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Is your nonprofit recession ready?

By | Revenue Strategy
Nonprofit Recession Help Room40 Group
Is your nonprofit recession ready?
7 Steps to securing the future of your organization

Do you want to know the good news?

The economy is growing faster than it has in years. The United States GDP and equity markets are in their ninth straight year of expansion. Foundation endowments, the assets of individual donors, the investments of many nonprofits: all have been steadily growing for almost a decade. Which means that however hard you and your team are working, your current challenges are happening in a time of relative and sustained plenty. Especially for nonprofits that rely on private philanthropic funding: these are the good times.

But with two-thirds of economists in the U.S. expecting a recession to begin by the end of 2020, the good times may end sooner rather than later. If a flood is coming, it’s time to build a boat.

If you aren’t sure how your organization should respond to a downturn, now is the time to plan. Preparing for a recession takes work but trying to do it during a shrinking economy is much harder. We remember the last few recessions and what it took as Executives to steer our organizations through them. If you want to be ready for bad news when it comes, we’ve got seven steps you can take right now to help make your organization recession ready.

1. Anticipate and craft the narrative

The story you tell about your organization and the importance of its work is going to sound different in bad times than it does in good. Think through how to make the case for what you do in general – and what you will do specifically – when the weather turns. Was your fair-weather pitch all about the future glories of growth, expansion, and serving more people? That’s going to sound jarring when everyone’s investment advisor is running around like their hair is on fire and the front page is full of stories about whether western civilization is falling into the sea.

You will still need to motivate and inspire during hard times. More than ever, you will need a compelling story that fills people with inspiration and urgency to act. You need to show your donors and staff that there is plenty about your organization to be excited about. Don’t let yourself be defined by the things you can’t do or have stopped doing now that the weather has turned.

2. Run Scenarios

No one can predict the future, but you can make some pretty good guesses. Take your budget projections and start running bad news scenarios. If the stock market tanks, donors and foundations will see their own assets shrink. It’s likely fundraising revenue will take a hit. Some ways to run the numbers:

  • Let’s say people say yes to you 50% of the time that you ask them for gifts, what happens if they say yes only 25% of the time?
  • If your multi-year pledge pipeline is looking pretty good now, what would happen if 10-20% of those pledges were canceled?
  • What would happen if payment on 10-20% of those pledges were delayed by 12-months?

Some donors plan to make gifts from the sale of assets. But if the asset’s value is depressed, markets are suddenly illiquid, or buyers are running for the hills, your donors may look to postpone their giving until better times. Even donors with liquid cash may use it to weather the storm themselves or to strategically acquire things they see as undervalued.

If the past is prologue, you can expect that a good number of fair-weather friends will walk away from your organization when times get tough. But the donors and allies most invested in your work will stick around. It is likely you already have a gut sense of who is in this second group. It’s worth talking to them explicitly about what will happen when a recession hits, and how the organization will respond.

Believe it or not, some of your more loyal and invested donors will be open to increasing their giving in a recession, in part to counter-act retrenchment elsewhere. Of course, they will be more likely to do this if they’ve heard a compelling narrative and had time to get used to the idea.

3. Get back to mission-critical

If the economy contracts you may have to as well. If you don’t want to make cuts that undermine your mission, what can you do?

First, get clear on what is central to your mission. It may be a lot harder to outsource or reduce these activities because they are what makes your organization unique. It’s easier to scale back the activities that are less necessary or more experimental. In an expanding market that has people feeling optimistic experimentation is great for attracting the attention of new donors, creating innovation, and inspiring your staff. In a market where your operating budget is getting smaller and people are generally risk-averse, activities that suck up cash without bringing in revenue are activities you should consider scaling back or taking an intermission on. Be clear on what is core to your mission and alternatively what you can hit pause on until the situation improves. What does ramping down look like for your organization?

Remember, you won’t be the only ones falling back to your core. If history is any guide many foundations and grantmakers will experiment with new and innovative programs in the good times but will retreat to the tried and true during the bad times. Don’t be a fair weather friend yourself. The deeper your relationship with your foundations, the more likely you’ll be able to count on them when things get tough.

