(See Corrections & Amplifications item below0.)
Can the world of nonprofits be profitable?
It certainly is for Vinay Bhagat. He's the 34-year-old founder of Convio Inc., a 70-person software company based in Austin, Texas, who has built a flourishing business helping nonprofits work better by using the Internet to reach, rally and solicit donations from supporters.
Mr. Bhagat's business plan was born in early 1999 when he volunteered to answer phones for Austin's PBS television channel during a pledge drive. As calls came in, he wrote donors' information onto cards and then handed them to another person to enter into a computer. To Mr. Bhagat, then an employee of a software company that helped businesses like Ford Motor Co. reach customers online, PBS was living in the Stone Age.
"I was struck by the inefficiencies of the process by which they raised money and related to their membership," he says.
He concluded that nonprofits, like all organizations, would be willing to spend money to save and make more money. And his research showed they were hungry for Web tools to advance their missions. Mr. Bhagat and his partner, now Convio's chief technology officer, David Crooke, created specialized software that harnessed e-mail and the Web for fund raising, cultivating long-term relationships with members and donors, creating bigger and stronger communities, and mobilizing support bases to action.
Five years later, Convio is best known for helping former Democratic presidential candidate Howard Dean raise more than $18 million in small online donations. But the bulk of the firm's 200 clients are nonprofits from the worlds of health, arts and culture and issue advocacy. Convio's sales were $7 million in 2003, and it expects to double its revenue this year and again next year.
New Market
Convio plays in an arena known in the for-profit world as customer relationship management, or CRM, and dominated by software giants like SAP AG and PeopleSoft Inc. Total CRM software and services revenue was $27 billion in 2003, according to research firm IDC, and it estimates nonprofit customers accounted for less than 1% of those sales.
Convio says its nonprofit focus means very different products from other CRM companies and little competition so far. "You don't go into a nonprofit and talk about how you drive more profits," says Gene Austin, Convio's chief executive. You go in asking: "How can we help you reach more people, retain more people and get them action oriented, all by using the Internet?"
The key figures Convio looks at to assess its opportunity are the dollars nonprofits spend on direct mail to raise money. Convio says U.S. nonprofits received more than $200 billion in donations in 2002, while spending most of that -- $160 billion -- on direct marketing.
Web Savings
Making a solicitation online costs only 20 cents compared with $1 or more for each direct-mail or telephone solicitation, according to a McKinsey & Co. study published in May 2003. Still, only about 1% of total donations was raised online in 2002, though the Internet's share probably rose to 3% or 4% in 2003, the company says.
The National Trust for Historic Preservation spends a total of about $25 on each new member it acquires using direct mail, and since a membership costs only $20, it will come out ahead only if it renews the member. But using its Web site to take donations is a "pretty minimal" expense, says Dolores McDonagh, vice president of membership development.
In a bid to boost online giving, which accounts for 2% to 3% of all its donations, the National Trust began using Convio software in October 2002. In one year, online donations tripled to more than $100,000 and new online-member numbers doubled. And supporters are giving more, too. Today, new-member gifts are up 29% to $27.49 on average and renewal gifts are up 54% to $45.17.
"We're laying the foundation for when baby boomers, and even younger people, discover philanthropy," Ms. McDonagh says. As the online demographic ages, "this will be a very large growth medium for us."
Similarly, the Chicago-based Y-ME National Breast Cancer Organization is on track to raise $1.2 million online this year with its annual Mother's Day walk, double last year's number. The group, which operates 24-hour hot lines staffed by breast-cancer survivors, uses Convio software to give team captains personalized Web pages and e-mail tools for organizing walkers and asking colleagues, friends and family for donations.
Y-ME expects about 16,000 of its 25,000 walkers will register online this year, up from 11,000 in 2003. So far, gifts are averaging $41 each, up from $35 at this time last year.
MADD Message
Other groups use Convio's software to rally supporters in different ways. In mid-October, Mothers Against Drunk Driving sent out an e-mail designed to raise awareness that Halloween, today a popular occasion for adult partying, is now one of the most deadly nights of the year on the roadways. MADD called on supporters to sign an online petition asking law-enforcement agencies to step up DWI enforcement on Halloween, and to forward the message to at least five friends.
The Brady Campaign united with the Million Mom March is using Convio software to mobilize supporters to lobby Congress on behalf of gun control. In the month before the March 2 vote on a gun dealer civil-liability immunity bill, the group gathered 200,000 signatures for its online petition and generated 125,000 e-mails to senators and the president.
Write to Riva Richmond at riva.richmond@dowjones.com3
Corrections & Amplifications:
U.S. nonprofits spent $12.6 billion in direct-mail marketing in 2002. In the article above, Convio incorrectly stated that the amount was $160 billion.
