The New Reality is One-Year Old
Last December, I wrote the first in a series of articles to help organizations adjust to what we feared may be the worst economy since the Great Depression. In that article, I was alarmed that neither the government nor the private sector had a handle on just how bad the situation was, making it a stressful time for us all.
Now one year later, things don’t seem quite as bleak. We are slowly climbing out of a very deep recession, but the end is still not in sight. As we expected, Alaska’s economic downturn started behind the rest of the country. We did not begin to feel the recession’s impact until summer when we saw fewer tourists. The oil industry has been slow to make new investments in the state and the gas pipeline has again become a distant vision. In our sector, dedicated nonprofit staff and volunteers are coming to Foraker – reaching out to see what relief we can provide to help them weather the storm. However, unfortunately some are losing hope and may close their doors.
It is in that spirit that I wanted to review some of what we have written during the past year. We are convinced that there will be opportunities after the recession to emerge as an even more resilient sector – better prepared to serve our communities. Below are the highlights from past articles:
December 2008 – The Economy, How Will It Impact You?
We shared consensus views from national experts on the potential impact of the recession. Those included:
- Individuals will continue to give, even during tough times.
- Foundation giving may decrease for the next few years.
- Corporate giving will at best be level.
- Community needs will increase.
- Federal funding for all but basic services will decline.
- Organizations providing basic services will do better than those with cultural, environmental or educational missions.
What we now know is that some of these consensus views were right – others were not. For example:
- All indications are that individual giving was relatively stable, as expected. Foundation giving decreased as expected and at best it will be another 12 to 24 months before most foundations actively entertain new large proposals.
- The only exception we know of in Alaska is the Mat-Su Health Foundation that expects to provide more funding for its region in the coming year.
- Corporate giving was down, especially in Alaska since the state’s compact with the oil industry expired at the same time the economy slowed down. Many other corporations have also decreased their giving programs. Only a couple of corporations felt their giving would be stable or increase, including Wells Fargo.
- And needs have increased as we all expected.
However, neither the experts nor I did as well on other predictions, such as:
- Federal funding may actually increase, not decrease as we thought – primarily because of stimulus funding.
- While good data is not available, it seems that donations to human service organizations did not do as well as expected while giving to other sub-sectors like churches did much better than expected. We will continue to monitor this development of reduced giving to human services because based on experience all the way back to the Depression, this is a new trend.
We also pointed out in that article that organizational theorists agree that the most resilient organizations have the discipline to implement the right strategies with patience and not rely on a “silver bullet” or quick fix to solve problems. In our sector those basic disciplined strategies include:
- Build and maintain a great board as well as hire and develop a quality staff;
- Stay focused on mission and the strategic direction of the organization;
- Identify and work with partners, don’t do this alone;
- Dedicate additional effort to increase sustainable revenue streams through mission based earned revenue and committed individual donors.
Finally, we closed with a few more thoughts for tough times:
- Focus on individual giving, one of the most dependable revenue streams;
- Remain positive – do not approach this crisis from a point of scarcity or view the world as a place where a cup’s half-empty;
- Determine what functions demand perfection and perform as required – then do the best job possible on all remaining tasks;
- Prioritize efforts to do the best you can with what you have, and not waste time on what you cannot control – like the economy.
January 2009 – Budget Strategies for Tough Times
The most important thing we shared was developed from the last point in December’s article. We asked you not to get stuck in the notion of doing more with less. Instead, we maintained that we best serve our constituents by resolving to the best we can with what we have. That one statement proved to us how many of you actually read these articles every month. We had a tremendous reaction to that simple reality. For too long, nonprofit leaders have tried to do more and more with less and less, which not only does not serve our clients, it destroys our morale. So we ask that you re-affirm the belief that all you can do is your best. We do not need to be greater super heroes than we already are.
We also shared a few more financial strategies for tough times including:
- Develop a month-to-month budget analysis and compare the current year to at least the prior year, if not a year or two more, to make sure you are consistently tracking both income and expenses. This tool helps managers make informed decisions before it’s too late.
- Make sure to clearly report unrestricted cash on all financial statements to show the board the true condition of the organization, as recommended in Rasmuson guidelines.
- Have frequent discussions with your significant funders to ensure you have early notice if their capacity will affect your budget.
- Stay calm. A few suggestions on how to do that were:
- Keep a sense of humor;
- Accept that not everything is in our control;
- Keep a good work-life balance.
