Friday, November 21, 2008

According To My Crystal Ball, Your Nonprofit Organization May Be Toast In 2009

Who will lose most in these tumultuous times? Where will the money come from in the next several tumultuous years for nonprofit and nongovernmental organizations? One thing is clear: it will not be from banks, insurance companies, lending institutions, corporations, Chrysler, General Motors, Ford or investment firms.

Foundations are looking at what they are currently funding and how to maintain that level of funding. For some it means increasing their giving from the norm of 5% of investments to 6% annually simply to keep pace for their current grantees. They will attempt to honor their commitments but not necessarily add new grantees. For others it means lowering their grantees’ expectations.

Most if not all foundations have laid out a three to five year plan for funding. They are aware based on current data what they can expect to do in the next year or two with some certainty. I am going to find it very interesting - and probably very disappointing - to see how many foundations are open to new applications in 2009 and 2010 that I can list in the Grant Opportunities at CharityChannel.

Count on it: there will be greater competition for funds. Your organization and applications will have to be quality AAA+. And your relationships with people who know funders will also have to be AAA+ rated. Your relationships will have to be quite powerful through the six degrees of separation.

Competition for state and Federal contracts will also see high competition. For-profit and nonprofit organizations will compete for those contract-type grants for services government does want to perform itself.

For many nonprofit and nongovernmental organizations it will mean reducing programs and services, closing offices, going out of business, merging, layoffs (Reduction in Force, Riffing, more on this in a future blog), salary freezes, loss of fringe benefits, changes in the way you do business, shifts in policies to meet the clients’ greatest needs and other innovative responses.

I think we can expect most foundations will not change their priorities for funding. On the other hand we may see an enormous need to provide emergency shelter, food and clothing for numbers of people far larger than now. Who will fund emergency shelters and food banks? What will be the pressures on local United Ways, community foundations, local trust funds and other local funders to meet basic human needs?

What are you planning for the next 1-3 years to provide your mission and vision? Where are you planning to be frugal? How wide are you opening the window of NPO/NGO secrecy and becoming more transparent and accountable? How are you prioritizing what you can and will do under your mission and with reduced funding? Most small and medium sized nonprofits should be looking at 10-20% reduction in 2009 and even more in 2010.

Is it realistic that your group will survive the next 1-3 years? If not, what should you be doing now to close down appropriately and help clients after you are gone?

The list below is my best guestimate of where there will be substantial reductions in funding.

New organizations – Generally funders want to fund groups after they have been in business for some 3-5 years. Most foundations and corporations do not say this at their web sites but it is a fact. All funding is built at a minimum on relationships, friends, local supporters, contacts, viable mission, vision and passion. Those things alone will not work unless there are proven accomplishments, partnering, mission-based social values, demonstrable and meaningful goals and objectives, demonstrable fiscal responsibility and integrity, leadership, transparency and sustainability over a certain period of time. Even with all that there will still be incredible competition so that many new organizations if not most will not receive grants in 2009-2010. The lone exception will be national or international start-ups by notable people, former governmental officials, the very wealthy, show business and sports personalities, although that does not necessarily equal quality and effectiveness. Before anyone starts a new nonprofit, you MUST assess what the realistic future will be in your written business and resource development plans.

The "Big" dictate the funding - One fear I possess is the impact of the "Big" contributors. Beware the "Bigs"! The "Big" foundations from Bill Gates, Bill Clinton, Warren Buffett, George Soros, Australian Iron-ore magnate Andrew "Twiggy" Forrest and other very wealthy leaders globally are growingly dictating the priorities for grant awards and giving. The more they control the greater percentage of grants, the greater their influence. It is not simply an issue they are funding the wrong issues. It is not about wrong issues. They are demonstrating what they believe to be the global needs and how they are to be met. They influence others by modeling where charitable gifts go and what they pay for. The more they influence and gain partnerships with other funders the narrower funding will be at international and national levels and ultimately local levels - the new trickle down theory. Pet projects in their "home towns" and the "home towns' of their supporters will reduce local funding in other communities. The "Bigs" are also setting the tone by their local giving as to priorities. When Gates provides funding for certain programs in schools in Seattle, other local funders may follow suit in their own communities. Foundations need to heed their own responsibilities and listen to their constituencies for the expenditure of ever reducing funds now and the next several years. Foundations and NPO/NGO organizations cannot turn lazy and let "Big" run the Third Sector.

Social welfare – This may be one group that will see the least amount of reduction in funding. The NPOs here may have to redefine their missions and take a hard look at what the priorities are. Expectations may grow that sliding fees for service are necessary in the future. They will have to look hard at collecting fees with greater force from third party funds such as health insurance, Medicare and Medicaid and individual or private pay where appropriate. Programs in family services, children and youth services, drug and alcohol, mental health, case management, outreach and others may also have to triage who their clients or customers will be in the future and prioritize what they can in fact accomplish.

Health care – More than others this may stay steady. Government funding for drug, alcohol, HIV/AIDS, mental health services may be reduced but probably not vanish. Funding for research may drop a little.

