Special to the Philanthropy Journal
This article has been modified from a longer article of the Bridgespan Group’s research on this topic
By Maria Orozco
For many of us the impact of the Great Recession of 2007-2009 will not be forgotten—donations went down and hard decisions had to be made about programs and staff. Not only was there the obvious financial impact, but also a psychic toll inflicted by losing great talent and/or connections to our communities. While nobody can predict exactly when another recession may hit, the recent chatter among economists, pundits, and financial journalists, seems to point to that it is coming…someday. And unfortunately, without additional investment or planning, many nonprofits today may still be unprepared for tough times to come.
Our sector seems to be the first to feel the effects of an economic downturn and the last to recover. The Nonprofit Finance Fund found that it takes the nonprofit sector 1.5 times longer than the for-profit sector to recover from a recession. Moreover, the sector is waiting to feel the full impact of this administration’s tax reform law, which experts are predicting will result in a decrease in giving. And, many nonprofits are already facing real-time challenges now.
The Bridgespan Group has had the privilege of working with hundreds of nonprofits, hearing what’s on the minds of their leaders, observing what works and what challenges they face. Nonprofits are feeling anxiety due to the economic uncertainty and changing policy environment.
Building on our 2008 study of what practices helped nonprofits to survive or thrive through tough times, earlier this year we conducted further research to understand how we might adapt those findings for now and the future.
What emerged from this research was eight recommended steps for managing through tough times:
- It is important to act quickly but not reflexively and plan for contingencies. We heard from organizations that it is important to consider and plan for the worst case well before it happens so that you can act quickly when it happens.
- Protect the core. Organizations should protect activities that are most critical to its mission. Then consider what activities your organization might stop doing or delay if you lost 10 percent, 20 percent or 40 percent of your revenue before it happens. Identify trigger points or times when you might react to renegotiate rents or cut staff.
- Identify and invest in the people who matter most at your organization and keep that group strong. This group can be critical partners as you work through the challenges facing your organization. And, remember to keep an eye out for leaders beyond the usual suspects—they may not be the most senior leaders on the team, but may be culture carriers or bring a valuable perspective or experience to your organization.
- Strengthening the relationship between nonprofit and key funders is critical one during tough times. Transparency is key. Nonprofits need to share what they are seeing, or how they are responding to challenges. In return, they should ask for transparency from their funders—how they are responding to tough times, how their payouts would be impacted, how open they are to renegotiating grant requirements.
We also heard clear advice for funders on how they can support nonprofits by considering how their decisions might help or harm grantees. They should be open to helping grantees manage risk, for example, including contingency funds in grants or annual grant-making budgets for emergency situations.
- Involve the board. Especially in tough times, the board needs to be well informed about the organization’s financial health and actively engaged in planning and fundraising. Board members should be tapped if they are able to provide focused operational support to complement staff efforts or fill gaps left by staff lay-offs.
- Shape up your organization: Tough times can be a catalyst for taking advantage of low or no cost opportunities to improve internal operations. If a recession is sparking the tough times, paradoxically it may be the moment to add to the leadership team—taking advantage of a less competitive market for talent.
- Collaborate to reduce costs and expand impact: This is the time to take some classic advice to heart: don’t go it alone. Sometimes the most innovative solutions come from unexpected partnerships and collaborations.
- Communicate openly and often: Stakeholders need to know that leadership has a handle on the situation and a plan to address it. Develop concise talking points for both staff and the board.
Finally, cutting across all these steps, our conversations this time loudly and clearly reiterated the importance of a more deliberate focus on diversity, equity, and inclusion as integral to decision-making. A racial equity focus emerged from our research in three key ways:
- Nonprofit leaders of color face barriers to funding even in good times. Research has shown that bias-related barriers to funding result in leaders of color having weaker funding networks – making their organizations even more financially vulnerable in tough times. Funders can play a critical role by doubling down on supporting organizations led by leaders of color.
- See the core group of people you choose to invest in through a racial equity lens (and be aware of your own biases). It’s important to include those who bring a diverse set of perspectives and experiences.
Last, consider that tough times might disproportionately impact communities of color. Don’t just analyze the financials of your programs, but also consider the communities those programs serve and the staff involved—would cuts disproportionately affect people of color in either case?
While our research focused on navigating tough economic times or disruption, the steps we surfaced have application, even in good times. Steps taken to navigate through tough times are important because, right or wrong, they endure.
Maria Orozco is a principal in The Bridgespan Group’s New York Office. Since joining The Bridgespan Group in 2006 she has helped lead a variety of nonprofit and foundation strategy engagements, with a focus on education and youth development. She is a co-author of Eight Steps for Managing through Tough Times