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 —

  • 8.6% inflation, the highest Fed rate hike in decades, and a 1Q22 GDP dip of 1.4% — 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) thinks 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.
  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.

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.”

  1. 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.

I developed a hypothetical chart that shows how vulnerable a nonprofit is during an economic downturn. First, the economic boom period shows that a typical major donor whose giving is based on investments may both increase her number of beneficiary organizations AND retain the ones she is currently supporting. It’s an economic boom: she is doing well, and she rewards those organizations comfortably because she aligns with their mission and respects their uses of funds.

This is donor loyalty in an economic upturn. The left axis shows that retention increases over time. By Year 3, after three years of giving by this donor, the recipient has an 80% probability of continued contribution. The donor has also increased her donor portfolio.

From two in Year 1 to nine in Year 4.  You are “Org #4,” added in Year 1. During an economic boom, your projected retention is good.

In a recession, the donor’s portfolio is weakened. Discretionary philanthropy means the donor is hoping to make an impact with fewer resources. She chooses to cut the number of beneficiaries to the few that are the most important to her.

 

This chart (hypothetical) shows what happens during a recession. The number of recipient organizations is trimmed significantly.

Donors want to maintain giving levels but are often forced to cut back during a period of economic uncertainty. If you are “Org #4” added in Year 1, by Year 2 you don’t make the cut.

 

 

 

 

 

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.

  1. Develop with your senior team 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, 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

philanthropy.com/learn

 

Attending to Retention

While the worst impacts of the pandemic may be subsiding, the so-called Great Resignation seems to be going strong. Nonprofits are feeling this at least as much as any other employer. Your people are your greatest asset in delivering on the promise of your organization. How can you keep them?

For many nonprofits, retention via better compensation is not an option. One key may be to better connect the mission of your organization to the people who work there. Working for a nonprofit often is a choice partially motivated by an individual’s identification with what your organization stands for and accomplishes. If you can’t pay people more, aim to build a culture that makes it easy for them to take personal pride in the work and your value proposition because they are part of something that is making a social impact.

Building culture and connection have become even more important with many workplaces operating in hybrid on-site/remote fashion permanently, naturally heightening a sense of disconnection.

Here are some tactics to strengthen your organizational connective tissue:

COLLABORATE

The hybrid workplace for many organizations is here to stay. This brings with it a natural tension – and potential resentment – regarding being in the office setting. But this also can be leveraged as an asset. Consider being intentional in terms of expectations about when your team must be in the office, so that those times primarily are dedicated to collaboration that works best in person.

Collaboration certainly is possible via Zoom. But different dynamics are in play when people are together in person which can spark deeper interactions. Rather than requiring someone to go into the office mostly for the sake of showing up to sit at a desk, make sure that those in-person times for your team are planful and include productive collaborative time together to exchange ideas and move projects forward.

Collaboration also is stronger through inclusion. A Capacity Partners client who is in the middle of a strategic planning exercise realized the pandemic and hybrid work environment produced a morale issue: those required to come into the office felt it was an unreasonable obligation to fill in for those who are working from home. The Executive Director decided to involve all the senior staff in the strategic planning process, who then in turn involved the rest of the staff. What began as a discovery of low morale actually became a strategy for inclusive collaboration. Together, they realized there is much work to be done in order to build a positive, forward-reaching organization. The outlook brightened for a renewed, transformed organization.

COMMUNICATE

Are changes coming up in your organization? Make sure those are communicated early and well. You want to give your team the sense that changes are happening with and perhaps even because of them (see previous bullet point on inclusive collaboration), rather than happening to them.

ELEVATE

Your team can help tell your organization’s story. In addition to validating their work, you will be emphasizing their importance in delivering on your organization’s mission. Consider featuring staff members and their mission-driven successes in fundraising pieces and general communications (social media, newsletters, short video interviews shared on social platforms).

ACKNOWLEDGE

The documented reality is that different generations view work and their relationship with it very differently. Recognize that a one-approach-fits-all is unlikely to satisfy a workforce that is diverse in terms of age, and adapt. Here are some ideas from LinkedIn on tailored approaches for Millennial employees. Acknowledgment also means recognizing people are dealing with many types of stress that can affect their commitment level and productivity. Show your colleagues your humanity by checking in with empathy and grace. During the pandemic, an Executive Director of one of the organizations that CP serves became a father. He readily acknowledged how his new role in the family dramatically transformed his ability to show empathy for his staff’s personal lives and commitments.

CP Vice President Michael Feinstein led a large nonprofit organization in the Washington, DC, area for more than a decade. When COVID hit and remote work became the norm, “I changed the cadence of my one-on-one, team, and staff meetings to check in more frequently and focus on how they were feeling in addition to what they were doing.” He notes that a key to being available to others “was managing my own stress, which meant regular exercise for me.”

