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100% Fundraising Expenses

August 18, 2010

by:

Joe Patti

Some what apropos of my post on mandatory salary caps for executives of non-profits is a post by Dan Pallotta on the Harvard Business Review blog in which he makes suggestions that would likely see government entities really start screaming.

Palotta advocates for salaries of non-profit staffs on par with those of for profit businesses. But the bulk of the post is spent on the premise that low fund raising expenditures are actually inhibiting charities from doing the most good. His argument is that instead of touting 10%-15% expenditures on fund raising and remaining too small to make a big impact on a problem, charities should be spending 50%-100% on fund raising.

“The less an organization invests in fundraising the less it can grow. The less it can grow the more human suffering persists. We have institutionalized a mechanism for insuring the persistence of human suffering and called it “charity.”

[…]

“If we are serious about the value of human life, then we have to start thinking about 50 to 100% fundraising rates for the organizations chartered to save human lives. Those organizations should take no pride in telling donors or anyone else how low their fundraising costs are. Quite the opposite. I want to support the organization that’s going for scale, not the one that’s stuck where it is. Why would I support a cancer organization promoting its low fundraising investment while cancer remains uncured? We have the whole reward system backwards.

(Qualification: I’m not sanctioning inefficiency. That’s a completely different conversation. Everything I’m advocating assumes maximum efficiency.)

What we are doing is not working. A world in which 10 to 15% fundraising ratios are the norm is a world in which our charities are woefully too small to confront social problems on any meaningful scale. It’s a world where growth occurs – if it occurs at all – at the pace of molasses — the pace of death — and where human suffering continues on an unimaginable scale with no end in sight.”

If you are like me and you are thinking if an organization is spending 100% of the money it raises on raising more money then no one is getting cured, then you are absolutely correct. That is exactly what he is proposing. Presumably, you would use all that money to find a new way to convince people to donate since you wouldn’t have any examples of those whom you have helped.

If you read down into the comments section where Pallotta responds to some of the questions, you get a little more detail. Addressing the idea that the fund raiser never gets around to doing anything, Pallota says,

“Think of it this way. Humanitarian organizations regularly engage in certain activities – a direct-mail campaign – designed to acquire new donors. Sometimes those campaigns can go for several years running 100% costs. But then comes the pay-off – huge fundraising databases with no new expense associated with them You turn that engine on and then you start producing revenues for programs and for the cause at volumes many, many times larger than you could have if you never made the investment and never tolerated the 100% cost ratios for a certain period of time. Understand? “

In response to the question posed by a commenter named Shaun, who asks “who wants to be the person who gives money just to solicit more money?” Pollota answers, “Think of it this way: if I told you your dollar could go directly to the needy, or that it could go to an ad campaign that would generate ten dollars for the needy, which would you choose?” To which another commenter, RachelAC, replies, “I might prefer that my $1 go to the needy now, rather than $10 going to the needy in five years.”

I think RachelAC’s response expresses the crux of the matter for me. In an ideal situation, Pallota’s approach works. But my concern is that the fund raising entity gets so enthralled by their success in raising money, that they never stop and fund the solution. As RachelAC implies, in many situations the dollar today can make a difference where the $10 comes too late. Though granted, whenever a solution to a massive problem comes, it arrives just moments too late for some.

My even bigger concern is that the officers will embezzle the money and run off as they have with so many charities in the past. The fact they are apparently not making as much as they could be according to Pallota only means the incentive to do so increases. I would prefer to know the thieves only absconded with the little I gave rather than what they parlayed it in to.

Big problems can require audacious approaches to solve them. I can see where the piecemeal approach isn’t getting people closer to a solution any faster. But will people continue to give if a theft on the same grand scale were to occur? I think the faith you lose in a charity when it betrays your trust cuts a lot deeper than when a company or person you have invested with misappropriates your money. You enter a relationship with the latter knowing there is a chance you will lose your money. With investments, we are told to diversify. Does it make sense to do the same with our philanthropy or are we just short changing an already under capitalized effort?

Fundraising, Management Philosophy, Marketing/PR, State of the Arts

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“The Monster Outside The Door”

August 17, 2010

by:

Joe Patti

No, the title of this entry is not another riff on my new lizard mascot in the blog header. Last month I made a post quoting Robert Hewison in an article from The Art Newspaper saying citing the economic value of the arts is bad because “But the Treasury doesn’t buy it. They can see through the “multiplier” calculations of the cultural boosters.”

Today I came across a link on Artsjournal.com to economist John Kay’s website wherein he expounds upon that subject and advises valuing art for its cultural and commercial value.

“Thousands of people build hospitals and surgeries, and many small and medium-size enterprises manufacture hospital supplies. Illness contributes about 10 per cent of the UK’s economy: the government does not do enough to promote disease.

Such reasoning is identical to that of studies sitting on my desk that purport to measure the economic contribution of sport, tourism and the arts. These studies point to the number of jobs created, and the ancillary activities needed to make the activities possible. They add up the incomes that result. Reporting the total with pride, the sponsors hope to persuade us not just that sport, tourism and the arts make life better, but that they contribute to something called “the economy”.

