Why you must deliver value in fundraising, not just take the money and run

Dr. Russell James

June 26, 2023

The noble dream

Small nonprofits have needs. Often, it’s obvious. The furnishings are a bit ragged. The space is cramped. The conditions are spartan. But it’s fine. All this just makes the great struggle faced by the heroic leaders more noble.

Besides, one day that big gift will come in. One day, a passing wealthy donor will recognize their plight and write a million-dollar check!

Look, I understand. It’s fun to engage in magical thinking. People buy lottery tickets every day. And besides, the struggling nonprofit is doing good things; it deserves a big gift. This makes the fantasy particularly alluring. It feels almost plausible.

And yet, that gift never actually comes. Why not?

The crass reality

This administrator-hero story feels noble. But sometimes this can be a barrier to understanding. It makes it harder to see the obvious. So, let’s consider something much less noble.

Suppose a friend asks for your help. Her brother runs a used car lot. But he’s struggling. Perhaps you could stop in and give him some advice? So, you visit. The furnishings are a bit ragged. The space is cramped. The conditions are spartan.

The manager says, “Things are tight right now. But one day we’ll make a million-dollar sale. Then things will change around here.”

You respond, “Really? Wow! So, where is this million-dollar car?”

The manager hesitates.

“Million-dollar car? Well, we don’t have one of those on the lot. But, you know, when that customer walks in with a million dollars to spend, we’ll figure something out. This place will really take off when that happens.”

You ask, “So, you’re waiting for a million-dollar sale. But you don’t have a million-dollar car to sell?”

He responds, “You know, you make a good point. Here, let me fix that.”

Taking a pen, he changes the sign on one of the cars to read $1,000,000.

You say, “But that’s not a million-dollar car.”

“It is now,” laughs the manager.

You respond, “No, I mean it’s not worth a million dollars.”

He says, “It is to me. See? I wrote it down right there.”

You explain, “No, I mean it’s not worth a million dollars to the customer.”

There’s a pause.

You sigh and continue, “Look, I may not know much about your business. But you can’t expect a million-dollar sale if you don’t have a million-dollar car on the lot. And you can’t just stick that silly price tag on it. Even if you think it’s worth that much, that doesn’t help. It’s got to be worth that much to the customer.”

Back to fundraising

So, why hasn’t that small nonprofit received its million-dollar gift? Consider the same questions. Is there a million-dollar “car” on the lot? Have they been showing that “car” to any potential buyers? For many small charities, the answer is, “No.” Certainly, if a donor walked in with a million dollars to spend, they would figure something out. But that’s not the same thing.

So, the answer is simple, right? Just slap on a different price tag. Next time, instead of asking for a thousand, just ask for a million instead. Now you are a major gifts fundraiser! Actually, no. That’s not how it works.

It’s fun to think, “One day that million-dollar gift will come in!” It’s harder to think, “One day we’ll deliver value to a donor worth a million-dollar gift.” That’s not fun or magical. That’s hard work.

Delivering value as a goal

Charities often don’t get a million-dollar gift because they aren’t trying. Maybe they’re trying to get that much cash. But they aren’t trying to deliver that much value. They aren’t trying to offer an experience worth a million dollars to the donor.

In fact, delivering value to the donor may not even make sense to them. It doesn’t fit into the administrator-hero story. In that worldview, donors are supposed to give because “we deserve it.” They’re not supposed to give because “we deliver value to them.”

In that worldview, here is the charity’s value proposition:

Give us your money. We’ll use it to accomplish our goals. Take it or leave it.

Donors, mostly, will leave it. Of course, small, social compliance gifts can still happen. A “pat-on-the-head” gift is possible. A small “isn’t-that-nice-for-you?” gift still makes sense. But don’t expect the transformational gift. That value proposition isn’t going to compel any donor to make a major gift. It’s not going to inspire sacrificial giving.

Let me be blunt. Is delivering a compelling donor experience a core competency of your charity? If not, then every other charity your donor gives to had better answer the same way. Otherwise, your organization will get left out.

Delivering value with heroism

The “one big thing” in fundraising is always the same: Advance the donor’s hero story. Fundamentally, this is about delivering value to the donor. It is, in particular, about delivering the kind of value that only philanthropy can. This is the kind of value that consuming more stuff won’t give. So, what does it mean to deliver value to a donor this way?

