Readings for the new year

As I prepare to jump on a plane to Pittsburgh to celebrate the coming of 2011, I leave you with one of the most important recommendations I can possibly make. Books.

Brains on Fire - Perhaps the best book I've read this year. The folks from the eponymous agency that wrote the book talk about creating movements and relating to your patrons as part of a tribe that holds together, supports each other, and reaches out. They've worked with not-for-profits and with major corporations, so their experience is key. Listen closely, and read their blog too for more great wisdom.

Switch - Another fantastic book by Chip and Dan Heath who wrote my favorite business book of all time, Made to Stick. The sub-title really says it all: How to Change Things When Change is Hard. If you want to move patrons towards being donors and advocates, this is a must-read to understand the fundamentals that underlie the action.

20UNDER40 - This is my reading for my Pittsburgh trip, but as I've mentioned in the past on Twitter and elsewhere, the talk with Ian David Moss of Createquity (who generously named ArtsAppeal on of his top 5 new blogs of 2010) as well as his co-conspirator in the book, Daniel Reid, convinced me that this was a must-read. This is our generation of arts managers talking to us about the difficulties and opportunities ahead.

Unmarketing - Social media is about relationships and is changing the way we build them in really amazing ways. Scott Stratten is a little ADHD which makes reading his book perfect for my own proclivities as the chapters are little bite-sized pieces of joy. He's spot on in how to think about social media and how to build relationships in a way that marketers and fundraisers of the past will balk at only at their own peril.

Go forth and celebrate putting a hard fundraising year for all behind us. Next year, we have a ton to look forward to as things can only look up with good processes to back up our great organizations.

Cultivating small donors

The subject of small donors has been on my mind of late. As much as resources are thrown at the big money, no fundraising program could survive without the people that give $5 or $50 at a time. Five dollars isn't going to make or break your organization this year, but enough of those donations start to add up to major funds. And the five dollar donor of today can grow over time into the $5,000 donor of a few years from now.

Shared Ownership - We seen some incredible "grassroots" examples over the past several years of how to create sustainable giving movements of small donors, the movement to elect President Obama standing out as one of the most expansive ones. From one of the great thought leaders on the subject of movements, Brains of Fire, comes this nugget of wisdom about how to effect changes in behavior:

...[S]imply having a conversation (engaging) so that people have the right information in their heads might not be the best way to affect lasting change. But giving people an opportunity to actually live the changes that need to happen based on the right information gives them ownership. And when an organization partners with the people they are trying to help and involves them in the process of whatever they do, we call that shared ownership.

So the question becomes how are you giving your patrons and donors a sense that they share in the work they see on stage. I'm not talking about handing over artistic control. I'm talking about opportunities to acknowledge that they, by being active supporters, not just observers, are a part of that artistic product. That by contributing even a small amount, they ensure that their experiences will live on through the work you create, that they become an integral part of the creation of art, that their choice to give is a way to reflect the way that the artistic work has touched them. Invite your donors, especially your small donors into your work in small and big ways so that they feel that they share the ownership of their experiences with you.

Influence - Reading Living Philanthropic and about Carlo's amazing journey of giving small gifts all year to a wide range of organizations. Carlo's $3,000+ given so far is impressive on its own (and stresses the importance of organizations allowing repeated interval giving programs as it allows small donors to give so much more!), but what is even more fascinating is that his small gifts have spurred those following his quest to give another $5,600, nearly tripling the good he's done through his own giving! That should be an eye-opener to anyone.

I've long known that the reason we list all those names in our show programs and on our walls was not only to thank our donors, but also to show off the names to other potential big givers. Seeing the names of the people we respect helps us engender trust, might spur some friendly competitive giving among friends, or even cause a little embarrassment that you aren't giving as much as your associate. There are all sorts of positive and negative emotions that come up in those situation. But what I see Carlo doing is, in fact, positive leadership.

Small donors, especially, aren't likely to spend as much time doing heavy research on the people they give to. But influencers like Carlo that are willing to do that research and show their support can serve the same purpose in both a logical and emotional capacity. I feel that this gives us all the more reason to create platforms where these influencers can pave the way to our organizations.

Kickstarter, IndieGoGo, and other projects like these are a start, but they are project based. Great Nonprofits is creating the "Yelp for nonprofits" which can be another exciting tool for awareness and possibly donations. Ian David Moss spoke a little about ideas tying foundation money to crowdfunding projects as well at the Creative Conversations event I attended with promises of more in the 20UNDER40 compilation (which is happily now on its way to me). These projects have a certain amount of influencer cred built-in, and it can be developed further.

People give to people is rule number 2 in my development rulebook. The idea that they give because of other people they trust too is not such a stretch.

Loyalty - I cannot stress enough how important loyalty and experience management is to the process. We call these donations "small", but for the people giving, we can't ever forget that it is a significant amount to them, no matter the actual number figure involved. If we aren't giving them an experience worthy of them giving to us, then they simply aren't going to give, let alone come to another show. From our advertising to our box office to the house management to artistic product to the marketing retention programs to the development events to the annual fund to the advocacy groups that reach out on our behalf, every step of the process needs to draw the potential patron in and move them to greater levels of loyalty through the experiences we create. It's a never-ending job, but hopefully it's a joyful one for everyone involved in the process.

