Keeping up with the dreaded economic news? Nonprofit executive directors are evaluating organizational stamina: Are we in a recession? Will my donor base remain strong? Will it be like COVID? Anything close to the Great Recession? How do I keep the contributions coming in? How do I take care of my team? Or will it blow over before we even know it’s happened?
Questions can keep us up all hours of the night, but “keeping up” means being ready. In my long gray-headed life, I have weathered 10 recessions. Though none of them were fun (well, the first one, I was an infant, so it may have been fun), recessions are an inevitable fact of economic life. They don’t get easier. But they do become more manageable to those who are experienced in navigating their organization through the turbulence.
What are we hearing now —
- At last report, inflation hit 9.1% — definitely a tough situation.
- Fed Chair Jerome Powell on prospects of a soft landing: “There’s a path for us to get there. It’s just not getting easier. It’s getting tougher” as reported by AP June 16.
- White House economic advisor Brian Deese, asked about recession: “There are always risks” as reported by Fortune May 22.
- Bruce Kasman, chief economist for JP Morgan Chase & Co.: “I’ve been more pessimistic about the opportunity of stabilizing inflation at an acceptable level without a recession” as reported by Bloomberg June 12.
Essentially, a majority of economic leaders (and those who are not political appointees) think we are either IN a recession now or WILL BE in a few months/quarters. Nonprofit leaders know from experience that whether it is a formal recession or simply an economic downturn, their costs are going up, their contributions will likely take a hit, their razor-thin margins will get thinner, and their staff will be worried.
When you’re ready —
I include this out clause for any of you who may NOT be ready. It means that our industry, the nonprofit sector, has a habit of reactionary leadership in turbulent economic times. We’re great at serving those in need, making a difference in our sphere, and inspiring our teams and boards. But our front headwinds tend not to be economic but rather programmatic and institutional. We tend to notice later that revenues are down.
Recessions affect organizations in many and varied ways. Those relying on government grants may not see a negative impact for a year or two. Those with major individual gifts may see immediate declines since gifts are often tied to a donor’s stock portfolio. Those of you in community services may wonder if you will ever see a decline in demand, while those in the arts have learned to watch the economy closely. (Our team at Capacity Partners represents all these sectors, and we see the varied impacts. Plus, we do leadership coaching!)
The point here: Be Ready. There really is no out clause for a drop in contributions.
Four Strategies You Should Work Right Now
1.) Communicate more. All of your stakeholders should know that you are paying attention to the economic uncertainty affecting your service sector and your contributions. Your beneficiaries need to know that you are there for them. Your community should be aware of your forefront position in serving them. Your donors need to know that you appreciate them. And need them. Your board needs to know that you are proactively looking – and counting on their help – toward new and pledged resources.
According to Network for Good, “Ten Strategies for Recession Fundraising,” strategy #6 is “Identify Plans B, C and D: Consider subletting a section of your current office to another nonprofit. Do you have equipment that could be sold? Develop a cause-marketing partnership with a company.”
2.) Revise your cost structure. Yes, you can! Everyone thinks their budgets are made of concrete, that their expenses are set, that there is no wiggle. You can be creative. So says Praveen Kishorepuria, Managing Director, Zero-Based Transformation, Accenture North America: “Zero-based cost transformation offers multiple options for increased flexibility….many tactical, repeatable activities can be virtualized or outsourced.” The strategy is to find partners, outsource when possible, use board member companies to provide bridge services, delay hiring….anything to reduce the expense line can dramatically (even if temporarily) improve the bottom line. And if you are worried that you are susceptible to a downturn, you should consider a dramatic 20/20 strategy, explained below.
3.) Get closer to your donors. This is the most important strategy for protecting contributions. Donor retention during a downturn is the surest measure of whether you will survive a recession intact. If you are already close to your Top 10%, then get close to your Top 25%. Imagine being on the bubble of a donor’s portfolio. If you are not among their top philanthropic priorities, you will likely be dropped from their giving program if their income is negatively impacted. Clarifying: when the donor’s ability to contribute is constricted, you will be cut. Unless you are among their top beneficiaries.
Staying close to your top donors, listening to their interests, providing worthwhile recognition, and affirming impact all will result in secure donor retention. Many nonprofits are funded at 80% by their top 20% of donors. Try to ensure that you are among their top beneficiary organizations.
4.) Work with your senior team to develop a dramatic 20/20 program. It’s simple; it brings your leadership together; it works. And it is nearly impossible to do. All you have to do is reduce your expenses by 20% and increase your revenues by 20%. Done! Except that it is excruciatingly difficult.