EMPOWER

If you’ve hired the right people, give them the freedom to do their jobs. Let them know they have your trust to get the job done even when they aren’t sitting in the same place you are.

BUILD CONNECTION

In a hybrid environment, managers must be far more intentional about creating a sense of connection and belonging. Tactics can be simple but meaningful, such as every Monday morning sending out a message to your team asking how their weekend went and sharing a bit about yours. Intrusive? Perhaps. But people can share as much or as little as they like, and it will help them connect with each other too, especially at a time when they may no longer be bumping into each other in the breakroom. Make it easier for them to feel like they belong to a team.


Big challenges and big opportunities for the arts community

The arts have never been more important than they are today. They bring joy, act as a healing force, and educate the young and old. The arts are a key component of the economy and an important community partner as we recover and reinvent our world after the pandemic.

On May 22, Capacity Partners Founder and President Mary Robinson was honored to join Anne Corbett of Building Creative and Linda Sullivan, President & CEO of ARTSFairfax  for an ARTSFairfax webinar focused on planning for what’s next in the Fairfax County arts community in the wake of the COVID-19 pandemic.

The challenges that organizations have faced over the last two months are extreme.  Arts organizations, and really most nonprofits, are losing revenue, facing staff layoffs, and shifting strategies in how work gets done.  However, with every challenge comes an opportunity.

As Mary Robinson noted during the webinar, to maintain organizational viability over the long term, organizations should use Dynamic Planning to create three, six, and twelve-month plans. Starting with the formation of a Dynamic Planning committee, organizations would then use the iterative Dynamic Planning process to reaffirm their mission, asses their strengths and weaknesses, and conduct scenario planning, identifying multiple scenarios and solutions.

For example, Capacity Partners client Arts for the Aging was committed to keeping their teaching artists on salary during the pandemic, despite cancelling all in-person workshops. The team of teaching artists has now activated multiple distance and virtual programs to continue serving their audience of older adults and their caregivers. Although the method of program delivery has changed, Arts for the Aging’s mission remains front and center.

Anne Corbett stressed arts organizations have a unique opportunity to be leaders in community resiliency and reinvention, utilizing multiple partnerships, audience engagement, and advocacy opportunities.

Some of the ideas discussed on the webinar include:

  • Partnering with a food bank to include art kits in food boxes
  • Partnering with real estate developers to bring outdoor art or performances in a socially distant and safe manner
  • Producing virtual theatre or art shows and partnering with a restaurant or catering company to deliver a meal to patrons participating at home. (This would also work for virtual fundraising events.)

Webinar participant Lisa LaCamera, Senior Director, Communications & Marketing at Wolf Trap Foundation for the Performing Arts, said, “People are realizing the healing nature of the arts in times of crisis. People all over the world appreciate the need for the arts to get through this.”

Capacity Partners encourages arts organizations – and all nonprofits – to embrace the opportunities, confront the fear, create the plan, and move ahead to our next normal. The canvas of opportunity lies in front of all of us, and Capacity Partners stands ready to support you if you need a jump start.


Nonprofit Success Starts with a Clear, Compelling Vision

Recently, a development director for a community-based nonprofit approached me for help. Her boss was pressuring her to come up with a clever, cutting-edge way to raise money – some trick they hadn’t tried. She asked me for a “new” idea.

My first question was this: “Does your nonprofit have a clear vision of what your community will look like when you achieve your goals?”

Her answer was no. They know their mission. They have great activities. They offer innovative programs. They have a dynamic team that can talk eloquently about what their organization does.

However, they cannot describe to others – at least not those beyond their passionate inner circle – how their nonprofit is making a difference for everyone in the community. They aren’t effectively communicating to potential donors why the organization’s work really matters and thus merits support.

I suggested that they start by creating a clear and compelling vision of a better future for the community that their nonprofit supports – a vision that is easy to explain and that immediately resonates with those outside the organization.

At Capacity Partners, we specialize in helping nonprofit leaders move their organizations from vision to action. For us, vision is at the very heart of effective strategic planning and fundraising. In our experience, it’s nearly impossible for nonprofits to achieve sustained success without a vision for the future that motivates and inspires.

Yes, I also ran through some basic development strategies with the development director. For instance, her nonprofit might benefit from a leadership club or a membership program.

However, fundraising tactics like these will fall flat unless they are linked to vision that makes people say, “Yes! – this is the kind of world I want, I believe in your capacity to make it happen, and I want to invest in you.”

People invest in people – and in their vision.