Are there other factors that you'd consider? Leave a comment. This is by no means a definitive list, just the top three things I would consider in developing a grassroots small donor program.

Fundraising is about emotions

There aren't many not-for-profit institutions that I know that don't have very logical reasons to support them, even in this age when we supposedly have a glut of NFPs. The arts have any number of spectacular (in my not so humble opinion, clearly) reasons that it makes total sense to give. Economic impact, educational value, the arts are a creative springboard, outreach programs, advocacy, and on and on.

None of it matters. We are not rational creatures, as much as we like to think we are. Larry Summers, an economic powerhouse and former top economic advisor to more than one president, once opened an unofficial paper with a very concise and brilliant critique of the notion that markets behave rationally by saying "THERE ARE IDIOTS! Look around." Larry doesn't have many friends in the world. Geeks, always under-appreciated. Can't imagine why.

And while I'm not going to call any potential donor names, we still need to recognize how that logical part of the brain serves to justify our instinctive actions more often than not. And our instincts are, by and large, emotional, not logical.

Look at your last appeal. We have so much emotion to draw on from our artistic counterparts. Did you capture that emotion in your last appeal or was it a logical argument for why you should be supported?

How can you capture that emotion the next time you write your newsletter giving blurb or annual fund appeal?

• Remind people of that great moment in one of last year's popular shows.
• Tell a story about an artistic triumph that led to something brilliant on-stage.
• Tell a story about an audience member's experience that was outstanding in some way.
• Share an emotional comment left on your company's blog, letting your audience make your appeal for you.

And that just skims the surface. The important part should be that as you evaluate what you wrote in your appeal, you use emotional impact as a category of evaluation. Your message will be all the stronger for it, and all those logical reasons you have available on your website or in your accompanying literature will serve to justify that emotional response and get those donations in the door.

A seat for fundraisers at the tax table

The release and subsequent support for the Simpson-Bowles report on how to fix the federal deficit should have arts managers and not-for-profits in general concerned. The charitable deduction that encourages taxpayers to give more generously is under attack. Certainly, there aren't many people that only give for a tax break, but it helps immensely and it expands what not-for-profits can get as donors tend to be more generous when their dollars go further.

There are many that feel that the deduction as it stands is bad policy, and to be honest, they have a point though not likely the one they intended. The deduction must be claimed on itemized returns, but only approximately one-third of filers itemize. That third represent a fairly affluent sample of the population, all almost assuredly homeowners (another tax deduction finally receiving some scrutiny) and all receiving more from this more complicated form of filing than the standard deduction allows which implies that they also are making more income. Where does this leave small donors?

As it is, we have a system that is allowing income inequality to spiral out of control. Since 1980, those that started out making $1 million or more a year have tripled their income while those making closer to the national median income, around $50,000, have seen their income rise only 13%. That's a catastrophic failure of equality between the classes, and it has assuredly made its mark on donations as we can see in current reports of more funds coming from the elite classes and less from the middle class. So a redesign of the tax code, including the charitable deduction, is absolutely in order.

Here are what I see as the priorities for not-for-profit organizations moving forward:

• We must encourage and reinvigorate small donors. This means making any tax benefit of donating available to a larger part of the population.
• We must make it simple. People are not highly motivated to calculate out how their taxes are effected by these things, and not everyone can afford an accountant. A simple tax benefit will encourage more use of the benefit.
• We must make the benefit still worthwhile to large donors. If large donors don't receive as much benefit, then they can potentially get a better benefit through other credits or deductions which their accountants will not fail to point out.
• We can't allow distinctions to be made between different kinds of 501(c)3s. There are those people out there that would like to reengage in a new cultural war. These people see a distinction between feeding starving children and the arts. I like feeding starving children, but the arts are no less worthy of funds because some out there don't believe in the cultural economy.

Now, I'm far better at microeconomics than macro, so I don't have specific numbers to toss out there, and I welcome anyone that can put some of these proposals in perspective. There is a move to lower the amount of money "lost" in the federal budget to this line item, though I would argue that the very reason that the tax code favors not-for-profits in this way is that direct contribution to us is more efficient for all parties, is less of a strain on taxpayer dollars, and therefore achieves higher quality of life for American citizens as a result. That being said, it's unlikely that a proposal that greatly raises the amount of tax dollars collected when the deficit is such a key focus would pass muster.

So what kinds of proposals are on the table so far?

