Perspectives in Philanthropy: Adapting to a Rapidly Changing Donor Landscape

This is the second in a series of articles exploring trends in philanthropic giving from Gary Cates, Chief Philanthropy Officer for ProMedica, a national not-for-profit health and well-being organization.

“Investing your money is hard. Giving your money away is even harder.”

At a recent convening of multi-million-dollar philanthropists, I heard the above sentiment shared. And, in large part, it’s harder to give money away because donors are increasingly paying more attention, and giving more thought, to the impact of their philanthropy dollars. They are valuing demonstrable impact over lesser measurements, such as numbers of activities, participants and people served. As a result, impact metrics have become an integral part of donor discussions.

As one philanthropist told me, “How do you know that you are winning unless you measure the impact?”

This drive for measurable impact is just one of the forces reshaping philanthropy as donors search for new and more meaningful ways to give in times of post-pandemic rebuilding and recovery. And, while one could argue there are multiple forces at work reshaping the sector, I see five critical trends emerging that donors and not-for-profits should be analyzing:

• Philanthropic Scope

• Time to Impact

• Increasing Metrics

• Charitable Risk Tolerance

• Donation Effectiveness

Philanthropic Scope

While the question of philanthropic scope is not new, it is receiving new attention with donors as they grapple with impact. Here, we are talking about the difference between giving smaller amounts across a wider array of charities versus giving bigger gifts to fewer entities. It’s a question of breadth versus depth. Larger donors in particular face this decision. Given their greater giving capacity, high net worth donors recognize making bigger gifts to fewer agencies actually can assist in their quest to have greater philanthropic impact. Some are even making the decision to simply give in one area, or to one organization, to maximize their impact.

The donor’s difficulty with this decision typically is reconciling increased gift impact with the result on their local, smaller not-for-profits - organizations which might have traditionally enjoyed the donor’s support. Many times, these smaller charities are highly dependent on annual giving and literally may be living from hand-to-mouth – again, making this decision difficult for the donor.

Given their limited geography and lack of scale, many smaller not-for-profits cannot offer their donors the opportunity to help reshape societal issues on a bigger platform. The smaller not-for-profit’s impact, while important and meaningful, simply doesn’t have wider reach.

As this trend continues to grow, not-for-profits need to carefully examine what they can offer a donor in terms of maximizing the impact of their gift. Seeking funding for participation in national studies or pilot programs, or joining in implementing new best practices, might be ways for smaller organizations to increase their philanthropic reach.

Time to Impact

Time is another factor in emerging trends. Is a donor willing to wait for desired outcomes, or are they in search of quicker results?

The choice between affecting long-term societal change and meeting more immediate needs is a growing dilemma. Tackling societal problems requires longer timeframes to deliver the desired outcomes and impact, often at the cost of delivering more immediate impact.

Funding long-term change is a process that, at a minimum, takes years of work tearing down barriers, painstakingly rebuilding structures, and summoning larger resources. Conversely, charitable efforts aimed at meeting individual human needs can yield results in a much quicker fashion.

Increasingly, many donors are judging impact not just on meeting human needs but also looking to support long-term change at a time of racial and social awakening. And, this dynamic can influence giving patterns going forward.

Driving large-scale changes in society typically is not the domain of localized fundraising efforts. Like the debate on philanthropic scope, it can force donors to choose between funding quick-result initiatives closer to home and being part of a longer-term social movement in the quest for greater impact.

Increasing Metrics

The demand for greater measurement, data analysis and reporting of not-for-profit results to the donor community may have the same effect of increased governmental compliance efforts witnessed in other for-profit sectors – namely, consolidation and/or closure.

The growing burden on smaller not-for-profits to undertake increased metrics can become cost prohibitive. Without increasing capacity, many smaller organizations simply don’t have the resources to capture, generate and manage this reporting – and may face difficult decisions about consolidation with other entities or outright closure. And, quite frankly, some donors might consider such a “thinning” of the not-for-profit landscape as being needed or positive.

Not-for-profits currently operating on little-to-no margin should seriously consider how they will meet these growing demands. They should explore their options, including greater collaboration with other organizations or proactively seek consolidation. The good news for these agencies resides in evidence that donors frequently reward such moves when they bring increased productivity, synergy and scale.

Charitable Risk Tolerance

Much like an individual’s financial risk tolerance factors into their investment portfolio, a donor’s charitable risk tolerance plays into their philanthropy decisions.

Financial investors make portfolio decisions around the risk of financial instruments and their tolerance for those risks. A conservative, more risk-adverse investor likely will not put money in a venture capital fund. Others, seeking a more predictable return, may employ a diversification strategy to mitigate risks. Each is dependent on the investor’s financial risk tolerance.

With one new not-for-profit being created in this nation every 15 minutes, there are literally millions of avenues open to a donor for making a philanthropic investment. Each of those avenues carries with it a different level of philanthropic or charitable risk.

Just think of the range of options in today’s landscape – long-established charity versus start-up, large operation versus small, geographically-centered versus broad reach, using tried and true practices versus employing cutting edge innovation, built on a unique model versus replicable, etc.

In an ever-growing field of donation options, philanthropists today are making giving decisions not on the cause or mission alone, they also are making decisions in keeping with their charitable risk tolerance. Not-for should understand the charitable risk they represent and seek those donors who have a combined affinity for their cause and tolerance for their risk level.

Donation Effectiveness

Underpinning all of this discussion of scope, timing, metrics and risk is one fairly simply-stated expectation – increase the effectiveness of my donation.

One of the things I continually hear in my travels is that donors today are searching for a better way to give. They are looking for new ideas, new methods and new ways to give more effectively. As one philanthropist told me, “I’m looking for someone who will use my money differently.”

It’s no longer enough to simply be a mission-based charity. Not-for-profits must also be seen as highly effective. For many donors there is a personal identification factor in play. While they want their gift to be impactful, they also are looking to be part of something that is seen as highly-effective and innovative. Being associated with a latest innovation or idea through charitable giving is part of their philanthropic equation. Charities that are not considering new and different ways to engage with donors likely will not be successful in growing their support. Not-for-profits need to deliberately and consciously bring a unique effectiveness to their charitable proposition. Paying attention to the changing landscape in philanthropy will be critical to the success of not-for-profits. Finding ways to transition and pivot to meet a new set of demands is incumbent on those leading not-for-profits, as well as those who raise funds for them.