Tighter controls around government funding means many not-for-profit businesses are becoming less reliant on donations and more entrepreneurial when it comes to fundraising. Domini Stuart reports.
Dwindling government funding, increasing competition and a growing burden of administration are putting the boards of not-for-profit (NFP) organisations to the test. Innovation may be the key to survival – but there are impediments to doing it well.
“More and more charities are moving online and this can be very effective,” says Adam Garone, co-founder of Los Angeles-based men’s health awareness charity, Movember Foundation. “But you have to remember that people expect the same level of sophistication from you that they get from popular apps and websites such as Facebook, LinkedIn, WhatsApp and Snapchat – brands that are spending hundreds of millions of dollars on the user experience. We know we must continue to innovate to ensure the experiences we offer online match those in the for-profit sector.”
Using cost ratios to assess the performance and “worthiness” of a charity can also limit innovation. “A for-profit can come up with an idea, invest vast amounts of money and run the business at a loss for years on the expectation that it will eventually get an upswing and start turning a profit,” Garone continues. “NFPs don’t have that luxury.”
Movember was famously started by a group of young men with no experience in the charity sector. Innovation has always been one of its core values – but the challenge now is to find ways of injecting innovative thinking back into the organisation.
“It’s much harder to think outside the box when you live in the box and after 13 years in the charity sector, that’s where we are now,” says Garone. “We typically bring in business acumen and fresh perspectives by recruiting from the for-profit sector. We also run regular hackathons and innovation sessions where we invite students and industry leaders to workshop certain ideas, or we just give them a clean slate and see what they come up with.”
Social enterprise UnLtd was also built around innovation and entrepreneurial thinking. “We have chosen to own a major social issue – youth disadvantage – on behalf of the entire Australian media and advertising sector,” says director Kerry Field. “This is a huge responsibility, and it means our organisation and our business model must continuously evolve to gain maximum return on time, capital and social impact.”
Its focus is finding ground-breaking ways to tap into the industry’s collective wealth, skills and resources in order to support charities with no government funding.
“Our aim is to help them tackle the challenge of funding, but we see philanthropy as being much more than this,” Field continues. “We also provide services and time to help them become more sustainable. Our role is about building relationships, providing access to marketing and media expertise, promoting workplace giving, volunteering and providing high-value mentoring.”
They also attach themselves to all industry events. This allows them to lift their profile and raise both awareness and funds without needing to reinvent the wheel or to add events to an already crowded industry calendar.
“We take a venture capitalist approach to philanthropy and are currently focusing on technology as an enabler,” says Field. “Over the past five years, we’ve shifted our focus from being a nil-expense organisation to investing resources in projects that will help us scale up and hit our goal of delivering $50 million in value – funds, services and time – to our charity partners by the end of 2018.”
Reaching the crowd
Many boards are considering crowdfunding as a potential income stream. “In the arts world, the government-funded Creative Partnerships Australia has a program that matches the money you raise yourself,” says non-executive director Dr Sue-Anne Wallace FAICD, chair of the Customer Owned Banking Code Compliance Committee and vice president of the Humanitarian Quality Assurance Initiative (Geneva). “If they approve a grant of, for example, $50,000, it will be conditional on you raising the first $50,000. Crowdfunding can be an effective way of doing this.”
Mobile communication is also creeping on to boardroom agendas. “This can provide an affordable source of additional revenue which can easily be integrated into existing channels,” says Jeremy Tobias, CEO of GiveEasy. “Ninety-eight per cent of text messages are read and you get the results very quickly, so this is an ideal way of soliciting donations at the end of the financial year or in an emergency.”
After last year’s Nepal earthquake, Oxfam Australia used GiveEasy’s SMS donation platform to send an outbound SMS to their supporter base. They also promoted the SMS number as a channel for donations via Twitter and Facebook, as well as on Triple J radio and ABC’s Q&A television program. This started to raise funds immediately, enabling them to respond very quickly.
“Mobile communications work very effectively in this context but I believe we will soon start to see more long-term strategies being built around mobile fundraising,” says Tobias.
Anglicare Victoria is responding to a different shift in expectations. “We’re finding that potential donors are less interested in traditional dinners and auctions than experiences such as our recent ‘Altitude Shift’ fundraiser,” says CEO Paul McDonald. “Participants paid $150 and committed to raising another $850 for the opportunity to abseil down Melbourne’s 113-metre St James building.
“We are the state’s largest carer for babies, children and young people who can’t live at home so this was built around the narrative that it takes courage to step into the unknown, whether that’s off a building or into foster care.”
Whatever the approach, project-based fundraising creates insecurities of its own. “The challenge is how to resource a charity and its core functions when funders often focus on a project with a finite beginning and end,” says Wallace.
A commercial venture could be more sustainable. For example, for many years The Smith Family has been selling donated new and recycled clothing to both local and overseas markets and using the surplus revenue to help offset infrastructure costs.
“This ensures that more of the funds received from our fundraising activities can be spent on educational programs that benefit the disadvantaged children we support,” says CEO Dr Lisa O’Brien.