1. The President's Proposal from 2009: Cap the current deduction at the 28% tax bracket. This went over like a lead balloon. While it actually had a chance to increase donations from large givers if the 1987 tax reform is any indication, it still relies on the same mechanisms that are in place now which clearly aren't working well.
2. The Wyden-Gregg Tax Reform/National Commission on Fiscal Responsibility and Reform Proposal: This would transform the deduction into a non-refundable tax credit of 12% on everything donated above 2% of a filer's adjusted gross income. Normally, anything touched by Senator Wyden is something I can support, but this proposal grossly fails to help support small donors. Think about it: A person with an AGI of $30,000 would have to donate $601 just to get a $.12 credit. Six hundred dollars is probably not a likely donation from someone making about $30K a year. On the plus side, a tax credit would be available to everyone that files which is a plus.
3. The Demos/Economic Policy Institute/Century Foundation Proposal: This would be a straight-up 25% tax credit on all donations. This one seems closest to the criteria I set out above, being significant to both large and small donors and being simple. If it were a refundable tax credit, that would be even more supportive to small donors.
4. The Bipartisan Policy Center Proposal: Not-for-profit organizations would get a tax credit of 15% of all donations. Here, donors would receive the satisfaction of knowing their dollars went further for their cause, but they wouldn't receive a direct benefit. It's my belief that this would greatly decrease giving and significantly hurt small organizations that don't have a large tax burden to begin with unless, again, the credit was a refundable credit. Incidentally, this system is based off of the British system of government tax support for not-for-profits.

My preference is clearly for a refundable tax credit based on the full donation amount. What that percentage would need to be to both spur giving at all levels and still be responsible to the federal deficit, I don't have an exact answer for just yet. In fact, while it might add slightly more complexity, it's possible that this could be a progressively smaller percentage the higher the tax bracket, i.e.- 25% for the lowest tax bracket, 18% for the middle bracket, and 15% for the highest bracket, or the higher the donation, i.e.- 25% on the first $1000 donated, 18% on the next $100,000, 15% on anything above $100,000.

But the most important part is that we reach out to tax experts, come up with a proposal we support, and we take a pro-active stance in reforming the policy. Otherwise, it'll be done for us, and not likely in a way we like if most of the current proposals show us anything.

Dynamic pricing's accessibility

Diane Ragsdale is skeptical on the accessibility claims of dynamic pricing. She, as many seem to do, focus on the goal of for-profit institutions like airlines to, well, maximize profits. That makes sense as the primary goal for those organizations, and it makes people uneasy in the not-for-profit world.

What's important to consider are the mechanics behind how those profits are maximized. And, in fact, Ragsdale gets the primary assumption behind dynamic pricing wrong altogether, claiming that "[s]uch models work best in industries in which consumers are unlikely to change their habits."

The primary assumption behind dynamic pricing is a positive elasticity of demand, the idea that as a price comes down, more people in that marketplace choose to purchase a given product or service. Put another way, the value of the experience aligns with the cost of a greater number of patrons. Profits are maximized by expanding the audience. As Ragsdale says, this is not some measure of altruism, to be certain, but it does still meet the demands of the artistic mission to reach out and present the art to more people, audience members that at higher prices may not have taken that opportunity.

Additionally, an organization that can't make ends meet is harder pressed to expand its efforts to provide special opportunities to outreach audiences. A cash-strapped arts organization often can't design programs to bus in students, reach out to disadvantaged patrons, or into new demographic segments unless given grants or other funds to specifically do those activities as they're too focused on the day-to-day.

As much as the entertainment options of our patrons are made more diverse every day, I don't believe that these added competitors for their attention significantly diminishes the number of people that are in the market to see the live performing arts. Those patrons are out there, but with increased competition, there is a distinct need for increased response by our organizations from every level, including a recognition that value is not a constant from show to show or even performance night to performance night. If they are still in the marketplace than we have the potential to capture them at a different price.

And there should be no shame in raising prices as well when the value is there. That money, in a not-for-profit will go back into programming, into the aforementioned outreach, and into customer acquisition to find new audience. It's a win from every angle.

Fundraising Ambassadors - Appreciating House Managers

If fundraising is about relationships and people buy and give based on their experiences, then we have to recognize the critical role of our house managers, not just this week, House Manager Appreciation Week, but every week. The smile and greeting upon entering the theater, the quick drink service during intermission, the cleanliness of the facilities, the well-orchestrated cab line, all of these little things make such a subtle yet pervasive impact on the theatre-going experience.

It's essential to have strong detail people on your house management staff and to empower these people to make every reasonable accommodation for your patrons. Your house managers should be like the maitre d' at a fine dining establishment with the ushers and other staff as the crack team of synchronized waiters, seeing to the comfort and welcome of the guests. Have you ever been to a restaurant that just made you feel like you were the center of the experience? That made you feel that your every need was taken care of so that you could enjoy your meal without a care? That's the aim here.

Put yourself in the shoes of your patrons. From the moment you prepare to leave the house to the time you step back, the house management team is at the helm. What is your impression as you approach the theater? Is it clean, inviting, maybe just a little glamorous? Who greets you as you step inside? Do they smile, hold the door for you, offer you coat service? Are you handed a program and left to your own devices or are you escorted to your seat with a smile? Is the bartender friendly or overwhelmed? Were you made aware of any lobby exhibits, talkbacks, or other opportunities to enhance your experience? What are the specific difficulties of attending your performance, and what was done to overcome those obstacles so that attending again is known to be easy and effortless?

These are the questions that need to be addressed, and if your house management team is truly exceptional, they've got this under control. They are handling problems mostly before they arise, and they respond to new situations with aplomb because they've been given the power to be the diplomats for your organization, making every patron and donor feel like a head of state.