The analogy illustrates the obvious fallacy. What the exercises measure is not the benefits of the activities they applaud, but their cost; and the value of an activity is not what it costs, but the amount by which its benefit exceeds its costs. The economic contribution of sport is in the pleasure participants and spectators derive, and the resulting gains in health and longevity. That value is diminished, not increased, by the resources that need to be diverted from other purposes.

Similarly, the economic value of the arts is in the commercial and cultural value of the performance, not the costs of cleaning the theatre….

…The relevant economic questions are whether the cultural and commercial value of the performance offsets these costs and whether these benefits can be translated into a combination of box office receipts, sponsorship and public subsidy. The appropriate economic criterion, everywhere and always, is the value of the output.”

I have often felt that economic benefit surveys often seem to grasp at straws in an attempt to find any activity tangentially related to arts events. Though I will grant you that if a downtown area empties out at night, it doesn’t matter how scarce parking is, the spaces in a garage are worthless. Activities that put cars in that lot help keep people employed. But then, the parking company can claim they provide economic benefits to the arts by providing a safe place to park within walking distance of the venue in an area with scarce parking. Your audience may even value the close parking enough to factor it in to their attendance decision. But as the arts organization in question, do you see the parking lot as keeping you employed? You might. But if everyone starts adding up the reciprocal value they offer to each other, the result may end up being ten times the actual amount of money changing hands in that particular business district.

When you think about it in that context, then Kay’s insistence that the only appropriate economic measure is the value of the specific output becomes more apparent. And it is logical to think that value only exists when the benefit exceeds the costs. The problem the arts have is that the measure of the benefit is so nebulous that we are driven to find some concrete method with which to prove that benefit does exceed the amount granted and donated.

Plenty of people are willing to say that the arts aren’t worth very much in today’s environment. Many are just as willing to listen and believe them and that makes all of us in the arts really nervous and sends us scrambling for evidence. Kay doesn’t offer much help in making that argument and in fact, he raises the stakes a little by adding commercial success as a measure of the value. That doesn’t leave much hope for the group that only had 80 patrons, but touched them incredibly and deeply, only it is tough to demonstrate the degree.

Which is not to say he doesn’t wholly believe there is an intrinsic value to the arts.

“We need to put out of our minds this widely held notion that there is such a thing as “the economy”, a monster outside the door that needs to be fed and propitiated and whose values conflict with things – such as sports, tourism and the arts – that make our lives agreeable and worthwhile. Activities that are good in themselves are good for the economy, and activities that are bad in themselves are bad for the economy. The only intelligible meaning of “benefit to the economy” is the contribution – direct or indirect – the activity makes to the welfare of ordinary citizens.”

I am not quite sure if he is differentiating between economic value benefit to the the economy since presumably having a job cleaning a building would directly contribute to the welfare of an ordinary citizen. Assuming he is separating the two, I would use those concepts to make the following point—

Ultimately, economic benefits are replaceable and interchangeable. Back in 2007, I covered an article that noted that a group seeking funding for the arts in England cited priorities that would be served by the grant that were among the exact same benefits then Prime Minister Gordon Brown promised the 2012 Olympics would provide.

Studio 54 contributed to the economy by employing cleaning people when it was a Broadway Theatre, radio and television studios for CBS, a disco, and then back to being a theatre again when it was purchased by Roundabout Theatre. Let say all these entities existed at the same time and are arguing which gets to use the building based on economic benefit they bring. Who gets to use the building?

Now lets say the criteria used is the cultural value each organization brings. Now who gets to use the building? Maybe it is CBS both times. In the first example, they might win because they would be spending the most on payroll and other expenses. In the second, they might win because their programming reaches more households and thus touches more lives. But when it comes to determining the value offered by a night club notorious for its hedonism and excess versus theatres, the decision may be tougher to make.

My point is, while it is hard to define in concrete terms, cultural value is a much more specific property of an organization than economic benefit and is worth citing as a reason for others’ support.

Fundraising, Government Relations, State of the Arts

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What Does The Lizard Represent?

August 16, 2010

by:

Joe Patti

So a few changes around the blog today. I sent a few pictures of the objects on my desk to Inside The Arts fearless leader, Drew McManus to be used to spiff up the blog header and give it a new look. I sent a picture of my copy of Peter Drucker’s Managing the Non-Profit Organization among other things. Drew said the other pictures didn’t come out right, but I suspect he just felt I was getting full of myself and trying to make myself look deep and important so used the old lizard instead. (I also sent him pictures of the yo-yos and Wheel-O that also sit on my desk, but perhaps he felt that gave the wrong impression.)

But since we tend to be a little misanthropic about the state of the arts from time to time here on Inside the Arts, I also suspect that maybe the lizard and the “Culture Dinosaurs” album cover may be a sign of things to come.

