit back and let the revenues flow.

Does this powerful business model work for philanthropy? Well, symphony orchestras and museums already use the subscription model with season tickets or admission-based memberships. However, they actually provide goods and services over time directly to the consumer, more or less like a for-profit business.

What about the usual three-cornered nonprofit proposition where A gives money to B to deliver a service to C? Direct self-interest doesn’t operate here. Still, one category of non-profits have used the subscription model to support service to third parties since the 1930s with great success. Can you name that nonprofit sector? Have you adapted the subscription model to fundraising?

I’ll provide the answer and look at what that example could mean for other nonprofit fundraisers in a future post.

A number of questions emerged that are worth a conversation among our colleagues and with nonprofit funders. I’d like to share those with you:

• Is this the right model for evaluating the financial health of nonprofits?
  
• Do we agree with this assessment and presentation of the issues and recommendations?
• What are the implications of funder decision-making based on an analysis which detaches finances from the discussion of community impact?
• Does the report grossly undervalue the role of grassroots organizations?
• Does the naming/framing of the three categories of nonprofits (grassroots, safety net, economic engines) in and of itself create a bias toward the largest institutions?
• Is the financial model of the largest institutions really replicable?
  • And, even it it is, should it be replicated if it passes its capacity building costs largely onto the very people served or leverages assets that are the mission of the organization?
• What are the values and criteria we should consider that would make it desirable/necessary to subsidize the ?unprofitable? or financially vulnerable nonprofit (or nonprofit program division/chapter/etc)?
• What is sustainability and how did we get into this trap of equating it only with large budgets?
  • Is any particular income stream inherently sustainable?
  • Why can’t organizations of all sizes be financially sustainable?
  • Is sustainability only or largely a function of money/wealth? What other factors are critical to sustainability?
  • When is sustainability desirable?
• Is class bias manifest in this analysis? What are the implications of this for our sector? For funder decision-making?

• Is the extreme stratification of wealth (income and assets) in the nonprofit sector acceptable?
  • Why is it acceptable in our sector, when many of us don?t believe that it is acceptable for our larger society?
  • What would be the impact on our social problems if we shifted philanthropic and other resources away from the largest institutions, to smaller organizations with more direct impact on local problems?
    
  • How much is enough for the biggest among us? How do we begin a dialogue around this question?
• Does the institutional funder/social venture philanthropy bias toward ?big impact? ignore important and essential community impact and devalue the role of small nonprofits?
  • What is the importance of change at the micro/cellular level, especially around outcomes relating to neighborhood quality of life, environmental protection, civil liberties and human rights, development of social capital, to name just a few?

How do we get a community-wide conversation started around this report?

Gayle

The article is called “How Nonprofits Get Really Big” and was published by the Stanford Social Innovation Review. Here’s what the research found in brief:

“Since 1970, more than 200,000 nonprofits have opened in the U.S., but only 144 of them have reached $50 million in annual revenue. Most of the members of this elite group got big by doing two things. They raised the bulk of their money from a single type of funder such as corporations or government, and not, as conventional wisdom would recommend, by going after diverse sources of funding. Just as importantly, these nonprofits created professional organizations that were tailored to the needs of their primary funding sources.”

Hmm.glg