A hero story is a circular journey that results in an enhanced identity. The simplified steps are these: [1]

Or simply,

This pattern also matches the steps for a heroic donation. A heroic donation is,

A sacrificial gift that protects the donor’s people and values in a crisis

This matches the story cycle.

Delivering value: Enhanced identity

The ultimate result of a hero’s journey is an enhanced identity. The ultimate result of a heroic gift is the same. This enhanced identity is both

• Internal (within the donor), and
• External (within the donor’s community).

Let’s start with the practical side. What does it mean to deliver external enhanced identity? We’ve already seen it in the primal game. The first law of sustainable giving in nature is this:

Giving must be seen by partners who are able and willing to reciprocate.

The greater the ability and willingness of the audience to reciprocate, the more value making the gift has. This value comes from enhancing the donor’s external identity.

Call it reputation. Call it prestige. Whatever you call it, an enhanced public identity can be valuable. It’s valuable if the audience is right. A heroic gift can deliver value by enhancing external identity. But this requires a heroic gift audience.

Delivering value: Audience

Creating a compelling gift audience rarely happens accidentally. Developing an audience of “partners who are able and willing to reciprocate” isn’t easy. It takes hard work.

And it’s hard work that happens only if the charity wants to deliver value to the donor. If donors are supposed to give “because we deserve it,” then doing this work doesn’t make sense. But if the goal is to deliver value to the donor, then it does.

How can the charity create this audience? It can start by being a good audience. A charity can act like a stable, reciprocal, reliable friend. It can deliver gratitude for a gift. It can confirm the donor’s enhanced identity.

Even more powerful, it can build a compelling audience. This means building a community of supporters.

The potential reciprocity from a single partner can be significant. This is called direct reciprocity:

You gave to me (or not) → I’ll return the favor (or not)

The potential for reciprocity becomes exponentially larger when a whole community is reciprocal. This is called indirect reciprocity:[2]

I’ve seen you give to others (or not) → I’ll return the favor (or not)

An audience increases giving

Anonymous donations can’t improve the donor’s public identity. In actual fundraising, they’re also rare. Rare, as in 99% of gifts are not anonymous.[3]

In experiments, lowering visibility of the giving decision decreases donations.[4] More visibility equals more giving.[5] Oddly, this is true even if the feeling of visibility comes only from a picture of watching eyes.[6]

This can also happen with gifts in wills. In one historical example, testators were actually put on stage. Researchers compared different 17th-century Dutch towns. They explained,

“In Zwolle people approached the Bench of Aldermen, a civic institution, to make their last will, whereas in Leiden and Utrecht citizens went to private notaries.”[7] In Zwolle they “were specifically asked to remember the poor.”[8]

Did this public stage make a difference? In Leiden and Utrecht just over 10% of wills included charitable gifts. At the same time in Zwolle, 76% of wills did so. Making the decision visible had a huge impact.

Audience matters. A supportive audience matters even more. Experiments show that encouragement from others, including other donors, increases giving. [9] Encouragement to give is even more powerful if it comes from group leaders, especially elected ones.[10] An approving audience – in particular a high-status one – leads to more giving.

Making the audience optional lowers giving

Audience drives giving. But this doesn’t mean people always want an audience. In fact, the opposite may be true.

In one lab experiment,[11] people got a $10 bonus. They could share any of it with another player. This choice to share or not would be public. They first decided how much to share. Later, they got a chance to “opt out.” This meant they would get only $9, not $10. But this money could not be shared. The choice to “opt out” was also private. Other players would never know.

The result? 40% of those who initially chose to give, later opted out.[12] These players initially gave, but only because their choice was public. Why would they take $9 instead of $10? Or why wouldn’t they take $10, keep $9, and share $1? Because not giving, or giving only $1, looks bad. It looks selfish.

This was a problem because the giving decision would be public. If the initial decision was private, things changed. Only 4%, not 40%, opted out of their initial (private) decision. But because the initial decision was private, giving also dropped by a third.[13] Once again, having an audience led to more giving.

Giving changes status with the audience

Having an audience encourages giving. It also opens the possibility for indirect reciprocity. This can have real economic consequences. It also shows up in experiments.

