“When I buy businesses, it’s the same as investing in philanthropy. I’m looking for somebody who will get the job done and is in synch with my goals.  You can have the greatest goals in the world, but if you have the wrong people running it, it isn’t going to work. On the other hand, if you’ve got the right person running it, almost anything is possible.”

Classic Warren Buffett.  He is quoted here last week at a panel discussion on antipoverty in New Orleans.  As usual, insightful stuff.

I encountered the same “leader first” philosophy when I visited an Executive Director of a national foundation a number of years ago.  I was there to meet the ED and to say thanks in person as they had recently started supporting the College I served.

The ED had a single question for me during our visit:”What do you think of your president?”   I told him I thought our president was a planful leader who had a history of achieving goals.  The ED said, “Good, that’s what we thought as well, which is why we started providing support to you last year.  We bet on him.  We believed he would do what he said he would.  And so far he has.”

Warren Buffett is an investor.  The ED of the foundation I visited was an investor.  Your major donors are investors.  Investors invest not in ideas as much as in people.  Ideas are everywhere and many of them may work at solving a particular problem.  The difference always is the people implementing the ideas.

Unfortunately, I see organizations who regularly get too caught up with the idea.  They think their particular goals, their new strategic plan, their ideas for a project or initiative will be enough to excite and captivate donors into giving.  An organization’s enthusiasm for an idea can cloud this reality:  a donor’s confidence in an organization’s leadership trumps the appeal of the organization’s ideas.

As Buffett says, “if you’ve got the right person running it, almost anything is possible.”  The real question, then, is what are you doing to make sure that your major donors really know you?  Because investors do invest in people.

This is the fourth and final entry in a series designed to question how development professionals (and others such as CEOs and Boards) should evaluate development effectiveness.

If Warren Buffett were to assess the effectiveness of our development programs, what measures might he use?

Below is my final answer to this question.  My first answer was Donor Retention Percentage, my second answer was Unrestricted Gift Margin, and my third answer was Face-to-Face Solicitation Effectiveness.

Answer #4:  Managerial Competence. Buffett looks for businesses which “avoid the institutional imperative.”  The institutional imperative is the notion that organizations will make stupid decisions based not on rational decision-making but based typically on one of the following four reasons:

1. “We’ve always done it this way;”
2. “We have the budget, so let’s do it;”
3. “This is a pet initiative of the boss;”
4. “Our competitors are doing it.”

In many development shops I believe answers similar to #1 and #2 are far too often provided.  Think with me for a moment:  If you are honest about your shop, can’t you think of at least one major process, event, direct mail letter, etc., that is regularly done because of answer #1?    Similarly, how many times have you heard a staff member say, “we need to go ahead and spend that money since it is in the budget?”

Buffett suggest that when decisions are being made based on a rational, thoughtful process, you avoid the “institutional imperative.”  I agree with him which is why I work with my clients to develop a Planful Culture – to set aside considerable time (at least three full days each year) to conduct development planning.

It is during such planning periods that goals, objectives, and strategies can be discussed and questioned.  I have found that when clients establish a Planful Culture, people can more readily come to agreement that major development activities, events, or initiatives which are no longer effective can be substantially changed or even discontinued.   But try making such a change mid-year and watch the heels dig in to keep the event or activity.  The difference?  When you conduct thoughtful, rational planning people have the time to inform, understand, and ultimately adjust to the fact that change is the right approach.  When you attempt a change on the fly without a buy-in process, the natural approach is to be skeptical and, in many instances, unsupportive.

So, if your Board or CEO were to ask you today, could you say that you successfully avoid the “institutional imperative?”  And, if not, when does the Planful Culture begin?

As promised in an earlier blog on Warren Buffett, this is the third entry in a series designed to question how development professionals (and others such as CEOs and Boards) should evaluate development effectiveness.

If Warren Buffett were to assess the effectiveness of our development programs, what measures might he use?

Below is my third answer to this question.  My first answer was Donor Retention Percentage and my second answer was Unrestricted Gift Margin.

Answer #3:  Face-to-Face Solicitation Effectiveness.  Warren Buffett is said to be interested in buying businesses that have “favorable long-term prospects.”  In “The Essential Buffett:  Timeless Principles for the New Economy,” author Robert G. Hagstrom quotes Buffett:  ”What I like,” he confides, “is economic strength in an area where I understand it and where I think it will last” (p. 83).

When I think about the area of development work that is easy to understand and will last I land on an enduring truism of our work:  The number 1 reason people don’t give is because they haven’t been asked.

