I have a second concern about contest-style philanthropy. Is this an effective way to pick a charity? Do we care that Pepsi’s money may or may not be going to charities or projects that will have a real impact? I don’t know enough about the organizations that won money from Pepsi in 2010, but frankly some of the descriptions are pretty vague and evidence of results is hard to find.  There’s a lot of sincere intention and quite a few competitors are startup organizations, however some appear to have been started in order to compete for funding.

The nonprofit and foundation world has been encouraging donors to seek out high-performing charities, such as in this article by Sean Stannard-Stockton. Nonprofits are working hard to evaluate, measure and communicate impact. Charity contests don’t reward nonprofits with the best results or greatest impact on clients. They reward marketing.

The traditional cumbersome foundation process probably needs a different kind of refreshing, but I have strong misgivings about throwing review and evaluation out the window.  The Technology in the Arts blog asked some good questions last summer in a post about American Express’ online giving contest.

While increased online support and a focus on technology use to reach constituents could provide benefits in this funding model, the prom queens method of distributing support should probably be left where it belongs: high school. This model has no way of insuring the best organizations reap the rewards or that the most efficient and effective programs receive funding. Popularity does not always equal quality, but it will always decide the winner in this funding model.

It’s worth noting that while the marketing department promotes their online contest, PepsiCo Foundation still makes grants the old fashioned way, with criteria including evidence of proven success in the field or scope of work specific to the request, and a method by which to measure and track impact and progress. There is a difference between marketing and traditional philanthropy. Should that matter to nonprofits that need funding to do their work? I think it should.

Want to know who’s winning the Pepsi Refresh contest? According to Mashable, the contest received 61 million votes in 2010. That’s 61 million brand impressions for Pepsi. We have a winner!

This year, Pepsi has been awarding $1.3 million every month through the Pepsi Refresh project. Nonprofits, individuals, and businesses submit ideas and compete for your online votes to win the awards. 32 awards totaling $1.3 million are granted each month in amounts from $5,000 to $250,000. This broadly promoted voting for dollars ties in with Pepsi’s brand building, similar to the Chase Community Giving Facebook campaign and the Sam’s Club Giving Made Simple contest.

Projects in the mix for Pepsi Refresh include nonprofits of all sizes, like Teach for America, which received $250,000, and small organizations such as the Boys and Girls Club of Schenectady, which won a $25,000 grant. The project is open to individuals and organizations that are either very new or loosely formed. Past winners run the gamut from Operation Sweet Dreams, which received $50,000 to provide new PJs to low-income kids, to helloCHANGE, a youth anti-tobacco campaign that won $250,000 in March. To win the monthly competition, submitted projects must mobilize forces and generate lots and lots of votes. After registering on the website, anyone can vote for up to 10 projects a day.

The communications strategy needed to win these competitions is different from what is needed for “traditional” development. In fundraising, nonprofits have learned the importance of reaching out to make a connection that will motivate a donor. For an online contest, the goal is clicks, not dollars. Have you ever been bombarded during one of these contests? An organization that I greatly admire was a finalist for the Sam’s Club grant. They sent me emails every day, and I wasn’t even eligible to vote (I’m not a Sam’s Club member). I wonder if convincing someone to take a few minutes every day for a month to click a vote button builds any kind of a lasting relationship. After voting a few times, am I likely to become a donor or volunteer? If I didn’t make a personal commitment in the form of funds, what kind of relationship was started?

On the one hand I’m happy to see good organizations receive funding. Wellstone Action! won a $50,000 grant in September for a great project with Native American leaders. I’m all for it. On the other hand, though, I prefer philanthropy that builds lasting relationships.

Charity contests are likely to continue as businesses learn how to capitalize on social networks to build their brands and web presence. How can nonprofits use them to build relationships that matter?

