3 Ways for Nonprofits to Crash & Burn in Current Economy

This week, I was all set to write my blog post. But then, an article at The Chronicle of Philanthropy website caught my attention: “How a Double-Dip Recession Could Affect Giving” by Lisa Chiu. It was a fine article, but it was nevertheless the last straw. I’ve seen way too many articles, blog posts, and Tweets exploring the “What’s going to happen?” question. I have to respond. And, I have to share some meaningful suggestions.

There’s really no mystery. It’s quite simple. I’ll tell you what will happen if there’s a double-dip recession or, for that matter, if the economy improves. Overall philanthropy will follow the growth trend of the Gross Domestic Product. Philanthropy has long correlated to GDP. It averages about two percent of GDP. So, if GDP goes down, giving will go down. If GDP grows modestly, philanthropy will grow modestly. If a miracle happens sometime soon and GDP growth leaps upward, so will giving. We don’t need more studies. We don’t need to guess. We already know what will happen.

Photo by inajeep via Flickr

While philanthropic performance is easily predicted, what is more difficult to determine is how individual nonprofit organizations will do in a bad economy. Since we are nearly powerless to alter the course of the economy, we need to focus our efforts on controlling the thing we can, well, control rather than behaving like a deer caught in the headlights. While I cannot provide a plan that will guarantee success, allow me to share three things that can guarantee that your nonprofit organization will crash and burn during a poor economy:

Stop Asking. It may seem obvious that you should never stop asking, but some nonprofit organizations really do think that the current economic conditions are not good for going out and soliciting money. So, they have scaled back their fundraising efforts. The Vancouver Symphony Orchestra (in Washington state), left their Director of Development position open for a year. They ended up on the verge of bankruptcy. If you ask for contributions, you may not get them. But, if you don’t ask, you certainly won’t get them. Ok, maybe you’ll get a few, but you won’t raise nearly as much money as if you get out and ask.

Do Not Have a Compelling Case for Support. If you’re going to ask people for money, particularly folks who might be struggling themselves, you better have a superb case for support. Just showing up and saying, “Hi, I’m here. Give me money,” might work in good times, though it’s still not a particularly effective idea. But, in these tough economic times, you’ll need to do better. So, get back to basics. Examine your case for support and make it stronger. If you don’t have one, create one. Tell prospective donors how you have wisely used previous contributions and what you intend to do with new dollars. Identify a problem and show prospective donors how they are part of the solution.

Ignore Current Supporters. To save money, some organizations are cutting their stewardship budgets. This is a great way to alienate and lose supporters at a time when you can least afford to do so. During the recession of the 1980s, I had a museum client with a senior executive who wanted to eliminate the member magazine to cut costs. Before doing that, the wise membership director and I put together a member survey to determine whether the membership valued the magazine or not and what, if anything, they valued in particular. We found that the magazine was an important member benefit, even among those who couldn’t remember any of the articles from the most recent issue. The most valued feature of the magazine was the listing of upcoming events. As a result of the survey, the membership department redesigned the magazine with a special pull-out calendar rather than a simple event listing. A follow-up survey found that members valued the publication even more. The membership retention rate even went up! And, yes, the great powers allowed the magazine to continue. In a bad economy, it is time to take especially good care of supporters. It is not the time to alienate them.

So, don’t say “no” on behalf of your donors and prospective donors. Get out there and ask for the support you need. Make sure you have a compelling case that inspires support. And, when people do support, make sure to properly steward them. This will help you weather the current economic storm and will well position your development effort during the economic recovery. Taking these three measures will help you avoid crashing and burning.

Photo by Lanyrap via Flickr

Let me give one example of a small organization that’s doing things right. I serve on the board of the Philadelphia Children’s Alliance, an organization that brings justice and healing to the victims of child sex abuse which affects one in four girls and one in six boys nationally. PCA made a commitment to expand its services so that it could help every child in need in Philadelphia. When the recession hit, the board discussed putting this ambitious plan on hold, but ultimately decided to march forward. With a detailed strategic plan in place, with a meaningful case for support, and with additional professional development staff, PCA has indeed marched onward and upward.

As the recession began in December 2007, PCA was in the middle of its best fundraising year ever. In 2008-09, PCA took a big philanthropic hit of 14 percent due exclusively to a drop in foundation support during the depths of the recession. However, the organization remained determined and began to further diversify its sources of support. In 2009-10, PCA saw an increase in philanthropic support of 8.5 percent compared with 2008-09, and an increase of 16 percent compared with the pre-recession fiscal year of 2006-07. In 2010-11, we raised about 13 percent more than last fiscal year which is 31 percent more than 2006-07!

