Serving Nonprofits: The New Philanthropy

People have more to give, so charities have more to do. And these start-ups are glad to help

Your local United Way or grassroots nonprofit may not look like a hot business opportunity, but a host of new entrepreneurs are banking that it is.

A quick look at the numbers explains why making money off those who give it away is becoming an increasingly popular business model. Last year charities in the United States took in $190 billion, $15.8 billion more than they collected in 1997, according to the American Association of Fund-Raising Counsel, in Indianapolis. As Tom Riley, research director of the Philanthropy Roundtable, a national association of charitable foundations in Washington, D.C., is quick to point out, "Any way to get in on this market is a good idea."

Largely -- but not exclusively -- inspired by the transformative powers of the Internet, new companies are encouraging nonprofits -- a historically low-tech lot -- to turn over some of their precious dollars to them. Notes Jimmie R. Alford, founder, chairman, and CEO of the Alford Group, which has been a consultant exclusively to nonprofits for more than 20 years: "The nonprofit community is no longer seen as incidental but as a major line of business. The new economy has 'discovered' that the nonprofit sector represents more than 6% of our gross domestic product."

As in any rush to take advantage of a hot niche, all kinds of start-ups are trying to tap into the vast philanthropic kitty, in a variety of ways.

Impulse giving
Wouldn't it be nice if people would make impulse donations just as they make impulse purchases? Four months after being struck by that thought while reading an issue of the Chronicle of Philanthropy, philanthropist and entrepreneur Steve Grossman launched a company to fulfill that vision., in Medford, Mass., is one of at least 17 so-called e-charity portals, which are dot-coms designed to be one-stop Web sites for charitable giving. Like its competitors, Givenation allows visitors to its Web site to perform any number of giving-related tasks with the click of a mouse -- from donating to a favorite charity to setting up a personal-tribute Web page that benefits a cause in the name of a loved one.

Like a checkout counter chockablock with film, candy, and celebrity magazines, Givenation's site is loaded with eye-catching graphics and messages designed to inspire the impulse gesture -- in this case, making a donation. For example, some heartstring-tugging news stories about disease victims or environmental disasters conclude with a "How You Can Help Now" button that links readers to relevant Web sites.

Noble as its mission is, Givenation is not above appealing to customers' appetites for celebrity and pop psychology, with links to the Britney Spears Foundation, for example, or invitations to take a "What Gives?" quiz, wherein philanthropic surfers can match their giving "personalities" with various categories of nonprofit organizations. Givenation cofounder and senior vice-president of marketing Faith Brown Kerr is unapologetic about the site's cutesy tactics. She's convinced that people would give more often if they were better informed and if the process were easier. "Right now, donating to a cause you care about isn't always straightforward," she says. "We want people to be able to do something the minute they learn about a cause, and we provide them with the means to do that."

Like most E-giving sites, Givenation charges nonprofits a transaction fee for each donation it steers their way. However, in contrast to many of its competitors, Givenation caps that fee at $5, no matter how large the donation. It also processes the contribution within 48 hours, and the money goes directly from the credit-card processor to the charity's bank account, instead of sitting in a separate -- interest-bearing -- account. Givenation launched its site in February and projects it will attract 165,000 donors making an average of 4.5 contributions each in its first year.

Nonprofit efficiency
Sometimes the best way to nurture a pet cause is to help it run more efficiently. That's the idea behind DonorNet LLC, a Denver-based company founded in February 1999. As an application service provider (ASP) for nonprofits and corporate philanthropy programs, DonorNet launched .orgSolutions, a suite of Web software tools that enable nonprofits to automate their day-to-day business functions such as events management, membership renewal, and product sales, in addition to fund-raising.

"Nonprofits have the same technology needs as small and medium-size businesses," notes DonorNet director of marketing Brian Geoghegan. Taking into account the fluctuating budgets and needs of disparate nonprofits, DonorNet rents its software in modules (the event piece, the E-commerce piece, and so on), so that customers can pick and choose and graduate to other products as they need them.

For example, a Southern ballet company uses DonorNet to sell tickets and register season subscribers online. A children's health-care organization uses DonorNet's E-commerce module to sell through its Web site holiday cards designed by hospitalized children.

Geoghegan is particularly enthusiastic about a recently released DonorNet product called Give@Work, which facilitates and automates employee giving and should drastically reduce the amount of paper, time, and hassle (read: cost) associated with corporations' workplace-giving campaigns. Give@Work makes the process paperless by enabling employees to make pledges online and then creating a database that is uploaded into a company's payroll system.

DonorNet charges nonprofits setup fees ranging from $250 to $1,000 depending on the level of customization required, as well as a $29 monthly maintenance fee to host and operate the software. Like other E-charity portals, it also collects a per-transaction fee of 10% or $10 (whichever is less). President and CEO Janice Kercheville predicts the company will be profitable within 12 to 18 months -- "maybe sooner," she adds. for nonprofits
The Alford Group's Jimmie Alford noticed a few years back that the demand from the nonprofit community for executive recruitment and temporary-employee placement was going through the roof. The portion of revenues that his company derived from such services doubled from 1998 to 1999, "and that growth came without any promotion," Alford explains.