The Value of Smaller Gifts

I’m pleased that smaller gifts are drawing greater attention and wanted to highlight a few noteworthy examples. The article Save Our Ship in American Theatre Magazine describes the efforts of theaters to rebuild from financial struggles:

The hero who emerges from emergency campaigns is the small donor. Practically every artistic leader I spoke with used the words “grassroots” and recounted anecdotes about donated piggy banks. Over and over, artistic leaders said that it was not one single donor that saved them but rather many, many modest donations – gifts of $100 and $150 that added up to serious money.

The value of many, many small donations was proven on November 17th. At the end of the fundraising-palooza of Give to the Max Day, 38,778 gifts had been made totaling $14,000,406. That divides to a $361 average gift. Many of the most impressive Give to the Max Day campaigns yielded great numbers of both donors and dollars with pretty small average gifts. The organizations with the largest numbers of donors had average gifts ranging from $75 to $100. Organizations receiving the most dollars also had modest average gifts between $65 and $325.  Other examples of the power of small donations can be seen in the international response to the recent earthquake in Haiti, such as the American Red Cross raising $3 million as of 9am EST in $10 increments through a text message campaign.

In his book The Art of the Turnaround, Michael Kaiser describes the process of Alvin Ailey Dance Company’s financial recovery. He offers this advice:

Aiming to fill a deficit with one extraordinary gift is usually just a pipe dream. We need to focus on “right-sized gifts,” gifts that make sense given the budget and the profile of the organization. For the Alvin Ailey American Dance Theater, with a $6-million budget and a $1.5-million deficit, $50 was too low and $1-million was too high. At Ailey, while we did receive larger gifts, we focused our fund-raising on $1,000 gifts. Our board felt comfortable asking for this amount from friends and associates, and this was an amount that would make a difference to us.”

If you prefer to hold out hope for large gifts and grants, be aware of the risks. The Minnesota Council on Foundations just released their 2010 Funding Outlook based on a recent survey. The survey found that overall funding by Minnesota’s foundations will stay fairly level in 2010 compared to 2009, for which we should be thankful. There is wide variation, though, in the grantmakers’ forecasts. More grantmakers expect decreases in giving in 2010 than expect increases: 30 percent expect to give less compared to 25 percent who expect to give more. At least 20% of foundations expect to decrease the number of grants awarded, as well.

Keep up the grantwriting, RFP submissions, and lunches with prospective large donors. But take Michael Kaiser’s advice to heart – make the priority for 2010 to build a reliable base of “right-sized” gifts.  They really do amount to something very important.

As summarized on the GEO website:

This publication highlights the financial challenges nonprofits face and the ways in which grantmakers are both improving the situation as well as perpetuating the problem.

The first section, Assessing the Problems, identifies five problem areas:

1. Restrictions on Funding
2. Misperceptions Around Sustainability and Growth
3. “Too Many Masters”
4. Onerous Grantmaking Practices
5. Knowledge Gaps

The other sections discuss Barriers to Smarter Grantmaking and Ideas for Grantmakers.

It’s impressive how in 28 pages the author distills a variety of ideas, research, and practices about the realities of financial instability faced by nonprofits. The report also provides helpful and realistic suggestions for grantmaking organizations based on practices that have already been developed and implemented by foundations.  The advice and guidance for funders is great, but this guidebook is a must read for everyone in our sector.

I’m pleased that GEO will be focusing on nonprofit finance and encouraging foundations to understand how “many prevailing approaches and practices in philanthropy can unwittingly create problems for the nonprofit sector.” Many nonprofits have experienced these unintended consequences and will welcome a dialogue on this topic.

However, nonprofit organizations also have a lot to learn from the report’s comprehensive overview of grantmaking. Misconceptions about the true cost of programs and capital needs apply equally (or more) at many nonprofits. We can’t expect a seismic shift in foundation practices and investment unless we nonprofit leaders understand and can effectively communicate what it takes to sustain ourselves.

Download this report, read it, and copy it for your board and senior staff.

Considering the importance, scale and scope of the economic proposals, I am really disappointed that that the number one, highest priority, most important issue for many in the nonprofit world is the proposal contained in the President’s budget that would limit the extent of deductions for charitable contributions for those in the highest tax bracket, reported here in the Chronicle of Philanthropy.