I’m greatly encouraged by all that we are accomplishing at PCA. We did not retreat. We did not sit around and whine. And, we most certainly did not generate support through “automatic” relationships. Instead, the board made a commitment to the children of Philadelphia. Then, staff and volunteers went to work to do the heavy lifting necessary to produce results. We strengthened our case for support, expanded and diversified our fundraising efforts, and enhanced our stewardship.

Does PCA still need to raise more to meet its service goals: yes! Do we need to further diversify our funding streams so we are less dependent on government sources: yes! But, we’re well on our way despite the terrible economy.

This economy is tough on most of us. It is particularly hard on organizations that are simply making excuses rather than doing their jobs. Today, there are 48 percent more 501(c)3 organizations than there were in 2001. Competition for philanthropic dollars has become fiercer. The Great Recession has further increased the fundraising challenge. To be successful in this environment, nonprofit organizations must master the fundamentals and exercise creativity. The organizations that do those smart things rather than stare mindlessly into a crystal ball, or do the stupid things, will manage the best. I’m very proud to be on the board of one organization that gets it.

Of course, if you prefer to guarantee failure, just stop asking, don’t have a compelling case for support, and scale-back your stewardship efforts.

That’s what Michael Rosen Says… What do you say?

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30 Responses to “3 Ways for Nonprofits to Crash & Burn in Current Economy”

  1. I agree. Never stop even when we perceive times to be bad from our perspective we have no idea of knowing who has bunkered down and actually does have spare resources for the bad days.

  2. Your post Michael takes me back to Vince Lombardi and “This is a football.”
    I work for the Boy Scouts and while we did reach our local Friends goal for 2011, it was not pretty. I needed to be reminded to focus on these three things and especially the story/case we have to share. Sometimes I rely too heavily on the brand without stewarding our donors. Thank you!

    • Lucy, I appreciate the comment. You’re right. Having a great brand can make fundraising easier, but relying solely on the great brand can be risky. When you marry a great brand with brilliant execution, terrific things can happen. Your Vince Lombardi reference is on target. By the way, I was in a meeting a couple of years ago with a prospective client. I mentioned Vince Lombardi. I got a blank stare in return. Realizing the young woman I was meeting with did not recognize the name, I referenced Bear Bryant, the legendary Alabama coach. Again, I was met with a blank stare. This time, however, she also said, “You know, I’m only 25!” I felt old that day. Oh well.

  3. Thank you, Michael! I couldn’t agree more and especially about the need to stop the “what’s going to happen” articles, presentations, etc. Whether it be the estate tax, the recession or anything else — enough already. It is what it is and charities need to continue working every bit as hard as they always have.

    • Karen, thank you for your comment. Fundamentals are always important. They become even more important during tough times. The charities that don’t master the basics simply leave more on the table for the rest of us.

  4. I totally agree the more you keep pushing forward the more you will see results. It’s important not to feel defeated – people that give, will always give they may just give less for a while but things will get better and then they will give more!

    • Alisaf, thank you for your nicely put comment. You’re right. Nonprofits simply need to keep pushing forward. It’s not always easy, but it is necessary. As is commonly attributed to Lao Tzu, “A journey of a thousand miles begins with a single step.”

  5. I am impressed by your commitment to the sector, and especially as a Board member of a clearly inspired agency. All you say is true. There is often a more compelling case to be made in troubled times, the trick is to show the same concern and commitment to your community of donors that you show to your constituency of people served. Increase communication in times of trouble, be transparent, and reach out. Nice article. Good points.

    • Susan, thank you for your thoughtful comments and tips. I especially like your comment about treating donors with the same commitment that you show your constituency of people served. If nonprofits step-up their game now, not only will they weather the storm, but they’ll be well positioned to spring forward during the economic recovery.

  6. Yes Michael, I agree. Now is not the time to alienate your constituents, nor is that ever a wise practice. On the profit side it’s as important to remember the basics and concentrate on the mission. Opportunities are less thus it’s that much more important to stress the things that made us sucessful in the first place; always espousing what differentiates us from our competitors.

    • Randy, it’s good to hear from you, my friend. It appears that in this respect, there’s not all that much difference between the for-profit and non-profit sectors. It really is about taking care of existing customers/donors, focusing on core mission, and knowing your unique selling proposition/case for support. I appreciate your perspective.

