What You Can Do About the Coming Nonprofit Crash
Recently, I wrote about the nonprofit crash that’s on the horizon. As I mentioned, I don’t think it’s a matter of if, but when it will happen.
One of the possibilities that could drive the nonprofit crash is a significant donor data protection issue. As you may know, Blackbaud experienced a ransomware attack by hackers, and now faces nearly a dozen class-action lawsuits. Donors were rightly angry and sued. However, donors also decided to sue nonprofits.
I described other scenarios too, but the next natural question, which readers repeatedly asked me following the publication of the “nonprofit crash” article, was “What can nonprofit leaders do to protect themselves?" Here are five essential actions you could do to protect your organization from the nonprofit crash.
1. Inform Your Board About Your Risk
First, you need to inform your board about the potential risks that exist (perhaps, during your annual meeting). Remember, your board has legal and fiduciary responsibility. Meaning it could be liable. If your data is hacked, neither you nor your board wants to receive a lawsuit.
If you don't know what the potential risks might be, or if you prefer to have a third-party expert present them, it's worth hiring a strategic nonprofit consultant to inform the board. Knowledge is power, and, from there, you could make concrete, board-led decisions to protect the organization.
2. Shore Up Your Financial Reserves
The next crucial thing for your nonprofit is to make sure you have your financial reserves in order. The 2020 pandemic was a predictable event, but no one thought it could happen during their lifetimes. Well, guess what? It did and it caused chaos in the nonprofit sector.
Suddenly, nonprofit fundraisers didn't know how they were going to raise revenue. What’s more, nonprofits that didn’t have reserves closed their doors or, at best, limped along trying to hold on. The reality is your nonprofit should have at least six months of operating revenue. I’m more conservative and believe even as much as a year is essential.
Further, major donors are concerned about the 17 goals of the United Nations. You could frame your requests about building capacity to meet those goals, and the organization's environmental, social and governance framework (ESG) to position yourself as a leader worthy of broader support and investment.
3. Invest in Technology as a Competitive Advantage
Spending on technology is now an imperative and essential aspect of running any business, including a nonprofit. Technology, including artificial intelligence, can predict how and when donors and prospects will support your organization. In other words, it can mine data in ways no human can do and increase your fundraising revenue. The technology targets donors down to the specific household for a much more accurate donor pipeline.
I recognize that many nonprofits operate with limited revenue. However, technology is a must-have feature. Asking a major donor or institutional funder to help you build capacity with tech is an investment in your nonprofit's future operations.
4. Adapt to Social Media Challenges
Nothing is perfect, and while technology can be an asset, there is a flip side. Social media has allowed nonprofits to raise awareness and promote good causes relatively inexpensively. However, as bots become much more powerful, speech is getting silenced through techniques such as shadowbanning.
However, with ever-changing rules about community standards on social media platforms, whose speech is bad? Is it the teen pregnancy center? Or, how about the needle exchange program? Or, maybe it's the suicide prevention organization for people who identify as LGBTQ?
Social (or third-party) validation seems to be driving what is acceptable and what isn't. We have endless historical examples that once you exclude one group of people or make them lesser, the idea only creeps to other groups. Social media is only throwing more fuel on the fire of "us against them."
5. Expand Revenue Streams to Fortify Your Operation
As noted earlier, numerous nonprofits had a deep concern regarding surviving without revenue during 2020. For example, many small nonprofit groups relied on events for a large portion of their fundraising revenue. Once the pandemic arrived, and social distancing rules and norms began to take root, in-person events were eliminated. As it stands now, many continue to happen virtually.
Therefore, if nothing else, the pandemic should be a lesson for all nonprofit leaders and fundraisers. Minimizing risk in fundraising means expanding revenue sources since multiple streams of income are better able to weather any storm.
So, the nonprofit crash is not something to be ignored. At present, society is dealing with enormous uncertainty, which only adds to unforeseen variables that could trigger massive change. The social justice movement, accelerated climate change, technology that's doubling in capacity every couple of months, the economy, migration and changing regulations all offer the chance for a significant disruption that could seriously harm your organization if you don't prepare.
Editor's Note: This article was originally published in the September/October 2021 print edition of NonProfit PRO. Click here to subscribe.
Paul D’Alessandro, J.D., CFRE, is a vice president at Innovest Portfolio Solutions. He is also the founder of High Impact Nonprofit Advisors (HNA), and D’Alessandro Inc. (DAI), which is a fundraising and strategic management consulting company. With more than 30 years of experience in the philanthropic sector, he’s the author of “The Future of Fundraising: How Philanthropy’s Future is Here with Donors Dictating the Terms.”
He has worked with hundreds of nonprofits to raise more than $1 billion dollars for his clients in the U.S. and abroad. In addition, as a nonprofit and business expert — who is also a practicing attorney — Paul has worked with high-level global philanthropists, vetting and negotiating their strategic gifts to charitable causes. Paul understands that today’s environment requires innovation and fresh thinking, which is why he launched HNA to train and coach leaders who want to make a difference in the world.