Distinguished Fellow Dace West of the Denver Foundation – a trend-setting community foundation -provides some observations – and suggestions – on nonprofit sustainability and weathering the storm during the current crisis.
When I was asked to write about nonprofit sustainability, I admittedly struggled a bit. As I thought about why, I realized that I’m not sure I believe widespread nonprofit sustainability truly exists. A larger nonprofit in my community recently received a $15 million gift. They were lauded, as they should have been, for their hard fundraising work. But I couldn’t help thinking about the neighborhood-based and community organizing groups I’ve worked for and continue to support. Organizations that are bigger, wealthier and more high profile often have the greatest chance of being larger, richer and more well-known. Capitalism, and its uneven playing field, is at work in our nonprofit sector as strongly as any other area of our society.
We ask nonprofits a lot about their sustainability, but do we really support it? The odds are stacked against smaller organizations, that often times don’t have the resources to engage in “nonprofit best practices.” They’re too busy getting food out the door to people who are hungry, fighting evictions for those who may become homeless and growing small businesses owned by people from BIPOC communities. When an organization is engaged in the work on a shoestring budget, it might not know where to go to make sure that its financial statements are in tip-top shape, that its board of directors has the perfect blend of diversity or that its staff have a pathway for growth and professional development to retain them despite the long hours.
And what of foundations whose main purpose is to provide support for social impact in communities? While playing a major role in many nonprofits’ revenue, they can also stifle the sector with small grants that mean an organization has to piece together multiple funders to make payroll and resources that last a year or two before a required year off. Somewhat regularly foundations go through strategic refreshes, changing priorities and throwing grantees’ planning into disarray. There is nothing more disheartening than a “tie-off grant” from a foundation an organization has cultivated diligently and with whom they were a perfect fit.
Individual donors are often thought to be a safer bet than foundations. Yet it is difficult to find higher-level donors and takes significant resources to nurture those relationships once they have been formed. The best donor engagement is based in genuine interest and time together. That can be challenging for a smaller organization, even if they have access to these donors. Nonetheless, individual donors can be particularly important in times of trouble. One nonprofit in found that its main source of income, earned revenue, had all but dried up due to COVID-19. They approached three of their major donors and rolled out a plan that would allow them to go dormant for a year, but also rethink their programming to include a more intentional racial equity framework. Within the context of 2020, this resonated with the donors and the organization was able to garner the resources to continue operations.
What is interesting about that example is that earned revenue has typically been a strong go-to source of resources. It diversifies an organization’s portfolio and gives it more control over its income. However, this is an area that has been particularly hard hit by COVID-19. Organizations that rely on trainings, memberships, ticket sales, and sponsorships are finding there is not an obvious source to help offset the major holes in their budgets. Many organizations are getting creative in this environment, offering online arts performances and higher-level lecture series while saving on travel costs and production. Building on current events, one organization began offering racial equity and racial healing sessions for people who are white and people from BIPOC communities respectively. By charging for these new trainings, they were able to fill part of the gap in resources from their traditional experiential training sessions.
So what is a nonprofit to do? Many organizations in crisis think an option is to take on debt. Ironically, just like in individuals’ lives where it is more expensive to be poor, organizations needing to borrow money most are often the least eligible. Because lenders want organizations to be successful in paying back a loan, resources must be in place – for example a government contract that works on a reimbursement basis. Or there must be collateral, like real estate, the lender can work against if the loan goes south. Once, as a brand new executive director, I signed a personal guarantee. A year after I left the organization, it went under and they defaulted. Surprise – that personal guarantee was real and it did not transfer to the board when I left. Live and learn.
At the end of the day, if an organization decides it can no longer make it and hopes to be absorbed into a larger, healthier organization or merge with a partner with a better balance sheet, experts say that in a best case scenario resources are still required. No one wants to take the risk and pick up the equivalent of junk bonds. Instead, the organization’s approach should be an asset based perspective, including things like intellectual property, strong programming and the potential to transition good staff or board members. But most importantly, there should be no outstanding debt or negative financial obligations.
Which organizations have been most successful in sustaining themselves over time? Those who have figured out how to scale up and down. They know their programming and how much each program costs. When they lose a funding source, they’re not afraid to scale down. An organization I ran lost two funders who made up 68% of its budget. We were small, so I had to let the existing staff go, and get down to the bare bones. For two years I kept the organization running with our most basic programming. When funding began to flow again, I was able to hire eight new staff members and do some of the most innovative things I’ve had the pleasure to do in my career. Another organization, who worked on fee-for-service with government agencies, found that their model stopped working. There just weren’t enough individuals asking for the main service they provided to be able to cover their costs. So they made the difficult decision to stop the program, cut 70% of their staff and go back to the core of their work. Today, morale is good amongst their team, they are laser focused, and hopeful they’ll grow again in the future.
Nonprofit sustainability is hard work in the best of times. In the unique circumstances of the COVID-19 pandemic, the resulting economic downturn, the racial reckoning, the divisiveness of the election, and the many other things we are facing, uncertainty reigns. But the reality is that excellent work is happening in our communities every day. People are being sheltered and fed and given jobs and are becoming politically active. All the things are occurring that make for a set of social supports and a complex, but strong, civic fabric. Nonprofit organizations are so often the ones doing this work and making the heavy lifts. The real key to nonprofit sustainability is the dedicated, tireless work of people who know that it’s worth it to piece together the resources. Because it means their missions will be met in community and that is what matters most.
Meet Dace: Dace West