One setup is this. Participants each get money. They then decide how much to share with the group.[14] Later, they pick a group member as a partner or a leader.

Who do they pick? When they pick a partner, people usually pick the most generous player.[15] When they pick a leader, the results are the same. When they predict who would earn the most money for the group, the answer is also the same. People prefer the most generous person.

In one experiment, people had to pick from two group members for a profitable venture. The researchers explained that people,

“Almost always chose to interact with the more generous member.”[16]

Giving affects others’ choices for partners and leaders. In the lab, a charitable reputation has economic benefits.

Status from giving can deliver cash value

Experiments in a lab are one thing. But what about the real world? Is it economically valuable to be seen as charitable? Of course.

Think about it. Why do corporations donate? These are pure profit-making machines. And yet, they donate. Why? Because it works. Even for corporations, public identity is valuable.

Research confirms this. Corporate charitable giving predicts future revenue. For consumer firms, it predicts customer satisfaction.[17] It boosts reputation for features important to

• Customers (for example, quality of products or services),
• Investors (for example, value as a long-term investment), and
• Partners (for example, capacity to innovate).[18]

Hollywood movies confirm this, too. Perhaps the most transparently self-interested character in modern film is the corporate raider, Gordon Gekko. In the 1987 film Wall Street, Gekko delivers his famous “Greed is good” speech. And yet, even this extreme character, says, “I just got on the board of the Bronx Zoo. It cost me a million.”[19]

Why would this selfish corporate raider character give a million dollars to a charity? Because it provides access to powerful friends. Because it displays his resources. Because it signals shared values. Because membership is a greenhouse for reciprocal alliances. These all have substantial economic value.

The point isn’t that your donors are soul-less corporations or greedy corporate raiders. The point is that charities can deliver real value to donors. Improving a donor’s external (public) identity matters. It can have real-world, cash-money consequences.

Primal math in partner selection

Consider this strategic calculation. Suppose I have a mutually beneficial joint venture. It should benefit both me and my potential partner. Whom should I pick as a partner?

Philanthropy can help me decide. How? Consider the following. What if, through philanthropy, one potential partner displays financial strength? This might be helpful. If we get into a crisis, this partner apparently has the resources to get us out. That’s a win for me.

What if his giving also supports our shared group? If he benefits, he’ll probably help our shared group. I care about our group, so that’s also a win for me.

Because we share group membership, I also have extra leverage. If my partner acts badly, I can alert other group members to this. That’s also a win for me. These are all reasons that make him the preferred choice. These are also reasons why he might prefer me as a partner. It’s a win-win.

Fundraiser as builder of a heroic donation audience

A heroic donation is

a sacrificial gift that protects the donor’s people or values in a crisis.

It shows both ability and willingness to protect in a time of need. This demonstrates friendship insurance reliability.[20] But to be valuable, this demonstration requires the right audience. The right audience must include desirable friendship insurance partners.

In the primal context, such powerful and supportive friends were critical. They meant the difference between life and death.[21] In the modern world, the result is only slightly different. In a political conflict, they might be the difference between political life and death. In a liquidity crunch, they might be the difference between economic life and death.[22]

This is where the charity can function as a major gifts “greenhouse.” The charity can build the right audience and opportunities for transformational, heroic giving.

The first rule of fight club: Don’t talk about fight club

Reputational benefits for donors are real. They are motivational. But if these benefits are seen as the reason for the gift, it destroys the identity enhancement.

In experiments, giving a public financial payment for a charitable act doesn’t work. It actually reduces the charitable behavior.[23] One experiment found that direct benefits for giving did, at least, make one group feel better. They increased satisfaction and reduced guilt – for those who didn’t support the charity.[24] When giving appears motivated by benefits, it loses its value as a signal.

Delivering value to donors is powerful. But it must be done in the right way. This value can be real. But it must preserve the reputational benefits from making the gift. Giving can be advantageous. But it must still advance the donor’s hero story.

Conclusion

Delivering practical value to a donor starts by building the right audience. It starts by building a community. This begins the move from giving to sharing.

Footnotes:

[1] Joseph Campbell uses a three-step circular illustration with this description:

“A hero ventures forth from the world of common day into a region of supernatural wonder: fabulous forces are there encountered and a decisive victory is won: the hero comes back from this mysterious adventure with the power to bestow boons on his fellow man.”