4. Make Fixed Costs Variable

In every organization, there is a chunk of costs that you can’t really change or get out of in the short term. The biggest one is your people. Layoffs are incredibly disruptive, painful, and demoralizing, even when done well. Fortunately, there are other ways to reduce your commitments as the storm hits.

Review fixed costs like rent and facilities. Long leases may save you money but also represent big liabilities. Three months into a recession, you may happily want to take office space at less rent, but if you are stuck into a multi-year lease, there may be little room to maneuver. Month to month leases may be more expensive in the short term but easier to get out of.

Another option for reducing your commitments is to review ways to outsource activities. Consider this for less mission-critical work where outsourcing would be less expensive and won’t compromise your short-term ability to have impact. Examples relevant to your organization might include human resources, design, website hosting, technology, marketing, or bookkeeping. By outsourcing, you can create more flexibility to scale your level of investment up or down as appropriate.

5. Build Cash

Build a healthy cash reserve in the good times. Once things go south, it’s too late. Did we mention? These are the good times.

For most organizations we know predicting how much revenue they’ll raise next year is an inexact science. We’ve seen many organizations make reasonable projections that later looked wildly optimistic when the stock market crashed three months into their fiscal year. In general, if you’re conservative about the money you project to raise next year, you’ll be in a better spot if the economy turns. Of course, if things go well you can save some or all of that surplus as a cash reserve.

It’s not easy to say ‘no’ to worthwhile projects in order to put cash in the bank. But remember: once the recession hits you can’t help people outside the organization if you can’t make payroll.

How Room40 Can Help

Did one of these steps made you say ‘uh-oh’? Not sure how your organization’s current strategy makes sense in the context of a howling recession? Don’t panic!
Room40 Group can help you with any and all the above. Our founders and principals helped navigate nonprofits through the worst of past recessions and out the other side. We can help you figure out the best way for your organization to face any number of challenges and make plans that will help you feel much better about the future. Get in touch!

6. Take advantage of someone else’s money

Another way to build a cash reserve is to borrow it, especially while circumstances are good. The best time to set up a line of credit is when you don’t need one. Banks need people to borrow and are far more likely to agree to favorable terms when demand for these services is low. In good times banks offer all kinds of incentives to borrow. These incentives disappear with lightning speed once the bad times arrive. If you don’t have a line of credit, now is the time to talk with your financial advisor about finding a loan that’s a good fit. If you do have a line of credit, consider negotiating for a larger limit.

In addition, pre-recessions are a good time to renegotiate your payment terms with your vendors. If you have a vendor that you pay every 15-30 days, see if you can arrange to pay every 60 days. If you ever find yourself in a tough cash position, then having flexibility here means you can hold onto cash longer and have more time to get gifts in before the bill is due. People are more likely to give you favorable terms in a good market. Once things go south your vendors are going to start looking to speed up their own collections.

7. Take Care of Yourself

Stress and isolation for nonprofit leaders are already very real and difficult parts of the job. Fair warning: they don’t get better when the future of your organization is in question.

We’ve talked so far about things you can do to prepare your nonprofit for recession. Equally important is your plan for how you are going to take care of yourself. Those of you who were leading organizations in 2002 or 2008 likely remember the stress and trauma of keeping things going when the American financial system went up in flames. It’s taxing to be the one providing stability and a way forward for others in moments of chaos. So, finding ways to manage your stress and take care of yourself is just as important as anything else you could do for your organization. If how you talk about your organization to your staff and donors is reflective of your stress and fear, then it’ll be that much harder for your message to inspire and motivate.

Do you have a mentor you can turn to? Can you identify healthy ways to manage stress that work for you? How can you make time for those activities or people even when you are completely slammed? Build the supportive network and the practices in the good times that can bolster you in the hard times.

Turns out you agree: Revenue strategy does matter

By | Cool Analysis, Revenue Strategy, Strategic growth

A stunning 88% of nonprofit leaders* say developing and implementing a revenue strategy would make a significant difference or a tremendous difference for their organization’s long-term success, but only 22% have one.

You’ve heard us say it before: revenue strategy is important.  Like your program strategy, it aligns your organization around a goal, the path to achieve it, and resources it will take to get there.  It sets you up to make the best use of scarce resources as you raise money to support your mission.  (If you’re wondering how program strategy and revenue strategy are different, check out this post.)