Convinced of the dynamism of nonprofit recruiting, Alford recently spun off TAG Executive Services, with headquarters in Skokie, Ill., which provides nonprofits with head-hunting services. Like most contemporary start-ups, TAG offers an Internet twist: an online job bank of résumés and job openings in the nonprofit community.

Why the sudden demand? Alford speculates it may be linked to the relative immaturity of the sector. He estimates that half of existing charitable organizations have sprung up since 1965, and as nonprofits mature so do their staffing needs. In addition, philanthropy plays an increasingly large role in the new economy and represents a steadily rising part of the gross domestic product. Of course, that growth has brought with it competition, which consequently forces nonprofits to sharpen their business skills to be as efficient and effective as any for-profit enterprise.

TAG opened its doors with six-figure angel funding and 10 clients "right off the bat, making it profitable from day one," says Alford. He projects that TAG will be a "multimillion-dollar enterprise within three years."

Alessandra Bianchi is a contributing writer at Inc.

Rembrandts in the Attic

As the for-profit and not-for-profit sectors become increasingly intertwined, entrepreneur Ian Peck has spotted in art-museum storage facilities what he considers to be a lucrative business opportunity.

Peck, 33, a former gallery owner and art dealer with a Christie's and Sotheby's pedigree, founded an Internet-based company in March 1999 that enables museums to make money off unused assets -- the works of art lying in storage. Those treasures are there, explains Peck, because museums in this country typically have space to hang only 6% to 8% of their permanent collections at any one time.

Peck's Inc., in New York City, is an online art gallery that provides access to thousands of works of art -- available for lease or sale -- from nearly 60 international museums, galleries, family trusts, and artists' estates. Clients, most often corporations wishing to dress up their walls, pay FineArtLease fees ranging from 2.5% to 15% of an artwork's value for as little as one day or as long as 10 years. Leasing a $100,000 painting for one year or more, for example, could cost $1,250 per month and includes insurance (courtesy of Lloyd's of London) as well as an option to purchase. Clients can search for a piece of art on the Web site by artist, genre, period, medium, size, or price range, specifying, for example, a Monet, a three-by-four-foot still life, or something from the Renaissance.

Corporate clients are embracing the site as a tax-deductible way to decorate, but FineArtLease's reception among the museum community is still mixed. "We've had very vigorous discussions about whether it's responsible to risk letting the artworks that we've been entrusted with out of our sight," says Chic Dambach, president and CEO of the 8,000-member Museum Trustee Association, in Washington, D.C. "But this gives us the opportunity to generate more revenues to preserve and protect all the works in our collections," he says. Peck, who is scheduled to close a second round of financing for more than $10 million, remains confident. "This is a revolutionary idea for museums, which are traditionally very conservative," he says. "But they are also the ultimate lemmings. Eventually, they will all flock to the idea."

Q& A

Getting for the Givers

For a closer look at how nonprofits are becoming business opportunities for for-profits, Inc. recently caught up with Stacy Palmer, editor of the Chronicle of Philanthropy, a biweekly newspaper that has been covering the nonprofit world since 1988.

Inc.: Why are businesses suddenly going after the spending dollars of nonprofit organizations?

Palmer: A big reason is that nonprofit groups are growing fast. At last count the Internal Revenue Service had classified more than 700,000 organizations as charities. A decade ago, there were only 465,000. And a recent Boston College study predicts that the coming decades will be a golden age for nonprofit groups, largely because of the huge transfer of wealth from the World War II generation to the boomers, but also because of the good economy, which is pumping up contributions. Remember, too, that charities are in many ways like small businesses -- they buy products and services and hire employees in much the same manner as a for-profit entity. People sometimes think nonprofit means no-profit -- but it just means the profits get poured back into the charity.

Inc.: Do for-profit companies that serve the charity market run the risk of appearing exploitative or inappropriately money hungry?

Palmer: Companies that try to charge large fees to charities or that pocket a big percentage of the donations they raise on a charity's behalf will definitely face image problems. At the same time, though charities have always had to be careful about how they manage their resources, and continue to be, for more than a decade many nonprofits have been looking to the business world to borrow ideas about how to become more effective and more efficient. They are comfortable making investments in products and services that can help them garner the resources they need to perform good works.

Inc.: Is online giving the Web's next "killer app"?

Palmer: Although everyone agrees that the Internet has the potential to revolutionize how people learn about charities and decide which ones to support, nobody knows how people will want to interact with charities online. Charities tell us they are being inundated by businesses promising to make them money, and many don't know how to sort out the available choices. In a Chronicle survey last fall we asked nonprofit executives about the issues that would shape charities in the new millennium, and technology came up repeatedly. While some see the promise, others worry about how technology can change the very personal relationships between charities and the people they serve -- as well as the people they depend on for financial support and volunteer time.

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Published on: Oct 1, 2000