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Jan 14, 2011

Financial Trouble: The Economy vs. Structural Change?

Many nonprofits these days are encountering donors who are less willing or able to provide support. Government support and contracts are harder to obtain and have more restrictive terms. Earned income is flat or declining. The big question is whether these troubles are temporary or symptomatic of a general decline in a community’s need or support for the nonprofit’s purpose? If it is temporary, the nonprofit needs only to survive until the economy turns around. But if the troubles are persistent or structural, the nonprofit will need to change how its raises money, how it spends money, or both.

Determining the true situation is tough because the search can be affected by two burdens: 1) the guilt associated with the idea that the community needs the nonprofit to do more and persist regardless of its circumstances and, 2) the reluctance of the nonprofit to have faith in the judgments of its donors, clients and patrons.

For-profit companies are typically more willing than nonprofits to accept outsiders’ judgments of their value by choosing to sell, merge, or even close their doors. It is understood and accepted that people still have needs, but over time they choose to address them in different ways. Community needs that are addressed by the nonprofit sector are not so different—the needs still exist, but the community may choose to address the needs in different ways.

In times of difficulty, it is essential nonprofits remain open to messages from their supporters regarding the necessity for change. While it is always gratifying to hear support for its purpose and what it accomplishes, the nonprofit must not disregard indications that there is no longer a need or support for its services.

The best course for a nonprofit is to listen and respond by conducting research in a manner similar to a for-profit company. Market research and surveys provide a critical reality test of a nonprofit group’s actions and how much the community values it. If the community sees less value, then a nonprofit must purposefully identify changes that boost its value, consider its exit strategy or identify new ways to serve its constituents.

When facing such difficulties, a smart nonprofit will keep its ears open, not just to the messages of praise, but also critical feedback from its entire constituent base. It will then use that information to conduct further research, which is both objective and reflective, to determine if its troubles are due to the recession or to a structural change in its value to the community.

The recently released book, More Than Just Money: Practical and Provocative Steps to Nonprofit Success devotes five chapters to the key issues and actions nonprofits must consider in times of difficulty.  And coming in Spring 2011 is the newly revised and expanded second edition of Linking Mission to Money®, a guide for nonprofit leaders who want to make their institutions reliable providers of critical community needs.