Common Fund-Raising Stumbles: How Charities Solve Them

The problem: A cultural center for second- and third-generation Japanese immigrants in Hawaii was unable to persuade anyone to make a big gift to kick off a capital campaign.

What happened: Foundations, corporations, and wealthy individuals "turned us down cold," says William Krueger, president of Capital Quest, a Louisville, Tenn., consulting firm that specializes in campaign fund raising. "They said, 'Let them pay for their own center.'"

How it was solved: Mr. Krueger organized some 500 volunteers who spent nearly three years securing gifts and pledges, mostly in the $500 to $5,000 range, from 6,000 families who wanted to see the center built. After the volunteers had raised $7-million from those donors, the center was able to raise another $3.5-million from foundations, corporations, and wealthy individuals with no Japanese heritage.

Lesson learned: When a campaign runs into trouble, "don't panic," Mr. Krueger says. The worst thing an organization can do, he says, is hold a big meeting and tell everyone that the campaign is in danger of failing unless they take action. A fund raiser whose job is on the line if the campaign fails might be motivated by that message, he says, but board members and other donors will not be.

Instead, Mr. Krueger says, fund raisers should review how the campaign got off track and figure out how to fix the problems.

If campaign volunteers have made too few visits to potential donors, for example, he says, it usually means that the drive's leaders are not as committed as they should be.

The organization has the choice of recruiting new leaders or persuading the current leaders to do more, possibly by holding a meeting and publicly stating the progress each person has made, says Mr. Krueger. Peer pressure, he says, can be a powerful motivator.

In some cases, fund raisers have to accept that a campaign is not going to succeed, Mr. Krueger says. If so, he adds, "you don't have to publicly flog your organization in the town square."

A better ending, if possible, is to take what money has been raised and use it to pay for one or more of the campaign's original goals, says Mr. Krueger. "Stop talking about the goal and emphasize what you have raised," he says. "Declare victory."

Whatever they do, charities should avoid going into debt to reach a campaign goal so they can build a new facility or finish some other big campaign project, in hopes that donors will give more to it later, says Mr. Krueger. "It just doesn't work that way."

The problem: A large pledge evaporates or is suddenly withdrawn.

What happened: Jeffrey Lischin, a Passaic, N.J., consultant who helps charities write grant proposals, says one of his clients, an organization that serves young people, lost a $700,000 grant because of a little-known technicality.

Mr. Lischin's client had received several federal grants in the past and hoped to get another one from the Department of Housing and Urban Development, which had money available to provide construction training and education for low-income young people.

The charity wanted to use the money to get young people engaged in building a shelter for abused women and children, and Mr. Lischin included that goal in the grant application, assuming that the project would fit the agency's criteria. He was wrong. Unlike other federal agencies, HUD regards such shelters to be emergency housing, and would only make the grants for homes that met its strict definition for transitional or permanent housing.

"The client said, 'Why didn't you check it out?' My answer was, 'If I had any idea this was a problem, I would have checked. It never entered my mind,'" Mr. Lischin says.

How it was solved: Ultimately, the organization was able to scrape together enough money for the project from different sources, including a member of Congress, who helped the organization get a $250,000 earmark in the federal budget.

Lesson learned: "Always, always have a backup plan in mind for the unforeseen disaster," says Mr. Lischin. What's more, he adds, "build a good relationship with the powerful people in your community. That's why the congressman stepped in. If you make yourself part of the fabric of the community, when you're in trouble you're not alone."

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What happened: Soon after Renata J. Rafferty was hired as the director of development at a Los Angeles community theater, her new boss asked her to write a letter to one of the organization's most generous donors.

The letter, he instructed, should thank the donor for her family foundation's $300,000 gift, which amounted to a third of the theater's annual budget, and express how much he and Ms. Rafferty were looking forward to receiving another such gift the following year.

Ms. Rafferty says that, because she was new, she did as she was told despite a few twinges of misgiving about the letter's tone. A few days later, the donor's lawyer called and summoned both Ms. Rafferty and her boss to meet with the donor the following afternoon.

"We show up, and she's fuming," recalls Ms. Rafferty, who is now a fund-raising consultant. "She says, 'How dare you assume that just because our name is on the building, we'll just put you as a line item on our budget. I've got news for you, you're not a line item this year.'"

How it was solved: The donor told Ms. Rafferty she didn't want to hurt the charity, but she wanted to teach it not to take support for granted or get dependent on one source of funds. She promised the foundation would donate $300,000 if the theater could raise that same amount from new sources, which it did.

Lesson learned: The donor, Ms. Rafferty says. "did a great thing for that organization, because they never would have gone on as they were going," she says. "It was a lesson well taught, and right in our faces. It was brutal, humiliating, but ultimately it really did strengthen the organization, because we got a hell of a lot of new donors."

Ms. Rafferty says that, years later, she ran into the donor who still had vivid memories of the incident.

"She couldn't understand how we could assume that we could count on her gift," says Ms. Rafferty. "I can't tell you how many capital-campaign meetings I've sat in where the discussion has been, 'Let's get so-and-so's name on the building, because then we can count on them for the lead gift every year.' I tell them, 'You cannot assume there will be ongoing support.' The lesson here is don't assume."