Creating a revenue strategy takes time and money – both of which are often in short supply.  So perhaps it’s not surprising so few organizations have one.  But if it’s so valuable, you would expect that organizations would take steps consistent with a revenue strategy, even if they don’t have the resources to develop a full strategy.  There are two metrics that can help organizations allocate their fundraising resources more effectively:

  • $ raised per fundraising FTE, a metric that sheds light on whether raising more money will require more people or more/better support and systems for the people you have
  • Return on investment of fundraising activities, a metric that helps allocate scarce resources among the many possible ways you could raise money

(If you want a refresher on what these are, check our webinar here.)

We asked if organizations are using these metrics and we were surprised by the results:

  • 12% calculate the dollars raised per fundraising FTE
  • 17% calculate the return on investment (ROI) of their fundraising activities

So, what’s going on here?  There’s an approach to organizing our efforts around fundraising that we believe will result in better long-term results, but most organizations aren’t doing it.  There are simple metrics that would move us a step closer to a revenue strategy (and a step closer to best use of resources) but we’re not using them, either.

As data-geeks, that’s a head-scratcher for us.  But we’re astute enough to know that we’re oddballs.  So, it leads us to ask: what conditions need to change for revenue strategy to get the time and attention it deserves?  What can we do as a sector to address this?  A few things:

  1. Awareness.  Like program strategy 20 years ago, revenue strategy isn’t commonly talked about, used, or understood.  It’s hard to find the time, money, and support for something that isn’t common.
  2. Evidence.  With so few organizations using them, there aren’t many stories to tell – yet.  And if you’re looking for irrefutable evidence, that’s even harder to find.  Our instincts and experience tell us its important, but we’re short on evidence and success stories.
  3. Support.  Until Foundations and Boards understand the value of revenue strategy and are willing to support an organization’s pursuit of one, nonprofits will be hard-pressed to find the time or dollars to do it themselves.  It’s just the harsh truth of nonprofits’ access to resources, and the power of the gatekeepers of those resources.
  4. Availability of expertise.  Throw a nickel and you’ll hit a dozen nonprofit consultants (including us!).  How many of those do revenue strategy?  Not many.  And what they mean by “revenue strategy” is different from one to the next.  So, even if you have the support of your Board and the funding to do it, it takes some effort to find someone to help with this, and your options may be limited.  (We’d be happy to help!)

We are thrilled to see agreement on the importance of revenue strategy.  We are saddened to see how few organizations are taking steps in that direction.  But where there is a gap, there is opportunity.  We’re committing ourselves to addressing these barriers to revenue strategies so that organizations make the most of their fundraising resources, enabling them to do more good in our world, sooner.

If we’ve piqued your interest, but you’re wondering “what is revenue strategy, anyway”, stay tuned.  That’s our next post.

Yours in pursuit of more revenue,

Anna, Ben, George and Harleen, aka The Room40 Group

* We hosted a webinar a couple weeks ago all about the importance of Revenue Strategy, what it is, and a couple of steps you can take to get started.  GuideStar was kind enough to host it for us.  We had over 250 attendees.  The stats in this post are from questions we asked during that webinar and in a follow-up survey.

ICYMI: Our webinar “Too little revenue, all the time?”, hosted by GuideStar

By | Revenue Strategy | No Comments

It was a busy Monday, so we don’t blame you if you missed it!  We put on a great webinar on the importance of Revenue Strategy, what it is, and a couple of steps you can take to get started.  GuideStar was kind enough to host it for us.  We had over 200 attendees.  Not bad!

We know your day doesn’t stop just because we are hosting  a webinar.  So, here it is for your watching and listening pleasure.  Enjoy!

Yours in pursuit of revenue,

The Room40 Group

We need to talk. It’s about revenue.

By | Philanthropy, Revenue Strategy

Ever notice that nonprofits dedicate many hours (and many dollars) to developing their programmatic strategy?  It’s a big change from 20 years ago – and it is usually time and money well spent.  But, nonprofits rarely do the same for their revenue strategy.  “Their what?”, you might say.  Exactly.

