The Elephant in the Room

Imagine you're running a business and you're told you can't invest in your production lines, pay your office heating and cooling bills, and even staff training and salary increases are subject to outside approval.  Now you know what it's like for many charities who find it virtually impossible to generate financial support for "core operations". 

Understandably most funders and donors want impact for their donations.  So they tend to want to fund programs, projects, new activities and "externally" focused costs.  But we all know you need to keep the lights on and pay "overhead" costs just to run those programs... I give full credit to organizations like the United Way of Toronto that does continue to fund "core operations" because without them many worthy organizations would be in real financial trouble.

And I don't think we'll resolve this issue until common standards are set, books are made fully transparent, and charities volunteer to show the "real" costs to donors and funders.  Once the philanthropic world has met this end of the bargain we need to talk about the elephant in the room: that there are legitimate costs to running a charity that need funding.  The alternative is to continue the current cycle of self-inflicted starvation (or funny games with how the numbers get reported) where every charity seeks to look like cheapest operator in town.

Day of Reckoning?

Conversations after my last post made me think that perhaps I left too negative an impression. The societal, economic and "evolutionary" pressures converging on our multitude of charities will result in massive change.  I stand by my statement that a day of reckoning will come, particularly for the tens of thousands of charities, particularly smaller ones, that struggle to make ends meet every day.

But my sense is that smaller charities that are smart and innovative - and in particular well led charities of all sizes - will find a way to thrive.

First, after some meetings recently about Social Finance, I believe there are some wonderful and highly entrepreneurial ways we can meet this challenge.  This video at http://vimeo.com/8057258 covers the general outlines of Social Finance very well.

Simiarly, I've always been impressed by the work of organizations that encourage donors to think critically about their giving... To the degree giving from the heart and the head grows we may see greater innovation and social impact in the long term.  One good site for this sort of information is http://www.charityintelligence.ca/ 

A day of reckoning is looming, but it need not necessarily be one of disasterous proportions.

Charities: Size Does Matter

One of the more common questions for those considering a move from the for-profit world into the philanthropic sector is about the pay, and the nature of the roles. I'm going to share some "truths" about these questions, and expand into some thoughts about the future of the entire sector.

First, it is true that many well-compensated people will make less money working for a charity than they made in the for-profit world. As everyone has heard, part of the reward of working in this sector is knowing you're making a difference, and often the sense that you're following your "calling", and for reasons I'm not entirely clear on this translates into less pay. The best explanation I can come up with is that because charities operate with other people's donated money, and the fact that every dollar spent on salaries is a dollar less for the mission, we tend to undercompensate employees. More on this strategy and the implications to the sector another day...

Second, there is usually a direct correlation between the size of the charity (e.g. top-line gross revenue) and their ability to pay a reasonable wage. Big hospitals, universities and "name" charities (Heart, Cancer, etc.) have the capacity to pay more than the little theatre troupe down the street.

None of this is news, but there has been a trend towards more competitive pay to attract and retain top talent. Senior positions in a charity are incredibly complex and challenging, so ensuring appropriate compensation is a vital factor – something the for-profit world has known for a long time. This has led to occasional mistakes in judgement in terms of just how much donors are willing to support for salaries, but except for these examples there has been a trend upwards in terms of salaries. And it’s the bigger charities that can most afford this cost, so keep that in mind if you’re out looking to make the transition.

This size conversation leads to my final point. The economy is struggling. Government is deep in debt and less eager to make significant investments in the charitable sector. The big charities want to keep growing. All of this puts massive pressure on the thousands of little charities that are struggling to make ends meet across Canada every day. My sense is that a "day of reckoning" is coming, and that charities below a certain size will face enormous pressure to gain critical mass, to merge with other charities, or to find some other synergistic way to reduce costs in the next 3-5 years, or they simply won’t survive. So size matters in another way: in a sector with nearly 100,000 competitors, and with new entrants every day, when the food supply shrinks (e.g. funding) then some tough times are likely ahead.  For those considering a move into the philanthropic sector size may be a key consideration.

Salary Caps in the Charitable World

There's been a lot of noise in the last few days about salary caps for the leaders and senior executives of charities, and CBC in particular has been hosting call-in shows to debate the topic.

My sense is that there may be some need for oversight, but that in general charities are best left alone to manage salaries as they see fit.  The need for oversight and perhaps even some kind of limits is most obvious where public funds are being used in a significant way to support the charity.  I'm not talking about a little Trillium grant supporting a charity, but where a large portion of your (and my) tax dollars are at work it's simply bad optics to pay sky-high salaries to leaders no matter how skilled or experienced.