  7. Nice post again, Michael. Your ideas apply to everyone, including for-profit businesses. The tougher the economy is, the easier it is to make excuses for why the numbers are slumping. Certainly the economy makes it tougher for everyone, but organizations that maintain a commitment to excellence and their cause are bound to inspire more to donate.

    In fact, if other nonprofits are slacking because of the economy, it might mean there’s an opportunity for aggressive fundraisers to really be heard.

    • Darren, thank you for you nice comment. For-profit and non-profit organizations have a fair amount in common. The tough economy is negatively impacting both sectors. For-profit companies and non-profit organizations that master the basics will certainly have a competitive advantage over those that don’t.. If we look for a silver-lining, I suppose that might be it.

  8. Good post Michael. A simple “do your job” mentality carried through with optimism and enthusiasm can lead an organization to positive results no matter what the economic climate.

  9. Thanks for this timely post, Michael. It reiterates some ancient wisdom from the scriptures:

    “Farmers who wait for perfect weather never plant. If they watch every cloud, they never harvest.” Ecclesiastes 11:4

  10. Michael, I appreciated your post. It reminds us all to keep the main thing the main thing. The great Vince Lombardi specialized in fundamentals–his mantra was teach fundamentals well and then find and inspire the champions who can perform the fundamentals well. We can all follow suit.

    The story about sharing the names of Lombardi and Bryant with a client should remind each of us to stay current, be relevant and manage the details.

    By the way, do you suppose Bear was his given name?

    • Don, thank you for your comment. As for Bear Bryant, his given name was Paul William Bryant. According to Wikipedia, his nickname stemmed from his having agreed to wrestle a captive bear during a theater promotion when he was 13 years old! Coach Bryant was also a bit of a fundraiser. While the university president tried many times to get the coach involved in fundraising, Bryant resisted. However, the legend goes, when Bryant wanted an air-conditioned dorm for the football players so his recruiters could compete with other big southern schools, he contacted the university president and told him to assemble a group of donors. The president was thrilled to finally have the coach engaged in fundraising and, therefore, assembled the donor group as requested. The coach addressed the group and asked for donations to fund an air-conditioned dorm. He explained the impact that would have on player recruitment. Well, one of the major donors raised his hand. “Coach, if we fund this, what does that do for our seats at the football games?,” the donor asked. The coach, the story goes, shot back, “We’re not here to talk about taking care of your sweet ass.” The donor responded, “That’s ok, coach. I was just curious. You’ll get your new dorm. Don’t worry about it.” As development professionals, we may wish we could occasionally get away with giving a response to a donor the way the coach did. But, we know better. Being Bear Bryant had its advantages.

  11. Thanks to all for your posts! I came across this site as I was doing research for a keynote speech I’m giving for the Grant Professionals Association next month.

  12. Michael,

    I especially liked your words:

    “In a bad economy, it is time to take especially good care of supporters. It is not the time to alienate them.”

    In my geographic location, non-profits have forgotten that sometimes being a board member means doing more than being at a meeting once per month.

    For those that will listen, I will pass your article along.

    Thanks for offering your wise insights!

    ~Keri

    • Keri, thank you for sharing your thoughts. I’m sorry to hear that the nonprofit boards in your community tend not to get-it. But, I’m sad to say, I think it’s a pretty wide-spread problem. Board members have a number of key responsibilities including, but not limited to: writing and defending the mission, financial oversight, hiring and managing the CEO, raising money, giving money, serving as the organization’s ambassador, and identifying prospective board members. (This list is not in any particular order.)

      I wish you the best. If I can be of any assistance, just let me know.

  13. Michael, great article. You make it pretty simple to understand when GDP goes up, income up; when GDP down, income goes down. Too many organizations assume donors will contribute every year without explaining what great programs and outcomes the donor’s money will be used for. The old saying “If you don’t ask you won’t get a contribution” is very true during tough economic times. We need to sell our programs and outcomes to donors and that doesn’t mean sitting at a desk and writing a letter. Thanks for the article.

    • Ronald, thank you for your comment and for encouraging organizations to get out there and ask. The economic news today (Aug. 18) looks bleak. The risk of a double-dip recession is now about one in three, according to Morgan Stanley and Bank of America Merrill Lynch. Our work in the nonprofit continues to be challenging and will likely become more challenging in the months ahead. That just means we have to work harder and smarter.

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