And it isn’t just any way of asking that is the key.  I believe face-to-face (mostly major gift) asks are the key.  It is in these situations where principal and major gifts are made thus leading to the largest gifts received by most organizations.  Therefore, I believe Buffett would analyze how successful a development operation is at making face-t0-face asks.  Face-to-face solicitation effectiveness as a concept is easy to understand and its important role in development will last.

But how might he go about assessing face-to-face solicitation effectiveness?  I suggest two approaches, which when taken together, give us a good picture of overall effectiveness.

First, we should look at the number of solicitations completed divided by the total number of development staff members.  I’ll call this the Face-to-Face Solicitation Ratio.  This ratio gives us a sense of how many face-to-face asks per total number of staff members a development shop is making.  Indirectly, it provides evidence of how efficiently the shop is staffed.  A low number suggests either that development officers are not asking enough or that the shop employs too many non-asking development staff members.  The higher the number the better here.

The second number I believe Buffett would want to see is the percentage of successful asks – the Successful Solicitation Percentage.  This number would equal the number of face-to-face, documented solicitations which resulted in a gift of some amount (not necessarily the ask amount) divided by the total number of solicitations made.

The Successful Solicitation Percentage shows evidence of the skill and savviness of the development professionals involved.  If face-to-face asks are being made too soon or for too much or without the proper cultivation the Successful Solicitation Percentage will suffer.

Do you regularly track and calculate these measures of effectiveness?  If not, why not?  As development leaders we should be able to quickly, easily, and in compelling fashion point to our program’s effectiveness.  These numbers, along with Donor Retention Percentage and Unrestricted Gift Margin help us do just that.

As promised in an earlier blog on Warren Buffett, this entry is the first in a series designed to question how development professionals (and others such as CEOs and Boards) should evaluate development effectiveness.

Warren Buffett knows a thing or two about valuing (and investing in) successful enterprises.  Given his incomparable ability to evaluate good investments from bad, understanding the principles of his approach may inform efforts to evaluate development effectiveness.  Specifically, what might it look like if development effectiveness was evaluated using Buffett-esque principles?  What metrics might Buffett cite as evidence of development effectiveness?  What metrics currently viewed as exceedingly important might he ignore?  In short, how would Buffett go about evaluating our success?

I will provide my answers to these questions over the course of next few blog entries.  My first answer is below.  In providing these answers, my hope is that we will think anew about our work, our results, and how we add value to our organizations.

What measures might Warren Buffett use to evaluate development effectiveness?

Answer 1:  Donor Retention Percentage - When asked the question, “how long do you plan to hold the stock of a company you purchase?” Warren Buffett is known to respond, “forever.”  To say he takes the long view is an understatement.  His goal is to buy at attractive prices companies that have strong brands, are run by competent managers, and have long-term positive cash flow prospects – and then hold them.  Applying this long-term view to development work, I am suggesting that donor retention percentage is a key metric we should track and report in order to measure our true effectiveness. Three reasons why this measurement should be highly important:

First, year-over-year donor retention numbers are evidence that we are building long-term relationships.  We aren’t securing donors one year and only to lose them the next.  Any program can “gimmick” their way into increasing donor numbers for a year.  Ever hear of the $1 phonathon campaign?  A horrible gimmick of an idea that speaks more to the need to make short-term results look good at the expense of the long-term health of the organization.  Strong year-over-year donor retention numbers are an indication that we are building long-term, fruitful relationships with donors based on quality development principles.

Second, since acquiring new donors is far more expensive than retaining last year’s donors (some organizations report it costing 10 times more to attract new donors as opposed to retain past donors), reporting strong donor retention numbers means that we are making efficient use of our resources.  The larger the percentage of repeat donors, the better our development “investment.”  This is important for the organization’s bottom line.

Finally, there are a number of studies which point to the link between donors who make consistent annual gifts and those making planned gifts.  In general, it is safe to say that some of your best planned gift prospects will be those donors who make regular annual gifts, regardless of amount.  Therefore, focusing on increasing donor retention numbers will have long-term and beneficial impacts on your organization.  Not only are you getting a repeat donor this year, you are increasing the likelihood that you will get a planned gift down the line.

So, how strong should your donor retention numbers look?  Although the numbers are different based on non-profit type, I suggest anything in the 70-80% range is an above average number.  Above 80% donor retention and you are showing clear evidence that your efforts are adding considerable value to your organization, both now and well into the future.   Warren Buffett would be proud.