5 Questions That Will Make You a Better Charitable Donor

Giving is personal. It’s an unbelievable experience. You’re changing lives. You’re adding purpose to yours. In the season of giving, you want to give generously and compassionately. At the same time, how do you take your giving to the next level? How can you pair the heart of a donor with the mind of an investor?  

First, let’s understand the difference.

For profit investing has a clear scorecard. You either make money or you don’t. You invest in companies that you believe will succeed. You invest in industries that are growing. You invest in people that have experience and a track record. You don’t invest in your cousin’s friend’s startup because you don’t know if you’ll ever see a return. Instead, for profit investments concentrate on companies with the greatest potential and, as a society, we see breakthroughs like the iPhone, Tesla and Amazon.

Compare that to charitable giving. There’s no clear scorecard. There’s never a “bad” donation. Therefore, you give to organizations you know. You give to people you know. You give to causes that touch your heart. You give to your cousin’s friend’s nonprofit because they asked and you want to help. Giving is inefficient. Donations are spread broadly, making it more challenging to have breakthrough impact.

So how can you give more effectively? How can you move from ‘donating’ to ‘investing in social impact’? Here are 5 questions to help you get started:

1. What’s their strategy?

You’re not donating to an organization. You’re donating to help an organization execute their strategy. You’re giving them some of your Fuel to drive impact. So, it’s important to know how they plan on using your Fuel. To better understand their strategy, ask two questions:

• Theory of Change: How do they believe change happens for your specific cause?  ‍
• Intended Impact: What do they plan to achieve in the next 12 months?  

Let’s use a homeless shelter to illustrate both.

On the first question, a homeless shelter should have a theory on how to eradicate homelessness. This theory is not their mission. Instead, it’s their roadmap for how they can reduce homelessness. It may include direct services, policy changes, education, and affordable housing. They shouldn’t do all of these. Instead, you’re simply trying to understand their view and how they fit into the overall puzzle.

On the second question, the shelter should have clear metrics. They will house 1,000 residents in the next 2 years with 50% graduating to stable housing. This statement shows you that they understand their resources and holds themselves accountable. It gives you (and them) a milestone.

Can the organization you want to support answer these questions? You should have conviction it’s the right direction.

2. How do they make money?

Why would you ask that? These are nonprofits, right? Yes, however, that doesn’t mean they don’t need money to keep the lights on and make an impact.

Nonprofit organizations have two primary sources of income: donations and earned income. Donations come from foundations, corporations, and individuals (like you). Earned income generally comes from sales. For example, a museum may have 70% of their income from tickets and 30% from donations. Others have the opposite. Multiple financial models can work. Running out of money doesn’t work. Be clear on how the organization will keep the lights on year after year.

3. Who’s running the organization?

Impact is driven by people, not organizations. Apple’s innovation was intricately linked to Steve Jobs’s vision. GE’s sustained growth was a function of Jack Welch’s leadership. Microsoft’s 30 year run was a function of Gates’ brilliance. Even in investing, Warren Buffett is simply better than his peers. Investments in these organizations is a defacto investment in the people running them.

So, who’s running the ship of the organization you want to support? What are their skills and track record? What’s their ability to adapt?

No organization will follow a straight line. This especially holds true with social impact. Make sure you’re investing in leaders and teams that can inspire those around them and roll with the punches.

4. How effective are they with their money?

Helping 100 homeless families find shelter is great. But, if that organization had the resources to help 500, it’s not great. In fact, they only achieved 20% of their expected impact. That’s equivalent to a public company only achieving 20% of their expected quarterly profits. The stock would plummet, management would be fired and customers would begin questioning the product.

Nonprofits are notorious for comparing their impact to doing nothing. In other words, as long as they’re helping at least one person, they have a story to tell. But, many are run inefficiently (just like companies). Many have suboptimal results. So how can you tell the difference?

To start, compare unit level impact. For example, compare how much it costs to find shelter for a family from one organization to another. Focus less on the number of families they support and more about their cost per family. Don’t worry about how much of your donations goes to administration versus direct service. Don’t focus on their CEO’s pay. If they efficiently drive impact, who cares? If their model works, contribute to help it scale.

5. How well do you know the space?

People should invest in companies where they’re passionate about their products. If you spend hours on Facebook or hundreds of dollars on Nike shoes, consider investing in their stock. You intimately know how they create value and are constantly engaged with the company.

The same holds true in social impact. Identify organizations where you personally understand the problem and solutions. Find organizations where you’ve felt the pain they are solving. Find organizations where you have an informed perspective on what’s required for real change. This knowledge makes you better qualified to answer the questions above and, potentially, give more than just money.So now what? First, giving is personal. When your 10 year old son’s friend asks for a donation for their baseball team, do it. Make them smile. Don’t ask him all these questions or you’ll get a confused look and a frustrated son.

At the same time, think about how you can be more strategic with your giving. Money is limited and not all nonprofits perform equally. As an informed supporter, you have the power to fund organizations that can solve major social problems. Don’t take shortcuts. Make sure the person asking you for a donation can answer the questions above. Use Guidestar and Charity Navigator to do your own analysis. If the organization is not a fit, respectfully move on. If it is, be a consistent, annual source of funding (and time) to help them achieve breakthrough impact. By doing so, you’ll be giving with your heart and mind, a powerful combination in the world of social change.