weathering a market downturn

5 Steps for Nonprofits to Take

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Podcast Transcript

Thank you for joining us for this podcast!

It’s not a pleasant topic, but it’s one that we need to consider.

What does a nonprofit do?  How do you weather the storm when there’s an economic downturn or a recession?

There’s a lot of discussion today about whether or not we are looking towards a recession within a year or two, and there

indicators that it could happen.

What does a nonprofit need to do in preparation?  Or, if you’re having financial struggles already, what can be done to mitigate the challenges that we’re facing today?

First of all, let’s begin with a little bit of history.  Economic recessions universally impact all donors and giving capacities – it shakes their giving confidence.  From 1854 to 2009, there were 33 economic cycles and each lasted typically about five years.   So, there is an obvious chance that is something we’re looking for in the near future here in the United States.  We’ve had such tremendous growth since pre-2000 or since 2007-2008 and it’s been a tremendous market.  Sooner or later it’s going to have to adjust.

Let’s talk about what can be done as a nonprofit and what you need to be doing now in preparation for any kind of economic downturn or recession.

The first thing to do is don’t lead with denial.  Don’t assume that this is not going to happen because it will.  It reminds me of the book Great by Choice by Jim Collins.  He talked about three habits of the 10x companies on what they did and why they were so successful.  One of the things he indicated is productive paranoia where we are always worried, always anxious about what could happen because it keeps it at the forefront of our minds.

He stated that Bill Gates, the founder of Microsoft, who is obviously incredibly wealthy, considers failure all the time on a regular basis.  He is worried about some freaky high school kid toiling away 22 hours a day in some dingy little office and coming up with a lethal torpedo for Microsoft.  It’s something that he is constantly pondering.

Having productive paranoia is actually a good idea and not just whistling along through the graveyard thinking that nothing’s going to happen.  Let’s be wise about this.  It’s going to happen.  We need to be prepared.

One of the ways to do this, which is more historical for universities and to some degree health care and some private nonprofits, is that they built a large endowment.  This is really a tremendous tool when you run into economic downturn.  But, for a lot of organizations endowment growth has not been a priority; they’re more concerned about cash today.  Because of that they’re not in the best position to weather the storm.  So, what do you do?  What can you start doing today?

Number one, again, don’t deny that it’s going to happen – because it’s going to happen.  Get ready for it, be worried about it.  Get the right board prepared for it.  Start talking to your board about what needs to be done.

Here are some concrete steps and things that you can do that will really make a difference:

  1. Be positive and proactive with donors. Here’s what we know, when there’s an economic downturn.  Let’s say an individual or couple has been giving $500 a year to five organizations.  They often select three organizations out of the five and give each organization $125, maybe $150.  They keep the organizations they know are facing a real struggle.  So, they give each organization a little bit more but they’re giving to fewer organizations.It’s really important that you’re proactive and you know these donors.  The organizations that seem to do the best during a recession and actually experience some growth are those organizations that know donors.  Get out of the office, go see these donors.  Have conversations realizing that if you’re not in conversations with donors when this day comes, are they prepared to really support you in a way that’s meaningful.
  1. Strengthen your case for support. In good times it’s easy for us to assume everybody knows why our organization is important.  It’s easy to take that for granted.  But it’s really important that we keep in the forefront with our donors why we exist.  What would happen if your organization ceased to exist tomorrow?  What would be in the vacuum?  What would be the real issue if you no longer survived?
  1. Use crisis messaging only as the last resort. No one wants to bet on a losing racehorse.  Tinsel doesn’t attract, gold does.  All these things that Si Seymour said in his 1966 book Designs for Fund-raising are so true.  If you want to survive, individuals need to know that your mission is important; that you’re there, that you’re going to survive and get through it, that you’re taking concrete steps to prepare for that day when it comes, and that you’re going to continue your mission no matter what.This idea that if you don’t give to us we’re going to cease to exist.  No thoughtful donor is going to say they want to invest in that organization because they may not be here a year from now.  Crisis messaging is negative.  Just stay away from it.
  1. If push comes to shove and we really do have a serious recession, let’s be thoughtful and think about how you can consolidate efforts.
  1. Keep the right people on your bus. In good times it’s easy for an organization to expand, maybe becoming not as efficient as they could be with their employees.  But when this really hits us, it is crucial that you keep your best people and that they’re doing their job – doing what they need to do.  You want to keep a great major gift officer and you want them out of the office seeing people.  I know that’s a struggle.  But in good times organizations need to keep good people and in hard times they need to keep great people.  We want to make sure that we keep our very best individuals.

Also, during difficult recessions and difficult economic times, it’s really important to realize that from 2007 to 2012 organizations grew at a tremendous rate.  Even during times when there’s been hyperinflation, organizations that are thoughtful and deliberate, who have put together a plan, who have been proactive not just simply reactive continue not only to survive but to flourish.

So, make a decision today that when this recession comes (it’s going to come!), your organization is ready.  You’ve communicated with donors, you’ve kept the right people on the bus, you have a thoughtful and deliberate board of directors who understands that preparation is important.  Not only will you survive, if you’re proactive, you will thrive.