Advocacy- Although there is some movement by foundations to fund advocacy, it is small and late in the process. Government and corporations will not fund advocacy unless it meets their goals and they approve of the activities. Many nonprofits do not have a clear understanding what can and cannot be done in advocating, but their leaders should be studying it; you cannot apply for what you do not know. Certain affinity groups have been funded for advocacy such as women, gay, lesbian, bisexual, transgender, and people infected and affected by HIV/AIDS. The advocacy purse will, however, become smaller.

Community organizing – Without defining what we mean by “community organizing” this has received short shrift for decades. There are some progressive foundations that have been consistent in funding community organizing and advocacy but they are generally smaller foundations. Local foundations have shown leadership here and may continue at the local level but probably with less funds and narrower priorities.

International development – Governments and banking/lending institutions will reduce funding or eliminate it at this level for the foreseeable future. Governments may find openings for political gain funding some areas of the world. The new U.S. President and Congress will have to take some leadership here. The Clinton Foundation may suffer some reductions in ability because of the potential appointment of Hillary Clinton to the Obama Cabinet.

Animals – Whether the animals are horses, domestic cats and dogs, tigers, elephants and so on, funding will take a deep cut. Some governments may continue to fund certain endangered species. The search for oil, coal and natural gas, the expansion of corporations to find minerals, the deposit of atomic fuel will receive easier licensing or smaller penalties allowing a greater negative impact on creatures large and small. The work of dedicated volunteers will have to be enhanced in my view.

Art and culture – With few exceptions, art and culture funding will be reduced. Museums, classical orchestras, libraries are already reducing budgets for 2009-2010 substantially. Grants, membership dues, and other fundraising activities will be more difficult to secure. Fees for service will have to be considered.

Technical assistanceNPOs seeking technical assistance in terms of planning, management, board development, priority setting, succession planning, will not find willing funders unless they already are funded by a foundation that has provided this support over the years.

Training grants – The training of boards, staff and volunteers has been a low value for most NPOs unfortunately. Training for capacity building, best practices and other buzz word activities will not be seen as valuable for funders. If NPOs do not currently have funding for capacity building and best practices, there will not be funding to rescue them.

Technology grants – There have been periodic grants available from government and corporations for technology. Technology grants for nonprofit groups have generally been part of the budget request for foundations and other fundraising. There will be a sharp decline in interest to fund this element although many NPOs now put this at a high priority. It may be that those who delayed to take technology seriously have waited too long. If you snooze, you lose. Seeking donated equipment such as computers and telephone systems will have to be the method for the future but funds for compatible systems and training staff to use the equipment and to maintain the equipment will be hard to come by.

Environment – As more and more corporations and governments claim to be going “green”, the tendency could be a decreased support for other environmental activities. This could be one of those: Be careful what you ask for. As conservation apparently wins through societal, corporate and governmental activities and policies the less conservation may be seen as valuable to funders’ causes. Cultivating current supporters may be the necessary priority over the next 1-2 years for eco-nonprofits.

Education – This group receives the second largest funding after health. I see little change here. The reductions here will probably be from corporations.

Toast – So, are you headed to the toaster?

What are your thoughts on these issues?


GLOBAL: Tight belts, tough choices for charities from IRIN November 13, 2008

In a Successful Campaign: Lessons for Nonprofits by Paul Schmitz

Fundraising in a Cold Climate, 6 October 2008, Prepared by: Dennis O’Connor and Deirdre Hatch

The Cohen Report: What the Financial Sector Meltdown Really Means for Nonprofits and Philanthropy

Because Things in the Game Done Changed: Nonprofits Need Generation Y Leadership in an Uncertain Economy Posted on October 27, 2008 at Nonprofit Congress by Rosetta Thurman

Past Economic Downturns and the Outlook for Foundation Giving -

Foundation Giving Priorities Remain Consistent During Economic Slowdowns, New Foundation Center Research Advisory Shows -

Aid charities are taken to task over their 'culture of secrecy' By David Ainsworth, Third Sector, 5 November 2008

N.J. arts groups get ready for a 'bumpy financial ride' by Laurie Granieri,, November 13, 2008.

Survey: Nearly 40 Percent of Businesses Poised to Lay Off Workers - If economic conditions don’t improve soon, it appears that the majority of companies are set to begin implementing hiring freezes or laying off their workers. About three-quarters of human resources executives polled at several hundred companies said budget cuts across their entire organizations are likely.

2006 Statistics Distribution of Foundation Grants by Subject Categories -

Australia’s Richest Man Plans to Give It Away -

World's 25 most influential billionaires -

24 Factors In Developing an Exit Strategy for Nonprofit and Nongovernmental Organization (A Business Plan in Reverse) -

Nonprofit Incorporating - Business Plan -

How Do We Find Local Support for Our Program? -

1 comment:

Ed Torres said...

Your analysis is on target. Maybe the focus should be initiatives promoting entrepreneurship. Better: home-based-online entrepreneurship. Why? Low overhead, leverage potential, easy training...
It's time to lower the number of nonprofits focus on training and support people to create wealth. That would help to overcome unemployment and improve the economy.
The grantees could donate back to the nonprofits when they start to be in profit.
I am glad to present a more detailed plan...

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