The Smith Family also recently launched a commercial application for its Let’s Count early numeracy program, which helps pre-schoolers in disadvantaged communities improve their mathematical skills and confidence.
Since 2011, revenue from The Smith Family’s commercial activities has grown by 5 per cent per year to $17.4 million in 2014‑15. However, that year recycling revenue was down on the previous year due in part to changing buying patterns, devaluation of currencies in the organisation’s export markets and changes to overseas government regulations that caused trading difficulties with export partners.
“To mitigate these circumstances, we’ve implemented a range of strategies including exploring new overseas markets, diversifying and expanding our product offerings both locally and offshore as well as implementing operational improvements,” O’Brien continues. “Our board has also encouraged management to be flexible and innovative around the creation of robust revenue streams, including developing further social enterprises where the business case demonstrates long-term potential.”
In the NFP arena, “commercial” may not be quite as straightforward as it sounds. For example, Anglicare Victoria’s Innovative Resources (IR) sells more than 60 items ranging from strength cards to DVDs in Australia and overseas. But, as most of its customers are other organisations working with disadvantaged people, for 25 years they have chosen to break even rather than make a profit.
This may be about to change as some for-profit organisations have recognised the potential for using IR to improve workplace communications. “We’re now tweaking the model to increase sales in this area and generate a moderate profit,” says McDonald. “We’re fortunate in that we have acquired a sound foundation of business skills over the years. In my experience, the most sustainable commercial ventures build up slowly over time. These days I think it’s more common for NFPs to take a social enterprise approach, such as opening a coffee shop staffed by its clients.
“But, again, this won’t necessarily be profitable in the short to medium term. Starting up can be financially draining and, just as in the commercial world, it isn’t easy to start generating a good, sustainable income from scratch.”
There are currently 54,000 registered charities in Australia. “The question is often raised as to whether this is too many, and some people suggest we should try to stifle the creation of new ones,” says Wallace.
“But many new charities start as a volunteer-led grassroots community response to a local need. You may not get the same degree of enthusiasm or support for an organisation working at a much higher level. The Australian Charities and Not-for-profits Commission is sympathetic to this view and continues to support growth, which is balanced to an extent by charities which fold or amalgamate.”
Attempts to rationalise administrative functions have achieved varying degrees of success. “In some cases, the individual organisations have had to go back to doing things their own way in order to prevent a huge bureaucracy from developing,” Wallace continues.
In tough times a merger may also be on the table – though this can present particular challenges in a sector driven by passion. Two causes that appear to be very similar can have very different business models or be built on different systems of belief.
“While I was executive chairman of Creating Australia, the 2015 Federal Budget made it clear that cuts to the Australia Council were going to have a significant impact,” says Wallace.
“At that time, there was a suggestion that 30 or 40 per cent of funded community arts organisations might lose their funding. I brought our board round to the idea that the right merger would reduce running costs and help us to develop new philanthropic partnerships and deliver programs.”
Wallace adds that it was a meeting of minds that led to a solution. “We were very fortunate in identifying a like-minded organisation that was looking for the same outcomes and we concluded our merger with Cultural Development Network at the end of January this year while retaining Creative Australia as an ongoing entity.”
Developing the right pitch
Frank Lancione MAICD, president of the National Heart Foundation in South Australia and a director on the national board, has said that boards must accept volatility, embrace change and continually address the brand’s relevance and sustainability. One of the foundation’s own initiatives was to establish a National Revenue & Brand Advisory Committee and appoint Stirling Larkin GAICD as its chairman.
Larkin writes the Global Investor column for The Australian and, as principal of The Larkin Group, provides investment advice to ultra-high-net-worth clients. He is also secretary of the Larkin Foundation, an NFP, and a director of the Art Gallery of Ballarat.
“My area of expertise is private funding and here the writing is on the wall. The Government has clearly stated that it is retreating from this space,” he says. “I personally think this is a good outcome because, in a liberal free market democracy, the Government should provide a backstop to community support rather than funding NFPs to the extent it does now.”
He advises directors to embrace the current trend towards the North American model of blended philanthropy.
“Boards should be making sure that management is engaging with all possible channels – private and corporate as well as government,” he continues.
“They must also stop confusing philanthropy with project-based charity. Most philanthropists – families, individuals or corporations – take a much longer-term and more strategic view. They also have a specific mandate in terms of what they want to support and the impact they expect to see. If you don’t do adequate research and tailor your request accordingly you won’t get their support, just as no bank would approve a bank loan if you turned up with a generic, handwritten business plan.”
Pointers for the board
Adam Garone shares his tips for directors.
- Accept that you must keep trying new things and that some won’t work.
- Monitor new initiatives closely and don’t become emotionally attached to them – be prepared to change tack quickly if you can see they’re not working.
- Be open-minded. On paper, asking people to pour a bucket of iced water over their head sounds like nonsense but the Ice Bucket Challenge raised $115 million for the ALS Association.
- Forget the term ‘not-for-profit’. The sector is absolutely about profit – the only difference is where the profit goes.
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