That said, many charities operate with little or no government support.  And they should set their own pay scales and pay bands.  In fairness that's what Board and Directors do, or they delegate to a Committee.  Hopefully they're mindful not only of the "bottom line" but also the public perception of what they're paying their Execitive Directior or CEO... We all remember the media frenzy a short while ago when a local large health-care charity paid a large sum to a departing CEO!

However, talent does come at a cost.  And large charities in particular have learned that running their $100 million plus sized organizations is at least as demanding than similar-sized organizations in the for-profit world, so you need to obtain and retain good talent... And that requires a fair wage.

Finally, there is one other ultimate arbiter of wages for charitable leaders: their donors.  While some donors may not be as informed as they should be in making their giving decisions it doesn't take too many articles or bad press to "scare off" donors, and the perception of "fat cat" leadership salaries will certainly sway donor thinking!

Thus, my contention is that in general most charities should be left to determine leadership compensation on their own.

Myth #1: Selling skills = Fundraising skills

My premise is simple: all fundraising is sales, but not all sales is fundraising.  Thus, it might be argued that salespeople considering a move into fundraising are a natural fit.  However, as the phrase above makes clear there is overlap, but the two functions are not the same thing.  I appreciate there may some who disagree, but as an old “sales guy” I really see this as a compliment to the highly skilled fundraisers that I’ve come to know.

Websters defines the verb to Sell as “to transfer (goods) to or render (services) for another in exchange for money”.  The distinction for fundraisers is that, excluding pure sponsorship deals, what is most often being sold is a feeling.  Why do most individuals give?  Whether from altruism, obligation or from guilt, in the end it’s all about the donor feeling better.  Having a positive effect through one’s gift and feeling good about it is the core motivator.

So fundraisers do sell. However, what they usually sell is intangible, and both the “pitch” and the relationship this requires is quite different from traditional sales.  I’ve spent many hours in training sessions that counseled  “needs based selling” based on understanding the buyer’s needs and motivations.  But in the end whether you’re selling a box of Tide or the services of a call centre, it’s still selling a thing.  Not a feeling.

Selling a feeling is a whole different world.  Salespeople moving into the fundraising world have lots of solid transferable skills to start, including solid communication skills and hopefully good listening skills in particular.  But this not-so-subtle distinction that you’re asking people to part with their after-tax dollars for a feeling requires a lot of adjusting for many salespeople.  It certainly did for me.

There was a time when relationship selling meant “I’ll just go put these new golf clubs in the trunk of your car”.  Those days are largely gone in the sales world.  But relationships are about the ONLY thing that matters in fundraising.  The relationship between the donor/prospect and the charity, the relationship between the donor/prospect and the fundraiser, and most importantly the relationship between the donor/prospect and the cause are where this comes into play.

I’ll close with this thought.  I know quite a few good salespeople who would make excellent fundraisers.  But virtually every fundraiser I know would make a simply outstanding salesperson.  And for the organizations that they serve and the causes that benefit from their exceptional talents lets all be thankful that this is where they choose to stay.

Not a Fundraiser but raising Money

I had a coffee last week with the Executive Director for a smaller local "branch" of a large, well known charity.  He commented that he wasn't a fundraiser and really didn't know much about that world... And then nonchalantly mentioned he'd just led a successful local capital campaign to renovate their location to the tune of over $4 million!

Among so many things he did right I wanted to highlight three key factors, and then summarize the insights.

1. Where there were truly things he didn't know he sought expert advice, either pro-bono, from his board, or paid for it - but he did most of the work himself.  INSIGHT: Little sells better than a committed leader with a compelling and honest message - so he kept his costs down and impact up by just telling his story. 

2. His Board was actively involved.  INSIGHT: We've all heard the wisdom about the attitude of the Board defining the altitude of the organization, but he could never have achieved his goals (particularly in this economy)without his Board actively opening doors.

3. This leader has been active in this community for years, lives his own cause every day, and understands their Mission deep to his core.  INSIGHT: In a way that "salespeople" (and I've been one of them) don't often realize, relationships matter - not in the "here, I'll put those new golf clubs in your trunk" way, but in the "I need your help for something important" way, and this leader has those kinds of relationships.

In summary, charitable organizations big and small achieve their fundraising goals every day, in tough economies or not, with a "recipe" unique to that organization.  However, some of the ingredients are almost always the same:

• A compelling mission, combined with a strong case for support

• An engaged and active Board that works to support the fundraising

• A point person (usually a key leader) about whom the campaign coalesces 

Wishing you Good Conversations until next time!