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How Community Foundations Define and Communicate Their Value

Sometimes an old idea can bring new insights. Take, for example, the Arizona Community Foundation.

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Sometimes an old idea can bring new insights. Take, for example, the Arizona Community Foundation (ACF).

As with many community foundations, measuring impact beyond assets under management is particularly challenging because ACF distributes the bulk of its funds according to the wishes of its 1,700 fundholders. While some community foundations have significant discretionary funds that they can invest in issues they select, ACF’s discretionary funds are limited. As a result, ACF must act through its donors to increase its impact. ACF hypothesizes that when donors, grantees, and the foundation itself interact in dynamic ways, they promote a culture of philanthropy that increases giving, leads to more effective nonprofits, and contributes to a better Arizona. With this hypothesis in mind, we partnered with ACF to help measure and increase its impact.

As learnings from this impact measurement surfaced, we used a time-tested framework to help ACF think about how they work with donors and grantees to further advance a culture of philanthropy.

A New Use for an Existing Framework

A framework familiar to the business world, the value disciplines framework, proposes that companies become industry leaders by excelling in one of three areas while meeting industry standards in the other two. The idea is that by narrowing its focus to be truly exceptional in one area, a company can stand out from competitors. The three disciplines that companies focus on are:

  • Operational Excellence – A reliable product at a modest price (Frontier Airlines, Walmart)
  • Product Leadership – Cutting-edge products or services (Apple, Tesla)
  • Customer Intimacy – A deep understanding of different customers’ needs and the flexibility to meet them (Amazon, Salesforce)

While a business framework may not seem like an obvious choice for a community foundation, there are several reasons it helped ACF think about its value. First, unlike private foundations, whose assets often come from a dedicated source, community foundations have customers: the donors who choose to place their money in donor-advised funds (DAFs). For many community foundations, growing this donor base is essential to the organization’s community impact and financial health. Second, a growing number of banks are offering DAFs, creating competition for community foundations. Delivering exceptional value is essential if community foundations are to compete with low-fee DAFs from companies like Vanguard and Fidelity.

How Community Foundations Can Identify Their Value Proposition

Together, we adapted the value disciplines framework to apply specifically to the community foundation context:

  • Operational Excellence – A reliable, smooth donor experience; giving is easy and cost-effective
  • Product Leadership – High-quality donor services; a variety of giving options that meet donor needs
  • Customer Intimacy – Personalized services delivered in a thoughtful way, based on a deep understanding of the donor’s needs

When we interviewed donors to understand the value ACF offered in supporting and shaping their philanthropy, we found that they typically saw ACF as excelling in customer intimacy. They felt ACF staff deeply understood their interests and tailored services to exactly what they needed. For a donor interested in seeding new organizations, ACF recommended a steady pipeline of well-vetted startup nonprofits. For another donor interested in international solar energy, ACF offered advice on how to manage legal risk when giving overseas. These donors and others felt heard and understood by ACF staff. They were satisfied with the products ACF offered (product leadership) and found giving to be a smooth experience (operational excellence), but they saw ACF as leading with customer intimacy.

Why Understanding Value Proposition is Important for a Community Foundation

Other community foundations can apply a value disciplines lens to:

  • Increase impact. The impact of a community foundation is tied to the giving of its donors. Engaged donors are more likely to become long-term givers and go beyond financial contributions, for example, by volunteering, recruiting other donors, and advocating for nonprofits. By supporting donors in their areas of interest and in ways known to be effective, a community foundation can increase its impact on the community.
  • Differentiate from other players. As smaller organizations, community foundations will struggle to offer DAFs that are lower priced than those marketed by large investment banks. However, their size and place-based nature is an advantage when it comes to customer intimacy. By building relationships, bringing deep knowledge of the community, and responding to donor needs in a tailored way, community foundations can attract and retain donors looking for more than a transactional experience.
  • Make the right internal investments. Like any organization, community foundations are faced with numerous opportunities to invest in internal capacity. Knowing where the organization needs to deliver exceptional value and where “good enough” is sufficient is critical to making the best use of scarce resources. If donors see customer intimacy as the key value proposition, then investments in donor support staff and systems will add greater value than incrementally improving price or products (assuming these are already at industry standard levels). Investments in donor-facing systems are particularly important to a younger generation of donors, who are digital natives and expect a technology-enabled experience.

As you apply the value disciplines lens, you might ask yourself the following questions:

Operational Excellence

  • How smooth is our giving experience? Do we spend a lot of time troubleshooting donor issues?
  • How does our pricing compare to other alternatives for donors? Are we a high-, medium-, or low-cost provider?

Product Leadership

  • Do we offer a wide range of giving options? How do these compare to what other competitors offer?
  • Besides DAFs, what other services do we offer donors (e.g., advice, learning opportunities, connections to community nonprofits, networking opportunities)?

Customer Intimacy

  • How well do we understand our donors? How detailed is our data on their interests and giving history?
  • Do we segment donors to better tailor our products and services to their needs?
  • How often do our staff connect with donors?

Applying this framework has led ACF to better understand the needs of its donors, ensure the best service provision, and seek new ways to support them in transforming their philanthropy Through this support, ACF believes it will advance a vibrant and enduring culture of philanthropy in which donors increase their support for nonprofits, grantees become ever more effective in delivering on their missions, and greater collaboration among all parties leads to a better future for Arizona.

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