Death of a Theater

I was saddened to read this week about the closing of the North Shore Music Theater in Beverly, Massachusetts. This non-profit theater had been around for 54 years, but couldn't survive a combination of a fire, borrowing to rebuild (beyond what the insurance paid,) an apparently rocky transition of leadership, and the precipitous downturn of the economy. I don't know all the details, but what I have learned about NSMT over the past several months seems to provide some lessons for non-profit arts organizations, and other non-profits.

Full disclosure: I learned about NSMT this past fall, as I was in the midst of negotiating with them for either a consulting contract or employment as their full-time VP for Development (it wasn't clear at the time which way they wanted to go, then became clear that neither would be possible due to their financial disaster.)

One of the stories I heard from several sources was that while NSMT has always been a non-profit theater, it didn't like to admit it! That is, under the previous administration, the theater attempted to operate on its ticket revenues (and education, etc.) alone. It really didn't want to behave like a non-profit by making a substantial effort at development. Only in the past year or so had the theater begun putting a donation envelope in all of its programs and mentioning that it depended on contributions to help fund its programs in its evening-opening announcements.

After the fire in 2005, there was apparently some fundraising done, but the loss from the fire, the shortened season, and the reconstruction was apparently more than $4 million, and this debt was never paid down by fundraising or any other means. Understand that I am not suggesting that a campaign to pay down debt would have been easy - it's never easy to fundraise to pay down debt. However, the rebuilding campaign that was held apparently did not raise nearly enough. Perhaps this is a case (I've seen this kind of behavior in other institutions) of wanting to build a certain kind of facility, and deciding to do so whether or not the money has been raised. "We can borrow the money to finish the building, and then raise the money later to pay off the debt." Too many non-profits say this, and then end up in trouble. The truth is that the board has the responsibility to either find the money to pay for the building at the time, or find the money to pay off the debt. Too many non-profit boards don't live up to their fiduciary responsibilities to oversee the staff when it comes to making realistic financial decisions, or to raise the money to fund those decisions. This is the hard work non-profit boards must do, and too often do not. North Shore Music Theater is not the only non-profit in the Greater Boston area that has had financial difficulties in the past few years because of overspending on construction projects not fully funded by donations or income.

We hear often about how important it is for non-profits to behave more like businesses. This is true especially when it comes to living within your means, but this is also one of the most difficult things for non-profits to do when it comes to fulfilling their missions. It is very hard to say "no" to mission-critical expenditures. So where does the money come from? It is the responsibility of the board to provide the funds needed to fulfill the mission of the organization. That doesn't mean board members need to give it all themselves, but if they aren't willing and able to participate fully in the process of raising the funds needed for the organization to fulfill its mission, they probably shouldn't be on the board. What this really means is working to develop relationships with potential funders (mostly individuals and families, but also including corporations and foundations) that will lead them to make gifts to the non-profit. The hardest thing for most organizations to figure out is that you can't just turn on the spigot of charitable contributions. If you haven't built relationships before you need the money, you almost certainly won't be able to raise the money when you need it! This is the sad cause of the failure of the North Shore Music Theater. The new administration had recently begun building relationships with potential funders, and there were some promising starts; but unfortunately there weren't enough potential donors ready to step in when the crisis really hit.

So we must sadly say "good-by" to the North Shore Music Theater. There are apparently still some options for rebuilding. If a buyer can be found to take over the property and lease it back. Or if an "angel" comes forward. Unfortunately, there were not enough relationships built with those who might be able to help for any of these possibilities to be very likely. Too bad.

So what's the takeaway? It's never too early to start a development program, but unfortunately it can get to be too late. People make gifts to organizations they feel connected to - especially large gifts. So they won't respond to emergency appeals if they haven't already been connected. Want to talk about ways to better connect your donors? Give me a call.

Why are board members afraid of development?

I have had several conversations in the last couple of weeks that are variations on the same theme: Why is it so difficult to get board members of non-profit organizations to help with development work?

It seems to me there are two main reasons. First, we often don't ask. Someone once told me that the number one predictor of someone not giving to a charity is that he wasn't asked. The same holds true for action by board members. If we don't ask them to get involved in development work, they won't. Of course, you don't need to ask them directly. Try asking them to call people to thank them for their gifts. Or try asking them to host a parlor meeting at their home to cultivate some prospective donors. Once they've participated in activities like these you can tell them they've been helping with development!

