The recent economic meltdown has created havoc among nonprofit organizations that are totally dependent on philanthropic dollars. Many organizations have developed a business model entirely dependent on philanthropy, and it is these organizations that stand to suffer most if the economy continues its downward slide.
In times when finances were abundant, this model was successful particularly among Jewish organizations, enabling them to provide social services to the community that many could not afford. Now that resources are limited, how can these organizations survive?
Three key strategies seem to come to the fore.
The first is to focus on large pools of small donors who support the endeavors of the organization. They may be past beneficiaries or their families who appreciate the social value the organization is generating.
A second is to focus on earned income. It is critical that these organizations examine their inventory of services and affix fees for services or products where possible.
A third is seeking government contracts that are awarded to organizations that provide social services to the general public. While the financial support from this source may be considerable, in this article we will limit ourselves to discussing the ramifications of the first two strategies.
In suggesting the two strategies, we are assuming that the average citizen in the new economy will continue to seek products or services of value, will be willing to pay for them, and will support their development and dissemination, if requested. While choices may be far more discriminatory than in the past, people ultimately will continue to make purchases and contribute financially to those organizations they value.
The common denominator of these approaches is that for organizations to survive, they will have to be relevant and meaningful to those they serve and be able to compete in the marketplace. This will require a radical shift in thinking by the leaders of the organizations.
In the former world, there could be a clear distinction between those who were being served and those who were the prime sources of income. In some situations this reached extreme proportions, where organizations were dependent on one family or a number of families who dictated the priorities of the organization even though this may not have been in the best interests of their constituency.
Since it was far easier to raise large amounts from single donors than it was to raise small amounts from multiple donors, the multiple small donors often have been ignored in favor of the larger. This has led to a systemic danger whereby policy may be dictated by the powerful few who are not necessarily in touch with the market needs.
In the new economy, the economic future of these organizations may be dependent on their constituency. Thus, these are the first questions that must be asked: Who is our constituency and what does it value?
If these organizations fail to be relevant to their constituency and meet its needs, they may find themselves bereft of support, leading to their ultimate extinction.
Thus the new economy may well lead to a healthy democratization of organizations, leading to a new relationship between the organization and those being served. The constituency will see itself not only as beneficiaries but as “owners,” and the organization’s leaders will be far more answerable to this constituency, preventing it from making unilateral decisions that may not be in their interests.
It is the “small change” that will drive this big change, ensuring that we emerge from this economic crisis stronger than ever.