New Money, New Demands: The Arrival of the Venture Philanthropist

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It was bound to happen and here it is: the new breed of donor, known as the venture philanthropist (VP), is transforming the way museums pursue, receive, and use charitable donations. Younger and closer to media-styled entrepreneurs than to the older model of patrician donors, the new VPs are demanding increased accountability from the museum and a return on their charity investment.

By Michael Wolfe and Robert Ferguson

Because many companies actively promote their charitable activities, it is easy to assume that the single largest source for funds would be the corporate sector. But nothing could be further from the truth. In the fund-raising game, individuals are the silent majority. In Canada and the United States, individuals account for 79 percent and 77 percent, respectively, of all receipted gifts.[1] Clearly, connecting with individual donors is of singular importance to fund raisers. Reaching this fragmented group, however, is an enormous challenge.

Making that challenge more difficult is the great and growing divide separating the two most prominent groups of individual philanthropists.

First, there are traditional philanthropists, whose altruistic donations are typically anonymous and selfless. Whether the gift comes from a living donor or as a posthumous bequest, the donation says, in effect, “I give this to you without expecting anything specific back from you.” For decades, this critical sentiment has been the conventional driver of fund-raising strategy. It is also the law. Revenue Canada (the Canadian version of the IRS) explicitly states that a charitable donation is one that is made without expectation of a return.

Then there is a newer phenomenon, the venture philanthropist. Venture philanthropists are living donors who choose to influence how their money is used by recipient charitable organizations. Their reasons for giving may be just as noble as those of the traditional philanthropist. They may have, for example, a connection with a particular charity and, seeing a problem, respond by donating funds to help fix that problem. But venture philanthropists question the efficacy of old-style giving. A recent article in Forbes called them “Darwinian” and “unsentimental” because of their insistence that organizations they support follow a solid business plan, meet benchmarks, and, above all, be accountable.[2]

Obviously, not every donor (or even a small fraction of donors) has the resources of Microsoft’s Bill Gates or E-bay founder Pierre Omidyar, both of whom have become prominent venture philanthropists. Nevertheless, the sentiment that drives their style of giving is now being mimicked by a large and growing number of potential donors from places like Wall Street and Silicon Valley. The Gateses and the Omidyars have started a trend that is luring even small donors away from traditional giving.

And there are, in fact, programs that teach people how to make decisions about the amount and purpose of their giving. Paul Brainerd, inventor of PageMaker, started Social Venture Partners to teach the newly wealthy how to invest in charities. His program is just one of a number that now advise mostly younger people on “how to plan for philanthropy in the context of sudden wealth.” These programs are undoubtedly influential. But what are they teaching?

At the heart of the issue is accountability. A 1998 study by the Canadian Center for Philanthropy showed that 40 percent of donors were unconvinced that their dollars would be used wisely.[3] Even small-scale donors want to support organizations that can plan effectively. They want to be engaged by an organization that can demonstrate it is vital and relevant, has a purpose, and is driven to succeed. These donors want to see evidence of good marketing: concrete positioning and effective product differentiation.

Remember: individuals are crucial to fund raisers. Not only is there a larger pool of potential donors than ever before, the number of individual donors grows when you consider that more corporations are consulting with their employees about how they would like to see the company spend its charitable and sponsorship dollars. Firms also are conducting internal audits on their donation and sponsorship practices to evaluate how corporate giving can be more accountable to employee wishes.

Increased scrutiny and accountability of development programs is good, and VP money can contribute to positive outcomes. But museums can’t afford to have vast numbers of donors acting like venture philanthropists. Donors simply shouldn’t begin with a preconceived notion that charities don’t know what they are doing. The mindset that charities are a black hole threatens to deconstruct the traditional notion of philanthropy.

Museums must realize that VP money is usually “tied aid.” While museums want the money, the reality is that most are neither mentally nor structurally prepared for the consequences. What they want to do is thank the donor, send a tax receipt, and leave it at that. Instead, they’re compelled to find a meaningful role for the donor within their program and make changes to their standard operating procedures.

