Underlying much of the recent discussion about whether donors care whether nonprofits are effective and how to build a more effective field of philanthropy, is a recurring focus on how philanthropy experts think donors should behave. I thought the New Philanthropy Capital blog captured the silliness of this approach most aptly in their recent post poking fun at the idea that we should expect donors to “be more rationale” by asking if we can find any Vulcan donors (the character Spock from Star Trek).
What if instead we tried to build a more effective philanthropy that was designed for real life, human donors?
The first step of course would be to actual ask donors what they wanted. So today I’m glad to be able to point to the newly released Money For Good report from Hope Consulting. The report was underwritten by the Hewlett and Rockefeller Foundations as well as a number of other well known organizations.
The Money for Good report tries to answer three questions, 1) how can we increase charitable giving from individuals, 2) how can we increase donations to the highest performing nonprofits and 3) how can we realize the potential of impact investing.
The report opens with this quote:
“It is our nature to see the world based on our own context, experiences, and points of view. People in all walks of life struggle with this bias every day. How can a new product fail when you and your cohort believed that it was a great idea? The need to understand the world as it is – not as we wish it were – has caused primary market research to become a multi-billion dollar industry.
The motivation behind the Money for Good project was to seek the ‘voice of the customer’ for charitable giving and impact investing.”
The report is in depth and I encourage you to read the whole thing. But today I want to focus on a particular chart that explores the opportunity to “improve the quality of giving,” which is the critical question motivating the movement for a more effective philanthropy.
The percentages refer to the amount of donors who currently do the things mentioned in the dark blue boxes. So if we want donors to give based on relative performance, to make donations that are as effective as possible, we need to help donors move from the left to the right on this chart.
The first, promising sign is that 85% of donors do care about the performance of the nonprofits they support. But only 32% of donors do any research at all to determine if the nonprofits they support are actually any good. This finding is similar to the survey that kickstarted the recent posts here and on other blogs about whether donors care.
The second major gap is how to encourage donors to use quality information. Charity Navigator proved over the last decade that donors can be encouraged to research nonprofits. The problem of course is that the overhead expense ratio metric they popularized (the Money For Good report confirms that overhead expense is the #1 most important piece of information for donors who do research) is very low quality in determining effectiveness. But Charity Navigator should be noted for their hugely successful campaign to close the Care vs Act Gap. Today Charity Navigator is working to implement a major overhaul of their rating system that they hope will increase the quality of their ratings (disclosure: I’m on the advisory board for this effort).
The Money For Good report argues that closing the “Care vs. Act” Gap and the “Quality Information” Gap so that donors go from just caring about the effectiveness of nonprofits to actually doing high quality research, means:
- Creating many initiatives that address these issues simultaneously.
- Providing simple information donors will use.
- Pushing information to donors.
- Building board awareness around select key messages.
The final goal, closing the Good vs Best Gap, or helping donors support the best nonprofits not just any that are doing a good job, is in some ways a wholly different goal. According to the Money for Good report, only 15% of donors even state that they care about supporting organizations that are better than others at achieving their goals.
To me, this means that we have two separate issues at stake,
- We need to help the 85% of donors who already care about supporting effective nonprofits act on this interest by creating high quality information that is designed in ways that donors actual want to use it.
- We need to work to increase the percentage of donors who care about maximizing the effectiveness of their giving by supporting the best nonprofits.
The first issue is one of meeting a pre-existing demand. The second is about creating demand. Both can be done. Both sorts of issues are tackled all the time in various markets.
But the one thing we can’t do is simply build philanthropic products and services for imaginary “rational” actors who are seeking massive amounts of data and metrics, and love to run Excel spreadsheets before every donations. These donors are as imaginary as Vulcans.