The View From the Recovery Room
Thursday, September 17, 2009
By: Susan Raymond, Ph.D.

There is a rumor that the economy is out of the OR and in the recovery room. So far, no visitors are allowed, and reports are only from the attending physicians. True, most of the machines to which the patient is attached are beeping only weakly, with an occasional code blue.

No one has actually seen the recovery room in person.  But, the comings and goings that can be seen through the lens of the headlines appear to indicate that the worst is in the past and that, however, slowly, the economy will at some point be discharged and cleared to return to work.

What now?  Should the nonprofit sector wait patiently at the hospital entrance for the economy to emerge, or should it dust off its development plans, oil the fundraising machinery, and greet the recovery with all gears turning?

The easy answer, of course, is the latter.  This would be the expected response.  And there is merit to it, at least as a theoretical proposition.  In the last four recessions, the rate of growth in giving in the first year of a climb-out far exceeded the changes in the last year before a recession.  Giving comes back with the economy, and it comes back strongly.  This should not surprise anyone.  Charitable giving is in the bone marrow of the nation.  When capacity to give expands, so does giving.

But, as with all easy answers, it is only partially correct.  The fact is that economic recovery will need to be met with creativity and innovation in the nonprofit sector.  Business-as-before will not suffice.  This is so for at least four reasons.

First, time is the deal-breaker.  Unlike past economic downturns, what has come to be known as “The Great Recession” will require years to completely fade into economic history.  Indeed, the Department of Commerce recently estimated that we will not see employment return to 5%-6% levels until 2013.  Many nonprofits have waited for the end of the recession to act on their financial needs.  Waiting is no longer an option.  The recovery time frames are too long.  On the other hand, replacing waiting with business as usual is also not an option.  Again, the recovery time frames are too long.  Nonprofits need to look at revenue diversity options with great creativity, whether that be relative to their traditional fundraising efforts or relatively new strategies to enter into cause-related marketing, social enterprise, or program-related investment relationships with donors or markets.   Employment, incomes, and economic productivity simply will not recover fast enough for the razor-thin balance-sheets of the past 18 months to be restored to health by old strategies.

Second, as that restoration takes place, in fact, the innovations and expectations of the past decade will still exist.  With a few very tragic exceptions, for which I have nothing less than the very deepest sorrow, nobody died.  The many, many new philanthropists whose demands for nonprofit impact, creative financing and financial sustainability dominated the last decade of philanthropy are still very much alive.  Their entrepreneurial innovation will once again lead to wealth.  And the philanthropy that flows from that wealth will have the very same expectations as before the recession.  This is inevitable.  The expectations were not a product of the wealth, the philanthropy was.  The expectations were a product of experience, both commercial and nonprofit.  Hence, when wealth is regained and philanthropy flows, it can be expected to flow under the same conditions.  Therefore, nonprofits, in preparing for recovery, will meet those same expectations, and must prepare for them with creative approaches to demonstrating impact.  Philanthropy as investment did not disappear with the 14,000 point Dow.

Third, the faces in Washington have changed, and with that change have come very significant changes in policy.  This has led to temporary flows of funds to some nonprofits, perhaps many nonprofits.  This has been a good thing, in some cases perhaps even an essential thing.  But, that infusion will not last.  Nonprofits will either have to replace that revenue stream, or adjust to its disappearance.  In the first case, funding creativity will be essential, and, recognizing that funding alternatives will take time to a activate, that creative thinking needs to take place even as public funds are flowing.  In the second case -- if funds infusions are not likely to be replaced -- strategic planning and programming creativity will need to take place to adjust program and service provision to the new financial reality.  Again, the time to undertake that planning is now, not when the tap is turned off.

Fourth, over the last two decades, the rate of growth in the number of nonprofits has exceeded the rate of growth in the inflation-adjusted dollar value of philanthropy.  In some sectors (for example the environment) this divergence has been extreme.  Between 1999 and 2009, an average of 1,200 new environmental nonprofits were formed each year, a growth rate of over 70% for the decade. 

Philanthropic giving for the environment, on the other hand, grew by 24% in that same period.  Once the economic recovery picks up speed, the competition for philanthropic resources will be fierce.   And those with the scarce resources -- the donors -- will be looking to ensure that those who seek those resources -- the nonprofits -- emphasize the efficiency and responsiveness that scarce resources are due.

Those who are prepared for that competition with creative and innovative funding strategies, programs that clearly have been adjusted to reflect the most current needs and priorities, and future-looking mechanisms for constantly adjusting to changing problems and opportunities will gain attention.  The rest will struggle.  Such creative, innovative strategy will not be developed on the fly.  Little that is lasting is created in haste.  Now is the time to develop decadal projections of programmatic need and opportunity, to assess the 10-year operating environment of the nonprofit, and develop clear programmatic directions, impact measures, and funding plans.  Equally importantly, and, as I have written forcefully before, key in this process will be crafting the inter-institutional collaborations that will demonstrate a commitment to efficiency as the relatively scarce resources of philanthropy are petitioned by the proliferation of the nation’s nonprofits.

Let us hope, indeed let us assume, that the economy has reached the recovery room.  The Great Recession will almost certainly be followed by The Great Rehabilitation, with the time and pain that the term implies.  Time, however, is not on the side of the nonprofit sector.   Those who prepare now to meet recovery with creativity and innovation will thrive.  Those who wait will find themselves waiting for a long time.

About the Author

Susan Raymond, Ph.D., an Executive Vice President at Changing Our World, Inc., a leading philanthropic consulting firm, is the co-author of Mapping the New World of American Philanthropy: Causes and Consequences of the Transfer of Wealth, published by Wiley. She can be reached at sraymond@changingourworld.com.