Ideally, a museum development department would be large enough to dedicate specialized teams to the systematic pursuit and stewardship of VPs. Developing a plan with the appropriate staff and budget to target and pursue VPs might pay off handsomely, but there aren’t many museums capable of doing this. The reality is that the resources of typically small development teams are already stretched to the limit. The more widespread this VP practice becomes, the more thinly stretched museum development departments will become. Trying to win the attention and support of individual donors with their narrow interests becomes similar to trying to win the lottery.

Museums need untied donations, the altruistic, old-style kind. But to convince more people to give in that way, we’ll have to re-establish their trust, their traditional giving behaviors, and the sense that the donor’s dollar will be well spent. How do fund raisers get donors to return to more traditional values of giving? Perhaps a better question is, Where did we lose the individual donor’s trust?

The declining sense of community
We live in a wealthy society with a booming economy, so one would expect charitable donations to be high. Predictably, per capita donations in the United States have almost doubled, from US$280 to US$522 since 1960.[4] And even though Canadians have a traditional reliance on government-meaning there is less perceived need for private philanthropy-between 1991 and 1998, giving in Canada rose 46 percent, from CDN$4 billion to CDN$5.82 billion.[5]

However, our spending on others has actually lagged behind our spending on ourselves. In the last four decades, per capita American spending on all recreational goods and services (everything from flowers to Disney World to toys to T.V. repairs) nearly quadrupled.[6]

Many families have made a habit of annual giving. But often, the newly wealthy seem more concerned with spending money on the trappings of personal luxury than on culture. Perhaps they want to reward themselves first before they think of others, which is quite understandable. But part of the problem may be that they don’t realize how desperately funding is needed.

There is growing competition for donors’ money. Religious organizations, health, education, social services, and advocacy causes all get more money than arts and culture, which is the lowest category, receiving just 4 percent of donors’ money in Canada and just 6 percent in the United States.[7] Obviously museums have to do something.

Philanthropy is dependent on an organization’s ability to engage the public, and the declining sense of community can have serious negative consequences for museums. If we are right to assume that newly wealthy potential donors have no idea what is needed or what is expected of them, then we must engage their interests.

How do we engage potential donors?
Americans excel at creating marketing opportunities that make a difference and at maintaining the personal relationships that are so crucial to philanthropy over time. Still, the head of Toronto’s Royal Ontario Museum, William Thorsell, recently commented in the Toronto Globe and Mail: “There is a shortage of compelling, inspiring objects for philanthropy that are sustained by long-term relationships.”[8]

Fund-raising appeals must be relevant to donors’ interests. And to appeal to their interests we need tools that offer donors a worthwhile experience. Customers must be convinced that their association with the museum has value and benefit. Managing our relationships with customers-working systematically to retain them and to interact and build community-must be at the center of our strategy. This simple measurement-compelling, inspiring objects, sustained by long-term relationships-should be the litmus test to which plans are subjected.

Why do we need this kind of measurement? If potential donors see their money used wisely and in an engaging, beneficial manner, they will become involved with our programs, visit our institutions, subscribe to our magazines, and buy our books. And they will donate.

Being market-driven will enable us to deliver value so we can better compete for donations in this era of intensifying competition. This doesn’t automatically mean museums have to revert to the Disneyfication of the museum experience-that may be one part of the marketing mix, but it is just one. Moreover, it only produces short-term benefits that are otherwise expensive to produce and neglectful of other important features at the museum. Nor should we be satisfied with dull exhibits and lifeless publishing. Instead of choosing between elitist programs targeted at a narrow audience or endless, media-driven mega-exhibits that appeal to the lowest common denominator, we need to blend accessibility and durability.