Typical of the outcries in response is a statement from Independent Sector:

Independent Sector believes that this change could be a disincentive to some donors who might further cap their gifts on account of the new limit.

Most of the comments made by our well-known leaders include the phrase “In these hard economic times” and forecast doom if this change comes to pass.

I’m disappointed in this knee jerk reaction that’s just a version of NIMBYism at a time when we really need to pull together and work for the greater common good, which may involve sacrifice. Beyond that disappointment, I’m skeptical that doomsday will come. First of all, the change wouldn’t be effective until 2011, so it won’t impact donors “in this tough economic environment.” And if you really believe that your donors are in it for the tax deduction I think that you need to re-write your case statement. Surveys, like one conducted in 2006 by Center on Philanthropy at Indiana University for Bank of America, report that over 50% of the high net worth people interviewed would not decrease their giving even if there was no tax deduction at all. From what I’ve read, the tax deduction is more likely to impact the timing and form of a gift rather than whether a gift is made. It’s easy to get this form confused with substance. Consider this from Charity Navigator’s blog:

The data that we have seen over the years has shown a big spike in donations through our site during the last several days of the year, especially on December 31st which of course is the last day to make a qualified tax deductible charitable contribution (see our Tax Benefits of Giving article). This data indicates to us that the tax benefits really do motivate people to donate.

This logic needs checking – do the tax benefits “motivate” people to donate, or have we in the nonprofit world trained our donors to give in December regardless of their motivation? The New York Times article Limiting Deductions on Charity Draws Ire quotes several other experts about the relationship between tax deduction and reasons for giving and their confidence that taxes are at the low on the list.

Even if this tax code change would have an impact on total giving, it’s important to focus on the forest, rather than the leaves on the trees. The proposed federal budget blueprint represents a seismic shift in priorities and structure. I agree with blogger John D. Columbo’s comment:

So let’s not turn this into a doomsday scenario, folks. The truth is, if Obama can fix our health care system, charities as a whole (and everyone else, from GM to the local barbershop) are going to be much better off in the long run.

Independent Sector’s statement (quoted above) includes only one other paragraph about the rest of the 140 page blueprint for the federal budget:

The budget outline also calls for winding down spending for the war in Iraq, boosting funding for domestic priorities, and creating a “reserve fund” of $634 billion to cover health care expansion. The President has stated that his outline will cut the deficit in half by 2013.

Well, maybe that doesn’t seem that important to them.

Here are three examples of innovative and creative ways that nonprofits are raising money online.

1. Modest Needs

Modest Needs offers an online forum to make direct contributions to individuals or nonprofit organizations to address a very specific, and usually modest, request for help. It’s kind of like Kiva’s direct lending model – but with direct contributions instead. Through Modest Needs, donors can see the very direct impact of their gift.

If it sounds too good to be true, I have a testimonial from Susie Brown, Executive Director of Child Care Works that they were able to pay for a capacity building project very quickly with funding through Modest Needs.

2. United Way’s Give 5 Now

You may have already read about the United Way’s Give 5 Now campaign. Watch their YouTube video about the importance of supporting urgent needs now. I hope that you can’t, and don’t, resist the urge to give at least $5.

3. Social Media

Social networks have exploded in the last year. I love Facebook, and was impressed by a recent fundraising campaign that Pillsbury House Theatre launched on their Facebook page. After giving a small amount, the updates and status reports that I received made me feel like a part of the campaign.

Give List uses blogging and Twitter to spread the word that there are ways to give even if you don’t have extra cash. The list starts with 71 ways you can give and then spreads and multiplies through an online community.

Even if it takes a while for online giving to match the dollars of more traditional forms, these example show ways that online strategies are different, fast, and direct.

Don’t be a Scrooge – give online now.