Organizations spend too little time on revenue strategy – what they will raise, how they will raise it and why, with limited time and money. This was our big “ah-ha” towards the end of 2017. We don’t have to tell you revenue is a big issue; you tell us all the time.  Somehow, every conversation comes around to revenue.  It either starts there or it ends there.  It’s inescapable.

Here’s a critical observation that will help us start to crack open the issue of “too little revenue, all the time”:  Nonprofits are in (at least) two businesses.  What does that mean?  Why does it matter?  And what does it have to do with revenue strategy?  We’re so glad you asked.

Two businesses?  What does that mean?
It’s tempting to think of your “business” as your programs.  It’s what you exist to do: feed the hungry, teach the children, provide services to those who need them most.  There is a set of activities (with associated costs) and a set of beneficiaries.  Your program staff and all the people that make their work possible (IT, HR, Finance, Accounting) are part of this “business” that serves your clients.

But look around your organization and there are other people (and costs) that are not directly serving your beneficiaries. They are engaged in different activities: planning galas, developing relationships with donors, submitting grant applications and reports, advocating for public funding, and on and on.  Their “customers” are different, too: individual donors, institutional funders, hosts and guests at your fundraising events.  They aren’t soliciting your clients (unless you are a college, university or hospital); they are engaging with an entirely different population, including individuals, corporations, foundations and public funding sources.

The fact that they are doing different things (costs) for different people (customers) than your program staff means they are in a different business.  Namely, raising money. So, yes, your program is your “business”, but it’s only one of your businesses.  Raising money is also your business – your second business – and it’s an important one!

There is a handy 2×2 from Bain & Company that illustrates this business of two businesses. It is generally used in the for-profit context but it applies to nonprofits just as well.  (Did you think the dawn of 2018 stripped us of our love of 2x2s??) High cost sharing and high customer sharing = one business. Low cost sharing and low customer sharing = two businesses.


Two different customers, two different sets of costs = two businesses.  Why does it matter?
Different businesses have different goals, require different activities and resources.  Knowing what it takes to run your programs and how to do it isn’t the same as knowing what it takes to raise money and how to do it.  (In case you hadn’t noticed, this is why the ED job is so dang hard!)  You’ve probably intuitively known you’re in two businesses for a long time.  Being able to describe your businesses, you can start assessing their needs and results with greater clarity and efficiency.  Instead of a two-headed monster, you can see you actually have two monsters! You can differentiate between an investment in one and an investment in the other and the return on those investments.

What does all this have to do with revenue strategy?
Strategic plans are all about allocating limited resources.  They tell you what to focus on (and what not to).  Organizations with programmatic strategic plans have a clear argument for resource investment on the program side.

Just like your program strategy, your revenue strategy clarifies what you are doing with limited time and resources, how and why – for your revenue business.  Taking the time to develop a plan, including a good hard look at your philanthropic potential compared to your own performance and that of your peers, will help you decide where to invest, which activities to spend your time on and what to say “no” to.  It will help you see if your goals are achievable and make the case for the resources you will need to achieve them.  It gives critical context to your tactics, allowing you to justify the investment required to reach your goals.  Now, doesn’t that sound dreamy?

We’ve been helping clients with organizational strategy for years.  It’s all about programs and operations.  More recently, we’ve been working with organizations on revenue strategy, within the context of growth or program strategy, but increasingly as a standalone issue.  It has been eye-opening for us, and for them. So far, we’ve found investing in revenue strategy with the same diligence and rigor as a program or operating strategy yields a high return… staff, board and funders can more clearly articulate your mission, resources are allocated more efficiently, and oh yea, you raise more money.

If one of your businesses has a strategy and the other doesn’t, it’s not hard to imagine that goal-setting, resource allocation, and decision-making is going to be easier in one than the other – and the one without will suffer.  Our hypothesis:  We can’t escape the land of “too little revenue all the time” without addressing this imbalance – without a revenue strategy.

So, there you have it.  Our ah-ha from 2017 and our early thinking about revenue in 2018.  Next week, we’ll ask for your perspective.  What do you think?  Do you agree revenue strategy is important?  Do you think we’re just plain crazy?  Keep an eye out for a survey.  This is too important to be a one-post topic!

Yours in pursuit of revenue,

The Room40 Group

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