The problem: Charity officials insult potential supporters with a careless mistake.

What happened: A consulting company mailed an appeal for a hunger-relief charity to donors who had not made a gift recently, and by mistake included this line: "Thanks to your generous gift of $0, hungry children have enough to eat tonight."

The appeal was supposed to have shown the donors how much they had given last time and ask them to renew their support, recalls Jeff Brooks, a consultant at Merkle, a Seattle direct-marketing company, who says the error happened at his previous company.

To the recipients, Mr. Brooks says, "the letter came across as surly and sarcastic," as if the charity were mocking them for letting their donations lapse.

How it was solved: The charity mailed an apology to those donors, and got a few gifts from them. "You might call it a successful donor-reactivation strategy — successful if you don't mind looking foolish," he says.

Lesson learned: "Make sure your data are clean and your programming is correct," says Mr. Brooks. "These days, nonprofits are doing a lot of data-driven stuff like that, and messy data can cause devastating errors." He adds, "I think we sweat typos way too much. 'The' spelled 'teh' isn't going to hurt anyone or anything. An incorrect ZIP code or phone number, on the other hand, is a problem."

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What happened: Jenny Hansell, executive director of the North East Community Center, in Millerton, N.Y., was working for a social-service organization in a small town in upstate New York. Adopting a practice she had used successfully before, Ms. Hansell decided, for her annual appeal to donors, to tell the story of a child helped by the organization. To that end, she crafted a letter describing the child but changing details to protect his identity.

"I described a second grader named Justin, diagnosed with cancer, who we had given rides to a far-away children's hospital," says Ms. Hansell. "There was a very ill child we'd driven on quite a few occasions, but his name wasn't Justin, he wasn't in second grade, and he didn't have cancer." But, unfortunately for Ms. Hansell, there was a second-grade boy named Justin in town, and his mother began to receive calls from concerned neighbors who thought her son was seriously ill.

"She was upset, lawyers were called," Ms. Hansell says.

How it was solved: Ms. Hansell apologized profusely to the mother and explained how the mix-up had occurred. In addition, she sent a letter stating her error to the local newspaper and another letter to every donor who had received the annual appeal, enclosing an envelope in case they wanted their contributions returned.

"I didn't get any requests, though I did get a few more checks," says Ms. Hansell. "It all died down, but all these years later, I still cringe at the memory."

Lesson learned: Ms. Hansell said her decision to take aggressive action came after she realized earlier in her career that failing to acknowledge a mistake was wrong. She recalls that she had asked a high-school intern to help her send grant proposals to about a dozen foundations. After carefully preparing the proposals and creating address labels for each one's envelope, she asked the intern to get the proposals ready to drop in the mail. "I mailed them and realized later that she had not matched the proper label to the proper letter," Ms. Hansell recalls. "Each funder got a letter intended for someone else."

But instead of contacting the grant makers as she should have, Ms. Hansell says, "I didn't have the guts to call them all and acknowledge my mistake. Needless to say, I got no grants."

The problem: Organizations that have been financed for many years with government grants realize — especially in an era of tight state and federal spending — they need to seek donations from private sources.

How it was solved: Over the last 25 years, Bonnie Osinski, director of development at Camba, a NewYork social-service organization, has worked as a consultant and fund raiser for social-service and health organizations that needed to get beyond a reliance on government grants. She says that she has achieved good results by recruiting separate committees or advisory boards who work on broadening an organization's fund raising.

At one social-service group, two board members agreed to form a corporate-outreach committee. They held a breakfast for their corporate colleagues to introduce them to the charity's work and ask for introductions to other companies. "It was successful outreach," Ms. Osinski says, "and it helped build up a group of corporate donors who gave."

Lesson learned: Even when nonprofit leaders hire a fund raiser or consultant to help raise money from new sources, they often don't realize how much they need to change and that a completely new set of skills is required, says Ms. Osinski. For example, pursuing foundation grants is very different from responding to the needs outlined in a governmental request for proposals. "Foundations want you to think of a creative new project — this can become a project-development job, rather than simply responding to needs," she says.

"When an organization is new to private funding, they are used to a certain type of constituent," Ms. Osinski says. "Now you are bringing in foundations and individual donors who want to be more involved. You have to bring in board members and executives who can relate to corporations, foundations, and individual donors." The varying requirements of those donors, she adds, can affect the entire organization, requiring that certain projects be managed differently by staff members.

For all those reasons, fund raisers should accept a slow but steady pace of change, says Ms. Osinski, "rather than jumping in and telling them, 'We must do this or that.' You don't want to make radical change too quickly."

One approach, she says, is to talk about small changes that add onto the success the charity has already had with government support instead of completely overhauling the organization. And it is important to maintain good relationships with the board and the chief executive throughout the process, she adds.

"You have to have people willing to work with you," says Ms. Osinski. "You see groups that want things done differently, but they don't want to do things differently. This is where you have problems. If they are not going to meet you even a third of the way, you're in trouble. It should be a 'we,' not how much money did 'you' raise?"