- Develop budget scenarios defining what you could do if you have less income than expected. Make some assumptions now, it will be easier than when you find you have no money and need to make a decision. Some steps include:
- Conduct an analysis and determine best case/worst case scenarios;
- Review your mission and core competence;
- Review programs, rate which ones most impact that mission;
- Review all staff positions, rate which positions most impact mission;
- Then review rent, travel, training, memberships and don’t just cut those first because they seem easy – cutting such expenses may result in a loss of capacity;
- Take final scenarios to the Finance Committee, then to the board;
- Complete the final plan – then you are ready to face the future.
- Do not threaten donors, or threaten closure. That strategy never works.
March 2009 – More Tools for These Times
In this article we urged leaders not to over-react to sudden changes in their budgets. We reminded you that over-reaction may have worse consequences – the better course is to stay focused on the services you must provide in order to stay true to your mission. Then we asked leaders to consider how this situation could be better addressed from a collaborative viewpoint. In other words, what kind of new strategic partnerships could we develop to better serve our clients and maintain the right balance between what we see a need for verses what we have resources to handle.
We provided the different levels of collaboration or partnership including:
- Sharing of space, resources or information in an attempt not only to maximize capacity but also to lean on each other during these times of stress;
- Joint ventures where two or more organizations work together to provide services in a cooperative way through trust rather than a formal MOU;
- Formal agreements where organizations share resources like the financial services provided by Foraker;
- And finally merger – a strategy that may not be as popular, but when organizations look at ways to maintain mission, it is better to merge than not to preserve the mission.
May 2009 – There is a New Reality
This article focused on the positive aspects of times like these – specifically that it is through challenges that we test our assumptions and develop the ability to see more clearly. At our spring Operations Board meeting, Jim Caldarola mentioned that while visiting with fund raising colleagues from around the country, the group decided to stop whining about how bad things were and celebrate how a new reality existed that while different, could be a positive one for our sector. His enthusiasm was contagious and the entire board spent the next hours reflecting on the fact that even with challenges, there was reason to be thankful. For example, while we were experiencing a downturn in corporate and foundation giving in Alaska, we still have almost four times the amount of collective giving from Rasmuson Foundation, ConocoPhillips and BP than we did in 2000. In addition, we have some significant new players like the Mat-Su Health Foundation and continuing support from many other very generous donors. (Our cup really is half full, not half empty.)
Another area of agreement was focused on The Foraker Group Nonprofit Sustainability Model©. After working with hundreds of Alaska organizations, we could see the model was proving to be valid. We developed this framework for nonprofit boards and staff so they would have simple, jargon free language to use when reviewing what matters most about their organization’s resilience. Operations Board members were finding that those organizations that had been working to address those elements of sustainability seemed to be doing better. That model is:
First all organizations must focus on outcomes derived from their mission. Does the organization have the tools necessary to monitor mission related outcomes? Is it doing the job it was formed to do? We maintain that the ability to evaluate outcomes is central to making good decisions on sources and use of funds.
The second area to monitor is sustainability. Does the organization have the long-term ability to sustain itself? After working with the sector for almost a decade, The Foraker Group has identified four interconnected elements that exist in sustainable organizations. They are:
- Unrestricted dollars – Sufficient unrestricted income and reserves are necessary to carry out missions. The only sources for such funds are from mission related earned income or charitable contributions from individuals.
- Focus – Knowing “who you are” and “where you are going” are critical for long-term success. Chasing money not related to mission or failing to maintain the discipline to follow a pre-determined plan impairs an organization’s ability to succeed.
- Board-staff balance – A competent board understands its role. It monitors the organization’s strategic activities and recruits the best CEO to implement the mission. The CEO and board share power and work in a relationship of trust and respect.
- Collaborations – Developing mutually beneficial relationships provides efficient and effective use of resources. No organization can maintain its focus and accomplish its mission without strategic partnerships.
In addition to these articles, we provide links to some of the best writing we can find from experts around the country. We have re-tooled our trainings to make sure they are relevant for these times and developed new classes that focus on dealing with the economic downturn.
At Foraker, we continue to monitor our income and stay focused on the services that are most in demand. We have been taking our own advice and seem to be doing okay.
How are you doing? Please respond on our Blog and let us know what we can do to help you or your organization. While the end of the recession is still not in sight, the need for your commitment to serve your community continues. Please take care of yourself and each other, and we will get through this.