There are no magic donors. In the article, one of the volunteers hopes that “Maybe someone out there has had a dear loved one that’s passed away, or a child or parent they’ve given everything possible to, and this would be a special new gift.” I don’t mean to pick on the volunteers for their effort. And I certainly love the picture of the barn/library, having grown up in New England with a lot of time spent in a picturesque, cozy library. I hear that kind of wishful thinking elsewhere, though, and am concerned that the myth of the elusive, secret donor is dangerous. Hoping and waiting for One Big Gift that solves everything might just be an excuse not to do the hard work of fundraising. Now, as always, fundraising involves identifying those who care about the cause, building relationships, making the case, and demonstrating responsibility – step by step.  I recommend this recent blog post from PhilanTopic that smartly translates the core principles of donor cultivation and planning into useful advice for today.

If you’re like me, you’re reading a lot of reports, surveys, and advice right now looking for useful data and direction. To help you cull through this material, Nonprofit Assistance Fund has launched a new blog, Nonprofit Harvest.  Our goal is not to post every available resource, but to consistently provide useful content that will help nonprofits.  I encourage you to read the blog, share resources you have found helpful, and offer your own suggestions for how nonprofits can navigate this challenging economy.

Once again, a study reports that public confidence in charities is declining. Less than 20% of respondents expressed the highest level of confidence in charities’ practices in using financial resources or in managing programs and services. This annual survey, conducted by Professor Paul Light from NYU’s Wagner School of Public Service, was recently summarized in The Chronicle of Philanthropy. Professor Light was the speaker at Charities Review Council’s Annual Forum in Saint Paul last week. After summarizing the survey results and trends, he focused on two key factors related to confidence. The essential question about confidence, he said, is whether or not the public (and your donors) believe that charities spend their money wisely. Not about what line items are in your budget, or how much is spent on program vs. management – the concern is whether money is spent wisely to accomplish something of value. The second, parallel question is how a nonprofit conveys and demonstrates their value. What benefits occur because of your program? Harlem Children’s Zone’s annual report, for example, is full of data about results, progress, and success. The data demonstrates that money is spent wisely because the results are so real. Professor Light repeated his mantra several times – measure something!

Capital campaigns also demand consideration of external factors, including the competitive impact of other capital campaigns and of economic trends. We in Minnesota can thank the Minnesota Council on Foundations for conducting a survey last month on Capital and Endowment Campaigns in Minnesota, 2007-2008. The survey reports on 62 current and 72 planned campaigns for buildings, endowments, and infrastructure investments. The largest campaigns are for colleges and universities, with human services and health care a distant second and third. Interestingly, the higher ed, health care, and arts organizations expect most of their funds to come from individuals donors, while human service nonprofits expect about half to come from grants. This week’s Chronicle of Philanthropy reports in “Feeling the Squeeze” that some large capital campaigns are running into some resistance from large donors concerned about the economy. The examples in the article, which is only available in its online format to subscribers, indicated that gifts were delayed or stretched out, but that the campaigns continued to be successful in a different environment.

If you are beginning to plan a new fundraising push – whether you call it capital campaign or not – you need to understand the trends, the local landscape, and how many other “asks” will be in the mail.

I don’t see the fund that I wanted to donate to. What do I do?
Due to space limitations, we are limited in how many funds we can make available for online donations. If you would like to donate to a fund that is not listed, please contact Donor Services.

Contrast this with the Doctors Without Borders website, which provides a concise summary of how funding is used to carry out their programs. Note that the information doesn’t offer the donor a choice to designate their funds to a specific use. In the FAQ section, in fact, Doctors Without Borders makes the case for unrestricted gifts:

Can I earmark my donation for a certain area/project?
We appreciate your interest in supporting our programs. While it is possible to have your gift directed toward a specific program or country where we are currently working, we ask that you contribute unrestricted funding. By not restricting your contribution for a specific emergency or project, you will enable us to allocate our resources more efficiently and where the needs are greatest.

All of these appeals and messages rely on trust, of course, and donor trust is what the American Red Cross must rebuild. Every nonprofit should care about this, because the public’s perception and confidence in the Red Cross is a good indicator of confidence in all nonprofits.