Why People Stop Donating Money To Their Alma Mater

I was reading this academic study on why alumni cease donating to their alma mater, which is titled “Why Alumni Don’t Give: A Qualitative Study of What Motivates Non-Donors to Higher Education.” It addressed a very intriguing question with implications that extend beyond universities to the business world and human relationships at large: Why does someone stop supporting you? It is an interesting question because nearly all business-related inquiries are related to the pursuit of a new customer rather than the retention of a pre-existing one.

I expected that the most dominant reasons for stopping donations would be that the school engaged in some strategy that a donor disapproved of or that the donor that the school’s endowment was doing just fine (thank you) and didn’t need any additional support.

Instead, the number one reason why donors stopped giving money to their school was because it felt like nearly all communications between the school and the donor were related to giving more, more, more money and there were hardly any communications that were thankful for what was received without an additional request. Essentially, the recipient of the funds felt that it no longer had to woo the donor, and instead, felt that it could treat the donor as a piggy bank to access whenever it wanted more funds.

From an investor’s point of view, I would be skeptical to invest in a company that needs to constantly master its business relationships as a condition precedent for long-term success because it only requires one bone-headed cost-cutting intervention to lose those relationships and destroy the business model.

For instance, from 1935 to 1994, the St. Louis, Missouri advertising agency grew at a rate of 15.5%, making its investors tremendously rich over that period of time. For over half-a-century, it was putting up the types of returns that was one of the top fifty best in the United States. Why? Because the costs of the advertising were largely born by the company seeking the advertisement, and the advertising group was not capital-intensive while simultaneously charging high fees.

The problem? D’Arcy’s biggest client was Anheuser-Busch, and in 1994, D’Arcy chose to create an advertisement on the sly for Miller Lite even though it knew or should have known that it would anger Anheuser-Busch. Immediately, D’Arcy lost its Anheuser-Busch account, and by 2002, it was a defunct entity that was partially picked up for scraps by the French PR firm Publicis Groupe. It took its core customer for granted, viewing it as a piggy bank to access rather than a customer to delight, and it fell quickly.

If you notice, there are no articles on this website analyzing PR firms as potential investments. You won’t see Publicis Groupe added to Berkshire Hathaway’s portfolio because the future returns are reliant upon perpetual customer care and never taking a client for granted. It’s a different business model than, say, Coca-Cola, where the modus operandi is to produce the beverage and the customer will come.

That said, there is a way for colleges and universities (as well as businesses with similar models) to bring donors and those who are hit for donations back into the fold. The answer is to clearly define when and why fundraising will occur, and then once the fundraising is complete, to send multiple (possibly 5-10) correspondences to the donor or customer explaining how the donation is being deployed and providing ongoing status updates. This would improve the relationship because now information is being provided to the donor without the donor serving as the sole source of value in what is a thinly-disguised transactional relationship.

A similar phenomenon takes place in the money management industry. It is not poor investment performance that gets money managers fired nearly as often as lack of communication between the advisor and his client. Generally, the advisor is focused on bringing in new clients or avoiding existing clients during periods of poor performance, and that is what leads to the loss of business more so than the actual performance.

I would argue that the best fundraisers and business folks in life are those who can say what they are going to do, seek the funds for why that is necessary, and then provide updates (good or bad) regarding how the desired task is being accomplished.

Warren Buffett once said that the business that delights its customers will never go bankrupt. That vision can be realized in both the donor and business context by not taking anyone for granted which is often accomplished through regular communications in which more value is being given than being sought.

That said, I don’t expect most college and university fundraising programs will make the changes necessary to bring the teetering donors back into the fold. It is too easy to tack on a donation request onto each additional correspondence, and since some donors will give in response to said request, it is hard to forego doing something when that action will result in some funds immediately coming in the organization’s way. Plus, the average university fundraiser spends 3.7 years in the job, so intergenerational concerns are a moot point when a given year represents almost a third of your expected time on the job.

Like this general content? Join The Conservative Income Investor on Patreon for discussion of specific stocks!