In a normal economy, it is not unusual to experience a decline in revenue. We manage through those experiences by cutting our costs in the 3rd and 4th quarters and squeezing our board for end-of-year giving. In a recession, you could lose a large percentage of your revenue, 10% or more, maybe 20%. You should always have a plan for cutting 20% of your expenses. Unfortunately for most, it means cutting our most important resource, our people. If you start now, and for most of you entering a new fiscal year, now is the RIGHT time to start, you can figure out how to disperse duties, what operational shortcuts you can enact, what professional services you can delay…all before the contents of your anxiety hit the fan.
But that is only the start. What if you lose revenues by 20% but you ALSO have a plan for raising an additional 20% by the end of FY23. This is difficult but not impossible.
The questions that will lead to increased revenue are:
- What grants have I not applied for that will allow for administrative infrastructure?
- What companies are my major individual donors aligned with and with whom I could get a meeting?
- Which of those companies offer a matching gift program?
- What companies could provide a corporate sponsorship that I haven’t contacted, and what benefits would attract them that we could produce?
- Who among my board is well-connected and could broker three prospect meetings in the next three months?
- What additional service sectors could I explore that might attract a significant new source of revenue?
- What members of my senior team could I enlist to help raise additional money?
- Can my finance and marketing teams come together to devise a trackable and concise plan that we can all rally around?
- How should I plan for a recognition event at the end of the 3rd quarter to thank those who are helping out and to inspire those to give by the end of the year?
These and other questions will lead you to an ambitious and challenging plan to get you to 120% of your budgeted revenue. Whether you lose significant current donors becomes hedged by the new revenue development you have just created.
A 20/20 plan is very difficult. But it is achievable, and if you start now, at the beginning of a fiscal year, it is not out of the question that you can emerge through a recession in a new position of strength.
Recessions Aren’t All Bad
Imagine post-recession that your organization has emerged stronger. You may have fewer staff members, but they are effective and productive. Your leadership team has experienced the come-from-behind success story that they embody to your stakeholders. You have weathered the turbulent conditions and come through them more focused and more capable than before.
You may have attracted new long-term investors in the organization. “Recessions aren’t disastrous for nonprofits. During typical recessions since the 1950s, giving has actually gone up on average, albeit by a modest 0.3 percent a year,” says Patrick Rooney, an economist at Indiana University’s Lilly Family School of Philanthropy.” (from Ben Gose, The Chronicle of Philanthropy, January 7, 2020)
A Few Final Thoughts
A diverse, cross-funded organization is the safest during periods of economic uncertainty. Nonprofits that are heavily reliant on government funding, or those with a mostly corporate donor base, are the most vulnerable. Create a comprehensive development plan that is represented by stable and varied sources.
Speed is king. The sooner you implement solid, consensus-developed and well-communicated strategies, the more likely you are to weather the recession when (okay… if) it comes.
Finally, remember that people – your people – are the most important asset you have. Recessions come and go (and come back), but how you handle those around you will reflect your values and integrity for years into the future. Treating your team with respect will last a lifetime.
Resources from The Chronicle of Philanthropy
“Eight Steps for Managing Through Tough Times,” Bridgespan
“Tips to Navigate Financial Crisis,” Nonprofit Finance Fund
“Hard Times, Hard Decisions: 7 Things Small and Midsize Charities Should Do When a Recession Looms,” Chronicle of Philanthropy
The M&Ms of Corporate Fundraising
Your house may be like mine. Every holiday, we have baskets of M&Ms all over the house. At Thanksgiving, we have orange and brown M&Ms; at Christmas, green and red. And this past Valentine’s Day…you guessed it, red and pink M&Ms. Even though they all taste the same, except when you venture into peanut, peanut-butter, mint, caramel and hazelnut, I credit Mars with making the ubiquitous little chocolates our go-to candy throughout the year.
There is a lesson here for nonprofit corporate support. Hint: it is NOT to deluge your corporate sponsors with M&Ms. Although that may be a strategy for retention, you must first master the M&Ms of nonprofit corporate partnerships.
Although the marketing of your mission and message through various media merits mentioning as does your mindset, mentors, and the mind-numbing miscellaneous minutiae of macros and modifiers, more and more there are only two M’s that matter the most.
Metrics. Corporations love to show positive numbers. Everything is measured. If you have not yet embraced the power of metrics, this is a good time to do it. How many people do you reach, this year’s program completion rate compared to last year, how many different ethnicities, what are the results of your intervention, etc. These and other measures can determine not just how well your program is doing but also how well you will be funded. Outcomes based philanthropy means that everything – every program, event, volunteer training, publication – must reflect the measured accomplishment of your work.