What happened: Refusing gifts related to vices such as drugs and gambling is a no-brainer for any charity, says Eileen Heisman. During her 23-year career as a fund raiser, she has been offered a chain of adult bookstores, shares in a gaming casino, and $1-million in cash allegedly obtained from the sale of illegal drugs.

But it's not always so easy to determine whether a gift should be accepted, says Ms. Heisman, who is now president of the National Philanthropic Trust, which sets up charitable funds for donors.

In one case, Ms. Heisman's organization was offered a gift of medical patents from a doctor who was in a hurry to make the donation. She later found out that the donor was in the middle of a divorce and was under a court order that prohibited him from transferring the patents to a company.

"It looked as though he was trying to hide them in a divorce settlement," recalls Ms. Heisman. "It wasn't a great situation to be in, when I found out there was a court injunction. He basically misrepresented the nature of the gift."

How it was solved: The charity didn't try to sell the patents, so it avoided getting in legal trouble. (In fact, the patents turned out to be worthless: Scientific advancements had made the inventions obsolete.)

Lesson learned: "Most donors who are giving you something legitimate don't want to rush you," says Ms. Heisman. "Any donor who's in a hurry to close the gift, there's probably something you need to know. If somebody offers you something you don't understand, take a deep breath, pause, and do all your homework."

Getting involved in an unethical or illegal transaction damages a charity's reputation not only with other donors, but also with the public, she says. "Never fudge anything for anybody, no matter how important they are. Never lie. Not only don't lie, but fully disclose everything you know."

Ms. Heisman applied those lessons in another case when a donor wanted to give his shares in a shopping center that was owned by a group of people who had decided to sell the property. She hired a law firm to review the gift and learned that under federal law, the donor would not be able to deduct the entire value of the gift as he had hoped. When Ms. Heisman explained that to the donor, he withdrew his gift.

"We spent thousands of dollars in legal fees, and at the end of the day, we didn't have the gift," Ms. Heisman says. "But I think we did the right thing." The donor, she adds, "thanked us profusely," and says he plans to make another gift.

The problem: A special event turns out to cost more than it raises.

What happened: A ballroom-dance instructor at a Mississippi cultural center offered to organize a catered dinner and dance on New Year's Eve for an estimated 200 or 300 people.

Mark McCrary, who led the organization and is now executive director of the Mississippi Center for Nonprofits, says the instructor repeatedly assured Mr. McCrary that everything was under control.

"He said, don't worry, everything is all set for New Year's," Mr. McCrary recalls.

Confident that the dance would be a success, Mr. McCrary says, he invited the county supervisor, so the official could see how popular the cultural center had become with local residents.

On the night of the big event, the champagne was cold, the food was hot, and the center was decorated. But instead of the boisterous crowd Mr. McCrary was expecting, "it was seven people. That was it," he recalls. "It was horribly embarrassing."

How it was solved: The event, which was supposed to help raise money to renovate the area where dance instruction took place, wound up costing the center the price of the champagne and the decorations, including the glitter ball that hung in the middle of the room. (Fortunately, the food was donated.) Mr. McCrary and the others tried to put the best face they could on the situation, he recalls.

"We had champagne and we toasted, the seven of us. I'm just glad we didn't pay for a full band."

Lesson learned: "Don't let somebody do an event without really being involved in the planning and implementation," Mr. McCrary says. "You've got to have a plan, and you've got to have contingency plans."

At the same time, Mr. McCrary says he was not totally dismayed by the ballroom instructor's embarrassment. The instructor had offered to organize the event after complaining that Mr. McCrary wasn't doing enough to raise money. "He said he was going to raise thousands of dollars," Mr. McCrary recalls. "I think he quit teaching right after that."

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What happened: Gary Butler, director of the finance-support division at the Boy Scouts of America, recalls that when he worked at a small scout council in upstate New York, a board member helped the organization obtain a booth at the county fair in August. A local bank agreed to pay $2,500 to cover the cost of renting the booth as well as the coffee and pastries the council planned to sell there to raise money.

"It was hot, nobody wanted coffee," says Mr. Butler. Nevertheless, the council worked hard to be sure a staff member was always at the booth, which was open from 10 a.m. to 10 p.m. "I had the whole family out there," Mr. Butler says.

"After 10 days of sweat equity, our net profit was about $2,500. It was then the light bulb went off. I thought, Why didn't I just ask the bank to give us the $2,500?"

In another case, Mr. Butler helped organize an auction to raise money, and board members were asked to help solicit donated goods and services that the council could auction at the event.

One of those board members made a point of telling Mr. Butler how he had taken time off work at a cost of $500 to his company to solicit a $25 gift certificate for the auction. "He said, 'It would have been far cheaper to write you a check,'" Mr. Butler recalls.

Lesson learned: Mr. Butler says his event-organizing experiences led him to recommend that no Scout council run any event that doesn't end up bringing in at least 70 cents of every dollar raised after expenses. "For a first-time event, it may only be 40 or 50 cents," he says. "But if it's not moving toward 70 cents on the dollar, we need to look at some other type of event."

 — Compiled by Holly Hall and Elizabeth Schwinn