Navigating Tough Times: A veteran’s top survival strategies for charities

In my four decades of working with nonprofit organizations in the United States and overseas, this is the toughest time I’ve seen for the sector as a whole.

Beginning in September 2008, a wave of economic shocks devastated the nonprofits and foundations that relied on some of Wall Street’s former financial titans. When Lehman Brothers closed its doors, the nonprofits that benefited from its $12 million in giving annually were immediately impacted, and by extension the people they serve. Harlem Children’s Zone, a pioneering nonprofit that invests in the education of poor inner-city children, had been receiving $1 million annually from Lehman Brothers. Another major domino to fall was the insurance giant, AIG. In addition to affecting the charities funded directly by AIG, the Starr Foundation saw its assets tumble. Previously the 16th largest grantmaker in the U.S., Starr was created by the founder of AIG and AIG stock represented about two thirds of Starr’s holdings.

Throughout the fall, every day brought fresh news of fallout from the worsening economic situation, and then just in time for the holidays came the Bernie Madoff scandal. In addition to devastating some modest family philanthropies, the fraud wiped out the Picower Foundation whose $1 billion in assets had been managed by Mr. Madoff. At the same time, the precipitous decline in the stock market reduced the asset base of almost all the nation’s private foundations. When we add to these calamities the slower but inexorable decline in charitable giving from corporations, local businesses and individuals, nonprofits are in for a very difficult few years. While there may be some federal stimulus funding available to cushion the blow, most state and local governments will be forced to cut back on spending for education, health and human services, and funding for arts programs has probably already been stripped from government budgets.

Clearly, the impact of the economic downturn will be felt by all nonprofits, and those who aren’t prepared are unlikely to survive. Economists and nonprofit experts vary in their predictions of the extent of the devastation, but I believe at least 20 percent of nonprofits will not be in business by the end of 2009/10. This is not the time for charities to panic, but it is the time for a realistic appraisal of the best way to maneuver through the coming financial maelstrom.

However, the nonprofit sector is incredibly vital to the health and democratic process of our world. We are very resilient and we will find a way to overcome these obstacles and uncertainties. We have seen adversity in the past and have managed to pull through.

At Richard Male & Associates, we have taken a strategic look down the road to anticipate some of the pot holes, land mines and other hazards that will affect nonprofits’ ability to support the millions of people they serve. We have developed a list of 15 tips to help nonprofits steer their organizations through these troubled times. Not all of them are applicable to every organization, but collectively these strategies may make the difference between thriving, surviving, or going under.