Campbell, J. (1949/2004). The hero with a thousand faces (commemorative ed.). Princeton University Press. p. 28.

I label these steps as follows:

The beginning point of “the world of common day” is “original identity.”

“Venturing forth into a region of supernatural wonder” is “challenge.”

“Fabulous forces are there encountered and a decisive victory is won” is “victory.”

“The hero comes back from this mysterious adventure with the power to bestow boons on his fellow man” is “enhanced identity.”

I apply this both to a scenario where the charitable gift serves as part of the final step in the heroic life story and where the gift request itself constitutes the challenge that promises a victory delivering enhanced identity.

[2] Nowak, M. A., & Sigmund, K. (2005). Evolution of indirect reciprocity. Nature, 437(7063), 1291-1298.

[3] Glazer, A., & Konrad, K. A. (1996). A signaling explanation for charity. The American Economic Review, 86(4), 1019-1028. p. 1021. (“The data we collected show that anonymous donations are rare. … The Pittsburgh Philharmonic received 2,240 donations from individuals in 1991. Only 29 (1.29 percent) were anonymous … Of the 1,950 [donors to the Yale Law School Fund], only four are anonymous … fewer than 1 percent of donations [to Harvard Law School] were anonymous. Similarly, in 1989-1990 Carnegie Mellon University received donations from 5,462 individuals. Only 14 (0.3 percent) were anonymous. Perusal of all reports by nonprofit organizations on file at the Pittsburgh Business Library found no institution with rates of anonymous donations higher than in these examples.”) Even these “anonymous” gifts are often not anonymous to the recipient organization. They are only anonymous (i.e., not published) for outside observers.

[4] Andreoni, J., & Petrie, R. (2004). Public goods experiments without confidentiality: A glimpse into fund-raising. Journal of Public Economics, 88(7-8), 1605-1623.

[5] See, e.g., Butera, L., Metcalfe, R., Morrison, W., & Taubinsky, D. (2019). Measuring the welfare effects of shame and pride. National Bureau of Economic Research Working Paper Series. No. 25637. (Public recognition motivates charitable giving in experiments.); Lavertu, L., Marder, B., Erz, A., & Angell, R. (2020). The extended warming effect of social media: Examining whether the cognition of online audiences offline drives prosocial behavior in ‘real life’. Computers in Human Behavior, 110, 106389.

[6] Bateson, M., Nettle, D. & Roberts, G. (2006). Cues of being watched enhance cooperation in a real-world setting. Biology Letters, 2, 412-414; Haley, K. J., & Fessler, D. M. T. (2005). Nobody’s watching? Subtle cues affect generosity in an anonymous economic game. Evolution and Human Behavior, 26, 245-256.

[7] Meerkerk, E. V. N. (2012). The will to give: Charitable bequests, inter vivos gifts and community building in the Dutch Republic, c. 1600–1800. Continuity and Change, 27(2): 241-270. p. 253.

[8] Teeuwen, D. (1985). Generating generosity: Financing poor relief through charitable collections in Dutch towns, c. 1600-1800. [Ph.D. Thesis]. Utrecht University. p. 61-62.

[9] Caldwell, M. (1976). Communication and sex effects in a five‐person prisoner’s dilemma game. Journal of Personality and Social Psychology, 33, 273- 280; Caporael, L. R., Dawes, R. M., Orbell, J. M., & Van De Kragt, A. J. C. (1989). Selfishness examined: Cooperation in the absence of egoistic incentives. Behavioral and Brain Sciences, 12, 683-739.; Chen, X. P. (1996). The group‐based binding pledge as a solution to public goods problems. Organizational Behavior and Human Decision Processes, 66, 192-202; Dawes, R. M., Mactavish, J., & Shaklee, H. (1977). Behavior, communication, and assumptions about other people’s behavior in a commons dilemma situation. Journal of Personality and Social Psychology, 35, 1-11; Issac, R. M., & Walker, J. (1988). Communication and free riding behavior: The voluntary contribution mechanism. Economic Inquiry, 26, 585-608; Ledyard, J. O. (1995). Public goods: A survey of experimental research. In J. H. Kagel & A. E. Roth (Eds.), The handbook of experimental economics (pp. 111-194). Princeton University Press; Liebrand, W. B. G. (1984). The effects of social motives, communication, and group size on behavior in an n‐person multi‐stage, mixed‐motive game. European Journal of Social Psychology, 14, 239-264; Messick, D. M., & Brewer, M. B. (1983). Solving social dilemmas: A review. In L. Wheeler & P. Shaver (Eds.), Review of personality and social psychology (Vol. 4, pp. 11-44). Sage; Orbell, J. M., Van De Kragt, A. J. C., & Dawes, R. M. (1988). Explaining discussion‐induced cooperation. Journal of Personality and Social Psychology, 54, 811-819; Parks, C. D., Henager, R. F., & Scamahorn, S. D. (1996). Trust reactions to messages of intent in social dilemmas. Journal of Conflict Resolution, 40, 134-151; Sally, D. (1995). Conversation and cooperation in social dilemmas: A meta‐analysis of experiments from 1958 to 1992. Rationality and Society, 7, 58-92.