This brings us to the second reason: board members are afraid of development work. Even the most sophisticated (about development) board members harbor the fear that when they are asked to help in this area it means they are going to be handed fifteen or twenty names of people they have never met and asked to solicit each of them for thousands of dollars (or more!) That's why it is so important to ask board members to participate in the kinds of activities mentioned above. And its important to be sure they understand that development really is about the cultivation process - building relationships with people so they feel more connected to the organization. People make gifts to the organizations they feel connected to, and they make large gifts to the organizations they feel most connected to. If board members are hesitant about "doing development work", just ask them to help people feel connected to your organization. When the time comes for the solicitation, they won't panic because it will seem like a natural part of the relationship building.

How can you help your board members become more comfortable with their development role? If you need some additional suggestions, please give me a call! I'd be happy to help out.

New ideas in fundraising

So, everyone is trying to figure out new ways to raise money. There is tremendous fear that direct mail won't work anymore, that telephoning is too intrusive (it is, but it works!), and that the economy is too terrible for people to come to galas. So what's a non-profit to do?

It seems to me that it all comes down to development, not fundraising. Now that won't help you if you need to raise a lot of money today or tomorrow, but development is what is needed to build philanthropic income. People give to the organizations they feel connected to and passionate about. And they give major gifts to the organizations they feel most connected to. And, the most cost effective way to raise money is through major gift solicitations. I even read an article many years ago that argued that annual giving programs should be abandoned because they cost too much, and for the same expenditure in major gifts much more money would be raised. I'm not willing to go that far because I think annual giving programs can provide a base of income for the organization, as well as broadening the base of potential major donors (especially true for organizations that don't have a "natural" constituency like alumni or grateful patients.)

So what does development mean? Developing relationships that make people feel connected to your organization. I know... this is development 101. But I think all too often we forget the crucial importance of relationship building in the rush to figure out how to raise a lot of money by tomorrow. If we've been doing the relationship building, and suddenly have a crisis that requires more money, we have the prospective donors ready to call upon to fill the gap. If we haven't built the relationships, we're forced into an "emergency" direct mail letter, or telemarketing program. These might raise the money, but they won't make anyone feel good, and they won't build for the future. The big challenge is to continue to build relationships that provide a pipeline for future gifts, while at the same time raising current gifts.

One of the best ideas I've seen recently is also one I have seen in the past. It's the "virtual" gala. A number of years ago, a library foundation sent out an invitation to people to "stay home and read a good book," and send us a gift. I never heard how much it raised, but it sounded like a great idea to me. I have just heard about the International Hillel Foundation running a similar program, but with a twist that makes it development in addition to fundraising. They have recruited volunteers around the world to host small house parties on the same night. Each has a fundraising goal, and each will also serve the relationship building function. To bring everyone together, there will be two live web feeds that can be viewed in real-time, or delay if appropriate, coming from the house party being held at the home of the international chair. Sounds like fun to me, and it sounds like the kind of event that could raise money now and build relationships for the future!

Do you have ideas for new ways to build relationships and raise money? Do you need some? Give me a call if you'd like to explore some possibilities.

More bad news for non-profit hospitals

So, today there's an article in the New York Times talking about how the American Hospital Association is trying to fight the possibility that the healthcare reform legislation currently working its way through Congress might have in it a requirement that non-profit hospitals provide a certain amount of charity care. I heard about this from a posting from the Association for Healthcare Philanthropy, which is also gearing up its members.

The article quotes a bulletin sent to hospital leaders from AHA that says,“Ask your senators to oppose charity care proposal,” in big bold type.“A formulaic, one-size-fits-all charity care standard will hamstring hospitals’ efforts to respond to the unique needs of their communities,” the bulletin said. “It would penalize children’s, teaching and research hospitals and those in rural areas because they provide community benefit in a variety of forms other than just charity care.”

It worries me that non-profit hospitals are going to be seen as being against charity care. Even though that's not what the bulletin says, my guess is that's how it will be spun. And this is another example in a long history of non-profit hospitals acting like, and especially sounding like, big for-profit companies. It's why this proposed rule has made it in to the legislation in the first place. If the AHA and AHP aren't careful, non-profit hospitals will cease to exist, and that could be a major tragedy. As I've said in an earlier post, I believe that healthcare is a mission, and that mission is best served by non-profit organizations.