Mirrors. Corporate branding increasingly means helping the company look good to its broadest constituency base. When corporate philanthropists place your organization in the mirror, they insist that it must enhance their brand and reinforce their values. They report to their own board, investors, suppliers, employees, and above all, customers. They will carefully evaluate whether your organization can accommodate their branding needs. To the extent that you can help them look into that mirror with confidence, you have ensured that your organization stands a greater chance to retain their all-important support.
Metrics and mirrors. These concepts matter to the companies you are hoping to reach, and they will likely matter for many years in the future. When you remain close to your corporate partners, you will find more creative and relevant ways to market your mission and learn how to adapt your fundraising strategies to meet their seasonal needs, just as the flavors and colors of M&Ms adapt to each season. But if you prioritize your metrics and mirror M&Ms, you will fund your corporate stakeholders to be among your most loyal donors.
Three Steps to Cultivate a Major Gifts Prospect
If you are like most of us, the major gifts prospect list that sits on your desk stares at you and foils your boldest strategies. Those one hundred names have enough wealth to build an entire university campus several times over. Of course, you don’t know any of them, and your Development Committee hasn’t responded to your requests for introduction, despite your pleas.
Whatever the minimum major gift threshold for your organization, ten annual contributions from your top donors for the next several years with a solid annual retention rate means significant support for your organization. So what’s a development director to do?
Here are three steps to a successful major gifts program.
- Learn/Rank. Read the bios, the giving history, the speeches, and other information of the people on your prospect list. Explore the networks of these accomplished and generous individuals. As you identify their related giving and their relationships, however tenuous and distant, with your own board members, the ranking of your prospects will take shape. You will soon have drawn a web of connections between your people and those top prospects.
- Push/Pull. A major gifts team usually consists of board members and development committee members. Among those leaders, there is likely a small percentage who have agreed to enthusiastically reach out to their networks. Those are your favorite people, right? They are also the most time-challenged, and they often find it hard to fulfill their promises to talk with their contacts. Try push/pull. First, push them to do their work, to fit those calls and referrals into their jam-packed schedules. Of course, be creative and nice in your approach. Second, pull plenty of data and research in order to equip them with the information they need to successfully reach their goals. Pulling the appropriate data will make your board and committee members feel more comfortable when you do your push. Don’t forget to track not only the progress of your prospect but also the progress of your board advocate.
- First/Second. With your first layer of top donor prospects safely in the hands of your most committed volunteer leaders, it’s smart strategy for you to cultivate the second layer - the network that surrounds those prospects. Identify and cultivate those people; if even a small percentage respond, you are on your way to meeting your fundraising goals.
A strong major gifts program lifts an organization and unleashes the potential of your organization’s vision. And a successful major gifts program is only three steps away.
The First Steps to Getting Your Fundraising Strategy Right
Here is how too many organizations develop their fundraising strategy. Someone declares we need some strategy around here so off you go with your team to a retreat from which you emerge with slick charts, creative revenue streams, optimistic projections and long to-do lists. Everyone smiles and cheers.
By the following Thursday, the fundraising strategy is forgotten. What went wrong?
Sometimes staff and board members need to be re-energized to implement a fundraising strategy. As a first step getting your fundraising strategy right, put the spreadsheets, donor lists, beautiful charts, and blogposts on hold. (They will be there when you return.) Meet with the kids your nonprofit educates. Serve dinner to the families who come to the shelter night after night. Hang out in the cancer wards your major donors have built. Feel the small everyday victories your fundraising makes possible.
Then, for a fundraising strategy to truly becoming a road map to fundraising success, first you must answer this critical question. What are your organization’s strongest fundraising assets? A beloved, charismatic founder? A large dedicated base of small donors? A wealthy private foundation that has pledged its support for the next twenty-five years? A unique special event that has delivered results for a decade?
While best practices tout the need to have a balanced portfolio of development – foundations, direct mail, major gifts, special events, planned giving, government funding, corporate donations, online, etc. – most organizations actually have only two or three really strong assets. A pragmatic fundraising strategy ought to concentrate on what your organization does best and perhaps adds one or two additional revenue streams.
For example, if your nonprofit attracts more than its fair share of foundation funding and has hundreds of donors giving annual $25 gifts, make sure your strategy includes maximizing foundation giving and annual giving. Your strategy may want to include building a major gifts component and introducing planned giving to your donors.
Reminding your team of their mission and creating a development strategy that maximizes your organization’s assets is a winning combination for successful fundraising.