[10] Levy, D. M., Padgitt, K., Peart, S. J., Houser, D., & Xiao, E. (2011). Leadership, cheap talk and really cheap talk. Journal of Economic Behavior & Organization, 77(1), 40-52.

[11] Dana, J., Cain, D. M., & Dawes, R. M. (2006). What you don’t know won’t hurt me: Costly (but quiet) exit in dictator games. Organizational Behavior and Human Decision Processes, 100(2), 193-201.

[12] Id. p. 199.

[13] Id. p. 198.

[14] This is also called a public goods game. Anything a player shares with the group is doubled. All group earnings are then divided equally among all players. Thus, with three or more players, the gift is costly, but everyone benefits if everyone gives. See, e.g., Hardy, C. L., & Van Vugt, M. (2006). Nice guys finish first: The competitive altruism hypothesis. Personality and Social Psychology Bulletin, 32(10), 1402-1413, 1405.

[15] Id.

[16] Barclay, P., & Willer, R. (2007). Partner choice creates competitive altruism in humans. Proceedings of the Royal Society B: Biological Sciences, 274(1610), 749-753. p. 752.

[17] Lev, B., Petrovits, C., & Radhakrishnan, S. (2010). Is doing good good for you? How corporate charitable contributions enhance revenue growth. Strategic Management Journal, 31(2), 182-200.

[18] Brammer, S., & Millington, A. (2005). Corporate reputation and philanthropy: An empirical analysis. Journal of Business Ethics, 61(1), 29-44.

[19] Pressman, E. R. (Producer) & Stone, O. (Director). (1987). Wall Street. [Motion Picture]. U.S.: 20th Century Fox, at [29:26]. In the original screenplay, this line was, “I just got on the Board of the Zoological Society, cost me a million.” Stanley Weiser, S. & Stone, O. (1987, April 1). Wall Street. [Screenplay]. http://www.dailyscript.com/scripts/wall_street.html

[20] See Primal Fundraising, Chapter 7. Heroic donation displays in primal fundraising: I can be your hero, baby!

[21] Tooby, J., & Cosmides, L. (1996). Friendship and the banker’s paradox: Other pathways to the evolution of adaptations for altruism. Proceedings of the British Academy, 88, 119-144.

[22] Note that university endowments are themselves referred to as “shadow banks” and actually acted as a source of liquidity for major donors during the late-19th century financial panics. Wray, L. R. (2016). Hyman Philip Minsky (1919–1996). In Handbook on the History of Economic Analysis (Volume I). Edward Elgar Publishing.

[23] Ariely, D., Bracha, A., & Meier, S. (2009). Doing good or doing well? Image motivation and monetary incentives in behaving prosocially. American Economic Review, 99(1), 544-555.

[24] Giebelhausen, M., Chun, H. H., Cronin Jr, J. J., & Hult, G. T. M. (2016). Adjusting the warm-glow thermostat: How incentivizing participation in voluntary green programs moderates their impact on service satisfaction. Journal of Marketing, 80(4), 56-71.

Related Resources:

• Donor Story: Epic Fundraising eCourse
• The Fundraising Myth & Science Series, by Dr. Russell James
• How transactional donor relationships kill generosity
• Dr. James explains the power of giving: why leading with a gift always wins

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