Last week, I talked about how much the world has not only changed but radically shifted over the past decade and that nonprofits and funders need to develop new strategies. If your nonprofit business model is still based in a world with Blockbuster Video and Nokia 1100 phones, how will you remain relevant? If your grantmaking strategy was developed in a world before Twitter, Impact Investing, Social Impact Bonds, and Citizen’s United, how will you realize the change you want to see in the world?
Over the next few weeks, I will be addressing how funders and nonprofits can become more adaptive, flexible and innovative. But first, I wanted to touch of a few the most critical shifts impacting the sector:
Technology: Technology is blowing away the old way of doing business. It is survival of the fittest that requires rapid development in a brutal, competitive, and cutthroat environment. Technology is not just your servers and your website. Technology must be part of your long-term strategy for success. It is how you can better deliver client services, better engage your donors, and better measure your impact. Technology is not some indirect, overhead expense. It is an integral and absolutely necessary component of successful and impactful programs and organizations.
Government Funding: President Trump’s first federal budget proposes deep cuts in discretionary spending to many departments that impact nonprofits and the people and communities they serve. In addition to the reduction in government funding, federal dollars are becoming much more competitive to get. NPOs need to have matching capital, and ability to handle cash flow while payments are often delayed from government. Federal, state and local governments are also changing how they fund with trends such as “pay for success” that are shifting the risk from government onto nonprofits.
Big Money: There were 2,394 super-pacs that pumped $1.7 Billion into the 2016 President election. The top 100 donors gave 60% or $1 Billion and the top 1% of donors (just over 500 people) gave 76% of that money or about $1.3 Billion (Source: OpenSecrets.org). The flood of big money is threatening to drown out the voices of those who lack the resources to compete. Policy, advocacy and maximizing your influence and voice for those your serve must be addressed for long term success.
Impact Investing: We are seeing a new wave of donors/philanthropists looking for innovative means to invest in social outcomes that is blending the capital and social markets. But most nonprofits are not positioned to take advantage of this new trend. According to ““Growing Supply and Demand Together: Ten Priorities for the Impact Investing Industry”, a report by the Rockefeller Foundation, “Now, impact investors see a more pressing issue, which they refer to as the “pipeline problem” – that the supply of impact capital is greater than the investment-ready opportunities for deploying it.” Simply put, nonprofits lack the capacity and infrastructure to manage significant investments, the necessary financial health and liquidity to handle risk, and the means to measure outcomes and impact.
But far too many nonprofits and funders are stuck in the past clinging to a culture of scarcity that has haunted the sector for decades. The consequences?
- Nonprofits are unable to scale – approximately 87% of nonprofits are under $1M – and that percentage has not significantly changes over the last 20 years
- Organizations lack the liquidity and flexibility to adapt – more than 50% of nonprofits have less than 90 days of cash and 25% have less than 30 days.
- Organizations are not investing in human capital, not investing in scale, and not investing in long term financial needs (reserves).
- Boards continue to be dysfunctional with no culture of fundraising
But it is not all doom and gloom. There is hope. Like smoking in offices and segregated bathrooms, we can make the overhead rate a thing of the past. But the way forward will require us to fundamentally change how we think, how we act, and what we believe is possible.
To be continued.
