More Tools for These Times – and reinforcement for the tools already provided
Last November as the financial markets were spinning out of control, we offered a sense of hope in the Foraker newsletter. Early on, we were certain that panic and over-reaction could be counter-productive. We provided insight based on past recessions that while we all must be observant, nonprofits that rely on the sustainable revenue sources of either earned income or individual contributions would likely weather these economic conditions better than those who relied on less stable funding. The lessons from the past include that while giving may plateau during economic downturns, individual giving has either maintained or even grown during recessions. In addition, while earned revenue can also be impacted during recession, that income is often more stable than grants from institutional donors because they are often the first to reduce giving in tough times. Three months later, we continue to hear stories that validate the experiences from the past.
In November, we reported that the United Way campaigns across the state were on track to raise as much as last year. In addition, most of the public radio stations we surveyed expected increases in their campaigns as well. Now these fund drives are over, and their early predictions proved true. What makes their success more significant is that they were in the midst of raising this money during the weeks when the news on the economy was first breaking and creating panic in the financial world. It seems that all cash stopped flowing except individual contributions. These nonprofits with different missions have one thing in common – a majority of their charitable support is from individual donors. Since then I have spoken to the Salvation Army about their holiday “Kettle Drive,” which is almost completely individual giving. It was up 28%! Their story is further proof that individual giving is resilient, even in a recession.
Pick.Click.Give. kicked off during one of the most disastrous holiday sales seasons in recent memory. And while it is too early to announce a total, in our first effort to ask Alaskans to Pick.Click.Give., more than one-percent of all individuals who filed for their PFD online opted to support a nonprofit of their choice. Based on other campaigns that primarily use PSAs to raise money, response of potential donors to the Pick. Click. Give. campaign is at least ten times the average expected from similar campaigns. The PFD Charitable Contributions Program has already secured the second largest number of potential annual individual donors for any campaign in the state in its first year!
I guess I’ve made the point. Asking individuals to share some of their cash is a sustainable revenue strategy. We do not have to feed people a piece of dry chicken, auction stuff, sell raffles, nor run in the rain in order to raise money. As a matter of fact, history tells us that many fundraising events do not do as well during recessions. We recommend you just ask people to give, and then develop that relationship over time – it really works! As soon as feasible, every charitable nonprofit in Alaska should enhance their efforts to develop individual charitable support.
Earned revenue can also be resilient during a recession, depending on your “customer.” In the nonprofit world the customer is an individual or organization that pays for a product or service offered by a nonprofit. I just spoke to an executive with RuralCap. As a nonprofit, RuralCap is a major contractor for various federal and state programs supporting communities in rural Alaska. Their customer is the government. Their business is actually booming. Other examples – the Anchorage Opera has almost sold out this season’s performances of The Barber of Seville – the Fairbanks Montessori School has had an increase in earned revenue – and the Fairbanks Dance Theatre has had a 15% increase in tuition earned revenue.
Not all nonprofits with earned income are doing as well. But compared to those that depend too much on corporate underwriting, foundation grants or special events, they seem to be doing better. One of the factors in Foraker’s sustainability model is generation of unrestricted income and reserves. The two primary sources of unrestricted cash are earned revenue and individual charitable giving – they are also the most sustainable revenue sources.
In January’s newsletter we reported on tools that are useful to monitor finances during an economic downturn. All organizations should become more diligent in a timely review of their best financial data to determine if, as a result of the economic downturn, adjustments should be made to the budget. We recommended that you speak to your primary customers and donors to determine how they will react during this downturn. The Rasmuson Foundation has been on the road sharing their strategies and other funders such as BP and ConocoPhillips have been very public about the impact of the economy on their giving. Once you have determined their situation, develop a cash flow projection for the remainder of the fiscal year to ensure you will have enough income to meet expense.
We also suggested that developing alternative scenarios for your board to consider may assist them in advising what could be the best course for your organization during the next months or years. And we especially suggested keeping an eye on the unrestricted cash balance (that we hope you are clearly showing as recommended by the Rasmuson Foundation). That is the best way to predict when adjustments should be made.
Do not be alarmed if your organization experiences any of these risk predictors. Most of us can anticipate that one or more of these financial alarms may sound during the next months. They have at Foraker, so they may in your shop as well. But panic will not serve your clients. Over-reaction is often more harmful than no reaction. Be observant – be cautious. This may not be the best time to add new programs, but you don’t necessarily need to cut all expenses – at least not yet. Our primary message from the January newsletter was to ask that you really focus on your mission – do the most critical things that will ensure you accomplish that mission – and most important, take care of yourselves. In times like these we should not attempt to do more with less, rather we should strive to do the best we can with what we have.
Today’s new tool for you to consider is the need to collaborate. One of the factors of sustainability is collaboration. Few organizations can accomplish their mission when they try to do everything for themselves without using partners. In order to accomplish another factor in the sustainability model, that of focus, organizations should determine who they are and where they are going so they can then determine what they must do to get there. We would suggest that no organization, like no individual, accomplishes big things in isolation. We need each other, now more than ever. Collaboration is an intentional act with others to accomplish a shared vision.
