Thursday, March 19, 2009

Hey, Nonprofits! Wake up! You can innovate or you can die.

Why do we fear ideas? 

I can understand fear of opinions. After all, opinions led us to the slave trade; the Holocaust; nearly every war that man has waged. Each of these tragedies resulted from an idea becoming entrenched in a value set that determined a course of action based on that idea.

But the idea itself was harmless. It was what we chose to do with the idea that led to its horrible manifestation.

On the other side, ideas hold no inherent value. It is implementation that matters; or, more directly, it is innovation... the act of implementing new ideas.

After all, without innovation, we'd still be living in caves or trees. No cars, no air conditioning, no iPods, and, God forbid, no Diet Cherry Vanilla Dr Pepper.
Oh no you didn't

Now, I'll admit it: I can say things that get me in a lot of trouble. Lord knows, this blog has gotten me into more hot water than I'd liked to admit. Much of this has been driven by the fact that I am given to ideate aloud.

So, lest I suddenly clean up my act, let me offer another one of my more unpopular ideas: perhaps there are too many nonprofits. 

Try offering up that insight in a room full of nonprofiteers vying for money. You might as well as stand up and say you hate children, particularly sweet and loving ones.

But let's think about that idea for a moment without encumbering it with a presumed opinion like, "My nonprofit should exist and yours should not" or "The government should be providing these services instead of nonprofits."

Let's just consider the idea. Are there too many nonprofits?

Consider a few facts:
  • There are nearly three times as many nonprofits today as there were in 1990; 
  • Nonprofits now employ nearly 1 in 10 U.S. workers
  • Nearly 7% of our country's Gross Domestic Product (GDP) falls within the nonprofit sector.
Here is my prediction:

We will have fewer 501(c)(3) nonprofit organizations in 2011 than we have today. 

One thing is certain: even if the economy were still rosy, thousands of nonprofits will be closing their doors over the coming years.


Because the IRS recently released its first revisions to the Form 990 in thirty years. This new tax filing for nonprofit is much more robust, including 14 more schedules than the old Form 990 and a much more onerous "core form." Many small nonprofits might struggle to complete this task, and the IRS will revoke their tax status. 

In fact, the IRS will automatically revoke the 501(c)(3) status of nonprofit organizations that refuse to file their mandatory tax filings (shockingly, this is something new... many of the nation's 1.5+ million nonprofits are actually defunct but still show up on the IRS roles).

So, we are guaranteed to have fewer nonprofit organizations in a few years.

Beyond that, this darn economic collapse will destroy many businesses. As Robert Egger likes to remind us, "nonprofit" is just a tax status. In every other way, nonprofits are businesses. So, just like any other small business, nonprofits are going to face some hard times ahead. I expect that this fact alone will lead to the shuttering of many organizations.

After all, the Council on Foundations reported that their members lost an average of 28% of their asset base in 2008. In Dallas, I have spoken with a number of foundations whose losses track higher to the 40% mark. 

One local foundation told me that they have lost so much money that they are going to have to dip into their corpus (the "untouchable 95%") just to cover their existing mutli-year pledges. 

What does this look like?

According to Philanthropy Journal, foundations gave 12.6% of all donations in 2007, or $38.52 billion. A 28% drop in this number is therefore a 3.5% drop in the overall amount of money going to nonprofit organizations, or nearly an $11 billion loss for the sector.

So, just count on the fact that we'll have about $11 billion less in the 2009 Giving USA report next year.

Compounding this problem is the fact that corporations - which donated $15.69 billion in 2007 -- are facing incredible pressures to decrease all costs, and we will see an enormous drop in institutional giving. 

So, don't rely on that large corporation that has always given you $25K for your annual gala. Sure, your board chair might work there and their giving maven might loooooove your event, but this year is going to be different.

Here are the exact words from one of my friends who gives away money for a local bank:

"We just got billions of bailout dollars from the government. The last thing we need is for the community to see my name in lights at the top of your event!"

Couple all of this with the fact that individuals are seeing their stock portfolios drop to the lowest level since 1997, and we're in for a helluva ride. 

But wait, it gets better:

The Obama administration has proposed some changes to the tax laws that would likely result in a decrease in charitable giving among the wealthiest of Americans.

Still afraid of ideas? Terrified at the idea of innovation, and think it's best to stay the course? 

Now is not the time to focus on business as usual; it's time to explore some new ideas for your business!

Some ideas to consider:

  1. Can you offset some of your philanthropic dollars with earned income?
  2. Can you add more value to your sponsorships by exploring co-branding?
  3. Is there a way to scale back your special events without turning off your guests (i.e. are they really there for the chicken dinner, or to support your organization)?
  4. Are there ways that you can monetize the relationships that you have with clients and donors without compromising your integrity (i.e. are there companies who would be willing to pay you for favorable introductions to your clients, board or donors)?
  5. Do you really need an HR Manager and Payroll Clerk, or could you hire a PEO (Professional Employer Organization)  to drop costs?
  6. Could you raise the deductible on your insurance plan and replace it with an internal reimbursement program for employee health expenses  so that a $3,000 deductible walks and talks like a $500 deductible, but your organization spends less and has an incentive to provide wellness programs?
  7. Would your administrative staff or fundraising team be willing to earn less in order to work from home?
  8. Do you really get the same dollar-for-dollar return on investment by hiring a full-time grant writer compared to a contract grant writer who can  focus on writing grants instead of responding to internal emails?
  9. Does every employee really need a computer, or would program people actually get more done if they did not have the distraction of Internet and email? Maybe a shared computer they could each use for 30 minutes per day?
  10. Is there a vacant cubicle or office in your building that you could sub-lease to another nonprofit? An attorney? A person with a home-based business who needs a place to get away and focus?
  11. Do you really need a print newsletter, or could you send a final notice to subscribers that you are going online in order to maximize the amount of their dollars going to programs?
  12. Are there neighboring businesses with whom you could share a printer? copier? parking?
  13. Could you consolidate your gala event with a peer organization's event, share the costs and split the kitty? Or. split the costs and each "eat what you kill" in terms of sponsors?
  14. Is there a local company that would be willing to pay you to put your logo on their products? (seriously)
  15. Could you bring in a volunteer to write hand-written thank you notes to your previous donors to ensure them that they are appreciated now more than ever?
  16. Is your own fundraising engine so powerful that a smaller organization in a different niche would pay you to raise money for them? (i.e. could a local school with a powerful grant writing program get paid to write grants for a local animal shelter?)
  17. Where do you have ad space that you can sell? Company vehicles? empty wall space? banner ads on Web sites? employee uniforms?
  18. Are you so good at delivering that your services that other organizations would be willing to hire your Executive Director as a consultant to help them replicate some of your success?
  19. Are there smaller nonprofits that share a similar mission to yours who would be willing to entertain a conversation about a merger?
  20. Do you really need to own your building, or could you sell it to someone with a clause that you be provided first right of refusal on the lease?
Keep in mind -- it is often not the answer to these questions that is the most valuable, but the process of reviewing the idea. Considering even the most ridiculous  notion might enable your organization to achieve the breakthrough conversation that takes you to the next plateau of performance.

We fear ideas because we fear the unknown. We fear admitting that death is real, that sickness plagues us all, that our backs are growing less flexible with each passing year and that we may not, in fact, be a unique and beautiful snowflake. 

We fear new ideas because they might reveal that we have been doing the wrong thing, and we know that wasted time is wasted life.

Do not fear the idea. Fear the silent lack of wonder that dooms your organization to the grave before its time. Fear only that you might feel content enough to not desire more for you, your organization or your clients. 

Happy innovating.

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