To effectively demonstrate the museum’s relevance we have to think about how we communicate. A museum generates durability and sustainability when it promotes its intellectual capital. A museum is capable of being the ultimate “learning organization.” But communicating what we know seems so basic that we often overlook great “little” opportunities to tell our stories. Building community and projecting identity is a long-term process of raising awareness. To raise awareness we must make better, more extensive use of our content. Content, the product of our great knowledge resource, is any museum’s strength. But it has to be systematically mined and integrated through the Web, books, newsletters, magazines, seminars, traveling exhibits, public programs, and more. Whether these tools are used for fund raising, to expand learning, or to attract visitors, they all have a marketing function.

As fund raisers we always have to ask ourselves: What does my development team need? Where can we most effectively invest to reduce customer acquisition costs and enhance the rate of return?

Developing communication tools, building relationships, and recruiting donors is expensive. Direct mail is relatively easy, and it introduces potential donors to the “donor pyramid.” But on its own, direct mail doesn’t produce major gifts, multi-year pledges, or capital funds, and it doesn’t build a sense of community or project identity. We’re far better off, for example, developing a base of members who actually want our information. Members are committed; they’re a club around which you can develop a franchise by tailoring information for specific groups.

The reality of the Internet Age is that customers want interaction. Consequently, museums need to engage in conversation with the public-our clients. A museum’s long-term prosperity actually depends on its ability to leverage the hidden value of its knowledge. In short, knowledge resources will be the key enabler in the effort to communicate with potential donors and achieve fund-raising goals.

A strategy of marketing these knowledge resources indelibly links communication to superior “customer-perceived” value, creates competitive advantage, and enhances financial performance. In fact, when effective communications are truly at the heart of the museum’s strategy we’ll see a strategically focused organization that knows its customers, constantly innovates to respond to its community, and benefits by generating high levels of donor retention. The end result will be a community whose members are convinced they get good value from their museum and are happy to pay for services and make repeat donations.

Conclusion
The venture philanthropy trend is influencing the way museums think about fund raising. Donors want to make their money count, and we must consider their goals and objectives. We have to convince all donors that museums are capable, properly run organizations, that we think strategically, that we think about differentiation and marketing, and, above all else, that we are devoted to customer service.

But museums must be proactive and make strategic choices and look for ways to project their identity and role in society as a learned, vibrant, and relevant group worthy of support. We can do that best by creating more durable tools that build community and involve a broad segment of the public in our programs. And though we also should look for engagements that build the organization’s resume, we must be cautious when engaging donors on their terms.

References
1.  Ketchum Canada Philanthropic Trends, Spring 2000, p. 3; Giving USA, 1999, American Association of Fundraising Counsel (AAFRC) Trust for Philanthropy, p. 20.
2.  Quentin Hardy, “The Radical Philanthropist,” Forbes Magazine, May 1, 2000.
3.  National Survey on Giving, Volunteering and Participating. Toronto: Canadian Centre for Philanthropy, 1998, p. 24, fig. 1.11 (www.nsgvp.org).
4.  Robert Putnam, Bowling Alone: The Collapse and Revival of American Community. New York: Simon and Schuster, 2000, p. 122.
5.  Canadian Business (Toronto); Canada Customs and Revenue (Ottawa); Statistics Canada (Ottawa); IMAGINE (Toronto); and Ketchum Canada Philanthropic Trends (Toronto), Spring 2000, p. 3.
6.  Putnam, pp. 123, 126.
7.  Giving USA, p. 21; Ketchum Canada Philanthropic Trends, p. 3. Note: figures have been rounded off.
8.  William Thorsell, “Canadian Generosity: Give Us a Reason to Give,” The Globe and Mail, April 22, 2000, p. A 17.

At the time of its original publication, Michael Wolfe was vice president, development, Canadian Museum of Civilization Corporation, Hull, Quebec.  He is now Headmaster of Standstead College in Standstead, Quebec. This article is adapted from a speech written by Ferguson and delivered by Wolfe at the bi-annual Museum Publishing Seminar held by the University of Chicago, in Ottawa, Canada, July 2000.
Reprinted from Museum News, January/February 2001. Copyright 2001, the American Association of Museums (www.aam-us.org). All rights reserved.

(Originally published in Museum News (American Association of Museums), January-February 2001)

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