In December and again in January, a group of funders met to discuss the impact the recession was having on their giving. Some funders reported that they would give as much or more in 2009 and 2010 – others had already determined they must give less. The downturn has been extreme in the foundation world where many of the largest foundations, because of ongoing grant commitments, have little to no discretionary funding for 2009.
However, the impact of these meetings went far beyond a better understanding of future funding potential – the larger impact was the sense of community felt by the funders who attended these meetings. While I have lived and worked through recessions, I have never experienced a recession like this one. Four months into this episode we still have little clarity of what is to come. When bad things happen, we need each other. We need to discuss what we feel. We need to talk to our colleagues to understand what has happened. The funders did so and I am sure many of you have already reached out to your partners – if not, please consider doing so.
Collaboration can be as simple as just connecting and sharing. We encourage everyone to find trusted friends and share. You don’t need structure for these sessions, just connect face-to-face, online, on the phone, anyway you can, and talk through your strategies, learn from each other, accept a little TLC from a friend and reciprocate. We will all be better from this simple act of collaboration.
This sharing does not have to be with just your external partners. Now is a wonderful time to re-connect with your staff – ask how they and their families are coping? And this is a great time for your board to re-connect with each other. In December, The Foraker Group Operations Board, comprised of over 30 nonprofit leaders from throughout the state, had 100% attendance at its quarterly meeting! Again, both the Operations and Governance Boards met in January and each had over 85% attendance! People really want and need to connect right now. And finally, this may be a perfect time for your staff and board to come together. Through connecting your internal partners you will continue to build and support the forth factor for sustainability, the right people, in balance and working as partners.
In addition to simple collaboration through connecting and sharing, times like these may provide opportunities to develop deeper collaborations. The type of collaboration just described is one of what is considered a cooperative collaboration. These collaborations start with simple sharing of ideas but can progress to sharing of resources, and even informal joint ventures. Examples of this sharing level of collaboration are as varied as the sector and include examples such as organizations sharing equipment, using each other’s meeting room, or informally assisting in another’s project. Joint ventures are also widely used and are identified when two or more organizations, without a legal agreement, work together to start something they jointly “own” or accomplish. Some good examples of that level of collaboration include the GIFT program in Anchorage or the MatSu Area Partnership, The Alaska Funder’s Group, or the Arctic Council. These joint ventures have substance, shared values and outcomes, but rely less on formal agreements than on their shared alignment of mission and values.
Collaboration can become more formal. When groups work together with legal connection, or decide to create a new organization to coordinate their efforts, collaboration can have an even more substantial and lasting impact. One example of such a collaborative, or formal partnership occurred when Beans Café and The Food Bank of Alaska focused on their core competencies and then partnered to ensure appropriate services were cooperatively provided. Another example is the Fairbanks Community Food Bank. Through the development of their new facility, they now provide office and meeting space for other nonprofits. In Juneau a group of nonprofits also is working to create such a multi-tenant center. Cook Inlet Tribal Council has been providing financial and IT shared services to sister organizations for over a decade. They partnered with The Foraker Group to help develop our capacity to provide all our shared services that now include over 100 Partners around the state. These collaborations are formal. They do not require a loss of identity, but through such cooperation and integration of back room activities often result in a higher level of service and increased efficiency.
And finally, collaboration can go all the way to uniting, or merging, organizations. At Foraker, we often hear community leaders urging us to take a stand on mergers. They have learned from the ISER study how Alaska has one nonprofit for every 77 adults. It does sound like we may have more than our fair share of organizations. So far Foraker has remained neutral on the subject of merger, but we have worked with national consultants to learn the steps to be taken for successful mergers.
In the past six years we have successfully assisted over 30 organizations to merge. What we have learned from that experience and from our national friends is that to merge successfully true desire must exist for all parties. But the most important factor for success is that mission and values of the organizations are aligned. Some of the mergers we assisted with were the result of organizational dissolution – in non-legal words, when a nonprofit went out of business.
It can be a sad day when a nonprofit goes out of business. Many organizations were built around the kitchen tables of concerned citizens. There is strong emotional attachment to most nonprofits. We have learned that it can help individuals who are involved with a disillusioned nonprofit if the core of their mission lives on in another organization.
While we have not taken a position on merger, we anticipate that with these economic conditions an increased need will exist for us all to think more seriously about all forms of collaboration, including mergers. At Foraker, we plan to be around for a while. Still, in past years our board and staff have openly discussed our options for collaboration. We have identified partners that may be a good fit for a Foraker collaboration, or even a merger.
Having such discussions is a healthy way to focus on what is most important – the mission. While we create organizations to help accomplish a mission, we would argue that the mission is more important than the organization. Having a clear focus on that mission – having the right people on the board and then the staff – having the right partners in meaningful collaborations – and having sustainable unrestricted income and reserves will provide the best opportunity to successfully carry out the mission. All of these factors in balance will get us through even the toughest days.