1. VISIBILITY AND POSITIONING. Well-known and well-respected nonprofits, especially those that serve low-income constituents, are much more likely to maintain their current funding levels. People who still have jobs feel thankful and want to help their less-fortunate neighbors, and some foundations (such as the Denver Foundation) have pledged to maintain or even increase support for nonprofits that mitigate the economic fallout for desperate families. If your organization doesn’t fall into this category, it’s not too late to take action.Are you positioned correctly in your community to raise the dollars that will carry you through the economic downturn? Do people of wealth know you? Are you visible with the foundation and corporate giving community? Do you meet or communicate regularly with local government and business leaders? Do the local churches know of your work? Have you addressed the Rotary or other service clubs lately? Can your board members open up these doors for you? If you answered “No” to two or more of the above, you will need to immediately reposition your organization in order to survive.
2. BACK TO BASICS. In uncertain times, it is critical to define (or redefine) the core products and services that make up the central part of your mission. It is tempting to run after funding opportunities, but your strength lies in maintaining a strong focus on the programs that best define your mission and speak clearly to your power base of supporters. Most experts believe that even when foundation and corporate giving falters, individual donors will strive to maintain their support of the charities close to their hearts.
3. BALANCING MISSION AND MONEY. Make a simple grid with “Mission” across the top and “Money” down the side and then measure where each of your programs falls on the continuum. How well is each program aligned with your mission? Does it generate money for your organization? Before making cuts, it is critical to have a handle on the intersection of the two. Of course, you’ll want to retain those mission-based programs that also raise money, and the programs low on both fronts are an easy choice. Think carefully about the programs that raise money but are incidental to your mission, and those that are key to mission but a drain on finances. Can you adjust that balance?
4. EXPAND AND STRENGTHEN YOUR BOARD OF DIRECTORS. You can’t survive these difficult times without a genuine partnership between the board and staff. You need a solid, dedicated and focused group of directors, and you need the board to be an even stronger partner than it has been during normal times. Do you need to expand your board? Do you need to recruit some people who could open up doors to funding? Do you need to provide orientation for new board members? How about training board members so they can play a stronger role in fund raising and resource development? Have you set your expectations high enough for the fundraising role for your board members? When was the last time your board had a retreat?
5. EXPLORE NEW OPPORTUNITIES FOR FUNDING. There will be many opportunities for business growth even in recessionary times. Think “green” businesses, discount retailers, the health care industry, energy/energy-efficiency companies, and others that are bucking the economic downturn. Look to form strategic partnerships with these businesses while your current corporate funders are forced to cut back on their philanthropy. (Remember to maintain contact so that when corporations and local businesses rebound, you will still have a strong relationship.)
6. SEEK OUT STRATEGIC PARTNERSHIPS. Now is the ideal time to reach out and form strategic partnerships that could bring in a new constituency, or support one of your weak program areas. Among RMA clients, one of our youth organizations has a pool of 50 dedicated volunteers through a strategic partnership with a large church; an outdoor wilderness program has formed a strategic partnership with a boys and girls club that has funding to pay for program activities. We work with an Ethiopian organization that builds libraries for children who developed a solid relationship with Rotary Clubs International to provide funding and access to books. Foundations are striving to make the most of their limited grantmaking dollars and they are likely to look much more favorably on strategic partnerships and collaborations that maximize outcomes. Likewise, corporations will be looking for nonprofits that can help them improve their public presence in the marketplace.
7. EXPLORE MERGERS OR SHARED SERVICES. Even though many organizations don’t like to talk about this, it may be time to look at merging with another group that shares common interests, values, or affiliating with another organization to share costs. Could you share rental space with another group that has a similar culture? Are there administrative and program costs that could be reduced through collaboration? Is this the time to look at a strategic merger? As noted above, foundations are more likely to reward nonprofits that put aside personal egos for the benefit of their shared constituencies. A merger or affiliation might also offer your corporate partners a bigger bang for their buck.
8. RESEARCH NEW FEDERAL FUNDING OPPORTUNITIES. As part of the economic recovery initiative, the Obama administration will be expanding into new areas that could have a direct and positive impact on nonprofit organizations. Opportunities may include: an expansion of AmeriCorps and other voluntary and community service programs (these people can add to your ability to provide services at a fraction of the costs), job training and employment programs, health care for low-income and uninsured people, alternative energy programs, and other forms of government investment designed to jump-start the economy or mitigate the impact of the recession.
9. SEEK NEW MODELS OF LEADERSHIP. Thinking that you will just “ride this out” is not the answer to surviving the downturn. Very likely at least 20 percent of nonprofits will go out of business during the next 18-24 months. If your nonprofit wants to be among the surviving 80 percent, it will be critical to provide inspirational leadership to motivate and support your employees and volunteers. Even if your employees feel fortunate to have a job, they may be anxious about their spouse and children, or overwhelmed by the number of people seeking services. “Business as usual” ignores these additional stresses and can lead to burnout and declining productivity at the time you most need peak performers. During rapid change and economic uncertainty, different leadership skills are required than those that work in good times. People will look to leaders for firm and decisive guidance, as well as hands-on support and understanding. The stakes are too high to allow for mistakes, so be sure to reach out and include all of your organization’s leaders and balance their different styles with the different tasks in hand.
10. ESTABLISH A CONTINGENCY PLAN. Every organization should be developing a contingency plans or a “what if” in case the anticipated dollars do not come in as expected. Trillions of federal dollars are being spent to turn around the economy, unemployment is exceeding eight percent, many foundations are reducing grants by up to a third, and individual donors are anxious about their jobs, the price of their homes, and the decline in their retirement funds. It is critical that you develop alternative budgets to anticipate a 20 percent, 40 percent, or even 60 percent reduction in revenue. Even the strongest nonprofits are subject to the realities of the current uncontrollable financial environment, and you have a responsibility not to be blindsided by shortfalls in revenue.
11. URGENCY WITHOUT PANIC. Even though we are living through an international economic crisis of epic proportions, we won’t raise money by saying “unless you write a check for $100 today we are going to have to close our doors.” Nonprofits need to convey urgency, but without undue anxiety. We need to be on top of the situation and give the clear impression to our stakeholders that our leadership can steer the ship to calmer waters. During the election campaign, when the financial crisis hit in October, Obama was credited with being steady and consistent in the “eye of the storm.”
12. REACH OUT RATHER THAN WITHDRAW. The normal response to a crisis is to pull back and withdraw. That is exactly the wrong strategy. This is the time to reach out to all of your stakeholders-volunteers, staff, board, donors-as well as your family and friends. This is the time to further develop your base of financial and political support throughout the community.
13. REMAIN GROUNDED IN REALITY. Hope is not a strategy and belief in the goodness of the mission is no substitute for a plan. To survive, nonprofits must be grounded in reality; inventory your organization’s resources, and know exactly what financial, volunteer and in-kind resources you can depend on for the coming two years.
14. SING OUT LOUD AND CLEAR. Now is the time for nonprofits to join forces and let the world know the value and impact of the nonprofit sector in Denver, in Colorado, in the USA, and throughout the world. We need to be singing to the rafters of the incredible difference we make every day for millions of people. The nonprofit sector itself needs to be “positioned” for success in addition to the individual organizations.
15. BELIEVE IN THE FUTURE. Even though this is the scariest time in my 40-year career, I believe, and you also have to believe, that these difficult and trying times will not last indefinitely and that we will pull out of the recession. Every time there is a boom we never think there will be a bust, and yet every bust leads to better times. It is your belief in the mission of making the world a better place, it is your leadership in carrying out that mission, and it is your courage and fortitude in preparing for a brighter future that is going to carry us through. We are all in this together and we will all get thru this together

Conclusion

While the economic indicators are bleak, we must not lose site of the burgeoning civic movement unfolding around us. Despite the unprecedented recession, President Obama raised over $770 million from 4 million donors, a total that far exceeds the fundraising of all the candidates combined in the 2008 Election. No matter how one feels about President Obama, his campaign reminds us that people will rise to the occasion when they are directly engaged in issues they care about. President Obama’s campaign has tapped into a movement of civic engagement that we have not witnessed in decades. Let us not lose site of the power of human beings to drive change no matter how much or little funds we might have at our discretion.