Donors are becoming more concerned with quantifiable outcomes

Our take-away from this article may be quite different from that of the typical reader at the Economist. This article is of interest because it articulates an evolving trend with a reportedly growing number of donors. A new generation of donors are now hyper-focused on demonstrable outcomes and results. Great! Understanding the needs of donors is certainly one of the essential factors to solving the ever present funding puzzle for nonprofit organizations. And, without question nonprofit leaders must be prepared to respond to the changing desires and needs of their donors.

But we still call this fund raising, not fund counting. Nonprofit organizations have always been required to react to changes in the donor marketplace. Despite changing donors and changing donor needs, organizations must still engage in campaigns to seek out financial support. We are less concerned about the possible pitfalls identified in this article as it has always been incumbent upon the nonprofit organizations to engage their constituents in a discussion about the mission and merits of their work. If fundraising and donor relationships become more focused on the quantifiable outcomes of their work, we think good things will happen.

Doing good by doing well | The Economist

“WHAT charity will give me the biggest bang for my buck?” asks Elie Hassenfeld. In 2007 the former hedge-fund manager co-founded GiveWell, a non-profit organisation set up to answer that question for the growing number of donors who want to know how much good their cash will do before deciding which charity to entrust it to. GiveWell researches charities active in fields where there is strong evidence that great good can be done for a modest cost, such as cutting the incidence of malaria and treating children for parasites. The most effective are published in a list of “best buys”.

According to Alana Petraske, who advises charities and donors for Withers, a law firm, much of the new interest in such “impact-driven” philanthropy is from donors with business backgrounds who aim for the same efficiency in their giving as in their work. Bill Gross is a recent example. The billionaire bond investor has said that he will give his entire fortune away, and lauded GiveDirectly, a GiveWell top pick that makes no-strings cash grants to poor people in developing countries that he describes as “outperforming the market”.

Venture philanthropy, modelled on venture capitalism, offers a way to invest in charities that are testing new approaches to solving old problems. Some big donors, including the Gates Foundation and USAID, the American government’s aid agency, run competitions for innovative approaches, which are extended if they prove to be effective and efficient. They look for rigorous evaluation: almost half the projects USAID funds include “gold-standard” randomised controlled trials.

Small donors, too, are becoming more discerning in their giving. Together, their contributions vastly outweigh those of billionaire philanthropists and their foundations: a 2007 study estimated that American households gave at least $60 billion annually to charities focused on the needs of the poor. By comparison, the Gates Foundation made grants totalling $3.9 billion last year.