With that in mind, I am about to introduce a topic reversing past statements about how the arts should be positioned.

In the past, I have argued that the value of the arts should not be spoken about in terms of prescriptive benefits – listening to Mozart will make your kids smarter being one of the more famous claims. But we can’t entirely deny that the arts are deeply steeped with pretty much every element that make us human – history, storytelling, movement, music and memory. As such the arts are a vehicle for just about every theory and idea Carl Jung espoused from archetypes to collective unconscious and can constitute an important therapeutic tool.

Psychology Today has had a series called The Healing Arts running on their blog over the past year. Every couple weeks since February, art therapist Cathy Malchiodi has been doing a countdown of her top 10, “Cool Art Therapy Interventions.” She is down to number three so presumably the top two will be coming in the next month or so. Among those therapies she has listed are mask work, mandala making, family sculpture making, photo collages and visual journaling. You can see pretty quickly how some of these activities could help a person express themselves better or introduce calm and focus. Asked to guess what activities might be helpful, I would likely mention these at some point.

Something I would not have listed because it seems so basic is Creating Together. Except for those artists who crave a solitary existence, I don’t think many in the arts would deny that part of what draws them to the arts is the collaborative experience. Even if you don’t achieve some sublime synchronicity while working with others or interacting with audiences in your daily experience, the communal act, even when simply fooling around, can bring something to each participant. About a year ago, I talked about the possible influence of high emotional satisfaction being a possible motivator for involvement in the arts. That, or something closely related, may also contribute to the therapeutic usefulness of the arts.

Art(ist) Education, General Musings

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Why Don’t You Want To Talk To Me?

August 11, 2010

by:

Joe Patti

I often write, as do so many others, about the importance of establishing a relationship with your audience/donors/community. However, according to a blog post on the Harvard Business Review, our customers may not want a relationship with us. Well, not with arts organizations specifically, but rather with businesses in general.

The post, “Why Your Customers Don’t Want to Talk to You” begins by asking,

“Have you ever walked into an airport, seen that there is nobody in line at the check-in counter, but still made a bee-line for the self-service kiosk? Better yet, have you ever waited in line for an ATM machine even though there is nobody in line for the teller inside the bank?

If you answered “yes” to either of these questions, you’re not alone. Most customers these days demonstrate a huge — and increasing — appetite for self-service, yet most companies run their operations as if customers prefer to interact with them live.”

The authors cite data showing that businesses assume their customers prefer live service twice as much as self service, but that customers are “statistically indifferent about this … By and large, this indifference holds regardless of their age, demographic, issue type, or urgency.” The authors aren’t sure why this is, but offer a hypothesis

“…maybe customers are shifting toward self service because they don’t want a relationship with companies. While this secular trend could be explained away as just a change in consumers’ channel preferences, skeptics might argue that customers never wanted the kind of relationship that companies have always hoped for, and that self service now allows customers the “out” they’ve been looking for all along. “

But what was really helpful about the article were the comments about customer expectations and when people may prefer one type of interaction over the other. And if you don’t believe me, scroll down and read the comment left by Matt Dixon, one of the article’s authors who says as much as he enjoyed writing the post, he is enjoying the comments more.

The reasons why people prefer not to deal with a live person run the gamut- not wanting to be upsold, incompetence/poor customer service from staff, wanting to take time with decision making, not feeling pressured to justify choices to a machine and having already done research on line.

The plus side for humans is avoiding the maze of choices on voice mail systems or having a problem that doesn’t seem to fit the options provided. The human better not sound like they are proceeding through a menu of choices! And of course people aren’t entirely convinced technology is dependable. Two of the calls I fielded today were questions about whether orders had gone through.

One comment by a poster named Will Kenny caught my attention.

“Much of the problem is how companies have defined “relationship,” and many of them simply meant “some way to stay in contact with the customer, to sell more stuff.” In other words, a “relationship” is formed, in these companies, when the company has found a way to continue talking to the customer.”

I felt a little guilty because often that is pretty darn close to the subtext of what we mean when we talk about developing a relationship with our community. It is tough to get past that because we are running businesses and have bills to pay after all. We probably have much more sincere relationships with our next door neighbors than we do with our customers because we babysit each other’s kids and make chicken soup when someone is sick. But those same gestures create a positive impression about the organizations we work for in people’s minds too. And those type of sincere gestures on the corporate level –including just plain listening well–can help strengthen organizational relationships, too.

Arts organizations are in a medial position in all this. So much of what we produce can be researched using other sources. You can read scripts, watch videos, listen to recordings and read reviews. People can avoid contact with us if they like. However, because of the intimidation factor involved with the arts, we are also called upon to be experts, and compassionate experts at that, who can explain without alienating. We save money by having technology handle information requests well and replace a real person. But we also save by having knowledgeable and skilled people who answer the questions. I think there is something to be said for small organizations where some times everyone ends up grabbing the phone because it forces everyone to be able to speak confidently about matters outside their immediate area.

Audience Relations, Marketing/PR

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